Referral of the Bill
On 13 February 2019, the Export Finance and Insurance Corporation Amendment (Support for Infrastructure Financing) Bill 2019 (the Bill) was introduced into the House of Representatives by the Assistant Minister for Trade, Tourism and Investment, the Hon Mark Coulton MP.
On 14 February 2019, pursuant to the Senate Selection of Bills Report, the provisions of the Bill were referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee for inquiry and report by 26 March 2019.
Conduct of the Inquiry
The Committee advertised the Inquiry on its website, calling for submissions by 6 March 2019. The Committee also wrote directly to a range of organisations and individuals to invite them to make written submissions. Submissions received are listed at Appendix 1.
The Committee decided to prepare its report on the basis of submissions received and available information. The Committee acknowledges the short timeframe of the Inquiry and thanks all those who made submissions.
Purpose of the Bill
The Bill will amend the Export Finance and Insurance Corporation Act 1991 (the Efic Act). According to the second reading speech:
The amendments give Australia's export credit agency, Efic, [a] new overseas infrastructure financing power and an extra $1 billion in callable capital. These initiatives will support infrastructure projects in the region that have a benefit for Australia or Australians, and enable Efic to write larger loans, including within its current export mandate. The amendments will enhance Efic's ability to support Australian businesses, and drive stronger links between Australia and its region by enabling Efic to support, more and more, larger overseas infrastructure projects.
In its submission, the Department of Foreign Affairs and Trade (DFAT) highlighted that the Bill will ensure the Export Finance and Insurance Corporation (Efic):
… more actively supports Australia’s step-up in the Pacific and our agenda for an open, inclusive and prosperous Indo-Pacific by enhancing its role in overseas infrastructure projects. The amendments will also enable Efic to conduct operations under the name Export Finance Australia, providing greater brand recognition for Efic and the Australian Government.
Context of the Bill
In a speech at Lavarack Barracks in Townsville on 8 November 2018, the Hon Scott Morrison MP, Prime Minister, announced two initiatives 'that will help address the infrastructure needs of the Pacific region':
the creation of the Australian Infrastructure Financing Facility for the Pacific (AIFFP); and
the provision of an extra $1 billion in callable capital to Efic and a new overseas infrastructure financing power.
When announcing these initiatives, the Prime Minister noted that the infrastructure needs of the Pacific region are significant. In order to meet these needs, it has been estimated that the Pacific region requires US$3.1 billion in infrastructure investment per year between 2016 and 2030.
The Prime Minister emphasised that the 'new more flexible infrastructure financing power [will]…support investments in the region which have broad national benefit for Australia'. The Prime Minister also noted:
Private capital, entrepreneurialism, open markets are crucial to our mutual prosperity. These are our beliefs, these are values, they are shared with the Pacific and we stand with those who share our beliefs and values.
Australian Infrastructure Financing Facility for the Pacific
On 21 November 2018, Efic received a direction from the Minister for Trade, Tourism and Investment under provisions related to the operation of Efic, instructing Efic to:
assist DFAT in the establishment of the AIFFP; and
upon the establishment of the AIFFP, assist DFAT in the administration and operation of the AIFFP.
While the establishment and design of the AIFFP is outside the scope of the Bill, the new overseas infrastructure financing power granted to Efic in accordance with the Bill will allow Efic to administer AIFFP lending. DFAT submitted:
Without this power, the AIFFP’s ability to lend to projects would be constrained by Efic’s current lending mandate which requires projects to include Australian content before certain types of finance can be provided.
It is anticipated that the AIFFP, to be managed by DFAT, will be operational by 1 July 2019. This $2 billion infrastructure initiative will comprise $1.5 billion of non-concessional loans and $500 million in grants to support the development of high priority infrastructure in Pacific countries and Timor Leste.
DFAT is undertaking a consultation process as part of developing and finalising the design of the AIFFP. Public submissions were invited by 11 March 2019 and the following questions were included on the website to prompt discussion: (1) What regional infrastructure priorities should the AIFFP focus on? (2) What features would you like to see reflected in the AIFFP design? The Committee notes DFAT received over 40 submissions through that process and that consultation with a variety of stakeholders will continue.
AIFFP matters as they relate to the Bill are discussed further in chapter 2.
Efic's role and responsibilities
Efic is the Australian Government's export credit agency. Efic is self-funding, operates on a commercial basis, and supports Australian exporters, their customers and Australian companies investing overseas where the private market is unable or unwilling to provide financial support. The Commonwealth guarantees Efic's creditors the payment of all monies payable by Efic. Although it is available, the guarantee has never been called upon.
Since 1991, Efic's core functions have been to:
facilitate and encourage the Australian export trade by providing insurance and financial services to persons involved in such trade;
encourage banks and other financial institutions carrying on business in Australia to finance, or assist in financing, exports; and
provide information and advice about finance and insurance to support Australian export trade.
In addition to its legislative requirements set out in the Efic Act, Efic must also adhere to a Ministerial Statement of Expectations issued by the Minister for Trade, Tourism and Investment. The current Statement of Expectations was issued on 7 September 2017.
Efic delivers its support through the Commercial Account or the National Interest Account:
Commercial Account: Efic carries all risks as a corporate Commonwealth entity. The Efic Board is responsible for setting the strategy, risk appetite and risk tolerances. Efic retains all margins and fees and bears all risks and losses.
