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
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