Introductory Info

Date introduced: 24 February 2021
House: House of Representatives
Portfolio: Resources, Water and Northern Australia
Commencement: The day after Royal Assent.

Purpose of the Bill

The purpose of the Northern Australia Infrastructure Facility Amendment (Extension and Other Measures) Bill 2021 (the Bill) is to amend the Northern Australia Infrastructure Facility Act 2016 (the Act) to:

• extend the period when the Northern Australia Infrastructure Facility (the Facility) can issue financial assistance
• expand who the Facility can give assistance to, and how it provides this assistance
• add the Finance Minister as a responsible minister for the Facility and
• change some governance arrangements in relation to the Facility.

Background

The Facility was established in 2016.[1] The Facility was announced as part of the White Paper on Developing Northern Australia in the 2015–16 Budget (although at the time the White Paper had not been released).[2]

Current role of the Facility

The current purpose of the Facility is to provide financial assistance to the states and territories for the construction of economic infrastructure in Northern Australia.[3] It does this through providing concessional loans and guarantees.[4]

Grants of financial assistance are provided to the states and territories for the construction of economic infrastructure.[5] States and territories pass on this assistance to the project proponent.[6] Northern Australia economic infrastructure is defined as infrastructure:

• that provides a basis for economic growth in Northern Australia and
• stimulates population growth in Northern Australia.[7]

A decision to provide financial assistance is made by the Board, after a proposed project has met all mandatory criteria (including that the proposed project involves construction or enhancement of Northern Australia economic infrastructure and will be of public benefit) and the Board has considered various factors including:

• the potential effect of the project on other infrastructure
• the potential effect of the loan or other grant of financial assistance on the Australian infrastructure financing market
• the potential of the investment to encourage private sector participation in financing a project.[8]

If the Facility proposes to provide financial assistance, it must give the Minister written notice of the proposal.[9] The Facility must not provide financial assistance:

• before the end of the Minister’s consideration period (21 days after the proposal notice is given, or up to 60 days if the Minister requires an extension[10]) or
• if the Minister has notified the Facility in writing that the financial assistance should not be provided.[11]

The Minister may only reject a proposed project if satisfied that providing the financial assistance would:

• be inconsistent with the objectives and policies of the Commonwealth Government
• have adverse implications for Australia’s national or domestic security or
• have an adverse impact on Australia’s international reputation or foreign relations.[12]

If the Minister notifies the Facility that financial assistance should not be provided, the Minister must provide written reasons for the notice, which must be tabled in each House of Parliament within 20 sitting days.[13] This occurred for the first time in March 2021, when the Minister rejected the Kaban Green Power Hub proposal, a northern Queensland wind and battery farm project, stating that it was inconsistent with Government’s objectives and policies.[14]

The Facility has provided financing for a range of projects, including the North Queensland Cowboys Community, Training and High Performance Centre and the construction of a new Shiplift at Darwin harbour.[15]

Review of the Act

Subsection 43(1) of the Act requires that the operation of the Act be reviewed within three years from when it commenced (1 July 2016). The legislation requires this review to consider whether the period during which the Facility is able to decide to provide financial assistance (currently ending on 30 June 2021) should be extended.[16] This review (the Review) was conducted by the Department of Industry, Science, Energy and Resources, with a report released on 10 December 2020.[17]

The Review made 28 recommendations including:

• Recommendation 1: extend the Facility’s investment window until 30 June 2026, with a further review of the Facility to be scheduled as soon as possible after 1 July 2024
• Recommendation 3: explore opportunities to empower the Facility to adopt a greater risk tolerance for projects of specific public benefit, for example use of a portfolio approach to risk
• Recommendation 9: the definition of northern Australia in the Act be amended to include the Shire of Ngaanyatjarraku and
• Recommendation 15: consider removing the limitation on the Facility providing equity finance to maximise its flexibility in working with businesses to develop infrastructure projects despite the economic challenges of COVID-19.[18]

The Review stated that ‘the [Facility] is intended to fill a finance gap in northern Australia by being more risk tolerant in relation to factors that are unique to northern Australia, including distance, remoteness and climate.’[19]

