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Wednesday, 20 February 2019
Page: 14075


Mr CLARE (Blaxland) (12:16): I rise to speak on the Export Finance and Insurance Corporation Amendment (Support for Infrastructure Financing) Bill 2019. When we think of the South Pacific, we often think of islands, beautiful tropical islands, a place where many Australians choose to take a holiday. But, as the shadow minister for foreign affairs, Penny Wong, has astutely said on more than one occasion, we need to shift our thinking about the Pacific—from small island-states to countries of one blue ocean continent. She has also suggested that we should stop describing the Pacific as our backyard and start thinking about this ocean continent as our front yard.

It's a part of the world that has lots of challenges, particularly from the effects of climate change but also challenges that relate to lack of infrastructure as well as real and chronic health and education challenges. I think—in fact, I know—that all of us in this chamber, on both sides of the parliament, agree that this is a part of the world where we, Australia, have a very special responsibility to work with and to partner—and that's an important word: partner—with our friends and our neighbours in the Pacific to help them to meet those challenges.

This legislation that we're discussing this morning deals specifically with that infrastructure challenge that countries in the Pacific face. The Asian Development Bank released a report—I think it was in 2017; it was released just in the last few years—talking about the infrastructure challenges right across the Indo-Pacific, right across Asia and the Pacific. When you look as far as the Indo-Pacific, you see a challenge which is in the order of $26 trillion in infrastructure that needs to be built across the Asia-Pacific over the course of the next 10 or so years—that's enormous. But, specific to the Pacific, what this report showed is that the highest relative level of investment in infrastructure required, both in per capita terms and also as a percentage of GDP, is required in the Pacific. Of all the regions in which the Asian Development Bank has operations, it identified the Pacific as being the one that had the highest relative need in terms of investment in infrastructure per capita and as a percentage of GDP. I'm quoting directly from a report written in April 2017 by a journalist called Sanjivi Rajasingham. He makes this point, and this provides context for the importance of this conversation:

Pacific island countries face unique and broad challenges. Their remoteness and generally small populations preclude them from benefiting from economies of scale in investments, and services are often more costly to produce and maintain. In addition, Pacific island countries are highly vulnerable to natural disasters. Cyclone Winston which hit Fiji last year resulted in total damage estimated to be over 30% of GDP.

Addressing the region's infrastructure needs requires innovative solutions, better planning, and the combined efforts of the global development community to bring the Pacific's infrastructure to a point where it can support higher levels of sustainable growth.

He goes on to make the point that the Asian Development Bank works with countries like ours but also with the EU, with the European Investment Bank, with Japan's International Cooperation Agency, with New Zealand as well as with the World Bank to deliver and coordinate assistance and relevant research through a technical assistance program managed by the Asian Development Bank. It's called the Pacific Region Infrastructure Facility, or the PRIF. He makes the point:

ADB plans to roughly double its financial commitments in the region, with an emphasis on infrastructure and its regional partners are also gearing up their assistance.

It's very timely, given what this legislation is all about.

He also makes the point that there are priority areas where urgent assistance is needed and where the Asian Development Bank at the moment, as well as countries like Australia, are working to help. One is household access to electricity. Right across the Pacific, access to electricity is at about 30 per cent. He says:

… but more grid connections is not always the right answer (in fact access in urban areas is relatively high and comparable to the OECD). The challenge is to bring coverage to rural areas and the outer islands, including through off-grid electricity, powered by locally abundant (and renewable) sources like solar and wind.

The approaches must be sustainable, so their implementation needs to factor in processes (such as performance based contracts) and budgets for maintenance.

He says:

The report notes how building a road in the Pacific can cost four times as much as elsewhere. We need innovative solutions to reduce the cost of providing connectivity to a part of the world that needs it more than most. One innovation to reduce this cost is implementing new pavement design techniques for low volume roads, using locally available materials.

The third example he gives is marine transport, which is critical to all Pacific island countries:

… but port construction and maintenance are very expensive. In Nauru, ADB is seeking cofinancing for an ambitious project to modernize the country's only port, and JICA—

which I mentioned earlier is the vehicle used by the Japanese government—

has been active in upgrading ports in Kiribati and Samoa.

