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Foreign Affairs, Defence and Trade Legislation Committee

BARNDEN, Mr David, Volunteer Board Member, Jubilee Australia

BRYANT, Mr Gareth, Member, Committee of Management, AID/WATCH

POLCE, Ms Carmelan, Executive Director, Jubilee Australia

Evidence from Mr Bryant was taken via teleconference—

Committee met at 09:00

CHAIR ( Senator Stephens ): Good morning, I declare open this public hearing of the Senate Foreign Affairs, Defence and Trade Legislation Committee. The committee is hearing evidence today on its inquiry into the Export Finance and Insurance Corporation Amendment (New Mandate and Other Measures) Bill 2013. I welcome you all here today. The committee's proceedings will follow the published program, which I hope you all have.

This is a public hearing and a Hansard transcript of the proceedings is being made. Before the committee starts taking evidence I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as contempt. It is also contempt to give false or misleading evidence to a committee.

The committee prefers all evidence be given in public but, under the Senate's resolutions, witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request to give the answer in camera. Such a request may of course also be made at any other time.

On behalf of the committee I would like to thank all those who have made submissions and sent representatives here today for their cooperation in this inquiry. I now welcome representatives from Jubilee Australia and AID/WATCH.

Ms Polce : Thank you for your invitation to appear today and provide further comment on our submission to the committee on the EFIC bill. Jubilee Australia is an independent, non-profit research and advocacy organisation established in 2001. Our work draws attention to the practices of the Australian government and Australian businesses that impede the alleviation of long-term poverty, particularly in the Asia-Pacific. We have been advocating for reforms to export credit arrangements for more than six years. No other organisation has invested as much as Jubilee Australia has in the consideration of EFIC and its direct and indirect impacts around the world.

We are very grateful to this committee for its consideration of our submission. We believe the parliament has a great opportunity to legislate to make EFIC more transparent and responsive to the concerns of Australians and the overseas community impacted by the high-risk projects it supports. Our concern for EFIC's operations relates primarily to projects it supports that have significant impacts on people and the environment, especially mining, oil and gas projects. Our submission and recommendations are aimed at ensuring better decision-making and transparency around these transactions.

We have no interest in affecting or disturbing the vast majority of EFIC transactions that do not have significant social and environmental impacts, but there are a small minority of EFIC transactions that carry a great amount of financial weight and have a huge impact on our region. Jubilee is not the only organisation concerned about the impact of EFIC's operations. As you have seen, our submission is supported by Oxfam Australia, the Human Rights Law Centre, Greenpeace, CARE, AID/WATCH and Australian Lawyers for Human Rights plus the faith based organisations, aid organisations and NGOs that signed the letter to the trade minister endorsing our recommendations, which you have been provided with. We hope you hear all their voices in our comments today.

EFIC's business is risk—financial risk as well as environmental, social and human rights risks. EFIC has a responsibility to adequately inform the public of these risks and to manage them on behalf of the government and the taxpayers, who are the ultimate bearers of these risks. As a de facto organ of the Australian government, EFIC should be subject to the same transparency and accountability mechanisms as other state bodies. It is not.

These are our recommendations, which aim to address this deficit by providing a measure of transparency to taxpayers and a fair go for project affected communities. Firstly, remove EFIC's blanket exemption to freedom of information laws. Secondly, improve the transparency of decision-making by EFIC and cabinet in relation to the national interest account. Thirdly, identify appropriate standards and adequate processes for EFIC's assessment of high-impact projects. In addition, we hope the committee will consider legislating for the disclosure of EFIC's proposed involvement in projects in Australia and to ensure EFIC complies with Australia's environmental legislation.

Firstly, the blanket exemption from the FOI Act: this exemption is out of step with international standards and is unwarranted. EFIC's peer agencies in the US, UK and EU are required to provide prior disclosure of transactions and have only limited specified areas of exclusion. The Productivity Commission examined EFIC's FOI exception and found it unsupportable, stating that exemptions:

… reduce the ability of the public and the Australian parliament to examine facilities for their environmental, social and human rights impacts.

The importance of maintaining cabinet confidence as well as the commercial confidentiality of client information has been raised as an obstacle to the removal of EFIC's blanket exemption. The Productivity Commission has examined these claims and found that the FOI Act has adequate provisions within the legislation for ensuring confidentiality of this information in EFIC's possession. We agree with EFIC that financial statements and client cash flows and other documents such as resource exploration maps should be kept confidential, but we can see no justification for hiding from the Australian public environmental impact assessments, records of community consultation meetings and risk assessments of any type developed during transaction due diligence. We can see no justification for EFIC's blanket exemption to the FOI Act.

