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Tuesday, 15 September 2015
Page: 6786

Senator EDWARDS (South Australia) (13:06): I too rise to speak this afternoon on the Asian Infrastructure Investment Bank Bill 2015 and the role it will play in the future of our international relations in the region. I am sure Senator Whish-Wilson will be able to make another contribution and talk to those amendments. Having been involved in the hearing last night—albeit somewhat distracted, as I was—I know that quite a lot of information did come out on the involvement of other countries. I particularly look forward to listening to his contribution with regard to his two proposed amendments. Other than that, given the tone and nature of the two contributions—by Senator Brown and Senator Whish-Wilson—it would seem that this is something that we all in this chamber feel that Australia should embrace, with some tweaking that may follow, perhaps, and something that we should look forward to.

The Asian Infrastructure Investment Bank Bill 2015 provides authority and an appropriation for the payment of Australia's capital contribution to this body and entity to be known as the Asian Infrastructure Investment Bank, or the AIIB. The bank is an international finance institution proposed by the Chinese government to assist in funding major infrastructure projects throughout Asia. This bank will boost economic growth, it will create jobs and it will promote trade in our region by financing much-needed infrastructure investment. As we are all aware, Asia is on our doorstep. It is a burgeoning region in terms of its different economies, whether Indonesia and Central Asia or indeed the China-Japan-Korea region. The bank will provide the economic opportunities for Australian firms and help our commodity exports in accessing markets through the development of infrastructure—for example, our coal exports. It may also be for the development of financial infrastructure or indeed the services that Australia can provide and the critical up-front investment that often is hard to raise locally. Its intended capital base of US$100 billion will help address Asia-specific acute infrastructure needs, and it is estimated at $8 trillion this decade. That is a massive amount of capital to find. As you know, when economies are in growth, they are voracious consumers of cash.

Following the completion of all necessary ratification processes, Australia will lodge its instrument of ratification with the AIIB's depository. That will be in China. Australia's membership of the bank will become effective on the latter of the date of lodgement and the day on which the bank is established. The commencement provisions set out in the bill will address the situation of the bill having received royal assent and the bank not yet having been established. On becoming a member of the bank, Australia will be obligated to pay for Australia's shareholding. Payments that Australia must make for subscriptions of shares of the capital stock of the bank is authorised by section 5 and section 7; that same section authorises the consolidated revenue fund to be appropriated for the purposes of purchasing Australia's share subscription. So, Australia's total shareholding will be US$3.7 billion, or approximately A$4.6 billion, based on the exchange rate on 22 May 2015. That will comprise US$738.3 million, or approximately A$932 million, in prepaid capital. The remaining US$2.9 billion, or approximately A$3.7 billion, will be callable capital which is a contingent liability against the Commonwealth. In other words, when called upon it is payable.

Section 6 of the act will authorise the Treasurer, as the responsible minister, to make promissory notes and issue them to the bank in accordance with the standard terms outlined in subsection (2)—namely, that the promissory notes will be non-negotiable, non-interest-bearing and payable to the bank at par value upon demand. Section 5 also enables these promissory notes to be drawn down. Promissory notes are financial instruments that are frequently used as part of a process to discharge the government's obligation to international financial institutions, such as multilateral development banks. They provide both parties with more control of encashments but can still be considered by the MDBs as an asset. Section 8 enables regulations to be made to extend certain privileges that Australia is obligated to provide to the bank and its personnel under chapter IX, articles 50 and 51. The articles provide slightly different obligations to those of other international organisations, such as exemptions from taxation on expenses relating to immigration of experts and consultants performing missions or services to the bank.

How will Australia benefit from being involved in this bank? The key benefit to Australia of becoming a member of the bank is improved infrastructure throughout the Asian region, which will provide great opportunity for Australian trade and businesses. Australia's prosperity and economic growth is tied closely with the region. Not only does greater infrastructure investment mean greater demand for Australian commodities such as metals and coal, as I mentioned earlier; greater investment in ports and rail in emerging markets will create new opportunities for Australian companies. The bank also provides an opportunity to deepen our relationship with our largest trading partner and the region's largest economy along with up to 55 other member countries. Those countries include Korea, the UK, Germany and France, to name but a few.

The bank will have an open procurement model, meaning companies from any country, not just from member countries, can bid for contracts. Australia, as a member of this bank, will be able to benefit from up-to-date knowledge of the opportunities available to Australian companies. Australian companies have won contracts from other multilateral banks, such as the Asian Development Bank, so they will be well positioned to make strong bids for contracts from this bank. The infrastructure bank is not precluded by the articles of agreement from making investments in Australia. However, we expect that this bank will initially focus on infrastructure in developing countries in the Asian region, where it will be able to play a more important role in encouraging private sector funding and financing of infrastructure.

