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Economics Legislation Committee
Productivity Commission

Productivity Commission


CHAIR: Good afternoon and welcome. I invite you to make a brief opening statement if you care to do so, or we can get straight into questions.

Mr Harris : No opening statement again, Chairman.

Senator MARK BISHOP: Welcome, Mr Harris and officers from the Productivity Commission. Firstly could we look at the automotive inquiry. In relation to your inquiry into the auto manufacturing industry, I note that the commission has completed the inquiry and that the government is required to table the report within 25 sitting days of the receipt. By what date is the government required to table the report?

Mr Woods : I have not calculated that date. It will be in the near future but not yet.

Senator MARK BISHOP: Let's be a little more specific than that.

Mr Woods : I would love to be, but I—

Senator MARK BISHOP: When did you receive it?

Mr Woods : We submitted it to government on 31 March.

Senator MARK BISHOP: Is the 25 days 25 working days or—

Mr Woods : Twenty five sitting days.

Senator MARK BISHOP: Twenty five sitting days from 31 March. We can work that out, thank you. The commission stated in its preliminary findings report that it would:

… undertake quantitative modelling to inform its analysis for the final report. The modelling will focus on the regional and economywide adjustment implications for motor vehicle producers, automotive component manufacturers and their employees arising from structural changes in the automotive manufacturing industry.

The Commission is endeavouring to release its initial quantitative results in February 2014 …

Have those results been released?

Mr Woods : Those results are included in the final report and they will be released at the time of that report.

Senator MARK BISHOP: Is the modelling that you have included in the report just the results or does it include the methodology, the inputs and the analysis that lead to the particular conclusions?

Mr Woods : Thank you for that question. The Productivity Commission is always quite transparent in how it goes about its analysis, so the commission has the results and the consequences of those results in the final report, but it will also make available the modelling that supports that. In fact, we conducted a workshop with experts to ensure that what we were doing was appropriate. All of that will be available.

Senator MARK BISHOP: So those who have an interest and knowledge in this area—

Mr Woods : Indeed.

Senator MARK BISHOP: will be able to pick it apart and engage in debate?

Mr Woods : We are fully expecting them to do so, but hopefully not pick it apart, because the point of the workshop was to try and resolve any issues. Modelling is a very vexed matter amongst some esoteric experts.

Senator MARK BISHOP: But when the report is released, within 25 sitting days of 31 March, the modelling will be there, the results will be there and all the parameters involved in putting up the models will be there for public review.

Mr Woods : Consumption and examination—indeed.

Senator MARK BISHOP: Let's leave cars and go to ageing. The government has now, as I understand it, made a policy call that, over time, the age for receipt of the full pension or the half pension will increase to 70, and that is going to occur sometime in the third decade—

Senator Cormann: By 2035.

Senator MARK BISHOP: That is a policy decision made by the government, so we are talking about a policy call by the government.

Senator Cormann: Which I guess furthers the reforms pursued by the previous government, which increased the pension eligibility age to 67 by 2023.

Senator MARK BISHOP: I understand the continuum.

Senator Cormann: It is in the interest of being abundantly helpful.

Senator MARK BISHOP: And clear. Thank you, Minister. Does the PC have a view on the government's proposal—

Senator Cormann: I think you are asking the PC for an opinion, which, as a longstanding senior senator in this place, I am sure you would know is not the way we ask questions of witnesses in this forum.

CHAIR: I apologise. I was distracted at the time.

Senator Cormann: I think there might have been some opportunist opinion seeking going on.

Senator MARK BISHOP: I would have thought the Productivity Commission was probably in favour of the government's position.

Senator Cormann: Sure. I am being nothing if not consistent by protecting officers like the very good officers from the Productivity Commission.

Senator MARK BISHOP: What is a collective of economists called? Do we know what it is called? A bunch of economists. I bet that is the one thing that 99 per cent of economists agree on.

Mr Quinlivan : It might depend on their age.

Senator MARK BISHOP: It might!

Senator Cormann: I heard a very good definition of an economist by Henry Ergas the other day. He said there were people who see something work in practice and wonder whether it can work in theory.

Senator MARK BISHOP: Some would say there is a bit of truth in that. I will not got to the policy thing. Mr Harris, can you tell us how many other developed countries have a pension age going to 70.

Mr Harris : I cannot tell you that off the top of my head. As I am sure you know, we published a research report last November on this issue of an ageing Australia and we did go to this question of alteration of the age pension. We did do a worked example in that of shifting the pension age out to 70 by 2035. That was a worked example; it was not a policy recommendation. But, in the course of that report, obviously we addressed age pension, we addressed aged care, we addressed health costs—the kinds of impacts that you will see in a budgetary sense and also in a structural sense altering the nature of the Australian economy as demographics shift both demand and supply in the labour market and in the product market. We put quite a bit of effort into that research report. The government has obviously made decisions that will be based on its own analysis and the advice it has got from Treasury and Finance and those sorts of agencies as well as the social policies agencies in the government.

Senator MARK BISHOP: Let us talk about that worked example. In that example you proffer, did you also give consideration to increasing the vesting age for superannuation to 70?

Mr Harris : We commented that we gave ourselves a number of months to do this. Research reports are our own initiative rather than a request from the government. We gave ourselves three months and one week, roughly speaking, to do this piece of work. We did not have sufficient time then to do superannuation, but we did note in the overview comments on the report that there is a logic link, obviously, between accessing different kinds of retirement income support, and we left it at that. We just noted that the logic link existed.

Senator MARK BISHOP: You did not have time to do it then. Have you since revisited that position and are now thinking about doing a similar piece of work on possibly vesting the superannuation at an age above 55?

Mr Harris : Not in our research program, which is what is under our control. Obviously, references come to us otherwise from the government. We do not have a reference on that matter. It is not currently in our research program, and that is primarily because we are pretty fully occupied at the moment. We have a large number of references on the books from the government. If we do go back to the issue at some point in the future, we will treat it in exactly the same way as we treated this current research work.

Senator MARK BISHOP: As you say, there is a certain logicality in examining both sides of the coin. I can understand your own motion to do the work on the pension to 2035. It does leave in some respects a bit of a senseless vacuum to have the other side of the coin not examined—does it not?

Mr Harris : I would not think that is right. The Treasury, for example, is quite capable of following through the logic of making one of these and doing its own internal analysis. We were doing a piece of research work, and by definition, research has to have boundaries. You can do a certain amount of work in a certain set time and you cannot do everything. So it is quite possible for other agencies inside the government to take this forward. Our purpose, really, in doing the research work was to shine a spotlight on a coming issue, and I am on the public record on a number of occasions as having spoken in support of this matter being part of the public debate.

Senator MARK BISHOP: Yes, I have seen your comments, Mr Harris. That is really the point of this discussion. If we have a pension age either rising to 67 or rising to 70 over the next 20 or 25 years and at the same time we have a growing superannuation fund—and a lot more people are going to have more significant assets in with another 20 years work contributions and may not have the right to access traditional pension arrangements because of their asset build-up on the superannuation side—I would have thought in the discussion of appropriate retirement income models, which is what pensions and superannuation are, we would have a full picture to make informed decisions, which we do not.

Mr Harris : I think you could make the same argument about lifting the pension age to 67—and it was not made then. So we do not necessarily see that you must alter this. The question that I think you are alluding to, Senator—although you have not been specific—is: at what age can you start drawing down your superannuation versus the age at which you can access a retirement benefit supplied more generally by taxation support? In other words, in one case you are contributing to it with some tax support and in the other case it is completely supplied by the taxation system.

When I say there is a logical link, I am talking about the years gap between them. You may be talking about something else. The logical link that we are alluding to is obviously if you can draw down your superannuation much, much earlier in a relative sense before you access an age pension, there is an incentive system in there that may not be consistent with the way the retirement incomes process was developed in the first place. But that gap was expanded when the age was moved to 67, because no-one shifted the access age for superannuation then. If the age moves out to 70, the gap will be expanded again. The logical link therefore that I am referring to is one that occurs no matter who moves the pension age; it just simply says that it would be logical if you do this to consider these things in the longer term. You have got time to do that, because obviously the impacts of these things do not come into place for some years yet. So it certainly does not require anyone to make an immediate movement, but there is a logical link. And, as I say, there are agencies inside the government that are quite capable of applying that logical link and coming up with a solution.

Senator MARK BISHOP: Of course there are. I was not particularly heading to that difference between 55 and 65 now or 55 and 67 or 55 and 70 in due course. It is clearly a subset of the debate that has to be resolved one way or the other in due course. Now that you have put that issue on the table for us to look at, does the PC have a concern with a pension age of 70 and a super preservation age of significantly less than that?

Mr Harris : No.

Senator MARK BISHOP: Why do you say no? You just led a discussion about incentive to access your superannuation, spend it and then qualify for the pension.

Mr Harris : I gave my answer in the previous answer, Senator. There is time available to consider all these factors, but absent any decision to make any movement what we will have ultimately is quite a significant fiscal and potentially structural problem consequent upon an ageing population and a declining participation rate. If you look at our research report, that is the primary motivator for us in addressing this. It is that the participation rate will fall as we get an increasing population of older Australians, because participation at those older age levels tends to be a lot lower. As a consequence of that, this creates this pressure which I think many, many people have commented on, including two Intergenerational reports under different governments about an increase in the dependency ratio.

Senator MARK BISHOP: I think we are all reasonably aware of the two reports and the increase in the dependency ratio. Mr Harris, you say it is not of concern and that the government of the day—whoever it might be—has time to address the issue and resolve it once and for all. When does it become critical for the government, of whichever persuasion, to have addressed and resolved this issue?

Mr Harris : In the research report in the foreword, we actually use the phrase, 'There are a few years, but if we wait a few more years there will not be a few years.' We are not terribly specific about this. I can draw your attention, if you want to look at the research report, to the participation rate turndown, which is forecast to occur sometime between now and about that 2023 year when the current pension age is lifted to 67. There is nothing terribly precise about the forecast of the shift in the participation rate, but you can see the inexorability about a downturn. It just says: obviously, before that becomes terribly serious, these things will need to be addressed.