The Review noted that as of September 2020 the Northern Australia Infrastructure Facility Board (the Board) had made 24 investment decisions and one conditional loan approval, worth approximately $2.4 billion. These investments are expected to deliver an additional $6.7 billion in public benefit.[20]

In June 2020, prior to the release of the Review, the Minister for Resources, Water and Northern Australia, Keith Pitt, in a joint media release, announced the extension of the Facility’s funding window until 30 June 2026.[21]

The Government actioned the outcome of the Review in the 2020–21 Budget, committing $36.9 million over four years from 2020–21 (and a further $25.2 million over two years to 2025–‍26) to extend the Facility’s investment window by five years to 20 June 2026.[22] The Government also committed to expand the Facility’s lending remit and processes.[23]

Previous reviews and audits

In December 2017 the Government commissioned Anthony Shepherd to conduct a review (the Shepherd Review) of the Facility to ‘recommend ways to accelerate project development and ensure the [Facility] can best meet its legislated objective.’[24]

The Shepherd Review made fifteen Recommendations, including:

• Recommendation 2: the Government should assure the Facility and the market that it intends to continue the Facility’s operation, and the scheduled legislative review in the third year should focus on necessary adjustments to ensure the Facility successfully fulfils its goals
• Recommendation 4: broaden the definition of ‘economic infrastructure’ to recognise that economic infrastructure is broader than just roads, rail, power, water, ports, communications and airports
• Recommendation 6: the debt cap should be relaxed to allow the Facility to provide more than 50 per cent of debt to a project
• Recommendation 8: permit the Facility to take equity in a project, provided the Facility is not the major risk taker and there is an exit mechanism in the long term
• Recommendation 14: the two responsible Ministers should agree on a Memorandum of Understanding between the Facility and the CEFC.[25]

According to the Australian National Audit Office (ANAO), the Shepherd Review ‘recommended specific changes to [the Facility] and government practices and broadening the Investment Mandate in order to increase the volume of decisions. The Minister subsequently amended the Investment Mandate, which took effect from 2 May 2018’.[26]

In June 2017 the Senate referred matters relating to the governance and operations of the Facility to the Senate Economics References Committee (the Committee) for inquiry and report.[27] The Committee tabled its report on 6 July 2018 and by majority made 12 recommendations, including:

• Recommendation 1: that the Act be amended to require two responsible Ministers (the Minister for Resources and Northern Australia and the Minister for Finance) to provide oversight of the Facility
• Recommendation 4: that the Act be amended to require at least one Board member of Aboriginal or Torres Strait Islander heritage and expand the eligibility criteria for Board appointments to include skills or expertise representative of the Northern Australian economy, like experience in Indigenous development, the sciences and the tourism industry
• Recommendation 9: that the Office of the Australian Information Commissioner undertake a review of the Facility’s transparency and freedom of information procedures, with a view to removing the ‘veil of secrecy’ the Facility operates behind and
• Recommendation 12: that the Facility’s annual report include more details on the Facility’s board and senior staff remuneration in line with executive remuneration reporting undertaken by agencies such as the Export Finance and Insurance Corporations. This would include details such as gross payments, reportable fringe benefits, reportable employer superannuation and bonuses. The Facility should also report more details relating to procurement and other operating costs generally.[28]

Coalition Senators issued a dissenting report, which rejected Recommendations 1 and 9 (among others) and stated that Recommendation 12 ‘could breach privacy protections of existing employees, and would certainly discourage many highly regarded and qualified professionals from applying to work at the [Facility]’.[29]

In October 2019 the Government responded to the 12 majority Committee report recommendations and the two Additional Recommendations from the Greens, wholly supporting only one recommendation, that the Facility establish a Memorandum of Understanding with the Clean Energy Finance Corporation (Recommendation 2) and supporting in-principle three recommendations. The remaining recommendations were either not accepted (seven) or noted (three).[30]

While the Government did not support Recommendation 1, the Bill includes an amendment (item 5) which expands the number of responsible ministers to two – the Minister for Resources and Northern Australia and the Minister for Finance.

