Update on the Winchelsea mine.

                                                             Th’ offender’s sorrow lends but weak relief

To him that bears the strong offence’s loss

Sonnet 34, 11-12

This post examines the current state of play in relation to the Winchelsea mine on Groote Eylandt.

I have previously discussed the mine and its ownership structure in a number of posts. I don’t propose to canvass in this post all the details previously discussed; instead I refer interested readers to those posts (link here, link here and link here).

AAAC and its subsidiary.

In summary, Winchelsea Mining is 70 percent owned by Anindilyakwa Advancement Aboriginal Corporation (AAAC) with the remaining thirty percent owned by Aus China International Mining Pty. Ltd. (AusChina). In their 2023 Financial Report dated 16 October 2023 (link here), the AAAC Directors stated:

The Subsidiary was established in 2018 and the mining project is part of a comprehensive economic strategy to enhance Groote’s Future Fund to maintain important economic, cultural and community programs for the island’s people permanently into the future. Winchelsea will be an Aboriginal owned and operated mining venture. The core vision of the project is to raise enough revenue to permanently support the economic and social future of all Anindilyakwa speaking clans of the Groote Archipelago.

The Subsidiary holds an Exploration License on ‘Akwamburrkba' (Winchelsea Island). The Subsidiary also holds a Mineral Lease on this site for a period of 30 years which was granted on 25 March 2022.

The Subsidiary is currently completing a Business Feasibility Study and progressing through various regulatory approval processes which is expected to be completed in 2024. Mine development should occur in 2024 targeting an operational start-up and manganese ore sales by 2025….

…. The Mining Project will see a large scale of infrastructure built on Winchelsea Island and the Little Paradise site on Groote Eylandt. Where possible, the buildings will be repurposed for future projects, such as multi use facilities and relocatable buildings. Beyond the life of the mine, it is intended there will be other various projects, including an aquaculture business, as well as other businesses such as tourism, timber mills and restaurants. There is a final project feasibility study being conducted which will detail a closure plan and mine rehabilitation including associated estimated costs for the specific site restoration costs [emphasis added] ….

…. Key management personnel of the Subsidiary [ie Winchelsea] during the year were as follows: Mark Hewitt (Director and Secretary, appointed: 18 June 2018); Dongfang Yu (Director, appointed: 1 September 2018);  Hui Yu (Director, appointed: 1 September 2018); Tony Wurramarrba (Director, appointed: 1 September 2018); Xiaoli Liu (Executive Assistant, appointed: 10 September 2018).

… The total remuneration paid to key management personnel of Winchelsea Mining Pty Limited during the year ended 30 June 2023 was $398,763 (30 June 2022: $485,885).

…. As reported in the 30 June 2020 financial statements, if the Subsidiary applies for a Mineral Lease, arising from the Groote Eylandt Tenements, the Subsidiary agrees it is obliged to pay a mineral lease payment of $10 million (plus GST if applicable) to Yukida Resources Pty Ltd as part of the consideration for the transfer to the company for the tenements. On 3 March 2021, the Subsidiary entered into a variation agreement with Yukida Resources Pty Ltd to revise the mineral lease payment from $10 million to $2.5 million. As part of this revision, an additional $6.25 million is payable upon achieving the first milestone, being the first shipment of product.

As I have previously noted both Mr Wurramarrba (now deceased) and Mr Hewitt were in receipt of full-time salaries from the ALC, a Commonwealth statutory body. Thus, any salary payments to them from Winchelsea would be in addition to those Commonwealth salaries (which are determined by the Commonwealth Remuneration Tribunal on the basis that the recipients are working full time). Ms Xiaoli Liu (also referred to as Ms Sophie Liu below) is Mr Hewitt’s spouse. She has at various times been involved in managing the ALC Royalty Management Unit, as well as her role as Operations Officer within GHAC and as Executive Officer within Winchelsea Mining.