Senator MARK BISHOP: Understood. Really, you are saying, 'In the next few years,' but, with probably a bit of a boundary, inside the next 10 years or whatever.

Mr Harris : We were quite careful to have a non-specific period like 'a few years'. I do not think there is any gain in setting a deadline on this, primarily because of that somewhat imprecise shift in the participation rate. Nevertheless, we know it is going to shift and we think somebody should be trying to do something about it.

Senator MARK BISHOP: My final question: as far as individual retirees are concerned—those who are currently in their late 30s or early 40s—does the PC believe that increasing the super preservation age for these people would constitute an adverse change?

Mr Harris : Adversity is a pretty subjective term. We would always argue that policy is better made in a sufficient time frame for people to plan their affairs effectively. For the age groups that you are talking about and the time periods of when they might access an age pension, for a 30- to 40-year-old there is a reasonable amount of time to plan a change. Clearly, if you wait and then are under the impact of a substantial fiscal pressure as a consequence of ever-increasing costs of access to an age pension or, indeed, if you want to switch related costs from superannuation or the interaction between that and the age pension, if you wait until right at the last moment people will not have that ability to plan. We would always argue for public policy in sufficient time for people to be able to plan their adjustment. With the current time frame, as we say in the research report, we think you have a few years, but in a few more years you will not have a few years.

Senator MARK BISHOP: I have got it.

Senator XENOPHON: I just have a few questions in relation to the commission's report, which I think Senator Bishop referred to regarding Australia's automotive industry. Mr Woods, you had a chance to grill me a few months ago. The report was handed to the government, when, at the end of March?

Mr Woods : On 31 March.

Senator XENOPHON: And 25 sitting days—

Senator Cormann: On 26 August.

Senator XENOPHON: Is that when we—

Senator Cormann: I was waiting for Senator Bishop to ask me the question, but he ignored me. I could have been able to assist him.

CHAIR: When was it due?

Senator Cormann: The government, of course, will comply with the relevant provisions.

Senator XENOPHON: Not 24 September? Obviously, I prefer 26 August.

Senator Cormann: My adviser said 26 August is the deadline when the 25 sitting days run out. Remember, we have sittings in July that normally might not be in the calendar in the first week of July.

Senator XENOPHON: I cannot wait for those sittings in July.

Senator Cormann: You and me both. That is when we can get rid of the disastrous carbon tax and the ridiculously stupid and counterproductive mining tax. I know Senator Bishop agrees. Senator Bishop would like to be here—

Senator MARK BISHOP: You have been polite over there. You have been well behaved. Why don't you stick to your established pattern?

Senator Cormann: I know that Senator Bishop would like to vote to get rid of it.

Senator MARK BISHOP: No, he would not vote—

Senator Cormann: That is what I have been reading in the newspapers.

CHAIR: Order! Minister and Senator Bishop, this is not a debating forum.

Senator Cormann: I believe what I read in the newspapers.

CHAIR: The questions come from this side of the desk; the answers come from that side. The minister is entitled to intervene and contribute answers as he chooses.

Senator Mark Bishop interjecting

CHAIR: Senator Bishop, please refrain from interjecting. Senator Xenophon, you have the call.

Senator Cormann: You are creating enthusiasm, Senator Xenophon.

Senator XENOPHON: Chair, I apologise for saying anything about the sittings in July. Let's go to this report. Minister, you are aware that the auto industry is on tenterhooks, particularly the component manufacturers. You may have seen their statements and their concerns that they want to plan with some certainty. Will it take as long as August for that report to be replied to by the government?

Senator Cormann: Firstly, of course, the government is very conscious of the difficult transition that communities, particularly in South Australia—

Senator XENOPHON: You have just cut $400 million from that economy.

Senator Cormann: and Victoria are currently going through. You would appreciate that the specifics in terms of dealing with this particular report from the Productivity Commission are beyond my area of responsibility. These are matters principally for the Minister for Industry, Minister Macfarlane, to work through, and I am sure that he is very mindful of the need to provide certainty as swiftly as possible. What I can say to you today is that the government will of course comply with the requirements to table any report received from the commission within—

Senator XENOPHON: And my very, simple, straightforward question is: will the report be tabled prior to that? Will the government's response to the Productivity Commission's report be tabled prior to that time.

Senator Cormann: My very straightforward answer to that question is that the government's decision in relation to the timing of the tabling of this report and the government's response is not part of my portfolio; it is part of Minister Macfarlane's portfolio. So that is probably where the question would be best addressed.

Senator XENOPHON: I will just move on to the report and ask a question of the commission. Mr Harris or Mr Woods, since that report was provided to the government, on 31 March, there have been some other developments and concerns in the automotive industry component sector in terms of supply chain issues. There has been concern also as to how there will be a transition, given concerns about defence contracts, shipbuilding programs and the like due to the interrelationship between the various manufacturing sectors. Is that something that could be the subject of a supplementary report or, alternatively, the subject of comment by the commission in terms of your findings?

This is not a criticism. I do not know what your findings say. But there is a fairly fluid environment out there in manufacturing, and a lot of manufacturers are quite concerned. I think a couple have announced that they are looking at shutting down. Is that something that you would consider in the context of providing further information to government or providing further commentary in respect to this?

Mr Harris : Once we have provided a final report we would not voluntarily submit another report.

Senator XENOPHON: Even if circumstances change?

Mr Harris : It would be a matter for the government to determine that circumstances had changed and to see further information from us.

Senator XENOPHON: One circumstance has changed, I think, incontrovertibly. At the time that your report was provided to the government, handed to the government, the government had not announced that it would be cutting some $400 million from the automotive transformation scheme. Presumably, you did not have any advance knowledge of that. Does your report deal with that issue?

Senator Cormann: I think that these areas that are not actually part of the Productivity Commission. Firstly, we do not accept the assertion. What I have previously said when you have raised these issues with me is that the government has noted and of course made consequential decisions in relation to the reality that Holden, Toyota and Ford are all leaving Australia when it comes to the manufacturing of cars. They are all stopping the manufacture of cars over the next couple of years, and of course there are some consequential decisions that the government has made to take into account that reality.

Senator XENOPHON: I have a point of order, Mr Chairman. There is an issue of relevance here. I am trying to ask a specific question as to whether the Productivity Commission has taken into account in its final report to the government the fact that $400 million has been removed in this budget from the automotive transformation scheme.

Senator Cormann: Let me give you my answer.

CHAIR: There is a point of order. Unless you are speaking to the point of order, I will just quickly rule on it. I do not think there is a point of order. The minister is entitled to intervene with respect to the questions.

Senator XENOPHON: What about relevance to the question? Do questions mean anything in this place?

CHAIR: It is up to the minister to choose to answer the question in the way that he thinks best responds to it.

Senator Cormann: I will give you a very specific answer.

Senator XENOPHON: I was not asking the minister.

Senator Cormann: I am always entitled to answer questions that are put in relation to matters that we are dealing with.

CHAIR: Minister, the senator has raised another point of order. Is it a new point of order?

Senator XENOPHON: My question was directed to Mr Harris.

CHAIR: The minister is entitled to intervene—

Senator Cormann: Let me answer the question to you very specifically. Firstly, obviously the Productivity Commission could not possibly have considered a budget that was delivered on 13 May in a report that was finalised by 31 March. That stands to reason. So, clearly, the answer to your substantive question is no, because it is a physical impossibility. The final point that I would make is that we reject the assertion that is the premise of your question in relation to the $400 million number that you mention. What I would say again is that that is recognition by the government of the reality that a number of manufacturers who are currently manufacturing cars in Australia have given a deadline on when they will stop manufacturing cars in Australia and, consequently, a number of subsidies that have been in place for some time and that were provisioned for in the budget will of course not continue into the future.

Senator XENOPHON: Can I have another go, Chair? It is not a point of order.

CHAIR: It is your job to ask questions.

Senator XENOPHON: Mr Harris and Mr Woods: does your report go to the issues of the transition of this sector post the departure of the regional equipment manufacturers—Ford, Holden and Toyota—by the end of 2017?

Mr Woods : Perhaps I can respond to that. As we were constructing our final report, we were cognisant that Toyota had added its name to the other two manufacturers, that it would be terminating manufacturing by 2017. Therefore, within the terms of reference that the government had provided us, we directed a considerable amount of attention to issues of structural adjustment of industry, of regions and, importantly, of workforce. Obviously, where we come out on that is a matter that is contained in the report, which I cannot comment on.

Senator XENOPHON: I understand that. But insofar as the report deals with issues of structural adjustment, does it not?

Mr Woods : It does.

Senator XENOPHON: You acknowledge that. Does the Productivity Commission's consideration of structural adjustment within this industry take into account the level of government assistance to allow for structural adjustment as contained in the Automotive Transformation Scheme and any other Commonwealth or state assistance to allow for an orderly structural adjustment?

Mr Woods : Clearly, the report was produced before the budget was brought down, and so we did not have the benefit of those decisions to take into account.

Senator XENOPHON: Mr Woods and Mr Harris, given that you did not have the benefit of the knowledge of those decisions made by the government in the budget—the temporal impossibility, I think—and that you would not have been able to know about it at the time you prepared your report, is there an issue, given the facts have changed, for there to be a supplementary report or further consideration by the commission?

Mr Woods : The commission responds to terms of reference from the government and, to the extent that the government wishes us to produce a supplementary report, we would receive a written terms of reference to that effect and we would respond.

Senator XENOPHON: Without making you uncomfortable, Mr Harris, this goes to—

Mr Harris : It is hard to make me uncomfortable, Senator.

Senator XENOPHON: I want to try, though. In relation to this issue, given that there were some significant budgetary changes—I am trying to put this as neutrally as possible—in relation to—

Senator Cormann: Do you think it is neutral?

