The Senate Select Committee on the effectiveness of the Australian Government's Northern Australia agenda (the committee) was established on 4 July 2019, pursuant to the agreement of the Senate, to inquire and report by 28 April 2021 on the effectiveness of the objectives, design, and implementation of the Australian Government's Northern Australia agenda, with particular reference to:
facilitation of public and private investment in infrastructure and economic development;
economic and social benefit arising from that investment for Northern Australians, in particular First Nations people;
funding models and policy measures that capture the full value of existing and emerging industries;
measures taken to develop an appropriately skilled workforce;
emerging national and international trends and their impact on the Northern Australia agenda; and
Conduct of the inquiry
In accordance with usual practice, the committee advertised the inquiry on its website and wrote to relevant individuals and organisations inviting submissions. The date for receipt of submissions was 20 September 2019. The committee received 99 submissions, which are listed at Appendix 1.
The committee held a number of public hearings in:
Townsville on 9 October 2019;
Mount Isa on 10 October 2019;
Darwin on 6 November 2019;
Nhulunbuy on 7 November 2019;
Cairns on 15 December 2020;
Thursday Island on 16 December 2020; and
Townsville on 12 March 2021.
As a result of the COVID-19 travel restrictions, the committee held six public hearings between May and November 2020 via teleconference. The committee also held a further three public hearings in February 2021 via videoconference.
The committee also undertook site visits, as detailed below.
On 10 October 2019, following the public hearing in Mount Isa, the committee met with representatives of Glencore, and toured Glencore's mining operations in Mount Isa.
On 7 November 2019, following the public hearing in Nhulunbuy, the committee met with representatives of the Dhimurru Aboriginal Corporation. The committee were the recipients of a Welcome to Country Ceremony on Nhulun conducted by Mr Witiyana Marika, a Rirratjingu leader. The committee also spent time with First Nations Rangers employed by the Dhimurru Aboriginal Corporation.
On 7 November 2019, the committee also visited the Buku-Larrnggay Mulka Art Centre, a First Nations community controlled art centre located in Yirrkala. The committee met with Mr Will Stubbs, Co-ordinator, and were provided a tour of the centre.
On 16 December 2020, prior to the public hearing, the committee visited the Gab Titui Cultural Centre, a contemporary art gallery and keeping place for cultural artefacts, located on Thursday Island—land of the Kaurareg nation, the traditional custodians of the Kaiwalagal region (Inner Islands) of the Torres Strait. The committee met with Ms Tania Hirakawa, Acting Programme Manager, and were provided a tour by Ms Leitha Assan, Exhibitions and Public Programmes Manager.
The list of witnesses who participated in public hearings is at Appendix 2. The public submissions, additional information received and Hansard transcripts are available on the committee's website at:
The report contains the following chapters:
Chapter 1 is an introductory chapter which briefly outlines the context and administrative details of the inquiry, including the committee's interim report, the statutory review of the Northern Australia Infrastructure Facility (NAIF) and the 2019 Assessment of Australia’s Future Infrastructure Audit;
Chapter 2 discusses the overall effectiveness of the current Northern Australia agenda;
Chapter 3 explores the challenges and opportunities of transport infrastructure in Northern Australia;
Chapter 4 considers the issues associated with water infrastructure in Northern Australia;
Chapter 5 examines evidence received in relation to social infrastructure, such as housing, healthcare services, water and food security, and telecommunications in northern communities;
Chapter 6 explores investment, opportunities and engagement with First Nations people;
Chapter 7 outlines evidence received in relation to employment and education in Northern Australia;
Chapter 8 considers the potential for a broader economic base in Northern Australia;
Chapter 9 considers the affordability and availability of insurance in Northern Australia;
Chapter 10 examines environmental protection in Northern Australia; and
Chapter 11 contains the committee view and recommendations.
The committee would like to thank the organisations and individuals who provided evidence to the committee.
On 3 December 2020, the committee tabled an interim report detailing the evidence it received in relation to the work of the Office of Northern Australia (ONA) and the NAIF.
