Project assessment process
This chapter examines the Northern Australia Infrastructure Facility's
(NAIF) project assessment and approval processes, as well as concerns raised by
submitters regarding NAIF's Risk Appetite Statement (RAS), its public benefit
guidelines and the level of information provided about NAIF's recent investment
decisions. In so doing, the chapter also outlines the relevant recommendations
made in the Expert Review conducted by Mr Tony Shepherd AO (Shepherd review).
The evidence received during the course of this inquiry relates to decision
making processes which were guided by the Northern Australia Infrastructure
Facility Investment Mandate Direction 2016 (2016 Investment Mandate) and NAIF governance
policies that were in place in mid-late 2017. While, references in this chapter
are to the 2018 Investment Mandate and NAIF's current policies, the revisions
made to these documents since the inception of this inquiry do not negate
submitters concerns in relation to project assessment processes.
Selecting projects for funding
NAIF must have regard to a number of different parameters when assessing
and selecting projects for funding. These are drawn from the Northern
Australia Infrastructure Facility Act 2016 (NAIF Act), the Mandatory
Criteria of the Investment Mandate, NAIF's Risk Management Framework, and a
number of governance policies.
NAIF has developed an application and approval procedure for all
projects it considers. Once a project proponent has approached NAIF with a
proposal for a project, it enters what NAIF refers to as its pipeline.
At the time of writing, the NAIF website indicates that NAIF had
received a total of 239 enquiries. Of these, 115 are referred to as 'active';
and 16 projects are said to be in the due diligence phase.
In considering potential projects, NAIF must have regard to a preference
for a diversified portfolio including industry and geographic spread across the
Northern Australian states and territory.
The 16 most advanced projects are spread across five sectors, with projects in
the renewables and energy, transport, manufacturing, resources, tourism and
social sectors. Of the 16 projects, three are located in the Northern
Territory, six are in Western Australia and seven are in Queensland.
Once a project enters the pipeline it goes through four broad stages of
Enquiry and Preliminary Assessment Stage;
Strategic Assessment Stage;
Due Diligence Stage; and
Investment Decision and Execution Stage.
More detail about each stage is available on NAIF's website, however,
the online page specifies that this information is 'a guideline only and may
vary depending on the type and suitability for the project'.
The Shepherd review noted that in order for the NAIF to be considered
successful, 'it must provide the transformative infrastructure required to
stimulate economic and population growth in northern Australia'. Mr Shepherd
observed that there is a role for NAIF in 'supporting the financing of infrastructure
projects identified in the strategic regional hubs':
Recommendation 13––Development Hubs
Without in anyway reducing the opportunities for investment
in remote locations, the Government in consultation with NAIF should explore
with the States and Territories the establishment of longer term plans for the
development of economic infrastructure in identified Regional Development Hubs
and seek to establish priorities.
The Shepherd review also considered NAIF's processes for selecting
projects, and suggested that there was potential for NAIF to play an important
advisory role in this process, noting that 'where project proponents with
underdeveloped ideas come forward, NAIF originators can use their experience in
infrastructure financing and development to advise projects about what is
required to proceed'.
In light of this, the Shepherd review made the following recommendation:
Recommendation 15––NAIF Focus
New potential projects should be reviewed quickly by NAIF in
consultation with the relevant jurisdiction and NAIF should decide if the
project is likely to proceed to the investment phase with NAIF support. If its
assessment is that this is unlikely then the proponent should be advised what
is required to bring the project to investment.
Projects in the tourism industry
Noting that the tourism industry is a major employer in Northern
Australia, submitters proposed that investment in projects in the tourism industry
would have particular benefits for Northern Australia, and suggested that such
projects should be prioritised for investment by NAIF.
Dr John Davison-Mowle noted the particular benefit of investing in the
tourism industry because 'tourism is a major employer in many northern
Australian regions, particularly Queensland, and these jobs have minimum
environmental impact and provide long term employment'.
The joint submission made by the Arid Lands Environment Centre, Cairns
and Far North Environment Centre, Environment Centre NT and Environs Kimberley
also expressed this view explaining that significant benefits could be achieved
by investing in smaller projects across a range of industries including
tourism, as it is an industry that supports growth and fits with the natural
assets and values of the north.
The Australia Institute echoed this view, recommending that NAIF and the
government give much greater priority to overcoming barriers to tourism
industry engagement with NAIF.
