The future of the Ayers Rock Resort: a soothsayer’s prognostications

 

How oft the sight of means to do ill deeds

Makes deeds ill done

King John Act 4, scene 2.

 

The ILSC Annual Report 2020-21 released on 27 October 2021 (link here) includes some interesting information on the state of play with the Ayers Rock Resort (ARR), owned and managed by ILSC subsidiary Voyages Indigenous Tourism Australia Pty Ltd.

 

ARR was purchased by the ILC in 2010/2011 for $300 million in contentious circumstances. According to the RBA inflation calculator (link here), $300m in 2010 equates to $360m in 2020. The then Board’s vision in pursuing the purchase was ostensibly to provide Indigenous interests with an iconic business asset at the symbolic heart of the continent. The ARR and its associated town infrastructure of Yulara had been established some decades before with substantial financial assistance from the then NT Government. The ARR’s location, control of the Yulara airstrip, and effective control over development activities within Yulara provide ARR with monopolistic commercial leverage over tourist access to Uluru.

 

While the strategic insight had merit, the issues in contention revolved around whether the substantial price paid by the ILC was excessive, and whether the ILC had the financial capacity to undertake the acquisition. There were also questions of alignment between the ILC’s objectives and the actual aspirations of the Anangu traditional owners (TOs) of the Yulara land. At a more fundamental level, there is an as yet unresolved question over whether a single purpose large scale commercial enterprise located remote from developed infrastructure and significant surrounding economic activity will ever have the robustness and resilience to develop into a long term sustainable and commercially viable enterprise. This is the question that has been at the heart of the aspirations for ‘northern development’ for well over a century.

 

My own view is that the price paid was excessive and the ILC did not have the financial capacity to fund the purchase. Over the decade since, the financial commitments arising from the purchase have imposed a significant constraint on the ILC’s ability to undertake its core statutory remit. That is, to acquire land for dispossessed Indigenous groups, and to provide assistance in land management for those with access to land through the multiple land rights and native title mechanisms in place across the nation. On the question of TO aspirations, it is a complex and evolving issue that I am not in a position to ascertain. My intuition however is that TOs have mixed feelings, appreciating the jobs and commercial opportunities arising from the influx of tourists, while not valuing the social and cultural impacts of tourists on their country. As for the fundamental question related to northern development, the answer so far has been that without substantial government subsidies, sustainable commercial survival is most often a chimera.

 

In 2010, the then ILC Board decided to proceed with the purchase of ARR against the wishes of the two Ministers responsible for the ILC legislation, the then Ministers for Finance Penny Wong and Indigenous Affairs Jenny Macklin. At the time, the ARR had been on the market for some time, and the former owners had allowed it to run down. The ILC funded the purchase through substantial borrowings. The purchase also involved a commitment by the ILC to offer 7 percent equity in the ARR to a local Aboriginal corporation, Wunu Unkatja (WU) after ten years. WU are currently considering whether to take up the offer. The ILC’s purchase was strongly supported by the then Opposition Shadow Minister Nigel Scullion (he was a Senator for the NT), and once he became Minister in 2013, he strongly resisted the attempts of the new ILC Board to review and address the implications of the previous Board’s decision to acquire ARR. Since the ILSC is a statutory corporation, the Commonwealth Government’s status as the ARR’s effective owner and ‘funder of last resort’ along with its ‘head in the sand’ approach since 2013 means it cannot avoid responsibility for future outcomes.