The interim report focused on the ONA and the NAIF due to the critical importance these organisations have in the Our North, Our Future: White Paper on Developing Northern Australia (the White Paper).
The White Paper is the cornerstone document in the Australian Government's Northern Australia agenda, providing strategic and policy direction over a 20 year implementation schedule. The White Paper involves 51 measures and government investment of over $6 billion.
The ONA has responsibility for leading the Australian Government's Northern Australia agenda, working across all levels of government to implement measures under the White Paper. Relevant sections of the White Paper are referred to throughout this report.
A key measure in the White Paper was the establishment of the NAIF. The NAIF was established in 2016 to offer up to $5 billion in financing on concessional terms to encourage and complement private sector investment in infrastructure that benefits Northern Australia and broader public.
As noted in the interim report, the ONA and NAIF will also be of critical importance in generating economic development to ensure Northern Australia has a strong role in Australia's post COVID-19 economic recovery.
The interim report made the following nine recommendations:
The NAIF work closely with project proponents to ensure milestones are achieved and the drawdown of funds occurs as quickly as is commercially required.
Legislation giving effect to reforms recommended by the Statutory Review of the NAIF be prioritised by the Australian Government in 2021.
The Australian Government consider converting part of the NAIF to a combination of small grants, equity stakes and guarantees, supported by rigorous guidelines including caps on funding and business size, to ensure that small scale projects and First Nations projects are adequately supported.
The NAIF further develop linkages with other government programs and funds that are available for building capacity among proponents of small or First Nations led projects to meet NAIF's administrative requirements, including funds to support early explorative work and feasibility studies.
The Australian Government require project proponents to produce and publish a local procurement and employment strategy in line with and in addition to the Indigenous Engagement Strategy.
The Australian Government conduct a review to determine which industries have been impacted by COVD-19 and prioritise projects within those industries.
The NAIF review its policy regarding staff remuneration, to better link the payment of bonuses to funds being drawn from the facility.
The NAIF increase its transparency and accountability measures to account for changes recommended in the NAIF review, including publishing its conflict of interest decisions, and ensuring the decision-making process for projects are publicly available.
The Advisory Group on Northern Australia provide an update on their five-year plan for Northern Australia development, and a timeline as to when the plan will be released.
Statutory Review of the Northern Australia Infrastructure Facility
In November 2019, the Department of Industry, Science, Energy and Resources (DISER) commenced a Statutory Review (the Review) of the Northern Australia Infrastructure Facility Act 2016 (the NAIF Act).
Section 43 of the NAIF Act requires the Review to be conducted as soon as possible after 1 July 2019. Section 43 of the NAIF Act requires the consideration of two mandatory matters:
whether the time limit of 30 June 2021 for making investment decisions should be extended; and
the appropriate governance arrangements for the NAIF after that date.
The Issues Paper released by DISER at the beginning of the Review noted that previous reviews have scrutinised the operation and/or performance of the NAIF. However, these reviews did not consider the operation of the NAIF Act itself. The terms of reference for the Review identified eight issues for consideration.
Following the outbreak of COVID-19, the Review was expanded to consider how the NAIF could contribute to the recovery of Northern Australia from the economic impacts of the pandemic.
On 30 September 2020, prior to the release of the Review, the Australian Government announced further reforms to the NAIF to provide it with faster lending, expanded eligibility, increased risk appetite and strengthened governance. Assistant Minister for Northern Australia the Hon. Michelle Landry MP said:
these reforms come off the back of the NAIF statutory review that found that while the NAIF is seen to be an important vehicle of investment in the north, more can be done.
To this end, the Australian Government announced, the following changes would be made to the NAIF, including:
The NAIF will have the option to lend directly to project proponents in certain circumstances, which will simplify the lending process and reduce administrative burden. Currently, all NAIF loans are made through the relevant state or territory jurisdiction. While the state and territory governments remain important stakeholders for the NAIF, the ability to lend directly empowers the NAIF to move projects to contractual close faster, so projects can get on with creating jobs and developing the north.
