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Foreign Affairs, Defence and Trade Legislation Committee
05/03/2020
Estimates
FOREIGN AFFAIRS AND TRADE PORTFOLIO
Export Finance Australia

Export Finance Australia

[20:48]

CHAIR: We now move to the examination of Export Finance Australia. I welcome Ms Swati Dave, Managing Director and Chief Executive Officer of Export Finance Australia, and officers. Ms Dave, do you wish to make an opening statement, apart from correcting me on the pronunciation of your name?

Ms Dave : No, I do not. Thank you for pronouncing it correctly.

CHAIR: Thank you. Senator Ayres?

Senator AYRES: Since AIFFP was operational on 1 July 2019, can you tell me how many loans, guarantees, bonds and insurance options that Export Finance Australia has provided to the facility or to other clients doing business in the Pacific?

Ms Dave : In terms of the AIFFP, we don't actually provide the facilities. It's AIFFP that provides them. Our role there is just to help them with the transactions that they want to execute in the Pacific. In respect of our own Pacific and the Indo-Pacific infrastructure mandate, we have signed one transaction for a Victorian SME under the new powers. This was a $2.5 million loan to Rhodes Project Services to help them construct two warehouses, one supermarket and 32 accommodation houses in Tuhava in PNG.

Senator AYRES: And proposals and expressions of interest that you're considering at this stage—how many of those are there?

Ms Dave : There are quite a few. As I think we discussed last time, we do have a very healthy pipeline. But, I guess because of the reality that infrastructure financing has a long lead time, a lot of these opportunities are at varying stages of development. Some are initial discussions and a lot more work needs to be done, whilst others are a little bit more developed. But, as we discussed last time, we are focusing on a number of countries and a number of sectors, and we're very busy developing pipeline opportunities in each of those.

Senator AYRES: I don't think I should ask you about individual proposals that you're working on at this stage, but can you tell me a little bit more about those sectors and the locations?

Ms Dave : Sure. The markets that we've targeted in our implementation plan include PNG, Indonesia, the Philippines, Vietnam and Sri Lanka. That's not to say that we won't be looking at other markets, but they're the ones we've identified as the ones we are going to spend more time with initially. And the sectors we've focused on include telecommunications, energy, electrification, water, sanitation and transport.

Senator AYRES: Has the level of support for Indo-Pacific infrastructure been affected by the legislative changes in April 2019? There's only one project approved, but are there more proposals for the Indo-Pacific at this stage?

Ms Dave : Having had the new mandate and the additional callable capital has focused our business very much on seeking out projects in the countries and the sectors that I previously mentioned. We're also working very closely with our trilateral partners to try and develop that pipeline for those sectors and countries.

Senator FIERRAVANTI-WELLS: Senator Ayres, while you're collecting your thoughts can I ask one question of Ms Dave. This is the Pacific facility that we're talking about—the $1 billion. My understanding was that initially it was for the Pacific and the Pacific alone. When did we move from the Pacific to a broader range, and is that because there aren't enough opportunities in the Pacific? Could you enlighten me on that?

Ms Dave : Whilst the facility was for the Pacific—it's for the broader Indo-Pacific region, with a particular focus on the Pacific.

Senator FIERRAVANTI-WELLS: That wasn't what the initial announcement was, as I understand. The initial announcement was $3 billion, of which $1 billion went to you, extending your facility—by the way, I'm very supportive of that, and in fact I thought that you probably could've got more, but that's a separate issue—and the other $2 billion was for what I described as the Pacific bank and $500 million in grants. So when did the $1 billion for the Pacific become a $1 billion facility for the broader Indo-Pacific?

Ms Dave : I'm going to let my colleague John Hopkins talk you through that.

Mr Hopkins : I might just clarify. You're correct: the AIFFP is a $2 billion facility. That's run separately out of the Department of Foreign Affairs and Trade, and we support that facility from an operational point of view. That is focused very much on the Pacific, as you stated, and those funds are allocated—it's a $1.5 billion allocation for loans and a $500 million allocation for grants. What our CEO, Ms Dave, was referring to is our broader mandate to explore opportunities in both the Pacific and the Indo-Pacific region, and that's where the $1 billion of additional capital has come into play.

Senator FIERRAVANTI-WELLS: Yes, but my understanding, Mr Hopkins—and correct me if I'm wrong—when that $1 billion was announced, was that it was part and parcel of the—

Mr Hopkins : It is. We can use that $1 billion for AIFFP as well. But , that $1 billion is capital, so that goes to how much money we can actually lend to individual projects.

Senator FIERRAVANTI-WELLS: I appreciate that, but my distinct recollection, and perhaps it was wrong, was that this was all part of the step-up and that that $1 billion was to assist in the Pacific, not the Indo-Pacific.

Mr Hopkins : The way the minister has phrased his statement of expectations to us around that facility was very much to focus on the Pacific first, and, after the focus on the Pacific, if there are opportunities in the broader Indo-Pacific region, we are allowed to look at those as well. Again, because we are a commercial focused organisation and the AIFFP is more development focused, AIFFP will naturally lend itself to wanting to focus on the Pacific region, whereas we have to look for opportunities that are more commercial, and the reality is that they are in the broader Indo-Pacific region.

