The 2024 NAIF review: the case for addressing systemic exclusion

 

For that’s an article within our law

As dangerous as the rest

Pericles Act one, Scene one.

 

The Government announced a review of the North Australia Infrastructure Facility on 19 August 2024 (link here). The Ministers media statement noted, inter alia:

The review is a requirement under the Act and will make recommendations to Government including on how to best continue to support investment that delivers economic and community benefits to northern Australia.

NAIF is a development financier that provides financial assistance to infrastructure projects in northern Australia to drive public benefit, economic and population growth, as well as materially improve the lives of First Nations people.

I have previously published a number of posts dealing with NAIF on this blog (link here; link here; link here; and link here). While not essential reading, for those interested in some of the dubious history of the NAIF’s involvement, and lack of involvement, in relation to Indigenous interests in northern Australia, they are worth a look. I should note that the NAIF legislation, and associated Investment Mandate have been amended since some of the posts were published.

Set out below is my submission to the current review. It does not include hyperlinks to key assertions, but most of the information and data I cite can be found on the NAIF website (link here).

 

Submission to the 2024 Northern Australia Infrastructure Facility Statutory Review

 

The following submission is predicated on my view that the NAIF has significant potential to contribute to the ongoing development of northern Australia. I wish to acknowledge that since the quite critical 2019 ANAO performance audit, NAIF appears to have strengthened its governance and systems considerably, and for this it should be commended.

I would note however that as with any public sector institution, the risks of progressive degradation of the requisite internal culture on governance and effectiveness issues always exists, and thus there is a strong public interest in ensuring that the appropriate checks and balances exist and are strengthened. I am a strong advocate of transparency in the public sector as a primary mechanism for ensuing that public benefit is always at the forefront of organisational priorities (including the informal priorities that inevitably exist in any complex organisation). Accordingly, I would encourage the review to proactively consider what opportunities exist for greater transparency in NAIF’s operations.

For example, it seems to me important that the legislative protections in favour of Board independence be maintained and perhaps strengthened. While it is also important that portfolio Ministers retain the right to veto Board decisions, this should be based on timely publication of their decision and the reasons.

Another example where greater transparency is required in my view relates to the publication of aggregate data on NAIF operations rather than (or in addition to) the current approach of publishing disaggregated information at the project level. For a specific example, while there is a degree of high-level public relations content relating to the required Indigenous engagement strategy for each project, I was unable to discern either on the NAIF website nor in key NAIF documents any summary assessment (let alone a rigorous evaluation) of the overall benefits arising from this requirement. NAIF could for example begin by reporting some core data metrics such as the levels of Indigenous employment derived from NAIFs project contributions.

Or to take another example, while the headline figure of $7bn in available finance is always front and centre, there is very little accessible data available on the annual net cost of NAIF to the Commonwealth and nor is there accessible data on the annual projected revenue returns to the Commonwealth as interest on loans is repaid. NIAF and its portfolio agency could do much better on these fronts than they have to date.

In this context, I would also suggest that the Review Panel should look behind NAIF’s (perhaps understandable) public relations gloss and focus on the direct impacts of NAIF financing in relation to jobs created (including Indigenous jobs) and seek to ascertain and understand the terms of that employment. Clearly a full-time five-year job is not the same as a three-month casual part-time job. But NAIF’s public relations unhelpfully conflates these data. Moreover, (perhaps understandably from a public relations perspective) NAIF invariably cites the projected public benefit of the whole project, and the numbers of jobs to be created by the whole project which are never wholly funded by NAIF loans or investments.

These statistical leaps of imagination implicitly assume that the projects funded by NAIF would never go ahead without NAIF funding. This is in my view not a realistic assumption. The overall effect of these statistical sleights of hand is to undermine the credibility of all NAIF’s data efforts. Yet a realistic assessment is important to understand the real impact and outcomes of the Commonwealth’s investment in NAIF. If the Review reaches the view that they haven’t the time or resources to undertake such an exercise, then I suggest that you consider recommending an independent impact evaluation of NAIFs operations given that we are approaching the ten-year anniversary of its existence.

In relation to the mandatory Indigenous Engagement Strategy which proponents are required to prepare, there are in my view significant limitations on the potential for this requirement to make a real difference to the social and economic status of Indigenous communities and people in northern Australia. Not only are the outcomes of marginal significance when put beside the overall quantum of investments in projects, but there is a serious risk that the very existence of this requirement is implicitly used by NAIF, and the indeed the Commonwealth, as a rationale for ignoring the significant systemic bias in NAIF’s legislative and operating framework against delivering benefits for northern Australian remote communities.

A case in point is the public relations spiel on NAIF’s projects page regarding the upgrade of Connellan Airport at Yulara. The website page lists the project as social infrastructure whereas the upgrades of the NT airports’ infrastructure and the Townsville airport infrastructure projects are all listed as ‘transport and logistics infrastructure’. The real benefit of the airport upgrade was to the NT tourism industry, not to Aboriginal interests. The Indigenous Engagement Strategy for Connellan relates in its entirely to the ongoing operation of Yulara by Voyages (and not to the NAIF loan), and most if not all of the ‘commitments’ listed relate to initiatives which were already in place and underway prior to the airport upgrade being initiated. I know this as I was employed by the ILC in the period before the airstrip loan was approved. What we don’t get in the project summary is any information on is how many Indigenous workers Downer Constructions (the contractor used in the airport upgrade) employed, and whether Downer utilised any Indigenous procurement in the upgrade. They may have, and I hope they did, but NAIF do not appear to be providing realistic information regarding the actual project that they funded. How can we trust the rest of NAIF’s data and performance metrics in relation to the Indigenous Engagement Strategy requirement? Has there been an independent evaluation of the Indigenous Engagement Strategy requirement? If not, perhaps the review should recommend one.

I am not arguing against the requirement for NAIF projects to have developed an Indigenous Engagement Strategy, but I am deeply sceptical that as presently formulated and implemented, it is anything more than window dressing. By all means retain the requirement, and ensure that it is focussed and substantive, but it is more important (indeed essential) to fix the systemic bias built into NAIF’s legislative and operating framework.

