testimony suggested these significant project failures had not been considered
and no assurance could be made similar incidents of large-scale taxpayer losses
would be avoided:
CIOBO: I go to that
conservative estimate allowance of 7.5 per cent. What has Treasury looked at
with regard to, for example, the $700 million Solar Flagships Program the
Australian government was involved in? What mistakes were made there that will
not be made with respect to investment by CEFC in this case?
Flagships was a grant program. The CEFC will be making investments. The board
will have the responsibility for determining the investments. They will be
co-financing with the private sector, so they are brought on board. They are
not directly comparable because the Solar Flagships is a grant program.
CIOBO: How much money
was lost/granted on the Solar Flagships Program by taxpayers?
Waslin: It is not on
the Treasury program.
It is not a relevant
question when you are talking about a grant.
Waslin: A grant, by
definition, is a payment with no—
CIOBO: No, that is
why I am asking how much money is allocated?
It is not what you
Waslin: I do not know
that number; it is not in the Treasury portfolio.
CIOBO: Would you let
us know. What about the ZeroGen project?
Waslin: As I said,
they are not projects within the Treasury portfolio.
CIOBO: I am just
mindful that $700 million was spent on Solar Flagships, $100 million on the
ZeroGen project—that is $800 million. I am just interested to know what lessons
have been learned from mistakes that will help to guide investment decisions of
Australian taxpayer funds in future?
No Legislated Safeguards
Given the remarkable
size of the investment in CEFC and accounts of massive losses in
Australian-based and international renewable energy projects, the Liberal Members
of the Committee are concerned there is no explicit stop-loss strategy included
in the Bill as an ultimate safeguard for taxpayers:
Mr BUCHHOLZ: What
mechanisms do you have in place should the write-offs you have budgeted for be
exceeded by the market? Would you stop lending money? Is there any mandate, or
are there any provisions you guys have spoken about, like how bad is bad before
you say, 'We can't continue to forge ahead with this'? Is there a line in the
sand where, bang, you say, 'This is enough; we are not throwing good money
after bad,' or is it just, 'Ten billion is the number; when it's gone, it's
Mr Waslin: One
of the board's functions, as listed in provision 14(1)(b) of the bill, is:
… to ensure the proper, efficient and
effective performance of the Corporation's functions …
So it is incumbent upon the board to
invest within that requirement. They are not going to go out there and say,
'We're going to blow everything.' That is not consistent with the requirement.
That is why we have an independent board and why people of a high standard are
appointed to the corporation—to ensure the efficient operation of the
significant borrower on capital markets, the Government is already responsible
for the upward pressure on interest rates driving up the cost of finance for
businesses and homeowners with mortgages.
Given the $10
billion investment in the CEFC will be funded by a commensurate amount of
Government debt, Coalition members of the Committee view the CEFC as
detrimental to the wider economy and further risk to the Nation’s fiscal
Funding Inferior, Less Efficient Technology
testimony made repeated mention of the principle purpose of the CEFC: to invest
in projects and technologies which would otherwise not receive private sector
questioning by a Coalition member of the Committee, Treasury confirmed
investments could be made which the private sector had assessed as being too
risky or delivering sub par returns.
this admission is that taxpayers will be asked to underwrite the riskiest of
investments in exchange for some of the lowest possible returns. Risk to
capital aside, taxpayers will certainly not get value for money:
CIOBO: Yes, but I am
asking why, in the department of climate change's view, these projects would
not get up?
Wilkinson: They would
not get up if they could not receive funding on commercial terms which are
available at the moment.
CIOBO: From the
Wilkinson: That is
CIOBO: And would that
be a reflection of risk? This is what we were talking with Treasury before. Do
you think the private sector would consider them too risky to fund?
Wilkinson: It would
be because the private sector made an assessment that the return was not
sufficient to cover the issues that they were concerned about, and certainly
the private sector would not take into account the externalities that Mr Waslin
was talking about.
risks supporting inferior technologies not capable of delivering a market rate
return at the expense of promising technologies competing for a share of the
Renewable Energy Target:
CIOBO: Earlier you
made comments, Ms Wilkinson, about CEFC altering the composition of renewable
energy sources. Why will the operation of CEFC alter the composition of
renewable energy sources?