This matrix of overlapping and parallel roles clearly creates a complex array of potential conflicts of interest. Further, as I have previously noted, it is somewhat strange that none of the Directors of AAAC are appointed as Directors of Winchelsea. In my view this reflects the fact that the ALC in effect controls AAAC by virtue of its control over virtually the entirety of its revenue, as well as the allocations for direct payments to unspecified ‘traditional owners’ that are made by AAAC. Finally, it is unclear at present whether Mr Wurramarrba has been replaced on the Board of Winchelsea and whether Mr Hewitt remains on the Board of Winchelsea following his dismissal by the ALC.

The 2022 financial statements report a correction to previous reports with the following effect: in 2019 the AAAC received $10 million from Aus China for the issue of 4000 shares (with AAAC holding 6000 shares). This ownership structure was further adjusted in April 2023 by the issue of a further 3,333 shares to AAAC at nominal cost. The current ownership structure is thus 70 percent AAAC and 30 percent AusChina.

The financial reports for AAAC for 2022 and 2023 and the ALC Annual Report for 2024 indicate that ALC has provided AAAC with $5 million in mine related s.64(3) payments in 2022 (and a further $1.35 million in TO payments); $5.38 million in mine related payments in 2023; and in 2024 just over $2 million (not broken down). ALC funding to AAAC over the past three years, primarily for the development of the Winchelsea mine, thus totals at least $12.3 million (in addition to the AusChina initial contribution of $10 million.

There is no publicly available information on the arrangements between AAAC and AusChina for contributions to mine development, though one might speculate that Aus China are not required to pay any further contributions given the quantum of their initial investment. The fact that the April 2023 increase in AAAC equity (from 60 to 70 percent of Winchelsea) appears to have involved no additional investment from AAAC beyond a $60 payment raises the question: why did Aud China agree to it? What did they get in return for their consent?  In this context it is worth remembering that this transfer occurred after the ALC had a draft copy of the ANAO Audit report.

Little Paradise

As noted above, the Winchelsea mine will involve infrastructure development at the Little Paradise site. Investment in infrastructure for Little Paradise has been primarily channelled through Groote Holdings Aboriginal Corporation (GHAC). As noted in the 2022 GHAC Financial statements (link here)

Groote Holdings Aboriginal Corporation was established to primarily focus on delivering the foundation assets and business – skill development programs necessary to support development of the Winchelsea Mining project in the short-term and the Aquaculture export- industry in the longer – term.

The financial statements for GHAC identify the following ALC investments in GHAC. In FY 2021, $4.6 million; in FY 2022, just over $27 million; in FY 2023, just over $16.6 million; and in FY 2024, $15.4m. The vast bulk of these funds, which total $63.6 million, relate to potential Winchelsea project related infrastructure and/or payments to TOs. Given that Little Paradise is described as multi-purpose, and in the absence of any detailed accounting for mine expenditure, let’s assume the Winchelsea related expenditure amounts to around $50 million. When we add in the AAAC expenditure, we have an investment to date of around $60m (compared to AusChina’s initial $10 million). To date, it appears that the TO’s on Groote have provided over 80 percent of the funds expended on developing the Winchelsea mine, yet only own 70 percent of the equity in the company. It is difficult to reconcile this apparent outcome with the ALC’s role in protecting TO interests on Groote. Unfortunately, the situation gets worse.

Both the Winchelsea Mini Development and the Little Paradise Development have been subject to assessment by the NT Environmental Protection Authority.

In a report to the NTEPA prepared for GHAC dated July 2024 (link here), consultants CDM Smith Australia state (inter alia)

1.2 Proponent Details. …. GHAC is moving quickly but diligently to realise the vision of achieving a perpetual Future Groote Cultural Economy and controlling the destiny via strategic investments and partnerships. The initial investments in infrastructure are targeted towards assets that will facilitate the ongoing economic development activities on Groote Eylandt.  With income streams from the Winchelsea Mining Pty Ltd, a joint venture (JV) between Anindilyakwa Advancement Aboriginal Corporation “AAAC” (Bara/Jaragba Clan owned) and AusChina International Mining Pty Ltd.  Seed capital can be invested into developing Little Paradise enterprises.  (page 3).

