Tuesday, 29 October 2019

A Review of the National Indigenous Reform Agreement over the past decade: not in the public interest to share it with the public


                                                                ‘In nature’s infinite book of secrecy
A little I can read’
Antony and Cleopatra
Act One, scene 2



In December 2018, COAG established the Joint Council on Closing the Gap (link here).

The extract from correspondence from the NIAA is self-explanatory and relates to the status of a review of the National Indigenous Reform Agreement (NIRA) established by COAG in 2008.

The correspondence outlines the ostensible reasons for a decision to withhold release of a copy of the review in accordance with the Freedom of Information Act 1982. It does however provide a glimmer of insight into the processes of negotiation currently underway within the Joint Council. I hope to explore these issues in a subsequent post shortly.

The reliance on the Commonwealth state relations exemption appears to be incorrect as the review does not appear to fall within section 47B (b) of the FOI Act (see text below). The other ground of exemption depends on a balancing of the public interest. The factors listed as being against disclosure appear farfetched and to my mind tendentious. I invite readers to form their own opinion.

Taking a more global view, it is little wonder that the public at large is losing trust in government and politicians when government is not prepared to deal openly with the strengths and weaknesses of major strategic public policy frameworks. This is just one example.

[Extract from Correspondence from NIAA dated 24 October and emailed 28 October 2019]:

OFFICIAL

FOI/NIAA/1920/023/IR

FREEDOM OF INFORMATION ACT 1982

REQUEST BY: Michael Dillon

DECISION BY: Group Manager (name and position redacted)

NOTICE OF INTERNAL REVIEW DECISION

Dear Mr Dillon,

I refer to your email, dated 26 September 2019, to the National Indigenous Australians Agency (the NIAA) in which you sought an Internal Review under section 54 of the Freedom of Information Act 1982 (Cth) (the FOI Act), of the original access decision (the original decision) provided to you on 25 September 2019, in which you sought access to the following:

The most recent communique of the Joint Working Group on Closing the Gap (and which was recently published on the PMC web site (www.closingthegap.pmc.gov.au/jointcouncil) included the following text:
"The Joint Council considered a review of the National Indigenous Reform Agreement (NIRA), completed by the Partnership Working Group, and agreed to develop a new National Agreement on Closing the Gap, covering the next ten years, continuing the NIRA’s successful elements, strengthening others and addressing foundational areas that were previously excluded from consideration."
In accordance with the provisions of the FOI Act, I would like to request a copy of the final version of that review.

Authorised decision-maker

I am authorised to make this decision in accordance with arrangements approved by the Agency’s Chief Executive Officer (CEO) under section 23 of the FOI Act.

Matters Taken Into Account

In making my decision, I have had regard to the following:
• the FOI request;
• the document relevant to the FOI request;
• your correspondence of 26 September 2019;
• the FOI Act; and
• the Guidelines issued by the Australian Information Commissioner under section 93A of the Freedom of Information Act 1982 (FOI Guidelines).

Decision

I have decided to affirm the original decision to refuse access to the document, in full, on the basis that it contains information that is exempt under section 47B (Commonwealth-State relations) and section 47C (deliberative matter) of the FOI Act. The reasons for my decision are set out below.

Reasons
The requested document is a reflective assessment of the National Indigenous Reform Agreement (NIRA). The document contains input from all members of the Joint Council on Closing the Gap (the Joint Council). This is one of the key documents currently being used by the Joint Council to develop a new National Agreement on Closing the Gap (National Agreement).

Section 47B of the FOI Act – Commonwealth-State relations

Section 47B of the FOI Act provides that a document is conditionally exempt if disclosure of the document:
b) would divulge information or matter communicated in confidence by or on behalf of the Government of a State or an authority of a State, to the Commonwealth, to an authority of the Commonwealth or to a person receiving the communication on behalf of the Commonwealth.

In your submission of 26 September 2019, you queried ‘whether there was a requisite expectation of confidentiality given all states and the NT as well as up to 40 plus constituent member organisations of the Peak Council, are all potentially privy to the contents of the review.’ In addition, you requested ‘further consideration to the issues of balancing the public interest against the interests of the Joint Council members in operating in secret, given that the review relates to an overarching policy framework put in place over ten years ago.’

The Joint Council consists of forty (40) members made up of representatives from the States and Territory Governments and peak Indigenous bodies. The requested document contains frank assessments of the success and failures of the Closing the Gap program, which were provided on the mutual understanding of confidence to the restricted members of Joint Council. I am therefore of the view that the requisite expectation of confidentiality is satisfied as the audience is limited to the Joint Council, being its 40 members.

Accordingly, I consider the requested document to be conditionally exempt under section 47B of the FOI Act. Where a document is assessed as conditionally exempt, access must be given subject to the public interest test detailed in section 11A(5) of the FOI Act.

