By Ross Kelly 

SYDNEY--Australia's most populous state said Thursday it will go ahead with the partial privatization of its electricity network, as it attempts to raise 20 billion Australian dollars (US$16 billion) to spend on new infrastructure such as roads.

After hiring Deutsche Bank and UBS to study the viability of the sale, New South Wales state said it would proceed with the long-term lease of 49% of its electricity grid, or the so-called "poles and wires." The state has already sold its electricity generators and retailers.

A successful sale would be the largest so far in a nationwide push by conservative governments across Australia to privatize state-owned assets. Last month, Australia's federal government raised A$5.7 billion from the sale of the country's top public health insurer, Medibank Private, scoring the largest initial public offering of a government-owned asset in the country in nearly two decades.

New South Wales and Queensland state have sold billions of dollars worth of ports and toll road assets in recent months. Queensland is also considering selling its electricity grid.

Privatization remains a divisive issue around the world, with detractors concerned that crucial assets capable of generating long-term revenues are sold for short-term financial gain--potentially causing job losses as private owners try to boost efficiency. Prices for consumers can also rise if monopoly assets with no competition are sold, though governments often continue to impose regulatory caps on pricing for essential energy assets.

Australia's economy is struggling to cope with a fading mining boom, prompting lawmakers to propose asset sales to strengthen the country's finances.

The study by Deutsche Bank and UBS found the New South Wales network business was likely to attract a broad range of local and offshore investors due to their long-term strategic value as regulated assets, the government said.

"The funding boost will turbocharge the economy," Andrew Constance, the state's Treasurer, said in a statement.

Funds raised would be injected into major rail and road projects, hospitals, sports and arts facilities, regional water security and tourism and environmental initiatives, Mr. Constance said.

The network is split into three assets: TransGrid, Ausgrid and Endeavour Energy. An initial public offering of Ausgrid and Endeavour Energy would be considered should market conditions indicate this would generate a better outcome than finding a single buyer, the government said.

Write to Ross Kelly at ross.kelly@wsj.com

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