This change also permits the NAIF to establish on-lending partnerships with local financiers to improve access to NAIF finance for smaller project proponents. Those partners will have the expertise to work with smaller proponents to demonstrate their suitability for NAIF finance and will extend the NAIF's reach to those smaller projects that need added assistance in these economically challenging times.
The NAIF was previously restricted to funding physical construction works only. The reforms will make NAIF finance available to additional elements of infrastructure construction, such as equipment purchases or leasing, training, and the expansion of existing business operations. The reforms will ensure NAIF can take a holistic approach to supporting economic growth and jobs.
The definition of public benefit applied when assessing projects will be expanded to include consideration of factors such as jobs, regional income, and opportunities for local suppliers, First Nations businesses and communities. This will simplify the application of public benefit tests to projects applying for NAIF finance.
The definition of Northern Australia will be extended to include the Shire of Ngaanyatjarraku in Western Australia. The Shire's borders sit further north than those of some other local government areas already included in the definition, making the expansion a logical amendment.
Increased risk appetite
The NAIF was established to fill a market gap and address the specific risk characteristics of Northern Australia. The review has proposed changes to provide the NAIF the flexibility to support riskier projects with the potential to deliver significant public benefit, in light of the scale of the economic challenge post-COVID. The changes include removing the prohibition against the Commonwealth assuming the majority of risk in any project.
A number of changes will also be made to strengthen the governance of the NAIF as it evolves with these reforms. These will include the appointment of a government representative to the NAIF Board; ensuring the board includes members with experience in First Nations development; and allowing the minister to take earlier decisions not to reject a NAIF investment decision review, nor introduced legislation to give effect to these proposed amendments.
The Statutory Review of the NAIF Report
On 10 December 2020, the government released the Statutory Review of the Northern Australian Infrastructure Facility (the Review Report).
Strategic investment, public benefit and risk
The Review Report noted:
the NAIF is intended to fill a finance gap in Northern Australia by being more risk tolerant in relation to factors that are unique to Northern Australia, including distance, remoteness and climate.
While the Review Report, noted the 'inherent tension between the requirement that a project be able to repay a loan, and embracing more risk' it concluded that 'the NAIF has taken a conservative approach to date'.
The Review Report identified a capability and resourcing gap in the north in leading project development. It found that the NAIF fundamentally operates under a proponent-led model, but recently has had success in actively supporting project development. The Review Report found that extending this model more broadly within the NAIF would have resource implications. Nonetheless, the shift represents a logical extension of NAIF's contribution to developing the north through growing capability and promoting the development of multi-user infrastructure.
Engagement with government
The Review Report acknowledged that there are many Commonwealth agencies that contribute to the Northern Australia development agenda and that the relationships between the NAIF and these agencies could be more collaborative in order to maximise outcomes for the region.
The Review Report also found that there is opportunity for NAIF to deepen engagement and streamline administrative process, and improve engagement with local governments on projects that have the potential to affect their regions.
First Nations engagement
The Review Report noted that Aboriginal and Torres Strait Islander Australians are key stakeholders in the development of Northern Australia. The Review Report found that the mandatory requirement that project proponents develop an Indigenous Engagement Strategy (IES) as a precondition to NAIF finance is the primary mechanism the NAIF employs to drive positive First Nations outcomes. The Review Report noted that the NAIF should continue to encourage project proponents to set more ambitious targets within their IESs and should work with proponents to publish IESs.
In addition the Review Report concluded the:
NAIF can also drive positive outcomes for First Nations Australians by financing Indigenous-led projects. The Review heard feedback that NAIF finance may be inaccessible for some Indigenous businesses due to the unique challenges they face. In light of this, the NAIF could strengthen its collaboration and engagement with entities that have Indigenous outcomes as their core business.
The Review Report found that NAIF's ability to offer concessional debt finance fills a significant gap in the market. However 'there remains opportunity to consider other concessions to bolster the benefits already provided by the NAIF, including subordinated debt and similar options'.
Under current arrangements, the NAIF is able to provide alternative financing mechanisms subject to ministerial agreement and consultation with the relevant jurisdiction on a case-by-case basis, with the exception of equity, and could consider implementing this option where appropriate. However, this extra approval threshold was reported to deter proponents and the NAIF from seeking to deploy such mechanisms, and is overly burdensome given the minimal change in risk profile expected to arise from the use of debt other than loans.