Figure 1-3 on page 23 provides the GHAC Organisation Structure. It shows that the Executive Director is Mark Hewitt, and that amongst the seven Direct reports are ‘Governance and CFO’ provided by ENMARK and the Operations Officer is Sophie Liu who has responsibility for Operations and Development, Traditional Owner Clan Business Support, Marketing and Procurement, Winchelsea JV partner liaison, and human relations.

Beyond the Traditional Owners, consultation with various Government, community and industry stakeholders has been completed. A partial summary of the consultation is as follows: ….

Commonwealth Government (Minister for Indigenous Australian) – On 11 March 2022 the ALC submitted a request for consent regarding Section 19(4A) and 27(3) of the Land Rights Act. As part of that submission, ALC provided a comprehensive overview of the Little Paradise Project in documentation attached to the consent request letter.

The report confirms that the initial function of the Logistics and Base Camp will be to provide logistics support for the Winchelsea mine, and that this is to be developed in year one of the five-year implementation schedule for Little Paradise (see section 2.3.3 and table 2.7).  

According to the NTEPA website (link here) in June 2023, the EPA suspended assessment of the Little Paradise development at the request of GHAC. In November 2023 the GHAC Little Paradise referral was withdrawn from the environmental assessment process by the proponent. This is likely linked to the EPA decision on Winchelsea (see below).

The information outlined above documents the scale of the investments to date in developing the Winchelsea project, the vast majority of which have been sourced from section 64(3) payments which under the Aboriginal Land Rights (Northern Territory) Act 1976 (ALRA) , a land council is required to pay to Aboriginal Corporations for the benefit of residents and TOs. It also confirms the potential influence and likely control exercised by the ALC over GHAC by virtue of the ALC CEO being a GHAC Director and the GHAC CEO (Executive Director). This is apparently an unremunerated role, and adds complexity to the overlapping links between the ALC and Winchelsea Mining. And finally, the information confirms that the former Minister, Mr Wyatt, and NIAA were apprised of the ongoing developments at Little Paradise (and presumably of their relationship to the Winchelsea mine project) in March 2022.

Winchelsea Mining Pty Ltd

In May 2023, Winchelsea Mining CEO Mark Hewitt notified the EPA of a variation in the Winchelsea development project and submitted a Notice of Significant Variation (NOSV) of proposed action under s51(1) of the Environmental Protection Act 2019 (link here) to the EPA.

That document included the following assertion:

  With Winchelsea Mining being a private company registered by the Anindilyakwa Advancement Aboriginal Corporation, which is managed by the Anindilyakwa Land Council (ALC), the ALC board is constantly informed of the Project and status of the proposed revision. The board consults more broadly on the Project changes with a broader group of up to 240 Traditional Owners representing Anindilyakwa’s two clan groups. As such the revised mine plan is authorised by the Traditional Owners of Winchelsea Island. [emphasis added].

The variation submission also confirms that the Winchelsea project is based on mining a resource of around 11.8 million tonnes of ore. I previously attempted to assess the value of this resource and concluded that the projected revenue would not be adequate to cover the cost of the projected infrastructure being developed for the mine. In reviewing this assessment, I have now concluded that my previous post (link here) substantially underestimated the value of the Winchelsea resource. This was due to an error in my calculations, in particular, my failure to take into account the concentration rate in the Winchelsea ore. I apologise to readers and have added a correction to my previous post. My previous post stated:

According to the sampling undertaken by Xenith, the total proved and probable ore reserves (as at October 2020) were 11.8 million tonnes with an average manganese concentration of 26%. Xenith estimated the costs of extraction and processing (Table 8.1) and this led to the estimation of net ore prices for the various categories of ore (Table 8.2 at Appendix E). Estimated FOB prices varied between A$5.68 and A$1.74 dmtu (dry metric tonne unit). 

