3.1
In 2015, the Australian Government made a clear commitment to Northern Australia with the release of the Our North Our Future: White Paper on Developing Northern Australia (the White Paper). Over the past five years, a range of measures established in the White Paper have been implemented, including the establishment of the Northern Australia Infrastructure Facility (NAIF).
3.2
The NAIF, which has been described by the Office of Northern Australia (ONA) as a key pillar of the White Paper, has to date committed over $2.4 billion in investment decisions, however as of 30 October 2020, total payments of $218.4 million (including capitalised interest) have been drawn down. The NAIF's current projections are that proponents will have made a drawdown of $400 million in NAIF funds by 30 June 2021.
3.3
It is clear from the evidence received to date that while the NAIF may have initially faced some difficulties, it has since made a number of significant investment decisions, and enjoys a broad level of support from stakeholders. It is equally clear however that there remain a number of areas for improvement.
Statutory Review of the NAIF
3.4
The devastating impact of the COVID-19 pandemic on the economic prosperity of Northern Australia—particularly in regions which rely on seasonal tourism, international education, and regional labour schemes—cannot be underestimated. The committee would like to acknowledge the resilience and efforts of northern communities and businesses over the past year.
3.5
The committee notes the evidence that the ONA has shifted its focus from the review of the NAIF to managing response and recovery programs in Northern Australia. The committee also notes the announcement of the extension of the NAIF to 30 June 2026, an announcement which will provide certainty to businesses in Northern Australia.
3.6
However, the committee is of the view that legislation giving effect to the reforms recommended by the Statutory Review of the NAIF should be introduced as soon as possible to allow for the prompt implementation of any recommendations which may improve the performance of the NAIF. It is critical that communities and businesses in Northern Australia have access to a range of funding models to aid recovery, and the NAIF should be central to this response.
3.7
The committee emphasises that the NAIF receives bipartisan support, and the goal of all committee members is to ensure that the NAIF begins providing funding to projects in Northern Australia as soon as possible.
3.8
The committee recommends that the Northern Australia Infrastructure Fund (NAIF) work closely with project proponents to ensure milestones are achieved and the drawdown of funds occurs as quickly as is commercially required.
3.9
The committee recommends that the legislation giving effect to reforms recommended by the Statutory Review of the NAIF be prioritised by the Australian Government in 2021.
Administration and accessibility
3.10
The committee notes the evidence that there is a considerable administrative burden placed on proponents attempting to access the NAIF. Whilst the committee accepts that a level of rigor and accountability is required to ensure the appropriate management of funds, the committee is concerned that smaller or less experienced proponents may be excluded due to the current administrative complexity and associated expenses.
3.11
The committee notes that the NAIF has acknowledged that smaller projects present a challenge for the NAIF, particularly in relation to resourcing, and that there are a range of views as to why smaller proponents may not be successfully accessing the NAIF.
3.12
Whilst the NAIF may have been originally intended to fund large-scale, nation-building infrastructure, submitters presented evidence that Northern Australia is a unique environment and that small and medium enterprise businesses, Aboriginal Corporations, and innovative projects are also critical for the development of the region.
3.13
A range of submitters highlighted the barriers preventing such proponents from applying for funding from the NAIF. These include a lack of liquid equity, an inability to afford administrative costs, a lack of credit history, or a misalignment in what may be considered 'transformative' or 'nation-building'.
3.14
The committee was particularly concerned to receive evidence from Aboriginal Corporations and Indigenous entrepreneurs regarding the challenges which they face in accessing funding through the NAIF. First Nations enterprise in Northern Australia is critically important to Closing the Gap, and the Australian Government should make every effort to facilitate the reduction in barriers which prevent such enterprise.
3.15
Submitters also highlighted that the approval process requiring engagement with both the Australian Government and relevant state and territory governments creates a level of complexity and burden which can stall progress.
3.16
The committee notes that a number of submitters called for a range of funding measures to be made available to enable small and medium enterprise and First Nations enterprise to apply for NAIF funding. For example, the Indigenous Reference Group called for a program of grants and mechanisms designed to lower equity investment hurdles for First Nations proponents. Similarly, the Far North Queensland Regional Organisation of Councils called for specific grant funding to be made available to fund strategic analysis and business case development.
3.17
The committee recommends that the Australian Government consider converting part of the NAIF to a combination of small grants, equity stakes and guarantees, supported by rigorous guidelines including caps on funding and business size, to ensure that small scale projects and First Nations projects are adequately supported.
3.18
The committee recommends that the NAIF further develop linkages with other government programs and funds that are available for building capacity among proponents of small or First Nations led projects to meet NAIF’s administrative requirements, including funds to support early explorative work and feasibility studies.
