Laurie Walker is the CEO of the North Australia Infrastructure Facility (NAIF), a government lender armed with A$5bn to invest in infrastructure projects. The funds will be available to projects based in, or which benefit, North Australia (considered to be north of the Tropic of Capricorn), a region which is starved of commercial finance.

It launched last July and despite facing political challenges and negative media coverage over its potential US$1bn funding of a rail link for the controversial Adani coal mine in Carmichael, which was dropped by commercial banks (Walker was unable to comment on this), expects to close its first transactions in the first quarter of 2018.

GTR was granted an exclusive interview with Walker at the Australia Trade Forum 2017 in Sydney this week:

GTR: Infrastructure is a hot topic in Australia at the moment, with the government embarking on an A$80bn programme of spend. Can you explain the work NAIF does and how it fits in with this?

Walker: We have a mandate to transform infrastructure to create population growth, economic growth, and public benefit. They’re the key differentiators from what normal financing is about. It can be concessional loans but it must be to construct or substantially enhance infrastructure. The NAIF component of the infrastructure debt can’t exceed 50%. We have a particular objective, what we call crowding in the private sector. Most of what we do will be looking to do that.

GTR: So, there’s basic infrastructure – roads and seaports, but what are some concrete examples?

Walker: It does have to be infrastructure, but it can be infrastructure that’s part of a wider project, such as components of infrastructure. In terms of specific types, anything to do with ports, traditional roads, airports are a major components, power, communications, water infrastructure, right across the spectrum.

GTR: We heard lots of talk this morning about the need for investment in the north, the potential to be a destination for tourism from Asia and also the location to capitalise on demand from consumers in Asia. Why, if there’s so much potential, have we got to the point that the government has to pay for this? Why can’t it attract commercial finance?

Walker: There are challenges to developing infrastructure in the north and they include the distances involved, diseconomies of scale, first-mover disadvantage. The mandate for us is understanding those challenges, trying to get private sector lenders to support some sectors that are going to be incredibly important for developing the north.

There’s an emerging dynamic which is making it the right time now to be focusing on this. It’s particularly around the rising middle class in Asia. Two-thirds of the world’s middle class will be there by 2030, which is just staggering. That’s now a driver. There are also domestic needs, for energy, water… the two things have come together.

GTR: Which industries will you be looking to nurture to capitalise on this trade opportunity?

Walker: The agricultural sector is one we’re focusing on. Again, with that growing middle class there comes a need and desire for higher standards of living, premium products that those markets are prepared to pay for. There are opportunities right across: we can support both economic and social infrastructure, so that could be medical tourism, education, resources and ports. So anything that needs infrastructure and where there is a gap that’s holding back the economic and population growth, we’ll support.

GTR: What have you been doing so far and what’s the timeline going forward?

Walker: We officially launched on July 1, 2016 and have had over 115 enquiries across all of those sectors. Projects need to be originated by the private sector and brought to us, and we’ll work closely with them. They’re at various stages. We have four at the moment that are in the last phase before NAIF will make a decision to lend or not. There’s a significant amount of activity and we’re targeting Q1 next year for our first transaction. We’d see that as tremendous progress, because the projects need to be ready for assessment. That gestation period of approvals needs to have happened by then.

GTR: What has been the reaction of banks and investors when you talk to them about infrastructure in North Australia? Any interest?

Walker: I think we’re getting the message out as to how we’d complement the private sector. There’s definitely room for us to partner with the private sector. Over time, we want to have educated the private sector in terms of the risk we are able to take and hope to demonstrate to others the role they’ll be able to take. We are required to give only 50% of debt for the infrastructure piece. So the question is: why would other financiers put in 50% and not 100% of the debt?

Let’s say we’re trying to encourage meat exports to satisfy the middle class demand in Asia. My understanding is that, at the moment, the way Australian abattoirs cut meat is not the way it’s desired in China. To get these opportunities, we need to encourage people to move onto new supply chains, and there’s risk involved in that.

So how can NAIF work with the private sector to do that? We suggest that the private sector contribute their debt in line with their risk appetite, which will be different to ours. NAIF has a toolbox of concessional lending and there are a number of ways. It works on a case-by-case basis, what makes sense for the deal, putting in the minimum amount of concession to get the deal done.

We can offer up to 30-year tenors. We can be very patient in terms of the principal interest payment: whereas the private sector would traditionally only be flexible on interest during the construction period, we can push that out. We can structure our fees differently and our interest rates. We need to recover minimum cost of funding plus our charges, but that could be substantially lower than the private sector. We might take some upside if a project overperforms.

GTR: Are you looking for Asian investment as well as consumption?

Walker: Yes, we want both. NAIF is  definitely looking to Asia and further afield for investment. We think there’ll be interest from North America. We’re working closely with Austrade [Australian Trade and Investment Commission] on that, attending roadshows. We’re working with the states and territories and at a regional level, local councils in regional Australia get lots of Chinese delegations looking to invest. We’re working closely with those.

In terms of investors, there’s no requirement: it can be domestic or international. Both the debt and the equity piece can be either.

GTR: Does that also apply to project ownership?

Walker: Yes.

GTR: What other examples do you have of these supply chain transformation-type projects?

Walker: Well it’s not just about building new infrastructure it’s also about transforming existing infrastructure. One of the other sectors we want to look at is the roads. We’re not going to put a toll road in the outback, but roads are incredibly important to the cattle industry. There will be some roads that users are prepared to pay a levy to have them upgraded, more all-weather, physically capable of taking the weight of trucks.