The Review Report concluded that:
there may be benefit in providing the NAIF with increased flexibility in its investment offering as the economic impacts of the COVID-19 pandemic continue to evolve. On balance, it is worth Government considering lifting the prohibition on equity investment by the NAIF, on the basis that a diverse offering will ensure the NAIF is most effective, and able to respond to the impacts of the COVID-19 pandemic as they emerge.
The Review Report also found that the NAIF should be encouraged to fully utilise its ability to provide alternative finance mechanisms, and unintended obstructions should be removed.
The Review Report highlighted that:
a number of stakeholders suggested that the NAIF should provide grant funding for project proponents to undertake feasibility studies or as start-up capital. This is in response to identified gaps in business skills and expertise in the north, and a lack of early stage capital.
While, the Review Report accepted that grant funding has a role to play in certain types of projects in Northern Australia, it found that:
NAIF is not designed as a grants body, and it would be more efficient for the NAIF to instead leverage existing Commonwealth and jurisdictional grants programs to develop and support infrastructure projects.
In order to maximise the NAIF's impact, the Review Report found that 'the NAIF's remit should be extended beyond financing the construction of physical infrastructure'.
The Review Report received feedback that the NAIF Board should increase its expertise in project financing and First Nations development. Further, future appointment of board members should consider any potential changes to the NAIF's functions, and the skills required to manage those functions. It also found that the appointment of a Commonwealth representative to the NAIF Board would maximise the synergies between the NAIF and government, and bring additional Commonwealth Government experience to the Board.
The current legislative framework establishes that all NAIF loans are provided to proponents through grants of financial assistance to the states and territories. The Review found that at least some of the administrative burden borne by the states and territories as a result of this arrangement is unavoidable. The Review Report noted that:
consideration should be given to how to reduce existing, or prevent additional, administrative burden where possible, including by potentially empowering the NAIF to lend to proponents directly in recognition of the smaller size of projects being funded, the NAIF's increasing organisational maturity and the current challenging economic context.
The Review Report also noted that the NAIF has been subject to criticism regarding the transparency of its processes and decisions. In particular, the NAIF has been criticised for not disclosing some information related to investment decisions, including IESs and public benefit assessments. The Review Report suggested that that the NAIF should continue to work with project proponents to publish this information where possible.
COVID-19 response and recovery
The Review Report found that:
in Northern Australia, the impact of COVID-19 has been harshly felt. Trade-exposed sectors which are critical to Northern Australia's economy, including tourism, agriculture, and education, have experienced a significant decline in private demand, uncertainty over future demand and investment and concerns over supply chain links.
To support recovery efforts in Northern Australia, the Review Report suggested that the NAIF accelerate the assessment of investment proposals and streamline its processes. The Review Report also noted that:
further opportunities could be realised with changes to the Investment Mandate and legislation, specifically that will:
provide more flexibility to the NAIF in its operation and finance tools;
further improve assessment processes; and
better support smaller projects.
The Review Report made the following 28 recommendations:
Extend the NAIF's investment window until 30 June 2026, with a further review of the NAIF to be scheduled as soon as possible after 1 July 2024.
Export Finance Australia is the most appropriate agency to manage NAIF loans if and when the NAIF's investment window expires, subject to further assessment of legal and financial implications at that time.
Explore opportunities to empower the NAIF to adopt a greater risk tolerance for projects of specific public benefit, for example use of a portfolio approach to risk.
The Investment Mandate be reviewed and expanded to provide greater clarity to the NAIF on the government's priorities and public benefit aims for NAIF investments.
The Statement of Expectations for the NAIF include guidance to expand its role in leading project development to maximise public benefit, subject to resourcing constraints.
The NAIF work towards establishing formal Memoranda of Understanding or protocols of engagement with other Australian Government financing vehicles, prioritising the Clean Energy Finance Corporation.
