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Foreign Affairs, Defence and Trade Legislation Committee—Export Finance and Insurance Corporation Amendment (Support for Infrastructure Financing) Bill 2019 [Provisions]—Report, dated March 2019


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March 2019

The Senate

Foreign Affairs, Defence and Trade Legislation Committee

Export Finance and Insurance Corporation Amendment (Support for Infrastructure Financing) Bill 2019 [Provisions]

© Commonwealth of Australia 2019

ISBN 978-1-76010-947-9

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/.

iii

Committee members

Chair Senator the Hon Eric Abetz LP, TAS

Deputy Chair Senator Alex Gallacher ALP, SA

Members Senator the Hon Concetta Fierravanti-Wells LP, NSW

Senator the Hon James McGrath LP, QLD

Senator Claire Moore ALP, QLD

Senator Rex Patrick CA, SA

Participating members Senator Sarah Hanson-Young SA, AG

Senator Tim Storer SA, IND

Secretariat Lyn Beverley, Committee Secretary Margie Morrison, A/g Principal Research Officer Anna Dunkley, Senior Research Officer Margaret Cahill, Research Officer Shannon Ross, Administrative Officer

Committee Webpage: http://www.aph.gov.au/senate_fadt

PO Box 6100 Phone: + 61 2 6277 3535

Parliament House Fax: + 61 2 6277 5818

Canberra ACT 2600 Email: fadt.sen@aph.gov.au

Australia

v

Table of contents

Committee members ........................................................................................................................ iii

Chapter 1—Introduction .................................................................................................................... 1

Referral of the Bill ................................................................................................................................ 1

Conduct of the Inquiry ........................................................................................................................ 1

Purpose of the Bill ................................................................................................................................ 1

Context of the Bill ................................................................................................................................. 2

Overview of the Bill ............................................................................................................................. 5

Key provisions ...................................................................................................................................... 6

Financial implications .......................................................................................................................... 7

Scrutiny by other committees ............................................................................................................. 7

Structure of the report ......................................................................................................................... 7

Chapter 2—Key Issues ....................................................................................................................... 9

Introduction .......................................................................................................................................... 9

New overseas infrastructure financing power based on an Australian benefit test .................. 9

Increase in callable capital ................................................................................................................ 16

Australian Infrastructure Financing Facility in the Pacific .......................................................... 18

Other provisions ................................................................................................................................. 20

Committee view ................................................................................................................................. 20

Additional comments by Labor senators ...................................................................................... 23

Dissenting report by the Australian Greens ................................................................................ 27

Dissenting comments from Senator Storer .................................................................................. 31

Appendix 1—Submissions .............................................................................................................. 33

1

Chapter 1 Introduction

Referral of the Bill 1.1 On 13 February 2019, the Export Finance and Insurance Corporation Amendment (Support for Infrastructure Financing) Bill 2019 (the Bill) was introduced into the House of Representatives by the Assistant Minister for

Trade, Tourism and Investment, the Hon Mark Coulton MP.1

1.2 On 14 February 2019, pursuant to the Senate Selection of Bills Report, the provisions of the Bill were referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee for inquiry and report by 26 March 2019.2

Conduct of the Inquiry 1.3 The Committee advertised the Inquiry on its website, calling for submissions by 6 March 2019. The Committee also wrote directly to a range of organisations and individuals to invite them to make written submissions.

Submissions received are listed at Appendix 1.

1.4 The Committee decided to prepare its report on the basis of submissions received and available information. The Committee acknowledges the short timeframe of the Inquiry and thanks all those who made submissions.

Purpose of the Bill 1.5 The Bill will amend the Export Finance and Insurance Corporation Act 1991 (the Efic Act). According to the second reading speech:

The amendments give Australia's export credit agency, Efic, [a] new overseas infrastructure financing power and an extra $1 billion in callable capital. These initiatives will support infrastructure projects in the region that have a benefit for Australia or Australians, and enable Efic to write larger loans, including within its current export mandate. The amendments will enhance Efic's ability to support Australian businesses, and drive stronger links between Australia and its region by enabling Efic to support, more and more, larger overseas infrastructure projects.3

1 The Hon Mark Coulton MP, Assistant Minister for Trade, Tourism and Investment, House of

Representatives Hansard, 13 February 2019, p. 17.