 

Ten years on and the ILSC’s ownership of ARR has been demanding on a number of fronts, most recently arising from the impact of Covid 19. The 2020-21 financial statements for the ILSC value the ARR at $390 million although the ANAO auditor went out of his way to point out that this valuation is highly sensitive to the assumption of a return to pre-covid occupancy levels and room rates within two years. Over the past decade, the ILSC has invested at least $100m and probably closer to $150m in capital upgrades to the airport and all of the individual hotels that comprise ARR (see list below). The most recent Annual Report notes the completion of a number of major refurbishments (page 88). The size and age of the ARR’s infrastructure makes it inevitable that a process of ongoing and significant capital investment will be required for as long as the asset operates. The ILSC continues to carry $102.5m in debt related to the original purchase, and some $27m from the NAIF (link here) ostensibly related to the upgrade of the Connellan airport. Last financial year the ARR operated at an underlying loss, offset by Covid related subsidies. Voyages net loss for  2020-21 was $7.6m (page 87).

 

In real terms, and using conservative estimates, over the past decade the ILSC has spent at least $460m and still owes a further $127m on ARR, an asset worth $390m today. In round figures, the ILSC is at least $200m out of pocket (albeit this is a loss that remains uncrystallised). Moreover, it is quite clear that the ARR will continue to be a challenging and expensive asset to manage going forward.

 

These challenges are complicated by the statutory requirement in section 191D of the ILSC’s legislation (link here) that limits its acquisition functions to purchasing land for granting to Aboriginal corporations, and where circumstance require the ILSC to acquire the land directly, it is required to divest the land within a reasonable period. So, as the ILSC annual report (page 90) notes:

The ILSC’s commitment to its mandate of divesting acquired and improved land will see continued efforts to rebuild the value and financial sustainability of Voyages’ assets in readiness for future granting. The subsidiary will continue to focus on infrastructure improvements, operational efficiencies and Indigenous benefits.

 

The frank admission that the ‘value and financial sustainability’ of ARR requires rebuilding is significant and worth contemplating. Having now held direct title over the ARR for ten years, the question arises whether continued delay in divestment of the asset (which looks more like a liability) accords with the statutory requirement to divest within a reasonable period. There have been calls for early divestment for a number of years. See for example this 2015 Guardian article citing calls by Mick Dodson, and confirming that the ILC and the Central Land Council had been in discussion over the issue (link here).

 

While the genesis of this problem can be traced back to the original flawed decision-making by the ILC Board in 2010, finding a solution falls squarely on the current Directors, as well as the responsible Ministers. As explained below, the pressures to find a solution are likely to grow over the coming years.

 

The recent ILSC Annual Report contains (to my knowledge) the first formal indication that the ILSC Board is now focussed on the divestment issue. The Annual Report notes rather flatly (page 107) that the Board had established the ‘Project Aurora Steering Committee’:

The Project Aurora Steering Committee supports the ILSC in developing a pathway to divestment for the Ayers Rock Resort, land and business assets, including providing guidance on engagement with traditional owners. The Committee was established by resolution of the ILSC Board on 14 April 2021.

 

One very real constraint going forward – beyond Covid – will be the impact of Australia’s cooling strategic relations with China and the resulting likely fall off in the previously significant and growing Chinese tourism market, where over 50 percent of all Chinese tourist to the NT visited ARR. (link here).

 

Another constraint, perhaps the most significant, is finding a potential Aboriginal corporation with the skills, capability and financial resources to take over the ARR. At the moment, the only potential recipient would be Centrecorp, a development corporation closely associated with the CLC (link here). The risk for Centrecorp would be the uncertain, but potentially significant ongoing capital costs associated with running the ARR whether or not it is making a profit or a loss.

 

The ILSC Annual Reports and other corporate documents provide very little information on the strategic options being considered. Accordingly, it might be of use if I – in my role as an experienced soothsayer –  have a go at listing the options.

 

Options for solving the ARR divestment issue

 

Option one: sell the ARR asset. The advantage would be to cut the ILSC’s losses, which are likely to take many years to recover, and in some potential scenarios may worsen. The political reality however is that there would be strident opposition from a range of sources to relinquishing the Indigenous branded asset in such an iconic location. No Minister will want to oversee its sale to non-Indigenous owners.

 

Option two: reduce the ILSC equity exposure. This is similar to option one, with the added complication of adding complexity to future management, but without reducing the likely political reactions.

