Referral of the Bill
1.1
On 4 August 2021, the Export Finance and Insurance Corporation Amendment (Equity Investments and Other Measures) Bill 2021 (the Bill) was introduced into the House of Representatives by the Assistant Treasurer, the Hon Michael Sukkar MP for the Hon Dr David Gillespie MP, Minister Assisting the Minister for Trade and Investment.
1.2
On 5 August 2021, 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 (the Committee) for inquiry and report by 20 August 2021.
Conduct of the inquiry
1.3
The Committee advertised the Inquiry on its website, calling for submissions by 12 August 2021. 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.
1.4
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 those who made submissions.
Background
Functions of Export Finance Australia
1.5
Export Finance Australia (EFA) is the Australian Government’s export credit agency. It 'provides finance to support Australian exporting businesses and in support of overseas infrastructure development that delivers benefits to Australia'.
1.6
The functions of EFA are detailed in the Export Finance and Insurance Corporation Act 1991 (the EFIC Act). EFA is required to:
facilitate and encourage Australian export trade and overseas infrastructure development by providing finance;
encourage banks and other financial institutions to finance exports and overseas infrastructure development;
provide information and advice about finance to help support Australian export trade;
assist other Commonwealth entities and businesses in providing finance and financial services; and
administer payments in relation to overseas aid projects financed by the Commonwealth.
1.7
The Department of Foreign Affairs and Trade (DFAT) and EFA noted that in performing its functions, EFA:
co-operates – rather than competes – with private financiers to operate within the ‘market gap’; and
small and medium-sized enterprises (SMEs)
the infrastructure needs of Pacific Island countries (including Timor-Leste) and the broader Indo-Pacific region
critical minerals projects and related infrastructure.
1.8
The second reading speech noted that:
In 2019-20 Export Finance Australia supported 136 Australian businesses with $1.1 billion in support, enabling $2.45 billion of export contracts which supported just under 10,000 jobs in Australia.
Purpose of the Bill
1.9
The Bill will amend the Efic Act and according to the second reading speech will:
give Australia's export credit agency, Export Finance Australia, a new equity investment power and the ability to provide standalone overseas infrastructure guarantees. These initiatives will support infrastructure development in the Indo-Pacific and export-linked projects in Australia, as well as provide enhanced support for the financing activities of the Australian Infrastructure Financing Facility for the Pacific.
1.10
The Explanatory Memorandum (EM) provided further detail on the ability for EFA to 'offer guarantees for overseas infrastructure transactions without also needing to provide a loan to the same transaction'. This will:
improve the flexibility and efficiency of Export Finance Australia’s and the Australian Infrastructure Financing Facility for the Pacific’s (AIFFP) overseas infrastructure financing activities, particularly in the Pacific, where transactions may be most appropriately financed in local currencies. Export Finance Australia providing a guarantee for another lender’s loan in local currency is an effective way of facilitating local currency borrowing. Export Finance Australia’s equity investment power will also be available to the AIFFP, which relies on Export Finance Australia’s governing legislation for delivery of its loans.
1.11
It was highlighted that these amendments will 'complement its existing suite of financing powers comprised of loans, guarantees, bonds and insurance'.
Context for the Bill
Supporting Infrastructure investments in the Indo-Pacific and export-linked sectors in Australia
1.12
On 24 June 2021, the Minister for Trade, Tourism and Investment, the Hon Dan Tehan MP, announced that EFA would be given 'broader powers to finance transactions that serve Australia's national interests and priorities'. The Minister advised that the equity power 'would enable EFA to better support overseas infrastructure development and export-linked Australian businesses in sectors of economic significance'. The Minister added:
Currently EFA can only provide debt instruments to support Australia's investment aims…While used sparingly, this power will give EFA more flexibility to support important infrastructure investments in the Indo-Pacific or export-linked projects in Australia.
1.13
The EM further detailed the need for the Bill:
The current lack of an equity investment power restricts Export Finance Australia to a narrower range of transactions. Equity investments are a suitable form of financial support for important projects that support Australia’s national interests, when other financing tools are either unavailable or inadequate.
1.14
DFAT and EFA provided further context for these aspects of the Bill:
As outlined in the Government’s 2017 Foreign Policy White Paper, Australia is committed to working with regional partners to build an Indo-Pacific that is safe, secure, and prosperous.
The bill enhances EFA’s ability to:
finance regional infrastructure. In 2019, the Government provided EFA with the power to support overseas infrastructure projects in our region to the benefit of Australia or Australians. In broadening its financing powers to include equity investments, EFA will be able to make investments in a greater range of infrastructure projects, and at an earlier stage of development. The equity power will also be made available to the AIFFP, further supporting Australia’s Pacific Step-up; and
support the development of export-linked sectors of economic significance in Australia when other financing tools, both public and private, are either unavailable or inadequate.
Aligning EFA with international and domestic peers
1.15
The Minister further noted that:
This reform will align Australia with other countries, like the USA, China, Japan, Canada and South Korea, which are already making equity investments in our region to support their development and commercial objectives.
1.16
DFAT/EFA added that:
the Bill aligns EFA with other Australian Government financing agencies, like the Northern Australia Infrastructure Facility and Clean Energy Finance Corporation, which are already able to make equity investments.
Financial implications
1.17
The EM states that the Bill will have no impact on the Commonwealth's underlying cash balance.
Scrutiny by other committees
1.18
The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill. The Parliamentary Joint Committee on Human Rights had not reported on the Bill at the time of tabling this report.
Structure of this report
1.19
Chapter 2 of this report provides an overview of issues raised in evidence and contains the Committee's views and recommendation.