2 Journals of the Senate, No. 140—14 February 2019, p. 4667; Selection of Bills Committee, Report

No. 1 of 2019, 14 February 2019, p. [1].

3 The Hon Mark Coulton MP, Assistant Minister for Trade, Tourism and Investment, House of

Representatives Hansard, 13 February 2019, p. 17.

2

1.6 In its submission, the Department of Foreign Affairs and Trade (DFAT) highlighted that the Bill will ensure the Export Finance and Insurance Corporation (Efic):

… more actively supports Australia’s step-up in the Pacific and our agenda for an open, inclusive and prosperous Indo-Pacific by enhancing its role in overseas infrastructure projects. The amendments will also enable Efic to conduct operations under the name Export Finance Australia, providing greater brand recognition for Efic and the Australian Government.4

Context of the Bill 1.7 In a speech at Lavarack Barracks in Townsville on 8 November 2018, the Hon Scott Morrison MP, Prime Minister, announced two initiatives 'that will help address the infrastructure needs of the Pacific region':

 the creation of the Australian Infrastructure Financing Facility for the Pacific (AIFFP); and  the provision of an extra $1 billion in callable capital to Efic and a new overseas infrastructure financing power.5

1.8 When announcing these initiatives, the Prime Minister noted that the infrastructure needs of the Pacific region are significant. In order to meet these needs, it has been estimated that the Pacific region requires US$3.1 billion in infrastructure investment per year between 2016 and 2030.6

1.9 The Prime Minister emphasised that the 'new more flexible infrastructure financing power [will]…support investments in the region which have broad national benefit for Australia'.7 The Prime Minister also noted:

Private capital, entrepreneurialism, open markets are crucial to our mutual prosperity. These are our beliefs, these are values, they are shared with the Pacific and we stand with those who share our beliefs and values.8

Australian Infrastructure Financing Facility for the Pacific 1.10 On 21 November 2018, Efic received a direction from the Minister for Trade, Tourism and Investment under provisions related to the operation of Efic, instructing Efic to:

 assist DFAT in the establishment of the AIFFP; and

4 Submission 9, p. 2.

5 Speech, 'Australia and the Pacific: A new chapter', 8 November 2018,

https://www.pm.gov.au/media/address-australia-and-pacific-new-chapter (accessed 25 February 2019).

6 Speech, 'Australia and the Pacific'; DFAT, Submission 9, p. 3.

7 Speech, 'Australia and the Pacific'.

8 Speech, 'Australia and the Pacific'.

3

 upon the establishment of the AIFFP, assist DFAT in the administration and operation of the AIFFP.9

1.11 While the establishment and design of the AIFFP is outside the scope of the Bill, the new overseas infrastructure financing power granted to Efic in accordance with the Bill will allow Efic to administer AIFFP lending. DFAT submitted:

Without this power, the AIFFP’s ability to lend to projects would be constrained by Efic’s current lending mandate which requires projects to include Australian content before certain types of finance can be provided.10

1.12 It is anticipated that the AIFFP, to be managed by DFAT, will be operational by 1 July 2019. This $2 billion infrastructure initiative will comprise $1.5 billion of non-concessional loans and $500 million in grants to support the development of high priority infrastructure in Pacific countries and Timor Leste.11

1.13 DFAT is undertaking a consultation process as part of developing and finalising the design of the AIFFP. Public submissions were invited by 11 March 2019 and the following questions were included on the website to prompt discussion: (1) What regional infrastructure priorities should the AIFFP focus on? (2) What features would you like to see reflected in the AIFFP design? The Committee notes DFAT received over 40 submissions through that process and that consultation with a variety of stakeholders will continue.12