The systemic bias I am referring to emanates from the legislated focus of the NAIF on economic infrastructure. Over time, the legislation and investment mandate have been broadened to include social infrastructure, but there is a problem. The majority of NAIF’s loan portfolio is driven by private sector project proponents seeking access to either concessional finance or a higher loan to equity ratio than the banks are prepared to support. While NAIF’s remit has been slowly broadened to allow NAIF to invest in or lend to social infrastructure projects, the reality is that it is state and territory governments which have responsibility for social infrastructure, and who thus must be the applicant for NAIF finance. Unlike commercial firms, these governments are oversighting hundreds of projects, and their most influential constituencies are dominated by mainstream interest groups. The result is that they have competing financial priorities which limit their interest in accessing NAIF to fund social infrastructure. The unfortunate reality is that the states and the NT have failed to even look for a NAIF contribution to addressing these infrastructure deficits. Just because those jurisdictions lack the imagination to seek policy solutions to these policy deficits is no reason for the Review, nor indeed for the Commonwealth, to follow suit.

After eight years of operation, NAIF’s website lists, on my count, nine social infrastructure projects totalling ‘up to’ approximately $606m and three of the six are relatively recent investments). Only two of the nine projects are in the NT, and none are in Western Australia. With committed loans currently totalling $4.7 bn, the proportion of approved NAIF funds allocated to social infrastructure is thirteen percent of that amount. Undoubtedly, some Indigenous citizens will benefit from these projects as they are overwhelmingly mainstream health and education related projects in Queensland which provide access to all citizens whether Indigenous or not. Yet only one of these projects is directed to Indigenous controlled or Indigenous specific projects and even that single project — the Connellan airport upgrade — is arguably not directed to benefitting Indigenous community members (see above). NAIF’s record in terms of allocating project funding towards benefitting Indigenous interests is extraordinary in its myopic narrow-mindedness, not least because infrastructure provision is such a crucial driver of poverty, inequality and arguably social dysfunction.

The most serious infrastructure deficit in northern Australia is undoubtedly in the social housing sector. These deficits are particularly serious in remote communities where the associated community infrastructure (water, power, sewerage) required to make housing viable is invariably degraded or non-existent. The most recent report of the Economic Inclusion Advisory Committee which advises the Government on budget priorities included a detailed report on remote housing (link here). Remote communities comprise some of the most socially and economically disadvantaged Australians, yet after eight years operation, NAIF, the major policy initiative directed at northern Australian infrastructure, has not made a dent in the outstanding housing and essential services needs of those communities.

I venture to say that the current pipeline of loan applications to NAIF is similarly bereft of any focus on these needs. It might be claimed by some that social housing is just that, a purely social priority. I disagree; basic housing (and education and healthcare) are core drivers of economic development and thus crucial to addressing deep-seated disadvantage. Without access to housing, education, and good health, economic development is a chimera. Further, investment in these social infrastructure priorities has substantial and ongoing commercial benefits. The Aboriginal residents of northern Australia are permanent residents, whereas many (perhaps even a majority) of non-Indigenous residents will not remain in residence beyond ten years. The economic development of the north will never succeed for as long as the Indigenous population is systemically excluded from access to core societal infrastructure.

One ostensibly persuasive argument against extending NAIFs operations into financing remote social housing and essential services infrastructure is that the level of need exceeds NAIFs potential capability to contribute by several orders of magnitude. My response to such a critique would be two-fold:

• first, a relatively modest NAIF contribution sustained over time would eventually have a significant impact; and
• second, there are potential ‘niche’ sectors which NAIF could focus on such as the ongoing shortage of adequate staff housing in remote communities, or aspects of the renewable energy transition. These types of niche investments have the potential to have outsized impact.

It would be a tragedy if the potential embedded within the NAIF model to drive positive and long-lasting change in remote Indigenous communities across northern Australia was overlooked based on a lack of imagination and innovation by policymakers.

One solution to this systemic exclusion of social infrastructure, particularly Indigenous social infrastructure, in relation to NAIF’s remit is to adopt an alternative and proactive investment approach. It would require NAIF (or some other government agency) to undertake a high-level needs analysis, and for NAIF to then set aside a proportion of its available capital for investment in that particular social infrastructure need. The Commonwealth in its latest Ministerial Statement of Expectations (which requested NAIF to set aside $500m for critical minerals projects) has established a precedent for identifying priority areas of focus within NAIF’s remit. The NAIF could then approach state and territory governments and negotiate (or even auction) access to the concessional loans directed to the determined social infrastructure needs. NAIF has demonstrated with its approval of the project Territory Infrastructure Loans (which allows the NTG to on-lend funds to smaller infrastructure projects) that it is possible to allocate funds for infrastructure projects that are primarily state and territory responsibilities.

If the solution proposed above is not attractive to NAIF, an alternative solution would be to amend the legislation to allow Indigenous Business Australia and perhaps the ILC (both Commonwealth statutory corporations) to access up to say $2bn in NAIF funds as an agent of NAIF (thus maintaining all of the NAIF project assessment criteria and administrative processes), with an additional requirement that any loans or investments must involve significant benefit to Indigenous communities in the north.

It is clear that the current outcomes do not need to persist. There is no insurmountable obstacle to the Commonwealth taking the action required to address the systemic exclusion of Indigenous interests from accessing the NAIF. Indigenous communities have the greatest social and economic infrastructure deficits, yet the Commonwealth has to date preferred to allocate concessional loans to commercial interests while allowing the Indigenous community infrastructure deficits to continue. It is not a matter of one priority over the other. There are sound economic social and political rationales for addressing both social infrastructure and other infrastructure priorities simultaneously. Not doing so would amount to maintain ongoing systemic and structural discrimination against the most disadvantaged members of the Australian community.  

While it may be feasible for the first approach I proposed to be implemented administratively, I strongly suggest that the Review Panel recommend legislative adjustments to the NAIF legislation to make clear that proactive investments in remote infrastructure needs are both necessary and desirable.

Finally, it is my view that the unless the systemic exclusion of Indigenous social exclusion within NAIF’s remit is addressed, then the case for extending NAIF’s investment sunset would not be made out.