The price of manganese ore has risen over the past year, and it is currently in the region of A$6 per metric tonne. It is unclear what Xenith’s estimated net FOB prices would be today. However, if we assume a resource of 11.8 million tonnes and an average ore price of A$6 per tonne times 26 (to take into account the average concentration of 26%) then the gross value of the Winchelsea Resource would be A$1.8 billion. Crucial to mine profitability would be the costs of extraction and transport to market and of course the future price of manganese ore. Notwithstanding my earlier calculation error, it remains unclear in my view whether Winchelsea Mining, which has no previous experience in bringing a major project into operation, has the commercial capability to raise the capital required to develop the resource, and if so whether it can overcome the numerous financial risks (such as exchange rate risk and an uncertain trade policy environment) and the increasingly uncertain environmental and climate challenges in a cost-effective manner. The ultimate profitability of the project and the financial benefits for the traditional owners of Winchelsea Island and the Groote archipelago generally are in my view far from certain.

Moreover, and importantly, there is no transparency over the structure of the Joint Venture arrangements between AAAC and AusChina. The risk here is that the TO’s who have effectively given up access to alternative and less risky uses for the s.64(3) payments in favour of investments in the development of the mine will not not receive an equitable share of profits and/or financial transfers as the mine’s development and operation progresses. Another important issue is that it is far from clear that the social and environmental costs of the mine on the broader Groote population (including Groote’s Aboriginal residents) are adequately understood in the wider community and will be adequately factored into the calculus underpinning mine development. The major concern in my view is that the role of the Land Council in protecting traditional owner interests has been compromised by the complex array of systemic conflicts of interest that have been established, the impact of which continues to this day.

One obvious and in my view concerning issue is the disjunction between the rhetoric promulgated by the ALC that the development of the mine will be in the interest of all traditional owners on Groote, and the legal ownership structure which vests 70 percent of mine ownership in AAAC owned by the representatives of just two clans. In the event that the mine is successfully developed, this disjunction will likely become a source of serious conflict. It represents in my view a failure by the ALC in its core statutory function, a failure which can be directly traced to the conflicts of interest built into its governance.

In July 2024, the NT EPA responded to the Winchelsea’s Notice of Variation with a document titled Direction to include additional information in the supplement and form and manner to publish the supplement  (link here). The Direction listed 30 areas which required more information or analysis. Apart from a range of environment and cultural heritage related information, the EPA made the following comment/request:

Comment: The draft EIS states that as the proposed 50-person accommodation camp and other supporting infrastructure will be located on Groote Eylandt and developed by a separate entity, and it is not considered in the EIS. Due to the dependency of the proposed action on this supporting infrastructure, consideration of this development is required in the EIS. Limited information is provided in the referral regarding the usage of Bartalumba Bay wharf in the construction phase of the project. This activity may cause an indirect impact to stakeholders / other users of the wharf.

Information required in the supplement: Provide an assessment of the potential social and economic impacts on the Groote Eylandt community from the development of supporting infrastructure (including accommodation camp) and from the use of Bartalumba Bay wharf [emphasis added].

The alternative ‘separate entity’ referred to in the supplementary direction from the EPA is clearly GHAC and its Little Paradise project.

Conclusion

A media article dated 1 January 2021 which is still up on the ALC website is headed ‘Mine nearly ready to go: Traditional owners on Groote Eylandt hope to start mining manganese on their own land by mid-2022’ (link here and link here). The article lays out the strategic vision for the mine and mentions in particular that Winchelsea is working with the Northern Australian Infrastructure Facility (NAIF) to lend it $100 million to develop the mine. Clearly the discussions with NAIF have so far come to nought (no public explanation has been provided by the ALC or Winchelsea), and the optimistic timelines have clearly blown out. The recent EPA decision suggests that there could be a further two years wait just to obtain the relevant environmental approvals.

