Thursday, 17 March 2016
Northern Australia Infrastructure Facility Bill 2016; Second Reading
That this bill be now read a second time.
The Australian government recognises the enormous economic potential of northern Australia and is committed to its development.
Today I introduce a bill to establish the Northern Australia Infrastructure Facility. The facility will address gaps in the infrastructure finance market for northern Australia and is an integral part of the government's plan for northern Australia.
The White paper on developing northern Australia, released in June 2015 and driven in large part by Senator Macdonald and Warren Entsch, identified the vital role that infrastructure plays in unlocking economic opportunities globally, nationally and in northern Australia. The white paper included almost $1.2 billion in policies to support the construction of new roads and water infrastructure in the North.
Northern Australia has just 5.6 per cent of Australia's population but contributes over 11 per cent of Australia's GDP and covers over 40 per cent of our landmass with significant agricultural, energy and resource assets. Its proximity to Asia provides an opportunity to service the burgeoning middle class in Asia. According to Ernst and Young the Chinese middle class is expected to reach one billion people by 2030, with India's middle class reaching 475 million people by 2030. Northern Australia has great potential for economic and population growth, but it needs the right backbone economic infrastructure to drive that growth.
The government has already committed nearly $5 billion, of its $50 billion nationwide investment in transport infrastructure, to northern Australia.
These investments include over $3 billion for northern sections of the Bruce Highway and over $470 million to be distributed across the Cape York Region Package, North West Coastal Highway and Northern Territory Regional Roads Productivity Package.
Despite this investment by the Commonwealth government, infrastructure in northern Australia continues to face particular cost and service challenges, including accessing private sector financing.
At a national level, financing of debt markets has become more dependent on bank lending, rather than longer term bonds. Infrastructure Australia has estimated that, since the 2008 global financial crisis, the capacity of the Australian financial market to fund infrastructure has halved due to the withdrawal of international finance providers. Also, constraints in the finance sector have resulted in longer tenor loans in excess of seven years becoming increasingly difficult to access for infrastructure projects. For example, the average duration for infrastructure debt financing has almost halved from around 11 years in 2007 to around six years in 2015.
These developments are being acutely felt in northern Australia.
Infrastructure investment in northern Australia is affected by a low population density and issues of remoteness, extreme heat and high levels rainfall during certain times of year. The uncertainty for infrastructure investment created by these factors can result in commercially viable projects in northern Australia being unable to attract the limited investment funds available.
Infrastructure Australia released the Northern Australia audit in January 2015. This report confirmed that infrastructure market failures were affecting northern Australia in particular. The identified failures included: limited economic scale, resulting in high costs, poor quality and an absence of competition; a 'first mover disadvantage', where the first project bears all the capital costs of infrastructure that will reduce for other projects; coordination challenges, which prevent cooperation in building more extensive infrastructure; and low-socioeconomic circumstances, which result in a lower capacity to pay for infrastructure services.
Through the facility, the government, working with the states and territories, will support the private sector to construct transformative economic infrastructure for northern Australia. This infrastructure will provide a basis for the longer term expansion of the economy and population in northern Australia.
The facility will provide an innovative approach to the funding of infrastructure projects by offering up to $5 billion in financial assistance to encourage and complement private sector investment. This encouragement of the private sector will ensure that economic infrastructure that otherwise would not be built, or would not be built for some time, will be delivered.
Through this bill, the Commonwealth will partner with the private sector and the governments of the Northern Territory, Queensland and Western Australia to provide financial assistance on concessional terms for the construction of major projects.
These major projects may include airports, ports, roads, rail, energy, water, and communications infrastructure. These are the types of economic infrastructure needed to further open the North for business, and to deliver wider public benefits for the rest of Australia.
Extensive consultation has occurred across Commonwealth agencies, relevant state and territory governments, infrastructure owners in northern Australia, financiers and project proponents in developing this bill. Between me and my department, and Minister Canavan, we have met with over 200 stakeholders.
Through the consultation process, 40 projects with an indicative capital value of $21 billion have been identified as potential NAIF projects. Of these 40 projects, around half have been identified in Infrastructure Australia's Northern Australia audit.
To make investment decisions, the bill establishes an independent board that will be comprised of experts from a range of relevant fields, such as banking and infrastructure.
The board will ensure that assistance is targeted in an effective manner and the facility operates in partnership with commercial lenders, not in competition. It will also ensure that the facility only invests in projects that are able to return funds to the Commonwealth.
The expert, transparent and arms-length design of the board established by this bill will cultivate credibility in financial markets, while ensuring that the government invests in projects which are viable, provide public benefits and unlock the potential of the North.
The board will undertake its investment function according to an investment mandate. The bill specifies the matters that will be covered by the investment mandate, including eligibility criteria and loan characteristics. A draft of the mandate will soon be released for public consultation. We have incorporated feedback from a previous consultation process into the new draft, including a requirement that applicants provide an Indigenous engagement strategy. We are seeking feedback on the draft investment mandate until 29 March.
This bill enables the facility to assist projects by providing financial assistance that is tailored to project needs, with any concessions calibrated to the particular circumstances of a project. An example of such assistance may be the provision of 'patient' capital for a new infrastructure asset that is facing a long ramp-up phase that precludes available bank financing.
The facility may also be used to provide additional debt finance on fully commercial terms, where a project is able to attract some, but not sufficient, debt finance.
Providing financial assistance rather than one-off grants will reduce the impact on the budget and impose more commercial terms on recipients.
Through partnering with the private sector, the investment decisions of the board will leverage much more than the $5 billion provided through the facility. To ensure the best return for taxpayer funds, the expert board will be responsible for selecting projects. To be clear, as the responsible minister I will have no role in directing the board to make investments in particular projects.
However, as the NAIF is funded through public money, as the responsible minister I will retain a role to ensure that projects which are contrary to the national interest are not funded. To preserve the credibility of the facility, this role will be subject to strict transparency requirements and the reasons for my decisions will be tabled in parliament.
To conclude, the objectives of the facility reflect the government's priorities for the development of northern Australia and the importance of ensuring public funds are invested responsibly and for the benefit of the wider economy.
The establishment of the facility is a significant step forward for the development of transformative economic infrastructure in northern Australia and for the way infrastructure is financed in this country.
The right infrastructure is vital to facilitating investment, increasing accessibility to markets, especially for remote areas, and helping to attract and retain workers. With careful planning around timing and location, it is a fundamental driver of productivity and growth.
The Australian government is committed to laying down the foundations for strong economic and population growth through the development of northern Australia, while minimising the burden on taxpayers.
The government would like to recognise the efforts of the state and territory governments for their role in progressing the development of the facility. We would like to thank the Hon. Annastacia Palaszczuk MP, Premier of Queensland; the Hon. Colin Barnett MLA, Premier of Western Australia; and the Hon. Adam Giles MLA, Chief Minister of the Northern Territory for their cooperation. We will continue to work with the states and the Territory to ensure that the facility delivers for northern Australia.
The government would also like to recognise the bipartisan approach taken by the opposition in supporting this important initiative. There are significant opportunities offered by northern Australia and supporting this bill will create a key catalyst for key economic infrastructure investment in northern Australia, which will increase the capacity of the North.
Through this bill, the facility will work with the private sector and the governments of the Northern Territory, Queensland and Western Australia to create the right conditions for innovation and investment and help our communities and businesses in northern Australia to prosper, as they are on the edge of one of the greatest booms the world has ever seen in Asia.
I commend the bill to the House.