1.14 AIFFP matters as they relate to the Bill are discussed further in chapter 2.

Efic's role and responsibilities 1.15 Efic is the Australian Government's export credit agency.13 Efic is self-funding, operates on a commercial basis, and supports Australian exporters, their customers and Australian companies investing overseas where the private

market is unable or unwilling to provide financial support. The

9 Efic, Submission 8, p. 11.

10 Submission 9, p. 7.

11 DFAT, 'Pacific Regional-Australian Infrastructure Financing Facility for the Pacific',

https://dfat.gov.au/geo/pacific/development-assistance/Pages/australian-infrastructure-financing-facility-for-the-pacific.aspx (accessed 25 February 2019); Ms Kathy Klugman, First Assistant Secretary, Pacific Strategy Division, Office of the Pacific, Proof Estimates Hansard, 21 February 2019, p. 69. Note: this refers to Australian dollars.

12 DFAT, Submission 9.1, pp. 4-5. See also: DFAT, response to Additional Estimates 2018-19 question

on notice no. 78.

13 Export credit agencies (ECAs) support and enable export trade for their country. Generally, ECAs

provide government-backed finance solutions to businesses to help them grow exports.

4

Commonwealth guarantees Efic's creditors the payment of all monies payable by Efic. Although it is available, the guarantee has never been called upon.14

1.16 Since 1991, Efic's core functions have been to:

 facilitate and encourage the Australian export trade by providing insurance and financial services to persons involved in such trade;  encourage banks and other financial institutions carrying on business in Australia to finance, or assist in financing, exports; and  provide information and advice about finance and insurance to support

Australian export trade.15

1.17 In addition to its legislative requirements set out in the Efic Act, Efic must also adhere to a Ministerial Statement of Expectations issued by the Minister for Trade, Tourism and Investment. The current Statement of Expectations was issued on 7 September 2017.16

1.18 Efic delivers its support through the Commercial Account or the National Interest Account:

 Commercial Account: Efic carries all risks as a corporate Commonwealth entity. The Efic Board is responsible for setting the strategy, risk appetite and risk tolerances. Efic retains all margins and fees and bears all risks and losses.17

 National Interest Account: Efic can refer applications to the Minister for Trade, Tourism and Investment for consideration for support under the National Interest Account. This referral might be made due to the transaction’s risk profile, size or repayment term or it might be as a result of Efic’s significant existing exposures to the country of export. The Commonwealth receives all income on National Interest Account transactions and bears all risks and losses.18 National interest considerations may include the delivery of foreign aid or meeting foreign policy objectives, such as regional stability and growth.19

Previous reviews and legislative changes 1.19 In its submission, Efic provided a summary of legislative amendments and mandate changes that have occurred since 2013. This includes changes to the

14 Efic, Efic Act, https://www.efic.gov.au/our-organisation/our-governance/efic-act/ (accessed 25

February 2019).

15 Efic, Submission 8, p. 2.

16 Efic, Statement of Expectations, [p. 2].

17 Submission 8, p. 1.

18 Submission 8, p. 2.

19 Productivity Commission, Australia’s Export Credit Arrangements, May 2012, p. 45.

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Efic Act, updates to Statements of Expectations issued by the Minister and Directions from the Minister in accordance with the Efic Act.20

1.20 In May 2012 the Productivity Commission (PC) presented the report for its inquiry into arrangements for the provision of export credit through Efic. The government responded to the PC's inquiry in January 2013 and agreed or agreed in part with 16 of the PC's recommendations and noted six recommendations.21

1.21 This Committee has undertaken a number of previous inquiries into legislation affecting Efic's operations. Reports of these inquiries are available on the Committee's website.