National Interest Account: Efic can refer applications to the Minister for Trade, Tourism and Investment for consideration for support under the National Interest Account. This referral might be made due to the transaction’s risk profile, size or repayment term or it might be as a result of Efic’s significant existing exposures to the country of export. The Commonwealth receives all income on National Interest Account transactions and bears all risks and losses. National interest considerations may include the delivery of foreign aid or meeting foreign policy objectives, such as regional stability and growth.
Previous reviews and legislative changes
In its submission, Efic provided a summary of legislative amendments and mandate changes that have occurred since 2013. This includes changes to the Efic Act, updates to Statements of Expectations issued by the Minister and Directions from the Minister in accordance with the Efic Act.
In May 2012 the Productivity Commission (PC) presented the report for its inquiry into arrangements for the provision of export credit through Efic. The government responded to the PC's inquiry in January 2013 and agreed or agreed in part with 16 of the PC's recommendations and noted six recommendations.
This Committee has undertaken a number of previous inquiries into legislation affecting Efic's operations. Reports of these inquiries are available on the Committee's website.
Overview of the Bill
The Bill grants Efic a new power to finance overseas infrastructure projects based on an Australian benefit test. The Explanatory Memorandum (EM) explains that '[a]pplying an Australian benefit test for infrastructure will open up a larger pool of potential projects eligible for Efic financing' and will enable:
…Efic to take account of the direct benefits from the involvement of Australian companies in infrastructure projects, as well as future and indirect benefits for Australia or Australians, such as greater Australian participation in supply chains, access to new markets for Australian businesses, more Australian jobs, payments, dividends or other financial proceeds from overseas to Australia, or stronger relationships with our regional partners, especially in the Pacific.
The Bill proposes to increase Efic's callable capital on its commercial account from $200 million to $1.2 billion. The EM explains that this increase will:
…allow Efic to provide more commercially meaningful financing offers, including for overseas infrastructure projects where the total size of debt financing required is large. It will give Efic greater flexibility and credibility with project proponents, sovereign borrowers and financing partners, who require the confidence that Efic's support is meaningful and can be sustained over often long repayment terms.
The Bill allows Efic to conduct its operations under the trading name Export Finance Australia. The EM explains:
A simpler trading name that references Australia will provide greater recognition for Efic and the Australian Government, both with Australian small and medium sized enterprises and exporters, and in overseas markets.
This section outlines the key provisions of the Bill in general terms.
Expanded mandate for Efic
Proposed paragraphs 7(1)(dd) and 7(1)(de) add the new infrastructure financing power to Efic's existing functions. Proposed paragraph 8(4) adds the overseas financing functions to Efic's primary duties and notes that Efic should perform these functions in a manner 'as Efic reasonably believes is likely to result in the maximum Australian benefits'. Proposed paragraph 8(5) will ensure that Efic does not have to prioritise developing the Australian export trade when it is performing its overseas infrastructure financing functions.
Australian benefit test
Proposed subsection 3(1) includes provisions to define Efic's new power to finance overseas infrastructure projects based on an Australian benefit test. 'Australian benefit' means a benefit that flows (whether directly or indirectly) from overseas to: a) Australia; or b) a person carrying on business or other activities in Australia.
This new power will be made operational through a number of other changes to the Act. The EM provides the further following detail on the operation of the Australian benefit test:
The power enables Efic to take account of the direct benefits from the involvement of Australian companies in infrastructure projects, as well as future and indirect benefits for Australia or Australians, such as greater Australian participation in supply chains, access to new markets for Australian businesses, more Australian jobs, payments, dividends or other financial proceeds from overseas to Australia, or stronger relationships with our regional partners, especially in the Pacific. It enables Efic to finance infrastructure projects that are connected to Australia in some way, but will be used wholly or substantially outside Australia (e.g. an undersea telecommunications cable connecting Australia to a nearby country for use substantially by that country). The power enhances Australia’s ability to play a role in regional infrastructure that serves our national interest and support international opportunities for Australian businesses.
Increase to callable capital
Proposed paragraph 54(8)(a) will increase Efic's callable capital on its commercial account to $1.2 billion from the current specified amount of $200 million. Under paragraph 54(8)(b) of the Efic Act, the Minister has the power to specify a greater amount of callable capital via a legislative instrument and the Bill does not remove this power. However, the EM notes that increasing callable capital by legislative amendment, rather than legislative instrument will provide a higher degree of certainty and demonstrates 'confidence that Efic's support is meaningful and can be sustained over often long repayment terms'.
The EM states that the Bill will have no impact on the Commonwealth's underlying cash balance and noted:
The increase in Efic's callable capital will enable Efic to provide more financing over time, raising the Government’s contingent liability for Efic within the established upper limit of $6.5 billion. The Export Finance and Insurance Corporation Regulations 2018 set this maximum liability.
Scrutiny by other committees
The Scrutiny of Bills Committee and the Parliamentary Joint Committee on Human Rights had not reported on the Bill at the time of tabling this report.
Structure of the report
Chapter 2 of this report provides an overview of issues raised in evidence and contains the Committee's views and recommendation.