Senator FIERRAVANTI-WELLS: Perhaps you, or the department, could assist me by providing me with the paperwork and the paper trail on the various announcements, because I'm interested in why it was initially Pacific focused and now, all of a sudden, it's focused on more than the Pacific. Do you see where I'm going?

Mr Hopkins : Happy to.

Senator Birmingham: We've been trying to scroll back through past media releases—

Senator FIERRAVANTI-WELLS: You know where I'm going, Minister.

Senator Birmingham: I do, yes. I've just been trying to work back and I think I've found April.

Senator FIERRAVANTI-WELLS: I'm happy for it to be taken on notice, but I was a bit surprised to hear that that $1 billion, which I understood was for the Pacific, is now not just for the Pacific.

Senator Birmingham: I think I found some earlier references to Indo-Pacific. I think there are, as well, countries that are not Pacific islands that are still very near to—

Senator FIERRAVANTI-WELLS: I appreciate that, Minister.

Senator Birmingham: If we take Timor-Leste and PNG, for example, they are countries where similar types of programs might—

Senator FIERRAVANTI-WELLS: I take that point; I do.

Senator Birmingham: Yes. But you're wanting the etymology of—

Senator FIERRAVANTI-WELLS: I just wasn't sure when we transitioned from a Pacific focus, because it was part of the discussion when I was minister for the Pacific. That's why I've asked the question. Sorry, Senator Ayres.

Senator AYRES: No, no. I was, I suppose, approaching a similar set of issues. Are you able to provide a breakdown of transactions by country?

Ms Dave : They're not really transactions at this point.

Senator AYRES: There's only the one funded thing in Papua New Guinea?

Ms Dave : Yes. Our practice—and, indeed, what we're required to do—is to publish on our online register, within eight weeks of signing, any transaction that we complete. They're the things that we actually are able to talk about specifically. Everything else up until that point is in discussion mode or in negotiation mode, and commercially sensitive. So it's very hard for us to talk about specific transactions at this early stage.

Senator AYRES: So we're not really able to make an assessment of where funds are allocated until the pipeline that you've been talking about materialises into projects that have been funded?

Ms Dave : That's correct.

Senator AYRES: OK.

Senator FIERRAVANTI-WELLS: Senator Ayres, can I just interrupt, if you don't mind.

Senator AYRES: Yes, of course.

Senator FIERRAVANTI-WELLS: Can I just explore this possibility. Ms Dave, I know you're providing advice, from your perspective, in relation what I've loosely described as the Pacific bank—and I know Ms Adamson doesn't like me to describe it as that, but it's shorthand for the rather long acronym. If, in the work that you are doing, Ms Dave, you are seeing good projects that merit the combination of private investment and government backing through your organisation—I suppose this is a question to you too, Minister—could we start to see that lending more money to the Pacific and their incurring more debt is not necessarily a good thing, and perhaps the formula that we are adopting here may be a better way of spending some of that money?

Could we possibly then revisit that $2 billion that's sitting in that facility? Do you see where I'm going, Minister? It was always the intention to see if we could get more private investment in the Pacific, and, if Ms Dave's organisation does a very good job in terms of finding these possibilities, it may actually be in the long term a better prospect?

Senator Birmingham: I think given that's clearly going to a policy question—

Senator FIERRAVANTI-WELLS: You'll take that as a comment.

Senator Birmingham: I had better take that one. Senator, I forget whether it's a two-year or three-year point, but there's a review mechanism built in—

Senator FIERRAVANTI-WELLS: That's what I had in mind.

Senator Birmingham: and so I imagine those types of issues, once the nature of the pipeline of opportunities has become clearer, could be explored at that review point, if they warrant it.

Senator FIERRAVANTI-WELLS: Thank you.

Senator AYRES: I want to ask a few questions about the Critical Minerals Strategy. In November 2019, Minister Birmingham said that Export Finance Australia would now place a greater focus on critical minerals projects and related infrastructure. Out of that, critical minerals projects would be able to access dual funding from Export Finance and the NAIF. Can you outline the work that EFA has commenced in conjunction with the Critical Minerals Facilitation Office since November 2019?

Ms Dave : Since that announcement, we have held meetings and discussions with 24 mining companies that are active in the critical minerals sector. We're working closely with the Critical Minerals Facilitation Office and also with Austrade to identify projects that may be suitable for financing. We've also met with a range of banks and financial advisers and engineering firms to understand the processing complexities and the operational complexities and how they impact on financing appetite in the market. So that's pretty much the way we've approached the new requirements in terms of supporting the critical minerals sector.

Senator AYRES: In terms of the work that EFA has commenced, has there been an engagement with the Northern Australia Infrastructure Facility?

Ms Dave : We've had discussions with them, but we haven't got any specific projects that we're working with them on at this stage.

