Wednesday, 13 February 2019
Export Finance and Insurance Corporation Amendment (Support for Infrastructure Financing) Bill 2019; Second Reading
That this bill be now read a second time.
I'm pleased to introduce this bill to amend the Export Finance and Insurance Corporation Act 1991. The amendments give Australia's export credit agency, Efic, new overseas infrastructure financing power and an extra $1 billion in callable capital. These initiatives will support infrastructure projects in the region that have a benefit for Australia or Australians, and enable Efic to write larger loans, including within its current export mandate. The amendments will enhance Efic's ability to support Australian businesses, and drive stronger links between Australia and its region by enabling Efic to support, more and more, larger overseas infrastructure projects.
Engagement with the region and the Pacific is vitally important. This legislation forms part of the Liberal-National government's package of measures to broaden and deepen our engagement in the Pacific and the region. Australia has a long history of cooperation with its Pacific neighbours. We want to work with our Pacific island partners to build a Pacific region that is secure strategically, stable economically and sovereign politically. This bill enhances our regional commitment, especially to infrastructure. It delivers on the major new initiatives announced by the Prime Minister to address the infrastructure needs of the Pacific region by boosting Efic's ability to support Australian commercial participation in the Pacific's infrastructure, as well as the timely implementation of the Australian Infrastructure Financing Facility for the Pacific.
These measures form part of the Liberal-National government's significant new package of security, economic and people-to-people initiatives that will build strong partnerships in the Pacific. As the Liberal-National government's 2017 Foreign policy white paper outlined, the stability and progress of the Pacific region are of fundamental importance to Australia. No single country can tackle the challenges on its own.
The bill will allow Efic to finance essential overseas infrastructure, such as telecommunications, energy, transport and water, where it is commercially viable. This will complement the Liberal-National government's new Australian Infrastructure Financing Facility for the Pacific, which will stretch our aid dollars even further. The demand for infrastructure financing in our region is large. The Asian Development Bank estimates the Pacific region needs US$3.1 billion in infrastructure investment per year to 2030. It estimates South-East Asia needs a further US$210 billion in infrastructure investment per year by 2030. Efic can play an important role to help meet these needs.
When projects have strong commercial prospects they should be funded commercially. Efic has a track record of supporting infrastructure projects on its commercial account, like the US$19 billion PNG LNG Project, which is the largest ever private sector investment in PNG and will bring significant economic benefit to PNG and provincial governments via tax and royalties, local landholders and local businesses.
The bill grants Efic a new power to finance overseas infrastructure projects, based on a broad Australian benefits tests, enabling it to finance overseas infrastructure projects that result in positive outcomes for Australia both now and in the future. This will enable Efic to take account of previously unrecognised benefits that will flow to Australia or Australians over time as a result of Efic financing, such as a greater Australian participation in supply chains; access to new markets for Australian businesses; more Australian jobs, payments, dividends or other financial proceeds from overseas to Australia; or stronger relationships with our regional partners, especially in the Pacific.
Using an Australian benefit test, Efic could finance a wide range of infrastructure projects in the region. For example, in the telecommunications sector Efic's new power would enable it to finance projects that improve regional connectivity through greater broadband internet access. This benefits Australia by reducing the cost of doing business and increasing our exports to the region, encouraging economic integration and e-commerce opportunities. In the energy sector, Efic's new power would enable it to finance the construction of LNG receivable terminals, leading to increased energy exports or engineering services.
The bill increases Efic's callable capital by $1 billion on its commercial account. A larger capital base will allow Efic to provide more commercially meaningful financing offers, given that the total size of debt financing required for regional infrastructure projects is large, and also to support Australian exporters more broadly.
It will give Efic the commercial flexibility and credibility it requires to offer finance to project proponents, sovereign borrowers and financing partners, who will require the confidence that Efic's support is meaningful and can be sustained over long repayment terms. It will enable Efic to finance more infrastructure projects in Papua New Guinea, one of our most important neighbours. Efic is already approaching its country lending limit for PNG and just one more infrastructure project would see it once again reach this limit, constraining Efic's ability to take up future financings and the jobs and opportunities that will flow to both Australia and PNG from this.
The increase in callable capital is a commitment from the Liberal-National government to increase opportunities for Australia and Australian businesses through Efic. The increase in callable capital will bring Efic's total capital base to nearly $1.7 billion, around a 150 per cent increase, comprising $1.2 billion in callable capital and almost $475 million in cash capital. The increase will enable Efic to provide more financing over time with an unchanged, regulated upper limit for the contingent liability of $6.5 million.