Overview of the Bill 1.22 The Bill grants Efic a new power to finance overseas infrastructure projects based on an Australian benefit test. The Explanatory Memorandum (EM) explains that '[a]pplying an Australian benefit test for infrastructure will open

up a larger pool of potential projects eligible for Efic financing' and will enable:

…Efic to take account of the direct benefits from the involvement of Australian companies in infrastructure projects, as well as future and indirect benefits for Australia or Australians, such as greater Australian participation in supply chains, access to new markets for Australian businesses, more Australian jobs, payments, dividends or other financial proceeds from overseas to Australia, or stronger relationships with our regional partners, especially in the Pacific.22

1.23 The Bill proposes to increase Efic's callable capital on its commercial account from $200 million to $1.2 billion. The EM explains that this increase will:

…allow Efic to provide more commercially meaningful financing offers, including for overseas infrastructure projects where the total size of debt financing required is large. It will give Efic greater flexibility and credibility with project proponents, sovereign borrowers and financing partners, who require the confidence that Efic's support is meaningful and can be sustained over often long repayment terms.23

1.24 The Bill allows Efic to conduct its operations under the trading name Export Finance Australia. The EM explains:

A simpler trading name that references Australia will provide greater recognition for Efic and the Australian Government, both with Australian

20 Submission 8, pp. 11-13.

21 Productivity Commission, 'Australia's Export Credit Arrangements',

https://www.pc.gov.au/inquiries/completed/export-credit (accessed 25 February 2019).

22 EM, [p. 1].

23 EM, [p. 2].

6

small and medium sized enterprises and exporters, and in overseas markets.24

Key provisions 1.25 This section outlines the key provisions of the Bill in general terms.

Expanded mandate for Efic 1.26 Proposed paragraphs 7(1)(dd) and 7(1)(de) add the new infrastructure financing power to Efic's existing functions. Proposed paragraph 8(4) adds the overseas financing functions to Efic's primary duties and notes that Efic should

perform these functions in a manner 'as Efic reasonably believes is likely to result in the maximum Australian benefits'.25 Proposed paragraph 8(5) will ensure that Efic does not have to prioritise developing the Australian export trade when it is performing its overseas infrastructure financing functions.

Australian benefit test 1.27 Proposed subsection 3(1) includes provisions to define Efic's new power to finance overseas infrastructure projects based on an Australian benefit test. 'Australian benefit' means a benefit that flows (whether directly or indirectly)

from overseas to: a) Australia; or b) a person carrying on business or other activities in Australia.26

1.28 This new power will be made operational through a number of other changes to the Act. The EM provides the further following detail on the operation of the Australian benefit test:

The power enables Efic to take account of the direct benefits from the involvement of Australian companies in infrastructure projects, as well as future and indirect benefits for Australia or Australians, such as greater Australian participation in supply chains, access to new markets for Australian businesses, more Australian jobs, payments, dividends or other financial proceeds from overseas to Australia, or stronger relationships with our regional partners, especially in the Pacific. It enables Efic to finance infrastructure projects that are connected to Australia in some way, but will be used wholly or substantially outside Australia (e.g. an undersea telecommunications cable connecting Australia to a nearby country for use substantially by that country). The power enhances Australia’s ability to play a role in regional infrastructure that serves our national interest and support international opportunities for Australian businesses.27

24 EM, [p. 2].

25 EM, [p. 5].

26 EM, [p. 4].

27 EM, [p. 4].

7

Increase to callable capital 1.29 Proposed paragraph 54(8)(a) will increase Efic's callable capital on its commercial account to $1.2 billion from the current specified amount of $200 million. Under paragraph 54(8)(b) of the Efic Act, the Minister has the

power to specify a greater amount of callable capital via a legislative instrument and the Bill does not remove this power. However, the EM notes that increasing callable capital by legislative amendment, rather than legislative instrument will provide a higher degree of certainty and demonstrates 'confidence that Efic's support is meaningful and can be sustained over often long repayment terms'.28

Financial implications 1.30 The EM states that the Bill will have no impact on the Commonwealth's underlying cash balance and noted:

The increase in Efic's callable capital will enable Efic to provide more financing over time, raising the Government’s contingent liability for Efic within the established upper limit of $6.5 billion. The Export Finance and Insurance Corporation Regulations 2018 set this maximum liability.29

Scrutiny by other committees 1.31 The Scrutiny of Bills Committee and the Parliamentary Joint Committee on Human Rights had not reported on the Bill at the time of tabling this report.

Structure of the report 1.32 Chapter 2 of this report provides an overview of issues raised in evidence and contains the Committee's views and recommendation.