Risk Appetite Statement
The due diligence stage is an important element of the project assessment
process. This stage examines the different types of risks that could be
involved in a proposed project, including its public benefit, financial risk,
technical risks and others.
Section 12 of the Investment Mandate
requires the NAIF to develop a Risk Appetite Statement (RAS) to guide its
Investment Decisions. The RAS is developed in consultation with the responsible
Minister and the relevant Northern Australia jurisdictions and is a core
component of NAIF's Risk Management Framework. Section 12 also sets out a
number of other requirements for the RAS:
Subsection 12(3) prescribes that 'in order to drive economic
development in Northern Australia, the Risk Appetite Statement must have regard
to a preference for a diversified portfolio, including industry and geographic
spread across the States and Territory that comprise Northern Australia'.
Subsection 12(4) states that:
The Risk Appetite Statement may have a high risk tolerance in
relation to factors that are unique to investing in Northern Australia Economic
Infrastructure as defined in the Act, including but not limited to, Northern
(b) remoteness; and
Subsection 12(5) of the Investment Mandate requires the RAS to be
reviewed annually to address emerging risks, changes to existing risks and
changes to Government policy––the
NAIF Risk Management Framework provides for this and in line with the ANAO Guide,
NAIF has advised that the board will update the RAS more regularly to take
account of emerging risks and innovation strategies.
NAIF does not publish its RAS; however, NAIF's website does include a page
which provides information on NAIF's Risk Management Framework. This page outlines
the main objectives of NAIF's RAS:
The RAS provides personnel at all levels of the business with
a clear understanding of the acceptable level of risk within which they must
execute their business plans in pursuit of the Board's strategic objectives. It
articulates the amount and type of risk that NAIF is willing to seek or retain
in pursuit of its objectives (i.e. risk appetite) as well as the amount of risk
that it has a readiness to bear at the individual risk level (i.e. risk
NAIF's website also explains that the RAS may accept higher levels of
risk in the initial years of NAIF's operation.
Over time, the board may approve a strategy for the management of risk
concentrations, including the imposition of limits.
NAIF describes the RAS as an internal, strategic, tactical and
operational document that the board uses to guide its Investment Decisions,
operations and governance.
In its submission to the inquiry, NAIF explained that the reason for
maintaining confidentiality of the RAS is because it describes in detail the
manner in which NAIF's risk appetite and tolerances (qualitative and
quantitative) are established and controlled.
NAIF also explained that this non-disclosure of the RAS is consistent
with a number of other corporate entities in the private sector including the Clean
Energy Finance Corporation (CEFC), the Export Finance and Insurance Corporation
(Efic), and the major banks in Australia.
Clean Energy Finance Corporation
The CEFC uses similar processes to the NAIF for selecting projects to
approve for funding. On this matter, Mr Simon Every, Head of Government and
Stakeholder Relations at the CEFC explained to the committee:
Our act specifies that there is a kind of criteria when we go
down into making an investment decision. It starts with some specifics in the
act. Then our ministers give us an investment mandate direction which makes
certain provisions as to how we're to treat investment applications. Then the
act says that we must develop policies and procedures and cause them to be
published, which is done. And of course we publish them in other aspects such
as our annual report when we're discussing how we make our investment.
Like NAIF, the CEFC does not publish a RAS; however, it does publish its
Risk Investment Strategy (RIS). In answers to questions on notice, the CEFC
noted that there are two reasons why the CEFC publishes its investment
strategy. Firstly, it is a legal requirement of its enabling legislation.
Section 68(1)(a) of the Clean Energy Finance Corporation Act 2012
requires that the Board make and publish an investment strategy as part of its
investment policies. Secondly, CEFC noted that they publish their RIS because:
...even if it was not legally required, it helpfully serves as
a practical piece of communication to potential counterparties as to what the
CEFC is about and the types of investments it is seeking (and consequently,
what it is not).
Publication of the Risk Appetite
Submitters were not satisfied with the limited information on NAIF's
website relating to the organisation's risk tolerance, and commented that it
was impossible to reflect on the adequacy of a document which they could not
access. Submitters suggested the RAS should be made public as this would
increase transparency and give the public confidence in the decisions NAIF was
A number of submitters including Doctors for the Environment Australia,
the Australian Conservation Foundation, and the Australian Marine Conservation
Society pointed out that the RAS had not been made public despite the fact that
an Order of the Senate had requested it.