Secondly, decision-making and the national interest account: the EFIC Act does not stipulate a process by which the trade minister must justify the approval of transactions entered into in the national interest. Jubilee Australia is seeking the mandatory disclosure of a national interest statement for transactions directed by the minister funding on the national interest account. The minister is presently not required to disclose how the national interest has been assessed. Any substantive information used to support the decision is protected by cabinet-in-confidence, and validity of the decision is not open for debate by elected members of the federal parliament. Jubilee Australia believes national interest account transaction proposals require assessment against a guiding framework for establishing the national interest benefit in the context of the promotion of trade and exports. Both the International Monetary Agreements Act and the Environment Protection and Biodiversity Conservation Act include guidance for establishing national interest and so they provide precedents. Jubilee Australia supports disclosure to the Australian taxpayers, who fund the national interest account, of a national interest statement. The national interest statement would outline the national interest benefit to Australians of transactions proposed for the national interest account, and would be tabled in parliament at least 21 days prior to approval if the transaction involves a category A project.

Thirdly, I will briefly speak about EFIC's standards and processes to assess involvement in major projects. The EFIC Act and the bill contain no guidance for assessing transactions risk, including environmental and social risk, though these are currently noted in the trade minister's statement of expectations. Jubilee was involved in lengthy discussions in consultation with EFIC which led to the EFIC posting on its website the environmental and social policies and procedures that it applies in the assessment of potential transactions. The instruments themselves, however, provide no guarantee of compliance or due process for stakeholders. They are subject to change by EFIC and the minister and there are no safeguards to ensure EFIC complies with them, including the international standards they reference. This should be addressed. We recommend that EFIC's environmental and social policies and procedures be fully recognised in the EFIC Act. Furthermore, there are no requirements for the disclosure of environmental and social risk assessments, and presently these processes occur behind closed doors. The Australian public and project affected communities have no way to determine the accuracy of EFIC's assessments or its compliance with the international standards it says it is obligated to uphold. EFIC's involvement in high-risk projects can trigger tremendous impacts on poor communities overseas as described in Jubilee Australia's Pipe Dreams report investigating the troubling PNG LNG project. EFIC has supported other problematic mining projects—and you have been provided with a table from our submission to the Productivity Commission inquiry that lists the projects for the last couple of decades that match this statement.

As it demonstrates, extractive industry projects can have significant social and environmental impacts, which need to be weighed up against their potential benefit. The EFIC Act and the bill contain no requirements for project disclosure prior to transaction approval or for public participation or for the disclosure of instruments of public participation. This should be addressed. As presented in the annexure to our submission to this committee, we recommend the EFIC Act be amended to include a mechanism for prior disclosure, stakeholder participation and assessment for category A projects, proposed to be financed through the commercial account or the national interest account and located either in Australia or overseas. Lastly, we endorse the Productivity Commission's recommendation that the EFIC Act be amended to identify which international obligations, particularly human rights obligations, EFIC will comply with.

In conclusion, we recommend that the EFIC Act be amended in the aforementioned ways to help guarantee transparency, public participation and accountability. Thank you for the opportunity to provide further comment and to reinforce the aspects of our submission that we think would make EFIC more responsive to its stakeholders.

CHAIR: Thank you. Mr Bryant, would you like to make some initial comments?

Mr Bryant : I am member of the committee of management at AID/WATCH. Our organisation campaigns on Australia's trade debt and aid relationships, ultimately trying to ensure that those relationships promote social and environmental justice, so that is basically what I will be focusing on in my statement. Thank you very much for giving us the opportunity to speak today. AID/WATCH has a longstanding interest in EFIC. Our on campaigns on EFIC's disastrous support of the Ok Tedi and Panguna mines, for example, resulted in EFIC's first environmental policy in 2000. So how we can use this bill to further reform the social and environmental impacts of EFIC will be the focus of our contribution.

We are very concerned that the EFIC bill does not take up any of the Productivity Commission's very good recommendations on how to improve the social and environmental safeguards that regulate EFIC's operation. We fully endorse and support Jubilee's recommendations on improving the transparency of EFIC by removing its exemption from freedom of information laws, ensuring better assessment and disclosure of social and environmental impacts and so on. We are particularly concerned that recommendation 9.7 from the Productivity Commission's inquiry has been completely ignored in this bill. That recommendation states:

The Minister, by way of a direction under the Export Finance and Insurance Corporation Act 1991, should articulate which international obligations, including human rights obligations, EFIC is required to comply with.

The negative impacts of the PNG LNG project, documented very well by Jubilee in their report, show how critical this recommendation is.

But it is not just the PNG LNG project; EFIC is financing, for example, Leighton Holdings in its various mining operations in Indonesia. One of its subsidiaries, Thiess Pty Ltd, operates the Sangatta coalmine in Kalimantan, where 20 workers, who in their dispute with management are backed by the International Federation of Chemical, Energy, Mine and General Workers Unions, were hospitalised last year after the military was sent in. In another example, in the same region of Kalimantan, we have Orica with the support of EFIC manufacturing explosives with no guarantees they will not be used for military purposes. And overall we have screening of projects with significant environmental impacts not being classed as category A projects—things like numerous coalmining projects—and we have things that are categorised as category A not been disclosed publicly. So we have some big problems.