In summary, I suggest the Review Panel make the following recommendations:

First and most importantly, ensure that going forward the Commonwealth and NAIF jointly eliminate the systemic exclusion of remote community infrastructure from the NAIF remit and importantly, from its operations. This would ensure the NAIF contributes to addressing the social housing and essential services infrastructure deficits across remote Australia.

Second, address the shortcomings evident in the way NAIF performance and data, and particularly the data related to the Indigenous Engagement Strategy requirement on proponents, is measured and reported upon. There appears to be strong grounds for an independent evaluation to undertaken.

Third, recommend an independent impact evaluation of NAIF’s operations over the eight years since its inception.

Fourth, recommend that NAIF (and the Commonwealth) take appropriate action to strengthen the independence of the NAIF Board and pay much greater attention to the transparency of NAIF operations not just in relation to internal government accountabilities, but in relation to the wider public.

Finally thank you for the opportunity to make a submission to the Review. I am happy for this submission to be made public.

 

M C Dillon

27 September 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

Groote Eylandt: the ALC ‘Royalty Shoppa’ Prepaid Card

                                                 In the corrupted currents of this world,

Offense's gilded hand may shove by justice,  

And oft 'tis seen the wicked prize itself

Buys out the law…

Hamlet Act three, Scene three

 

One of the intriguing initiatives of the ALC has been the establishment of the Royalty Shoppa Prepaid Card. It is voluntary and may have benefits for users. But closer examination reveals a somewhat murkier and perhaps insidious side to this financial product.

There are very significant royalty flows into Groote. In addition to negotiated royalties allocated to the Anindilyakwa Mining Trust (link here), the ALC distributes so called royalty equivalents allocated from Commonwealth Consolidated Revenue to the ALC in accordance with the provisions of section 64(3) of the Aboriginal Land Rights (Northern Territory) Act 1976 (ALRA).

The adult Aboriginal  population of Groote Eylandt is around 1100 people (link here). According to the Rents and Royalties Snapshot available on the ALC website, over five years between 2019 and 2023, the ALC distributed $361m in section 64(3) payments (link here). This translates to a per capita payment of $328k, though the allocation is much more diffuse, and direct payments to individuals are much less. The snapshot suggests that some $87m went to community support (which appears to be the category used for payments to individuals) over the five years. This equates to some $81k per capita over the five years. Clearly there is a significant financial pool available for private consumption. Note the above calculations do not take into account traditional owners residing outside of Groote Eylandt.

The next largest allocation category, labelled economic development, totals $83m over the five years; this includes, inter alia, a range of infrastructure developments designed in large measure to underpin the proposed Winchelsea mine, and whose beneficial impact will be heavily influenced by the success of failure of that enterprise. But that’s another story. Education, health and housing initiatives received a combined total of $100m over the five years, which amounts to less than thirty percent of the funds available for distribution. While clearly beneficial, these sectors are also crucial determinants of economic prosperity and deserve, in my view, a higher priority.

Before discussing the detail of the Royalty Shoppa Card, it is worth noting that one of the alternative approaches which might have been pursued would have been the development of a financial literacy support function by one of the corporations on Groote, complemented with assistance to individuals in providing access to debit and credit card facilities issued by mainstream banks. It is particularly notable that while the royalty shoppa incentivizes immediate consumption, the land council appears to have no offsetting emphasis on the benefits of personal savings and the strategies available to facilitate and leverage personal savings plans.

It is unclear why the ‘shoppa card’ approach was chosen by the ALC, but at least one of the potential reasons is that it encourages cardholders to spend their funds on Groote at locally owned stores (noting that the ALC has approved the use of the card in a wider range of stores including in Darwin, Katherine and Cairns). I have no specific knowledge of the ownership of the retail facilities on Groote. The recent Saturday Paper article (link here) suggested that significant amounts of the funds deposited on the shoppa cards were spent in the Anindilyakwa Shoppa Warehouse. The article quoted a community member making critical comments about the quality of the goods being sold. It is unclear if the royalty shoppa warehouse on Groote is owned or operated by the ALC or an associated corporation though the use of the name suggests that it is. If it is there may be a conflict of interest for the ALC (see below).

Apart from the policy issues generally, the issues of concern to me are more technical in nature and go to the legality of the complex financial flows administered by the ALC and general compliance with the legislative scheme which governs the operation of land councils. As I have mentioned previously, the ALC is required to distribute s64(3) payments from the ABA to Aboriginal Corporations established under the CATSI Act (link here), which is administered by the Office of the Registrar of Aboriginal Corporations (ORIC). These corporations are thus sometimes referred to as ‘ORICs’ including in some ALC publications. The intent of this provision was to place land councils at arm’s length from actual distributions or investments; an intention that has been subverted on Groote Eylandt.

There is no provision in the ALRA which provides for a land council to determine how a funded corporation shall utilise a distribution payment; the legislation merely refers to the funds being utilised for the benefit of the traditional owners. It is apparent however that the ALC exercises a high degree of influence (even control) over the expenditures of funded CATSI corporations, not least through the operations of the Royalty Development Unit (RDU), located within the ALC administration and based in Cairns. The RDU is funded by s.64(3) payments to the Anindilyakwa Royalties Aboriginal Corporation (ARAC) which pays the funds back to the ALC for the operating costs and salaries. While the ALRA legislation provides for a land council to assist corporations in receipt of royalties, and to charge fees, the wholesale funding of land council staff from royalty equivalents without acquittal of those costs in my view pushes beyond the acceptable limit. This arrangement potentially bypasses the legislated arrangements for administrative funding of the land councils which requires the Minister to approve the estimates for section 64(1) funds allocated for that purpose. This arguably undermines the separation of powers between funding allocations and ultimate expenditures which are implicit in the requirement for a land council to distribute 64(3) funds to independent corporations. We can see an instance of this in the arrangements for the royalty shoppa card.

The ALC webpage on Royalty Shoppa includes links to three technical documents related to the royalty shoppa card: a Financial Services Guide (FSG) (link here), a Target Market Determination (link here) and a Product Disclosure Statement (PDS) (link here). The following summary of the operation of the card is taken from these documents. Text bolded in square brackets is my commentary.