Dr Noel Preece, an experienced risk assessor, commented that the RAS
should be publicly released to allow the public to consider the processes that
NAIF implements to evaluate risk. Dr Preece further argued that having worked as
a risk assessor for major projects in Northern Australia, he understood the
process, and did not agree with NAIF's decision to keep the RAS as a
Dr Preece explained to the committee that he did not believe that
publishing NAIF's RAS would 'jeopardise projects':
We're talking about a risk appetite statement. It's about
what risks and what level of risks NAIF is prepared to take. That doesn't need
to get down to the level of detail that might be in a project which is
commercially confidential. It doesn't need to jeopardise any of those things,
but it does need to present to the public, the consumer, the funder, what sort
of risks this organisation is prepared to take. Are they just prepared to throw
that money away, or are they recognising some of those risks, so that people,
particularly people in northern Australia can say, 'They have considered that'
or 'They haven't considered that—they need to address that sort of issue.' That
is just absent from the information I was able to obtain.
Dr Preece suggested that instead of publishing the entire document, an
alternative for NAIF could be to publish some detail of its RAS:
Even in a general statement for NAIF and its principles of
how you're going about business—and it is business—I would have assumed that
they would have presented that risk scenario, if you like, at least in some
detail. Maybe not down to the fine detail; each project will have a different
risk profile; but as a body that is allocating a very large amount of money,
they should at least have a tabulation, a summary or schema of what risks they
think are most important.
The Australia Institute proposed that in the event that the RAS could
not be publicly released, that the document should be instead subject to
external professional audit as a priority.
Climate related risk
Ms Bess Murphy, Community Engagement Coordinator from the Cairns and Far
North Environment Centre, pointed out that NAIF should consider publishing its
RAS because the public should have access to this information in order to
determine whether NAIF is 'taking climate risk properly into account in its
assessment of projects':
Climate change is obviously a huge environmental issue but it
also has a huge bearing on a project's success. What we are asking for is
confidence in the decision making processes. Climate change should be
extensively featured in the risk appetite statement. We believe that it should
be made public or at least a clear summary of what the risk appetite statement
Dr Preece also considered climate change a major risk to projects, and
suggested that this factor was not being appropriately assessed:
NAIF relies heavily on the Developing Northern Australia
white paper, which does not address climate change except in one passing
mention of possible threats to biodiversity (certainly a threat) but ignores
the overwhelming evidence that climate change impacts will be severe in the
On the issue of considering climate related risk in assessing whether to
provide financial assistance to a particular project, Ms Shar Molloy from the
Environment Centre NT noted that Westpac had published their climate change
position statement and 2020 action plan:
They also clearly acknowledge that climate related risk is
also a financial risk. So risk associated with climate change may impact on
companies’ financial performance and the stability of the financial system.
Westpac has long stated that climate related risk is financial risk. This is
why we have been working with their customers and investors to disclose the
information on their approach to this issue. I would suggest that large funding
banks like Westpac are certainly leading the way in the importance of being
able to identify climate risk and then how that impacts the financial risk.
The Climate Action Network Pacific encouraged the committee to 'consider
the views of Pacific countries on climate change and work to ensure that the
NAIF funds are directed towards projects that reduce rather than exacerbate the
risks [they] face'.
As noted in Chapter 2, the NAIF board can only approve projects for funding
if they fulfil all of the mandatory criteria set out in Schedule 1 of the
Investment Mandate. Mandatory Criterion 2 requires that a proposed project must
be of public benefit. The Investment Mandate specifies that:
The Board must be satisfied that the Project will produce
benefits to the broader economy and community beyond those able to be captured
by Project Proponent.
In assessing public benefit, the Board may, without
limitation, consider whether the Project will have the capacity to serve
multiple users (either immediately or during the expected life of the Project).
Further, subsection 9(1) of the Investment Mandate also requires that:
In determining any concession to be granted in an Investment
Decision, the Board must have regard to:
- the extent and mix of all
concessions necessary for the Investment Proposal to proceed; and
- the extent of the project's
In determining what constitutes the public benefit of a proposed
project, NAIF has developed a Public Benefit Guideline (PB Guideline).
The PB Guideline states:
Public benefits are benefits of the Project not captured by
the Project Proponent. They are benefits of the Project valued by other
business users, governments, individuals and the community.
The PB Guideline notes that examples of these types of benefits include
'improvements in regional productivity, regional connectivity or better social
or economic outcomes for individuals'.