28 EM, [p.2].

29 EM, [p. 2]; Export Finance and Insurance Corporation Regulations 2018, reg. 6 and 7.

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Chapter 2 Key Issues

Introduction 2.1 This chapter examines the key issues raised in submissions in relation to the Bill including Efic's new overseas infrastructure financing power and the application of the Australian benefit test, with particular reference to Efic's due

diligence processes for considering projects, transparency and governance matters and Efic's capability and expertise in infrastructure financing. The chapter then discusses matters related to the provision of the additional $1 billion in callable capital and summarises Australian Infrastructure Financing Facility for the Pacific (AIFFP) matters as they relate to the Bill. The chapter concludes with the Committee's views and recommendation.

New overseas infrastructure financing power based on an Australian benefit test 2.2 A key change to the Efic Act proposed in the Bill is to extend Efic's mandate to include a new overseas infrastructure financing power based on an Australian

benefits test. The new overseas infrastructure financing power will be used by Efic on its commercial account for commercially viable infrastructure project loans as well as allowing it to administer loans for the AIFFP.1

New power needed to facilitate overseas infrastructure projects 2.3 Efic explained that granting this new power to finance overseas infrastructure projects based on an Australian benefit test will overcome the limitations of its existing mandate:

Efic's ability to assist in financing infrastructure projects is limited by certain narrowly drafted and inconsistent eligibility “tests” in the Efic Act. These tests require Efic to satisfy specific Australian participation requirements before it can provide certain types of finance.

Such narrow tests do not easily enable the provision of finance for infrastructure projects that offer longer term commercial benefits to Australia or are not centred on immediate or near-term commercial participation by Australian companies.2

2.4 DFAT submitted that although multilateral development banks are increasing their lending in the Pacific, 'more financing options are needed to meet the region's varied needs'.3 In addition, DFAT advised that financing from both the

1 DFAT, Submission 9.1, p. 4.

2 Submission 8, p. 3.

3 DFAT, Submission 9, p. 4.

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private and public sectors is required to 'meet the infrastructure needs of the Pacific and our broader region'.4 For a variety of reasons, commercial banks are 'often unwilling or unable to finance overseas infrastructure' and therefore export credit agencies like Efic can play an important role 'in bridging gaps in financing for infrastructure and supporting companies when other sources of finance are not available'.5 Furthermore:

Bridging financing gaps and attracting private sector finance is where Efic can, and should, play a greater role. These amendments will enable Efic to do this. Australia has an interest in supporting greater economic activity in the Pacific, and promoting greater ties between Australian businesses and the region.6

2.5 Submissions expressed support for extending Efic's mandate. The National Australia Bank (NAB) noted that:

…to include financing of productive and sustainable infrastructure projects overseas will serve the dual purpose of contributing to economic growth and development in the region, while also supporting Australian businesses' participation in international opportunities.7

2.6 Similarly, the Asian Development Bank noted that the Bill 'will enhance Australia's ability to address the infrastructure needs of the Pacific region by boosting [Efic's] ability to support commercial participation in infrastructure'.8 The submission from the Australia-Papua New Guinea, Australia-Fiji and Australia-Pacific Islands Business Councils argued that the Bill:

…will better enable EFIC and other Australian entities to participate in the financing and development of sustainable infrastructure in collaboration with Pacific regional financing arrangements and of course to be better connected to Pacific national and regional priorities.9

2.7 Rhodes Project Services Pty Ltd (Rhodes), an Australian owned company specialising in delivery of social infrastructure throughout the Pacific region, has received support from Efic to pursue projects in Papua New Guinea.10 In its submission, Rhodes noted that Efic support is 'very important in a Pacific environment that is critically lacking capacity and access to finance'. Rhodes argued that increasing Efic's ability to support commercial participation can assist to address the infrastructure needs of the Pacific:

4 Submission 9, p. 4.

5 DFAT, Submission 9, p. 4.

6 DFAT, Submission 9, p. 4.

7 Submission 11, p. 2.

8 Submission 16, [p. 2].

9 Submission 21, p. 1.

10 Efic, Annual Report 2017-2018, pp. 73-74; Rhodes, Submission 4, p. 2.

11

Rhodes believes it is important to support large scale infrastructure opportunities, and SME [small and medium enterprise] related operations concurrently. Supporting all Australian businesses including subcontractors, consultants and suppliers via export finance is a very important step in allowing sustained commercial success, capacity and growth in the region.