The current social and environmental protocols are clearly not strong enough and are not being enforced. The Equator principles, for example, which EFIC has voluntarily adopted should be legislated; but they do not go far enough. We recommend a series of other safeguards drawn primarily from relevant national conventions that can go some of the way to ensuring that recommendation 9.7 is realised.

First, there must be an explicit climate change criterion for all resource projects, especially fossil fuel projects. As Greenpeace recommended in their submission to the Productivity Commission inquiry, a carbon audit of all project proposals should be a key component and determinant of the decision to provide financial services. These audits should be conducted in the context of Australia's policy commitment to reduce emissions by 80 per cent by 2050. The International Energy Agency, for example, has said that if we are going to avoid two degrees of warming two-thirds of known fossil fuel reserves must be kept in the ground. We have a recent report from Nicholas Stern from the London School of economics, which found that the gearing of the finance system towards fossil fuel projects that climate science says cannot be burnt if we are going to avoid dangerous climate change will trigger the next financial crisis. So in financing projects like the PNG LNG project, which the US Export-Import Bank estimates will result in over three million tonnes of CO2 every year in direct emissions alone, EFIC is really implicating Australia, the country that it is financing, and the world as a whole in significant financial and climate risk. Further, Australia has signed up to the G20 commitment to phase out fossil fuel subsidies, which is really what the PNG LNG project is. So this commitment to phase out subsidies must also extend to whole gas and oil projects that Australia supports overseas. AID/WATCH is recommending that through this bill EFIC must be subject to the United Nations Framework Convention on Climate Change, which Australia has signed up to and which has the ultimate aim of avoiding dangerous climate change.

Second, AID/WATCH recommends that EFIC should not finance any projects that affect Indigenous lands without the free prior and informed consent of traditional owners. This would ensure that Australia's commercial interests being promoted by EFIC do not undermine the right of Indigenous people to collectively determine their own futures, as has been the case with the PNG LNG project, which has fuelled conflict between landowners. The principal governing this are outlined in, for example, the United Nations Declaration on the Rights of Indigenous Peoples, which Australia has signed up to. That is another obligation that EFIC must be governed by.

Third, EFIC in financing projects in developing countries should comply with internationally recognised development practices. At the moment, EFIC has no development mandate; its role is primarily to benefit Australian corporations. Yet in the areas that it operates in it often has a greater impact on development outcomes for better or worse than bodies like AusAID. It often levers AusAID money, which is what happened in the PNG LNG project, where one of the conditions for EFIC funding has been that PNG develops a sovereign wealth fund and then AusAID steps in and pays for the development of that sovereign wealth fund. This relationship needs to be severed, unless EFIC is obligated to act accordingly to internationally recognised development practices, including the Paris, Accra and Busan declarations on aid effectiveness, for example. This is already common practice in Europe where in 2011 after civil society pressure the EU agreed on a regulation that obliged all export credit agencies of member states to comply with EU development policies.

Fourth and finally, AID/WATCH is concerned about EFIC's role as a debt-creating mechanism for developing countries. That role must be reined in. Eurodad has estimated that almost 80 per cent of poor countries' debt to other governments comes from export credits rather than development loans. Currently, EFIC was owed last year, 2012, $692 million in debt, mostly from developing countries—particularly from Indonesia. Jubilee's very good analysis of the PNG LNG project, for example, shows that ultimately it is the people of PNG who will have the risk of a large debt burden if the project goes wrong financially. This is really a deeply unjust situation, considering that EFIC is solely involved in the project to further Australia's national interest. Agencies like the World Bank and the IMF are well ahead of EFIC in this regard because they recognise that debt burden for developing countries is unsustainable. For example, the Rio Declaration on Environment and Development enshrines the right to development, which is at odds with the approach of EFIC, which creates serious debt that holds back the development of developing countries, or at least creates a serious risk for that debt. AID/WATCH thinks that this needs to be adjusted in line with international protocols so that that debt is weighted more towards the companies that are receiving benefits.

To conclude, as Oxfam recommended in their recommendations to the Productivity Commission inquiry, it needs to be legislated that EFIC must comply with all international human rights and environmental obligations that the Australian government has signed up to. I have flagged just a few of them, in relation to climate, debt, development practice and indigenous rights, but there are many others, including those relating to gender, food security, labour rights and other civil and political rights. It is not good enough that EFIC voluntarily has regard for them and it is also not good enough that the recommendation by the Productivity Commission for these rights to be enshrined in legislation was simply noted by the government in its response to the Productivity Commission inquiry report and, furthermore, has been completely ignored in this bill.

CHAIR: Mr Barnden, do you have an opening statement?

Mr Barnden : I do not, but I can introduce myself. I am a volunteer director-board member of Jubilee Australia and the secretary.

CHAIR: Thank you very much. I thank the witnesses for their comprehensive introductory remarks. You outlined your concerns about the amendment bill. Of all the things that you have raised, what is the issue that you believe has the highest priority?