Senator XENOPHON: Well, having a fund of $900 million—

Senator Cormann: Acknowledging and acting on the reality that there is not going to be a car manufacturer in Australia beyond a certain period of time and reflecting that reality in the budget is obviously a sensible thing for a government to do. Would you want to us to keep spending money on a program that no longer relates?

Senator XENOPHON: I would want you to ensure that the 140 components manufacturers in this country that employ 33,000 people, mainly in South Australia and Victoria, have a chance of survival and are able to restructure, which was what the Productivity Commission was considering, but they were not aware of those budget cuts.

Senator Cormann: We are very focused on that.

CHAIR: I think they are both debating rather than having a discussion.

Senator WONG: Chair, could I make this point.

CHAIR: Is it a point of order?

Senator WONG: A bit of courtesy would be nice.

CHAIR: Senator Wong, you are interrupting the flow.

Senator WONG: All I am suggesting is that Senator Cormann may not like how Senator Xenophon phrases a question, but he is entitled to phrase the question that way.

Senator Cormann: And I am entitled to answer it.

Senator WONG: You did not answer it. You interrupted him.

CHAIR: The minister asked the senator a question.

Senator WONG: No, he interrupted.

CHAIR: There is a debate starting to happen. I would prefer to see questions come from one side, and the senator is entitled to ask the question and phrase it as he chooses. Then it is up to people on the other side of the desk to answer it as they choose.

Senator XENOPHON: How about I put it in neutral terms to Mr Harris. The budget made some changes to the Automotive Transformation Scheme, I think, and there is no dispute about that.

Mr Harris : That is correct, Senator.

Senator XENOPHON: So as a result of those changes you are saying that, because the commission provided its report to the government on 31 March, you have no discretion or ability to provide a supplementary report without fresh terms of reference from the Treasurer.

Mr Harris : That is the normal practice.

Senator XENOPHON: We live in unusual times, abnormal times. In terms of that being the normal practice, does the commission have any scope to send a note or a supplementary report to the government saying, 'Given what has occurred in the budget we would like to amend, alter or add to our report provided to you on 31 March 2014'?

Mr Harris : I do not think so.

Senator XENOPHON: Can you take that on notice as to whether you do have those powers to do so?

Mr Harris : I could examine the matter for you and advise you further.

Senator XENOPHON: Does it concern you, Mr Harris—

Senator Cormann: You are asking him for an opinion if you are asking him whether it concerns him. That is well and truly beyond standing orders.

CHAIR: Maybe if you rephrase your question.

Senator XENOPHON: I will get an opinion from Senator Cormann; that might be better.

Senator WONG: It is not an opinion actually. It is a question as to his emotional status.

Senator Cormann: If you are asking him whether he is concerned you are asking him for an opinion.

Senator WONG: That is not an opinion. It is an emotional state.

Senator XENOPHON: I will rephrase it. Mr Harris, you take pride in the organisational reputation of the Productivity Commission?

Mr Harris : Correct.

Senator XENOPHON: It is a great Australian institution that, I believe, has served the country very well over many years, and I have said that many times.

Mr Harris : I agree with that.

Senator XENOPHON: Are you concerned that the reputation of the report of the commission into Australia's automotive industry provided to the government on 31 March 2014 may in some way be diminished in its weight or value in terms of public policy debate, particularly in respect of the restructuring of the automotive sector, given the departure of the three OEMs, if you are not able to comment on the changes in the budget with respect to the Automotive Transformation Scheme? It is a long question but I hope you understand what I am trying to say.

Mr Harris : I do understand what you are trying to say. Can I put it in this context. Governments make many decisions around the time frames in which we do reports. If we were to accord ourselves the right to comment on all of those decisions we would put the organisation in a position where, not only the government had not sought the advice, but we would then be trying to judge what was important enough, if you like, to do that. I am not saying that this is an unimportant issue. I am simply saying that that is the context in which the commission operates. We do have quite a capacity awarded to us by governments over a long period of speaking our minds on issues referred to us. We have done so, but we do so within the constraints of the reference system, the system where the government would refer a matter to us and we would provide a report by that deadline or advise the government why we cannot do it and perhaps renegotiate a little bit around timing.

My concern in this area is primarily relating to ensuring that the quality of our report reflects the information that is available to us. We did take account, obviously, of some impacts in our draft report, which you would have read. They were not all of the impacts at the time the draft report was put out, but were some of the impacts that relate to the government support mechanisms on an ongoing basis for firms in the motor vehicle industry. To the extent that when the report is published the government has in the intervening period taken a decision, everybody who reads the report will know the time frame at which we commented and, therefore, the information on which we were basing that report. Everybody who, therefore, has a genuine interest in this issue will be able to, I think, quite readily balance in their own minds what we were able to comment on and what were not, obviously, able to comment on because we were not in possession of that information.

Senator XENOPHON: And you feel constrained forever and a day, in the absence of a directive or an instruction from the Treasurer, to make any comment about the budget cuts and how they would apply or have any implications in respect of your report that you have already sent to the government?

Mr Harris : You have set a rather high bar there with 'forever and a day' and comments like that. I prefer to say that we will work within the constraints, such as they are, of the reference system because that reference system does, nevertheless, give us very great capacity to scrutinise government policy making. It is quite an important responsibility. It is one that, around the world, not very many governments have given to an institution, certainly not on the long-term basis that the Productivity Commission has been in existence for. I think it is quite an important balance, if you like, of how we perform our task. We do want governments to continue to give us references and we exercise, therefore, our ability to comment publicly in a manner that is consistent with the arrangements of having a reference put to us. I would not want to go further than that.

Senator XENOPHON: Thank you.

CHAIR: Senator Bishop asked a few of the questions that I was going to ask around the pension age and things, and did a good job of getting some of the facts of that out. I will, instead, ask some questions about redundancy funding. I understand your agency sought to apply for redundancy funding. Is that correct?

Mr Harris : 'Sought to apply'; we certainly have received some support.

Mr Quinlivan : Yes, Senator, we received $2 million to be used against redundancies.

CHAIR: That was to address budgetary pressures, I assume? There is quite clear criteria.

Mr Quinlivan : It was to address budget issues associated, specifically, with redundancies in this financial year.

CHAIR: That was what the redundancy funding was for. What was the need for the redundancies?

Mr Quinlivan : Reducing appropriations over time and, principally for this year, preparations for appropriations in following years.

CHAIR: My understanding is that the redundancy funds are Finance provided. That was in MYEFO. Is that correct?

Mr Quinlivan : That is right.

CHAIR: They were intended to facilitate savings decisions affecting government agencies—which would include you—operations made by the previous government. It was quite specific that the money provided for redundancies was only available to assist and facilitate decisions consequent of the previous government.

Mr Quinlivan : I would have to take that precise detail on notice. I do not have the documentation here with me. There was a cumulative impact of a range of decisions made some time ago, and some made more recently. Precisely where they fell as against the previous and new government, I am not sure.

CHAIR: As I say, my understanding from reading MYEFO is that the money for redundancy funding was only available for job losses arising from Labor savings measures. To what extent did your agency meet the relevant criteria for applying for that funding? I understand it included criteria such as facing risk of operating loss, threat to core functions and/or capacity to finance up-front redundancy payouts.

Mr Quinlivan : We were certainly budgeting for an operating loss this year mainly because of the additional redundancy expense.

CHAIR: This was of the time of MYEFO?

Mr Quinlivan : That is right.

CHAIR: How many times in recent years has your agency incurred operating losses or been at risk of losses, and how many times have you taken up with Finance or ministers the question of your funding levels for your service expectations?

Mr Quinlivan : Not in recent years, I would say. I am not sure of the last time.

CHAIR: There were two aspects to that question. Which aspect were you answering?

Mr Quinlivan : I do not think the commission has reported an operating loss in recent years, therefore, has not been in this situation before.

CHAIR: You have been at risk of losses in those years?

Mr Quinlivan : I do not think so. I think the commission has been able to manage comfortably within its budget, certainly in recent years.

CHAIR: As a result, you have not taken up with Finance or ministers in the past the questions of your funding levels or your ability to meet the service expectations?

Mr Quinlivan : That may have occurred in the past, but not in recent years.

CHAIR: Do you think it is possible that you might seek further redundancy funding in future rounds, including the 2014-15 round?

Mr Quinlivan : That would be entirely a matter for government making further decisions to vary our appropriation. At present we are managing towards the appropriations that we know about, and we are confident that we will be able to manage with those, so we are not planning for any further redundancies at present. We have just a very careful approach to recruitment on an ongoing basis.

CHAIR: At the moment, including the redundancy funding which is allowing you to work through that program, you are fairly comfortable that your financial position is sound?

Mr Quinlivan : Yes.

CHAIR: Thank you. As there are no further questions for the Productivity Commission, thank you for your assistance. I now call to the table the Clean Energy Finance Corporation, Department of Treasury. I invite you to make a brief opening statement, if you would care, otherwise we will move straight into questions.

Clean Energy Finance Corporation


Mr Yates : Chair, I will point out that our Chair, Jillian Broadbent, is not here. She obviously enjoys attending and answering any questions, but she is overseas at the moment.

CHAIR: Thank you.

Senator RUSTON: In light of the fact that there was a very clear election promise that, should the coalition get into government, it was their intention to wind up the corporation, what are your obligations and duties, either as management or as board directors of the CEFC, when you are dealing with potential investors in this space between the election and, obviously, the potential and possible imminent abolition?

Senator XENOPHON: There is a little thing called the Senate.

CHAIR: Please ignore the interjections. Senator Ruston has the call.

Senator RUSTON: I will take senator's interjection, because I am not sure that he actually understood what I just asked.

Senator XENOPHON: I understood.

Senator RUSTON: I will ask you, Mr Yates, whether you understood what I asked?

Mr Yates : Let me summarise legally. We are an institution which is obviously created through an act of parliament. That act requires us to follow statutory obligations that are imposed on me, a statutory officer, and on our board pursuant to the act. Until such time as the act is revoked we must continue to comply with those statutory obligations.

