Asset recycling through a different lens
At a glance
Asset recycling has almost been a taboo subject for the last few years, however it can lead to positive outcomes particularly when brought to life in structures that don’t simply equate to selling assets off to the private sector - there’s more than one solution to a problem and asset sales are no different.
There are asset sales, partial sales and asset leases to name a few. Honing in on asset leases; one of the main benefits is governments can still retain some element of control over the asset and influence aspects such as service provisions while releasing capital to reinvest. This can instigate a multiplier effect where the money is being used more than once to achieve benefits for the public. With asset sales, it's a little bit more final, where capital exchanges hands and is re-invested. There are two ways of looking at it but on balance, the leasing option retains an additional degree of control.
If we adopt the analogy of recycling; when we return our used glass bottles or cans to the recycling banks, we receive money in return that can then be put to other use, and the bottles or cans are reused - it's really a win-win.
In the case of asset leasing, if we look at the ACT Government for example, they packaged up the maintenance contract for their streetlight network and put it to market. As a result, they were able to attract a contractor at fixed fees to upgrade all of the lights across the network to LED and maintain the functionality of the network on their behalf. In the process, the ACT Government reduced their risk profile while achieving energy efficiency (cutting power usage by up to 40 percent) and monetary savings as well as improved service standards, with an upgraded asset, all at no additional cost!
It's all driven around efficiency, certainty and cost.
There is a world of opportunity for other governments to replicate the ACT Government’s approach by packaging assets in a manner that attracts private sector investment. The key is to ensure the right safeguards are in place around regulatory processes to prevent price gouging for example so it's not a race to the bottom on price.
As we see the infrastructure deficit widening, short of borrowing money or raising taxes, asset leasing is an effective way of taking what we have and making more productive use of it. Whenever you think about delivering a service more efficiently, you're delivering value for the public, but more importantly perhaps is the fortuitous by product of economic stimulation.
Perspective provided by Amber Davidson, Executive Advisor, Business Case Development.