The recent dismissal of Mr Hewitt from the ALC for reasons that have not been made public raises the fundamental questions: where to now for the Winchelsea mine proposal? The fundamental question in my view is for the land council on behalf of all Groote Traditional owners to independently reassess the project’s commercial viability and the fairness of the mining agreement that the land council presumably agreed to while its CEO (and key proselytizer for the project) was simultaneously the Executive Director of Winchelsea Mining. Yet the capacity of the land council to undertake this task while the myriad compromised and conflicted structures identified in the ANAO report are still in place, and while the National Anti-Corruption Commission is continuing its investigations, is clearly doubtful.

In my view, the case for the minister to step in and ensure that the ALC (and the GHAC and AAAC Boards) have access to independent and commercially astute financial advice in relation to the future of the Winchelsea project appears incontrovertible. Ongoing delay will only serve to further complicate the issues in play.

Apart from the possibility of commercial failure, a failure to act will increase the risk that AusChina, the minority interests in the Winchelsea Joint Venture, will decide that its interests will be best served by conjuring up a proposal to sell their equity in the putative mine to Indigenous interests on Groote for a price beyond its real worth.

 While I don’t rule out the possibility that the mine should ultimately proceed, such a possibility is only feasible if its ownership structure, its prospective commercial viability, and the economic, social and cultural viability of the pathway to development of the resource is thoroughly investigated by an independent and commercially experienced person.

We need look no further than the Ayers Rock Resort to find an example of a ‘good idea’ that has served as a sponge soaking up millions of dollars that might have been spent more wisely to benefit Indigenous Australians across the whole country (link here). In that case, the proponents were commercially experienced members of the board of the Indigenous Land Corporation, a Commonwealth statutory corporation, who pursued a course of action which led to financial disaster. The ILSC is still seeking to escape the millstone around its neck, and the losers have been the myriad Indigenous corporations that might have been supported by the ILSC and have not been. The resonances with Winchelsea are crystal clear. If the worst comes to pass, the sorrow of Ministers who were complicit or failed to act when they might have will be ‘but weak relief’.

 

 

 

 

 

 

ANAO 2024/25 draft work program

 

And how his audit stands who knows save heaven?

Hamlet Act three, Scene three.

 

The ANAO has released its draft work program for next financial year’s performance audits (link here). Dan Holmes from the Mandarin provides a succinct whole of government overview (link here).

 

This post focusses on the Indigenous policy related performance audits, which fall under the Prime Minister and Cabinet (PMC) portfolio. OF course, many of the proposed mainstream performance audits will have a bearing on services delivered to Indigenous citizens. These include (to a greater or lesser extent) proposed performance audits of DSS’s programs Assisting the Long term Unemployed; a follow-on performance audit of the Management of funding of projects by the Northern Australia Infrastructure Facility (NAIF) in the Infrastructure, Transport, Regional Development, Communications and the Arts portfolio; and perhaps even Board Governance at the National Disability Insurance Agency.

 

For ease of access, I have included slightly edited summary extracts of proposed Indigenous specific performance audits from the PMC portfolio below:

Delivery of community-led justice reinvestment initiatives

This audit would assess the design and governance underpinning the National Indigenous Australians Agency and the Attorney-General’s Department’s joint establishment of an independent National Justice Reinvestment Unit and examine the effectiveness of the early delivery of up to 30 community-led justice reinvestment initiatives.

Around $100m was announced for investments in community-led justice reinvestment initiatives and First Nations-led legal assistance services in the October 2022 budget…

Indigenous Land and Sea Corporation’s management of non-financial assets

This audit would assess the effectiveness of the Indigenous Land and Sea Corporation’s (ILSC’s) management of non-financial assets.

