Afghanistan: lessons for Indigenous policy

 

How many ages hence

Shall this our lofty scene be acted o’er

In states unborn, and accents yet unknown!

Julius Ceasar, Act three, Scene one.

 

The following extracts are taken from two articles on the Statecraft Substack (link here), a project of the Institutre for Progress (link here), a US based thinktank focused on innovation policy.

 

The first article is an interview with Laura Thomas, a former CIA case officer and chief of base in Afghanistan. It is titled How to Run a CIA Base in Afghanistan (link here). The second article is an interview with Kyle Newkirk, a former Deputy Director of Procurement for Afghanistan with USAID; the article is titled How the Government Loses a Road (link here).

 

Both articles are perspicacious and offer many more insights than I have chosen to highlight here. The extracts I include here are particularly fascinating because of the striking parallels and resonances with aspects of the formulation and delivery Commonwealth Indigenous policy, and in particular its enmeshment within a broader bureaucratic and political system. While I draw some high-level conclusions at the end of the post, I leave it to readers to discern for themselves the parallels that struck a chord.

 

The following text is from ‘How to Run a CIA Base in Afghanistan’:

Are there particular cultural challenges in Afghanistan that are difficult for CIA officers to get up to speed on?

Yes, the vast history of the country and the breakdown of tribal dynamics. Not every officer, I think, is poring over every historical book and reading everything they possibly could before they deploy. They should be, but there's just not the time. That's a real challenge. Being able to talk about the history of a person’s country, tribe, or religion with them is very valuable to building a relationship. When I could cite an obscure event that happened in their country in 1920 and ask them how they think it affected the course of their own history, there is often a real appreciation from them that I’ve taken the time to try to understand…

And this is a big challenge for any government agency. Being a generalist can be great. And sometimes it's good to take someone who's worked on one area, and move them over to another because there's a lateral thinking that goes with that.

“And now this cross-collaboration and sharing is going to make us all stronger in some cases.” Sure. That's helpful. But in other cases, you're losing a level of expertise. 

When you learn a language and you're living with people, it’s very hard not to authentically care and want to understand their way of seeing the world. Some people think case officers are only transactional: “I'm going to recruit this person, I'm going to write up an intelligence report, I'm going to give them some money, and then we're going to call it a day, and I'm going to advance in my career.” But there's usually a real personal bond and relationship that forms, and the best case officers are incredibly authentic, and authentically want to know someone else from a true curiosity standpoint, not just, “How can I leverage this for the US’ gain and for my own career gain?” 

What kinds of training are missing in foreign policy? Do folks need more history? Political science? Literature? You're saying that ideally, everyone would have this in-depth sense of the history of the country they're going into. Are there ways those kinds of trainings could be better implemented at CIA? 

Yeah, study abroad. Getting people even just paid to live and learn a language overseas. Nothing beats being in a location that you're supposed to be developing expertise on.

And having seen it, there's certainly the ivory tower. Book learning is great. I think everyone should endeavor to read and truly take in a culture, a history, religion, the people. But books, seminars, and thinkpieces will only get you so far.

It takes real human interaction to truly develop expertise. Again, you're always making trade-offs because you're trying to move quickly. You're trying to get the job done. You can't afford to give everyone this ideal training. 

This is a point of frustration at times between CIA officers on the ground and those in the policy establishment in D.C., who maybe have studied a country at the graduate and PhD level, worked on a campaign, and worked in a think tank, but have never been “on the ground” for any meaningful period of time. There wasn’t much more frustrating than a call with someone on the National Security Council (NSC) who had jumped from campaign to think tank and back, who believed they were the foremost expert on a topic. 

CIA does not make policy, it only reports the facts on the ground and makes assessments. But a number of times in my career, it was a real challenge to watch people in D.C. get things so wrong and not be able to do anything about it. 

We are facing a dearth of people who truly have knowledge on topics nowadays, because we're surging people to different areas. We're trying to cross-pollinate and that's to our detriment most of the time. 

The biggest challenge, however, is mediocrity in bureaucracy.

That all goes back to how do we restore trust in government? If anyone can give you a concise answer to that, I think they're probably lying because there's no one way. This is a multivariable problem, but I think the first step would be how do you rid a bureaucracy of mediocrity? 

And I think that all goes to, what's your reward structure? How do you incentivize people to move up the ranks? How do you hold back people who aren't really contributing? Agencies have to reform themselves in that way – or you can have Congress do it, but Congress is completely dysfunctional too these days, so that's not going to work either. 

The CIA needs fresh thinking at the mid and senior levels. Growing risk aversion is natural as one moves up through the ranks in any bureaucracy. Granted, judgment can also grow as a function of experience, but not always. The challenge is to find and promote officers at the mid and senior levels who can combine both smart risk taking and judgment…

The way to address this challenge at CIA is to implement an incentive structure that pushes quality of source/agent recruitments and operations involved in over quantity…

At CIA, the level of quality and the recruitment of human assets should be downright surgical. CIA does not need to run a lot of human sources to have outsized and exceptional insight. It takes an incredibly long time to establish such networks and the growing world of ubiquitous technical surveillance (UTS) makes it exceptionally hard. But it’s doable, and there are strong officers who can navigate these challenges.

Addressing this challenge will help limit intelligence failures, but it won’t stop 100% of them. No intelligence service can, especially one that operates with democratic principles. CIA always gets the blame and rarely gets the credit – its mistakes are visible and its successes are not, mostly by design.

 

The following text is from ‘How the Government Loses a Road’:

Given that sense that this [the development of Afghanistan] was going to be a really long-term project, why did USAID and other agencies keep shelling out money for projects they couldn't oversee adequately? 

With USAID in particular, nobody ever won any awards in the government by making their budget smaller. We would just think, “We will be better next year.” …

So you've got the institutional trajectory of, “If a lot of money is good, more money is better,” and nobody gets to the end of the fiscal year without spending every bit of money that they've got. Everybody was wanting to grow programs….