Public interest

Section 11A(5) of the FOI Act provides that the requested document must be disclosed to the applicant unless its disclosure would, on balance, be contrary to the public interest.

In determining whether disclosure would be contrary to the public interest, the FOI Act requires a decision-maker to balance the public interest factors in favour of disclosure against the factors against disclosure.

Section 11B(4) of the FOI Act sets out the following factors that the decision-maker must not take into account when deciding whether access to the document would be contrary to the public interest:
• access to the document could result in embarrassment to the Commonwealth Government, or cause a loss in confidence in the Commonwealth Government;
• access to the document could result in any person misinterpreting or misunderstanding the document;
• the author of the documents was (or is) of high seniority in the agency to which the request for access to the document was made; or
• access to the document could result in confusion or unnecessary debate. I have not taken any of the above factors into account in making my decision.

My consideration of the public interest in relation to the application of section 47B of the FOI Act follows.

Factors favouring disclosure

I have considered the factors set out in section 11B of the FOI Act that may operate in favour of disclosure and acknowledge that disclosure of the request document may:
• promote the objects of the FOI Act;
• would inform a debate on a matter of public important; and
• promote effective oversight of public expenditure.

Public interest factors against disclosure

The factors against disclosure in relation to section 47B, in my view, are that disclosure:
• would inhibit the interests of good government and sound public administration;
• would restrict the candour and utility of future discussions;
• may impair the Commonwealth’s ability to obtain information for the purposes of assessing the delivery of Commonwealth programmes, namely all related Closing the Gap initiatives;
• could reasonably expect to harm the interests of a group of individuals, namely Aboriginal and Torres Strait Islander peoples. In particular, release could reasonably be expected to diminish the NIAA’s ability to manage its ongoing service delivery operations relating to Closing the Gap initiatives in an effective and efficient manner; and
• could reasonably expect to prejudice the management function of the NIAA. In particular, the NIAA’s ability to manage its functions in meeting the Government’s Closing the Gap agenda priorities, policies and programmes for Aboriginal and Torres Strait Islander peoples.

After careful consideration of all relevant factors, I have decided that the factors against disclosure of the requested document outweigh those favouring disclosure. I am of the view that disclosure of the request document would, on balance, be contrary to the public interest at this time.

I am therefore satisfied that the requested document is conditionally exempt under section 47B of the FOI Act.

Section 47C of the FOI Act – deliberative processes

Section 47C of the FOI Act provides that a document is conditionally exempt if its disclosure would disclose matter (deliberative matter) in the nature of, or relating to, opinion, advice or recommendation obtained, prepared or recorded, or consultation or deliberation that has taken place, in the course of, or for the purposes of, the deliberative processes involved in the functions of an agency, a Minister or the Government of the Commonwealth.

In order to determine whether a document is conditionally exempt, the FOI Guidelines explain at paragraph 6.58 that:
A deliberative process involves the exercise of judgement in developing and making a selection from different options: The action of deliberating, in common understanding, involves the weighing up or evaluation of the competing arguments or considerations that may have a bearing upon one's course of action. In short, the deliberative processes involved in the functions of an agency are its thinking processes – the processes of reflection, for example, upon the wisdom and expediency of a proposal, a particular decision or a course of action.

In your correspondence of 26 September 2019 you contend that ‘further detailed consideration be given to whether this is in fact a deliberative comment; to whether factors in favour of release were adequately identified’.

Upon review of the document, I am satisfied that the document contains opinions, advice and recommendations provided for the purpose of consideration of the Joint Council in developing a new National Agreement. These assessments were provided to the Joint Council in confidence, to assist in their deliberations on the new National Agreement. The development of the National Agreement is still ongoing and the premature release of the requested document would substantially and adversely impact the effectiveness of the National Agreement and the future success of Closing the Gap initiatives.

I therefore consider the requested document to be conditionally exempt under section 47C of the FOI Act.

Public Interest

I have not taken any of the irrelevant factors listed above into account in making my decision.

Factors in favour of disclosure

The particular factors in favour of disclosure in this case are that disclosure would:
• promote the objects of the FOI Act;
• improve public over sight and scrutiny of government decision making; and
• promote effective oversight of public expenditure.

Factors against disclosure

The factors against disclosure in relation to section 47C of the FOI Act are, in my view, that disclosure:
• would inhibit the interests of good government and sound public administration;
• would restrict the candour and utility of future discussions relating to the ongoing development of the National Agreement;
• would restrict the candour, completeness and utility of future advice;
• may impair the Commonwealth’s ability to obtain information for the purposes of assessing the delivery of Commonwealth programmes, namely all related Closing the Gap initiatives;
• would reasonably expect to prejudice the management functions of the NIAA. In particular, the NIAA’s ability to manage its functions in meeting the Government’s Closing the Gap agenda priorities, policies and programmes for Aboriginal and Torres Strait Islander peoples.