The ILSC is a corporate Commonwealth entity established under the Aboriginal and Torres Strait Islander Act 2005 (the Act). One function of the ILSC is to acquire land to grant to Indigenous corporations. Under section 191D of the Act, the ILSC must make a grant for an interest in land acquired for that purpose within a reasonable time after its acquisition. At 30 June 2023, the ILSC and subsidiary corporations held the Ayers Rock Resort valued at $435 million, other properties valued at $66 million, and livestock on properties valued at $6 million. While the ILSC holds properties, it is responsible for maintenance, statutory costs and the operation of related businesses. The audit would examine the ILSC’s asset management strategy and practices, including those related to the divestment of properties…

Management of the regional network - Follow on

The audit would assess the effectiveness of the National Indigenous Australians Agency’s (NIAA’s) management of the regional network, including whether the regional network is achieving its objectives…

…Auditor-General Report No. 7 of 2018-19 Management of the Regional Network found that management of the regional network was mixed, with the full potential of the network to facilitate the design and delivery of local solutions to local problems not being maximized.

Office of the Registrar of Indigenous Corporations’ management of non-compliance

This audit would assess the effectiveness of the Office of the Registrar of Indigenous Corporations’ (ORIC’s) management of non-compliance with the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act)…

…In 2021, the NIAA released a final report of a review into the CATSI Act that recommended enhancements to the regulatory powers available to the Registrar under the Act. An amendment bill to the CATSI Act passed the House of Representatives in 2021 but lapsed at the end of the 46th Parliament. This audit would examine the use of the Registrar’s powers and functions to manage non-compliance with the CATSI Act.

The effectiveness of coordination of Closing the Gap target implementation

The audit would examine the effectiveness of the National Indigenous Australians Agency (NIAA’s) coordination activities.

The 2020 National Agreement on Closing the Gap (National Agreement) is a strategy that aims to improve the life outcomes of Aboriginal and Torres Strait Islander people. The National Agreement marks a shift in the approach to the Closing the Gap Strategy, with Aboriginal and Torres Strait Islander people determining what is important to them. The Closing the Gap Implementation Plan includes actions, the responsible minister and the delivery timeframe. The NIAA is responsible for leading and coordinating the development and implementation of Australia’s Closing the Gap targets in partnership with Indigenous Australians.

The Northern Territory Aboriginal Investment Corporation (NTAIC)’s administration of grants

This audit would assess the effectiveness of the governance of the NT Aboriginal Investment Corporation (NTAIC) and its governance and decision-making processes for allocating grants funding.

NTAIC was established as a corporate Commonwealth entity in November 2022. NTAIC’s purpose is to work with Aboriginal Territorians to achieve economic, social and cultural impact through innovative approaches to investments, beneficial payments and other financial assistance. It has initial grant funding of $180 million and an investment corpus of $500 million. Its Aboriginal-controlled board makes decisions to invest Aboriginals Benefit Account (ABA) funding, which was previously administered through the National Indigenous Australians Agency. The ABA receives monies from the Commonwealth based on the value of royalties generated from mining on Aboriginal land in the Northern Territory…

 

Commentary

The ANAO is an important, and in my view under-rated element in the array of checks and balances that comprise the architecture for government initiatives and actions. It is the financial auditor for all major government agencies, certifying that agencies financial accounts are compliant with the applicable accounting standards and fairly present the financial position of the entity at the audit date. Its performance audits are separate to its financial audits and in effect focus on the performance of agencies in delivering specific initiatives and programs. The span of performance audits is not comprehensive, and thus the selection of audit subjects is inherently a strategic choice.

 

In 1985, I published an article (link here) arguing that the shift to embracing what were then termed ‘efficiency audits’  — the equivalent of the ANAO’s performance audits —  should be extended to embrace effectiveness audits. ‘Efficiency’ refers to the ability to accomplish something competently with the minimum level of resources and effort. ‘Effectiveness’ refers to the degree to which desired or positive outcomes are achieved. In my view the argument I made then still has merit.

 

In its wisdom, the ANAO has preferred the safe harbour of focussing on efficiency (effectiveness risks straying into the realm of politics) leaving issues of effectiveness to ad hoc evaluations. For their part, successive governments have avoided reforms that would ensure evaluations are undertaken independently, are always published, and are pitched at a level that ensures they are strategically relevant. Proposals for an evaluator general (link here and link here) have been studiously ignored. The point of this brief foray into history is to highlight that notwithstanding their considerable usefulness and benefits in opening a window onto the activities of government, ANAO performance audits are invariably limited and focussed more on process than outcomes. Perhaps it is time that that the ANAO commissioned an independent evaluation of its own operations!