Ms Polce : We think that the removal of the blanket exemption is obvious, and the same with the changes to the way that national interest assessments are managed. So, given that we think those are sort of low-hanging fruit, I would say the changes around disclosure of risk assessments and disclosure of the public process of commenting on risk in these major category A projects are our highest priority.

CHAIR: Of the things that you have recommended, do you think that any can be achieved without legislative amendments?

Ms Polce : Amendments to this particular legislation or—

CHAIR: Or other legislation.

Ms Polce : What is really missing here in terms of guaranteeing transparency is some ability to hold EFIC to account until we see them as needing to be codified in the act. So I suppose 'No' might be the answer to that question. We would like to see these appear in the act and not just in the minister's statement of expectations because we think that that is vulnerable to the political whims and will of the day. That statement of expectations provides no guarantee because it can be withdrawn and replaced at will. That is why I think we are looking to the codification of these reforms rather than just embodying them in a renewed statement of expectations.

Mr Bryant : AID/WATCH agrees with that. It is very clear that EFIC is not complying with its own standards. Even though we think that those standards need to be strengthened, EFIC is not even complying with its own standards, so from our perspective they need to be enshrined in legislation if they are actually going to be enforced.

CHAIR: In your submission you suggest that there are no requirements for project disclosure or public participation in submissions, or considerations of environmental and social benchmarks, before EFIC makes a decision on a major project. How can the public now access information about EFIC decision making in investment projects? Is that through the project proponents themselves or are you expecting EFIC to actually make these disclosures?

Ms Polce : We are expecting EFIC to make these disclosures. The environmental and social impact assessment for proposed transactions is made public, and the public is given the opportunity to provide comment. This is a practice of EFIC, not a policy enshrined in the act. It has been troubling to us that the very interesting, enlightening, critically important feedback that the public provides into that process is not disclosed. We have observed that the submissions tell EFIC things that their client is not telling them. It would be important for that information also to be available to the public. We will make our submissions public on our website, but the public may not go to the Jubilee website. The public is going to look at the EFIC website to generate an understanding about the projects that EFIC proposes funding. If the public does not find those submissions there, it is helpful if EFIC points them to our website or makes a comment that we have made submissions, but there is no reason why this information about important risk assessment should not be made available to the public by EFIC.

Senator EGGLESTON: Can you give us a breakdown of EFIC's loan spectrum? You are talking about Third World country development projects, but what about the rest of their loans? Are they to Australian businesses?

Mr Barnden : The latest data provided by EFIC for the full financial year of 2012 show that there was $1 billion in financial facilities. EFIC's mandate is to assist Australian exports, so many of these go to small businesses operating in developing countries. To give you a guide of the breakdown, two main projects made up most of the $1 billion in financing in 2012. They are in Australia and they are both based in the Port of Gladstone in Queensland, which is in our Great Barrier Reef Marine Park.

Senator EGGLESTON: I know where Gladstone is, yes.

Mr Barnden : It is interesting that these are category A projects, with significant adverse environmental or social impacts and they are not disclosed to the public.

Senator EGGLESTON: What are the adverse impacts in Gladstone?

Mr Barnden : For example, UNESCO on 3 May this year released a report on the state of World Heritage areas. It recommended that the Great Barrier Reef be placed on the danger list of sites, partly as a result of continued expansion into coastal development and ports. These two projects, which EFIC financed, being over one-third of their total financing for 2012, contribute to dredging. One is a coal terminal for the loading of ships, and the other is an LNG processing plant and pipeline. The dredging kicks up sediment and affects water quality, there are heavy metals in the sediment, and it goes to the fragmentation of a big World Heritage area, where the preservation of wildlife corridors and things like that is very important.

Senator EGGLESTON: Those projects would have had the approval of the Queensland government, who would have put them through their own environmental assessments. Why, if they have been given approval, should EFIC not have provided financing if it was requested? I do not quite understand why EFIC is financing an Australian project. It seems to me that you are asking EFIC to supersede the authority of the Queensland government, in effect, by saying that the Queensland government was wrong in providing authority for these projects to be developed, and I do not think that is a very reasonable or rational approach.

Mr Barnden : That is not what we are asking.

Senator EGGLESTON: It is, in effect. These projects are there, they have been financed, and you are saying that they should not have been financed by EFIC.

Mr Barnden : It is a different kettle of fish—EFIC financing a project—so it is not usurping the Queensland government approval process. It is a different process. It is about taxpayer support. EFIC can enable these projects by participating and making subsequent syndicated financiers jump on board. One of the main problems in this area is cumulative impacts. Often these projects are not considered on an individual basis, but if we look at EFIC's financing portfolio, is it right that the taxpayer supports such cumulative adverse environmental impacts without even knowing about it?

Senator EGGLESTON: We have to come back to the fact that these projects are approved by the relevant state government, and you are asking for decisions to be made which in effect override the Queensland government's approval process.

