The objective of the Northern Australia Infrastructure Facility (NAIF)
is to partner with the private sector and the Northern Territory, Western
Australian and Queensland governments to provide grants of financial assistance
for the construction of Northern Australian infrastructure.
The grants are expected to be in the form of concessional loans, guarantees and
other financial mechanisms, to assist the construction of economic
infrastructure which is expected to be repaid.
This chapter outlines NAIF's legislative and corporate governance frameworks
before examining the evidence received in relation to the effectiveness of how these
frameworks function. It then considers NAIF's resourcing, and the relationships
between NAIF, the federal government and the three northern state and territory
The Department of Industry, Innovation and Science (department) was
responsible for the development of NAIF's legislative framework and is
responsible for its ongoing administration. The responsible minister for NAIF
is the Minister for Resources and Northern Australia (the Minister), currently,
Senator the Hon. Matthew Canavan.
NAIF was established by the Northern Australia Infrastructure
Facility Act 2016 (NAIF Act) in July 2016. NAIF is a corporate Commonwealth
entity under the Public Governance, Performance and Accountability Act 2013
The Department of Finance defines a corporate Commonwealth entity as 'a
body corporate that has a separate legal personality from the Commonwealth, and
can act in its own right exercising certain legal rights such as entering into
contracts and owning property'.
As a corporate Commonwealth entity, NAIF is independent, however, is still
subject to the whole of government accountability standards as outlined in the
The NAIF Act establishes a Board of Directors, specifies its functions
and the process for the appointment of new Board members. It also establishes a
Chief Executive Officer (CEO) who is responsible for the day-to-day administration
of the NAIF, and outlines the appointment process for the CEO.
The NAIF Act also provides for NAIF's Investment Mandate Direction
(Investment Mandate), which is a legally binding Ministerial Direction that sets
out how NAIF is expected to perform its functions.
In addition to the NAIF Act and the Investment Mandate, NAIF has established its
own governance policies to inform and guide its decision making. The adequacy and
effectiveness of NAIF's Investment Mandate and its governance policies are
discussed in more detail below.
NAIF's role as a commercial financier
NAIF is designed primarily to stimulate private sector involvement in
the provision of infrastructure, while ensuring not to distort existing financing
markets. As such, NAIF is intended to work in partnership with commercial
financiers and consider the impact of its financial assistance on the
infrastructure financing markets.
When established, NAIF was to act as a 'gap financier'. This meant that finance
could only be provided where the project proponent had explored and exhausted
all other options. NAIF financing was also contingent on total debt to
government not exceeding 50 per cent of the total debt for the project,
preventing it from becoming the primary source of debt for projects and
competing with the private sector. Following the Expert Review conducted by Mr
Tony Shepherd AO (Shepherd review) in 2018, the government implemented the review's
recommendation 6 which relaxed this requirement, giving NAIF the option of
lending up to 100 per cent debt for a project.
The main mechanism by which the NAIF facilitates its support is through
the provision of concessional financial assistance to the states and
territories for the construction of economic infrastructure.
Concessional finance can be in the shape of concessional loans which are
loans that are extended on terms substantially more generous than market loans.
The 'concessionality' is generally achieved either through interest rates below
those available on the market or by extended grace periods, or a combination of
these two factors. NAIF provides the following examples of the types of
concessions it may offer:
longer loan tenor than offered by Commercial Financiers, not
exceeding the longest term of Commonwealth borrowings;
lower interest rates than offered by Commercial Financiers, which
must not be lower than the rate at which the Commonwealth borrows at;
extended periods of capitalisation of interest beyond construction
deferral of loan repayments or other types of tailored loan
lower or different fee structures than those offered by
Commercial Financiers; or
ranking lower than Commercial Financiers for cash flow purposes.
NAIF's progress in fulfilling its role as a commercial financier is
discussed in more detail below.
The Investment Mandate is a key element of NAIF's legislative framework
as it directs NAIF on the Minister's expectations. The Investment Mandate is a
non-disallowable instrument which means that it is exempt from scrutiny or
disallowance by the Parliament. This is designed to balance the need for
flexibility and market certainty, while maintaining transparency.
The NAIF Act states that the Investment Mandate may include directions
to NAIF on the following matters:
- objectives the
Facility is to pursue in providing financial assistance;
- strategies and
policies to be followed for the effective performance of the Facility's
characteristics for circumstances in which financial assistance is used to
provide or support loans;
financial assistance for purposes other than to provide or support loans;
criteria for financial assistance;
- risk and return
in relation to providing financial assistance;
- any other matters
the Minister thinks appropriate.
The Investment Mandate provides for alternative financing mechanisms,
gives broad investment risk parameters, and outlines consultation processes and
the relationship with other government entities.