The shoppa card is issued by Indue (link here) (a Queensland based financial services firm) and is described as a ‘reloadable eftpos prepaid card’.  It allows the cardholder to make purchases at ‘ALC approved stores’. The ALC is an authorised representative of Indue, and is the distributor, manager and promoter of the prepaid shoppa card. In the FSG, the ALC states ‘We do this on behalf of the product issuer (Indue) and not as the agent of potential product users…’  [This raises the question how can the ALC protect the interests of cardholders vis a vis the card issuer if it is a representative of the card issuer?  Moreover, given that a key function of a land council, laid out in section 23(1), is ‘(b)  to protect the interests of traditional Aboriginal owners of, and other Aboriginals interested in, Aboriginal land in the area of the Land Council’ one might legitimately ask how is it that the ALC thinks it can enter into a contractual arrangement that is at odds with, and in effect seeks to contract out of, its statutory function?].

According to the PDS, the ALC loads the cards with royalty payments approved by the Anindilyakwa Royalties Aboriginal Corporation (ARAC). The ARAC Board approves the amounts and dates of any royalty payments. Up to fifty percent of the funds to be paid are available on the card for a period of about ten weeks until the ‘suspension date’, a date determined by the ALC. The suspension date is shortly before the date that the ARAC Board determines that royalty payments are to be distributed. Both dates are then published on the ALC website. In the period between the suspension date and the royalty payment date, any remaining funds are then unloaded by the ALC and deposited in cardholders normal bank accounts. [It is clear from this convoluted process that the ALC and ARAC are in effect operating as a functionally entwined entity, essentially under the control of the ALC via the RDU. The ALC is in effect subverting the section 35 requirement for payments to be made to an Aboriginal Corporation. It is also clear that by providing early access to payment distributions to those who sign up for the card, the arrangement creates an incentive for people to spend a significant portion of their payments in ALC approved stores].

The FSG provides the following information on how Indue is paid. It states: ‘There is no direct remuneration, commissions or other benefits received by ALC. Indue passes to us a portion of all interest that it earns from time to time on the funds held in respect of the available balance of the Prepaid Cards to…ARAC, a related entity of ALC. The dollar amount of the interest payable to ARAC is unascertainable as it depends on the usage of all the Prepaid Cards.’ [The percentage of interest earned by Indue that is paid back to ARAC is ascertainable, but is not revealed in the FSG].

The FSG also states: ‘Indue is paid from fees charged to ARAC and from interest that is earned on the funds held in respect of the available balance in the prepaid cards.’ [It is clear from this that cardholders do not earn interest on their card balances. The statement in para 16 of the PDS that ‘there are no fees or charges payable by you to Indue or ALC in relation to the use of your Prepaid Card’ while technically correct, appears misleading in the light of the fact that Indue accrues both the interest, and a fee paid from royalties that would otherwise be available to traditional owners].

[In acting as the representative of a commercial entity, the ALC appears to be engaging in commercial activities. It receives no fees, but ARAC does although it provides no service for that fee. ARAC also pays fees to Indue which logically must exceed the fees they receive in lieu of the ALC services. To the extent that ARAC is in effect a ‘controlled entity’ of the ALC, then the arrangements with Indue by the ALC would appear to breach section 23 (1) (ea) of ALRA which require that the ALC not incur any financial liability or receive any financial benefit in relation to its assistance to a corporation engaged in commercial activities].

Finally, the ALC website currently includes the following information under the Royalty Shoppa section of the site:

The newly appointed Anindilyakwa Board met recently to discuss the next round of funds to be distributed to the Traditional Owners of Groote Eylandt. The board passed resolution for a one-off assistant [sic] payment of $1,000 to be paid to all eligible Traditional Owner bank accounts on Wednesday 25th September 2024.

NO funds will be loaded to the Anindilyakwa Royalty Shoppa Card this month and NO royalty payment will be paid in December 2024.

This is not consistent with the statement in the PDS (quoted above) that it is ARAC which decides the date and amount of royalty payments to individuals (but is not technically a breach of the PDS as no funds are to be loaded onto the shoppa card). More importantly, nor is it consistent with the requirements of section 35 of the ALRA which requires the ALC to make payments to Aboriginal corporations (and not directly to individuals). Of course, it is likely that the RDU will finesse the financial transfers, and pass them through ARAC’s account, thus providing the appearance of compliance with the legislation. But the cat is out of the bag: the ALC is calling the shots and not ARAC. [This raises a further question for the Registrar of Aboriginal Corporations: if these payments do in fact pass through ARAC’s books, it will provide clear evidence that the Directors of ARAC are not managing the corporation’s financial affairs in accordance with their responsibilities as Directors, but are being directed by the ALC. In these circumstances, the Directors would either be negligently failing in their duty to provide managerial oversight of the corporation’s actions, or deliberately complicit in allowing the ALC to control the activities of the corporation. Either eventuality should induce the Registrar of Aboriginal Corporations to take appropriate action].

 

Conclusion

The ALC Royalty Shoppa Prepaid Card as currently designed appears to be inconsistent with the overarching legislative requirements governing the operations of land councils and the administration of royalty equivalent payments under section 64(3). It is unclear how much the operation of the card costs and how cost effective it is. There are a range of policy issues that do not appear to have been adequately thought through. There are clearly significant risks of unscrupulous behaviour, and in worst cases of fraud and/or corruption depending on the relationship between the ALC, ARAC, and the retailers. This is an issue which is beyond the scope of this post to assess and definitively comment upon. Key issues would include the cost effectiveness of the retail stores on Groote, their profit margins, product quality, and the relationship between these factors and the incentives embedded in the way the cards are administered by the ALC. In plain language, card holders are encouraged to seek to access their funds early, and thus to spend their available cash in a limited number of retail outlets which may not have the best range of goods in terms of quality or choice. The owners of those retail outlets, or the suppliers of goods to them may be making significant profits above what are normal retail margins. There are no indications that the ALC has any risk mitigation strategies in place to manage these risks.