Mr Barnden : It does not override the approval processes. What we are asking is that these category A projects be disclosed to the public before they are financed, in accordance with the productivity recommendation 9.6. We are asking that EFIC conduct its own due diligence on them.

Senator EGGLESTON: But the Queensland government has already done that—to answer your question.

Mr Barnden : For example, the Equator Principles take into account what the Queensland government does, but it is a process which should occur for a responsible financial institution. It happens all around the world. It happened, for example, with ANZ pulling out of the Gunns pulp mill, where everything was set—all the regulation and the approvals were in place. The bank pulled out because of reputational risk. The Productivity Commission say in their report that the reputational risk to the Australian government should not be overridden by commercial imperatives, and so it should have its own financing standards and regime that is accountable to the taxpayer.

Senator EGGLESTON: Again, you are implying that the Queensland government process is not acceptable and is not up to scratch, and I find that a curious position to take—but there we are. You say that EFIC is exempt, is it not, from the environment and biodiversity act?

Ms Polce : It is.

Senator EGGLESTON: How long has that been the case?

Mr Barnden : There are certain exemptions to it. It is meant to report on environmental and sustainable development practices in its annual report. You can ask EFIC how it goes about doing that. There are other exemptions such as referral to the department of environment or to the minister of the environment under section 28, which does not occur for any of the projects. It is things like that and its referral to other departments which know more about environmental impacts of the projects that EFIC finances which we consider are quite important.

CHAIR: Surely, any project that EFIC looks to be involved in, large-scale projects, will have been assessed under the EPBC Act by the department of environment.

Mr Barnden : For projects overseas?

CHAIR: No, in Australia.

Mr Barnden : If they are subject to that—and I am not an expert on the act—if they are subject to federal legislation, that will already be in place. That is right.

CHAIR: For example, a project in Queensland that may have impacts in the state environment and planning assessment process and that may also have some Commonwealth impacts because of the marine park or something, the general practice is that the two governments will come to a conclusion on which environmental assessment process will be accepted, whether it is the state's or the Commonwealth's, so that there is no duplication of effort and expense for the company.

Mr Barnden : Sure.

CHAIR: So you are suggesting that overseas projects that may receive funding under EFIC should have to meet Australian standards of environmental assessment?

Mr Barnden : That is something that the committee can consider. We would like EFIC to have as much expertise as possible in considering these transactions. EFIC does it in-house. Going back to the comments by AID/WATCH, we do not know what international standards EFIC applies in terms of wider environmental and human rights standards, we do not know how EFIC treats individual submissions and we do not have an idea of how EFIC applies these benchmarks and arrives at their decisions. It would be great if such decision making was made public, and it would be great if EFIC had the expertise of perhaps the department of the environment or, as we suggest in our submissions, an independent expert committee.

Senator EGGLESTON: That leads me to the second part of this. You are talking about EFIC-financed projects in Australia. I would have thought that almost by definition most of EFIC's work would be to finance projects in other countries. Is that a fair comment?

Mr Barnden : That is a fair comment. There is some confusion about EFIC's ability to finance projects in Australia, especially projects whose proponents are foreign entities. There was discussion in the Productivity Commission report at page 282 about EFIC's submissions on its inability to finance Australian based projects with foreign proponents, and this is precisely what happened this year when EFIC provided a $142 million loan to the Ichthys liquefied natural gas project—the extractions off the north-west coast of Western Australia; the processing is in Darwin. It is a project whose proponents are completely foreign.

CHAIR: That is what these amendments go to—the new mandate. So, following the Productivity Commission report, currently EFIC can only provide support to an Australian based parent company and cannot deal directly with the foreign subsidiaries. So the limited expansion of powers is further limited by the caveat set out in item 10 of the bill. Do you want to consider what they are? Is that helpful? Item 10 says:

At the end of section 16


(3) EFIC must not give a guarantee under this section in relation to an eligible foreign subsidiary unless the relevant SME has certified to EFIC that there will not, during the term of the guarantee, be a net reduction, in connection with the giving of the guarantee, in the number of persons employed in Australia by the SME.

And then an additional section:

(4) For the purposes of this section, an eligible foreign subsidiary is a body that:

(a) is a subsidiary (within the meaning of the Corporations Act 2001) of an SME that is carrying on business in Australia;

Does that address the—

Mr Barnden : I do not think so. The entities we are talking about here are not SMEs. As far as I can understand from that section, it only applies to guarantees. The example we are speaking of is a direct loan to the proponents.

Senator RHIANNON: A question arising from that is: do you think EFIC should be funding operations in Australia?

Mr Bryant : The productivity report itself recommended that EFIC should cease funding all resource projects within Australia, basically because they came to the conclusion that this is a subsidy that was absolutely not necessary by the Australian resource industry. So there is that question particularly in relation to resource projects. The answer to that from the Productivity Commission is no, and I tend to agree with that.

Senator RHIANNON: What recommendation was that?

Mr Bryant : I do not have the specific number, but it was one of the primary recommendations.