It also sets mandatory criteria that the NAIF Board must have regard to
when making an Investment Decision.
2016 Investment Mandate
The Northern Australia Infrastructure Facility Investment Mandate
Direction 2016 (2016 Investment Mandate) came into effect on 4 May 2016.
However, as noted in Chapter 1, it was repealed and replaced on 2 May 2018 by
the Northern Australia Infrastructure Facility Investment Mandate Direction
(2018 Investment Mandate).
The 2016 Investment Mandate
sets out seven mandatory eligibility criteria and two non-mandatory eligibility
criteria for the Board to consider when making an investment decision. The 2016
mandatory criteria stipulated that:
The proposed Project involves construction or enhancement of
The proposed Project will be of public benefit;
The proposed Project is unlikely to proceed, or will only proceed
at a much later date, or with a limited scope, without financial assistance;
The Project is located in, or will have a significant benefit
for, Northern Australia;
Facility's loan monies are not the majority source of debt
The loan will be able to be repaid, or refinanced; and
The proposed project must have an Indigenous engagement strategy
The non-mandatory criteria suggested:
The proposed Project is seeking financing from the Facility for an
amount of $50 million or more; and
There is an identified need for the Project.
Submitters raised concerns about certain aspects of both the mandatory
and non-mandatory criteria contained in the 2016 Investment Mandate. In
particular, submitters commented on the guidelines for the IES, the multi-user
nature of proposed NAIF projects, and the non-mandatory $50 million minimum. Despite
the introduction of the 2018 Investment Mandate, evidence received from
submitters on these criteria retains its relevance as:
the IES and the multi-user nature of proposed NAIF projects
remain part of the mandatory criteria in the new 2018 Investment Mandate; and
although changes have been made to the non-mandatory $50 million
minimum criteria in the 2018 Investment Mandate, the evidence received in relation
to this criteria demonstrated the negative consequences of NAIF's poor communication
of the most significant eligibility criteria.
These issues are discussed further below.
Indigenous engagement strategy
In relation to a project's IES, the Investment Mandates specifies that:
The Project Proponent
must provide a strategy which sets out objectives for Indigenous participation
procurement and employment that reflect the Indigenous population in the region
of the proposed Project.
More detailed information on what NAIF expects to be contained in an IES
is set out in NAIF's governance policy, Indigenous Engagement Strategy
Guideline (IES Guideline). The IES Guideline specifies that a project proponent's IES
must contain a number of components relating to Indigenous participation,
employment, procurement and other overarching principles. The significant list
of components includes:
Identifies and engages with the correct stakeholders;
Is based on sound data;
Identifies existing community issues and commits to not further
exacerbate (or to improve) these issues;
Reflects local cultural protocols;
Commits to viable, sustainable procurement targets; and
Identification and recognition of the importance of cultural
For a number of the components, a note is included which indicates that
'targets may be negligible if local Indigenous businesses/population is nil or
The IES Guideline also notes clause 15 of the Investment Mandate which
stipulates that project proponents must obtain all relevant regulatory
approvals including Native Title and environmental approvals before any
provision of finance.
A condition of receiving a loan from NAIF is that the proponent agrees
to maintain compliance with the IES Guideline. The IES Guideline notes that
compliance may look different for each project and the monitoring of compliance
may also vary noting that the Board can impose different reporting requirements
on an individual basis.
In regard to the IES, the committee notes that submitters were generally
supportive of the inclusion of an IES. However, a number suggested that the IES
Guideline may be insufficient because it does not require a project to set
specific targets or levels of Indigenous participation for a proposed project.
Mr Shannon Burns, Policy Officer from the Cape York Land Council (CYLC)
commented that while the CYLC supported the intent of the mandatory criterion
relating to Indigenous engagement, the criterion should be strengthened to
include Indigenous involvement. Mr Burns specified that:
We would like to see
that made a mandatory criterion with set levels to be achieved for Indigenous
employment and Indigenous service delivery. That should be a minimum level
regardless of the Indigenous population in that region. But if there is
significantly high Indigenous population—such as in Cape York, where there is a
majority Indigenous population—then the level of Indigenous employment and
procurement should be higher. We would point to the fact that the Australian
government and the Queensland government already have Indigenous procurement
policies. They mandate requirements for Indigenous investment, and we think the
NAIF should mandate those requirements as well.
The Northern Land Council made similar comments about NAIF's IES
criterion and recommended that 'NAIF applications, as a requirement, [should]
demonstrate consultation with affected Indigenous people in developing a
project Indigenous engagement strategy'.
The Wangan & Jagalingou Traditional Owners suggested in their submission
that the Investment Mandate should be amended to contain 'proper consideration
of, and investment in, culturally-aligned and self-determined Indigenous
development'. The organisation commented that:
The governance and operation of the NAIF does not serve us
specifically as Traditional Owners...nor as Indigenous people in Northern
Australia, historically disenfranchised while others have and still prosper
from the economically productive land base which was taken from us without
consent or restitution.