Senator RUSTON: In terms of your current dealings with potential investors as you continue on with your obligations and operations under the act, how are you advising, or what are you doing, to ensure that potential investors are aware of risks should the agency be wound up?

Mr Yates : We have regular communication with all our stakeholders and with our clients. Effectively we treat borrowers as clients, and we make sure that they are fully aware of the risks involved in dealing with the CEFC. They understand that we are subject to legislative change which could occur should the Senate vote to abolish the CEFC. I do not believe that any of our borrowers would be shocked or surprised if an act were to pass. They are fully aware that that is a risk in dealing with the CEFC at the moment under the current legislative framework in which we operate.

Senator RUSTON: What are you actually telling them?

Mr Yates : We are telling them: that it is the government's intention to abolish the CEFC; that abolition will require the approval of both houses of parliament; should both houses of parliament vote to approve the abolition, then we will be abolished; that the government have made it clear that they intend to work together with us to try to minimise market disruption should that occur; and that we will work together with our clients to minimise complications or issues that could arise as a result of our abolition.

Senator Cormann: I think that Mr Ray might be able to add what happens after the abolition, if it is approved by parliament, in terms of the loan book and the like.

Mr Ray : Should the parliament pass the abolition bill then the assets and liabilities of the Clean Energy Finance Corporation will pass to the Treasury within 28 days of royal assent. We would then look to manage those assets and liabilities.

Senator RUSTON: What you are telling me is that you have made it very clear to any new investors the potential risks that are associated with this current time if they are investing.

Mr Yates : We are working productively with Treasury to ensure that, if that does happen—and it is a reality that it may happen—we are intending to minimise disruption as much as possible. It is a working and very sensible relationship. Everyone is being very sensible about how they are approaching this at the moment. It is complicated for everybody.

Senator RUSTON: In terms of your borrowing costs, much has been said about the CEFC supposedly making money. In terms of the marketplace for borrowing, do you get regular or periodic updates about what the cost of public debt is to the Commonwealth? I am just wondering because, obviously, your funds come from the debt of the Commonwealth.

Senator Cormann: I do not think that that aspect of it is actually a matter for the CEFC, to be fair to the Clean Energy Finance Corporation. Obviously they assess the operation's stand-alone. The question around, essentially, the interest that is paid on the borrowings to fund their activities is probably more a matter for Treasury. There has been some commentary in the media at various times about how profitable the CEFC was and how it was making the government money. But the general point that I will make, though, is that—and this is not a critical reflection on anyone—it is just a reality that the Clean Energy Finance Corporation has been writing loans for less than 12 months. It would be quite a heroic forecaster that would want to make judgements on commercial success or otherwise on the basis of less than 12 months of activity in the market. But, again, that is not a reflection on anyone's individual performance. It is just a reality given how early in the implementation we are. I might just ask Mr Ray to comment specifically about the relationship between public debt interest vis-a-vis the money that is invested and the returns that might be able to be achieved through the CEFC.

Senator RUSTON: I was seeking to understand the rationale behind the statement. If Mr Ray can shed some light on that, that would be great.

Mr Ray : Actually, Mr Yates could as well. The Australian Office of Financial Management issues Commonwealth government securities and provides the CEFC with a regular report on its benchmark rate, which is set out in the investment mandate. The benchmark rate is on the five-year tenor of securities and then the CEFC reports against that benchmark.

Mr Yates : Maybe I can assist. We have Bloomberg monitors available, so we can see the cost of government issuing its debt in the market and have a good idea of the cost of borrowing. That being said, currently a five-year rate is probably 3½ per cent. What we do know is that the loans we are writing significantly exceed that rate, so, whilst the government's funding us and having to borrow to fund us at a rate of approximately 3½—

Senator Cormann: Not happy to borrow.

Mr Yates : Not happy to borrow, I appreciate that—we are actually lending out to the market at a rate of around seven. It is almost twice the government's borrowing rate. That is the reason why, under any measure, it is pretty clear to see that the assets we are putting on our portfolio will be profitable to the taxpayer.

Senator RUSTON: So basically you are a bank.

Mr Yates : To be honest, we are a bank, yes.

Senator Cormann: And government run banks have a really good track record across Australia, particularly in South Australia, Senator Wong.

Senator RUSTON: Regarding the types of projects that you have focused on and the portfolio of projects that you have approved to date, can you give me some sort of description? I am looking at the breakdown of the different types of projects that you have invested in. Wind is by far the predominant player in your portfolio. Would you explain to me how you go about making those decisions. I should start by asking: am I correct in assuming that you are supposed to be investing in projects that would not otherwise get investment?

Mr Yates : Let's pick up a few parts there. Wind is probably around 26 per cent of our portfolio at most. Most of our activity happens to be in energy efficiency. Under the act, 50 per cent of it needs to be in renewable energy, so we are restricted in that, but a lot of our activity happens to be in energy efficiency areas and productivity areas. So that means over half of our activity really stems from continuing the work that has been done in this sector through organisations like Low Carbon Australia, for example. We have been building up aggregation vehicles. We are working with smaller manufacturers. Of the transactions we are doing, I am thinking about Nightingale apples and refrigeration for apple farms. We have been doing biogas facilities in meatworks. Our mandate is, in essence, to ensure that the private sector, be it big or small, can access capital to become more productive. By becoming more productive, they reduce their energy consumption and, by reducing their energy consumption, they reduce their carbon emissions. So our activities are very broad. It is all over Australia and it is very broad from large to small companies and it is also all the way through to councils. We have invested with five to six councils, I think, and in nearly all our transactions we also have a corresponding proportion of debt coming from the private sector. The private sector tends to match off on what we have done.

Senator RUSTON: Returning to the proportion of wind in your portfolio, I was reading a fact sheet from your website about your refinancing of the Macarthur Wind Farm sometime ago. I am interested in the fact that you were refinancing as opposed to financing up-front. I am a bit confused as to how that fits in with my understanding of what your role is.

Mr Yates : That was the very early transaction. When you start in a market, in the organisation it tends to be very useful to get to know the people that you are working with. So we participated jointly with the banks in a $50 million piece of debt out of $500 million because at that stage we were new and at that stage many of our banking partners were unfamiliar with who the CEFC was. In addition, that transaction was having difficulty raising enough debt to go through a refinancing. It was a very large refinancing transaction, being $500 million. An additional $50 million worth of debt was a small contribution that enabled the transaction to get closed.

Senator RUSTON: How many of the current investments that are on your books had already been built or were already under construction or at least had development approval before you invested in them?

Mr Yates : A lot of transactions obviously have development approval because development approval can take a long period of time.

Senator RUSTON: Okay, tick that one.

Mr Yates : In fact, there are very few transactions that are actually refinancings. Most of them are new transactions which will be going into construction. In fact, a lot of them are in the process of just starting construction now because, whilst you may agree to a financing, you still have to go through an enormous amount of work before they actually begin turning dirt and going into construction.

Senator RUSTON: Back to the original question, how many—even if is just a percentage or a rough idea—had either been built or were already under construction—not the NBN under construction definition but really under construction?

Mr Yates : I can take the question formally on notice but I would suggest, for your benefit, that it was probably less than 10 per cent by transaction number.

Senator RUSTON: What is the value of wind investment? This is already a commercialised technology. How much of your budget has been invested in this as opposed to invested into experimental technologies?

Mr Yates : That is an interesting question. We are not in the business of necessarily lending against experimental technologies. We have an obligation to ensure that our transactions deliver back for the taxpayer their return and their principal. Carnegie is a good example of a transaction which is at the earlier stage, which is wave technology. Wind technology is obviously more mature but even that is also going through some transition because there are some very large turbines coming through. The Taralga wind farm was the first application of a much larger bladed turbine. In different sectors there are different technologies that are coming through but we do not necessarily look at which is the newest technology. We are looking at the reason why the transaction is not being financed and can we, as a participant, encourage the other banks to join us to see that transaction get financed and get concluded.

Senator RUSTON: I get that but I still would be interested to know how much has been invested into wind technology? How much has been invested in any other technologies that you would consider have been largely proven as opposed to investing in technologies other than wind?

Mr Yates : I am happy to take that on notice.

Senator RUSTON: Where are you heading with the new investors that you are speaking to at the moment? Is wind still a priority for the reasons you have just stated? Are you focusing more on solar these days? What is your focus?

Mr Yates : We are looking for opportunities that are not being financed for where we can get a positive return for the taxpayer and that return will generate an emissions saving as a by-product. So the private sector is making the decision as to what is the leading technology. We ensure that the private sector can move faster and that we can encourage transactions which increase productivity across the economy and drive down emissions. We are not leading the charge; we are a support act.

We are seeing transactions from potential sugar mills up in Ingham through to waste-to-energy projects out in Port Hedland. These are quite large transactions where people are saying: can you assist us to cornerstone them to move them forward? Is the CEFC able to help us get a project moving and attract other finance, provide us with financial models, help us deal with the covenants, go talk to equity together like a banking partner and see whether we can get this transaction done? We bring commercial expertise to the borrower and help the borrower bring that transaction into reality faster than them trying to do it themselves.

Senator RUSTON: On the back of that, given that you are a follower not a leader, what are the trends that you are seeing at the moment in the technologies that are coming across your desk?

Mr Yates : Solar is proving to be very competitive; solar thermal and power towers are becoming more competitive. A lot is going on the waste-to-energy side and that is not only from normal waste as you would imagine it, but the whole agricultural sector is turning what were waste products, whether it be manure or silage, into biogas. Right across Australia people are turning waste into energy. That is an area of great activity. The other area we are seeing is people trying desperately to create energy savings from their manufacturing facilities and the buildings that they own and upgrade those facilities. We have some large arrangements set up with the likes of ANZ and the CBA to enable smaller manufacturers and building owners to obtain finance so they can undertake energy efficiency upgrades. We are doing that with the commercial sector and with the councils.

Senator RUSTON: Are you saying that there has been a move away from wind towards solar? Is it starting to prove as a technology? And is waste recycling another?