… It’s all politics to a certain extent, right? Everything is really driven from the president down through the executive branch and depends on the administration. Everybody wants to show taxpayers the results, and they think, “More money will make it better and we'll be able to show more results.”

It’s not big enough and it's not sexy enough for congressional oversight committees to really dig into….

… Audits frequently identify weaknesses in planning that impair the effectiveness of USAID programs.” Talk to me about some of those failures. 

Yeah, I think that is generally true of the government's approach to foreign aid, and probably for any region or geography….

We don’t have a 10-year development roadmap, it's all on 2 or 4-year cycles, really tied to our election cycles….

The decision making is not strategic, it becomes extremely tactical. The programs that get funding largely depend on whoever the ambassador is or whoever the mission director is. USAID does not actually implement the programs, it’s a contracting organization….

…. At the end of the day, USAID doesn’t do any of the work they program the money for. We’re either hiring contractors or NGOs to go out and execute these programs. All that USAID really is, is a contracting organization that tries to funnel money into things that they think will possibly affect American foreign policy. Often the linkage between the programs and our foreign policy isn’t very clear. Every time you get new leadership, things can change. 

And the contract periods are not very long…. So often when things don't get completed, it's because we're not actually taking a long enough view. 

The 2008 GAO report on road construction talks about the Afghan government’s inability to hold up its end of the bargain on maintaining roads, the DoD's inability to locate roads, and USAID's inability to fund useful road projects… Why did we keep funneling American taxpayer money to multi-year projects that we knew were bad places to park it? 

You're right. It was obvious that this wasn’t working very well by the second term of the Bush administration, but they were so invested in it that they weren't going to take their foot off the gas. When Obama was elected, it became, “Iraq: bad war. Afghanistan: good war. We’re gonna do the surge.” We had the surge in troops, but there was also a diplomatic surge, so more money, more foreign aid.

By the end of the Bush administration, they thought it would be someone else’s problem, and then Obama doubled down in his first term. They pared it back a little bit in his second term, but he was committed for eight years. So now you have 16 years of, “I'm not willing to say that my choices were wrong.” Until Trump, nobody really asked if it was working.

Then you got this amazingly idiosyncratic presidential administration that was really skeptical about what we were doing internationally. You wouldn’t have expected it, but they ended up asking a lot of the right questions.

From Bush to Obama, there was politics and inertia. It was just easier to keep doing the same thing than to ask difficult questions and do major course correction. 

You’ve given some good reasons for suboptimal procurement. Could things have gone differently or were we always doomed to have rampant corruption and inability to locate roads and oversee projects? 

I tend to be maybe more positive about this than maybe I should be. I think things could have gone differently if we had a clear sense of what we were trying to accomplish, a rational sequence for doing it, and, frankly, a lot less money…

If we had clear aims and a slower ramp and didn’t also have to manage Iraq as well, we could have prioritized what we thought were the key things, because there was so much to do. We were trying to rebuild the government, provide some stability and coalesce around Karzai, redo the banking system, redo land tenuring, build the ring road, the Kajaki Dam hydroelectric project, all at the same time. We undertook too much. 

 

Conclusion

The parallels between the bureaucratic processes that operated in Afghanistan and some aspects of Australian Indigenous policy are obvious to anyone with any familiarity with how Australia’s federal and state and territory bureaucracies operate. The trade-off between the need for process to ensure effective delivery and hopefully accountability, and the propensity of process to stifle innovation and a focus on substantive outcomes is very real.

There is scope for agency level reforms, and indeed wider cross agency reforms such as we see in the Priority Reforms at the core of the National Agreement on Closing the Gap. But this potential is not being grasped in relation to the Priority Reforms, and nor is it happening more broadly. This suggests to me that we have a deeper and more important problem that resides within our system of politics.

Any attempt at a diagnosis of the problems besetting our political system would inevitably be partial. The symptoms are clear: mediocre and deeply ineffective oversight of the Executive arm by the Parliament (due to influence of political parties within our electoral system), extraordinary levels of influence by interest groups, shallow levels of oversight by the media, and virtually non-existent levels of substantive transparency by Governments.

The solutions are to fix the problems listed above, but feasible pathways through the self-serving systems that dominate our public policies are less obvious. It is time we tried innovative approaches given that the present structures are not working. For example, if we truly value democracy, we would (as Nicolas Gruen has long argued link here) make much greater use of deliberative democracy at all levels of our public decision making.

The proposed Winchelsea mine on Groote: the commercial and policy risks are pervasive

                                                     Something is rotten in the state of Denmark.

                                                Hamlet, Act one, Scene four

Introduction

In the previous post (link here), which I strongly suggest that you read before this reading this post, I laid out the background to the Anandilyakwa Land Council’s (ALC) pursuit of the Winchelsea mine project, with high level support from the NT Government, and an apparent lack of proactive engagement by the Commonwealth. At the end of that post, I indicated I fundamentally disagreed with the narrative being promulgated by the ALC. This post explains the reasons for my concerns and argues that there are three high level problems with the ALC narrative in relation to the future of Groote.

 

The first relates to endemic conflicts of interest between the ALC and a number of associated corporations in receipt of royalty payments from the ALC, conflicts that extend to the individuals involved and which have the potential to adversely impact millions of dollars in royalty allocations. The second relates to commercial feasibility of the proposed mine (noting that I do not claim particular expertise in this matter, and there is a risk I may be mistaken). The third relates to the ALC’s royalty allocation strategy designed to facilitate the development of the mine.

 

The Commonwealth Minister for Indigenous Australians has regulatory responsibility for oversighting the Aboriginal Land Rights Act in the NT, and the various land councils established by that legislation. The land councils are thus Commonwealth statutory corporations, and (in theory) subject to the normal accountability and regulatory requirements applicable to all Commonwealth entities. Former Minister Ken Wyatt was responsible for approving the Winchelsea mining agreement on Groote in accordance with section 45 of the Act.

