Raising capital for rail projects in today’s world – Part Two

By Jennifer Perry

To read Part One of this story click here

WestNet Rail has had a number of projects in various stages in the last 18-24 months that have spanned the height of WA’s resources boom, the sharp downturn of 2008-09, and the very public recapitalisation process of its owner, Babcock & Brown.
The “realities” of the GFC have required businesses to share risks and find more cooperative commercial approaches to get projects done, Cleland told delegates at the recent AusRAIL PLUS conference.
The customer contribution model of funding is one such example, though Cleland believes that working together with customers to meet their rail freight needs in the future is likely to involve a greater level of risk sharing that has “been the norm” to date.
“Last century’s paradigm of government owned and operated railways constructing lines with little if any skin in the game from customers simply doesn’t add up in the commercial world we now operate,” he said.
While there has been a move internationally toward an environment where rail infrastructure is successfully operated by private companies, Cleland believes that governments will have an ongoing role in investment in rail, particularly in a country like Australia where “distances and densities impact significantly on economies of scale”.
He used the example of a government underwriting volumes on new projects which can result in reducing the risk for private investors while still balancing the broader social and environmental benefits to communities along with avoiding significant new investment in roads.
“Importantly, as a role as a regulator, governments can ensure private funds into rail projects by allowing sustainable rates of return,” he said.
“The increased debt margins experienced across all industry sectors must be fully recognised by regulators to ensure sustainable rates of return can be achieved for the long-term benefits of the infrastructure and for operators.”
Cleland emphasised the importance for the rail industry to ensure the public is well educated on the benefits of rail and is supportive of the government’s investment in rail infrastructure, and used WestNet Rail’s Grain on Rail campaign as an example of a proactive approach to garner public support.
“The WA Government – the ultimate owner of the grain freight network and Westnet Rail’s landlord is showing leadership by driving a process to make decisions around the future of the network,” he said.
“Importantly, it understands there is a role for government investment both state and federal, in sustaining the network’s future.”
Touching on the benefits of the American Government’s funding model for rail infrastructure that has structured and legislated forms of assistance available to the industry, Cleland made a push for this to be applied in an Australian context.
“Our industry should encourage a debate with our own government to establish a workable, sustainable and legislated program of support for the rail industry. The so-called nation building projects is the topic of the moment – there is not a more opportune time to have this debate,” he said.
Suggesting it would be “too dramatic” to say that the Australian rail industry is at a crossroads, Cleland maintained that the industry is at a “pivotal moment” of development.
“The impact of the GFC, the focus of our national and state governments on infrastructure developments, the forecast doubling of our freight task and the popular push for more environmentally sound transport options are all opportunities that we as an industry need to grasp,” he said.
“It is time to be more vocal, more innovative and more visible in business and commercial worlds to state our case as the freight transport option for the 21st century.”