Senator RHIANNON: Not to worry, we will find it.

Mr Bryant : I want to make a comment in relation to the discussion about the Queensland project in Gladstone. I think what we are talking about with EFIC is a special case because it is basically getting the Australian taxpayer to underwrite these projects for Australia corporates to get a piece of these projects, to make sure they go ahead and so on. But, because it is the Australian taxpayer who is underwriting it, I think they have a reasonable expectation that these projects will comply with the international environmental and human rights obligations that the Australian government has signed up to on their behalf. Building coal terminals, for example, contribute to runaway and dangerous climate change. Likewise, I think the Australian public have the right to ensure that their taxpayer funds are not destroying World Heritage areas and so on.

I think that also relates to something that was raised earlier about whose obligation it is to report and disclose information. Obviously, as Jubilee said, the key game here is to make sure that EFIC has full disclosure of the things they are funding. It was raised that maybe the corporates should also have to have a greater amount of disclosure. I think because they are underwritten by the Australian taxpayer they do have a particular and special obligation to be much more transparent in what projects they are doing and the impact of those projects that are underwritten by the Australian taxpayer.

Senator EGGLESTON: I thought the whole charter was to enable Australian companies to invest in overseas projects. It is the Australian export finance corporation, so I am puzzled—

Senator RHIANNON: About the Australian component?

Senator EGGLESTON: I would like to know more about the degree of the Australian component—

CHAIR: We can ask the officials.

Senator EGGLESTON: We will do that, but I suppose gas is an export so that perhaps satisfies that requirement. One other thing we hear has been objected to is that they are not subject to the Freedom of Information Act; is that not correct?

Ms Polce : It has a blanket exemption.

Mr Barnden : It is parts 4 and 5 of the EFIC Act so they deal with transactions on the commercial account and the national interest account.

Senator EGGLESTON: So can you give us examples of areas where that has been a problem for some reason?

Mr Barnden : There is a point about best practice here. There is a point about wanting to know more about certain developments and finding out what EFIC does because we do not know what we are missing. If we were able to find out more details through an FOI process, for example, it would assist the Australian taxpayer and stakeholders to understand how EFIC operates and the basis of their decisions.

Senator EGGLESTON: Might it not be more to do with commercial confidentiality than any other thing?

Mr Barnden : The FOI legislation as I understand—and I am not an expert on this—carves out commercial-in-confidence material and it also carves out cabinet material, so if the exemption were removed those sensitive areas would still be protected.

Senator RHIANNON: I think you mentioned that export credit agencies in Britain and other countries do not have this special exemption. Do they just come under the FOI Act like all the other departments do? Is that how it works in other countries?

Ms Polce : They have specific itemised exemptions. We mention this in our submission. They have not got a blanket exemption—nothing is required to be disclosed to the public—they have specific exemptions. So the public can make application in the context of those restrictions but, as you said, there is a veil that is drawn down for EFIC and they can hide virtually all of their activity behind that.

Senator RHIANNON: I would like to move on to the size of projects that EFIC is involved in. I would like your comment on that. I noted that the Productivity Commission did urge that there be a substantial reorientation towards small exporters. Could you comment on how it works presently and what you think the new act should cover?

Ms Polce : The new mandate outlined in the act has a great big loophole in it because any project of any size that is in a frontier or emerging market still qualifies for EFIC support. So if the mandate were to really reorient EFIC's business towards SMEs, this is a hugely formidable exemption to that ambition.

We are not necessarily suggesting that EFIC should stop funding all overseas projects of a certain size, particularly projects in emerging markets; we are asking for greater transparency and greater access to the process of assessing risk. Whilst it would have been ideal to see that loophole not present in the new mandates, I think that is probably a step too far, so what we are looking for is greater transparency so that the assessments of human rights risk, environmental risk and risks to people in communities can be understood by the public. That is the first of our recommendations.

Mr Bryant : I agree with what Jubilee is saying. This bill really does just pay lip service to the Productivity Commission recommendation that EFIC should have a greater concentration on small and medium enterprises. That is a good recommendation, firstly, because, as the Productivity Commission found, larger businesses already have an advantage in financing and the smaller businesses have much greater barriers in that respect. So, basically, all EFIC is doing here is enhancing the advantage that large corporates already have. Secondly, if you are looking at social and environmental impacts, the megaprojects like dams and mines and so on that have been financed by big corporations have caused the greatest amount of damage. So, from a social and environmental point of view, the shift to small and medium business would be a positive one.

On the previous question I was asked, recommendation 10.1, in relation to the Australian resource industry, reads, under the headline 'Limiting the scope of EFIC's activities':

As soon as possible, the Minister should direct EFIC to cease providing financial services for transactions that are not based on an export contract as defined in section 3 of the Export Finance and Insurance Corporation Act 1991 (EFIC Act). This includes resource projects located in Australia, and related infrastructure, and suppliers of goods and services to those projects.