 

I should state up front that I readily acknowledge that the NT land councils are complex cross-cultural institutions and confront considerable challenges merely in undertaking their daily business. This is particularly so for a small land council representing just 14 clans on a remote archipelago. Yet the fact that the effectiveness of the NT Land Councils are so important to the achievement of Aboriginal aspirations makes it even more important that they should be held to standard accountability requirements, both to their constituents and to the community at large. Once they lose the trust of the wider community, and their own constituency, they will lose the capability to protect Indigenous interests, let alone advance them. The ALC is particularly vulnerable to financial risk insofar as it manages upwards of $50m per annum in operational expenses and royalty distributions.

 

At its core, the institutional architecture oversighting Aboriginal land held under ALRA title in the NT is simple. Land Councils have a function of negotiating on behalf of traditional owners with persons seeking to obtain an interest (such as an exploration or mining licence) over Aboriginal land. Aboriginal land is owned by a Land Trust which must act on the direction of the relevant Land Council. The Land Council in turn must consult the traditional owners (TOs) for the relevant land to ascertain their wishes and must be satisfied they understand the proposal and as a group consent before directing a Land Trust to agree (or not) in relation to any decision related to dealing in the land. See section 23 of the ALRA.

 

The Land Councils also have a function to assist in commercial development. Section 23(1)(ea) provides that a function is:

to assist Aboriginals in the area of the Land Council to carry out commercial activities (including resource development, the provision of tourist facilities and agricultural activities), in any manner that will not cause the Land Council to incur financial liability or enable it to receive financial benefit…

 

Subsection 23(3) provides that in carrying out its functions a Land Council should not give or withhold consent in relation to a proposal unless it is satisfied that the TOs ‘understand the nature and purpose of the proposed action and, as a group, consent to it’.

 

The difficulty in relation to the proposed Winchelsea mine is that the TOs of Akwamburrkba (Winchelsea Island) own (via the Anindilyakwa Advancement Aboriginal Corporation) 70 percent of the equity in Winchelsea Mining Pty Ltd, the proponent. On its own, this creates a structural potential conflict of interest. Yet the cross directorships, cross employment arrangements, personal conflicts and cross consultancy arrangements create an extraordinary network of conflicted loyalties that are difficult to comprehend in any effective governance structure, let alone one involving a Commonwealth statutory corporation.

 

According to Mr Hewitt in his evidence to the Estimates Committee, the TOs did not make a financial contribution (the ANAO states it was a mere $60), but instead agreed to provide their consent. In fact, a number of Aboriginal Corporations based on Groote provided loans to Winchelsea (AAAC $11.6m; ARAC $4m) which supplemented the ACIM contribution of $10m plus a loan of $1.6m). Moreover, AAAC has no CEO, and only 8 staff, and the majority of its revenues are the result of discretionary grants from the ALC which according to its 2022 Financial Statements (page 14) are provided for specific purposes related to the Winchelsea Project. The Financial Statements report also states that future funding from the ALC is contingent on progress reports and project performance.

 

While Winchelsea Mining is a subsidiary of Anindilyakwa Advancement Aboriginal Corporation (AAAC), a registered charity. The AAAC’s six Directors include three ALC Directors. The ALC Chair, the ALC CEO and his spouse are three of five Directors of Winchelsea (the other two are representatives Winchelsea’s other owner, AUS China International Mining Pty Ltd). There is no representation on the Winchelsea Board of any AAAC Directors.

 

Given these complex conflicts of responsibility, it is difficult to see how the ALC could have objectively and neutrally undertaken the consultations necessary for it to meet its statutory functions in negotiating a mining agreement between TOs and Winchelsea Mining Pty Ltd. It is also difficult to understand how a Minister, if properly advised, could approve a proposed mining agreement without initiating further investigations to ensure there were no accountability or policy issues requiring specific attention in the Agreement. One option available to the Minister would have been the appointment of a mining commissioner to watch over the negotiations. Given the current structures in place, it seems unlikely that the then Minister in fact undertook any of these precautionary measures.

 

Problem One: ALC effectively controls key Aboriginal corporations in receipt of royalties.

While the ALC has a statutory function to assist Aboriginal Corporations such as AAAC and GHAC, it seems unlikely that this power extends to cases where the ALC is exercising effective control of the corporation. See for example sections 23AA (3) and (5) of the Aboriginal Land Rights Act.

 

Section 910B of the Corporations Act 2001 provides inter alia in relation to the meaning of control that ‘control’ includes:

having the capacity to determine the outcome of decisions about the body corporate's financial and operating policies, taking into account: (i) the practical influence that can be exerted (rather than the rights that can be enforced); and (ii) any practice or pattern of behaviour affecting the body corporate's financial or operating policies…

 

It is clear that the ALC’s influence over AAAC’s budget and expenditure and its role in controlling the operations of its subsidiary Winchelsea prima facie meets this definition.

 

Similar arguments can be made in relation to the other corporate entities operating on Groote with significant involvement in aspects of the Winchelsea mine proposal:

 

Groote Holdings Aboriginal Corporation receives significant royalties from the ALC to support the development of the Winchelsea mine, particularly its logistics infrastructure. GHAC’s funding is 99 percent from the ALC. Its six community based Directors include the ALC Chair and four other ALC Directors, and the three Independent Directors include the ALC CEO, and whose Chief Operating Officer is the ALC CEO’s spouse.  The Chief Financial Officer (CFO) of GHAC is undertaken by ENMARK, the firm operated by the Chair of the ALC Audit committee.

 

The Anindilyakwa Royalties Aboriginal Corporation whose primary role is to receive and disburse section 63(3) payments has nine Directors, including five ALC Directors (including the ALC Chair) and of the remaining four independent Directors, at least two are or have been in receipt of consultancy funding from the ALC.