After careful consideration of all relevant public interest factors I have decided that, on balance, the factors against disclosure outweigh those favouring disclosure. I am therefore of the view that disclosure of the requested document would, on balance, be contrary to the public interest at this time.

I am therefore satisfied that the requested document is exempt under section 47C of the FOI Act.

[Further content of the document related to review rights, complaint rights, contact details, and a signature block and date].                                     

Monday, 14 October 2019

Select Committee on the effectiveness of the Government’s northern Australia development agenda




On 4 July 2019 the Senate agreed to the establishment of the Select Committee on the effectiveness of the Australian Government’s Northern Australia agenda.

The committee is due to report on the last sitting day of 2020.

Information relating to the Select Committee including membership, the terms of reference and copies of submissions are available on the Committee’s web page.

A link to Committee home page can be found here

The Terms of Reference state:
That a select committee, to be known as the Select Committee on the effectiveness of the Australian Government’s Northern Australia agenda, be established to inquire into and report on the effectiveness of the objectives, design, implementation and evaluation 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

any related matters.

Submissions of particular relevance to Indigenous issues (link here) include:
#13 by Jon Altman and Francis Markham,

#58 by the Cape York Aboriginal Land Council,

#62 by the North Australia Indigenous Land and Sea Management Alliance (NAILSMA), and

#67 by Michael Dillon (the author of this blog).

Submission #80 by the Western Australian Government  is also worth reading, not least for the information it includes relating to the Indigenous Reference Group on Northern Australia (IRG) (see section (b) of the WA submission) where the WA government notes that the Commonwealth and relevant state and territory jurisdictions are developing a ‘Northern Australia Indigenous Development Accord’ aimed at capturing the extensive and collaborative work of the IRG’ and providing ‘a framework for Forum Government’s to align efforts to advance Indigenous economic development in northern Australia’. As far as I am aware, neither Minister Canavan nor Minister Ken Wyatt, nor their departments, have announced or discussed the proposed Accord. Certainly neither Minister’s departmental website provide any information on these proposals.

The key issue from my perspective will be to assess the extent to which the proposed Accord includes substantive policy initiatives, particularly in relation to land reform and native title, funding of PBCs, social and community housing in remote communities, and of course, access to public and private sector development finance for economic activities in remote communities. These are all issues I have argued for in previous blog posts. The WA submission goes on to advocate adjustments to the Investment Mandate of the NAIF to better support Indigenous economic (and hopefully social) investments in northern development. This is an issue that I have argued for over the past year or so in this blog and elsewhere.

To sum up, the Select Committee has the potential to both re-set the agenda in terms of Indigenous social and economic development in northern Australia, and to re-energise the Government’s current policy framework, which to my mind is big on rhetoric, but very short on substantive initiatives.

Tuesday, 1 October 2019

Progress at last: NAIF and Indigenous interests



Henry VI, Part One, Act 1, scene 4


Given that I have been critical of the lack of Indigenous engagement with the North Australia Infrastructure Fund (NAIF) – see my previous post here – I was pleased to learn that the NAIF has recently approved a $12.5m loan to and Indigenous mining project. The project is based on an orebody known as Wonmunna (since renamed First Iron) purchased from Fortescue mining in 2018, and will involve the sale of iron ore to Fortescue Mining Group (FMG) and its transport to FMG’s Cloudstreet project under an agreement entered into in 2017 (link here).

On 19 September, Minister Canavan announced NAIF support for an Aboriginal owned mining project in the Pilbara (link here). The Australian Aboriginal Mining Corporation (AAMC) will operate the project, based on two small deposits close to the BHP’s Yandi and West Angelas mines and the Rio Tinto Yandicoogina and Area C mines in the Pilbara. See the map in this National Indigenous Times article on the project (link here).

AAMC is privately owned by 21 shareholders. AAMC has 51% beneficial Aboriginal ownership with Aboriginal owned Carey Mining owning 25% and traditional owners of the areas to be mined apparently making up some or all of the balance of Indigenous owned equity (link here). Carey Mining is the largest shareholder in AAMC. It is owned and managed by Daniel Tucker, who is also the Chair of AAMC. Tucker is also a member of the Prime Minister’s Indigenous Advisory Council.

The AAMC media release (link here) provides the most detailed information on the overall project. The NAIF funding will be complemented by a $14.6m facility from Westpac, and the balance of capital required will be obtained through an equity raising exercise.
On its face, this is all good news and represents a positive step forward for Indigenous interests in the Pilbara and more generally.