On 10 April 2019 the ANAO published the audit report, Governance and Integrity of the Northern Australia Infrastructure Facility.[31] This audit examined the effectiveness of governance and integrity arrangements for the Facility. It specifically sought to answer:

• whether the Facility has a sound and fit-for-purpose governance framework in place and
• whether the Facility has implemented arrangements that support effective integrity and transparency in relation to its operations.[32]

The ANAO Audit found:

The [Facility] has an appropriate integrity policy framework and the management of conflicts of interest was effective, however the [Facility] adopted but did not adequately implement the Protective Security Policy Framework. Arrangements for engaging with stakeholders were generally effective. Arrangements for ensuring the integrity of decision support processes were not effective, with insufficient evidence that all applicants were evaluated in a consistent manner throughout the assessment stages. The Board placed reliance on the CEO to present projects for Board consideration, and the Board has not made any Investment Decisions to refuse financial assistance for the applications presented.[33]

The ANAO made six recommendations to address this and other concerns.

The ANAO’s recommendations and the Facility’s responses were:

• Recommendation 1: The Facility publish criteria and all information necessary for applicants to submit complete applications for grants of financial assistance.

–  Facility response: Agree.

• Recommendation 2: The Facility develop an information governance framework, electronic data and records management system, and appropriate records disposal authorities in line with National Archives of Australia requirements.

–  Facility response: Agree.

• Recommendation 3: The Facility publish more information about decisions, public benefit assessments, environmental assessments and Indigenous engagement strategies.

–  Facility response: Agree.

• Recommendation 4: The Facility cease the use of all non-official email accounts and servers to conduct official business.

–  Facility response: Agree.

• Recommendation 5: The Facility select projects at each assessment stage on a consistent and transparent basis in accordance with published criteria, and retain adequate documentation to record the rationale for decisions made and actions undertaken.

–  Facility response: Agree in principle.

• Recommendation 6: The Facility revise its performance measures and targets to provide clearer accountability and transparency in the measurement of its performance, and measure and report on the realisation of public benefit.

–  Facility response: Agree.[34]

Committee consideration

Senate Selection of Bills Committee

The Senate Standing Committee for the Selection of Bills recommended that the Bill not be referred to a committee for inquiry.[35]

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) expressed some concern around the provisions of the Bill that would allow the Facility to provide grants of financial assistance to the states and territories for the development (rather than only the construction) of Northern Australia economic infrastructure, which ‘broadens the scope of [the Facility’s] investment decisions’.[36] The Scrutiny Committee noted that the Act already permits the Facility to determine the terms and conditions for these grants, which is a delegation of the Parliament’s ‘power to make grants to the states and to determine the terms and conditions attaching to them’ under section 96 of the Constitution.[37] The Scrutiny Committee expressed concerns around the lack of guidance in the legislation on determining these terms and conditions, noting that where Parliament delegates its power:

it [is] appropriate for the exercise of the power to be subject to at least some level of parliamentary scrutiny, particularly noting the terms of section 96 and the role of senators in representing the people of their state or territory.[38]

The Scrutiny Committee therefore sought advice from the Minister on whether the Bill can be amended to:

• include at least high-level guidance as to the terms and conditions on which financial assistance may be granted and
• include a requirement that written agreements with the states and territories about grants of financial assistance are:

–  tabled in the Parliament within 15 sitting days after being made and

–  published on the internet within 30 days of being made.[39]

In response, the Minister advised that the terms and conditions on which financial assistance is provided to states and territories under the Act are set out in Master Facility Agreements (MFAs) with each relevant jurisdiction (the Northern Territory, Queensland and Western Australia), which have been tabled in Parliament.[40] The Minister stated that these MFAs will remain in place following the passage of the Bill and that ‘on the basis that the terms and conditions associated with grants of financial assistance are already in place and tabled in the Parliament, I do not consider it necessary to amend the Bill’.[41] The Scrutiny Committee requested the additional information provided by the Minister be included in an addendum to the Explanatory Memorandum to the Bill and made no further comment on this matter.[42]