NAIF's policy also establishes that 'significant public benefits are
more likely to eventuate when a Project serves, or has potential to serve
multiple end users'. The requirement that any project must have a public
benefit is consistent with NAIF's objective of supporting infrastructure that
promotes economic growth and stimulates population growth in northern Australia.
Submitters agreed that any project that receives NAIF funding should be
subject to a public benefit test. However, submitters were frustrated that,
along with the RAS, the public benefit test was not available to the public and
raised concerns about how the public benefit w a project would be assessed.
The Environmental Defenders' Office (EDO) considered that the
PB Guideline 'do[es] not appear to assist Board members to accurately recognise
the inherent difficulties...when assessing the public benefit of a project'. Specifically,
EDO commented that the criteria set out in the PB Guideline were not sufficient
as a public benefit test. Further, EDO pointed out:
There is no clarification in the Investment Mandate on what
is meant by public benefit, and no mention of public benefit in the Northern
Australia Infrastructure Facility Act 2016.Thus, the NAIF Board had broad
discretion in determining the public benefit test before publishing its Public
Benefit Guideline (the Guideline) in June 2017. The Guideline only stipulates
that the Board must be provided with a Public Benefit Analysis (PBA) from the
Proponent. No indication is given as to how the PBA is then assessed and relied
upon in the decision-making process.
Professor Samantha Hepburn, Director of the Centre for Energy and
Natural Resources Law, Deakin Law School, agreed that the mandatory eligibility
criteria did not define public benefit or 'explain how public benefit must be
assessed in the context of the management and distribution of significant amounts
of public resources by a Commonwealth entity'. Professor Hepburn explained
Public benefit should not be presumptively equated with
enhanced economic infrastructure, particularly within a public resource
framework such as that which exists in Australia. The mandatory criteria set
out in the existing investment mandate needs clearly defined to ensure that
considerations relevant to public benefit are taken into account by the NAIF
Ms Claire Gronow, an environmental scientist specialising in environmental
assessment and management, considered that the criteria for determining the
suitability and acceptability of proposals for NAIF funding were 'woefully
inadequate and simplistic', and commented that 'if these are the only criteria
applied, it is likely that proposals funded by NAIF will cause more harm than
Doctors for the Environment Australia proposed that the definition of
public benefit should be 'broadened to include short and long-term effects on
health, social and community functioning and the environment'.
The Australia Institute suggested that NAIF should clarify its public
benefits test. Specifically, that it should:
include a 'national interest' test with scope of assessment
covering all of Australia;
clarify whether and how it is prioritising job creation;
include impacts on other actors in relevant markets, not just
other infrastructure; and
include guidance on acceptable models and clarify parameters.
RDA took an opposing view and stated it believed that the guidance provided
in the Investment Mandate, and by NAIF in the PB Guideline, is sufficient.
Cost benefit analysis
NAIF's PB Guideline sets out that 'for Projects where the proposed NAIF
Investment is $50 million or greater, the Board requires a Cost Benefit
Analysis (CBA) of the Project's Public Benefit. Such analysis involves valuing
the benefits and costs of a Project to estimate the Public Benefit'.
The PB Guideline also stipulates that 'for projects where NAIF's
proposed investment is below $50 million, a CBA may not be required'. However,
the public benefit must still be clearly demonstrated to the satisfaction of
the board. For projects requiring significant financing concessions, the
project proponents will be encouraged to provide a CBA.
The PB Guideline specifies that it is preferable for benefits and costs
to be quantified in present value terms, while acknowledging that this is not
always possible. In these circumstances, the PB Guideline states that the CBA
can be supported by 'qualitative assessments on how benefits and costs of a
Project will be realised'. The PB Guideline stipulates that 'failure to
quantify the Public Benefit of a Project may influence the financing
concessions available to the Project'.
The PB Guideline also sets out that:
The CBA must examine if a project has a public benefit to the
economy and community. It must involve aggregating the impacts on members of
the community, excluding the benefits and costs of the project captured by the
Where possible, the CBA must consider a range of possible
scenarios in addition to the base case. Sensitivity analysis on the assumptions
that underpin the CBA outcome, for example discount rates applied to estimate
benefits and costs in present value terms, must also be provided.