Increasing Efic's callable capital by legislative amendment, rather than by legislative instrument, will provide the higher degree of certainty that infrastructure projects proponents, borrowers and commercial financing partners require when they look to Efic to assist with financing gaps.
The bill will enable Efic to help address the infrastructure needs in the Pacific region. It will complement the new Australian Infrastructure Financing Facility for the Pacific, which is commonly known as the AIFFP. Efic will have the lead where there are stronger commercial prospects, as Efic's financing will be on a commercial basis. The AIFFP will boost Australia's support for infrastructure development in the region by combining loans with grants on a case-by-case basis. The bill will also enable Efic to assist with the timely implementation of the Australian Infrastructure Financing Facility for the Pacific by administering the AIFFP loans. The government will detail how Efic's new power will support the AIFFP and be applied in our region, including the Pacific, under a new statement of expectations.
The government remains committed to ensuring that Efic delivers for Australian exporters, retaining a focus on support for SMEs.
Efic will continue to be required to maximise Australian participation in overseas infrastructure projects. Efic will continue to be required to ensure Australian companies, especially SMEs, have every opportunity to expand into overseas markets.
This bill does not change Efic's existing Australian content requirements or Efic's focus on SMEs.
The bill enhances Efic's existing function to facilitate and encourage exports. It enables Efic to take account of not only the immediate export opportunities from the involvement of Australian companies, including SMEs, in overseas infrastructure projects but future streams of export opportunities and future jobs for Australians arising from the opening of new and emerging markets for Australian businesses. Creating new export oriented jobs is important for Australia's economy. One in five Australian jobs is trade related, and, in the last five years, trade contributed around one-quarter of Australia's economic growth.
The Liberal-National government's trade agenda, which has included delivering comprehensive free trade agreements with Australia's three largest export markets—China, Japan and Korea—has supported Australia's strong economic growth, which is faster than any of the G7 nations.
In 2018, the Liberal-National government delivered the TPP-11, one of the most comprehensive trade deals ever concluded, covering 11 countries with a combined GDP of more than $13.8 trillion and close to 500 million consumers. The TPP-11 benefits Australian farmers, manufacturers, service providers and small businesses.
The Liberal-National government is backing small business via free trade agreements, via tax relief, for around 3.3 million businesses who employ around seven million Australians via this bill.
An enhanced role for Efic in infrastructure will boost its ability to support Australian businesses, including SMEs, which have the specialised skill and knowledge base that underpin major infrastructure projects, increasing Australian participation. For example, Efic's support of the PNG LNG project was crucial in encouraging private sector finance and led to over $1 billion in contracts being awarded to Australian businesses, including SMEs, as well as providing local jobs and valuable export earnings for PNG.
The bill will allow Efic to conduct operations under the name 'Export Finance Australia'.
A new simpler name that references Australia will provide greater recognition for Efic and the Australian government, both with Australian SMEs and other exporters and in important overseas markets. The bill maintains Efic's risk controls and commercially appropriate risk appetite. Efic will continue to conduct rigorous due diligence for infrastructure projects in the same manner as for other transactions under the Efic Act. This includes robust environmental and social risk assessments.
Efic has a strong record of prudent lending and sound commercial judgement, evidenced by a historical write-off rate on its commercial account of less than one per cent. Efic's historical write-off rate is lower than the average for commercial banks across the economic cycle. In each year of the last 20 years, it has delivered a profit on its commercial account. In 2017-18 alone, Efic supported 160 Australian businesses with $194 million of facilities, enabling $1.39 billion of export contracts which contributed $1.15 billion of Australia's GDP and supported 7,600 jobs in Australia.
The bill maintains existing legislative safeguards requiring a net increase in Australian jobs within a business applying for Efic financing for overseas direct investment. It will not provide advantages to overseas competitors or deprive Australian companies who produce in Australia of financial assistance.
The bill will enhance Australia's role and attractiveness as a partner in regional infrastructure development.
It will boost sustainable economic growth and support stronger commercial links between Australian businesses and our region.
Together with the Australian Infrastructure Financing Facility for the Pacific, the bill will help address the infrastructure needs of the Pacific region.
I commend the bill to the chamber.