 

Turning to the proposed audits listed above, I propose to make a series of brief comments aimed at highlighting specific issues of potential significance or salience. Due to limitations on length, I don’t propose to comment on the proposed performance audit of the NIAA regional network, nor the proposed audit of the Office of the Registrar of Aboriginal Corporations. I note however that both organisational units are crucial elements in the architecture of Indigenous policy and deserve constructive scrutiny.

 

Delivery of community-led justice reinvestment initiatives: While this program is jointly shared between NIAA and the Attorney Generals Department, there is no information on the NIAA website. The AG’s website lists a basic description of the program (link here) and includes a program design document drafted by Jumbunna Institute ‘to inform the design of the grants process and grant opportunity guidelines’ (link here). The design document is well constructed but is itself strongly focussed on process (particularly community control) rather than providing a targeted conceptual framework for reducing incarceration and interactions with the justice system.  While this is deliberate, the very flexibility of the program is likely to lead to questions regarding its efficacy and purpose, especially in the context of outbreaks of public violence such as recently occurred in Alise Springs.

 

At a more strategic level, the Commonwealth is essentially investing in a slogan as there appears to be no mechanism for operationalising the ‘reinvestment’ element of the program. To do this would necessarily involve robust engagement with the states and territories to shift resources away from activist policing, aggressive prosecutorial strategies and carceral options, something the Commonwealth is loathe to undertake. Of course, notwithstanding an extra $10m being allocated to Central Australia under this program in the 2023 budget, the reality is that governments’ actions (such as those announced after recent riots in Alice including a curfew and a decision to appoint 200 more police) are not in fact aligned with the justice reinvestment ethos, and they appear unwilling to advocate for such a strategy to the wider population. The bottom line is that even if the investments involved were effective, the investment of $100m nationally is unlikely to be adequate to turn around the worsening incarceration status of First Nations (link here). The fundamental question then for the ANAO is not whether individual grants are making a positive impact, but whether governments are merely engaged in an exercise of signalling concern (and buying political support) rather than aiming to address the substantive issues involved.

 

Indigenous Land and Sea Corporation’s management of non-financial assets: this proposed performance audit is timely and will no doubt raise several important issues. The elephant in the room is the ILSC’s ownership of the Ayers Rock Resort and the implications for its balance sheet of the current efforts (link here) to divest the resort to a new owner. I published a post on this issue some years ago (link here) and note that the issue has been raised in each of the last two estimates hearings. There was a sustained discussion at the February 2024 Hearings (pages 57 to 60) of the significant contingent liability carried by the ILSC in relation to ARR, and the actions being taken by the ILSC to divest the land to an Indigenous corporation and the operation of the resort to a commercial operator. I was particularly struck by Senator Liddle’s statement in the most recent Estimates hearing that ‘we all know that there was far too much paid for that investment at that particular time’ given that this proposition was vehemently rejected by Minister Scullion when the subsequent Dawn Casey led Board sought to unpack what had transpired and have the decision reviewed (link here).

 

The effectiveness of coordination of Closing the Gap target implementation: this proposed performance audit addresses issues that are crucial to the future effectiveness of the closing the gap process. This element of NIAA’s management of the process is in dire need of reform. There are two elements to coordination of the implementation task. The first is across the Commonwealth: my informal understanding is that the NIAA does not see itself as taking the primary role in leading the implementation of the Priority Reforms under the National Agreement, but rather sees itself as a policy influencer. Of course, NIAA requires ministerial support to engage forthrightly, but it is painfully clear that the NIAA is effectively mute on many if not most of the issues that will make a difference to the ultimate success or failure of closing the gap.