Finally, the PB Guideline requires that the following three types of
impacts than generate benefits and costs should be included in the CBA:
Impacts on the economy and productivity––Examples include the
value of capacity and operating cost savings that flow from the project to
business and the value of improvements in reliability of infrastructure
Impacts on individuals––Examples include accessibility and
connectivity impacts, or improved employment, health, safety and security
Impacts on the community––Examples include positive and negative
environmental and social impacts during the construction and operation of the
Despite the availability of this information about public benefit and
cost benefit analyses, submitters were not satisfied and expressed that the
information provided was too vague. Specifically, Ethinvest suggested that NAIF
define the terms of the cost-benefit analyses it applies, and include specific
commitments in terms of environmental sustainability and climate change.
The Australia Institute agreed and proposed that all cost-benefit
analyses should be made public to permit scrutiny. Further, The Australia
Institute suggested that if CBAs could not be published, summaries of the CBAs should
be released, and the full analysis should be subject to thorough critical
external expert review.
The Concerned Economists Group also suggested that 'when NAIF is
considering large and complex loan proposals, including in the case of Adani,
it should be required to contract out the relevant cost/benefit analysis to
independent experts with the expertise to conduct them, such as the
Environmental and social
Submitters were particularly concerned about whether a project's impact
on the environment would be taken into account as part of the public benefit assessment
and the CBA.
Subsection 17(1) of NAIF's Investment Mandate stipulates that:
The Facility must have regard to Australian best practice government
governance principles, and Australian best practice corporate governance for
Commercial Financiers, when performing its functions, including developing and
annually reviewing policies with regard to:
- environmental issues; and
- social issues;
- governance issues.
To assist in its assessment of projects from an environmental and social
perspective, NAIF developed an Environmental and Social Review of
Transaction Policy (ESRT Policy). This document reminds the reader that NAIF
is a financier not a regulatory authority.
The ESRT Policy explains:
...the NAIF understands that the regulation and management of
environmental and social matters is the responsibility of the Commonwealth,
State and Territory (Australian Government) departments and agencies. Some
economic infrastructure projects (Project) have the potential to result in
significant adverse environmental and social impacts. Where relevant, such
impacts will be evaluated when the NAIF Board makes an Investment Decision.
Understanding a Project's environmental and social impacts is also commercially
prudent for NAIF as significant environmental and social issues can impact the
repayment of a financing facility.
The ESRT Policy notes that project proponents are obliged to 'obtain and
maintain all relevant State or Territory and Federal Government regulatory,
environmental and Native Title approvals' and provide proof that it has done
In considering whether a project has received all of the necessary
approvals, the ESRT Policy states:
...the NAIF board considers its regulatory, environmental,
social and Native Title requirements are met when expert regulatory,
environmental, social and Native Title due diligence reviews on which NAIF has
reliance confirms (or otherwise) that all relevant approvals have been
The ESRT Policy also notes that if required, the NAIF board may make an Investment
Decision prior to a project receiving all such approvals, however, stipulates
that funds will not be released to the project until the review of approvals
has been achieved to the satisfaction of the board.
Ms Laurie Walker, NAIF CEO, attempted to reassure the public that the
NAIF board did take environmental considerations into account and conceded that
NAIF had a role to play in communicating this:
I think we could make some of this clearer to help with some
of the feedback that the market has been giving. Broadly, we do need
environmental approvals and native title approvals for all of our projects
before we lend, but we also do an assessment as a lender and we don't replicate
the role of the regulator. So those approvals need to be in place, but we then
look at, on a project-by-project basis, factors such as the physical impacts of
Despite the assurances set out in NAIF's ESRT Policy and those given by
NAIF's CEO, some submitters were not satisfied that the environmental impact of
a proposed project was being sufficiently considered.
Ms Gronow suggested that NAIF's reliance on other legislation for a
project's environmental approvals was insufficient:
Having practiced in environmental impact assessment in
Australia since 1991, I am not convinced that merely holding an environmental
approval under Federal and/or State legislation is a reliable indicator that a
proposal has low impacts.
Dr John Davison-Mowle echoed this view, commenting that reliance on Commonwealth,
state and territory regulations is inadequate due to several factors:
- there are provisions in some of them for short term
economic considerations to override environmental concerns;
- there is a very low incidence of refusal of permissions,
especially in Queensland; and
- there is a perception, which may indeed be true, that
there are inadequate provisions for enforcing compliance in environmental matters,
particularly in regard in rehabilitation of mining sites.
Ms Murphy of the Cairns and Far North Environment Centre proposed that:
...the NAIF Act and the investment mandate need to include an
explicit guideline to protect the environment of northern Australia, including
the climate impact of projects. The investment mandate as it stands doesn't
follow the triple bottom line principle and we think that explicit
consideration of climate change is really essential, but even more pertinent in
northern Australia as our region is on the frontline of climate change.