The NAIF continue to collaborate with the National Indigenous Australians Agency to develop measures that support the aspirations of and improve outcomes for First Nations businesses in the north.
The NAIF and the Major Projects Facilitation Agency agree protocols of engagement to support the development of infrastructure projects in the north.
The definition of Northern Australia in the NAIF Act be amended to include the Shire of Ngaanyatjarraku.
The NAIF engage more effectively with Regional Development Australia committees on their assessment of infrastructure priorities for their regions.
Australian Government entities ensure information on opportunities and projects in the north is shared with relevant entities, including the NAIF.
Retain Indigenous Engagement Strategies (IESs) as the primary mechanism through which the NAIF pursues First Nations participation and engagement in Northern Australia, and work with proponents to publish IESs.
The NAIF to consider how it might further encourage proponents to be ambitious in their IESs.
The NAIF should continue to strengthen its collaboration and engagement with entities that have First Nations outcomes as their core business, and work with these to provide finance to First Nations-led projects.
Consider removing the limitation on NAIF provision of equity finance to maximise its flexibility in working with businesses to develop infrastructure projects despite the economic challenges of COVID-19.
The NAIF refer projects, where appropriate, to the new Australian Business Growth Fund, which is intended to serve as a source of equity finance for small businesses.
Consider simplifying the alternative financing mechanisms process to make it easier for NAIF to offer other forms of debt apart from loans.
The NAIF continue to focus on delivering finance, but consider opportunities for proponents to access Australian Government and jurisdiction grant programs to develop and support infrastructure projects.
The NAIF Act and Investment Mandate be amended as necessary to remove the requirement that NAIF finance be limited to the construction of physical infrastructure.
Experience in First Nations development be added to the list of expertise requirements for NAIF Board.
An ex-officio Commonwealth representative be appointed as a member of the NAIF Board.
The NAIF Act be amended to empower the Board to delegate some powers within the organisation.
The NAIF, in consultation with the relevant states and territories, revise assessment and approval processes and engagement to accelerate the origination, assessment and execution of finance contracts.
That the expansion of the NAIF's powers to include lending directly to proponents where appropriate be considered.
The NAIF consider options to reduce timeframes on investment decisions, including through streamlining assessment processes.
The NAIF consider approaches to increase the accessibility of finance for smaller projects, including partnerships with other commercial bodies.
The ministerial consideration period be retained, with amendment to allow the minister to take a decision not to reject a proposal at any point during the consideration period.
That the NAIF should maximise the information it makes publicly available, particularly around public benefit assessments and Indigenous Engagement Strategies, within commercial confidentiality requirements.
Northern Australia Infrastructure Facility Amendment Bill 2021
The NAIF's original expiration date was scheduled to be June 2021, however, on 17 July 2020 it was announced that NAIF would be extended for a further five years to 30 June 2026, subject to the passage of legislation. The Minister for Resources, Water and Northern Australia the Hon. Keith Pitt MP stated that:
This extension is the first step under the statutory review of the NAIF that aims to implement changes to enable a more flexible and faster approval process for proponents looking to access the facility.
On 24 February 2021, the government introduced the Northern Australia Infrastructure Facility Amendment (Extension and Other Measures) Bill 2021 (the bill).
The bill amends the NAIF Act to extend the investment time period of the NAIF by five years to 30 June 2026. The bill also expands the functions of the NAIF to include the provision of financial assistance to projects that contribute to Northern Australia's economic and population growth; and amends certain governance and administrative processes of the NAIF.
The Australian Government, noted that the reforms outlined in the bill, 'address the recommendations of a 2020 statutory review of NAIF which consulted widely on how NAIF could best contribute to economic development in the north.'
The Minister for Resources, Water and Northern Australia the Hon. Keith Pitt MP, stated that:
The changes will empower NAIF to make faster lending decisions for appropriate projects, and increase NAIF's risk appetite so it can respond more appropriately to the economic challenges following the COVID-19 pandemic. The reforms will also strengthen NAIF's governance, allow NAIF to make strategic equity investments in some projects, and will expand the scope of projects which will be able to apply for NAIF funding.