 

The Anindilyakwa Leaders Future Fund Aboriginal Corporation (ALFFAC)is a further example of the ALC exercising control and influence over a corporation, albeit with its purpose fo benefitting ALC members in plain sight. The ALFFAC Board and membership is comprised entirely of Directors of the ALC, whose funding of $1.5m in 2021/2022/2023 was entirely from the ALC (listed as a section 35 grant) and whose purpose is entirely focussed on providing voluntary and extremely generous lifelong ‘recognition and protection’ packages to former ALC Board members and staff (albeit with a discretionary element). While a case can be made for arrangements such as these, they are virtually unknown amongst Commonwealth statutory corporations and the potential downside is that they may constrain the exercise of independent judgment by ALC Board members who may fear they are placing a future income stream at risk if they question the ‘accepted wisdom’ on investment decisions involving millions of dollars.

 

To sum up, it is one thing to argue, as the ALC does, that its involvement with the various corporations supporting the proposed Winchelsea mine is consistent with its statutory function to assist distinct and autonomous corporations in its region to engage in commercial activities. It is quite another thing to engage with corporations where the ALC is prima facie exercising effective control in its own right in relation to the decisions being taken. Such an outcome is not consistent with the fundamental intent of the checks and balances that are built into the architecture of the Aboriginal Land Rights Act in the NT. In particular, the provisions of section 35 which are clearly designed to ensure land council accountability for its payments to corporations of section 64(3) royalties. This accountability constraint is undermined and subverted if the corporations are not independent of the Land Council. This would not be just a technical breach, but leaves open the potential for poor decision-making to occur without any of the normal checks and balances being engaged. The key intent of these checks and balances is to protect traditional owner interests. As a result, the likelihood increases that land council interests (or in a worst case scenario, the interests of a clique within the land council) are pursued to the disadvantage of TOs generally.

 

Problem Two: the financials for the Winchelsea mine project do not stack up.

Correction 13 November 2024: see the post Winchelsea Update dated 13 November 2024 for an explanation of an error in the anlysis below. My calculations of the value of the resource fialed to factor in the average concentration levels of the ore and thus underestimated the overall value of the resource.

The key documentary sources I relied on in assessing the economic impact of the project are documents included in the Draft Environmental Impact Statement (EIS) for the project submitted by Winchelsea Mining (link here and link here). The EIS is currently open for public comment. Key chapters are Chapter Four (4.3.2 Ore Estimation), Appendix E JORC Reserve Estimate Report undertaken by Xenith, a specialist resources consultancy and Appendix X Social Impact Assessment undertaken by CDM Smith (4.1.14.10 Project Labour Requirements and 4.1.14.11  Project Economic Contribution).

 

According to the sampling undertaken by Xenith, the total proved and probable ore reserves (as at October 2020) were 11.8 million tonnes with an average manganese concentration of 26%. Xenith estimated the costs of extraction and processing (Table 8.1) and this led to the estimation of net ore prices for the various categories of ore (Table 8.2 at Appendix E). Estimated  FOB prices varied between A$5.68 and A$1.74 dmtu (dry metric tonne unit). I requested Chat GPT to analyse the relevant information in the report: ore reserves, current manganese prices and extraction scheduling data (table 4.3-5) to obtain a total revenue figure for the projected 11-year life of the mine. That request elicited a current valuation of estimated total revenue for the project of A$33.6m. Xenith undertook a Net Present Value analysis of the orebody and the costs of production/processing (Section 8.5 Financial Analysis page 30). They state without any further information: ‘Financial analysis of the mine schedule showed a positive NPV of the project’. They do not expand however on the assumptions adopted including the relevant discount rates.

 

In a case study of the Winchelsea project on the Xenith web site (link here), Xenith commented:

The outcome of the study confirmed the project was technically viable. It demonstrated targeted export manganese ore product quantities and grades could be achieved based on the waste removal, ore mining, ore processing and associated support infrastructure and services, including product export facilities.

We concluded the project demonstrated positive economic returns with respect to cashflow, NPV and IRR, however the final determination of the project’s economic feasibility remained subject to financing and certain regulatory approvals in control of, and to be determined by, Winchelsea Mining.

 

I take this conclusion at face value but note that it does not appear to take into account the costs associated with the purchase of the mining tenures involved from Yukida Pty Ltd, the previous owners of the exploration licences. In particular, according to the 2020 AAAC Financial Statements, Winchelsea is committed to paying Yukida $6.25m immediately upon the first shipment of manganese. Nevertheless, noting that the total value of the ore resource will be subject to variations in the price of manganese, even were we to assume that manganese prices doubled over each the projected eleven year life of the project, the net value of the resource would be around $70m and the potential profit would be substantially less than that figure. I should add a caveat here that I am not an expert in project feasibility studies and was extremely sceptical when I first made my own rough calculations of the limited likely value of the ore reserves. However, I took some confidence from having my rough estimates confirmed by ChatGPT’s assessment of Winchelsea’s EIS data.

 

We can get a sense of the financial challenges arising from the low valuation of the available ore body by calculating the costs of employing the average of 83 mining staff identified in the EIS over the 11 year term of the mine. See Chapter 4 of the EIS, section 4.4.14.1. which describes the proposed workforce for the mine (link here). A quick internet search reveals the average mining salary in Australia is over $105k per annum (link here and link here). Adopting a conservative approach, and assuming the average salary at Winchelsea is say $95k per annum, then the cost of 83 staff over 11 years totals $87m. If the Winchelsea resource is valued at $70m, then the projected employment costs produce a $17m deficit without any further assessment of the costs of the capital investment required for the mine, the necessary operating expenditure, the contracted payments to Yukida Pty Ltd of $6.25m arising from Winchelsea’s acquisition of the mining tenure, and of course the repayment of the ‘loans’ of $15.6m already provided by AAAC ($11.6) and ARAC ($4m). Clearly, on the available information provided by Winchelsea, far from being commercially viable, the Winchelsea project faces huge challenges to avoid incurring substantial losses.

 

Reinforcing this rather dire assessment, the EIS also estimates the contribution of the project to the local, NT and international economy. In Appendix X, Table 4-22 the consultancy firm CDM Smith (presumably engaged by Winchelsea) estimate the anticipated capital expenditure associated with the mine in the 12 months from 2024 as $224.6m. In Table 4-23, they estimate the operational expenditure of the mine over a period of 14 years from FY 2025 as totalling $448m (presumably in 2024 dollars). That is in total, the EIS estimates capital and operational expenditure of $672m over the life of the mine. Yet the total current value of the manganese resource currently identified is somewhere between $30m and $70m.