The Scrutiny Committee also expressed concern around the broad discretionary power under the Bill for the Minister to terminate the appointment of a board member based on a lack of diverse experience and expertise of the Board as a whole (discussed further in the Key issues and provisions section below).[43] The Scrutiny Committee requested the Minister’s advice as to:

• why it is considered necessary and appropriate to provide the Minister with a broad power to terminate the appointment of a board member and
• whether the Bill can be amended to include additional guidance on the exercise of the power on the face of the primary legislation.[44]

In response, the Minister advised that the proposed power is necessary as:

if the responsible Ministers were to materially change the investment Mandate to deliver a specific policy objective the power … [the] Minister for Northern Australia also has the discretion to configure the Board for optional implementation of the new Investment mandate, rather than waiting long periods of time for Board terms to expire.[45]

In response to the Minister’s advice, the Scrutiny Committee drew its concerns to the attention of senators and left to the Senate as a whole the appropriateness of the proposed expansion of the Minister’s power to terminate the appointment of Board members.[46]

Policy position of non-government parties/independents

The Australian Labor Party (ALP) supports the Bill, but raised some concerns.[47] Warren Snowdon, the Shadow Assistant Minister for Northern Australia, considers that the Board of the Facility should have a mandated First Nations representative and that the Indian Oceans Territories should be included within the definition of Northern Australia under the Act.[48]

The Australian Greens (the Greens) do not support the Bill, with its leader Adam Bandt arguing that in the context of a ‘climate crisis’, the Bill will make it easier for the Facility to fund coal and gas projects. Mr Bandt flagged that the Greens would propose amendments to the Bill in the Senate.[49]

The Greens raised concerns in 2016 in relation to the Bill that established the Northern Australia Infrastructure Facility, including that the Facility would:

• become a slush fund for dirty energy
• get a free ride through environmental laws
• allow state governments to ‘tick off’ projects without Commonwealth scrutiny and
• not require an independent cost benefit analysis.[50]

Independent MP Zali Steggall opposes the Bill, noting that she does ‘not believe the taxpayer should foot the bill for bad fossil fuel investments’.[51] Ms Steggall moved amendments to the Bill to prohibit the use of the Facility to fund fossil fuel projects. [52] These were not accepted by the House of Representatives in passing the Bill.[53]

Dr Helen Haines MP and Andrew Wilkie MP voted against the Bill.[54] Bob Katter MP supported the Bill, expressing ‘great faith’ in the new Minister and new Board, but criticising the impact of the Facility to date, stating that ‘$1.5 billion … has gone to create virtually no jobs’.[55]

Position of major interest groups

Some stakeholders have raised concerns that the amendments will lead to greater investment in fossil fuel projects.[56] Lock the Gate Alliance spokesperson Carmel Flint stated:

The NAIF is no longer about supporting Northern Australia or the people who live there. It has become a shadow fund to support the Coalition’s ill-fated obsession with spending taxpayer money on backing big gas companies to open up Australia for fracking.

We’re calling on the Senate to ensure there is thorough scrutiny of this Bill and that changes are made to ensure that it doesn’t sell out rural and regional Australia and drive dangerous global warming that is already hurting communities across the nation.[57]

The CEO of 350.org Australia, which ‘aims to rapidly end fossil fuels by building a global climate movement’[58] reportedly stated:

If the Government is serious about getting to net zero emissions as soon as possible, they need to ensure that NAIF funds aren’t used for polluting fossil fuel projects including gas infrastructure and instead support the creation of jobs in sustainable industries of the future…. Banks and financial institutions in Australia and around the world have ruled out financing coal, oil and gas projects, the same should be done with the NAIF.[59]

Financial implications

The Government estimates that the Bill will negatively impact the underlying cash balance by $18.1 million over the forward estimates period.[60]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[61]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights had no comment on the Bill.[62]

Key issues and provisions

Extending the investment window

One of the primary objectives of the Bill is to extend the investment window for the Facility, consistent with Recommendation 1 of the Review. Item 13 amends subsection 8(1) of the Act to extend the Facility’s investment window by five years to 30 June 2026. Items 15 and 51 make consequential amendments to the Act to reflect this extended investment window. The requirement for an additional statutory review to be undertaken as soon as possible after 30 June 2024 is also established by item 50 which amends subsection 43(1) of the Act.