Where a business case and appropriate creditworthiness exists, EFIC is a critical link in supporting Australian businesses to win more projects in the region. Access to finance is very restricted to an Australian business seeking revenue generating projects, outside of Australia and even more so when originating in the Pacific. A large risk premium and lack of appetite exists for such project support, even where a strong track record of commercial success and delivery performance exists.11

Australian benefit test 2.8 In accordance with the Bill, when financing overseas infrastructure projects, Efic should 'reasonably' believe the project 'is likely to result in the maximum Australian benefits'.12 During Additional Estimates, officials from Efic

explained that the Australian benefit test:

…requires Efic to reach a reasonable belief that, following financing of a transaction, there will be maximum Australian benefits flowing back to Australia, and those benefits may include crowding in of Australian equity and finance institutions, supporting future employment in Australia, supporting export sectors important to Australia, facilitating access of Australian business to new markets, and encouraging future Australian participation in project supply chains.13

2.9 Efic emphasised that the Australian benefit test 'has been designed to be broad' to allow Efic to consider a range of potential benefits including looking 'much further into the future in terms of what Australia's benefit may be, as opposed to the actual immediate benefits'.14

2.10 According to Efic, the Australian benefit test will enable it to 'more deeply engage in sectors such as telecommunication and power, which deliver both short and long-term benefits to Australian businesses'.15 For example, Efic posited that:

…improved regional internet connectivity in the Pacific will benefit Australia over the longer-term by:

 reducing the cost of doing business;

11 Submission 4, pp. 2-3.

12 Proposed subsection 8(4).

13 Mr John Hopkins, Chief Operating Officer and General Counsel, Efic, Proof Estimates Hansard,

21 February 2019, p. 117.

14 Mr Hopkins, Proof Estimates Hansard, 21 February 2019, pp. 117-118.

15 Submission 8, p. 4.

12

 encouraging greater economic integration; and  promoting Australian exports to and investment in the region.16

2.11 The broad Australian benefit test will 'enable Efic to finance a wider range of projects across the region'.17 DFAT submitted that the Bill will allow Efic to take account of broader benefits such as:

 Greater Australian participation in supply chains.  Access to new markets for Australian businesses.  More Australian jobs, payments, dividends or other financial proceeds from overseas to Australia.

 Stronger relationships with our regional partners, especially in the Pacific.18

2.12 Austrade supported the reforms proposed in the Bill and in particular the Australian benefit test:

This new approach will ensure that these measures will support our commercial engagement in the Pacific as well as Australian businesses. It will do this in a more flexible manner, and also in a manner more in keeping with the broader objectives of assisting the Pacific such as, for example, allowing labour utilisation and skills transfer to the Pacific islands.19

2.13 While the Export Council of Australia (Export Council) was supportive of considering 'indirect benefits when assessing the commercial outcomes for Australia', they emphasised that 'the benefits to Australia should be clear, quantifiable, and proportionate to the financing provided'.20

Issues raised by submitters 2.14 While a majority of submissions supported the revised Australian benefit test, the next section summarises some of the issues raised in submissions about the extension of Efic's mandate to include an overseas infrastructure financing

power based on an Australian benefit test.