What is particularly apparent is that there appears to have been a regulatory vacuum in terms of oversighting the operations of the ALC. The Registrar of Aboriginal Corporations does not appear to take a close interest in the interaction between the land council and the CATSI Act corporations that the Act stipulates should receive royalty payments. The NIAA does not appear to have taken any interest in the operation of a scheme that is clearly problematic in terms of its compliance with the relevant legislation. And successive federal ministers have adopted a hands-off approach to the operations of the land councils, notwithstanding that any deficiencies inevitably mean that potentially vulnerable Aboriginal people will bear the costs of poor policy decisions.

These administrative and regulatory shortcomings are more than a matter of concern; they represent a tragedy insofar as the life opportunities of many families are constrained and limited by deep-seated socio-economic disadvantage and poor housing, poor health and poor educational engagement. For further detail, see data point two in this earlier post: Dodge, Dip and Dive: eight data points on remote policy (link here). In these circumstances, it verges on incomprehensible that the land council (if judged by the priorities reflected in its royalty distributions) appears largely oblivious to their plight.

While the principles of self-determination are crucial, in matters as complex as the interaction of finite royalty distributions against ongoing and deep-seated deficits in basic physical and social infrastructure, it is essential that the Aboriginal decisionmakers have access to objective and professional advice, and importantly, that key advisers with extraordinary conflicts of interest are not the primary sources of such advice. These are matters that a proactive minister could address through more intensive engagement and communication on the ground, and through more intensive, and dare I say courageous, regulatory oversight.

The ALC website has a short and professionally scripted and filmed video promoting the royalty shoppa arrangements to residents on Groote (link here). I recommend readers take a quick look. The very first words uttered in the video are ‘The days of our people getting ripped off are over!’

 

22 September 2024

RIP Dick Kimber

 

He cannot but with measures fit the honours

Which we devise him.

Coriolanus Act two Scene two.

I did not know Dick well, but our paths crossed regularly while I was working in Alice Springs in the early 1980s. My most vibrant memory is of walking down a street and seeing Dick riding his bicycle towards me, waving enthusiastically as he shouted a greeting and passed by. His travels into the desert with Aboriginal people were legendary.

As I mentioned to a friend who emailed me, Dick lived life to the full; a life brimming over with enthusiasm and good humour.

His Wikipedia page (link here) gives a sense of his considerable achievements, but understates his extraordinary affability, sense of humour, and determination to understand and then explain to the wider Australian community the sophistication of desert life and culture.

A reader emailed me with the folllowing comment:

You have expressed it very well, Mike.  Dick Kimber was a great fellow - worthy of all the honours we could devise for him.

Like you, I did not know him well, but I would over the years typically meet him on the street and he would always invest generously in conversation.  He seemed to know the remote places out west of Alice Springs as well as anyone, and from all accounts to be highly regarded by the relevant countrymen.

I last saw him at a Strehlow Conference event in 2018.  His health was at that time already significantly impaired, but he was nonetheless making every effort to engage and to contribute - a gracious and knowledgeable man.

The ongoing attendance crisis in remote schools

 

… when we are sick in fortune—often the surfeit of our own behaviour—we make guilty of our disasters the sun, the moon, and the stars, as if we were villains by necessity, fools by heavenly compulsion…

King Lear, Act one, Scene two.

 

Recent media articles have pointed to a continuing decline in school attendance in remote primary schools and the secondary high schools in the Kimberley. Yet this has been an issue for decades.

A 28 June 2017 ABC news article (link here), headlined WA schools hardest hit by remote disadvantage, nationwide study finds reported on a Curtin University study which found, inter alia, that:

just 40 per cent of children in disadvantaged areas [ of WA] were attending the benchmark 15 hours of preschool per week, compared to almost 70 per cent nationally.

In July 2022, the ABC published an article (link here) with the headline WA government accused of failing at-risk Kimberley students over plans to address school truancy. The article stated inter alia that the Kimberley is in crisis, and that:

A 2019 coronial inquest had found poor school attendance to be a common factor in the deaths of the children, who died between 2012 and 2016. Two of the deaths were in Halls Creek, where truancy is chronic.

That article interviews a mother who complains about the lack of follow up by the Department in relation to an attendance plan for her son but fails to acknowledge or focus on the apparent incapacity of the parent to ensure the son attends school. While mainstream Australia largely sees parents as having an overarching responsibility for their adolescent children, it is apparent that parents from traditional backgrounds do not share this perspective. They consequently place the entire responsibility for ensuring children attend whitefella schools onto governments.

A March 2023 article (link here), headlined Kimberley student attendance drops again as 95 percent of public schools record significant falls, flags the ongoing crisis. In a box titled Key Points, the article states:

21 out of 22 public schools in the Kimberley have seen a decline in attendance over the past two years. Some schools' attendance rates have been below 50 per cent. Community leaders say the Department of Education needs to do more to engage students.

While the governments have significant responsibilities, not least because the range of likely causes go much wider than anything parents can do, it does seem clear that community leaders must have a role in finding solutions and shifting community views on the roles of parents.

A more recent article dated 6 September 2024 and headlined Fewer than half of students in WA’s Kimberely attend secondary school (link here). The key points box states:

In short: Newly-released statistics show primary and secondary school attendance rates dropped significantly in the Kimberley for 2023. Secondary school attendance was 41.6 per cent, while primary school attendance was 62 per cent.

What's next? The Kimberley region's education chief concedes school attendance is "an ongoing challenge".

It seems clear that there is has been a long-standing crisis in school attendance in remote communities in the Kimberely and WA, and there is strong evidence that these issues also have traction on other remote settings, including the NT and South Australia (link here).

Having identified the attendance problem as one particularly prevalent in remote settings, there is a need for caution insofar as there is increasing evidence of an anxiety epidemic amongst young people correlated strongly with the ubiquity of social media. A recent article in the UK Guardian (link here) addresses the issue of school attendance (without ascribing causes beyond peer bullying) and argues against any policy moves to exercise punitive measures on parents or children. The article cites the following official data for a recent week of schooling across the UK (link here):

The attendance rate (proportion of possible sessions attended) was 89.8% across all schools in the week commencing 15 July 2024. The absence rate was, therefore, 10.2% across all schools…

… Across the academic year 2023/24, 20.7% of pupil enrolments missed 10% or more of their possible sessions and are therefore identified as persistently absent.