Expanding what the Facility can invest in

Currently the Facility can only fund projects which invest in the construction of infrastructure that provides a basis for economic growth in Northern Australia and stimulates population growth in Northern Australia, such as airport terminals and university campuses.[63] This infrastructure is not required to be located in Northern Australia.[64]

The Bill expands the range of projects that the Facility may provide financial assistance to, firstly by replacing references to ‘construction’ with references to ‘development’ at several points in the Act.[65] The effect of this is that the Facility will be able to provide financial assistance for the development (rather than construction) of Northern Australia infrastructure. The Minister for Resources and Northern Australia noted:

This means that, while the central objective of the NAIF remains building infrastructure, its support can now also go to additional elements of infrastructure development. These might include the purchase of equipment, leasing, training and the expansion of existing business operations. As it was put to the review by one stakeholder, the NAIF will be able to finance not just the building of a shed, but also the equipment you need to put in it.[66]

Essentially this provision will allow the Facility to investment in projects other than those that involve the construction of physical infrastructure (for example, training related to such projects).

The Bill also expands what the Facility can invest in by making infrastructure projects which aim to stimulate population growth in Northern Australia eligible for funding, without necessarily requiring the projects to also provide a basis for economic growth (subsection 3(2) as amended by item 2). Currently the Facility can only provide funding to projects which provide a basis for both economic growth and the stimulation of population growth in Northern Australia.

Finally, the Bill expands the definition of Northern Australia to include the Local Government Area of Ngaanyatjarraku (proposed paragraph (ea) of the definition of Northern Australia at section 5, as inserted by item 6), thereby allowing economic infrastructure in this region to access investment from the Facility. This reflects Recommendation 9 of the statutory Review, which noted that this region is home to the West Musgrave mineral province and several remote Indigenous communities and has the potential to benefit significantly from finance from the Facility.[67]

Financial assistance to non-state or territory entities

The Bill expands the type the entities to whom the Facility can give financial assistance. Currently the Facility can only provide financial assistance to project proponents via the states and territories.[68]

Item 11 inserts proposed subsection 7(1A) which will allow the Facility to provide financial assistance to other entities and to determine the terms and conditions for that assistance. Financial assistance to an entity will be covered as long as there is link between the development and the Commonwealth’s powers to make laws under the Constitution – this includes development of Northern Australia economic infrastructure with respect to:

• a territory
• people covered by what is referred to as the ‘race power’ at paragraph 51(xxvi) of the Constitution[69]
• international and interstate trade and commerce
• communications services
• defence matters
• external affairs matters
• railway construction
• activities connected to the ‘nationhood power’[70] or
• matters incidental to any of the powers of the Parliament or Commonwealth Government.[71]

In addition, the Bill will allow financial assistance to other entities where they are trading or financial corporations formed in Australia or foreign corporations (collectively referred to as Constitutional corporations[72]) as long as the assistance is not in the form of equity investments.[73] If the Facility does decide to provide assistance to such a corporation, the terms and conditions for the assistance must be set out in a written agreement that the corporation must comply with – these terms and conditions must provide for the circumstances in which the corporation must repay amounts to the Facility.[74]

These amendments represent a significant extension with respect to the reach of the Facility. The reliance on the territories power for example, in conjunction with the fact that Northern Australia is defined in the Act as including the whole of the Northern Territory, means that it is possible that any economic infrastructure project in the Northern Territory could be funded (regardless of the recipient).[75] Similarly, the use of the corporations power means that any entity that is a corporation would be able to access funds from the Facility for Northern Australia infrastructure. The use of the ‘race power’ could potentially allow the Facility to provide funding to Indigenous groups in Northern Australia for the development of economic infrastructure.