Doctors for the Environment Australia proposed that the definition of a
project's public benefit be expanded to include 'short and long-term effects on
health, social and community functioning and the environment'.
The Australian Conservation Foundation expressed a similar view, and
recommended that the public benefit test should 'express the desire of
improving the long-term wellbeing of Northern Australians, while protecting and
enhancing existing environmental and cultural sites'.
Suitable person test
Submitters also suggested that NAIF consider, as part of its assessments,
whether a project proponent is suitable to receive NAIF funding.
The catalyst for this consideration was the possibility of NAIF providing
funding to the Adani Group for the North Galilee Basin Rail Project.
Transparency International Australia suggested that NAIF could introduce
applicant eligibility criteria. This would involve 'conduct[ing] due diligence
checks into the character and integrity of applicants' as well as 'investigat[ing]
the beneficial ownership of companies applying for financial assistance'.
In the same vein, Farmers for Climate Action, recommended including a
'Suitable Person' test to NAIF's project assessments, including a mandatory
consultation with the Australian Securities and Investments Commission and the Australian
The Australia Institute also believed that NAIF should be required to
consider the history of the applicant with regards to social, environmental and
governance risks prior to any Investment Decision.
The Shepherd review considered NAIF's project assessment processes and
in particular, looked at how it considered public benefit:
Given that NAIF is public finance, it is appropriate that
NAIF seek to maximize the public benefits associated with the concessional
aspects of their financing arrangements. In particular, there is an opportunity
for the Investment Mandate to clarify that, where competing projects are in
place or where there is oversubscription of NAIF's allocation, a preference
exists for local investment from which benefits are likely to be dispersed to
the Australian community.
Mr Shepherd explained that this is 'consistent with the approach of
scheme', and proposed that subject to Australia's International Trade
Recommendation 9––Local Investment
The NAIF Mandate should be clarified to make it clear that
all else being equal preference will be given to the project, which has the
highest relative level of domestic equity.
The Shepherd review also considered NAIF's pipeline and its processes
for selecting which projects to progress. Mr Shepherd noted that:
While high value projects deliver the best payoff in terms of
input costs, the impact of driving smaller projects which will deliver
localised public benefit also need to be considered.
Following its assessment of a project, the proponent will submit a
formal Investment Proposal which contains all of the necessary information,
including due diligence information, for the NAIF board to make an Investment
When an Investment Decision is made, subsection 17 (2) of NAIF's
Investment Mandate stipulates that:
(2) Within 30 business days of an Investment Decision, the
Facility must publish information regarding the Investment Decision on its
website, subject to commercial confidentiality, including:
(a) the name of the Project
(b) the goods/services involved;
(c) the location; and
(d) the type of Financing
(e) the amount of the Financing
In addition to the above requirement, section 42 of the NAIF Act
The annual report prepared by the Board and given to the
Minister under section 46 of the Public Governance, Performance and
Accountability Act 2013 for a period must include the following:
- the particulars of any changes
to the Investment Mandate during the period and their impact on the operations
of the Facility;
- a summary of the proposal
notices given by the Facility to the Minister during the period;
- a summary of any rejection
notices given by the Minister during the period and the Minister's reasons for
giving the notices;
- for financial assistance
provided by the Facility during the period, a summary of:
- the amounts of financial
assistance and kinds of Northern Australia economic infrastructure concerned;
- the kinds of loan contracts
used, and their important features;
risks and returns to the Commonwealth;
- a summary of any adjustments
or concessions made by the Facility during the period in relation to Northern
Australia economic infrastructure projects that have not progressed as planned.
Since its establishment, NAIF has produced one annual report, for the
2016–17 financial year. No Investment Decisions were made during that period.
Since its establishment, NAIF has made three Investment Decisions and given
conditional approval to another project. The details of these decisions are set
Onslow Marine Support Base
On 29 September 2017, the NAIF Board made its first Investment
Decision––the offer of a loan of $16.8 million to the Onslow Marine Support
Base in Western Australia for the development of a marine supply facility
including the expansion of the existing wharf and harbour.
In accordance with subsection 17(2) of the Investment Mandate, following
the board's Investment Decision the following information about the project was
published on NAIF's website:
Figure 1: Northern Australia Infrastructure Facility website,
'Formal NAIF publication of Investment Decision' (accessed November 2017).