Mr Yates : Wind remains probably the most efficient form of renewable energy in the market today. At the moment, the market is quite slow because people are concerned about regulatory change in relation to the RET target.

Senator RUSTON: Coming back to the comments you and the minister made on the capacity for your organisation to be able to assess the outcomes that are being delivered, you made it very clear that, as a bank, you are looking for a financial outcome, so your return on investment is how you value these. What assumptions do you make on the risk of a project failing? How is your ability to deliver then translated in your projections into the long term? We have heard a lot about the making money bit, and I just wondered how you factor in the risks and the potential of default?

Senator WONG: Do we have a copy of any of the investment mandate provisions that might be relevant to this answer?

CHAIR: The officers at the table have got the question and they can choose to answer it as they choose.

Mr Yates : It is a good point but our investment mandate requires us to apply sensible commercial principles and manage risks prudently throughout that portfolio. So the way we operate is very similar to any other commercial bank. We assess the risks, we look at all the risks around the transaction and determine whether the margin we are receiving from exposing our money to risk is relevant and appropriate for the risk that we are undertaking.

Senator RUSTON: Do you agree with the minister's comments earlier that—

Senator Cormann: That is asking him for an opinion.

Senator RUSTON: Okay, I will not ask you. Do you believe, given the new nature of your organisation, that you are in a position to give really good, clear projections about your future returns?

Mr Yates : Yes I do believe we are. I would like to correct a previous answer. The facility with the ANZ was actually with the NAB, not with the ANZ.

Senator MARK BISHOP: At last estimates, the chair of the CEFC gave evidence that around $2.4 billion had been invested through the CEFC including $590 million directly from your budget. Can we have an update of the current investment figures?

Mr Yates : I think approximately $700 million is where we are at the moment. That is combined with about $1.8 billion of third-party debt and equity taking us to a total of about $2.5 billion that has been invested by ourselves and other participants in transactions. So in terms of mobile of mobilising activity, $2.5-billion worth of activity has been mobilised.

Senator MARK BISHOP: And that includes how much directly from your own?

Mr Yates : Approximately $700 million.

Senator MARK BISHOP: So that has gone from $590 million up to $700 million and $2.4 billion has gone up to $2.5 billion? Who else has invested along with the CEFC or with CEFC backing?

Mr Yates : We have provided an answer to that question because we received it last time. It was a question on notice. We provided a list of the types of financial institutions.

Senator MARK BISHOP: Okay, we have that. It has not been made available. You might take on notice if there are additions or deletions. If you could update that and provide that to us on notice. At the last hearing, you said you were funding 35 projects. How many now are being funded through the CEFC?

Mr Yates : I think we may have indicated that there were 35 proponents who we are working within our pipeline. We have a pipeline of projects. There is $11-billion worth of projects in the pipeline which would be seeking about $4 billion from the CEFC and that is involving about 35 different proponents. That has not changed because obviously when people come to us and propose a transaction, not all of them push forward and get done. They might not be acceptable to us and there could be a long lead time.

Senator MARK BISHOP: What is the rough figure of the number of projects?

Mr Yates : It is about the same.

Senator MARK BISHOP: We had a discussion with the chair about the expected return on your direct investment. Would it be a little bit more than seven per cent as you have stated in the past?

Mr Yates : To be honest, it is difficult to forecast what it is going to be. It depends upon the mix of our portfolio. We try and have a diversified portfolio so we do not have concentrated risks. If we are lending to the local council, we will be lending at a lower rate; if we are lending to the private sector, we might be lending at a higher rate and it will depend upon our mix of transactions. So I really cannot forecast exactly what our return is going to be. We have to look at each transaction independently and judge what is appropriate.

Senator MARK BISHOP: What is your financial year, 30 June?

Mr Yates : Yes.

Senator MARK BISHOP: Do you do a calculation then?

Mr Yates : Yes, we provide full statutory accounts.

Senator MARK BISHOP: So will that figure be available shortly after 30 June?

Mr Yates : Well, actually, we produce those numbers quarterly on our website.

Senator Cormann: But there will be an annual report as well.

Senator MARK BISHOP: I am just trying to find out if it is going to be above or below the seven and when that figure will become public.

Mr Yates : As a ball park figure, it will be around seven.

Senator MARK BISHOP: At the last estimates hearing, you provided evidence that the organisation was cash on cash positive. Firstly, if you just put on record what cash on cash actually means. Secondly, how much has the CEFC returned to the budget after having broken even so quickly?

Mr Yates : Cash on cash is an example of trying to summarise what is quite complicated with understanding fiscal balance, UCB and so on. All I was trying to do was say that if we include the government's funding cost, assuming it is around 3½ per cent, and we are receiving a return from our borrowers and we are making an allowance to cover our operating costs and also an allowance to provide for what could be a credit issue—in other words, we build up a provision—then are we covering all of those costs? That is a kind of a cash on cash return, simple.

Senator Cormann: The point I would make again, which is a general point, not a reflection on the individuals concerned in the CEFC, you cannot make a conclusive judgement on the success or failure of any business after it has been in operation for less than 12 months. In particular, in this field, in order to conclusively judge success or failure you want to be able to observe activity and outcomes over a period of time. If we are successful in pursuing our policy agenda, then obviously that will not be the case in this particular circumstance.

Mr Yates : I think it is a good point. I think Minister Cormann is absolutely right: it is a very short we have been in operation. When we were established, our act was passed with a provision in it which does require us to come back to the Senate and to the parliament with a full public review in July 2016. I think there was a three-year period of establishment and then there was to be a review of how the CEFC has performed. That is what is in our act and that is the way that it works.

Senator MARK BISHOP: And I do not seriously quarrel with the proposition just advanced by the minister that, in three months or six months or nine months, you can make a black-and-white assessment as to whether the organisation is successful or not. It takes time, it has to build credibility and it has to get the job done, and that is probably why the powers that be put in the review provision for 2016—to make a clinical assessment as to whether you are doing the job or not.

Mr Yates : That is correct.

Senator MARK BISHOP: I accept that. In answer to Senator Ruston, Mr Ray told us that, if the government's policy objective should be achieved and you are abolished, assets and liabilities will transfer over to Treasury for administration.

Senator Cormann: And we would not incur any further borrowings to underwrite further operations, obviously.

Senator MARK BISHOP: No, you are not transferring the CEFC to the Treasury.

Senator Cormann: That is right. Essentially, Treasury would be responsible to deal with the book at the time.

Senator MARK BISHOP: Mr Ray, would you outline in a general sense what plans you have put in place to receive the assets and liabilities in that eventuality and what measures you are establishing to protect the Commonwealth's interests in that area.

Mr Ray : At the moment, we would not put measures in place because we would not want to pre-empt parliament. We are in what I would call a planning stage. As Mr Yates said, we are working cooperatively with the CEFC, both the chair and the chief executive officer. We have engaged our internal auditors, KPMG, to provide us with some advice on how to prepare for the transfer, should that happen. We have also taken some legal advice over some elements of it. And we have an established team inside the department. On top of that, we have formed a high-level advisory committee, drawing on some expertise across the Public Service, basically to provide me with advice around how to manage the transition.

Senator MARK BISHOP: Who is in charge of the Treasury team doing the job?

Mr Ray : Mr McDonald is the relevant general manager.

Senator MARK BISHOP: So, Mr McDonald, you are doing the planning exercise and you are engaging within the liaison and consultation in a planning sense?

Mr McDonald : That is correct.

Senator MARK BISHOP: I do not know who this question is for. Does the act that abolishes the CEFC—

Senator Cormann: The bill.

Senator MARK BISHOP: Yes, bill, sorry. Does the bill contain detail of guidance as to how Treasury is to protect the assets or is that—

Senator Cormann: It deals with transitional arrangements. Maybe Mr Ray can go through it.

Mr Ray : The short answer is no.

Senator MARK BISHOP: So it does not deal with transitional arrangements?

Senator Cormann: It does deal with transitional arrangements.

Mr Ray : It deals with transitional arrangements and gives us 28 days to put those in place. It does not give us guidance, as you put it, on what to do with the assets and liabilities once we have them.

Senator MARK BISHOP: If the bill goes through and is proclaimed, you have 28 days to do the job and your team then goes to implementation stage.

Mr Ray : That is right.

Senator MARK BISHOP: Then, what mechanism will there be going forward for reporting on the financial outcomes of the holdings that have been transferred over?

Mr Ray : The assets and liabilities will be part of the Treasury's accounts.

Senator MARK BISHOP: Do you propose to identify them separately in the accounts—under a heading: 'Former CEFC assets and liabilities'?

Mr Ray : I would need to take that on notice and consult our CFO, but the general point is that we would apply the accounting standards.

Senator MARK BISHOP: Of course you would apply the accounting standards; it never occurred to me otherwise. Could you take on notice, Mr Ray, how you propose to identify those assets and liabilities, where they will be housed, what the returns are and where persons like me, or anyone for that matter, will be able to go in either the PBS, or the annual accounts of Treasury, or the budget statements to find the information, more than just that we hold $2.8 million in assets?

Mr Ray : Sure. This is not the first time this has happened. We had in our accounts things to do with HIH Insurance.

Senator MARK BISHOP: Also, wasn't there an investment bank in the time of the Keating government that was sold off or abolished or something?

Mr Ray : There were a number of state banks.

Senator MARK BISHOP: Anyway, there is precedent for this. What I want to know is how we can go to chase it down. Mr Yates, back to you. Given the uncertain future of the organisation and the fact that you are in the banking business and risk, or pricing and risk, are your business, have you been able to identify any increase in your costs in the last few months arising out of, perhaps, getting closer to the final time of uncertainty?

Mr Yates : No. The only thing we have needed to do is ensure that there was a staff retention arrangement to ensure that we always had the ability to manage these assets until such time as parliament made up its mind. We have a very dedicated and full staffing team, who are continuing to operate effectively to discharge our mandate, and I remain very confident that they will stay the course throughout the volatility.

