Investors back fresh approach

Institutional investors have given the thumbs up to the NSW government's new model for large road projects but warned of a "timebomb" if construction costs and traffic forecasts are not adequately assessed.

Former superannuation minister Nick Sherry also cautioned that super funds that opted to put money into infrastructure had to deliver returns that justified the investment, and stay divorced from political whims.

"Having been a former politician, I know plenty of ... colleagues who've got their favourite road projects and bridge projects, generally to nowhere, carrying very little traffic, who would love you to invest in their political backyard infrastructure project," Mr Sherry said at a lunch in Melbourne on Tuesday.

After the failure of tollroads built under a private-public partnership model, the NSW government has adopted a new funding strategy for the $10-$13 billion WestConnex road project in Sydney.

The government plans to fund the first stage of the 33-kilometre motorway as an equity investment rather than a capital grant. It then wants to fund the next stage by raising money from the private sector against the tolls on the roadway.

The government emphasises that raising private capital once traffic volumes are known can reduce the risk of forecasting usage by motorists. Toll roads such as Brisbane's Airport Link and Sydney's Lane Cove Tunnel failed because the traffic forecasts were radically over-estimated.

White Funds Management managing director Angus Gluskie said retail and wholesale investors could be willing buyers of tollroads such as the Westconnex once traffic volumes were known, and the project had been "de-risked" under the NSW government's plan.

"Right at the moment we have infrastructure projects that have to be done, and we have an unwilling and gun-shy private sector - this gets around that road block," he said. "It is exactly the right thing the government should be doing. It really just means the government holds the risk on their books for a couple of years and then just passes it on."

But he warned that future governments could face large liabilities if predecessors under-estimated the risk of construction and over-stated likely traffic volumes.

"If it is done irresponsibly, you can be creating a bit of a timebomb for future governments," Mr Gluskie said.

Danielle Press, chief executive officer of the $6 billion Equipsuper, said infrastructure investments by super funds required the right return, the right risk structure and the right liquidity structure.

Ms Press said it was "just wrong" to suggest super funds were a source of capital for any infrastructure project that a government or the private investor decided to flog to the market.