While the details provided fulfil the NAIF's disclosure obligations
regarding Investment Decisions, the information did not include details such
as, when the project might receive funding, what the terms of the funding would
be or why the project was selected to receive funding.
In early June 2018 the Onslow Marine Support Base was financed. NAIF's
website updated the above text to include:
All conditions precedents were met on 7 June 2018 with
initial drawdown of funds being made 7 days later on 14 June 2018.
Humpty Doo Barramundi Farm
On 3 May 2018, NAIF made its second Investment Decision––the offer of a
loan to the Northern Territory's Humpty Doo Barramundi Pty Ltd. The relevant
information required by section 17(2) of the Investment Mandate is on NAIF's
The loan will finance the first of a three stage infrastructure
investment, including the development of a solar farm, and a medium fish
nursery as well as providing processing equipment and adult fish feeding
The loan amount is $7.18 million, and NAIF has stated that this may lead
to further investment in stages two and three of the development, leading to a
commitment to a potential overall $30 million program. The loan is for 100 per
cent of the debt for the project infrastructure components, which was not
possible under the original 2016 Investment Mandate. As noted in Chapter 2 of
this report, the debt cap was previously set at 50 per cent.
Ms Laurie Walker, NAIF CEO, stated:
It demonstrates the additional flexibility that the Mandate
changes have given us, and how they've helped accelerate NAIF's ability to make
The financing of the loan will be subject to the necessary environmental
and other approvals.
James Cook University
On 3 July 2018, NAIF announced its third Investment Decision––the offer
of a loan to James Cook University (JCU) in Queensland. The $96 million will
fund the development of the Technology Innovation Centre (TIC) on JCU's
Townsville Campus. This social infrastructure project is part of a larger
Enterprise Bundle which has a total project value of $174 million.
At the time of writing NAIF has released a media statement but no formal
notification of the Investment Decision as required by subsection 17(2) of the
Genex Power–Kidston Stage 2 project
On 20 June 2018, NAIF and Genex Power made a joint media release to announce
that the NAIF board had 'expressed its support for the development of the
financing structure for Genex's Kidston Stage 2 project through the provision
of an indicative term sheet for a long-term concessional NAIF debt facility for
A year earlier, NAIF released some limited information in relation to
the Genex Kidston project via a joint media release.
In this instance Genex Power had agreed that
NAIF could make a statement about its application for its 'Stage 2
large-scale solar and hydro pumped storage projects at Kidston in North
Adani railway line to the
Carmichael coal mine
In the lead up to the Queensland election in November 2017, the
Queensland Premier Annastacia Palaszczuk stated that if the Labor Government
was re-elected, it would not support any NAIF Investment Decision to provide
funding to the Adani Group for the North Galilee Basin Rail Project.
Following the re-election of the Labor Government, the Queensland
Treasurer, the Hon. Jackie Trad wrote to Minister Canavan to confirm this
position. The letter specifically stated:
In accordance with Section 13(4) of the Northern Australia
Infrastructure Facility Investment Mandate Direction 2016 (the Mandate), the
State of Queensland provides formal notification to the Commonwealth that
financial assistance should not be provided to Adani for the North Galilee
Basin Rail Project. Under the Mandate, an application will not progress
following such notification.
Although no formal Investment Decision was made in relation to the Adani
North Galilee Railway Line project, NAIF updated its website to include a copy
of the letter received and a short statement below the letter which reads:
As a consequence, in accordance with section 13(4) of the
NAIF Investment Mandate, NAIF will not be making an Investment Decision to
provide financial assistance to that Project.
Statement of reasons
Submitters raised concerns about the level of information provided by
NAIF about Investment Decisions; and proposed that, further to the requirements
of subsection 17(2) of the Investment Mandate, NAIF should be required to
publish a statement of reasons once it has made an Investment Decision,
detailing how a project meets the mandatory criteria in the Investment Mandate.
The Environment Council of Central Queensland suggested:
The NAIF should also commit to publishing as much information
as possible about an investment decision as soon as it is made (e.g. a
statement of reasons explaining the decision).
The Australian Conservation Foundation also recommended that NAIF 'publish
a statement of reasons as to how specific investment decisions comply with the
In answers to questions on notice, the Department of Industry,
Innovation and Science stated that the NAIF board's Investment Decision was
statement enough that the project satisfied the criteria:
The NAIF Board is an independent Board, which makes
investment decisions in accordance with its Investment Mandate. The Investment
Mandate outlines a number of mandatory criteria which must be met for financial
assistance to be approved. Therefore in making a decision to finance a project,
the NAIF confirms that the project meets the criteria, and the NAIF has
fulfilled its obligations under the Investment Mandate.