Potential constitutional issue raised by the Bill

As discussed above, under the current Act, the Facility may make grants that are clearly supported by the power to make grants to the states under section 96 of the Constitution. Importantly, the High Court of Australia has found that the prohibitions of section 99 (discussed below) do not limit the operation of the grants made under section 96, even if they have the effect of discriminating against some states or parts of states or giving a preference to other states or parts of states.[76]

The Bill introduces a new power to provide financial assistance to entities other than the states and territories, where the assistance is for the development of Northern Australia economic infrastructure in respect of certain matters set out in proposed subsection 7(1A) of the Act (at item 11 of Schedule 1 to the Bill). These matters draw on other constitutional powers of the Commonwealth to support such payments, and proposed paragraph 7(1A)(c) in particular provides for financial assistance with respect to trade and commerce. However, section 99 of the Constitution provides:

The Commonwealth shall not, by any law or regulation of trade, commerce, or revenue, give preference to one State or any part thereof over another State or any part thereof.

It has been noted that section 99 of the Constitution reflects the aspiration that:

… Australia should be ‘one country’, at least in the sense that Australians should not be treated unequally simply because they happen to live in different States.[77]

With the above in mind, the Shepherd Review noted that ‘[s]ection 99 of the Constitution relating to no discrimination between the States is an issue’ in relation to taking an equity stake in corporations on a geographically differentiated basis.[78] This particular concern may be seen to have been addressed by proposed paragraph 7(1A)(f), which only authorises financial assistance to Constitutional corporations if ‘the financial assistance is not in the form of equity investments’. Caution will therefore be required to avoid situations where assistance provided by the NAIF relying on proposed subsection 7(1A) could be considered:

• to solely rely on the trade and commerce (or revenue) power and
• to be giving preference to a state or part of a state

as such payments may be open to a constitutional challenge on the basis of breaching section 99 of the Constitution. (It is of course likely that many payments could be argued to be supported by one or more of the additional Commonwealth powers referred to in proposed subsection 7(1A), thus avoiding the prohibition of section 99).

The barrier that section 99 poses to the Commonwealth’s power to make laws with respect to trade, commerce or revenue that give a regional preference outside of the section 96 grants power (which proposed paragraph 7(1A)(c) of the Bill could be argued to do) has been long recognised, with the Constitutional Commission established by the Hawke Government recommending:

… that section 99 be altered by adding at the end ‘unless the Inter-State Commission had adjudged that the preference is in the national interest …’[79]

The Abbott Government’s 2015 White Paper on Developing Northern Australia noted the barriers posed by section 99 in relation to any proposals relating to the introduction of geographically limited taxation or regulatory arrangements for Northern Australia.[80] This risk was also acknowledged by the former Queensland Treasurer Curtis Pitt who, in 2016, noted:

Today, I can confirm that we have supported the next step in the NAIF process. I have written to the Commonwealth Minister for Northern Australia, Senator Matt Canavan, and confirmed that we are ready to sign the master facility agreement. This is the agreement that will ensure that the Commonwealth funds can be sent to NAIF projects via a pass-through financial arrangement with the state government. Under the Commonwealth’s existing constitutional powers, it is unable to provide financial assistance directly to proponents within a restricted geographic area. As such, the implementation of the NAIF requires Queensland, Western Australia and the Northern Territory to legally undertake the lending role on behalf of the Commonwealth.[81] [emphasis added.]

As such it is evident that there is a known risk that Commonwealth laws, if challenged, may be found to be unconstitutional where those laws solely rely on powers of trade, commerce or revenue and provide for regional preference via mechanisms other than section 96 grants made to states. This risk has attracted at least some academic consideration and criticism in relation to the NAIF.[82]

However, the inclusion of the limitations imposed by proposed paragraph 7(1A)(f) in the Bill, along with clearly linking potential financial assistance to other constitutional heads of power[83] may operate to mitigate, but not eliminate, the risk that certain forms of financial assistance could be said to breach the prohibition on regional preference imposed by section 99 of the Constitution.