Mr Joe Morrison, CEO of the Northern Land Council also proposed a change
to the Investment Mandate to introduce Indigenous impact assessments for
project proposals. Mr Morrison argued that this would help in identifying the
nature of each project's potential impacts, both detrimental and beneficial, on
Mr Morrison explained:
We want to make sure that this is articulated in a way that
it is separate from the Indigenous engagement strategy, which I think is
important. But I think the requirement to ensure that there is individual
impact assessments for all the projects that the NAIF is seeking to assist is
undertaken as well.
The Northern Land Council also proposed that each project proponent's
IES ought to be made public.
The committee notes that as a document produced by a proponent in relation to
due diligence processes, IES' are subject to NAIF's commercial-in-confidence
policy and are therefore not published.
The 2016 and 2018 Investment Mandates both include a criterion relating
to public benefit. In updating the Investment Mandate, the specific language
used to describe the criterion has been altered, however, the intent of the
criterion remains. The 2016 Investment Mandate specifies that in considering
public benefit, the Board will give preference to those projects that will:
serve or have the capacity to serve multiple users; and
produce benefits to the broader economy and community beyond those
able to be captured by Project Proponents.
This concept was strongly supported by submitters, who acknowledged that
NAIF investments had the ability to produce a significant positive knock-on effect
in a number of areas through the delivery of a single project. Mr Chris
Mitchell, CEO of the Regional Development Australia (RDA) Kimberley commented
We believe there should be a bit more flexibility in relation
to eligible infrastructure, particularly things like multi-user processing
infrastructure. As part of the Commonwealth white paper looking at northern
Australia as a whole, we're looking at ways we can collaborate and do
cross-border industry or infrastructure projects
Mr Mitchell gave the example of a cold storage facility feasibility
study that the RDA was conducting and pointed out that this was the type of
project that would certainly fulfil the multi-user public benefit criterion as
it would target pastoral, agricultural and horticultural industries
Mr Peter Taylor, President of the Broome Chamber of Commerce and
Industry agreed that multi-user infrastructure would be highly beneficial to an
area such as the Kimberley region and that finding infrastructure projects that
can be integrated into the existing infrastructure was an important
The Institute for Energy Economics and Financial Analysis recommended
that 'the preference for multi-user infrastructure should be reflected in NAIF's
prioritization of projects for financing'.
$50 million non-mandatory minimum
Under the 2016 Investment Mandate, there was a misapprehension by many
stakeholders that projects, in order to be eligible, had to exceed a $50
million project threshold. The $50 million threshold is a minimum
non-mandatory criterion which has been a source of confusion and frustration
for many organisations—with the only clarification about this criterion in the 2016
Investment Mandate being that 'a Project proponent may aggregate multiple
pieces of infrastructure into a single Project'.
Ms Louise Talbot, General Manager of the department clarified that the
$50 million minimum was set as a non-mandatory criteria, to provide NAIF with
greater flexibility in its consideration of potential projects:
Projects do not have
to meet that criteria in order to be considered for funding for the NAIF. The
NAIF is taking a flexible approach to that because in some jurisdictions that
might be too big. The reason the threshold was set at $50 million is that the
purpose of the $5 billion fund was to develop transformational infrastructure
for the north. So it's got
$5 billion and it has five years to run. The idea was that it would be involved
in large transactions, not lots and lots of very small ones. But it is a
non-mandatory criteria so that if a particular economic infrastructure project
comes forward that meets all the other criteria then the NAIF can consider it.
As the minimum was non-mandatory, NAIF was able to consider smaller
projects. NAIF explained to the committee that it chose the Onslow Marine
Support Base Project as its first Investment Decision, in part, because it was
$50 million threshold. NAIF had intended that this would encourage other
smaller projects to come forward.
Despite this clarification, the non-mandatory $50 million minimum
remained a source of confusion for stakeholders and was generally viewed as the
most significant obstacle by many prospective proponents who self-excluded
their projects on this basis.
Ms Pip Close, CEO of Tourism Tropical North Queensland commented that
there is a perception in the community that many small business operators had
not applied for funding because they were put off by the $50 million minimum.
Councillor Elizabeth Schmidt, President of the Northern Alliance of Councils
Incorporated echoed this view and suggested that 'a single project or aggregate
projects could be reduced to a figure more obtainable to regional councils'.
Mr Morrison of the Northern Land Council proposed that the
$50 million minimum could be lowered to invite smaller projects to consider
applying for NAIF funding. Mr Morrison argued that this would give smaller
Indigenous led projects a greater chance of development and consideration.