The bank will have an initial authorised capital of US$100 billion, with around US$20 billion paid in—that is, a promise of $80 billion, which is callable at any time, and US$20 billion in the bank when it is founded. Founding members will make contributions in proportion to their economic size. In addition to Australia's approximately $932 million paid-in contribution to the bank, Australia will be responsible for about US$3.7 billion in callable capital, which will only be drawn if the bank cannot meet its liabilities from within existing resources. There is a fair bit of latitude in that business model because this bank will be searching the Asian region for projects, and, obviously, other third-party bankers will be interested in those projects as well.

One of the other motives for investing in the AIIB is the benefit to Australia's economy from the improved infrastructure in the Asian region. Joining the bank will promote stronger linkages between Australia and our neighbours, driving economic growth and generating benefits for Australian trade and businesses. The bank will work closely with the private sector and provide opportunities for business to bid for contracts with the bank. The bank will drive economic growth in our region, which will mean that there will be more demand from our region. This will create opportunities for Australia and for Australian businesses. Australia's decision to join this bank—and there appears to be fairly universal agreement to do that—will enable it to have a seat at the table as a director. It will have a say in key investment decisions. In addition, no one country will control the bank, with major decisions requiring a supermajority.

I would like to talk a little about the open procurement process which Australian companies will be able to participate in. We will continue to work with China and other members to establish an institution that is effective, accountable and transparent and complements the work of other institutions. Senator Whish-Wilson talked about those kinds of governance issues which will be paramount for the board when working in those regions with different cultures and different expectations of how companies run. That will be something the board of the bank will have to keep a close eye on to ensure that all the projects that are undertaken meet the necessary governance criteria that we expect in our country and that we expect in the bank as well.

I would like to talk about the endorsements we have received from Australian industry. Several industry groups and companies have publicly expressed their views on Australia's membership of the bank, including the Australian Industry Group, the Business Council of Australia, Industry Super Australia and Fortescue Metals, to name just a few. In their public comments, dated 24 June, these organisations welcomed the government's decision to join the bank, and I feel sure that they are also welcoming the opposition and crossbench support that has been indicated here this afternoon. The chair of Industry Super Australia, Peter Collins, said:

This move will be a huge fillip for Australian expertise in funds management, engineering, construction, architecture and legal services which could be widely applied to projects financed by the AIIB.

… … …

The activities of the AIIB will not only provide new opportunities to deploy capital but also export the funds’ know how in connecting pension savings to bankable projects.

… … …

The resources of the Asian Infrastructure Investment Bank will increase scope for pension and sovereign wealth funds to invest in long term, productive assets in the region.

Australia, like Asia, is dealing with the challenges of a shrinking workforce and an ageing population. To meet this challenge it is vital we better match the long term investment horizon of retirement savings to strengthen our economic capital base, while simultaneously producing superior risk-adjusted performance returns on retirement savings.

Peter Collins concluded with:

It's a win-win.

Business Council of Australia chief executive, Jennifer Westacott, said:

The Business Council of Australia (BCA) welcomes the government's decision to join the Asian Infrastructure Investment Bank (AIIB) as a founding member.

As a founding member, Australia can play a key role in setting the direction of this body and the decisions it will make to finance projects that address Asia's infrastructure gaps.

Australian companies will benefit from opportunities to participate in developing and building new AIIB financed infrastructure, as well as having access to improved infrastructure which facilitates trade in the region.

Infrastructure investment in Asia is essential to sustaining economic growth, and the AIIB's promise of an additional $100 billion will be important to meeting these infrastructure needs.

That is what the Business Council of Australia says. We can see a theme emerging here. This involvement with this bank, this money and this investment will create an entity which Australian businesses, companies and joint ventures can get involved with. It is just another opportunity to export our skills. The Australian Industry Group chief executive, Innes Willox said:

Ai Group welcomes Australia's participation in the Asian Infrastructure Investment Bank. We have argued for some time that the AIIB's objective of financing infrastructure development in the Asia-Pacific region will foster greater trade and economic development in the region of Australia's closest and most important economic partners.

Given our national ambitions to be more thoroughly engaged in the Asian region, it makes clear sense for Australia to become a founding member of the AIIB and to work to ensure its success.

So, again, a strong and ringing endorsement of our participation as a founding member of what this bank has set out to achieve. The Deputy Leader of the Opposition, the Hon. Tanya Plibersek MP, released a statement on 24 June on behalf of the opposition, welcoming the government's decision to join this bank.

As I mentioned before, there is an estimated infrastructure financing gap of US$8 trillion in the Asian region this decade, and this bank will be part of the solution to close the gap. Joining this bank presents Australia with opportunities to work with our neighbours and our largest trading partner to drive economic growth and jobs. Working closely with the private sector, the bank paves the way for Australian businesses to take advantage of the growth in infrastructure in our region.

In the seconds that I have remaining, I have a couple of comments on last night's hearing. The Treasury and the Department of Foreign Affairs and Trade were able to advise at the hearing that Australia had recommended a number of governance strengthening mechanisms in August and was provided with the information, and it is part of the report. (Time expired)