Inter-island (local) transport is crucial to populations living on outer islands, but it is constrained by inadequate and unsafe jetties and wharves. We need to encourage the private sector to play a bigger role in providing inter-island shipping and transport through public-private partnerships.

In his fourth example he says:

There are over 700 airports and airstrips in the Pacific, but only about 7% are paved. Several aviation projects by PRIF partners are underway to improve the quality and safety of air transport facilities, for example in Samoa and on the island of Kirimati (in Kiribati), and many of them are working to strengthen the regional aviation authority. Maintenance is again essential.

He also says:

There is a marked disparity between urban and rural areas in access to water services, which are generally not continuously available. In some atolls, groundwater is a limited resource that cannot keep up with growing populations. It's time to prioritize investments in water transmission, minimize leakage, and maximize rainwater harvesting.

Another area is a lack of sanitation. He says:

Lack of sanitation is an even bigger problem in rural areas, where coverage is significantly lower than water. Land use constraints exacerbate this situation. There have been advances in cost effective sanitation techniques that have been identified which need to be more systematically built into development projects.

His seventh point is about this report by the Asian Development Bank. He says:

Last but not least, the report stresses the urgency of addressing climate change. This is crucial for the Pacific, home to 8 of the world's 20 most vulnerable countries (ranked by average annual disaster losses as a percentage of GDP). PRIF is researching approaches for affordable coastal protection, and has identified an approach which uses stacked concrete blocks which is more robust and provides protection against higher waves.

The point I'm making, and the point that is made in this article in the report that was prepared by the Asian Development Bank, is that the Pacific's infrastructure gap is large but we can close it through innovative and coordinated assistance and through the work of countries—like Australia, New Zealand, the United States, the EU and Japan—working together with the World Bank and with organisations like the Asian Development Bank. If we do that, we can make a significant difference to a part of the world that needs it most and a part of the world that, as I said, we have a special responsibility to assist, to help and to partner with.

That's why in October of last year Bill Shorten, the Leader of the Opposition, announced in a major speech that he made at the Lowy Institute that a future Labor government would actively facilitate concessional loans to privatise investments in things like financing investment in vital, nation-building infrastructure in the Pacific through what he called at the time a 'government-backed infrastructure investment bank'. As the Leader of the Opposition said in that speech at the Lowy Institute:

Our neighbours in the Pacific are looking for partners to help them build infrastructure …

It's Labor's intention to make sure that they look to Australia first. He said:

My vision is for Australia to actively facilitate concessional loans and financing for investment for vital, nation-building projects through a government-backed infrastructure investment bank.

Our neighbours in the Pacific are looking for partners to help them build infrastructure and as Prime Minister, I intend to make sure they look to Australia first.

I see this financing facility as a way Australia can elevate our status as a 'partner-of-choice' for Pacific development and enhance security and prosperity in the region.

A month after Bill Shorten, the Leader of the Opposition, made that speech, the Prime Minister of Australia made a speech himself in Townsville, where he announced that the government would do something quite similar. He announced two things. The first thing he announced was a $2 billion Australian infrastructure financing facility for the Pacific, and the second thing he announced was an extra $1 billion in funding for Efic to finance infrastructure investments in the Pacific.

The Prime Minister said in that speech in Townsville:

So today I'm pleased to announce two major new initiatives that will help address the infrastructure needs of the Pacific region.

The first is the creation of an Australian Infrastructure Financing Facility for the Pacific (AIFFP).

This $2 billion infrastructure initiative will significantly boost Australia's support for infrastructure development in Pacific countries and Timor Leste.

It will use grant funding combined with long term loans to support high priority infrastructure development.

This will also enable these projects to leverage broader support. It will invest in essential infrastructure such as telecommunications, energy, transport, water and will stretch our aid dollars even further.

The second major announcement I'm making today—

again, I'm quoting the Prime Minister here—

is the Government will ask Parliament to give Efic, Australia's export financing agency, an extra $1 billion in callable capital and a new more flexible infrastructure financing power to support investments in the region which have broad national benefit for Australia. It's in our interest that's why we need to do it.

I'm continuing to quote the Prime Minister. He said:

These new measures will enhance Efic's ability to support Australian SMEs to be active in their region. Working with the support and aid that we are putting into the region. Private capital, entrepreneurialism, open markets are crucial to our mutual prosperity. These are our beliefs, these are values, they are shared with the Pacific and we stand with those who share our beliefs and values.