Further, Mr Morrison proposed creating an alternative lower threshold specifically
for Indigenous led projects.
Mr Greg Owens, CEO of the NT Farmers' Association also commented that a
number of the members of the association had not considered applying for NAIF
funding because the $50 million threshold was too high. Mr Owens was of the
opinion that members of the association would be more likely to be considering projects
that are in the $2 million to $5 million range.
The committee notes that the 2018 Investment Mandate no longer includes
the $50 million minimum non-mandatory criterion.
2018 Investment Mandate
The majority of the changes implemented by the 2018 Investment Mandate reflect
recommendations made in the Shepherd review.
These recommendations and subsequent changes are discussed briefly below.
The Shepherd review noted that it is difficult to define the exact
nature of infrastructure projects that might be proposed for NAIF funding; and
suggested this was because of the 'lack of mature industries and
infrastructure' in Northern Australia.
Mr Shepherd concluded that projects most likely to request NAIF funding would
be those seeking to create economic infrastructure. This formed the basis for:
The definition of 'economic Infrastructure' should be broadened
in the Mandatory Criteria to recognise that in remote regions economic
infrastructure stretches far further than the traditional roads, rail, power,
water, ports, communications and airports. The definition needs to be broadened
to include all those facilities, services and supplies, which are essential to
the establishment of business in the location. The multi user test should be
relaxed so that all that is required is for the proponent to contract on the
basis that it will provide services to other users on reasonable commercial
In implementing Recommendation 4, the 2018 Investment Mandate gives the
following description in relation to Mandatory Criterion 1––The proposed
Project involves construction or enhancement of Northern Australia economic
The Board must be satisfied that the Project incorporates (in
whole or in part) construction or enhancement of physical structures, assets
(including moveable assets) or facilities which underpin, facilitate or are
- the transport or flow of people, goods, services or
- the establishment or enhancement of business activity in
a region; or
- an increase in economic activity in a region, including
efficiency in developing or connecting markets; or
- an increase in population.
The Project must bring new capacity online either through the
construction of new infrastructure or by materially enhancing existing
The refinancing of existing debt that does not involve the
creation of new capacity is ineligible.
Crowding out test
The Shepherd review also examined Mandatory Criterion 3 of the
2016 Investment Mandate––The proposed Project is unlikely to proceed, or will
only proceed at a much later date, or with a limited scope, without financial
The Project Proponent must demonstrate to the Board’s
satisfaction that financial assistance is necessary to enable the Project to
proceed, or to proceed much earlier than it would otherwise.
Mr Shepherd's assessment was that the criterion was causing NAIF to
conduct a comprehensive analysis of finance market appetite for potential project
to ensure that a gap in the market exists. He concluded that this was slowing
down NAIF's processes by between two to three months and recommended:
Recommendation 5––Crowding Out Test
NAIF should rely on its own judgement on the impact on the
market and market information and submissions by the proponents on whether NAIF
participation is essential to facilitate the projector bring forward its delivery.
NAIF should also make it clear that they are prepared to step back if the
private sector can demonstrate that the project can be delivered in a timely
manner without NAIF support.
This recommendation resulted in the removal of the above mandatory
criterion from the 2018 Investment Mandate.
Prior to the new Investment Mandate coming into force, NAIF was intended
to act as a 'gap financier'. This meant that finance could only be provided
where a project proponent had explored and exhausted all other options.
Further, NAIF financing was not to exceed 50 per cent of total debt for the
project, limiting its liabilities and preventing it from becoming the primary
source of debt for projects and competing with the private sector. Any
concessions provided by NAIF were to be limited to the minimum necessary for
the project to proceed.
This was reflected in Mandatory Criteria 5 of the 2016 Investment
Mandate––Facility's loan monies are not the majority source of debt funding.
In this context, NAIF's financing model was notably different to a similar
Commonwealth entity, the Clean Energy and Finance Corporation (CEFC), which can
provide 100 per cent debt finance.
The Shepherd review commented that 'this protection may be resulting in
a number of worthwhile transformational projects capable of delivering
significant public benefits being delayed or not proceeding'. Mr Shepherd
Relaxation or removal of the 50 percent debt cap may support
the NAIF to utilise its higher risk tolerances to drive projects with
significantly higher public benefit and to take more secure, lower risk
positions in debt structures.
In light of this, the Shepherd review made the following recommendation:
Recommendation 6––Debt Cap:
NAIF Mandatory Criterion 5 should be relaxed to allow NAIF to
provide more than 50 percent of the debt of a project provided there is a
reasonable level of private sector funding and risk in the project. NAIF should
not be the major risk taker in an investment.