It also represents a small window into a much larger political, economic and policy realm where private interests and public sector policies (especially Indigenous related policies) intersect and interact. Much of what is occurring in this domain is cloaked by the limited public information available in relation to private sector and commercial activity and contractual agreements (particularly where the interests involved are not publicly listed corporate entities). Thus, it is clear that Indigenous interests have been major financial beneficiaries in the resource development boom in the Pilbara (and other parts of WA and Qld) over the past two decades. However, policymakers and indeed the public at large, have very little information regarding the quantum of funds flowing to Indigenous interests, the nature of the non-financial provisions in the agreements that are being entered into, and indeed the fairness and probity of the negotiation processes that have taken place and are underway.

Of course, it is arguable that these are not matters for government, and the market ought to be allowed to do its job. The counter argument is that these outcomes are a direct result of the operation of Commonwealth (and to a lesser extent, state) legislation, in particular the Native Title Act, and governments have a responsibility to ensure that the outcomes of legislation are consistent with broader societal expectations. 

Indeed, if we were to conceptualise the role of government as a manager of societal risks, then, one might make an argument for much greater transparency by both commercial and Indigenous interests in relation to the outcomes of their negotiations over land use and resource development. Potential risks include unforeseen adverse environmental consequences, the implications of mines not being effectively remediated after their closure, and the implications of high levels of income and wealth inequality within Indigenous communities, to mention just a few potential examples.  Unfortunately, governments tend not to see themselves as societal risk managers, but rather operate within ideological frames focussed on ‘development’ or ‘jobs’. While economic development, growth and jobs are worthwhile objectives, they ought not to be pursued at all costs, without a clear assessment of the societal risks embedded within.

In the present case of the AAMC First Iron project, a range of questions remain unanswered. While one Indigenous shareholder has been identified, the balance of the Indigenous ownership remains shrouded in mystery. In the absence of this information, it is not possible to be entirely confident that Indigenous interests ‘control’ the policies and decisions of AAMC (notwithstanding its name and the majority beneficial ownership). A second set of unanswered questions relate to AAMC’s relationship with FMG, which itself has a somewhat chequered history of involvement with Indigenous interests (link here and here). It seems likely that at least from FMG’s perspective, the arrangements with AAMC are more than commercial and play into the complex commercial competition between the major miners (BHP, Rio, and FMG) in the Pilbara. Of course, this is not necessarily a negative factor for Indigenous interests, but it makes assessing the merits of the AAMC project that much more opaque.

Finally, while the decision by NAIF to assist an Indigenous commercial project is welcome, it is worth bearing in mind the scale of this decision. NAIF has $5bn available for lending, so the $12.5m loan represents around 0.25 percent of its funds. There remains a long way to go if NAIF can be said to be addressing the infrastructure needs of northern Indigenous communities equitably. This decision is at least a start.

Stepping back to a more panoramic viewpoint, this decision represents just one rather narrow and opaque window into the complex and heterogeneous ways in which mainstream interests and institutions engage and interact with Indigenous Australia. In an environment where governments are increasingly focussed on Indigenous policy narratives built around the economic development opportunities of Indigenous communities and citizens, the sheer opacity of this window is emblematic of a deeper structural problem. Policymakers (and commercial interests) spruik individual events (such as the NAIF loan and the start up of the First Iron mine) as policy successes without themselves having any idea or understanding of the totality of the social, cultural and economic consequences both positive and negative of these events. 

The normal approach of policymakers to managing this policy ignorance is to initiate an inquiry or review when a serious problem emerges. A better, more proactive, and potentially preventative approach would be to focus policy resources on increasing the transparency around commercial activities. This is particularly justified for those interests receiving publicly sourced financial assistance whether in the form of tax expenditures or write-offs, and concessional NAIF loans and the like. To take just one example, it is extraordinary that taxpayers do not have low cost or free access to the publicly available corporate records held by ASIC. In relation to NAIF, there is a range of matters that might usefully be placed on the public record once decisions have been taken (I made a number of specific suggestions in an as yet unpublished submission to this Senate Inquiry: link here).

Where commerce and policy intersects, sunlight is invariably a cheap and effective contributor to managing societal risk!

Friday, 27 September 2019

Native title: recent developments and ongoing challenges





A media release from WA Treasurer and Indigenous Affairs Minister Ben Wyatt, dated 27 September 2019, reports on yet another positive milestone in the resolution of outstanding native title claims across Australia (link here)

Below is a short extract from the media release:

Comprehensive Native Settlement over Geraldton and the Mid-West

In-principle agreement for a native title settlement over Geraldton and the Mid-West announced
Benefits will support Aboriginal economic advancement

The McGowan Government and the Traditional Owner Negotiating Team, representing native title claims in the Mid-West, have reached in-principle agreement for a comprehensive native title settlement over 48,000 square kilometres of land in the region, including Geraldton.

The native title claims are the Yamatji Nation, Southern Yamatji, Hutt River, Mullewa Wadjari and Widi Mob claims.