Senator EGGLESTON: That is interesting. What percentage of EFIC's loans are to non-export clients? By definition, I thought it financed Australian companies wishing to export.

Senator RHIANNON: Maybe that is for DFAT.

Senator EGGLESTON: But these people might have an opinion.

Mr Bryant : I would be happy to follow up on that question. I do not have the specific information in front of me; although, given that the Productivity Commission felt the need to make that recommendation, it was clearly identified as an issue.

Mr Barnden : The response by the Australian government to that recommendation appears to take into account an update to the trade minister's statement of expectations, which would require non-SMEs involved in domestic export focus projects to have an Australian industry participation plan in place to be eligible for EFIC assistance. So they are clearly considering that Australian based projects for non-SMEs will be on the agenda in the future.

Senator RHIANNON: I want to explore this issue of the size of projects. When you are looking at the issues of the environmental and social standards, as well as the standards under which it appears that EFIC operates, that some of the really big companies are qualifying for loans is often surprising. I noted, Ms Polce, you commented on the Rio Tinto mine in Mongolia and the loan that has recently gone there. I am trying to explore the two aspects of it: there are the social and environmental issues that you have spoken about, but is that a company, in your analysis of EFIC, that warrants qualification for EFIC's support?

Ms Polce : There are a few aspects that are worth mentioning. Rio Tinto is a long-time client of EFIC. The role that EFIC plays when it provides finance to a large multinational like Rio is not only providing the financial support to the corporate itself; the participation of EFIC makes participation by commercial banks in Australia much easier.

Quite often, the commercial banks would be excluded entirely from participation in these large, risky projects. They would not generate a risk grade that would pass their credit criteria—as a former banker I make that comment. So EFIC's participation improves the risk grade and enables them to participate, so it is a gesture not only to the multinationals as proponents for the project; it is also a support for the Australian banks. It enables them to participate and enables them to participate profitably, because their risk grade improves and their profit margin improves.

Another comment that is probably relevant to this issue is the participation of the export credit agency's signal. They signal to each other. When an organisation like EFIC, which has a depth of expertise in the Asia-Pacific region, supports a project, it is a signal to export credit agencies outside this region that it is probably going to be a risk that they can manage because Australia is involved.

With regard to the Oyu Tolgoi project, there are many issues around that and I probably should not drill down into all of them. But it is a curious project for EFIC to support, given that the US has signalled its concern about a whole range of issues. As I said, we do not need to drill down into them.

Senator RHIANNON: Just on that, I appreciate that we do not have time to go into the detail, but does that illustrate that there are loopholes in this bill that we need to tighten up? I wonder whether we can draw some lessons from this, because it is just such an enormous project.

Ms Polce : I think that if there were greater public disclosure of the issues in Australia, the Australian public might find itself concerned about EFIC's involvement. That is the point that we are making.

Senator EGGLESTON: In this example, how common is it for EFIC to be involved in co-financing with very big Australian companies and institutions? By definition, I would not have thought that was part of their brief. I thought perhaps they were there to support smaller companies that were seeking to establish an export dimension.

Ms Polce : I can tell you that, as a former institutional banker, the banks love EFIC and love their involvement in project finance and in financing the big end of town. I would not have the statistics to hand, but I would say that a very large percentage of EFIC's exposures are clubbed with commercial banks.

Mr Bryant : The PNG LNG project is an example of that. The Commonwealth Bank, ANZ and maybe one of the other big four banks are co-financing with EFIC and EFIC is quite clear that that is one of the reasons it is involved.

Senator EGGLESTON: Which project was that?

Ms Polce : The PNG LNG project.

Senator RHIANNON: Could we go to some of the development aspects—and I think it was Mr Bryant who spoke about the debt burden that can come with some of these projects. Do you have any examples where the project has run into problems and the debt burden has hit the low-income country? If we have those examples, what should we be doing with the legislation to limit that happening?

Ms Polce : There are many examples—the Philippines, Indonesia, perhaps Mongolia in the years to come, given how much ECA money is flowing in there. The debt burden arising in the developing world from ECA-backed loans is the whole reason that Jubilee Australia turned its attention to EFIC, because the burden of debt that is borne by the developing world is, in large part, because of the support that export credit agencies have provided to corporations in their domestic community that want to sell to those countries and that want to build large infrastructure projects—big hydroelectric projects or mining, oil and gas projects. This is the reason why the Jubilee network has turned its attention to ECAs because these projects are, as is borne out in Pipe Dreams, for the benefit of the corporations and often they do not fairly weigh up the cost that is borne by the country.

The winners are the big multinationals and the banks, and the losers are the people of these countries who end up bearing the burden of debt for many years to come when projects have overruns. The contracts of these projects have stabilisation arrangements in there, which puts all of the burden back on the country. There may be tiers of credit enhancements in there that provide political risk insurance, but the country ends up through the stabilisation arrangements bearing the burden of any loss, any overruns, any issues that arise because of paramilitary action that is needed to quell local unrest. There is a knock-on effect to these projects.