This recommendation resulted in the removal of Mandatory Criterion 5 from
the new 2018 Investment Mandate, such that NAIF is no longer solely a 'gap
financier', and is able to provide up to 100 per cent of the debt for a
The Shepherd review noted that the type of concession given to a project
proponent can be important in assisting a project to succeed:
Most developmental projects are at their most vulnerable in
their early years. NAIF loan concessions in the form of a holiday for a
specified period on the payment of interest and the repayment of principal
create space for increased utilisation in the later years of an infrastructure
asset's life. This could make all the difference to the viability of a project
in the immediate term. 
The review put forward the following recommendation to address this
Recommendation 7––Concessional Finance:
The role of NAIF is not to make a 'profit' at least in the
short term but to provide concessional finance to projects which would
otherwise not proceed or not proceed for some time. In doing so, NAIF's prime
consideration should be that there is a reasonable expectation that NAIF will
be repaid. This gives NAIF great flexibility as to the level of concessions it
can provide and it should fully exploit this flexibility within the constraint
of only providing concessions to the level necessary to facilitate timely
delivery of the project.
The 2018 Investment Mandate has seen the removal of the following
requirement from the body of the 2016 Investment Mandate:
(b) there is an expectation that the Commonwealth will be
repaid, or that the investment can be refinanced...
However, Mr Shepherd maintains that the 2018 Investment Mandate's
Mandatory Criterion 4
is sufficient in expressing the requirement of NAIF to ensure that there is a
reasonable expectation of repayment:
The loan will be able to be repaid, or refinanced.
The Project Proponent must present comprehensive financial
modelling to demonstrate the ability of the Project to repay the debt in full
and on time, or refinance, based on assumptions acceptable to the Board.
A relevant substitute for this criterion should be used
for assessing Projects which request alternative Financing Mechanisms, as
determined by the Board.
New mandatory criteria
As a result of the review of the NAIF, the 2018 Investment Mandate now contains
only five Mandatory Criteria (down from the original seven), and no non-mandatory
criteria (down from the original two criteria):
The proposed Project involves construction or enhancement of
Northern Australia economic infrastructure;
The proposed Project will be of public benefit;
The Project is located in, or will have a significant benefit
for, Northern Australia;
The loan will be able to be repaid, or refinanced; and
The proposed project must have an Indigenous engagement strategy.
Appropriateness of matters left to
The NAIF Act stipulates a 'Limit on Investment Mandate'. This section
(4) The Investment
Mandate must not direct, or have the effect of directing, the Facility to
provide financial assistance:
(a) for the
construction of particular infrastructure; or
(b) in relation to a particular
As such, the Minister cannot approve projects for funding. The Minister
does, however, have a power of veto, which can only be applied on three
specified grounds. After a consideration period, the Minister may notify NAIF
that financial assistance should not be provided to a proponent only if the
Minister is satisfied that a NAIF loan would:
- be inconsistent with the objectives and policies of the
Commonwealth Government; or
- have adverse implications for Australia's national or domestic
- have an adverse impact on Australia's international
reputation or foreign relations.
Despite this limit on the Investment Mandate a number of submitters
considered that the Investment Mandate placed too much power with the Minister.
In particular, the Australia Institute noted that a significant proportion of
the basic financial definitions and mechanisms to guide NAIF are left to the
Investment Mandate. The Australia Institute suggested that this type of
information would be better placed in the NAIF Act—a primary piece of
legislation, which is subject to scrutiny by the Parliament.
Submitters also commented that, as the responsible Minister for NAIF, Minister
Canavan's vocal promotion of coal had been detrimental to the way NAIF is
perceived by the public. Due to the fact that the Minister is responsible for content
of the Investment Mandate, some considered that the Minister's public
announcements about coal related projects were tantamount to a direction to the
Ms Imogen Zethoven from the Australian Marine Conservation Society
...when ministers—Minister Canavan, Minister Joyce—have made
public comments stridently in support of a particular proposal, it obviously
places political pressure on a government body to influence their decision.
It's undeniable that it would build pressure on that body to make a decision
that was favourable to what very senior leaders of the government would want.
Ms Sandra Williams, a North Queensland resident, considered that the Minister's
continued public commentary on NAIF projects was worrisome. Indeed,
Ms Williams thought that only having one responsible minister for NAIF was
a 'major concern'.
Professor Thomas Clarke, Professor of Corporate Governance at the
University of Technology Sydney, shared this view and commented that:
Given the lack of any viable form of accountability and
transparency in the decision making of the NAIF Board, it does appear a fatal
flaw of the Northern Australia Infrastructure Facility Act 2016 that
recommendations of the NAIF are subsequently referred to a single Minister.
The Australia Institute noted that other agencies comparable to NAIF
have two responsible Ministers, which in their view, provides for better
oversight and more accountability in decision making. In particular, the
Australia Institute pointed to the CEFC as an example of a corporate Commonwealth
entity with two responsible Ministers.
