Updated March 02, 2018 01:34:23

Photo: The deal means the Commonwealth will wholly own Snowy Hydro. (Fairfax Media: Chris Lane)

The Federal Government has announced it will spend $6 billion buying out New South Wales' and Victoria's shares in Snowy Hydro Limited.

The deal means the Commonwealth will wholly own the company and is a step closer to starting work on the Snowy Hydro 2.0 scheme.

It is buying New South Wales' 58 per cent stake in the project for $4.1 billion, while Victoria has agreed to relinquish its 29 per cent shareholding for $2 billion.

The purchase was flagged in last year's budget.

The Energy Minister Josh Frydenberg said it is a good deal.

"This is fair value for this important asset," he said.

"It unlocks $6 billion for the people of New South Wales and Victoria to invest in the infrastructure they need."

The deal stipulates the states have to spend the money on "productive infrastructure" which could include projects like transport, schools or hospitals.

Mr Frydenberg said the Federal Government will not have a say on which projects are funded.

"While we don't have a final say over their choice of projects, we would expect the states to invest the money consistent with that broad commitment," he said.

"They will have responsibility for using this money wisely."

Topics: business-economics-and-finance, government-and-politics, federal-government, environment, hydro-energy, alternative-energy, australia

First posted March 02, 2018 00:35:02