3.19
The committee notes that a number of submitters highlighted that unless projects in Northern Australia pursue a local procurement and employment strategy then the benefit to local communities is reduced. For example, the Regional Implementation Committee, a Pilbara based forum, noted that a number of road building contracts for NAIF funded projects have been allocated to companies outside the region, thereby reducing the benefit to the region. Similarly, the Australian Manufacturing Workers' Union Queensland and Northern Territory note that the manufacturing industry relies on extensive supply chains that have a multiplier effect on regional jobs.
3.20
The committee is of the view that priority should be given to projects in Northern Australia which will engage locally based staff, expand local supply chains and deliver long-term, secure and skilled jobs which will deliver positive outcomes for Northern Australian communities and their economies.
3.21
The committee recommends that the Australian Government require project proponents to produce and publish a local procurement and employment strategy in line with and in addition to the Indigenous Engagement Strategy.
COVID-19
3.22
As noted above, the impact of COVID-19 on some communities and industries in Northern Australia has been devastating. The impact across sectors and localities has varied, and it is apparent that COVID-19 has exacerbated the underlying structural issues in Northern Australia's economy. That is, a narrow industry base, dependency on exports, a transient workforce, long and inefficient supply chains, and strongly seasonal cycles.
3.23
The committee notes with concern the evidence of a significant financial impact on the tourism industry, the high education sector, and the agricultural industry and offers its support to all affected individuals and organisations.
3.24
It is important that a strong evidence base is established to identify which industries, communities and sectors have been most affected by the COVID-19 pandemic in order to ensure that ONA and the NAIF prioritise projects within those industries and communities.
3.25
The committee recommends that the Australian Government conduct a review to determine which industries have been impacted by COVD-19 and prioritise projects within those industries.
Key Performance Indicators
3.26
As noted previously, as of 30 October 2020, total payments of only $218.4 million (including capitalised interest) have been drawn down. Further the NAIF's current projections are that proponents will have made a drawdown of only $400 million in NAIF funds by 30 June 2021. Simply put, the committee is concerned, that it is taking too long for NAIF funding to get out the door.
3.27
The committee notes that incentives in place for senior executives are not linked to funds being drawn down. Mr Wade, CEO, NAIF, told the committee that bonuses for senior executives in 2019-20 were linked to the organisation achieving corporate key performance indicators (KPIs), with the key corporate KPI for NAIF for FY19-20 being investment decision performance. He noted that drawdowns 'were not a part of the KPI structure for bonuses'.
3.28
In its 2018 -19 Annual Report, the NAIF stated that it was 'progressing an independent review of its remuneration procedures and policies'. To date, it does not appear that the NAIF has made changes to its KPI bonus structure. Although Mr Wade, NAIF, told the committee that the 'KPIs for FY 20-21 are with the board at the moment'.
3.29
The committee recommends that the NAIF review its policy regarding staff remuneration, to better link the payment of bonuses to funds being drawn from the facility.
Transparency
3.30
A range of reviews have been conducted into the NAIF including those undertaken by the Australian National Audit Office (ANAO), the Australian Senate, and Mr Anthony F Shepherd AO an independent expert. The ANAO audit recommended areas for improvement including more information and better recording of aspects of the NAIF's decision making, and relating to measuring and reporting on certain performance targets.
3.31
Similarly, the Senate Economics Reference Committee recommendations included that the NAIF increase transparency in relation to a range of areas including: the management and disclosure of conflict of interests; and project approval and loan information.
3.32
As noted earlier, recommended changes to the NAIF will allow the Minister for Northern Australia more power to intervene in the investment decision making process and lend directly to project proponents without approval from the state and territory governments.
3.33
The committee is concerned that proposed amendments that would allow the NAIF to lend directly to project proponents in certain circumstances, are not supported by commensurate levels of transparency around NAIF's investment and conflict of interest decisions.
3.34
The committee recommends that the NAIF increase its transparency and accountability measures to account for changes recommended in the NAIF review, including publishing its conflict of interest decisions, and ensuring the decision-making process for projects are publicly available.
Advisory Group on Northern Australia
3.35
As noted previously, Advisory Group on Northern Australia was established in March 2020, to help develop a new five-year plan for Northern Australia development. However, to date, little information has been made publicly available on the status or timing of the development of the new five year plan.
3.36
The committee recommends that the Advisory Group on Northern Australia provide an update on their five-year plan for Northern Australia development, and a timeline as to when the plan will be released.
Senator Murray Watt
Chair