 

There is a part of me that still cannot come to terms with these calculations. Yet they are drawn from Winchelsea’s own documents and commissioned research. The figures would be laughable except that the mine is apparently proceeding, albeit slowly and incrementally, and with apparent support amongst political elites in Darwin and Canberra. While the prospect of a viable mine continues to have currency and be talked up (see the Estimates transcript quoted in the previous post), the risk will be that the ALC and Winchelsea will contrive to direct more and more royalty flows to Winchelsea (via the corporations listed above) to seek to demonstrate that the possibility of a commercially viable mine is more than a mirage. The inevitable losers in such a process will be the Anindilyakwa families and children who could have been supported by sensible and more risk averse royalty distribution policies.

 

Problem number three: the Future Groote Strategy is hot air.

As I noted in my earlier post, the ALC Strategic Plan 2023- 2033 is an ambitious document (link here). It is 173 pages and identifies 18 individual areas of focus for the decade ahead conveniently listed on page 3. I am not seeking to provide a comprehensive critique of the document here, and readily acknowledge that many of the proposed priorities and initiatives would have enormous merit if they could be funded.

 

In relation to the Winchelsea mine and the concomitant implications for royalty distributions, the ALC strategy is to use the Winchelsea mine as a ‘future Groote enabling project’ with:

… a core vision to raise enough revenue to permanently support the economic and social future of the TOs of the Groote Archipelago… The mining venture will provide annual fixed payments to impacted clans, provide guaranteed payments into the Anindilyakwa Mining Trust and surplus profits will be reinvested into major projects for the benefit of TOs…

 

I see two separate issues with this strategy.

 

First, as outlined above, it seems far from certain that Winchelsea will make commercial profits, and to the extent that it makes losses that are made up or offset from royalty flows through the ALC and its associated corporations, the ALC post mining strategy outlined in the Strategic Plan will be a complete failure.

 

Second, even if my financial analysis were to be misconceived and the mine was financially viable, it is not clear to me that the opportunity cost of the necessary financial commitments towards the mine from royalty distributions do not outweigh the benefits. This is essentially a value judgment, or to put it another way, a policy issue. However, it seems to me that in a situation (as outlined in the  ANU socioeconomic data report published on the ALC website link here) where there is a significant outstanding housing need, where education outcomes are woeful, and where health and substance abuse are ongoing challenges, the policy choice is clear. The current path of prioritising a major commercial investment with limited employment opportunities for local people, and the potential for substantial financial losses, is in socio-economic terms extremely high risk.

 

An alternative strategy based on low key and straightforward investments in housing, preventative health and education would likely create more certain and widespread benefits. While the ALC would argue that they are in fact investing in these priorities, the reality is that the quantum of funding projected to flow into the mine will inevitably stifle the amounts available for these more basic strategies.

 

The bottom line here is that the aspirational rhetoric in the ALC Strategic Plan is both ultra-ambitious, and it fails to adequately consider the choices and trade-offs between the numerous priorities that the ALC is promulgating. Moreover, while the Plan (which appears to have been drafted to a management consultant’s template) mentions risk, its substantive terms ignore the very real risks embedded in the overarching approach being adopted.

 

The present policy direction will likely not lead to a profitable mine, will negate the opportunity for spin-off economic opportunities, and will be unlikely to lead to the achievement of the balance of $650m in the Anindilyakwa Mining Trust that underpins the ALC’s post-mining vision for Groote Eylandt.

 

Conclusion

For the reasons outlined above, I consider the current policy approach of the ALC, which is built around a complex and wide-ranging strategy of utilising section 64(3) royalty flows to effectively underpin the development of the Winchelsea mine, to be deeply flawed.

 

The May 2023 ANAO audit was focussed entirely on the ALC and its governance, and it identified a range of serious issues. The ANAO remit did not extend to the associated corporations in receipt of ALC funding. Yet a wider analysis encompassing the corporations funded by the ALC suggests that the ALC is using its financial heft and extensive cross-directorships to exercise effective control over these corporations. In the process, very real conflicts of interest have emerged which fundamentally undermine the policy architecture laid out in the ALRA for protecting the interests of TOs.

 

Those structural conflicts of interest are endemic in the decision-making related to the distribution of section 64(3) royalties on Groote, and to the decision-making regarding the granting of consent to Winchelsea Mining Pty Ltd to develop a mine on Groote. The ALC has not published its assessment of the commercial viability of the project, and nor is the mining agreement between the ALC and Winchelsea Pty Ltd in the public domain. Critiques such as that offered here are thus based on inherently incomplete information. Nevertheless, there is more than enough smoke in the public domain to justify calling the fire brigade.

 

It is unclear how Minister Wyatt saw his way clear to approve the agreement given that the ALC Chair and CEO also sit on the Winchelsea Board. Assuming that there was no fraud involved, we can be confident that the ALC’s narrow interests were protected in the mining agreement, but it far from clear that the wider long term interests of the TOs on Groote were protected. In particular, there is very real risk is that royalty funds that could assist in reducing endemic disadvantage across Groote will instead be allocated to an investment in a mine that appears not to be commercially viable. In the worst case, royalty funds will be allocated to subsidising and/or concealing financial losses, and may vanish. In such a circumstance, it is unclear who the beneficiaries will be, but it is clear that they won’t include the general Groote Eylandt community. Moreover, in the worst case scenarios, when the community on Groote realise what they have lost, the recriminations will be severe and the implications for social cohesion will be significant.

 

There has clearly been a comprehensive failure to comply with generally accepted governance standards within the ALC. The Directors collectively must share responsibility. The senior levels of the bureaucracy, particularly NIAA, also share responsibility insofar as they have a responsibility to clearly and firmly advise Ministers when existing institutional frameworks are clearly not operating as intended or designed.