Senator MARK BISHOP: I suspect a few of those officers have probably developed a bit of expertise of this area in the last couple of years, too.

Mr Yates : They may have.

Senator MARK BISHOP: They might be attractive to other institutions. We will not go there. Is the government's current review of RET having any impact on investment in renewable energy projects?

Mr Yates : We have made a submission to the RET review committee, which sets out some comments from the CEFC. I am happy to table that if you like.

Senator MARK BISHOP: If you do not mind, yes.

Mr Yates : That would be fine. That covers that matter.

Senator MARK BISHOP: Were you moved to put in writing any observable impact?

Mr Yates : To be honest, I think, as participants are uncertain as to what a large portion of their income is going to be post the RET review, many people are delaying investment until such time as that is finished.

Senator MARK BISHOP: Until the uncertainty becomes known.

Mr Yates : Yes.

Senator MARK BISHOP: I would have been surprised if you had said otherwise. Thank you.

Senator MILNE: I will follow up on the last question that Senator Bishop had. Have you done any modelling on the assets of the CEFC or on loans that would have to be written off if the RET price crashed as a result, if the government changed the renewable energy target?

Mr Yates : We are not able to forecast the impact or the government policy in relation to RET. That will have to wait. It is a matter of speculation as to the likely impact. However, we do risk assess our transactions, and we are comfortable at this stage that the transactions, from our perspective as a lender, will perform. Equity investors may find it a different story.

Senator MILNE: Is it fair to say that, if the renewable energy target is significantly changed, then there is a risk that some of the assets will have to be written off?

Senator Cormann: There is a hypothetical issue there, I think, Chair, I would have thought.

CHAIR: I think Mr Yates actually addressed the fact of the hypothetical nature of these answers.

Senator Cormann: I think that Mr Yates was actually being extremely helpful.

CHAIR: Absolutely, I agree.

Senator MILNE: I want to go back to where we started with this. I thank you for providing us with a state-by-state breakdown following the last estimates. It was very helpful, and I acknowledge that you have just indicated that you will do that again. Can we make sure that that is both for pipeline and existing portfolios? I was not sure whether that was exactly what you had asked for.

Mr Yates : It is. We actually we have it for both the pipeline and the portfolio now.

Senator MILNE: Thank you; I just wanted to make sure we have that. One of the criticisms that you often hear made of the CEFC—and we have had a bit of it here today—is that you only fund technologies that are already proven, and the inference there is that you crowd out existing lending institutions. I wonder if you could outline to the committee some of the technologies or projects that you have financed, which were essentially the first of their kind in Australia?

Mr Yates : I will do that in one second, but, if I may, I can answer your question in relation to our portfolio in terms of the break-up of technology, and it actually helps answers that question. It is 26 per cent, wind; 14 per cent, cogen; 11 per cent, solar PV; 11 per cent, distributed generation; 11 per cent, air conditioning; eight per cent, lighting; six per cent, solar thermal; four per cent, bioenergy; three per cent, industrial processes; three per cent, refrigeration; three per cent, the ocean wave sector. It is quite a diverse portfolio.

In terms of areas that are new, I think, Senator, you would be aware of some of the transactions. There is Sundrop Farms, which is really quite a world-leading example in sustainable agriculture, and the company will be using solar thermal energy to desalinate water and produce energy to provide all the water, heating and cooling for a 22-hectare greenhouse to be built in South Australia. That transaction, once concluded, will be followed on, I believe, by a very large version of approximately 10 times what is now in the Middle East. That is expected to be next.

The Carnegie Wave is quite unique, and Australia is undertaking some great work in the wave technology sector. In relation to biogas, which is in the agricultural sector, we are seeing major changes there with farms right across the nation using their waste products for the purposes of producing methane from waste products and using that to generate electricity. I have seen it even at the council levels. I was at Tumut Shire Council where they have completely reduced their own council heating and cooling costs by using geothermal heating and cooling in the town of Tumut. It is incredibly efficient and incredibly cheat. Right across Australia you are seeing people adopt modern technology, improve productivity, make a return for themselves, and we are making a return for the taxpayer helping them.

Senator MILNE: Apart from the return to the taxpayer, can you give me an update on what you calculate to be the dollar cost of emission reduction from the work that you are doing?

Mr Yates : As we are often generally lending and receiving a return above the government's costs of funds, then the emissions reductions that are being achieved are at a negative cost. Our estimate at the moment is approximately negative $2.40 a tonne, which is the cost of the emissions that we are saving through our activities.

Senator MILNE: Negative $2.40 a tonne. What is your estimate of the reduction in greenhouse gas emissions, and how do you express that, over what period, for the projects you have already funded as opposed to what might be in the pipeline?

Mr Yates : When constructed, I think the projects at the moment are approximately four million tonnes, which is where we are at the moment. We have looked forward and said that, if we continue investing in the same types of transactions going forward until such time as we have invested $5 billion rather than the $800 million, and those projects get built,—and they are similar to these—then it is probably realistic that we may be able to achieve 20 to 25 per cent of the five per cent reduction that the government has actually targeted for the purposes of reducing emissions.

Senator MILNE: And doing that at a negative cost?

Mr Yates : Yes, doing that at a negative cost.

Senator MILNE: In terms of the cheapest abatement, we cannot go much further than that. There is no other way that I can see that is cheaper than that. I want to go now to the issue of the pipeline. I know you are going to provide us with the overall, but can you tell us how many projects are in your pipeline and the value of those projects? I think at the last estimates it was around $10.8 billion. What is it currently?

Mr Yates : There are approximately 150 projects, which is what we indicated in March. Some will come in and some will go out. Those projects are seeking finance of about $4 billion, but they involved $11 billion worth of transactions. We co-finance transactions. We typically do not lend by ourselves. We try and attract another lender to sit alongside us, because that is how we encourage the banks and other participants to come into the market. We are expecting there to be about $11 billion of transactions for potentially maybe seeking $4 billion from the CEFC.

Senator MILNE: Are you able to expand for me on the nature of the two projects in the pipeline for Tasmania? I understand that they are valued at something like $295 million.

Mr Yates : I actually do not have the details of those with me, but I will take that question on notice.

Senator MILNE: And the timeframes around those too. I would be interested in the details.

Mr Yates : Yes.

Senator MILNE: Just back to this question about the level of risk that the CEFC takes on in terms of its projects, notwithstanding that it is judged by not only the financial return but also by the greenhouse gas emissions and contribution to climate action. Is it true and are you finding that the uncertainty created by the government's policy framework means that you are being approached to fund projects that in other circumstances, if there was more certainty, they might be able to access funding elsewhere more readily.

Mr Yates : I think in any area of the economy, when there is policy uncertainty, all areas withdraw. It is clear that there is a greater nervousness amongst both equity and debt participants at the moment in this sector, like there would be in any other sector if it was subject to a major policy review.

Senator MILNE: Given that level of uncertainty, can you tell me this: since you have started, are the commercial banks more likely to invest now in clean technology deployment than they were or is still regarded in the traditional finance institutions as too much of a risky area and, if the CEFC was not there, they would not be investing? On that brokering role, how significant is it or have we overcome the uncertainty by the performance that you have been able to demonstrate to date?

Mr Yates : The brokering role is still critical. We are in a process of transition. We do not have the major banks with departments that specialise in the areas that we lend to. If the market was to grow a bit more, than our role would be less. But commercial institutions generally require there to be proven examples of something working before they will participate themselves.

We still have a fundamental role of encouraging them to participate alongside us. We have done the analysis and we have spent the time trying to explain, working with them as to why the risk proposition is appropriate at this time. Our role will remain important for a period of time while we go through the transition and as adopting energy efficiency projects and adopting more renewable energy become more widespread.

Senator MILNE: Just on that, in the event that you are not in the space, obviously the commercial lending institutions are still there. The government will have an emissions reduction fund, which it says that it will be able to be bidded into for energy efficiency projects, for example. I take it from what you are saying that even if there is government money to be had, without a brokering agency it is unlikely that you will get the commercial sector partnering into that.

Mr Yates : No, I think that the commercial banks will continue to participate, but there are areas which are considerably more challenging. That is particularly for smaller borrowers and aggregating together smaller transactions. For any of the very new technologies, it will just make the process more difficult and slow the whole process down. The commercial banks are sensible organisations, but—as you know—most of their lending is into commercial real estate and home loans. This is an area that is not an area of significant focus at the moment.

Senator MARK BISHOP: Following Senator Milne's questioning, earlier you said that a large amount of your business was in financing for waste conversion to energy and then energy efficiency in factories and the like. Following from the discussion with Senator Milne, you clearly now have a significant portfolio of assets that are returning income. They are priced and they have value. You have a pipeline of work that is up to $10 or $11 billion, some of which may come to pass. Your portfolio is increasing in numbers and in value. The return appears to be relatively guaranteed.

Is their any value in your organisation, if it is to be abolished, being disposed of via trade sale to one of the major banks? That is so that the work that your organisation does in this niche area, for want of a better description, is continued. Or are you simply too small for that option?

Senator Cormann: I think this goes into the policy decisions. To the extent that Mr Ray can assist you, I will ask Mr Ray to assist you.

Mr Ray : I was just going to say that I think that is a policy question. Should the parliament pass the bill, then it would be open to the government to then think about what it might do with the assets.

Senator MARK BISHOP: If the bill should pass both houses, the government would have the option to engage in a trade sale of the CEFC?

Mr Ray : It would then be an asset. It would be a matter for future consideration for the government, with what it might want to do with that asset.

Senator Cormann: It is obviously not something that we would want to keep on our books forever and a day. There would be an orderly transition.

Senator MARK BISHOP: I also assume that if it is worth $2.5, $3.5 or $4.5 billion, you are interested in maximising the gain or the return.

Senator Cormann: Whatever the situation that we find, if or when the parliament supports the legislation we have put forward, obviously we would manage any transition into the new circumstance with a view of maximising value for taxpayers, as you would expect us to do. We would do that in an orderly and methodical fashion.