Many of the amendments proposed in the bill reflected recommendation's made in the committee's interim report, particularly in relation to:
strengthening of the NAIF's governance structures (interim recommendation 2); and
enhancing the scope, speed and flexibility for the NAIF to provide financial assistance to support the development of Northern Australia economic infrastructure (interim recommendations 1, 2, 3 and 4).
At the time of writing, the government is yet to respond to the committee's interim report. The committee notes that its recommendations to review the impact of COVID-19 on relevant industries and increase NAIF's transparency and accountability were not reflected in the bill, however, on 25 March 2021, the bill was passed into law by the House of Representatives, with both the government and opposition members supporting its passage.
Access to financing
The committee received evidence that some businesses may be facing difficulties in acquiring financing from banks. In response to a question noting that some banks and financiers were announcing that they plan to limit finance for some mining commodities, Mr Paul Everingham, Chief Executive Officer, Chamber of Minerals and Energy of Western Australia, discussed his concerns:
Our major commodities—iron ore, gold, oil and gas, lithium—haven't experienced limitations on bank lending, but it will certainly be concerning if having shut off financing to coal the banks then decided to transition towards reducing financing to oil and gas. Oil and gas and a whole range of other commodities employ a lot of Australians. They're infrastructure heavy as an industry and they often require both equity and debt financing. What I saw happen earlier this week in Queensland with ANZ, I hope it doesn't become a national sort of standard by people stuck in ivory towers in Sydney and Melbourne.
However, some banks are actively engaged in continuing to provide financing in this area. Ms Connie Sokaris, Executive General Manager, Corporate Finance, National Australia Bank (NAB), noted that 'NAB, alongside other banks, is also actively pursuing the financing of a number of major gas and coking coal projects across the Northern Territory and Queensland'. Ms Sokaris further explained the NAB's activities in this area:
To date NAB has been actively engaged over a long period in a large number of projects in northern Australia and we think the region holds significant potential. NAB has been a major financier of projects in northern Australia, committing to more than $5 billion over the last decade across a bold range of projects and segments including gas, metallurgical coal infrastructure, metals and iron ore.
Outside of the resources sector, the committee heard that there can be particular difficulties for First Nations Australian businesses seeking financing from banks. The Indigenous Reference Group to the Ministerial Forum on Northern Development submitted that:
As a result of generally lower socio-economic status, Indigenous entrepreneurs typically have limited personal wealth to offer as collateral for loans and limited credit history. Most Northern Australian Indigenous businesses are at an earlier stage of development, demonstrating limited trading history and uncertain future cash-flows, and ultimately a risk profile that is not aligned with debt financing.
The Indigenous Reference Group to the Ministerial Forum on Northern Development subsequently recommended that the Federal Government implement a pipeline of programs designed to attract private sector investment in Northern Australian First Nations enterprises and smaller infrastructure projects, which 'might include initiatives such as grants, matching grants, repayable grants, public funded programs that allow investors to leverage their equity and/or taxation concessions'.
Ms Claire George, Director, Industry Development, Northern Territory Department of Trade, Business and Innovation, noted the 'need to derisk the northern Australia business environment to increase the competitiveness of the investment environment in which we operate' and further submitted that:
derisking the business environment to make the north as competitive as possible in relation to the development of those new industries is essential. Simple things that can be taken for granted in other areas, such as digital connectivity to various sites within the north, can make it more challenging for those industries to develop in the north. The regulatory frameworks that exist in supporting industries to develop can make a big difference in relation to supporting those new industries as well as the traditional.
In discussing what could attract investors who were looking to finance in the region, Mr Ry Collins, Project Coordinator, Economic Development, Whitsunday Regional Council, outlined where improvements could be made:
it comes down to support and early engagement, implementing a mechanism to recognise projects that may have a tangible economic benefit early in their life cycle, and possibly removing some of the administrative burden that may hold up those projects from accessing funding in that early stage of the project life cycle. Improved support towards project concept planning and feasibility planning, and early stage project development.