It's my genuine ambition for this work on infrastructure to be a bipartisan endeavour, as indeed should our wider engagement be in the Pacific.

That point that the Prime Minister makes about bipartisanship is an important one because this is an endeavour which is shared by members on both sides of this House, as evidenced by the fact that the opposition leader has made a similar announcement and a similar commitment in the speech that I just referred to at the Lowy Institute in October last year—specifically, to create an infrastructure investment bank for the Pacific.

The legislation that we're debating here now implements the second of the Prime Minister's announcements on that day in November in Townsville. It gives Efic the extra $1 billion in callable capital on its commercial account that the Prime Minister talked about, in the remarks I just quoted, to fund infrastructure investments in the Pacific. And the reason for that is set out in the explanatory memorandum, which says:

This will allow Efic to provide more commercially meaningful financing offers, including for overseas infrastructure projects where the total size of debt financing required is large. It will give Efic greater flexibility and credibility with project proponents, sovereign borrowers and financing partners, who require the confidence that Efic's support is meaningful and can be sustained over often long repayment terms.

So that sets out there why we're doing this, why the legislation has been put in place in this form. As structured, what this will allow is for funding to be provided by Efic not only to individual countries but also individual companies, and for financing to be provided at a commercial rate. Currently, Efic can only fund projects on its commercial account where it is helping to maximise Australian export opportunities with defined Australian content and Australian job-creation thresholds. This legislation would change that.

As part of this bill, a new definition and Australian benefits test would apply to loans provided by Efic. This will mean that an infrastructure project funded by Efic must have a benefit to Australia or a person carrying business or other activities in Australia. The minister, in his second reading speech where he introduced this legislation, talked about the possibility for Efic to fund a broadband internet project in the Pacific, the benefit for Australia being that it would lower the cost for Australians of doing business in the region.

It's worth just mentioning a little bit more detail about this. The explanatory memorandum talks about how creating this Australian benefit test for infrastructure will open up a larger pool of potential projects for Efic funding. The EM says that it will enable 'Efic to take account of the direct benefits from the involvement of Australian companies in infrastructure projects, as well as future and indirect benefits for Australia or Australians, such as 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'. Doing this, the amendment will enhance the government's ability to play a constructive role in regional infrastructure that serves our national interest and supports Australian businesses to take on international opportunities. In terms of the financial impact of this legislation, the EM says:

The Bill will have no impact on the Commonwealth's underlying cash balance. The increase in Efic's callable capital will enable Efic to provide more financing over time, raising the Government's contingent liability for Efic within the established upper limit of $6.5 billion. The Export Finance and Insurance Corporation Regulations 2018 set this maximum liability.

One more thing specifically on this legislation is that it also changes the name of Efic. It changes the trading name of Efic to Export Finance Australia. The argument put for that in the explanatory memorandum says:

A simpler trading name that references Australia will provide greater recognition for Efic and the Australian Government, both with Australian small and medium sized enterprises and exporters, and in overseas markets.

I think that there is a certain logic to that. On that basis, the opposition will support this legislation in this place.

The government and the opposition have agreed to refer this bill to a Senate inquiry. The Senate Foreign Affairs, Defence and Trade Legislation Committee will look at the legislation in some detail and take evidence from interested parties, and it was determined in the Senate last week that the committee will report back to the parliament on 26 March 2019. Amongst other things, I expect that this inquiry will have a look at how this bill will interact with the Prime Minister's first announcement that he made in Townsville, the establishment of the Australian Infrastructure Finance Facility for the Pacific. It will also be an opportunity to examine whether providing this additional funding to Efic and broadening its scope is the best way to achieve the policy objectives that we all share to help build the infrastructure that our friends in the Pacific need, or whether there might be another way to do that.

For example, the United States last year passed what they called the BUILD Act, which created the United States International Development Finance Corporation. What that corporation does is facilitate the participation of private sector capital and skills in the economic development of countries with low- or middle-income economies and countries transitioning from non-market to market economies in order to complement the United States' assistance and foreign policy objectives. As I said, the United States has been doing this sort of thing for some time, but this is a new way of doing it. This is new legislation recently passed by the United States which is worthy of examination by this committee in looking at how we can best do this work.