State and territory involvement

Section 13 of the Northern Australia Infrastructure Facility Investment Mandate Direction 2018 allows states and territories to veto the Facility’s funding of any project in their jurisdiction. This power was exercised by the Queensland Government for example in December 2017, when vetoing the funding of the North Galilee Basin Rail Project (part of the Adani coal mine).[84]

While the amendments cut out state and territory involvement in the provision of financing to project proponents, in theory the Investment Mandate as currently drafted would still provide a veto power to states and territories. However as subordinate legislation, it can be easily amended.

In debate on the Bill in the House of Representatives, Government members suggested that the removal of state government involvement in the provision of finance from the Facility will streamline the process by bringing ‘projects to contractual close faster’.[85] The Greens on the other hand expressed concern regarding the removal of state involvement, arguing that this would lead to further funding of fossil fuel infrastructure.[86]

The second reading speech of Coalition MP Warren Entsch suggested that the amendments are particularly targeted ‘at the lack of cooperation from Queensland’.[87] Speeches from Labor members however suggested that all jurisdictions (Queensland, Northern Territory and Western Australia) are supportive of the changes in the Bill.[88]

Financial Investment mechanisms

Whilst the Act and Investment Mandate currently allows for financial assistance to states and territories to be provided through a variety of mechanisms,[89] in practice the Facility only issues loans to projects.[90] Proposed subsection 7(1B) allows the Facility to provide financial assistance to entities in accordance with proposed subsection 7(1A) in the form of equity investments, either by making the investment:

• itself (including as a participant in partnerships, trusts, joint ventures or similar arrangements)
• through a subsidiary
• through another investment vehicle

or by any combination of the above methods.

However, as discussed above, financial assistance may not be provided to a Constitutional corporation in the form of equity investments.[91]

Proposed subsection 7(1C) allows the Facility to acquire derivatives for specified purposes. Broadly speaking, a derivative is a tradeable security whose value is derived from the actual or expected price of some underlying asset, which may be a commodity, a security, or a currency.[92] The Facility may acquire a derivative for the purpose of:

• protecting the value of financial assistance provided by the Facility (other than derivatives acquired by the Facility)
• protecting the return on financial assistance provided by the Facility (other than derivatives acquired by the Facility)
• achieving indirect exposure to financial assets (other than derivatives) for a purpose in connection with the Facility’s function of providing financial assistance or
• achieving transactional efficiency for a purpose in connection with the Facility’s function of providing financial assistance.

However, the Facility must not acquire a derivative for a speculative purpose or for leverage. Proposed subsection 7(1C) reflects section 70 of the Clean Energy Finance Corporation Act 2012.

Adding a responsible Minister

As noted in the Background section above, Recommendation 1 of the Committee’s report on the governance and operation of the Facility was that there be two Ministers responsible for the Facility. According to the report, this would bring the Facility in line with other agencies such as the Clean Energy Finance Corporation and increase transparency.[93]

While the Government did not support this recommendation in the official response to the report,[94] the Bill makes the Finance Minister a responsible Minister, in addition to the Minister for Northern Australia, consistent with the Committee recommendation. Item 7 amends section 5 of the Act to insert a new definition of Responsible Ministers as meaning the Finance Minister and the Minister for Northern Australia.

Changes to governance arrangements

The Bill also makes changes to governance arrangements for the Facility. In particular, the Bill provides for the Secretary of the Department to be on the Board (proposed paragraph 13(2)(c) as inserted by item 25). The Greens have argued that the inclusion of the Secretary on the Board ‘undermine[s] any semblance of independence’ of the Board.[95]

Reflecting the Government’s in-principle acceptance of Recommendation 4 of the Committee’s report on the governance and operation of the Facility, item 29 adds economic development for Indigenous communities to the list of fields of expertise and experience sought for the Board.[96] It does not, however, implement the Committee’s recommendation that at least one Board member be of Aboriginal or Torres Strait Islander heritage.

Proposed paragraph 21(1)(d) as inserted by item 38 provides that the Minister can terminate a Board member (other than the Secretary) where the Minister is satisfied that the collective experience and expertise of the Board are not sufficiently diverse or appropriate to enable the Board to perform its functions effectively. As noted above, the Scrutiny of Bills Committee expressed concern around the Minister’s broad power in this regard.[97]