Dr Allan Dale, Chair, Developing Northern Australia Conference; Chief Scientist, Cooperative Research Centre for Developing Northern Australia; and Professor of Tropical Regional Development, James Cook University, noted that the issue was not a lack of interest in investing in Northern Australia, stating that:
We've probably never had it better in terms of concessional investment and private sector investment. We know there is very significant investment interest in northern Australia from international investors, as well as from domestic investors and people in the northern Australia landscape, such as landholders and businesses—small, medium and large businesses—in the northern Australia landscape. So we know the investment interest is there and the finance interest is there.
Dr Dale continued on to explain that the realisation of this full investment potential was contingent on greater strategic planning between governments in future:
to keep this agenda strong, the governance arrangements associated with the profile and progression of this agenda need to stay strong as well. … I think the basic architecture of driving this forward is there; I feel that that can be used much more effectively to drive the agenda. In the current re-split of the national cabinet arrangements, while there's a short-term future for the ministerial forum we think it really needs to be a long-term agenda and a really cohesive, forward agenda which brings that cooperation between the states, the territories and the Commonwealth to the fore. It would be great to see a strong relationship between that process and the national cabinet process. More importantly, we need to reinvigorate the state and territory cooperation with the Commonwealth.
The difficulties in attracting investment and finance in Northern Australia was a key motivation for establishing the NAIF. In terms of current financing arrangements through the NAIF, Mr Chris Wade, Chief Executive Officer, Northern Australia Infrastructure Facility, appeared before the committee to provide further detail on how the NAIF goes through the process of financing infrastructure projects and brings financial stability to projects that it supports:
We use a series of key tools in our financing. One of the key tools we often use is fixed rate lending. That means that a party can draw down and, when they draw down, the interest rate will not change. That gives them a lot of certainty when they go through that process. I'll take some transactions like Signature Beef or Cowboys. They won't get going until they know that they've got the NAIF funding available to them, because they're investing equity and other capital ahead of that, and they won't do that unless they know they've got that NAIF funding contractually committed.
Mr John O'Brien, Deputy Chairman, North Queensland Sustainable Resources Corridor Regional Reference Group, discussed why some businesses choose to use commercial banks for their financing, while others instead utilise the NAIF. After noting that banks have higher premiums and less flexibility than the NAIF, Mr O'Brien stated:
it's that time frame. If you borrow from a commercial bank, you're probably doing a 10-, 12- or maybe a 15-year loan. Yet we've got an asset that will have a 40-year life. … With the costs that you have to impose on any user—whether that's a household, a small business or a Glencore—you want to keep that as economically efficient as possible. That's what NAIF allows us to do, because it removes that risk premium on long-term assets.
Attempts to finance projects have also been made more difficult by the COVID-19 pandemic, which has led to the NAIF providing additional support for its stakeholders. Mr Chris Wade, Chief Executive Officer, Northern Australia Infrastructure Facility, explained to the committee how this was taking place:
with our existing borrowers and proponents and their businesses … pretty much across our portfolio there are impacts across all of them. The work we did with all those parties was a combination of restructuring, assisting with our financing activities and working with other financiers or, in the case of assets or financing such as Kalium Lakes, for example, providing short-term funding solutions to allow those projects to continue.
The NAIF is also providing more direct financing support to a wider array of projects. Mr Wade submitted that:
In terms of new proponents and new projects, we very much view our role during COVID-19 as being to get our head down and focus on supporting those projects through investment decisions, through contractual close, to get to the point where they get to draw down. So we have continued our momentum during COVID-19 and we have been able to reach close on a series of transactions across a whole range of sectors and across a whole series of regions.
In terms of support for a specific project, Mr Wade described the difficulties that the Townsville Airport expansion is facing and how the NAIF is supporting the project:
… as you would expect with airports at the moment, they are also managing two things: their capital expenditure budget and also their financing arrangements as they work through their financiers. ... We're a patient lender, from our perspective. I suppose we face this situation across our whole portfolio. If I look at each of those financings that we've been drawing down, they've all faced different challenges during the COVID-19 phase, which has led to us having to restructure a number of the arrangements to support them during this phase.