This suggests that whatever the causes and contributors to low remote community school attendance rates, there may also be much deeper systemic issues in play with a global reach and impact. As an aside, the access to live data in the UK is virtually unknown in Australian contexts. We shouldn’t think that we always do better than the poms!

The consequences of limited education for individuals are dire and include severely constrained life opportunities especially in more modern and cross-cultural contexts, reduced lifetime earnings, and predispositions to alcohol and drug abuse, and perhaps domestic violence and criminal offending. While tragic for individuals, there are macro impacts on the wider Aboriginal communities where school attendance issues are entrenched, and broader impacts on communities affected by youth violence. These impacts are beginning to seep into the larger towns and cities adjacent to remote Australia and thus the consequences of poor school attendance are structurally and systemically both economically significant and politically challenging for the relevant state and territory governments.

These outcomes are not a surprise to me ( I have been warning of the consequences of policy neglect across remote Australia since at least 2007 when with Neil Westbury we published our book Beyond Humbug (link here). Those warnings were largely not heeded by governments, and the result is that we now confront a widespread and worsening catastrophe across remote Australia (link here). Notwithstanding some welcome additional funding for remote housing in the NT, the outstanding needs across remote Australia continue to outweigh the efforts of governments (link here). The appalling unemployment situation across remote Australia and the Commonwealth Government’s entirely inadequate response raises for individuals the unanswerable question: what is the point of an education if the future involves a working lifetime spent on social security arising from the structurally determined absence of employment opportunities -see the comments on CDP reform in this recent post (link here).  

The policy vacuum in relation to remote Australia has become endemic, deep-seated and is long-standing. The political implications are clear: the recent NT election rout for the NT ALP, notwithstanding its strong focus on law and order and advocacy of more punitive policies, are an obvious outcome. Nothing proposed by either party in the NT would have or will come close to addressing the deep systemic issues in play. In short, neither side of politics in the NT is offering a solution. And yet, the Commonwealth too has vacated the policy arena.

What is required?

I will keep this brief. In relation to remote attendance, there is a need for the Commonwealth to step up and acknowledge it for the national crisis it is. There will be a need first and foremost to acknowledge the crisis and devise a robust and proactive strategy that goes well beyond the local band-aids that have been the unthinking default approach to date (and yes I am referring to the current Federal Government’s response to the Alice Springs situation).

The Commonwealth should work with the states cooperatively on these issues, but devise incentive-based payments to the states and territories rather than indulging in the politically driven negotiation that currently predominate. Robust support to Indigenous community leaders aimed at encouraging and assisting them to raise expectations of parental involvement within their communities are essential. But so too are getting financial resource allocations for schools better targeted, and if necessary increased. Rewarding effective teachers much better and ensuring that the curriculum is focussed on the needs of the least capable cohort of students are both — to use a colloquial expression — ‘no brainers’. This suggests that the adoption of curriculum methodologies (such as Direct Learning) that do not allow any student to fall behind must be a priority.

The bottom line is that there must be a quantum leap in the levels of governmental concern and policy engagement. There may well be a case too for a return to the use of proactive truancy officers designed to ensure no child can avoid attending without a truancy officer engaging with the child and his/her parental guardians though I am not advocating a punitive policy approach.

Reforms to the education system alone in remote Australia will neither be enough nor adequate. The structural drivers of low attendance must also be addressed. While there may be some impact from the Commonwealth Government’s proposed legislation to constrain access to social media for adolescents under 16, my intuition tells me that whatever its impact in mainstream contexts, there will be a more muted impact in remote community contexts merely because of the existence of other drivers of low attendance.

Those drivers include the poor state of housing, the low levels of employment, and the all too ready access to cheap alcohol and drugs. It follows that there must be a sustained increase in investment in remote housing supply, and in adopting management approaches focussed on high quality housing asset management.

And perhaps most importantly, the government must move beyond its paltry commitment to reform of the CDP program, and substantially expand the number of jobs it is fully funding across remote Australia. The trick here will be to devise delivery models that focus on productive and culturally informed employment: caring for country; devising ways to employ community members as disability service providers in association with the NDIS and state provided foundational supports; aged care employment; employment in schools teaching languages, providing infrastructure support, and perhaps as teachers’ aides and ultimately local teachers. All these roles are real jobs often funded by government, but there has been a lack of vision to ensure that they are delivered through culturally informed organisational models.

Intuitively, an expansion of housing investment and infrastructure across remote communities and of socially valuable employment will have a constraining impact on anti-social behaviour such as drug and alcohol abuse, which in turn are prime drivers of the sorts of behaviours that lead to incarceration and community violence. Governments should also focus attention on regulating and controlling the supply of drugs and alcohol in remote communities and regional centres.

The experience of the last decade has been that neither the ALP nor the LNP at a federal level have the political will nor the policy vision to deliver on such an admittedly ambitious agenda. However, there is increasing talk of a minority government scenario post the forthcoming election, and it seems likely that whatever the outcome the Teals and Independents will have greater influence. They are well placed to drive such a policy agenda if only they have the vision and energy to take on what will inevitably be a challenging, but nationally significant reform agenda.

The absence of any policy discussion regarding such an agenda, and the absence of the agenda itself, reflect the lack of a national vision amongst our political elites. They are also the source of ongoing economic and social costs imposed directly on First Nations remote communities, but inexorably leaking across to mainstream fiscal contexts. These social and financial costs represent a substantial (and presently underappreciated) risk to our aspirations to be a cohesive, inclusive and socially mature nation.

 

10 September 2024

The deeper corruption at the heart of the governance issues on Groote Eylandt

 

He draweth out the thread of his verbosity

finer than the staple of his argument.

Love's Labour's Lost, Act 5 scene 1

 

The Minister for Indigenous Australians, Malarndirri McCarthy has released the review into the Anindilyakwa Land Council commissioned by the former Minister in February 2024 (link here).

The Minister’s media release (link here) refers to the review as ‘the Independent Review’, however this is complete spin as the review which was ostensibly prepared by accounting firm Bellchambers Barrett, was clearly undertaken with close oversight by the NIAA (who arguably are not independent given their previous funding of projects associated with the proposed Winchelsea  mine), and in conjunction in many respects with the ALC. The final report is signed and approved by three individuals: Cherelle Wurrawilya, Chair of the ALC, Sean Worth, Group Manager integrity NIAA, and Russell Livermore, Partner Bellchambers Barrett.