Another point that you might make, given some of the questions both from Senator Milne and from yourself is that—if the market perceives that the model that has been in place since 1 July 2013 has value—I suspect there will be private sector initiatives to go down this path and to, dare I say, fill the gap. In our judgement, the gap is not appropriately filled by the government. It is more appropriately filled by the private sector in the first place.

Given what has been done since 1 July 2013, I suspect that relevant organisations in the private sector would probably review whether there is opportunity there for them. I suspect there might well be a market response along those lines.

Senator MARK BISHOP: I take those points.

Mr Ray : The government has said that it is not just about the value to the taxpayer. The management of the portfolio will be able the value to the taxpayer and also minimal disruption to the market. There are two elements.

Senator MARK BISHOP: I understand those points. Mr Yates, you come out of the banking or financing industry. You are working in it now and you have held quite senior positions over the years. Is there value in the organisation as a whole in a niche market to be sold, on your experience as a merchant banker over the years?

Senator Cormann: I am not sure that that is a fair question to—

Senator MARK BISHOP: I am not asking what the government is going to do; I am asking—

Senator Cormann: I know, but it is a value question you are asking.

Senator MARK BISHOP: I will be even more specific: is there—

CHAIR: Senator Bishop, I am not sure that you actually have the call.

Senator MARK BISHOP: I know—I have interrupted, sorry.

Senator MILNE: I am happy for you to finish that line of questioning.

CHAIR: Finish that question and then we will go back to Senator Milne.

Senator MARK BISHOP: Thanks, Senator Milne.

Senator Cormann: He is not going to be able to assist you with an opinion on the value of the organisation.

Senator MARK BISHOP: I was not going to ask him for an opinion on the value; that is when you put the money on the table. I am asking: in his experience as a merchant banker, is there sufficient value in the organisation as a whole that might warrant purchase by a commercial organisation?

Senator Cormann: You are asking him to make a value judgement and, essentially, to express an opinion, which, as you know, goes beyond standing orders for these sorts of occasions.

Senator MILNE: It is somewhat of a delicious irony that an organisation which the government says is valueless and has done nothing would be worth billions.

CHAIR: Senator Milne, do you have a question?

Senator MILNE: Anyway, I will come back to the line of questioning. One of the issues which selling off the CEFC fails to address is the fact that, as it is currently set up, the CEFC is meant to pay dividends to the Renewable Energy Agency. Then the profitability, if there are profits, of commercialising technology in bringing down emissions, goes back into early-stage research and pilot plans. In the event that the CEFC is not abolished but ARENA were to be abolished, what is going to happen to the dividends? Have you looked at that issue?

Senator Cormann: Before Mr Yates answers that question, I have to pick you up on the opening to your question. The government have never suggested that there was no value for investment in renewable energies in the way that is being pursued by the CEFC; we just do not think it is a responsibility of government to own and, effectively, run an organisation like this and we do not think that government in the current fiscal environment should be borrowing money to have a government owned organisation pursue this work. There clearly is value in this sort of work, but we think that, to the extent that there is commercial value, there will be a private sector level of involvement that is much more appropriate than for the government to deploy limited resources and incur debt in order to pursue this sort of activity, particularly when the track record is that governments historically, over the medium to long term, do not run these sorts of organisations very well. That is the reason for our judgement. It is not that we dismiss the value of the activity; it is that we have a different judgement on where the activity most appropriately occurs and who should be undertaking this business.

Senator WONG: With respect, Minister, that was a much more measured comment than—

CHAIR: Senator Wong, order! You do not have the call.

Senator WONG: I can understand why you do not want to—

CHAIR: You do not have the call. You are no longer sitting as minister at the table and able to make comments, as you were.

Senator WONG: Oh, really? We are talking about that again, are we?


Senator WONG: They were much more measured than some previous comments, and completely inconsistent.

CHAIR: Order! We can adjourn now, if you like.

Senator Cormann: My comments are very consistent—

CHAIR: I believe Senator Milne still has questions.

Senator WONG: At some point I would like the call, Chair, and I indicated that probably 40 minutes ago.

CHAIR: We still have another 12 minutes on this.

Senator Cormann: My comments on this have been consistent over a very long time, Senator Wong.

Senator WONG: I think we might need this organisation to stay beyond the break, Chair.

CHAIR: Senator Milne, how much longer do you need?

Senator MILNE: It is my final question.

Mr Yates : Senator, it will ultimately be a policy question, which we cannot answer, as to where the dividends will go.

Senator MILNE: Senator Cormann said that this is not something that government should run. Isn't it a fact that you are an independent statutory authority, which means you do have the powers—

Senator Cormann: Owned and funded by government.

Senator WONG: Just let her finish, Mathias.

Senator MILNE: and skills that the government does not?

Mr Yates : We have a completely commercial and independent board set up with, as you know, senior and experienced members of the private sector. Our act specifically prevents members of the Public Service being on our board and we are unable to be influenced by any other decision makers in the discharge of our duty. As a previous member of a bank versus being a member of the CEFC, our investment decisions are quite similar. The only difference is that we have a slightly different view in that not only are we trying to make a positive return; we are trying to make a positive return with a positive public policy outcome. So we are looking for additional externalities other than just dividends. Otherwise it is a very similar decision-making process.

Senator MILNE: Exactly. Thank you.

Senator WONG: I apologise—I had to pop out very briefly, so you might have covered a couple of things. I want to go over the legal framework and then I want to talk about the PBS. There are a number of acts, but there are two specific acts which are relevant to your obligations. One would be the act establishing your organisation—the Clean Energy Finance Corporation Act—and then there is the investment mandate direction. In addition, you are obviously a body under the CAC Act, which sets out a range of obligations—correct?

Mr Yates : Correct.

Senator WONG: I think in previous estimates you have outlined, and as Ms Broadbent had also outlined this, that you continue regardless of the political debate and the policy argument, or even in fact the policy of the government. That is, you have obligations which derive from that legislative framework which, on the basis of advice you have been given and your understandings of your obligations, essentially outweigh policy or are determinative, as opposed to government policy. I wonder if you could clarify that for me again.

Mr Yates : That is correct. Under our act we are empowered to undertake certain activities, and those activities we must faithfully and appropriately discharge. They are the obligation to assess and make investments in accordance with the investment mandate which was issued by the minister, amongst another whole normal scenario. So yes, we must continue doing business.

Senator WONG: Just remind me about the administered appropriation. Is that the appropriate term for the funds that you have been managing? Was that set out in the legislation initially?

Mr Powell : There are two aspects to the funding that CEFC receives. The administered funding is the piece that we received from Treasury in the very start-up phase. That was originally intended to run for a number of years, to the tune of $18 million a year. That was actually cut this year, so we received only $8 million this year, nothing going further forward. The second aspect of the funding is the $10 billion—that is, $2 billion per annum—that is actually in the CEFC Act. That hits into a special account administered by Treasury.

Senator WONG: And then there is a third, is there not, which is what you might describe as your—

Mr Powell : Own source income?

Senator WONG: The equivalent of department appropriation—your operating expenses.

Mr Powell : In terms of operating expenses, we did receive in the very first year of operation $18 million, administered by Treasury. That was funding we received from Treasury. In the 2013-14 year we received $8 million—

Mr Ray : It was from the government, rather than from the Treasury.

Mr Powell : Sorry, I stand corrected. We received $8 million in the current 2013-14 year towards our operating costs. The reality, though, is our operating costs are being covered by what we call 'own source income'. This is the interest and fees that we are generating from running the business.

Senator WONG: Can I take you to page 238 of the PBS. Perhaps this is where you can explain it to me. You might also want to look at page 234. Actually, let's start at 234. Can you take me through this table? I think the $8 million you are talking about is the reference to actual available appropriation in 2013-14. Is that right?

Mr Powell : Are you looking at table 1.1?

Senator WONG: Yes.

Mr Powell : The $38 million is money the CEFC is generating, so this is fees and interest income generated from running the business.

Senator WONG: That is under 'funds from other sources'. What is the $8 million in the actual available appropriation in 2013-14?

Mr Powell : That was the money received from government as a subsidy during the start-up phase. That was appropriated to the CEFC.

Senator WONG: Can we go now to page 238 so I can understand that. Essentially, does this tell me, as per your previous evidence, that there is no ongoing funding beyond the 2013-14 budget for the ordinary annual services?

Mr Powell : That is correct.

Senator WONG: So, essentially, you have been defunded in terms of departmental funding?

Mr Powell : In terms of departmental, correct.

Senator WONG: So, whether or not the Senate passes the legislation to abolish you, the government has made a decision to defund you?

Senator Cormann: If I could just make a general point here, that is entirely consistent with the way these matters were handled when you were the government. The budget, obviously, is a reflection of the government's policy intent. You might recall that, for many years before the parliament endorsed your proposal to make changes to the private health insurance rebate, for example, you had budget numbers reflect that particular policy intent of the government.

Mr Yates : The issue is that we do not need that appropriation anymore. We are already running on our own steam. So it is not a concern to our ability to operate whether that money is—

Senator WONG: It may not be to you. I think it is probably more an issue for the Senate that, in the face of legislation that has once been rejected already by the Senate, the government has made—

Senator Cormann: But, again—

Senator WONG: You interrupt me very quickly, don't you.

Senator Cormann: There are two points here.

Senator WONG: Far quicker than you interrupt your colleagues.

CHAIR: That is not true.

Senator Cormann: I am responding to this.

Senator WONG: Am I allowed to finish my question? Between the two blokes here, maybe they would like to—

CHAIR: It sounded like a statement.

Senator Cormann: You made a statement and I am responding to that statement.

Senator WONG: I had not finished the statement, Chair; I had not finished the question.

Senator Cormann: There are two very important very important points here.

CHAIR: You had not posed a question.

Senator WONG: Because you interrupted me part way through. Do I get to finish the question or are you just going to allow him to speak ad nauseam?

Senator Cormann: There are two very important points here, Senator Wong.

Senator WONG: Just checking, Chair. What are the rules?