Infrastructure Australia's 2015 Northern Australia Infrastructure Audit (the 2015 Audit) identified key infrastructure needs across all northern jurisdictions, and the three northern state and territory governments have identified additional priority northern road projects. An Assessment of Australia’s Infrastructure Needs: the Australian Infrastructure Audit (the Audit) was released in August 2019 and included specific analysis of the needs of Northern Australia.
The Audit noted that many of the challenges faced by other parts of regional Australia are amplified in Northern Australia. In particular:
Exposure to more extreme weather and climate impacts, including high temperatures, high seasonal and variable rainfall in tropical regions, and events such as cyclones and floods.
Higher costs of living and doing business, driven by remoteness, lack of scale, and lack of historical investment in transport and essential services.
Higher levels of risk and barriers to investment in some regions, including significant first-mover disadvantage for proponents seeking to establish or extend supply chains to new areas.
Historical lack of coordination in planning and investment across jurisdictional boundaries, resulting in disconnected transport and energy networks and inefficient supply chains.
Higher rates of mobility, as workforces follow projects rather than settle in communities.
Large variation in the quality of life and diversity of needs from infrastructure, particularly in the most remote parts of the country and among Aboriginal and Torres Strait Islander peoples.
The Audit stated that these challenges have deterred or slowed development and investment across many northern regions. It noted that the combined impact of these challenges is also reflected in the slow rate of population growth in northern regions, particularly since the end of the mining construction boom. In 2017-18, the Northern Territory was the only state or territory to experience negative growth, with a rate of -0.1% and a net population decrease of 190 people.
However, despite the challenges facing Northern Australia, the Audit found that there are significant, largely untapped opportunities for development, and that infrastructure improvements could perform an essential role as a catalyst for growth in northern industries. The Audit suggested that improvements in physical and digital connectivity, and the development of gateways for trade with both domestic and international markets, could provide opportunities for growth.
The Audit noted a range of sectors such as agriculture, resources, energy, tourism, educational, health care, scientific research, professional services, and space and aerospace, as having opportunities for growth. It noted that the infrastructure needs across these sectors varies, but that common outcomes sought are resilience, reliability, and efficiency.
The Audit stated that the vast distances between communities in Northern Australia, and the exposure to a volatile and seasonal climate means that northern regions require improved connectivity through upgrades to transport and telecommunications networks. The Audit suggested that investment in airports and aerodromes in remote regions, and investment in elements of the supply chain such as storage and refrigeration facilities, could create new domestic and export markets. These investments would allow local producers to transport goods to expanded markets in a faster and more cost-effective manner.
The Audit highlighted that the expansion of export markets would also provide flow-on benefits for regional areas. For example, more agricultural exports by air would improve the economics of inbound tourism flights and increase the productivity of airport infrastructure. Similarly, improvements in communication infrastructure, such as broadband and mobile coverage, support growth in service industries, and increase access to social services such as telehealth and remote education. These improvements enhance the liveability of regional and remote communities and attract and retain residents.
Lessons for the future
The Audit noted that governments have committed considerable funding to reinforce critical infrastructure in rural and regional communities over a number of years. However, some investments have yielded limited benefits.
The Audit stated that development in northern regions could benefit from more detailed information and evidence-based studies of economic opportunities, as well as a better understanding of local needs and values, particularly of local Aboriginal and Torres Strait Islander peoples.
The Audit noted that the diversity of needs among regions and communities, including distinct cultures, traditions and values of Aboriginal and Torres Strait Islander communities and native title holders, limits the impact of broad, one-size-fits-all approaches to regulation, funding and policy.
It was noted that applying place-based thinking to understand local needs and values often takes time and cost. Frequently overlapping titles, procedures and legislation relating to land use and land title, including different land tenure regimes for mining rights, Aboriginal and Torres Strait Islander land rights, and tenure relating to water access and biodiversity offsets can raise barriers for accelerated investment.
However, while place-based thinking requires more initial investment to design and establish, funding and projects typically have substantially higher success rates and positive outcomes representing substantial value for money outcomes as compared to ad-hoc broad based approaches.