The report avoids providing a clear statement of the formal terms of reference provided to BellChambers by NIAA, and provides only general information on the dates from which the review began work. The time frame covered by the review is limited to the date of publication of the ANAO Audit and extends to July 2024. It is apparent from the context that the review is focussed entirely on the progress (or lack thereof) in implementing the ANAO recommendations which as I pointed out in previous posts was itself focussed on process and not outcomes, and limited to the operations of the ALC. The Review was not focussed (except in an indirect manner) on the ways in which the ALC has been utilising the various related entities in receipt of royalty equivalents (which are required to be CATSI corporations) to bypass the legislative constraints on ALC actions and/or to obscure financial flows directed to various commercial projects (such as the proposed Winchelsea mine and perhaps retail activities of various kinds on Groote).

What is missing from the Bellchambers Review is any context. There is no explanation of the role of the Minister and her responsibility for ensuring that statutory entities within her portfolio are complying with both their establishing legislation and various other Commonwealth governance requirements such as those set out in the PGPA legislation. There is no explanation of the role of land councils in the NT, of the way in which the royalty regime operates, of the significance of the ABA, nor of the regulatory frameworks in place in relation to distribution of royalty equivalents and other mining related payments. There is no mention of the substantial dissatisfaction amongst numerous residents on Groote with the ALC’s operations as evidenced by the petition signed by some 200 people and tabled in Parliament earlier this year. There is no mention of the fact that a Commonwealth entity (and I am reliably informed a number of other individuals) have lodged complaints with the National Anti Corruption Commission. I was reminded of the episode of Fawlty Towers ‘Don’t mention the war’ (link here).

Instead, what we have is a technical exercise in bureaucratic pedantry focussed on the extent to which various processes recommended by the ANAO have been implemented.

I am not proposing to undertake a detailed critique of the analysis by Bellchambers related to the ALC’s compliance with process requirements. They conclude that the ALC response to the ANAO recommendations relating to various governance process requirements remains deficient. Focussing on process is useful, but it no substitute for focussing on outcomes. The allegations of outcome deficiencies (potentially involving tens of millions of dollars) demand a regulatory response. It is not good enough to say that this is an issue for the ALC nor to say that the NACC is investigating.

I will make some short comments on the recommendations of the Bellchambers Review set out in section three under the anodyne heading Identified Enhancements to Governance.

Under theme one dealing with conflicts of interest, the Bellchambers Review recommends inter alia:

1. The ALC Board and Management should review all roles for Board members and ALC Management and assess whether: a. It is possible to effectively manage identified conflicts of interest for: i. the dual remuneration CEO positions for ALC and Winchelsea Mining Pty Ltd. ii. related party entities / ORICs that are beneficiaries of funding decisions made by the ALC Board. b. Management strategies for declared conflicts by ALC Board members or Management, including conflicts relating to immediate family members, are appropriate and operating effectively.

My comment: this is extraordinary. Bellchambers and the NIAA appear to believe that an entity whose key members are the subject of multiple allegations involving financial impropriety and are the subject of a current NACC investigation should be trusted to decide how to manage the conflicts of interest identified by the ANAO and more than a year later are still in place. Do Bellchambers and the NIAA believe that the systemic networks of conflicts were put in place by accident or oversight? Get real! Furthermore, the recommendation explicitly accepts that the ALC CEO, who as a statutory office holder is paid a salary determined by the Commonwealth Remuneration Tribunal (based on the fact that the CEO is employed full time), should also be the recipient of a private sector salary, and by implication will not be providing full time services in his role as the CEO.

The ALC response includes, after some anodyne pabulum:

The Board has commenced this review for the ALC CEO position. On 22 August 2024 the Board resolved to give in principle support to the draft NIAA report finding that the ALC CEO no longer also be the CEO of Winchelsea Mining. Specifically, in an ordered way, the ALC Board resolved to give in principle support to the current ALC CEO’s proposal that he cease in the ALC CEO role and commence as a consultant for Winchelsea Mining and Groote Holding Aboriginal Corporation matters, which consultancy is anticipated to include other pressing matters particularly the GEMCO mine closure and Transition Steering Committee. A final decision about the current CEO’s proposal will be made by the incoming ALC Board (ie after current elections) after receiving the NIAA’s final Independent review report.

My comment:

The CEO is proposing to resign as CEO of Winchelsea Mining but remain as a consultant and presumably a Director. Given the small size of Winchelsea, its tight Directorship structure, and its low staff numbers, it beggars belief that Mr Hewitt would exercise any less influence as a consultant than as CEO. Furtehrmore, there are real questions as to why the CEO is on the Board and not any members fo the corporation who actually own the stake in Winchelsea (see below). Moreover it also beggars belief that the Minister and the NIAA are prepared to openly countenance what is in effect double dipping by a statutory office holder employed in a statutory corporation.

ERRATUM: It has come to my attention that I have probably misinterpreted the highlighted text above and that the proposal from the ALC is that the ALC CEO will resign as CEO of the ALC (and not as I had read it as an ALC representative Director on the Winchelsea Board). 

While this would be a signfiicant imporvement on the status quo, to the extent that the current CEO excercises substantial informal influence, it may make no difference whatsoever. It is unclear why Mr Hewitt would need to take up the role of consultant on Winchelsea given that he is already a Director. Presumably the issue of remuneration (potentially funded by the ALC or AAAC (the corporation which owns the Indigenous equity in Winchelsea) provides part of the reason. END ERRATUM

Under theme two, the Belchambers Review recommends:

The ALC should collate information for all remuneration, benefits and related party transactions for ALC Board members, ALC Management, immediate family members and related party entities / ORICs to support enhanced transparency and information for Board members. The remuneration, benefits and related party transactions should be subject to periodic review and update and used to ensure that all remuneration, benefits and relathed party transactions are appropriately authorised and monitored. 