CHAIR: We will allow you to ask a question, but can you please try and couch the terms of your questions as questions rather than as speeches followed by—

Senator WONG: With respect, Senator Ruston took a long time to get to her questions. We were very polite and courteous in allowing her to do that, notwithstanding that they were often incorrect.

CHAIR: We have less than three minutes left on this. If you would like to ask a question, please do.

Senator Cormann: If I can just provide an answer to the previous question to make sure we have that properly settled, the important point here is that, firstly, the advice from the CEFC is that, all other things being equal, they do not need that allocation anymore. The second point—a point that is consistent under governments of either persuasion—is that, even after the Senate had twice rejected changes initiated by the previous government to the private health insurance rebate, the previous government still accounted for that saving in their budget papers as if those decisions by the Senate had never been made. That is because budget papers are a reflection of the government's policy intent, and we are doing that in the same way. This is no disrespect to the Senate at all. We are just openly and transparently presenting to the parliament what the government's policy intent is and have reflected that in the budget papers accordingly.

Senator WONG: Mr Yates or Mr Powell, was there any discussion with the CEFC prior to the decision in, I assume, the 2014-15 budget—or was it MYEFO?—to not provide any ordinary annual services appropriation over the forward estimates?

Mr Powell : It was a decision made at the time of MYEFO. Obviously, Treasury and we are in constant discussion, so it came as no surprise to us when that was a decision made. However, we indicated to them that that was not something we required anyway. We are able to generate sufficient income from our own sources to fund our obligations.

Senator WONG: Can you tell me what the line item 'Expenses not requiring appropriation' in 2.2 means?

Mr Powell : The way this table works is to look at what the total costs are in each year and decide how those costs will be funded. The figures there of $3,709,000 and $5,387,000 are actually non-cash charges going forward. They are depreciation and amortisation provisions for impairment, so those charges actually do not need to be funded.

Senator WONG: Regarding the unsourced income which we referred to earlier, has there been any discussion with government or with Treasury in relation to any parameters around that—that is, how long you can continue to use it for? Is there a quantitative limit that you have been asked to observe?

Mr Powell : The basis under which this budget has been prepared is really to look at what investments were expected to be funded as of 1 July 2014 and nothing beyond that date would be funded. So what you are seeing there is really the income being generated from an existing portfolio that runs off over time.

Senator WONG: I understand from page 238 that the budget, as you have just indicated, is prepared on the basis that all operational expenses cease effective 30 June 2014—that is 26 days away. In the event that the Senate does not change its mind prior to 30 June 2014, what is the position of your appropriation?

Mr Yates : We continue pursuant to the act. The act requires that we can lodge at any time with the minister a request for additional money to meet our investments if we need it. We have done that twice or three times. It has worked quite well. Under the existing legislation in place, we are fully funded and would continue on.

CHAIR: We will break now and return at four o'clock. We will continue with the Clean Energy Finance Corporation for a limited period and then we will do macro.

Proceedings suspended from 15:46 to 15:58

CHAIR: Mr Ray, I believe you have an answer.

Mr Ray : We had a question on notice about what would happen should the parliament passed the repeal bill. Currently, the investment balance of the CEFC is disclosed in note 18 of our financial statements. Obviously that will be updated from the 2013-14 report. Were the CEFC to be abolished, everything as we discussed would transfer to us. We anticipate that we would report what is called a restructuring note in the financial statements to set out how that is being restructured into our accounts.

Senator WONG: I have to say I cannot recall the last question before the break. I got so distracted by my engagement with the chair. I think I was asking: in the event that the parliament does not seek accede the government's bill—as it has not on a previous occasion—and no legislation is passed on 30 June, what happens in terms of your operations? I think you were answering that, Mr Yates.

Mr Yates : For us, we would continue on discharging our statutory obligations for which we are funded. The act provides an ability for us to seek additional funding when we require from Treasury.

Senator WONG: I am trying to work out when the dissonance between the funding you have got and the legislative framework becomes a problem. That is what I am trying to ascertain. Mr Ray, I am sure you can help.

Mr Ray : I will try and help. As I understand it, they can fund what we would call departmental expenses—the costs of running themselves—out of their own source income. They are already doing that so that would continue on. So then the question becomes about what you might call 'administered funding'. Under the act, there is no discretion but to provide that to them at their request, subject to the $2 billion per annum cap.

Senator WONG: If the Senate decided to not pass—

Senator Cormann: Is that a hypothetical question? If the Senate—?

Senator WONG: Are you being difficult, Mathias?

Senator Cormann: I continue to be inspired by the precedent that you set when I was sitting on that side of the table and you were sitting here.

Senator WONG: I am always interested as to how interested you are in me.

Senator Cormann: Senator Wong, we have spent way too much time together in fora like this over the last three years.

Senator WONG: I am afraid I do not think about you half as much. I am sorry to tell you that.

Senator Cormann: I am happy to admit that I think about you much more than you do about me.

CHAIR: I think Senator Wong is asking a question about stated government policy so I think it is probably a reasonable question.

Senator WONG: I am not trying to get the officers to express a view about hypotheticals per se, Minister. I am trying to understand how the legislative framework and the financial framework interact. I am not trying to be mischievous.

Senator Cormann: Let's see how we can be helpful.

Senator WONG: I will try and express how I understood Mr Ray's answer to see if I am right. You have the CEFC able to continue to operate on own source income. I will come back to how long that would subsist for. You have a legislative right subject to the $2 billion cap for, what I would describe as, administered appropriation—but they would probably call it something else—which, in the absence of legislative change, is not discretionary. Is that right?

Mr Ray : That is correct and, since the election, the CEFC has requested draw down and the Treasurer has agreed to it.

Senator WONG: And how much was that? You mentioned this previously.

Mr Powell : It was $320 million.

Senator WONG: Perhaps someone could explain: on the balance sheet page 243, your cash and equivalent financial assets are $401 million in the first line of the first column, which is then nil in 2014-15. Can you explain to me what has happened there?

Mr Ray : The assumption is that upon the CEFC being abolished on 1 July, any access cash is immediately returned to the special account that is held by Treasury, so cash held by the corporation goes to zero.

Senator WONG: But that is your estimated actual for 2013-14, correct?

Mr Ray : That is correct.

Senator WONG: So is that the best estimate at this point of how much you have currently got?

Mr Powell : The best estimate of what we will have available to the corporation at the end of 2013-14 is that first line, the $400 million.

Senator WONG: So is there any assumption in the budget bottom line about what happens to that $401 million for the 2013-14 year?

Mr Ray : I would need to take this on notice. The short answer would be that the cash would then be managed as part of the government's general cash. At the moment, it is sitting in, effectively, a special appropriation that would cease were the bill to pass. Any cash that was sitting there would effectively be swept back into the government's cash holdings and would be managed by the AOFM. If you would like me to take it on notice, as to how that flows into the balance sheet, I am happy to.

Senator WONG: That would be useful. Thank you. I think I wanted to come back to how long this somewhat odd state of affairs could subsist. In terms of your best assessment of your current position, is there any limit financially or legally to how long you can continue operating on own-source income?

Mr Yates : No, we can continue indefinitely, subject to a full review in July 2016 in accordance with our act.

Senator WONG: I missed some of what Senator Milne described as the privatisation discussion. Can I just be clear, what is the status of that matter and considerations in government about that? I was out of the room briefly and I came back in for the rest of that.

Mr Ray : That is a matter for government consideration, should the bill pass.

Senator WONG: Is there anything further that you wanted to add to that, Senator Cormann, other than your usual lecture about what government should and should not do?

Senator Cormann: I am happy to, if you are inviting me to provide the context for you.

Senator WONG: No, we probably understood it the fourth or fifth time.

Senator Cormann: I am happy to go over that ground again.

Senator WONG: Even those of us who might be a little bit slow probably understood it the fourth or the fifth time.

Senator Cormann: One could say that there was a little provocation there to invite me to make sure that all of the facts and the context—

Senator WONG: Jokes aside, has there been any work commenced in terms of scoping or privatisation of the entity? Has any scoping study been commissioned? Has advice to government been given?

Senator Cormann: In terms of the CEFC?

Senator WONG: Correct.

Senator Cormann: The response is as indicated by Mr Ray and also, as relevant, by Mr Yates. The decision of the government is to close the entity down. We have introduced legislation into the parliament to give effect to that policy intent. Obviously, until such time as the parliament makes a conclusive judgement on our legislation, we cannot take significant further action. As Mr Ray has previously indicated, what is provided for in our legislation is that within 28 days the book, as it is at that time, would be transferred from the CEFC to Treasury.

It would not be our intention to hold, as the Commonwealth, these sorts of loans for forever and a day. There will be an orderly process in terms of how you would manage that transition beyond that, with two objectives that Mr Ray pointed to before, which are to ensure that we protect value for the taxpayers and to maximise value for taxpayers from any sale—as you put it—or from any transfer of that asset into the private sector. We would want to ensure that that way that is managed does not unduly impact on the operation of the market.

We will obviously be very mindful in how we manage that in an orderly, methodical fashion. Having said that, I think we are getting way ahead of ourselves. If we had done too much planning along those lines, I suspect that you would say that we were arrogantly taking for granted the attitude of the parliament, which would be the last thing we would want to do. That is why we are handling things as I have just outlined.

Senator WONG: Good, we have finished! Mr Ray, I asked whether or not any scoping study had been commenced and I also asked about timing of advice to government.

Mr Ray : As I was explaining to Senator Bishop, we have done some preliminary work on how the transfer might be managed. We have engaged KPMG, who are internal auditors, to assist with that. But we have not engaged anyone to do a scoping study.

Senator WONG: Okay. Thank you.

CHAIR: Thank you to the officers from the Clean Energy Finance Corporation, particularly for staying over the break. I now call to the table the Macroeconomic Group and the Corporate Strategy and Services Group.

Mr Yates : It was suggested that we table the submission for the RET review. Would you like that tabled?

CHAIR: If you could do, that would be appreciated. Thank you.