Infrastructure projects take years to gestate. But Leilani Frew does not have that luxury to prove IPFA’s worth as a party hostile to the agency’s existence may assume power at a looming federal election.

Fortunately, Frew has notched up plenty of experience managing through adversity. Helping to restructure the Sydney Reliance Rail PPP while an investment banker at Moelis, her broader experience of the fallout from the global financial crisis and senior roles in state governments has taught her how professional relationships can make or break deals.

“I learnt a lot about what can go wrong [during the financial crisis],” she says. “The strength of documents in those situations and most importantly the power of relationships.”

Those personal and professional relationships in government and banking roles forged over the past 20 years (see breakout below) will be central to the much maligned IPFA becoming an accepted institution.

Projects unit pilloried
The federal government’s move in July 2017 to set up IPFA in the Prime Minister’s office was not welcomed by the industry or state governments, even though several states have similar agencies. Opposition extended to New South Wales, which is led by the same Liberal-National coalition party that holds power in Canberra.

The IPFA move coincided with the federal government’s controversial decision to become a financier of infrastructure, instead of just handing out grants. High profile examples include AUD 5.3bn in equity allocated to Western Sydney Airport and AUD 8bn to Inland Rail.

The states see this as a move to grab their political thunder for big infrastructure announcements while some in the industry argue it crowds out private finance.

Industry body Infrastructure Partnerships Australia (IPA) has consistently claimed there is no need for IPFA if its role is to manage federal investments in infrastructure. The IPA argues that the government should stick to “funding” projects not “financing” them since there is no shortage of private sector finance.

Meanwhile, the federal opposition Labor Party and industry veterans have argued that IPFA duplicates Infrastructure Australia’s (IA) function.

Frew says IPFA’s role was not communicated well initially, so the initial criticism was understandable. But she argues it is now well defined as an in-house adviser to the government on infrastructure. She believes this role is essential, given the level of spending the government is planning over the next decade and beyond.

In-house adviser
"[IPFA’s] role was very clear from my perspective because of what I had done in NSW,” says Frew. “It was probably less clear for our Commonwealth [departmental] colleagues what we actually did and probably even less clear for the market,” she adds.

“There were comments around ‘we were doing what IA does’, or ‘we were displacing private finance’, neither of which are actually accurate. To displace private finance we need to have money and we don’t have money.

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“IA advises government on what infrastructure it should think about investing in, when and why. We focus on advising government on how to get that infrastructure up and delivered - the financing opportunities, the funding opportunities, the commercial and financial arrangements that will underpin its delivery.”

Although a private adviser could perform the same role, Frew argues the volume of projects the government is now planning means an in-house adviser that can help all government departments is vital.

The Commonwealth government plans to invest over AUD 85bn of taxpayer money in infrastructure over the next ten years Frew points out. Planned projects span multi-decade investments across numerous sectors, including: Western Sydney Airport, Inland Rail, the Snowy Hydro expansion and the recently announced AUD 5bn backing of a new Melbourne Airport rail line.

“I call it the rent versus buy model,” she adds. “It should be obvious that the Commonwealth, like the states and territories, needs to have internal expertise to advise it on where best to spend its dollars on infrastructure."

Projects
The challenge for the new unit’s small team is to focus on the right projects.

“We have a lot of demand from other departments for our services and that is a good problem to have,” Frew observes. “The challenge is how to manage that demand with a relatively lean team.”

So far IPFA has just 12 staff, but it is recruiting another seven. The focus is on nationally significant projects, often those where it can see a role for private finance as well as a return on government spending.

To date, IPFA has been tasked with five major jobs.

It is advising on two aspects of the AUD 10bn Inland Rail project. These are: intermodal freight links at the ends of the 1,700km line in Brisbane and Melbourne and the 126km PPP aspect of the line. Frew has a team member seconded to the Inland Rail PPP team.