The agreement focusses on Aboriginal empowerment and recognition and includes a broad range of benefits. It was the vision of the Traditional Owner Negotiation Team to arrive at a settlement that would build a sustainable economic foundation for the traditional owners, ensuring their active participation in the regional economy, today and into the future.

Details of the benefits package remain confidential while the matter is in Federal Court mediation.

Having reached in-principle agreement, consultation and authorisation meetings will be held to seek authorisation from all the native title claim groups about the proposed settlement.

If authorised, the Indigenous Land Use Agreement will be submitted to the National Native Title Tribunal for registration.

Meanwhile, the native title claim groups will also be seeking a consent determination of Native Title in the Federal Court.

While there are still a number of steps required to finally resolve this matter, a key policy takeout is to point to the increasing momentum for regional settlements of outstanding native title claims.

Notwithstanding the steady incremental progress in the native title system being made both in WA and across other jurisdictions, a number of key structural challenges continue to confront native title holders. I have addressed a number of these in two CAEPR Discussion Papers (DP292 & DP294) available on the CAEPR website (link here). However, it is worth reiterating just one that requires urgent attention by policymakers in Canberra.

Once determined, native title is held by a corporate entity known as a Prescribed Body Corporate or PBC. These bodies take on a range of landowner responsibilities (generally responsibilities that were previously with the Crown). Yet funding for PBCs is minimal.

According to the NIAA website:

Prescribed Bodies Corporate hold, manage and protect native title on behalf of native title holders. The Australian Government assists these bodies to maximise the social, cultural and economic potential of native title through a new grant funding process (see Grants below)…
… PBC capacity building funding
The Department is now inviting eligible applicants to apply for PBC capacity building grant funding under the Indigenous Advancement Strategy.

The NIAA website also indicates (link here) that in 2016, PMC invited submissions on a PBC support strategy:

The Department is developing a Prescribed Bodies Corporate (PBC) Support Strategy to ensure that native title corporations are supported in an effective way.  The Department has prepared a consultation paper and is seeking feedback by email or mail by 2 December 2016.


It is not clear what if anything came of this process. Certainly, a search on the NIAA website suggests nothing beyond a submission driven capacity building program of unspecified quantum is available to PBCs.

With native title determinations covering over 30 percent of the continental land mass, this is an entirely inadequate allocation.

It is past time that the Commonwealth stepped up and began to seriously support native title holders in managing their lands. There is already a strong case for a stronger focus on supporting PBCs. This is especially the case for those PBCs that do not have access to landuse-related payments. The level of need will only rise as existing PBCs grow in confidence and new PBCs come into existence as a result of developments such as we are seeing in Western Australia’s mid-west.  

As an aside, it is also time for a major overhaul of the NIAA website to improve accessibility and the logical ordering of information. It is disrespectful to citizens and particularly First Nations peoples when basic information is effectively hidden by a poorly organised website.

Wednesday, 4 September 2019

Indigenous participation in the North Australia Infrastructure Facility




With silence….be thou politic
1 Henry VI, Act 2, scene 5


The North Australia Infrastructure Facility (NAIF) came into effect on 1 July 2016 as a corporate Commonwealth entity under the NAIF Act, which was passed with bipartisan support.

The Northern Australia Infrastructure Facility (NAIF) is a $5 billion lending facility to provide loans to infrastructure projects in northern Australia. Its website (link here) notes that:
  • NAIF investments can be used for the development of new infrastructure or materially enhancing existing infrastructure
  • NAIF can lend up to 100% of the debt, providing there is appropriate risk sharing
  • The project must have public benefit and have an Indigenous Engagement Strategy. This would usually be projects which will be able to service multiple users

In its first (2017) annual report (link here), NAIF reported (inter alia):

NAIF is here to help grow new businesses, enhance trade and investment opportunities and improve amenity for local communities … By participating in the development or material enhancement of economic or social infrastructure, NAIF aims to contribute to employment and investment opportunities whilst respecting the unique natural environment. This will make northern Australia more liveable, thereby attracting and retaining long term northern Australian residential communities. NAIF designed its Public Benefit Guidelines to capture broad economic and social benefit, to help bring amenity to northern Australia that is taken for granted in the rest of the nation. NAIF recognises, for example, the need for more reliable and affordable energy, communications and water infrastructure to improve productivity and support industry in the north. NAIF also appreciates the importance of those assets in creating better access to healthcare and education, keeping people connected and generating wellbeing for northern populations (page 3).

These admirable sentiments are tempered to an extent by the requirement for the NAIF to operate in a commercially viable context, thus leaving infrastructure needs that do not fit into the commercial category for governments to finance directly.

