Whose north, whose future?: the NAIF and the ILSC

 

Your dishonour

Mangles true judgment, and bereaves the state

Of that integrity which should become it

Coriolanus Act 3, scene 1.

 

In May 2018, the North Australia Infrastructure Facility (NAIF) approved loan finance of $27.5m to Voyages, a wholly owned subsidiary of the Indigenous Land and Sea Corporation (ILSC), for the upgrade of the Connellan airport at Yulara servicing the Ayers Rock Resort operated by Voyages.

 

The NAIF website outlines the details of NAIF financing on its website (link here) and provides a case study fact sheet (link here).

 

According to documents recently released under FOI by the ILSC (link here), [FOI cache #19], Minister Scullion wrote to the ILSC on 26 September 2018 proposing a series of preconditions to Commonwealth approval of the NAIF loan. In essence, these required a dollar for dollar repayment of a pre-existing Commonwealth loan to the ILSC made in 2016 totalling $65m. This loan allowed the ILSC to repay outstanding vendor finance associated with the purchase of the Ayers Rock Resort in 2010/11. The Minister’s 26 September letter apparently did not fall within the scope of the FOI request and thus has not been published. The ILSC Chair’s response dated 23 October 2018 has been released, along with Minister Scullion’s acknowledgment dated 13 November 2018. In that latter correspondence, he begins by stating: ‘Thankyou for your letter of 23 October accepting the Commonwealth’s conditions of consent associated with Voyages application for a Northern Australia Infrastructure Facility loan’ (FOI documents 1 and 2).

 

Ministers Canavan and Scullion’s joint media release announcing the NAIF loan dated 13 December  (link here) failed to mention the conditionality imposed by Minister Scullion.

 

Neither document on the NAIF website mentions the conditions imposed on behalf of the Commonwealth by Minister Scullion. These conditions effectively offset the NAIF loan finance in its entirety and thus negate all the benefits listed as flowing from the NAIF loan.

 

 

In a previous blog post on Indigenous participation in the NAIF (link here) , I noted that the NAIF loan to Voyages breached the Ministerially approved Investment Mandate governing the operations of the NAIF facility in a number of ways. The post is worth reading in full, not least for the reminder of the ANAO criticism levelled at the NAIF Board regarding its general standards of administration. In relation to the most significant breach, I noted:

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

[Snip]

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

 

What is now apparent following the release of the correspondence referred to above is that the entire NAIF loan to Voyages was a sham insofar as it was granted on the condition that the ILSC pay down at least $27.5m of the pre-existing Commonwealth loan. In fact, a prepayment of $23.5m was made in January 2019, and repayments of $1.95m were made quarterly thereafter (refer to p.66 of the ILSC Annual Report 2019-2020).  On 20 December 2019, the ILSC Chair wrote to Minister Wyatt (FOI document 41) advising him that the ILSC was in a position to repay the outstanding balance of the Commonwealth loan in January ‘due to the improved performance of the Ayers Rock Resort’.

 

While my September 2018 post concluded that the NAIF loan effectively amounted to the Commonwealth funding itself, the revelation of the Ministerial precondition makes it crystal clear that the NAIF loan was not required to upgrade the airport, but was used to replace specific pre-existing loan finance to  Voyages from the Commonwealth.

 

The loan approval by the NAIF Board was a breach of the NAIF Act and in particular its Investment Mandate. However, the decision by Minister Scullion to impose a condition on the approval of the loan appears to have no statutory basis, and represents a much more egregious shortcoming. The former might be argued to be a technical breach by the NAIF Board, the latter (in the absence of any justification) is clearly a case of a minister acting beyond his powers.

 

While the Minister for Industry has a power under the NAIF Act (section 11) to withhold approval of a NAIF Board decision, the circumstances under which he may do so are limited. Section 11 (4) stipulates a ‘rejection period’ of 21 days from the date of a loan approval and section 11(5) states:

However, the Minister may give the rejection notice only if the Minister is satisfied that providing the financial assistance would: (a)  be inconsistent with the objectives and policies of the Commonwealth Government; or (b)  have adverse implications for Australia’s national or domestic security; or (c)  have an adverse impact on Australia’s international reputation or foreign relations.

 

Minister Scullion was not the relevant Minister, the rejection period had long passed, and the conditions in subsection 5 on their face do not appear to have been met. For the Minister to impose conditions was in effect to threaten to arrange for the NAIF Board approval to be with-held or rejected.

 

Apart from the apparent misuse of ministerial power involved, the preparedness of the Department of Prime Minister and Cabinet and later the NIAA to facilitate these arrangements is a serious concern, as is the failure of the ILSC to act independently of the Minister’s irregular request.

 

The effect of all this was to effect a blatant sleight of hand by former Minister Scullion and perhaps others within the Executive branch. The result was that the public at large, and in the process the Parliament, were misled. The NAIF loan was not required to upgrade the airport and create jobs, including Indigenous jobs, but instead was a means to bring to finality an outstanding Commonwealth loan. That loan was from the start highly unusual and designed to insulate the ILSC from the adverse financial consequences of the decision taken in 2010 to purchase the Ayers Rock Resort at an inflated price. The failure of the ILSC to reveal the explicit conditions imposed by Minister Scullion in its 2019 and 2020 Annual Reports appears to confirm its implicit complicity in the Government’s irregular and probably illegal political agenda, and reflects poorly on its substantive independence notwithstanding the formal independence granted by its constituting legislation.  

 

One of the policy implications of this revelation is to highlight a lack of effective due diligence by the NAIF. Another is to highlight the appalling shortfall in funding for Indigenous projects in the NAIF’s operations. NAIF was the core financial element in the Government’s White Paper on Northern Development, Our North, Our Future (link here). To date, NAIF has provided funding of a mere $12.5m for only one other project involving Indigenous proponents (link here) out of an allocation of $5bn. This equates to 0.24% of the available allocation, and certainly suggests a less inclusive meaning to the words ‘our north, our future’. I aim to give these issues closer consideration in the near future following the recent release of a statutory review into the NAIF by Minister Pitt (link here).