 

The NT Government and CLP Opposition must have a sense of what is going on, but both appear to be entirely focussed on their internal dysfunction and the forthcoming election. So too must members of the Senate Estimates Committee who appear to have been blithely blind to what is going on. However, the most serious failure must be sheeted home to the successive Commonwealth Ministers who have looked away when they should have asked questions and taken action. This is not just an issue about ensuring strict accountability or making technical adjustments to processes, it is about Governments stepping up and taking the hard decisions to assist the wider Groote community to take control of its future.  It is about prioritising the pursuit of good policy over playing politics.

 

I recently wrote to the  current Minister for Indigenous Australians recommending she take proactive action to ascertain what is occurring on Groote in relation to royalty management. In particular, I recommended inter alia that she initiate an independent forensic audit of the whole royalty allocation system on Groote. If the concerns outlined in this post are confirmed, and if she does nothing substantive, she too will own responsibility for whatever transpires over the next five years on Groote.

 

Finally, it strikes me that it is time that the Commonwealth commissioned a comprehensive and independent review of the operation of the Aboriginal Land Rights Act in the NT focussed on the effectiveness of the current policy architecture. In two years’ time the legislation will have been in place for fifty years. Much has changed in that time, in communities, in the NT, in Canberra, and beyond. Without regular review, the institutional arteries that permeate the legislation become sclerotic, institutional risks increase, deeper responsibilities are overlooked, and the various stakeholders involved may lose sight of the opportunities inherent but unrealised in the institutional structures legislated almost fifty years ago. The issues on Groote are likely replicated to a greater or lesser extent elsewhere.

 

A visionary minister and government would adopt a proactive stance, and not bury their head in the ground. Reform, whether deep change, or just a regular tune up, is best undertaken by those sympathetic to the aims of the policy structures in play, not by those fundamentally opposed.

 

16 March 2024

The proposed Winchelsea mine on Groote Eylandt: a strategic opportunity?

                                                             Oft expectation fails, and most oft there

Where most it promises.

All’s Well that Ends Well, Act two, Scene one.

Introduction

This is the first of two posts dealing with the implications of the push to establish an Aboriginal owned manganese mine on Groote Eylandt.

 

It is technical and complex in parts and assumes a degree of contextual background knowledge. This blog has previously dealt with a number of important background issues relating to Groote Eylandt. The following posts provide useful background information on aspects of the situation on Groote:

 Dodge, dip and dive: eight data points on remote Indigenous policy,  1 May 2023, link here.

Typographical Errors: ANAO audits of the Tiwi and Anindilyakwa Land Councils, 1 June 2023, link here.

Looking beyond the ANAO audits of the NT Land Councils, 17 August 2023, link here.

Silent dissemblance: discussion of the ANAO report on the ALC in Estimates, 15 November 2023, link here.

The May 2023 ANAO report on the Governance of the Anindilyakwa Land Council (link here) is worth reading, and includes a very useful diagram (Fig.4.1 at page 68) which provides a schematic representation of the many of the issues discussed in these two posts.

 

In this post and the next, I have relied almost exclusively on publicly available documents on the website of the Registrar of Aboriginal Corporations, the ACNC, ASIC, the Australian Parliament, the NTG and the ALC.

 

This first post seeks to lay out the broad narrative promulgated by the ALC in relation to the proposed Winchelsea Mine without detailed critique. The second post provides a detailed critique of the ALC narrative, and attempts to draw out the policy ramifications arising from the ALC’s current strategy and the apparent reluctance of the Commonwealth Government to engage pro-actively with that strategy.

 

The ALC narrative

Winchelsea is a joint venture between the Anindilyakwa Advancement Aboriginal Corporation (AAAC) and AUS China International Mining Pty Ltd (ACIM). It is majority owned by the Traditional Owners of Akwamburrkba (Winchelsea Island) adjacent to the Groote Eylandt in the Gulf of Carpentaria. The project proposes to mine a manganese deposit on Winchelsea Island

 

The Winchelsea Mining website (link here) succinctly outlines the scope of the project and links to a comprehensive draft Environmental Impact Study which is currently subject to public consultation. It also lays out an extremely ambitious agenda:

The core vision of the project is to raise enough revenue to permanently support the economic and social future of all Anindilyakwa speaking clans of the Groote Archipelago.

 

The EIS is a good place to start for anyone interested in understanding the scope and detail of the project. It too confirms the ambitious aspirations of the local community:

It is important to also consider the purpose of this Project to financially support a sustainable economy in the local Groote Archipelago well beyond mining. The funds produced from the Project will be utilised for numerous long-term projects that will likely improve the independence and resiliency of Groote Archipelago residents to the impacts of extreme events (e.g., funding may support renewable energy infrastructure that is not reliant on fuel imports, housing that is rated for cyclonic conditions, accommodation for health service providers, marine infrastructure to increase accessibility). (Winchelsea EIS p.157).

 

A Fact Sheet on the Winchelsea Mining website notes that

The ALC through its “Royalty Development Unit” has assisted in creating Winchelsea Mining as an independent initiative and under its Commonwealth Government statutory NT Land Right Act (1976) functions, has entered into an exploration agreement with Winchelsea to comply with the NT Mining Act (1980) requirements.

 

A media article titled ‘Mine Nearly Ready to go’ dated 1 January 2021, republished on the ALC website (link here), refers to the traditional owners aspiration to increase their ownership stake from the then 60 percent to 90 percent, and to efforts to raise development finance from the North Australia Infrastructure Facility (NAIF).

 

In June 2019, the Anindilyakwa Land Council (ALC) signed an addendum to the 2018 Groote Archipelago Local Decision-Making Agreement between the ALC and the NT Government (link here).  The schedule outlines an implementation plan where the NT Government commits to supporting the ALC’s Future Groote Strategy. In clause 6(u), the NT Government commits to the provision of facilitated project support, in addition to DPIR’s normal regulatory function processes, for the Winchelsea Exploration and Mining Project and other larger scale and complex investments and enterprise projects made by the ALC or its partners. The Future Groote Strategy appears to have been replaced by the ALC Strategic Plan 2023-2033 (link here).