The BUILD Act sets out that the US International Development Finance Corporation can: make loans or loan guarantees; as a minority investor, acquire equity or financial interests in entities; provide insurance or reinsurance to private sector entities and qualifying sovereign entities; provide technical assistance; administer special projects; establish enterprise funds; issue obligations; and also charge service fees. It cannot, however, provide assistance to a country whose government has repeatedly supported acts of international terrorism or to a private sector entity that is engaged in monopolistic practices. The corporation can invest, along with the private sector, in low- and middle-income countries, as well as upper-middle-income countries where there is either a national security or development reason to do so.

The corporation will double the United States' investment portfolio for development finance to US$60 billion. It'll also provide project-level data publicly to ensure trust and transparency in the process. Importantly, there will also be grant windows to conduct feasibility studies to potentially unlock subsequent development finance decisions. In addition to providing equity investments, the corporation provides technical assistance and increases the ability to assist developing countries through local currency loans as well as small grants.

While the corporation has a triple mandate of development, commercial viability and national security, it's a model worth looking at quite closely. That's why I have made the point that through the development of this legislation, as well as through the examination of the Senate committee, we should look quite closely at the model that has been developed by our friends in the United States.

The US is not alone on this front. The UK have long done something similar as well. They've created an organisation called the CDC Group, which was previously called the Commonwealth Development Corporation, and before that the Colonial Development Corporation. It's a publicly limited company where the sole shareholder is the Department for International Development and it invests principally in Asia and Africa. Its stated purpose is:

… to invest in the creation and growth of viable private businesses in poorer developing countries to contribute to economic growth for the benefit of the poor; and to mobilise private investment in these markets both directly and by demonstrating profitable investments as part of the mission of the DFID to fight world poverty.

More succinctly, Richard Laing has said that the CDC exists to improve people's lives in developing countries.

The CDC is the UK government's principal vehicle for directly helping the private sector in developing countries. It's prohibited by statute from supporting public sector projects, such as schools and hospitals, although it can invest in public utilities and support privatisation programs. The countries it is permitted to invest in and the geographical balance of its investments between them is restricted by an investment policy agreed by the DFID.

For the CDC's investments to add value, it is seen as important that they meet two criteria. Specifically, the investment should be additional; that is, the investment supports business in areas that other investors are reluctant to invest in because of associated risks or economies that are underserved by commercial financial institutions. Secondly, the investment must be catalytic; that is, through demonstrating profitable and responsible investments in difficult and neglected environments it encourages further investment from elsewhere—in short, mobilising other people's money.

Between 2004 and 2011, the CDC was structured as a fund of funds; that is, rather than make direct investments itself it invested through external private equity companies, known as fund managers. Such investments are generally held for about four to eight years, and when the fund manager sells the investment it returns the capital and any profit to the CDC. So those are two examples of countries that do this slightly differently to the way we are proposing to do it here.

But it's not just the United States or the United Kingdom; I think it's correct to say that all G7 countries have facilities or funds like this that do similar things. The question before us is: what's the best way to do it? I think that this is a worthy proposition by the government, which is why we're supporting it here in this place and why we think we should do more work in the intervening period, between now and when the Senate will next sit in April, to look at the best way to do this and to make sure that as we do this there are no unintended consequences.

Finally, in wrapping up, can I take this opportunity to again stress our commitment to working with our friends and neighbours in the Pacific, to help make sure that we build the infrastructure that they need. Can I also recognise and pay tribute to two people on our side of the place who are well known in this building for their longstanding commitment to and advocacy on behalf of the people of the Pacific. They are, of course, the shadow minister for defence, Richard Marles, and the shadow minister for international development and the Pacific, Senator Claire Moore. They too, amongst others on the other side of the House, stand out as individuals who have a better understanding of the Pacific and its needs and an enormous desire to do good. We should recognise their contribution in this debate.

I look forward to seeing the recommendations that might come out of the Senate inquiry, which I have touched on, and hope that the work that we do here through this legislation and any amendments that may arise out of that inquiry help to make sure that we as a country, Australia, can do more to help to build a stronger and a better future for our friends and neighbours in the Pacific.

Debate adjourned.