The Australia Institute suggested that NAIF processes would benefit from
having two responsible Ministers,
and proposed that the Minister for Finance would be an appropriate appointment
in this instance—to act alongside the Minister for Resources and Northern
It is a similar arrangement to the CEFC, but, unlike the CEFC
and other similar agencies, almost everything in the NAIF Act and the NAIF
mandate where the minister has power or discretion is the discretion of one
minister, rather than two. Normally it's the finance minister as well as the
responsible minister. This seems to be a reform to bring it into line with
In conjunction with the NAIF Act and Investment Mandate, NAIF and its board
are governed by a number of policies, including the following:
NAIF Board Charter
NAIF Board Audit and Risk Committee Charter
Conflict of Interest Policy
Freedom of Information Policy
Incident Reporting Policy
Indigenous Engagement Strategy Guideline
Environment and Social Review of Transactions Policy
Staff Securities Trading Policy
Public Interest Disclosure Policy
Public Benefit Guideline.
These policies are available on NAIF's website, and are subject to
NAIF has advised that these policies reflect current Australian best
practice government governance principles and current Australian best practice
corporate governance for commercial financiers.
NAIF's submission to the inquiry noted that these policies have been reviewed
by Allens Linklaters and found to be compliant with these two sets of
Mr John Hopkins, General Counsel of the Export Finance and Insurance
Corporation (Efic) advised the committee that Efic had assisted NAIF in its in
set up. Mr Hopkins explained that:
NAIF has taken
advantage of the fact that we are an established organisation with established
policies, governance frameworks, board, and financial mechanisms and
administration—the idea being that rather than recreate some of the more back
office or administrative aspects of an organisation they would be able to
initially rely on Efic's expertise, and that's what's happened.
Some submitters expressed concern that NAIF had commenced receiving
inquiries and assessing projects prior to the finalisation of the above
policies and questioned whether this was appropriate given the large sum of
In particular, the Australia Institute noted that although NAIF was
established in July 2016, and had commenced some due diligence processes in
December 2016, the majority of its governance policies are dated June 2017.
The Australian Conservation Foundation commented that the delayed
publication of these documents was 'concerning' and suggested that it was
unclear 'what processes NAIF was using to assess these projects, given that
important policy documents had not been finalised at the date of their
Several of these policies are discussed in greater detail in Chapters 3
and 4 of the report.
At the same time that the NAIF Act was passed, the Parliament passed the
Northern Australia Infrastructure Facility (Consequential Amendments) Act
2016 which amended the Export Finance and Insurance Corporation Act 1991
(Efic Act) to provide Efic with the ability to provide assistance to NAIF in
the performance of its functions as well as to assist, on agreement, the
relevant states and territories in relation to financial arrangements and
agreements related to the terms and conditions of grants of financial
assistance for the construction of Northern Australia economic infrastructure.
Efic has a service level agreement (SLA) with NAIF. As an experienced
financier with expertise in managing large and complex lending transactions,
such as those that NAIF makes, Efic's role is to support NAIF's day-to-day
The SLA allows Efic to perform:
Transaction due diligence, environment and technical review,
credit assessment, and loan management; and
Corporate and administrative services (including secretariat and
board secretary, legal, compliance, financial management and reporting, human
resources, information technology and communications, property management).
Mr John Hopkins, General Counsel and Board Secretary for Efic specified
that in undertaking due diligence work for NAIF, Efic can only do so at NAIF's
Mr Hopkins explained that:
...in terms of the
transaction process: as you articulated earlier, discussions take place. These
are extremely large transactions, and I know from an Efic point of view in
dealing in project finance transactions that they can take not just many months
but many years to reach a point where information is capable of being put
together for decision. For large transactions, similar to the ones that NAIF
would be considering, it takes a long time. During that process you are
gathering information along with a number of other different transactions, and
they are in a pipeline of transactions. Eventually, some transactions reach a
crescendo where there is enough information and a credit paper is put together.
It discusses whether or not the transaction is creditworthy, and also some
legal due diligence and other things are done. Then it is taken through the
decision process within management and then to the board.
In its 2016–17 annual report, NAIF confirmed that is has access to over
110 of Efic's staff, and had, at the time of publication, utilised over half of
this number including the Chief Financial Officer, General Counsel, Board
Secretary, Head of Policy Compliance, Head of Human Resources, Project Finance Environment
and Technical Review, Credit and Portfolio Management.
State and territory governments
As noted at the beginning of this chapter, the object of the NAIF Act is
'to provide grants of financial assistance to the States and Territories for
the construction of Northern Australia economic infrastructure'.