It is also advising on the strengthening of transmission lines to support Snowy 2.0. In addition, it is involved in an AUD 110m equity investment in SolarReserve’s 150MW Aurora solar thermal plant near Port Augusta in South Australia.

The equity commitment in the Aurora plant is already decided, so the role is assessing the project structure itself and the mechanisms for getting a return on the investment, as well as negotiating with developer SolarReserve for the federal government.

Another recent assignment is the Western Sydney City Deal, which includes building an “aerotropolis” around Western Sydney Airport and numerous new public transport links.

Frew explains its role varies depending on the assignment. On the Western Sydney deal, for example, the financing aspects are some way off yet. It is first advising on “partnership arrangements” between the federal and NSW governments to oversee the various projects planned, including the North-South rail line. However, it will be doing market sounding with the NSW government on various funding and financing options for the rail line.

“The NSW and Commonwealth governments have agreed to deliver an aerotropolis and look at value capture or value sharing arrangements,” she says. “Our job is to help figure out how are we going to do that, what commercial arrangements are we going to put in place between the [governments] to ensure that aerotropolis outcomes are delivered and how do value capture mechanisms work.”

Frew says there is likely to be further projects in Western Australia. The government has signaled it will be announcing new spending on infrastructure in that state in the lead up to the federal budget on 8 May as part of its push to shore up votes there.

IPFA can recommend its own projects, but in practice it is likely to be mainly directed by the priorities of the government and the departments.

“Cabinet does have a significant say on what we do and do not get involved in,” Frew says. “Where we tend to put our energy is in the big nationally significant projects where there is Commonwealth funding and an opportunity for private sector financing, partnership options or revenue streams that support those arrangements."

Will it last?
Frew now has about a year to prove IPFA is needed.

In a statement sent to Inframation on Wednesday (25 April) shadow infrastructure minister, Anthony Albanese, said IPFA is a “waste of money” and Labor has a good chance of toppling the government at the next election in 2019. It would re-allocate IPFA’s funding to Infrastructure Australia, which Albanese said already has a legislative mandate to advise on infrastructure financing.

As well as improving IA’s “ability to deliver on its core functions of assessing projects, producing a pipeline of projects and recommending financing mechanisms”, he said the money would be used to re-establish a “major cities unit” within IA.

Frew says the agency needs to demonstrate it is needed, whoever is in government.

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“Everybody should be proving their worth, so of course we should be,” she says.

“We issued our corporate plan a few months ago and were very clear on our [key performance indicators] and we will be reporting on those very publicly.”

She argues recent Senate Estimates hearings gave government and opposition senators a clear reason for IPFA’s existence.

“I can’t comment on what Labor would or would not do, but I would hope that, if they are elected, they would look at us and see if we have added any value or not and do that off a base of a better understanding of what we do and maybe correct some of their misunderstandings.”

Opposite side of the table​​​​​​
"If you have great relationships, even with people who you are having challenges and issues with; if you maintain respect and professionalism throughout you can come out with some good results,” says Frew, reflecting on her experience working on the Reliance Rail PPP.

The project reached financial close in late 2006. It involved financing, delivering and maintaining for 30 years a fleet of 78 eight-car trains for Sydney’s suburban rail network. It became one of the highest profile casualties of the crisis in Australia. At Moelis, Frew was advising two New York-based credit wrappers of the Reliance Rail debt. The downgrade of their credit ratings during the crisis threatened the whole project. 

In 2012, the NSW government intervened and struck a deal promising to pay AUD 175m (USD 132.5m) for all the equity in the project by 26 September 2018, the first maturity date of the wrapped bonds. This allowed the restructuring of an AUD 357m bank facility and the final drawdown of that debt in 2013. The final trains were delivered in May 2014.

“It was that exposure that led me to join the NSW government – I was working on the opposite side of the table to the government and my counterpart asked me if I would like to join him and his team on the NSW infrastructure finance unit.”