My comment: As the ALC response points out, it is unclear that the ALC has the formal powers to collect this information. Again this is an entirely passive and anodyne. More importantly, where is the critical engagement by the NIAA Integrity Group?

Under theme three, the Bellchambers Review recommends:

3. The ALC should establish an Independent Board Advisor Role with direct responsibilities to the Board including: a. Understanding Board matters, papers and forward workplan agenda b. Governance matters, including monitoring of conflict of interests and associated management strategies c. Governance training d. Supporting attendance / participation by the full Board….

My comment: apart from the logistical and communication challenges, this is precisely the role of the CEO of the ALC. It implicitly accepts that the current CEO has been incapable and unwilling to provide the level of independent advice required by the Board. There is a simple and clear solution to that problem which for some reason entirely evades the Minister and her NIAA advisers.

Under theme four, the Belchambers Review recommends a closure process for the ANAO recommendations.

My comment: this is core business for the ALC Audit Committee which is chaired by the partner in an accounting firm whose services in relation to the Audit Committee the ANAO identified as being the most expensive by far of the four land councils, and which is itself heavily conflicted by virtue of the provision of other services to corporations which are controlled indirectly by the ALC. The ALC response foreshadowed requests for additional funding to cover off a function which is already overfunded and which is clearly compromised and ineffective. None of this appears to be on the radar of the NIAA Integrity Unit!

The Real Story

Minister McCarthy’s media statement identifies only two substantive actions arising from the review:

I have written to the ALC Board to ensure the Board and voters are aware of the review’s findings ahead of the ALC Board elections next week.

I have taken the unusual decision to withhold approval for the ALC’s 2024/25 budget, instead approving an operational budget until 1 December 2024. The full budget will only be considered when ALC has demonstrated to the NIAA that it is sufficiently prioritising and implementing the recommendations of the review and the ANAO audit.

These are worthy steps, create an impression of diligent oversight, and are completely irrelevant to addressing the fundamental governance issues confronting the ALC and impacting the future  financial security of Groote’s 1200 residents (and their descendants).

In my view, the Bellchambers Review was from the start designed as a diversion to avoid addressing the deeper and systemic governance challenges that have emerged on Groote since the current CEO was engaged by the ALC. The previous posts related to Groote on this blog have primarily dealt with the widespread allegations of substantive governance and accountability failure and the concomitant adverse policy implications. I wont link to those posts here. They deal with inter alia the significant diversion of mining related financial payments towards the development of a proposed mine on Winchelsea Island; the financial arrangements related to the ownership of Winchelsea Mining Corporation; discrepancies between the investments being allocated towards Winchelsea and the value of the identified manganese deposits on Winchelsea; the governance and potential financial implications of the ALC’s apparent control of the financial affairs of key corporations in receipt of royalty equivalents; the conflict of interest implications involving the CEO, his spouse, the chair of the ALC Audit committee; and the extraordinary financial benefits made available to former ALC Board members at the discretion of the Board (which raises questions regarding potential for co-option and undue influence). And much else besides. Many of these issues have been raised either directly or indirectly in Senate Estimates Hearings, in a number of substantial investigative reports in the SMH and the Saturday Paper, and have been the subject of correspondence to Ministers from concerned parties.

While the formal response from the ALC has been to reject some (but not all) of the allegations or argue that they are misdirected, the response from Ministers has been to ignore these issues, except insofar as a review of ALC processes, not substantive allegations was commissioned. Until this week, the Bellchambers Review (whose terms of reference have still not been released) in effect served as the foil to avoid having to respond to the substantive issues.

So in addition to the complex and myriad issues related to the ALC and its governance, it seems to me that there is a fundamental questions to be asked and answered: why has the Government not been prepared to address the substantive allegations and issues related to the ALC and its governance?

My initial thought was that this was a case of politics overwhelming good policy. Yet upon reflection, I do not think the facts fit such an explanation.

A better explanation is that the ALC, or elements within it, have in effect captured the Commonwealth and probably the NT Government in relation to issues on Groote Eylandt. How else to explain the ALC’s extraordinary hold over successive Ministers, the extraordinary outcomes that have become normalised (such as the ALC Chair and CEO being on both sides of a mining agreement that requires Ministerial approval; or of the salary double dipping; or of the fact that the Aboriginal Corporation which owns 70 percent of Winchelsea has no Directors on the Winchelsea Board, but the ALC Chair, CEO and CEO’s spouse are represented).

It is unclear to me whether the mechanism of state capture involving extraordinary influence over the political elites in the NT and to a lesser extent Canberra is  driven by the corrupt co-option of those political elites, or gross administrative and political incompetence. I should note that the complicity and co-option extends to the Opposition parties in Darwin and in Canberra. In one of my earliest posts analysing the Estimates questioning following the ANAO report, I commented upon the current Federal Opposition’s apparent disinterest in digging into what was occurring on Groote. In Canberra, the former coalition ministers apparent inability to rein in the ALC was facilitated by the then Labor Opposition’s disinterest in pursuing issues of accountability in the Indigenous policy domain. Whether it is corruption or gross incompetence, the accepted standards of political and administrative accountability would normally demand that the responsible Ministers and perhaps those bureaucratic advisers who knowingly ignore their legal obligations should have their employment terminated.  

Of course, I don’t hold out much hope that the current Prime Minister will be prepared to take action. I am surprised that these issues are not on the radar of the Secretary of Prime Minister and Cabinet. I am certain of two things however: first, this is not going to end well; and second, the longer governments prevaricate, the worse the fallout will be. Unfortunately, as is the way with these things, the most severe impacts will likely fall on the people of Groote Eylandt.

Finally I should note that the ABC provides an informative overview in an article dated 29 August which places the review in a much broader context. Unfortunately it has the rather misleading headline Commonwealth freezes funding to Anindilyakwa Land Council as chief executive Mark Hewitt flags resignation (link here). It is misleading insofar as the minister has not frozen the ALC’s funding (and probably never will) but has merely deferred providing approval for ongoing expenditure beyond 1 December, and the CEO has not resigned from the ALC (as the headline suggests), but is proposing to resign as CEO of Winchelsea Mining but remain as a consultant and presumably a Director (as discussed above). ERRATUM: this last statement is probably incorrect; see the erratum above.