 

The Strategic Plan deals with the Winchelsea project at pages 36 to 38. It includes the following description of the ALC role:

 The role of the ALC in relation to Winchelsea mining is to carry out the ALC’s functions under ALRA S23(ea) and to support TOs of the Groote Archipelago to pursue commercial activities, which includes resource development. The ALC’s role has been to consult with TOs and to support TOs to pursue the commercial opportunity in line with their wishes, to distribute royalty monies to support standing up the project, to support TOs to establish the commercial arrangements, regulatory and government approvals and enter into the ALC and Winchelsea Mining Agreement (emphasis added).

 

While the overt optimism of the 2021 media story mentioned above is absent, the narrative is overwhelmingly buoyant:

Winchelsea mine is positioned as a future Groote enabling project with a core vision to raise enough revenue to permanently support the economic and social future of the TOs of the Groote Archipelago. … The mining venture will provide annual fixed payments to impacted clans, provide guaranteed payments into the Anindilyakwa Mining Trust and surplus profits will be reinvested into major projects for the benefit of TOs.

 

The ALC Strategic Plan 2023- 2033 is an ambitious document (link here). It is 173 pages and identifies 18 individual areas of focus for the decade ahead conveniently listed on page 3.

 

Underpinning this strategy is the realisation that mining on Groote will not continue forever, and that the current Groote economy is heavily reliant of the substantial royalty flows from the GEMCO mine that is likely to cease operations within a decade. Thus on page 5, the Plan notes:

By taking a strategic holistic perspective captured within the Strategic Plan 2023-33 the ALC enhances the administration and decision making relating to the distribution of ALRA S64(3) royalty monies which forms a significant function of the ALC. The Strategic Plan 2023-33 seeks to maximise the economic opportunities available while mining is taking place on the Groote Archipelago by resource companies South32 and Winchelsea Mining Pty Ltd, and to utilise the royalties received to stimulate and grow a diversified, culturally informed, and environmentally sustainable post-mining economy.

 

In relation to economic development on Groote, the Plan states (at page 25):

The outcome sought through economic development is a viable, culturally rich and sustainable two stream (diversified) economy on the Groote Archipelago, not dependent upon mining royalty income, which is controlled by Anindilyakwa people. Three principles guide the investment choice the ALC makes when allocating funds for economic development: i. To create local capacity to run local services in the communities; ii. To employ Warnumamalya; iii. To achieve complete financial safety by end of mine closure….The Aboriginal Corporations operating on the Groote Archipelago, whose members are TOs, will be the drivers of economic development of the Groote Archipelago.

 

In relation to the Winchelsea mining project, the Strategic Plan states (at pages 34-5):

The ALC’s role has been to consult with TOs and to support TOs to pursue the commercial opportunity in line with their wishes, to distribute royalty monies to support standing up the project, to support TOs to establish the commercial arrangements, regulatory and government approvals and enter into the ALC and Winchelsea Mining Agreement…

… Winchelsea mine is positioned as a future Groote enabling project with a core vision to raise enough revenue to permanently support the economic and social future of the TOs of the Groote Archipelago… The mining venture will provide annual fixed payments to impacted clans, provide guaranteed payments into the Anindilyakwa Mining Trust and surplus profits will be reinvested into major projects for the benefit of TOs.

 

In section 6-14 dealing with Financial Analysis and Modelling, the Strategic Plan notes the current stream of negotiated royalties from GEMCO’s operations flows into the Anindilyakwa Mining Trust. These royalties derive from the mining agreement, and are separate to the section 64(3) royalties which derive from the statute. It then asserts that:

The inflow of funds into the Anindilyakwa Mining Trust will substantially increase when the Winchelsea Mining operations commences in 2025. The Anindilyakwa Mining Trust functions as a future fund for the benefit of the TOs that will replace some of the royalty income lost when GEMCO mining ceases in approximately 10 years. Current financial modelling forecasts that the Anindilyakwa Mining Trust must generate approximately $40 million in investment returns each year to sustain the current community and cultural programs post mining. This requires the Anindilyakwa Mining Trust account to hold approximately $650 million by the time GEMCO mining ends…

 

The Strategic Plan then asserts that modelling of future royalty flows and planned housing investments leaves a shortfall of approximately $62 million, and goes on to note that:

The Winchelsea mining operations has been purposefully structured to provide transfers from its profits into the Anindilyakwa Mining Trust to address this shortfall.

 

The ANAO Governance report on the ALC also deals with the adequacy of consultation related to the mining agreement at paras 3.58 to 3.76, but does not address deeper issues related to the substantive appropriateness of the Agreement notwithstanding it involves a structural conflict of interest.

 

There is minimal public information available in relation to the mining agreement. Section 45 of the ALRA requires that the Commonwealth minister must approve the grant of a mining interest on Aboriginal land. An event notice on the ALC website indicates that it was signed on 21 April 2021 in the presence of the NT Chief Minister Michael Gunner and Minister Selena Uibo. The note (link here) states inter alia:

This is actually a very big deal and will change a lot of things for us all. The Bara and Jaragba Mob are going to share all the profits from their own mine with all Community.

 

In a Senate Estimates Hearing on 16 February 2024 (link here), the ALC projected a tone of assured optimism. In the transcript below, the emphasis has been added:

[At page 41] Mr Hewitt:  I welcome the opportunity to appear. I just want to say there are some important points I'd like to put out straightaway and correct on the record. I'm not a co-owner of the Winchelsea mine at all—not at all, in part or completely. I'm not silly. The mine is owned by a 70 per cent share with the Bara and Jaragba clans and they represent themselves through Anindilyakwa Advancement Aboriginal Corporation, whose directors comprise senior TOs for that island, where that resource is held. I think also I need to say that the work I undertake with Winchelsea and other major projects are because there are certain big things we need to do before the GEMCO mining operation closes. The biggest piece of it all is the mining project, because the revenue for that will enable all these other important things to occur—in particular, getting our mining trust up to a figure which can sustain valuable, important cultural and community support programs and things of that nature…

…The other thing I need to say is that the work that I do as the CEO is governed by the ALC board and by our 15-year strategic plan, which has just been updated. It's squarely within the ALC's remit and statutory functions required under section 23(1)(ea) of the Aboriginal Land Rights (Northern Territory) Act—that is, to assist Aboriginals in the area of their land to carry out commercial activities, including resource development. It's in the land rights act. The recent ANAO audit is the first one we've had since 2008. We've welcomed its recommendations to improve the documentation of our policies and procedures. We've grown very rapidly in the last 12 years to plan for the closure of GEMCO.