The relevant jurisdictions under NAIF are Queensland, Western Australia
and the Northern Territory. The role of the states and territory in NAIF is
essential to ensure effective delivery, and achievement of NAIF's objectives
and government infrastructure policy. The building of infrastructure that
provides a basis for economic growth and stimulates population growth, will
impact the economies of the relevant states and territory.
Master Facility Agreements
The relationship between NAIF, the Federal Government and each state and
territory is governed by three unique Master Facility Agreements (MFAs), one
with each jurisdiction.
The MFAs outline the key principles and arrangements agreed between the parties,
which will be adhered to in drafting and executing the project finance
documents. The MFAs set out arrangements for issues such as the process for the
jurisdiction's role in administering finance agreements, the sharing of costs
between the Commonwealth and the jurisdiction, the flow of funds repaid by
finance recipients, and the exposure of each party in the event of a default by
The MFAs with Queensland and Northern Territory came into effect on
3 April 2017. The Western Australian agreement was finalised on 2 November
The MFAs state that NAIF will provide a Financing Mechanism to the relevant
state or territory in order to provide funding to the Project Proponent.
The MFAs describe two main types of Financing Mechanism: loans and State
Guarantee Payment Undertakings. In the case of a loan, the funds are given to
the state or territory by NAIF; the state or territory then pays those funds
forward to the project proponent. A State Guarantee Payment Undertaking is more
complex and relies on the state or territory providing funds to the project proponent
and then advising NAIF of the amount to be repaid to the state or territory.
The MFAs also provide that other Financing Mechanisms may be agreed upon;
however, these are not detailed in the agreements.
The Financing Mechanisms are designed to ensure that the financial risk
is ultimately carried by the Commonwealth, not by the state or territory,
however, the relevant jurisdiction is the lender of record.
The MFAs also set out how re-payments from project proponents are
transferred from the state or territory to NAIF.
Consultation on potential projects
The northern jurisdictions do not have a role in selecting or assessing
the projects that make an application for funding from NAIF. However, NAIF must
consult the relevant jurisdictions prior to making an Investment Decision.
Section 13 of the Investment Mandate
outlines the form of this consultation and provides the relevant jurisdiction
with a clear veto power over individual project decisions.
The Shepherd review commented that 'full and effective engagement' with
the northern jurisdictions is vital to NAIF's success. The review also found,
however, that there is a 'lack of strong engagement' between NAIF and each of
the northern jurisdictions which had 'adversely impacted on the progress of the
While the Investment Mandate requires NAIF to consult with the relevant
jurisdictions as soon as practicable after receiving an Investment Proposal,
the Shepherd review made the following recommendation concerning the
relationship between NAIF and the states and territories:
Recommendation 10––Relationship with States and Territories
The working relationship with the States and Territories on
NAIF should be strengthened at both the Government level and NAIF level. The
responsible jurisdiction should be consulted as early as practicable in the
assessment process by NAIF and kept appraised of all relevant developments. It
is important that NAIF remains the point of contact with the jurisdiction and
the Government acts in a facilitating role.
The Shepherd review also considered the role of the Commonwealth in
facilitating NAIF's activities, commenting that the Commonwealth has a
responsibility to 'smooth the way' for projects identified as a priority. Mr
Shepherd proposed that this involvement from the Commonwealth could be
exercised either through the Minister or the department. He noted that this
approach is already used by the department's Major Project Facilitation Agency.
Recommendation 11––Commonwealth Role
The Commonwealth should adopt a 'whole of Government'
approach on active NAIF projects and facilitate cooperation from other
Commonwealth Departments or agencies, which may have a role in the project or
its approval. The Department is best placed to act as a coordinator.
The Shepherd review noted that some projects that NAIF might consider
could also be eligible for funding from the CEFC, and pointed out that there is
not currently any formal relationship between the two government entities. Mr
Shepherd proposed that in order to avoid an 'inefficient competitive model
between two Commonwealth financiers',
that formalising the relationship between NAIF and the CEFC would assist the
two entities in achieving the Commonwealth's overall policy objectives:
The two responsible Ministers should agree on a Memorandum of
Understanding between NAIF and CEFC on their modus vivendi on projects falling
under both their mandates. The goal is to establish a partnership approach
using the skills and experience and mandates of both organisations.