According to the first Annual Report:

The vision of the Northern Australia Infrastructure Facility (NAIF) is to contribute to transforming northern Australia through financing infrastructure development. NAIF is a ‘market gap’ financier established to provide loans (which may be concessional) to infrastructure projects that are viable in the long term, but which, without NAIF, would be unlikely to proceed, or would only proceed at a much later date or with a more limited scope
…NAIF is part of the Australian Government’s strategy to develop northern Australia, which was articulated in the Our North, Our Future: White Paper on Developing Northern Australia. The Minister for Resources and Northern Australia is responsible for the development and delivery of NAIF’s policy framework (page 8; emphasis added).

The ‘market gap’ rationale is consistent with a key theme of the White Paper (link here) which noted in a section headed ‘Our Vision’ on page 3:

It is not the Commonwealth Government’s role to direct, or be the principal financier of, development. Developing the north is a partnership between investors (local and international investors who provide capital and know-how) and governments (that create the right investment conditions).

Originally, the NAIF was required to partner with other lenders and was limited to providing only 50 percent of required funding, but this constraint was amended in a revised Investment Mandate issued in April 2018 presumably due to the slow take up of NAIF funding.

The NAIF website outlines the eligibility criteria for accessing NAIF lending, and these include a requirement included in the investment mandate issued by the Minister under section 9 of the NAIF Act for lenders to have an Indigenous engagement strategy. The website links to a guideline document that outlines the specific requirements (sensible but not onerous). I don’t propose to analyse it in detail.

Of more significance is the lack of substantive engagement of Indigenous interests in NAIF as both borrowers and in terms of the infrastructure needs across northern Australia. My previous post (link here) on Infrastructure Australia’s gradual shift to acknowledging the scale of Indigenous need is relevant to this issue.

For its part, the Government has recently appointed Kate George, an Indigenous woman from WA, as a Director to the NAIF Board.

The most significant NAIF decision for Indigenous interests since the establishment of NAIF has been the decision to lend $27.5m to Voyages Indigenous Tourism Australia for the upgrade of the Connellan airport at Yulara in the NT.

According to the ILC 2018 Annual Report:

A major capital project for Voyages in 2018–19 is upgrade of the Connellan Airport runway in early 2019. The upgrade involves replacement of the runway, aprons, taxiways and runway lights. Project mobilisation will commence in October 2018 and the full project will be completed by May 2019. GHD has been contracted as Project Manager and Downer awarded the major subcontracting role. Voyages has sought funding through the Northern Australia Infrastructure Facility for the project (page 43). 

NAIF lists investment decision notifications on its website (link here) and this page indicates that the NAIF Board made a decision to provide finance to Voyages on 28 May 2018. Section 17(2) of the Investment Mandate requires NAIF to publish its investment decisions on its web page within 30 days of a decision being taken. It is not clear when it did so, however the following media releases suggest that this did not occur.

The NAIF loan was announced jointly by Minister Canavan and Minister Scullion on 13 December 2018. Their joint media release (link here) stated:

“The loan will help finance upgrades of the airport’s runway, taxiway and apron, install runway lighting and build contractor accommodation.
“These works are expected to support up to 320 full time equivalent jobs and create around $370 million in economic benefits for the wider community over the next two decades.
“The NAIF Board’s revised Investment Mandate was an important part of giving NAIF the tools it needs to finance 100 per cent of this project’s debt and gave NAIF the flexibility it needs to deliver jobs and economic opportunities in Central Australia.”
Minister for Indigenous Affairs Nigel Scullion said NAIF’s investment to upgrade the airport’s runway would help Voyages Indigenous Tourism Australia employ and retain Indigenous Australians in real jobs.
“Voyages has a real focus on Indigenous employment, with a workforce of around 40 per cent Indigenous people and another 100 Indigenous Australians starting at its training academy every year. This particular project will also source between 3 and 5 per cent of its goods and materials from companies that are Indigenous owned,” Minister Scullion said.

The NAIF Board issued a media release on 20 December 2018 (link here). The loan represents 100 per cent of the project value. See the NAIF investment decision case study on Voyages (link here).  Neither the ILC nor Voyagers appeared to issue a media release announcing the loan.

While this appears on its face to be a good news story, the devil is in the detail.

The ANAO performance audit

As a result of correspondence from an Opposition MP citing concerns regarding capacity for effective management and due diligence in the administration of the NAIF lending scheme (link here) the Auditor General agreed to include an audit of the NAIF in its 2018 audit program. In April 2019, the ANAO released a performance audit report titled Governance and Integrity of the North Australia Infrastructure Facility (link here).

The ANAO audit findings were extremely critical of the NAIF’s management practices. For example, the Summary Findings present the audits conclusions in the following terms (inter alia):
8. The NAIF’s arrangements to support the integrity of decision making were not fully effective. While NAIF has established appropriate governance and policy frameworks, decision support processes were not sufficiently transparent or evidenced to demonstrate projects have been treated in a consistent manner.
10. The NAIF did not implement effective arrangements to support integrity and transparency throughout all elements of its operations … Arrangements for ensuring the integrity of decision support processes were not effective, with insufficient evidence that all applicants were evaluated in a consistent manner throughout the assessment stages. The Board placed reliance on the CEO to present projects for Board consideration, and the Board has not made any Investment Decisions to refuse financial assistance for the applications presented.