Wilkinson: I am
thinking in the long term. I am thinking about the fact that the CEFC might
support and provide funding for the deployment of renewable energy sources
which would not otherwise get up.
CIOBO: Why would they
not otherwise get up?
mandate of the Clean Energy Finance Corporation is to identify projects which
they consider consistent with their mandate. 
Return on Investment
acknowledging the CEFC as a ‘business’, Treasury was unable to answer whether
the CEFC would be subject to guidelines to which other Government Business
Enterprises (GBEs) must comply.
Treasury was also unable or unwilling to provide assurances shareholders (taxpayers)
would receive value for their investment:
Mr FLETCHER: And
I am also interested to know whether the CEFC is required to comply with
section 4.7 of those guidelines which says that all GBEs are required to add
shareholder value. Mr Waslin, are you confident that the $10 billion that the
Australian taxpayer is going to put into this venture is going to be a good
investment for the Australian taxpayer?
Mr Waslin: It
is designed to overcome the financial barriers for the clean energy sector.
Mr FLETCHER: That
is not actually the question I am asking. The question I am asking is this. It
is from the point of view of the Australian taxpayers as $10 billion of
taxpayers' money is being put into this venture. I am interested to know—
Mr Waslin: It
is a governmental policy issue. The government can decide how it wishes to make
its investments and how to spend its funds.
Mr FLETCHER: So
the government has made that decision. What I am interested to know is whether
Treasury is confident that that would be a good investment.
is a comment on policy.
Rate of Return
Under questioning from Coalition members it
was clear that the Treasury could not state the expected rate of return for
taxpayer dollars spent.
Ms O'DWYER: Speaking of investments,
then, it is probably worth looking at the investment mandate. What is the
target rate of return for the investments that the government will make?
Mr Waslin: Under the legislation the
investment mandate is made by the government with the board, so the investment
mandate cannot be physically done prior to the passage of the legislation and
the board being appointed. The government has publicly stated that the
expectation will be around the government bond rate, which is what was included
in the expert review panel's report.
Under further questioning Mr Waslin conceded
that Treasury had provided no modelling on the rate of return and further
conceded that “It is up to the government to determine the target rate of
Treasury were asked to provide specific
examples of similar overseas funds.
Ms O'DWYER: Like Dr Leigh, I would
also like to apologise for the short amount of time and notice you have had to
be here, because we only invited you on Friday, and it is rather a shame that
there has not been more time for you to prepare. A number of the questions I am
going to ask I suspect you will need to take on notice. I am interested in
following up on my colleagues Dan Tehan and Steve Ciobo's line of questioning
in relation to the failure rate. You may need to take this on notice. Would you
be able to provide us with a list of overseas examples of funds overseas, a
list of their failure rates and also their rates of return?
Treasury provided only partial answers in response
citing the United Kingdom Green Investment Bank (which is yet to make any
investment). It did not provided any information on its rate of return.
Similarly, Treasury cited the United States
Department of Energy Loans Program and again did not provide the rate of return
Treasury were questioned about the
significance of s61 of the legislation, specifically, what was meant by
“Australian based investment” that would form part of the investment mandate.
Ms O'DWYER: What about overseas
investment? What about companies that are predominantly owned by foreign or
Mr Waslin: We are talking about where the
assets would be located and not the ownership.
Ms O'DWYER: So, so long as the assets
are here, for the purpose of this section of the bill, you would say that that
makes it an Australian-based investment?
Mr Waslin: Yes
Ms O'DWYER: Irrespective of the fact
that the guidelines have not yet been drafted?
Mr Waslin: That is what is behind the
solely or mainly based. It is a similar approach to what the UK Green
Investment Bank is also taking.
Ms O'DWYER: But it would be up to the
board to take a different view?