 

The second essential element of successful coordination is for the Commonwealth to step up and provide a much greater degree of policy and even administrative leadership vis a vis the states and territories. The previous Government hid behind the convenient fig leaf that the Commonwealth was merely an equal partner in the intergovernmental National Agreement on Closing the Gap, but there was no necessity for the Labor Government to meekly and supinely follow suit. The Minister for Indigenous Australians must bear ultimate responsibility for this positioning, but NIAA and its leadership could have done much more to persuade the Minister to adopt a more robust and proactive stance.

I published a post on this and related issues in early March (link here) which I strongly recommend to readers.

 

The Northern Territory Aboriginal Investment Corporation (NTAIC)’s administration of grants: while this would be a marginally useful exercise given that NTAIC has been operating for less than two years, it strikes me that this proposed performance audit misses a much more strategically important issue, namely the efficacy (and ideally effectiveness) of the overall allocation of royalty equivalents to the Aboriginals Benefit Account (ABA), of which NTAIC grants are just one comparatively minor part. I was a critic of the NTAIC proposal as being a sleight of hand: it professed to shift control to Aboriginal interests in the NT, but in fact ensured that the Minister retained unilateral control over a significant element of royalty equivalents (managed by NIAA) without any Aboriginal oversight and with much less transparency that previously obtained (link here). Of course, the NTAIC is now a reality; I am not suggesting it be unwound. I am merely pointing to the fact that there is much more to the ABA than the slice that the NTAIC controls.

 

The most recent NIAA Annual Report (link here) incorporates the financial statements for the ABA which disclose that in 2023 it held financial assets totalling $1.47 billion, offset by liabilities (including provisions for establishment funds to transfer to NTAIC) of $625 million leaving net assets of $845 million. Annual appropriations to the ABA totalled $378 million. These funds are then allocated in a range of ways, including to fund the operations of the four land councils in the NT ($109 million in 2023), to fund the distribution of payments to corporations representing traditional owners affected by mining ($113 million), to fund the NTAIC (at the discretion of the Minister) and to make grants (usually approved by the Minister) for community purposes to residents of the NT ($62 million).  

 

In my view there is a much stronger case for assessing the performance of the whole ABA system including the grants that are not made by the NTAIC from a performance (and I would argue effectiveness) perspective than for assessing the comparatively small grants program currently operated by NTAIC. My recent posts in relation to Groote (link here and link here) are infused with a swirling whirlwind  of ABA funds. It is well past time that an independent oversight body undertook a close look at the operations of the ABA with the aim of ensuring the funding it distributes is meeting the statutory remit laid down in the Aboriginal Land Rights (Northern Territory) Act 1976.

 

Concluding Comment

The ANAO is to be commended for seeking comment on its proposed work program though I suspect that it may not attract much attention. In thinking about why and how these proposed performance audits were chosen, it struck me that there is no indication of the decision criteria, nor the process involved in setting the program. Further, given the interaction between efficiency (performance) and effectiveness, an ideal decision process would also consider the proposed evaluation program in each portfolio. These decisions are important because they fill a crucial gap in transparency and accountability in the current approach to public sector accountability.

 

Finally, one would have to assume that the ANAO (and perhaps also the Parliament) is beginning to consider how the developments in Artificial Intelligence (AI) might best be applied to assisting the development of more comprehensive and useful performance audit work program. As agencies increasingly adopt AI algorithms to drive their operations, it will be necessary for the ANAO to keep pace. A request to Chat GPT provided ten existing AI driven capabilities that could assist in improving the efficiency effectiveness of the ANAO’s performance audit system including Predictive Analytics for Risk Assessment; Automated Data Extraction and Analysis; Natural Language Processing (NLP) for Document Analysis; and Dynamic Audit Planning and Resource Allocation. It seems like the time is approaching when the ANAO will need to look very hard at how and why it does what it does. More importantly, Governments too will also need to begin consideration of how they might use these new capabilities to improve levels of transparency and accountability across the entire span of public policy.

 

4 April 2024

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.

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).