NAIF has expressed some inclination to providing more information in
relation to one Investment Decision, the Onslow project. In answers to
questions on notice, NAIF commented:
In consultation with the proponent, NAIF expects to publish a
case study on the Onslow Project after the project has achieved financial close
which is expected to be in line with the level of detail for such studies
published by CEFC another Government lender. Commercial in confidence material
will not be disclosed. For example, the detailed project risk analysis is part
of the Investment Decision process and Board deliberations, and is commercial
At the time of writing, the above-mentioned case study has not been
In assessing NAIF's PB Guideline, the committee considers that it
appears adequate. The difficulty posed is that because NAIF's due diligence
processes are confidential, it is impossible for the committee (or the public)
to determine whether the PB Guideline is being adhered to by the board in
selecting projects to fund.
The committee notes that NAIF has made three Investment Decisions and
given conditional approval to another project since its establishment. The
committee is pleased to see NAIF fulfilling its role as a commercial financier,
investing in the construction of Northern Australia economic infrastructure.
However, the committee considers that the information provided on NAIF's
website about its Investment Decisions lacks sufficient details. In particular,
the committee considers NAIF could provide more detail about its Investment
Decisions including: when a project might receive funding; the terms of the
funding; why the project was selected to receive funding; the true public
benefits, including adequate cost-benefit analysis summaries; and most importantly
to the Australian taxpayer, how the project proponents intend to pay back the
loan. The committee believes that increased communication about its Investment
Decisions would greatly benefit NAIF's transparency and assist in improving the
way NAIF is perceived by the public.
The committee agrees with stakeholders that once NAIF has made an
Investment Decision, it should be required to publish a statement, detailing
how the subject project meets the mandatory criteria in the Investment Mandate.
The committee notes that NAIF's ESRT Policy requires the board to ensure
a project has received all necessary approvals before it provides funding. Where
all approvals have not yet been granted, the committee understands that an
Investment Decision must stipulate that funding will not be provided until all approvals
have been obtained. The committee considers that in such circumstances, it is
appropriate for NAIF to publish information about what approvals need to be
completed before a project can commence.
The committee also notes that NAIF's 2017–18 Corporate Plan sets a
target for NAIF to deliver between three and five projects in the 2017–18 financial
year with a total value of between $300 million and $1 billion. The committee notes
that NAIF has made three Investment Decisions, however considers that NAIF has
not met its performance target, noting that the three Investment Decisions NAIF
has announced have a total value of $120 million, which falls short of the $300
million minimum target.
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 the following information on its
- A statement addressing how the project proponent has met the
mandatory criteria set out in Schedule 1 of the Investment Mandate;
Information about the loan conditions between the Northern
Australia Infrastructure Facility and the project proponent. i.e. expected
repayment rates, rate of return and length of investment; and
What approvals need to be completed before a project can commence
(e.g. environmental and Native Title approvals).
Focus on Australia's regional areas
The committee agrees with the Shepherd review that NAIF must provide the
transformative infrastructure required to stimulate economic and population
growth in Northern Australia; and believes that success in this objective will
see benefit provided to the regions as well as to the main population centres
of Northern Australia.
When considering the types of projects to which NAIF could provide
funding, the committee understands that high value projects deliver the best
payoff in terms of input costs. However, the committee believes that smaller
projects which will deliver localised public benefit should be prioritised. The
committee believes NAIF should step up and drive the consideration of projects
that will deliver a greater benefit to the regions.
The committee recommends that the Northern Australia Infrastructure
Facility prioritise projects that have high local content, procurement and
employment plans, to deliver a higher benefit to the regions.
Supporting growth in the tourism
The committee recognises the tourism industry is a major employer in
Northern Australia and agrees that investment in projects in the tourism
industry would have particular benefits for Northern Australia.
The committee believes significant benefits could be achieved by
investing NAIF funds specifically in tourism, as it is an industry that
supports growth and fits with the natural assets and values of the north. The
committee also considers that such projects should be prioritised for NAIF
The committee recommends that a portion of the Northern Australia
Infrastructure Facility's total funds should be allocated to directly
supporting Northern Australia's vital tourism industry.
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