Waslin: Basically the board is to come up with what is solely or
mainly Australian based.
It is unclear whether Australian taxpayer
money will simply be sent offshore.
The CEFC is
vaunted by the Government as an instrumental part of the Carbon Tax package.
Its premise is to fund renewable energy technologies with a view to making
clean energy cheaper than that generated by fuels trapped under the Carbon Tax.
$10 billion is to be invested by taxpayers in the CEFC, the Coalition members
of the Committee were surprised to learn that no mandate had been provided to
invest in technology which would offset increases to electricity prices under
the Carbon Tax.
of Climate Change and Energy Efficiency confirmed no modelling had been
conducted to determine whether electricity prices would be higher or lower with
Australian taxpayers therefore expect to see the retail price of electricity
decrease as a result of their $10 billion investment in renewables through the
Wilkinson: Again, it
depends. In most jurisdictions in Australia, the retail electricity price is
determined by independent pricing tribunals, and they key off the wholesale
electricity price. So a lower wholesale electricity price, by and large,
translates into a lower retail electricity price.
CIOBO: On your
modelling, does the price decrease as a result of the operation of the CEFC? Is
it larger than, equal to or less than the forecast increase in electricity
prices as a result of the introduction of the carbon tax?
Wilkinson: As I said,
I am not aware of modelling undertaken within the department of climate change.
I can take that on notice—modelling what the impact of the CEFC is. It is
difficult to actually undertake that modelling until the CEFC has been
finalised in all its elements, including things like the investment mandate.
CIOBO: But you are
confident that it will reduce wholesale electricity prices, even though you
have not done any modelling?
Wilkinson: No, I
guess I am just making a statement of fact as to what determines wholesale
electricity prices, and one of the important things is the actual cost of
investing in new generation technologies.
Cost to Taxpayers
members of the Committee are deeply concerned with revelations that, in the
unlikely case Treasury estimates and assumptions are correct, the CEFC will still
be responsible for investment losses totalling some $600 million over four
on that 7½ per cent figure Treasury forecasts, therefore, that the Clean Energy
Finance Corporation will lose $150 million in the year 2012-13, $150 million in
2013-14, $150 million in 2014-15 and $150 million in 2015-16. Is that correct?
do not think you can characterise it that way because the fund will be making
investments that will—
are expecting defaults of $150 million for each of those years.
budget has included a provision for $150 million of investments that will not
Treasury forecasts that taxpayers will lose $150 million a year, purely based
on investments, not returns, each year for four years—a total loss of $600
million. This is just on investments, I am not talking about returns.
As outlined earlier, given the estimated
default rate is a ‘guess’ only, losses could very well be much higher and put
the goal of CEFC self-sustainability at risk or, indeed, the total $10 billion investment:
are assuming that 7½ per cent of the investments each year are not recovered.
are you saying that you think in reality the default rate will be higher than
that or lower than that?
the moment that is our best guess.
Arbitrary Start-up Costs
members of the Committee were concerned with the arbitrary funding, some $60
million, for the start-up and establishment of the CEFC.
Treasury was unable
to explain how these significant funds were allocated and what proportion would
be allocated to the remuneration of the Board, CEO, staff and consultancy.
each of the board members receive fees?
and they will be paid as determined by the Remuneration Tribunal.
you have any expectation around what those figures will be?
not at this stage. The Remuneration Tribunal will make the decision.
will make the decision; but in coming up with this figure have you made a
provision? Do you have an expectation around where it might be or in what
The Remuneration Tribunal will make a decision. Other like institutions could
be the Future Fund.
the fees there would be what?
do not know. We would have to take that on notice.
were raised about the budgeted figures, which were not higher in earlier years
as one would expect, were not addressed and called into question the assumption
the CEFC can, in time, become self-sustaining:
Ms O'DWYER: I
am interested in understanding a little bit more about the board and the
operating costs associated with the Clean Energy Finance Corporation. The
Inspector-General of Taxation in appropriations costs about $1.5 million.