Senator AYRES: So there's nothing with the NAIF, but you've had a series of meetings with individual proponents in the minerals sector?

Ms Dave : That's correct.

Senator AYRES: Have any projects been funded?

Ms Dave : No. This is a very complex space, and a lot of these projects are at varying stages of development. We're working through all of those projects to work out which are the ones that are the most likely to need financing. And, as we work through that process, we will start to get a better sense of where we think we might be able to help.

Senator AYRES: Can you give me a sense of the time line here? How long is it likely to be before we're starting to see individual projects?

Ms Dave : That time line is not necessarily within our control because, for a project to be ready for financing, a lot of things need to happen and quite a lot of those things will be within the actual mining company's control. They go to questions like: Do they have the right processing capability? Do they have the right operational capability? Do they have offtake arrangements in place? There are a lot of considerations before the project will be suitable for commercial finance. So, in that sense, it has similar challenges to other infrastructure related projects, where a lot of things need to happen before the financing is something that can be progressed.

Senator AYRES: The announcement came with some fanfare. Is there any other progress you can report about the other elements of the—

Senator Birmingham: Critical Minerals Strategy?

Senator AYRES: Yes.

Senator Birmingham: The Critical Minerals Strategy is trying to work on both the demand side and the supply side. The absence of what many believe to be a fully functioning market in the space of critical minerals, because of the dominance of one country and occasions of market distortions, means that significant effort is being made diplomatically to try to get major consumer markets for critical minerals. Due to their high-technology production, north Asian economies like Japan and Korea, North America, particularly the United States, and parts of Europe have significant demand for critical minerals. An effort is being made to try to secure stronger long-term commitments, potentially off-take agreements ultimately, from some of those demand players. That's a role that Austrade is partly helping with, all of it coordinated by the Critical Minerals Facilitation Office. Obviously, the work that Ms Dave and EFA are pursuing is part of the support for getting proposals off the ground.

Senator AYRES: They are proposals that may not be funded for some years, realistically, if I have heard Ms Dave's evidence correctly—that they're complex projects that require a high level of due diligence. Can you tell the committee now what the timetable really is for the execution of this announcement?

Senator Birmingham: In terms of specific projects going ahead, no, I wouldn't want to venture a guess in that space, because it is so dependent on other investment decisions, environmental approvals, project viability—a range of those factors. The biggest effort that government is pursuing at present is trying to bridge that gap between potential projects in Australia and markets and customers for those projects overseas. If we can get that piece of the puzzle developed far enough, then Export Finance may be able to successfully deliver the project financing, or aspects of it, to help with that.

Senator AYRES: I know I'm back-tracking with a couple of these questions, but I just want to be clear. Since 1 July 2019, the percentage of the budget of Export Finance Australia delivered to projects in the Pacific, whether through AIFFP or other means—it's the one project?

Ms Dave : That's correct.

Senator AYRES: Are the products that have gone to clients exporting to, or investing in or building infrastructure projects in the Pacific? Same answer?

Ms Dave : Yes. We may have other clients that we have supported over time in the Pacific. But in terms of looking specifically at this new mandate, there is just the one that I have spoken about previously.

Senator AYRES: The website cites the case of Export Finance Australia providing $1.5 million worth of performance bonds to an Australian business to upgrade the water supply and sanitation infrastructure on—is it Ebeye Island? In the Marshall Islands?

Ms Dave : Mr Pacey may add some colour to that.

Mr Pacey : We have supported companies who are active in the Pacific islands in the past, and that's an example of one. That support was under our existing powers. I think Ms Dave was referring to support and to utilise the new infrastructure powers.

Senator AYRES: When did you approve those performance bonds?

Mr Pacey : I would have to take that on notice.

Senator FIERRAVANTI-WELLS: Quite some years ago.

Mr Pacey : Well we—

Senator AYRES: There have been other projects in the Marshall Islands?

Mr Pacey : I would have to take that on notice.

Senator AYRES: On notice, could you give me a list of similar successful cases in the Pacific over the last two years?

Mr Pacey : Yes.

Senator AYRES: What share of that budget is earmarked specifically for Pacific projects? Can you tell me what your spend in financial years 2018 and 2019 was on the Pacific projects?

Mr Pacey : We don't work to a budget appropriation. We operate as a—

Senator AYRES: Well, can you tell me how much was allocated—I suppose is the right word?

Mr Pacey : We can give credit exposures in relation to those islands.

Senator AYRES: Would you do that for—I understand spend is the wrong word—allocations or credit exposures for Pacific projects in financial years 2018 and 2019, and then a projected or estimated spend for 2019-20—spend is the wrong word. Can you do that for me?

Mr Pacey : We can give it for historical. We don't—

Senator AYRES: You're not in a position to provide an estimation?

Mr Pacey : I can give you historical data, yes.

Senator AYRES: Okay.

CHAIR: That concludes the committee's examination of Export Finance Australia. I thank Ms Dave and officers for their attendance. After a short break, the committee will move to its examination of Tourism Australia.

Proceedings suspended from 21:12 to 21 : 20