The majority of evidence received by the committee was not complimentary
of NAIF's governance framework, claiming it was severely inadequate to ensure
effective oversight of the NAIF's performance of its role as a commercial
The committee is pleased the government acknowledged the necessary
changes required of NAIF's legislative framework, particularly its Investment
Mandate, and sought to address these issues by commissioning
Mr Tony Shepherd AO to undertake a review of the NAIF. The committee welcomes
the implementation of a number of the recommendations made by Mr Shepherd, in
the form of the 2018 Investment Mandate. In particular, the committee notes
that the removal of the 50 per cent debt cap (Recommendation 6) on NAIF
financing has brought NAIF in line with other Commonwealth investment entities,
notably the Clean Energy Finance Corporation (CEFC). While the committee
recognises the Shepherd review's observations that 'transformational projects
capable of delivering significant public benefits [are] being delayed or not
proceeding' as the rationale for removing the debt cap on NAIF, the committee is
cognisant that the removal of the debt cap will shoulder more financial
liability onto the Commonwealth and ultimately onto the Australian taxpayer. The
committee therefore supports the intent of the second part of Recommendation 6
that, 'NAIF should not be the major risk taker in an[y] investment'. Implementation
of this recommendation should naturally increase the expectation for greater transparency
and accountability even more than before.
The committee is mindful of the importance of Indigenous participation
in NAIF projects, and observes that NAIF has an important role to play in
ensuring Indigenous participation, employment, and procurement in the projects
it funds. The committee urges NAIF to consider the suggestions made by
Indigenous representative bodies during the course of this inquiry and to work
together with them to improve NAIF's Indigenous engagement.
The committee agrees with Mr Shepherd's assessment of NAIF's
relationship with the states and territory, and recognises that 'full and
effective engagement' with the northern jurisdictions is vital to NAIF's
success. It is apparent to the committee that the lack of strong engagement
between NAIF and each of the northern jurisdictions has adversely impacted on
the early progress of NAIF. The committee encourages the government to consider
Recommendations 10 and 11 of the Shepherd review and is hopeful that NAIF will
actively take steps to improve its relationship with the states and territory.
Based on the evidence received, the committee considers that NAIF would
benefit from shared ministerial oversight to ensure that the high governance
and management standards the community expect are enforced. The committee
believes that the introduction of a second responsible Minister for NAIF would
provide for greater accountability in NAIF's processes and decision making. This
change will align NAIF more closely with the governance and objectives of other
similar Commonwealth investment funds like the CEFC. In this context, the
committee is of the view, that like the CEFC, the Minister for Finance would be
an appropriate appointment in this instance—to act alongside the Minister for
Resources and Northern Australia.
Furthermore, in terms of directing limited resources appropriately, the
committee notes and agrees with the Shepherd review's observation that some
projects considered by NAIF may also be eligible for funding from the CEFC. The
committee considers this observation to be very pertinent and in order to avoid
any competition or inefficient distribution of Commonwealth-backed finance between
the two government agencies a Memorandum of Understanding between agencies ought
to be established expeditiously.
The committee recommends that the Northern Australia Infrastructure
Facility Act 2016 be amended to require two responsible Ministers (the
Minister for Resources and Northern Australia and the Minister for Finance) to provide
oversight of the Northern Australia Infrastructure Facility.
The committee recommends that the Northern Australia Infrastructure
Facility should establish a Memorandum of Understanding with the Clean Energy
Finance Corporation to allow information and processes to be shared on projects
that have applied to both agencies, ensuring work is not duplicated.
Indigenous Engagement Strategy
The committee believes that Indigenous participation in NAIF projects is
crucial to NAIF's success in developing Northern Australia. The committee
agrees with submitters that the creation and implementation of an IES is an
important step in ensuring such participation. The committee particularly
supports a project committing to viable, sustainable procurement targets,
identifying and recognising the importance of cultural heritage protection, and
reflecting local cultural protocols.
The committee notes feedback received about the lack of targets that
might be within Indigenous engagement strategies and concerns about the
potential lack of genuine Indigenous engagement resulting from NAIF financed
projects. The committee believes that Indigenous engagement strategies should
include detailed and meaningful Indigenous employment and Indigenous
procurement targets. Proponents should also demonstrate that they have
sincerely engaged Indigenous communities and should conduct a genuine impact
Given feedback received by the committee raising concerns about the
effectiveness of Indigenous engagement strategies, NAIF should consider what
compliance mechanisms are available to it to drive adherence to these
strategies. In this regard, public accountability, including public disclosure
of Indigenous engagement strategies, is itself a form of compliance and will
help ensure that both project proponents and NAIF demonstrate their commitment
to Indigenous Communities.
The committee notes that, as a document produced by the project proponent
in relation to due diligence processes, a project's IES is subject to NAIF's commercial-in-confidence policy and is not published. The committee agrees with
the Northern Land Council's proposal that each project proponent's IES ought to
be made public.
The committee recommends that subsection 17(2) of the Northern Australia
Infrastructure Facility Investment Mandate Direction 2018 be amended to include
a requirement that within 30 days of an Investment Decision, the Northern
Australia Infrastructure Facility publish detailed Indigenous Engagement
Strategies from applicants when an investment decision is taken, including
detailed Indigenous procurement and employment plans demonstrating a commitment
to Indigenous Communities on its website.
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