According to the appropriations that we are looking at here over the forward
estimates, we are looking at around about $60 million—to be exact, $57.3
million over the forward estimates. Can you perhaps provide us with a little
more information as to exactly what that $60 million is going to be funding?
There will be around 40 staff, when it is fully operational. There will be
accommodation and a lot of start-up expenses. The corporation will need to take
legal advice in terms of entering into contracts—due diligence for entering
into contracts. Basically, it is setting up all the computer systems and
consultancies on understanding the proposals.
Ms O'DWYER: As
I look at these appropriation figures, there is not, for instance, a lot of
money in year 1 or even in years 1 and 2; it is effectively the same throughout.
Government is giving the corporation money to help with its establishment.
During the initial years they are not expecting that there will be a return,
but the expectation from the expert review panel is that the corporation will
become self-sufficient and able to fund its own operating expenses from its
What is that expectation based on?
Mr Waslin: For
the expert review panel, that was one of the—
This is a bit circular.
No Impact on the Renewable Energy Target
For the $10
billion invested and the inherent risk ‘picking winners’ in the renewable
energy sector, especially given the Government’s track record, it concerns the
Coalition members of the Committee there is no guarantee of additional
renewable energy generation capacity over and above the bipartisan Renewable
Mr CIOBO: My
questions in the first instance are probably to Treasury although obviously
Climate Change is welcome to contribute as well. The mandatory renewable energy
target is 20 per cent. Is that correct?
Mr Waslin: The
Mr CIOBO: As a
result of the CEFC, what will be the energy target into the future as a result
of its operation?
Mr Waslin: The
renewable energy target is 20 per cent. That is government policy.
Mr CIOBO: So,
20 per cent with or without the CEFC?
Mr Waslin: Yes.
testimony from the Department of Climate Change and Energy Efficiency revealed that
in the absence of this very risky $10 billion investment Australia is
nonetheless forecast to achieve the Renewable Energy Target.
CIOBO: So the
department of climate change has done modelling that looks at whether we can
meet our renewable energy target without the operation of the CEFC?
Wilkinson: Yes. The
renewable energy target has been in place for some time. We have done a number
of modelling exercises which predated the announcement of the Clean Energy
CIOBO: Great. Can we
meet our renewable energy target without the CEFC?
Wilkinson: As I said
earlier, the modelling certainly suggests that, with the combination of the
carbon price and the renewable energy target in that model, you would expect
the renewable energy target to be met. 
members of the Committee, this evidence highlights the inherent flaw in the
often-quoted principle purpose of the CEFC to ‘overcome financial barriers’ for
projects rather than pursue investments in projects which would deliver the
greatest possible environmental benefit.
Undue Political Influence
members of the Committee formed the view the Bill is intended to bind future
governments to the annual appropriations to the CEFC.
In what seems
to be a politically motived strategy, the first payment to the CEFC Special
Account is timed to take place near or during the caretaker period ahead of the
next federal election thereby limiting the ability of an incoming government to
make changes to the funding model or wind up the CEFC.
interesting to note legislating automatic appropriations in this manner is
uncommon in the Australian context, and will require the Parliament to amend or
repeal the associated legislation to make any changes.
Treasury seemed to infer automatic endowment would provide some certainty for
co-investors, tellingly, no evidence as to why this measure is strictly
necessary was provided:
FLETCHER: My last
question for you is about section 46, which deals with the appropriation. Could
you just explain the effect of that arrangement—so that is appropriating $2
billion a year over five years—and why that is necessary? And, specifically, is
that intended to lock in a future government such that it is not able to
Waslin: The way in
which it works is that the moneys are appropriated to a special account.