In a rather extraordinary exchange, the NAIF ‘entity response’ pushed back against the ANAO findings, which led in turn to a highly unusual rejoinder from the ANAO that included the following statement which I reproduce in full:

Accountability and transparency Principles of accountability and transparency are essential to maintaining public confidence in the quality of public administration. The Australian Parliament and the Australian Government give these principles specific expression in legislative and policy standards that apply to the powers, functions and duties of public sector bodies, including corporate Commonwealth entities such as the Northern Australia Infrastructure Facility (NAIF).

This audit concluded that the NAIF’s arrangements to support the integrity of decision making were not fully effective. While the NAIF established appropriate governance and policy frameworks, decision support processes were not sufficiently transparent or evidenced to demonstrate that projects had been treated in a consistent manner.

It is concerning that the NAIF’s response reflects a view that these findings are unjustified on the basis that they fail to consider the application of ‘expert commercial judgement’ in the decision making process.

The general duty imposed on officials in all Commonwealth entities to act honestly, in good faith and for a proper purpose5 necessitates the demonstration of matters taken into consideration in arriving at a decision. While the use of expert judgement may be appropriate, this does not reduce the expectation that the use of this judgement is transparent and clearly documented. This audit found insufficient evidence of the specific circumstances considered in moving some projects forward in the decision making process in preference to other projects — whether these considerations took the form of expert judgement or otherwise.

The accountable authority of a Commonwealth entity must govern the entity in a way which demonstrates to the Parliament, and the Australian Public, that it is promoting the proper use and management of public resources.6 It is incumbent on the NAIF Board, which has responsibilities with respect to the allocation of $5 billion of public funds, to understand its accountabilities and responsibilities in this regard.

The Commonwealth risk exposure

The NAIF investment mandate issued by Minister Canavan in April 2018 under section 9(1) of the NAIF Act 2016 (link here) included the following requirement:

12. Investment risk (1) The Board must satisfy itself that: (a) the Facility is not the sole holder of financial risk in each Project; and (b) there is a reasonable allocation of risk for each Project between the Facility and other sources of finance for the Project; and (c) it can appropriately manage the Facility’s risk exposure to each Project; and (d) its due diligence also identifies the total exposure of the Commonwealth to a project so as to prevent the Commonwealth overall having the majority financial risk in a project. (emphasis added)

The Explanatory Statement issued by the Minister along with the Investment Mandate is even clearer. It states (link here):

Paragraph 12(1)(d) requires the Board to identify all sources of Commonwealth financial risk in a Project and be satisfied that the Commonwealth does not hold the majority of that risk. Financial risk is borne by equity capital that carries the first loss risk. In assessing whether the Commonwealth holds the majority of the financial risk, the Board should consider the proportion of equity capital held by the Commonwealth.  (emphasis added)

In other words, notwithstanding the change that allowed NAIF to finance 100 percent of a project, the financial arrangements still required NAIF to assure itself that the Commonwealth was not the majority risk bearer. Sub-paragraph (d) prevents NAIF lending to a project where ‘the Commonwealth overall’ carries the majority of financial risk in a project.

While the NAIF Board’s decisions in relation to a project proposal are independent, the Minster has he capacity under sections 11 and 12 of the NAIF Act to veto a loan approval. NAIF must give the Minister at least 21 business days and at most 60 business days to consider his or her decision in relation to rejecting a funding each loan proposal. The ANAO report that it was normal practice for the Minister to seek advice from his or her Department prior to taking a decision to either reject or allow a loan proposal.

In the case of the Voyagers proposal, it appears that both NAIF and the Minister have ignored the requirements of subsection 12(1)(d). The reason this is the case is that Voyages Indigenous Tourism Australia is a wholly owned subsidiary of the Indigenous Land and Sea Corporation, which itself is a Commonwealth statutory corporation established by legislation.

Moreover, the ILSC is carrying extensive debt in relation to its ownership of the Ayers Rock Resort owned and operated by Voyages. In its 2018 Annual Report and financial statements (link here), the ILSC reports the following debt arrangements related to the Resort (emphasis added):

Debt facilities
Voyages has a bank loan with ANZ which is fully drawn to $112.5 million. The loan is a partially amortising senior secured corporate facility maturing in January 2021. Additionally the ILC has a $56.5 million fully amortising concessional loan, provided by the Commonwealth, maturing in March 2023. The loan is secured by a charge over Voyages’ assets and a mortgage over resort assets. Principal and interest payments due on this loan during 2017–18 have been met by Voyages through its operating cash flows (page 42).