 

Option three: move to divest the ARR to an Aboriginal and Torres Strait Islander corporation. The challenge is to find a corporation with access to the financial resources and management capabilities to take on what is an extremely complex business, subject to multiple risks, and revenue variability. Most importantly, given the ARR’s ANZ loan (with an outstanding balance of $100m) will fall due in 2025, and on current projections will need to be rolled over. Any recipient Aboriginal Corporation will need to be prepared to take on what is a very significant liability along with a highly risky asset, as well as having the capacity to manage relations with the local TOs who will expect to be involved as co-owners and co-managers.

 

The soothsayer’s prognostications

 

Clearly, there is no good option available. Ideally, the ILSC would paydown the outstanding loan before divestment. However, doing so would likely require the best part of another decade of ILSC ownership, financial uncertainty, and serious financial impact on ILSC core activities. As I pointed out in a recent academic article, (Unmet

Potential, esp. pages 113-4 in Rademaker & Rowse (eds) Indigenous Self-Determination in Australia, ANU Press, link here), the ILSC has funded much of its ongoing operations through selling down its previously substantial cattle herd. This is a strategy that is both short-sighted and which will not be available forever. Without pre-emptive action, the day is drawing close when the ILSC and importantly the Commonwealth Government will confront the reality that retaining ARR within the ILSC will drastically cut back its capacity to fulfill the ILSC’s core statutory remit.

 

Given this background, it seems more than a coincidence that the Commonwealth has recently introduced legislation to establish a Northern Territory Aboriginal Investment Corporation (NTAIC) as the key part of a suite of amendments to the NT Aboriginal Land Rights Act. The amendments have been codesigned with the NT land councils, and are, in my view, conceptually flawed. In a separate post, I will link to key submissions to the Senate Committee when they become available.

 

While it is unclear whether the land councils have been appraised of, or have considered, the possibility that the NTAIC will be asked to take over the ARR, it is inconceivable to me that the Commonwealth has not given this option serious consideration. The advantage for the Commonwealth would be to shift the ownership to a subsidiary of the NTAIC comprised potentially of an assemblage of smaller TO corporations with minority holdings. Importantly, while technically it would remain under Commonwealth control and ultimate ownership, any future financial recourse required to ensure the ongoing viability of the ARR would be made from pre-existing appropriations made to the ABA rather than from new appropriations. This would reduce the Commonwealth’s overall contingent liability. Conceivably, the Minister could also use ABA funds to pay off the ANZ loan either before or as part of the divestment transaction.  

 

The apparent advantage to NTAIC (and the land councils) would be that at face value, the NTAIC would increase its capital base by around $400m, with the potential to grow significantly over the coming decade. On the downside, that potential comes with very substantial commercial uncertainties and risk, and may well diminish further the funds available to NTAIC for distribution to thousands of potential beneficiaries across the NT. And it may also come with a net reduction in ABA funds available for distribution ot Aboriginal Territorians into the future.

 

If correct, these prognostications suggest a reason for the secrecy and haste surrounding the current legislative process. They also add weight to the case for much more rigorous scrutiny of the Government’s NTAIC proposals.

 

Appendix: Incomplete list of selected capital costs since 2011

$43m  2012 Refurbishment of Sails in the Desert and Uluru Meeting Place (link here).

$7m    2017 Tjintu solar field: (link here);

$27m 2019 Connellan airport upgrade (link here);

$?       2021 completion Sails in the Desert bathroom refurbishment (228 rooms) Ann. Rpt. p.88

$?       2021 final refurbishment and upgrade of five campground amenity blocks Ann. Rpt. p.88

$?       2021 refurb Connellan airport amenities; expansion security screening area Ann. Rpt. p.88

This list is the basis for my assessment that at least $100m has been spent on capital upgrades at ARR since its acquisition by the ILSC in 2010/11.