Through section 48, the corporation may request funds from the special account
when it needs those funds either to pay its operating expenses or for loans,
but for the initial period of three years it will have funds for operating
expenses. Getting to your point, from the public consultations, the importance
of the way the corporation is being set up is that if it needs to enter into
long-term contracts, because of the nature of this, the corporation's
credibility depends upon the private sector's acceptance that the corporation
will have the funds when it needs those funds. So, if it enters into a contract
to lend over five years—
FLETCHER: I have
heard the explanation. Let me ask this question: is this a common arrangement?
difference is that the corporation has had a special account set up. The
alternative would have been to provide the $10 billion directly to the
corporation, and it could invest the $10 billion and, therefore, it would have
the funds over the whole period. This appropriation arrangement and the
operation of the special account is that it draws down the funds only when it
needs them for investment in the clean energy sector. The idea was not to
establish a corporation with a large pool of funds which would go off and then
become a money market corporation. It is designed to keep it focused on
investing in the clean energy sector.
FLETCHER: Is it a
common arrangement to legislate so that there is a series of appropriations in
a piece of legislation dealing with one government owned corporation?
Youngberry: There are
other examples where we provide appropriations over a period of time—most
notably, the replenishments for the International Development Association,
which is under the World Bank, where we do provide a special appropriation that
exists through time to provide certainty for that funding.
recollection is that in medical research, I think, or in general research we
also have a similar mechanism.
Lack of Proper Scrutiny
members of the Committee took exception to the short notice provided ahead of
the public hearings and the limited time allotted which saw key witnesses
ill-prepared to answer even the most basic questions.
members note the Chair opposed a motion extending the duration of the hearing
and the tenure of the enquiry until 30 August 2012. This would have provided an
opportunity for public comment and for expert witnesses (at other locations) to
O'DWYER: You are
arguing against the whole existence of House of Reps Standing Committee on
Economics in that case. The first notice of this inquiry by the House of
Representatives into this particular issue was a press release that was issued
on Friday. The hearing is now today, on Monday, and the report, according to
the current tabling, is going to be on Wednesday. That is, we have less than a
week to deal with a $10 billion bill. My view would be that not enough scrutiny
has been applied to this bill. There would be substantial witnesses who would
be prepared to come before this committee to provide evidence. It is simply not
enough for us to have a two-hour hearing today that has been called on
effectively in the dead of night to try to deal quickly with this legislation
because the government wants to avoid scrutiny.
appropriations connected with these bills amount to at least $10 billion. It is
unacceptable only two hours were allocated for their scrutiny and that the
hearing was summarily guillotined by the Chair:
CIOBO: Can I ask the
Department of Treasury—
You are going to have
to call it a day, Mr Ciobo.
members have had serious concerns about $10 million worth of investment—
And the opposition
have had the bulk of the questions today.
CIOBO: Well, that is
great that, for $5 billion an hour, they are getting the chance to ask some
questions! We have many more questions on our side we would like to continue
I am sorry; I am
going to call the meeting—
CIOBO: So you are
going to shut us down?
I am … 
members of the Committee oppose the Bills on the basis that they are connected
with the Government’s Carbon Tax package.
this, the CEFC represents an unacceptable risk to taxpayers of which the
Coalition members of the Committee believe Treasury and the Department of Climate
Change and Energy Efficiency failed to demonstrate a proper understanding.
all assumptions are correct, the CEFC will see upwards of $600 million lost in
write offs and no increase in Australia’s capacity to meet the Renewable Energy
Target. To put it plainly, for all the risk, and it is substantial, there is no
than supporting competitive renewable energy technologies which can be
delivered at no cost to taxpayers, the CEFC risks over representing inferior
projects in the market by providing what essentially amounts to a subsidy.
given the deteriorating fiscal position of the Government since 2007, it seems
almost unthinkable the Government would legislatively commit to fixed
appropriations over the forward estimates.
The House does not pass the Clean Energy
Finance Corporation Bill 2012, the Clean Energy Legislation Amendment Bill
2012, the Clean Energy (Customs Tariff Amendment) Bill 2012, and the Clean
Energy (Excise Tariff Legislation Amendment) Bill 2012.
Mr Steven Ciobo MP, Deputy Chair
Ms Kelly O’Dwyer MP
Mr Scott Buchholz MP
Mr Dan Tehan MP
Mr Paul Fletcher MP