ILSC Consolidated Financial statements:

In May 2016, ILC and Voyages entered into a $65,000,000 loan with the Commonwealth Government. The loan is secured by a mortgage over the ARR property, an equitable mortgage over shares in Voyages and a guarantee from Voyages. Principal and interest repayments are made quarterly at $1,462,500 per quarter until 30 September 2018 and $3,428,489 per quarter until the loan is fully repaid, scheduled in 2023. Interest on the loan was initially set at 2.5% per annum; thereafter it is based on the weighted average cost of borrowing for future issuance of Treasury Bonds as published in the Australian Federal Government’s Budget and Mid-Year Economic and Fiscal Outlook.

The $112,500,000 bank loan with ANZ is fully drawn at the balance date; the loan facility expires on 20 January 2021. The loan is secured by a mortgage over the ARR property, an equitable mortgage over shares in Voyages and a guarantee from the ILC. Under a separate, but connected, agreement between the Commonwealth, ANZ and Voyages, the ANZ has ‘priority’ over the Commonwealth should it need to call upon its equivalent security interests in such assets. $12,500,000 of the bank loan is repayable in instalments over the remaining term with equal six-monthly instalments of $2,500,000 until the 20 January 2021. The total amount repayable on maturity is $100,000,000. As at the balance date, $5,000,000 of the bank loan is classified as current with the remainder, $107,500,000, classified as non-current. (page 115 of the 2017-18 Annual Report).
……
Indigenous Land Corporation, which is the Group's parent and controlling entity of the ILC Group also has:

Guarantees entered into by parent in relation to debts of subsidiaries

The ILC provides a guarantee to the ANZ bank in relation to a $120 million facility with Voyages. The ILC has guaranteed the performance of Voyages in relation to a lease of photovoltaic systems at Yulara. The undiscounted cost over the term of the lease is estimated at $19.6 million. (page 127 of the ILSC Annual Report).

Not only is the NAIF loan to a Commonwealth owned entity, but the Commonwealth is subject to contingent liabilities beyond the value of the assets on the ground at Yulara as a result of the ILSC’s inability to raise commercial finance at competitive rates.

This is all an outcome of the decision of a former Board of the ILSC in 2010/11 to purchase the Ayers Rock Resort (ARR), against the advice of the then Minister for Finance and Minister for Indigenous Affairs. The decision has been the subject of sustained criticism over subsequent years (link here) for a range of reasons, not least that it meant that the ILSC has been forced to curtail its statutory functions elsewhere to meet the financial commitments which flow from the acquisition. For reasons that have been difficult to fathom, former Minister Scullion was a strong supporter of the acquisition and the Board that took the decision, and subsequently arranged for the provision of a concessional loan of $65m to the ILSC at concessional rates compared to available commercial finance.

The NAIF decision to direct yet more Commonwealth resources into the Ayers Rock resort, in direct contravention of the Investment Mandate under section 9 of the NAIF Act, is now the second Commonwealth loan to be directed to the Ayers Rock Resort, notwithstanding claims that the acquisition was consistent with the requirement that the ILSC Board operate in accordance with commercial business principles. The NAIF loan brings the Commonwealth’s loan exposure to the ARR to over $90m.  

The bottom line

It seems very clear that NAIF has breached its Investment Mandate Requirements by taking a decision that leaves the Commonwealth exposed to 100 percent of the project risk. This flows form the fact that Voyages is a wholly owned subsidiary of a Commonwealth entity.

Outstanding questions worth pursuing in appropriate forums include:

·       Has the NAIF Board implemented the recommendations of the ANAO performance audit into NAIF governance?
·       Why was there a six month delay between the investment decision in May 2018 and the announcement in December 2018?
·       Did the NAIF publish its investment decision in relation to Voyages within the timeframes stipulated in section 17 of the Investment Mandate?
·       Why did the NAIF Board ignore the explicit requirements of section 12(1)(d) of the NAIF Investment Mandate?
·       Was Minister Canavan or his Office advised by NAIF or his Department of any concerns in relation to the potential breach of section 12 of the Investment Mandate?
·       Was Minister Scullion advised by his Department or the ILSC of any concerns in relation to the requirements of the Investment Mandate?; and finally,
·       Given that this NAIF decision was effectively the Commonwealth financing itself, when will NAIF make an investment directed to assisting the Indigenous citizens of northern Australia to meet the huge infrastructure shortfalls that they are experiencing?

There appear to be extremely strong policy merits in revisiting the NAIF investment rules to facilitate greater access by Indigenous interests to the $5bn fund.




Disclosure: the author was from 2008 to 2011 an adviser to Minister for Indigenous Affairs Jenny Macklin; and from 2013 to 2015 the CEO of the ILC (now the ILSC).