Senator RHIANNON: So we have these ECAs. What can we do about it in terms of legislation? Somebody said earlier that they do not have a development mandate. What can we do? How do we address the development side because, clearly, they are going to low-income countries, we are running into problems and we now have many examples that highlight for us in parliament that, when we are looking at legislation, we need to consider that. How do we do that?

Ms Polce : You impose better standards on them and imposing better standards takes more time and it costs more for the multinationals to attain. But perhaps the full cost of these projects is not accounted for.

Senator RHIANNON: When you use the term 'development mandate' what are you suggesting should be done?

Ms Polce : That was Gareth's term. I am not suggesting that ECAs should have a development mandate. I think that they are not adequately skilled to proceed development outcomes. Their brief should be confined to the commercial outcomes that they are trying to achieve. I think the standards of due diligence need to be better policed.

Mr Bryant : My point on the development mandate is not that EFIC should become a development organisation but rather that its operation should not undermine development practice overseas—that a series of international agreements on aid effectiveness and stuff and that the operations of EFIC need to comply with those, otherwise it is just undermining the good development work we are doing overseas. In terms of what to do about the debt burden, clearly, it is unacceptable that the debt risk of these projects is on developing country governments and ultimately, the people in those developing countries. We really do need to find ways to shift that debt burden, primarily, I think, to the Australian corporations and the overseas corporations that are ultimately going to get the financial benefit. They are getting all the private benefit; the Australian taxpayers and citizens in developing countries are getting all the socialised risk. So that is a big problem. Ultimately, they need to shift the debt burden to the corporations that are benefiting.

Mr Barnden : Just a quick comment in terms of the size of the projects EFIC finances which, in the case of PNG LNG and Oyu Tolgoi, have the capacity to transform the entire economy of nations. One approach could be what Senator Eggleston was alluding to—that is, restricting the mandate to small to medium sized enterprises. That would really take EFIC out of the equation for imposing really large amounts of debt on developing countries. There are also other mechanisms, which I do not fully understand and you may want to ask EFIC about—that is, having host country guarantees so that certain governments in developing countries are able to provide guarantees or be the ultimate entity responsible for the loan.

Senator EGGLESTON: Can you tell us the percentage of SMEs that EFIC assists, as opposed to larger companies? Do you have any idea of what that figure is?

CHAIR: I think you should ask EFIC. We only have a very short time left for these witnesses. If you do not mind, I just want to go back to the issue of transparency that you raised in your submission. The government's response was:

The Government considers that EFIC’s Policy and Procedure for environmental and social review of transactions provides a sound framework for ensuring that EFIC upholds best-practice environmental and social standards in the transactions it supports.

Your submission is recommending that in addition to the policy there should be minimum benchmarking standards inserted into the EFIC Act. What is your knowledge of the policy and procedure that the government's EFIC refers to—the policy and procedures for environmental and social review of transactions—and have you seen a change in behaviour or assessment since the policy's adoption?

Ms Polce : We participated in a broad consultation in December 2010, I think it was. Civil society was given wide access to the redrafting of the policies and procedures. After that, the policy and procedure was agreed and posted—made public. Whilst there were lots of things we would like to see changed about that we were happy that at least we had a fair hearing and that the process was consultative. We can continue to discuss that as issues arise and we can demonstrate to EFIC issues with the policy as it exists. The question you asked was: is the policy good enough? We think it could be better, but it is a good start. We think it would be ideal if it was clarified in the act, which would give the public a better opportunity to understand it and EFIC would be held legally accountable.

CHAIR: In your submission you also recommend creating an independent committee to provide input to the minister's consideration of major impacts. Have you given thought as to how that independent committee might work and how would the work of the committee actually be publicly disclosed, which is the issue—transparency—that you have been raising all along this morning? Have you actually talk that idea through with EFIC and with DFAT?

Ms Polce : No. We had two ideas about the committee, didn't we?

Mr Barnden : That is right. It is one way to ensure that EFIC has the appropriate expertise to decide about entering into these larger transactions. What we want, or what we envisage, for an expert committee is that they would assess major environmental and human rights impacts. We would know what benchmarks they were assessing them against and any report would be made public and take into account submissions from affected communities or any stakeholders and be made public before EFIC were to decide to provide finance. There may be other ways of doing it. I personally have not discussed this with EFIC, but I think it is a good safeguard which can be legislated.

CHAIR: Thank you for your evidence this morning. Thank you, Mr Bryant, for your patience. It is a bit hard to do a teleconference for over an hour. We did not ask you to take any questions on notice but there may be additional information that you feel will be of help to the committee. We would need to have that by 31 May so that we can report when the Senate next sits.

Ms Polce : I have had a response to Senator Eggleston's question. The Risky Business report has an analysis that shows that 25 per cent of EFIC finance went to large-scale extractive projects. That is in direct response to your question.

Senator RHIANNON: That was 25 per cent?

Ms Polce : Yes.

CHAIR: Thank you very much.