Finally, I would just like to make a comment that the fact that I have two hats—in fact, three—was openly discussed and consulted with Minister Scullion back in 2018 and also with Minister Wyatt and the department. That's referred to in the governance audit on page 86…

… [At page 47] Senator NAMPIJINPA PRICE:  I appreciate the clarity around the reporting with the Winchelsea mine. I note that you stated that 70 per cent of the mine is owned by traditional owners. Does that then leave 30 per cent ownership that's part of a Chinese company? Is that correct?

Mr Hewitt:  No, it's an Australian proprietary limited company. The history there, if you wish to know, is that back in 2016 the chairman and I travelled as part of a trade delegation to China led by the Chief Minister. It was the biggest in Territory history. We met a lot of businesspeople there, and we both met an Australian permanent resident who was attending the conference—he's Chinese. We talked about things, and he said he'd like to come down and see what we're doing on Groote. He came down with a few business people. Nothing really came out of it for a few years until a company came to the ALC and offered: 'We've got the licences for Winchelsea, other sea country and various islands. We'd like to work to do a joint venture with you.' So we talked to Mr Yu about the project. He said that he'd like to invest, so he put the money in for exploration, which was, all up, $11 million. He actually took the risk; we provided the consent—or the traditional owners provided consent—for the project to go ahead. To this day, he has diluted and the percentage to the traditional owners has grown. Originally, it was, I think, 40 per cent; it's now 70 per cent. That money came from him selling a property in Sydney. It didn't come from China.

Senator NAMPIJINPA PRICE:  Thank you for clarifying that for me. In the financial year 2021-22, what was the value of the dividends paid by Winchelsea Mining to the ALC?

Mr Hewitt:  It is not a producing mine. It is still right at the top of the bell curve in that it has now proven to be a bankable feasible project. We are now engaging with the private sector and the big four banks, NAIF and other parties to finance the capital construction of the project, which we hope will start this year after EPA approval.

Senator NAMPIJINPA PRICE:  So, it is envisioned, then, that Winchelsea will provide dividends?

Mr Hewitt:  Yes. Under the mining agreement with the land council, the profits flow into our Anindilyakwa mining trust, which is shared with the 14 clans. There will be two purposes. As I think I mentioned earlier, one will get our mining trust up to where we need it to sustain important programs forever, and the second part will be to build that seafood export business….

… [At page 49] Senator THORPE:  For the Anindilyakwa Land Council, what are the $25 million in royalties given to Winchelsea being used for and how do you make sure that the allocation of funds from mining royalties adhere to the principles of free, prior and informed consent? 

Mr Hewitt:  We have many steps to go through in the process of developing Winchelsea. First of all, it's whether there's a resource or not... Then we entered into the second phase, which was where we had to go through approvals… Our final bankable feasibility study was 1,149 pages…  We have a very viable mine, so we're very fortunate. It's also gone ahead very fast. We have to get approval from ourselves, and so that consent essentially is in-built in what we're doing. They own the project. They're the proponents to mine on their own land. … Bradley, behind me, is chair of AAAC. He's now working for us… We're now on the next stage, where we're actually starting to construct the mine….

 

As an aside, and further to my post on the previous Estimates hearings (link here) where I observed that neither the Government nor Opposition Senators were seriously focussed on pursuing the shortcomings identified in the ANAO report of May 2023, I will note once again that the Committee (with the exception of the Senator Thorpe) appeared to have adopted a strategy of acknowledging the ANAO findings, but were content to merely elicit a denial (‘the audit was mostly administrative and procedural’), and then move on.

 

Interim conclusion

There seems to be a bipartisan consensus that there is nothing to see here. I fundamentally disagree. Part of the reason for that bipartisan consensus is that they appear to be persuaded by the ALC’s strategic planning narrative. No doubt, there are also electorally salient political considerations in play.

 

The ALC have successfully promulgated a narrative of Indigenous self-determination and assiduously courted politicians and the business community in the NT and nationally. Notwithstanding a highly critical ANAO report, and more recently a Parliamentary Petition (Petition No. PN0579) tabled on 12 February 2024 and signed by 235 citizens expressing concern about the actions of the ALC, Senators were content to allow the ALC to promulgate its rhetorical narrative without any serious interrogation. The fawning and un-critical treatment meted out by politicians from both major parties to the ALC representatives in the last two Senate Estimates Hearings are indicative of a wider and deeper bipartisan consensus aligned with the economic development rhetoric emerging from the ALC.

 

In this post, I have laid out the background to the proposed Winchelsea mining project on Groote, and have focussed particularly on the arguments and rationale that have been articulated by the Anindilyakwa Land Council for moving forward with this development. It is an extraordinarily  positive vision, framed as a strategic response to the forthcoming cessation of the GEMCO manganese mine on Groote, and the concomitant cessation of the very substantial royalty payments that have flowed to the traditional owners and the whole community on Groote.

 

The high level aspirations articulated by the ALC have real merit. I support them if they can be afforded. The strategies being adopted are however deeply flawed, and in my view will likely lead to a disastrous financial meltdown on Groote at some point in the next five years. If this occurs, the socio-economic ramifications will entrench further disadvantage and possibly lead to the unravelling of social cohesion on the island.

 

I lay out the detailed arguments for my position in the following post.

 

16 March 2024