Consideration of recipient countries when assessing projects 2.15 When discussing the Australian benefit test, some submissions were concerned that the focus on assessing projects for Australian benefits does not give

16 Submission 8, p. 4.

17 DFAT, Submission 9, p. 5.

18 Submission 9, p. 5.

19 Submission 23, [p. 3].

20 Submission 14, [p. 2].

13

appropriate consideration to whether the loan and the project will be of benefit to the recipient country.21

2.16 However, Efic and DFAT emphasised that when Efic lends to governments, or government guaranteed entities, it carefully assesses the country's capacity to repay the loan and this assessment will continue.22 This credit and country risk assessment process includes:

 conducting an analysis of both its public debt and external debt positons to ensure that debt sustainability is maintained; and  adhering to the OECD Recommendation on Sustainable Lending Practices and Officially Supported Export Credits.23

2.17 In a supplementary submission, DFAT advised that both the AIFFP and Efic 'will consider the interests of recipient countries including the appropriateness of the infrastructure, the way in which it is procured and its impact on the local community'.24 In addition it was also pointed out that Efic's current due diligence processes 'include debt sustainability analysis and compliance with international economic, financial, environmental and social risk standards', as detailed below.25 Efic has a comprehensive framework of anticorruption policies and procedures and complies with the OECD Council Recommendations on Bribery and Officially Supported Export Credits.26

Efic's due diligence processes 2.18 Some submitters raised concerns about the adequacy of Efic's due diligence processes with reference to the provision of loans to projects not located in Australia.27

2.19 As noted earlier, Efic's due diligence processes include an assessment of economic, financial, environmental and social risks. In particular, it applies its Policy for environmental and social review of transactions (the Policy) which confirms that Efic:

21 World Vision, Submission 7, [p. 2], Action Aid, Submission 13, [pp. 5-6]; The Australia Institute,

Submission 15, p. 2; ACFID, Submission 20, [pp. 3-4]; Development Policy Centre, Crawford School of Public Policy, ANU, Submission 17, p. 7; The McKell Institute, Submission 6, p. 4.

22 Efic, Submission 8, p. 6; DFAT, Submission 9, p. 8.

23 Efic, Submission 8, p. 6.

24 Submission 9.1, p. 1.

25 Submission 9.1, p. 1.

26 DFAT, Submission 9, p. 9.

27 Oxfam Australia, Submission 18, pp. 3-4; The Australia Institute, Submission 15, p. 5; Jubilee

Australia, Submission 12, p. 6; ActionAid, Submission 13, pp. 4-5.

14

 is bound by the OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence; and

 applies the Equator Principles, a globally recognised benchmark used by many financial institutions to manage environmental and social risk in projects.28

2.20 The Policy also uses the International Finance Corporation (IFC) environmental and social performance standards as its benchmark. The IFC Performance Standards were selected as Efic’s usual benchmark as they are a widely used and understood global standard. However, where a higher benchmarking standard is applicable to a particular transaction, Efic applies that higher standard.29 Efic recently adopted a short Human Rights Statement, however ActionAid Australia argued that 'this is insufficient to prevent further violations through Efic’s activities'.30

2.21 Efic confirmed that if the Bill is passed, the organisation will continue to manage the commercial account in accordance with Australian Prudential Regulation Authority (APRA) guidelines. Efic will continue to charge interest premiums that reflect the underlying risks and also adhere to its existing Board delegation to approve all transactions in excess of $50 million. Efic will also:

…continue to conduct transactional due diligence which covers both the construction and operation of infrastructure, even in circumstances where Efic is only providing a construction linked facility.31

Transparency and governance 2.22 Some submitters also highlighted that details of some of Efic’s decision-making processes are commercial in confidence or exempt under the Freedom of Information Act 1982.32 Other submitters advocated for changes, such as

ensuring aspects of Efic's activities are no longer automatically exempt from the Freedom of Information Act 1982.33

2.23 As a corporate Commonwealth entity governed by the Public Governance, Performance and Accountability Act 2013, Efic is subject to a range of transparency and governance requirements. In compliance with these obligations, Efic:

 publishes an annual report which is tabled in Parliament;

28 Efic, Submission 8, p. 6.

29 Efic, Submission 8, p. 6.

30 Submission 13, [p. 3].

31 Submission 8, p. 6.

32 ACFID, Submission 20, pp. 5-6.

33 Jubilee Australia, Submission 12, p. 7; Oxfam Australia, Submission 18, p. 3.

15

 discloses its proposed involvement in transactions with a potential for significant environmental and/or social impacts on its website prior to making a decision. Public input on such projects is encouraged; and

 publishes detailed information on its website within eight weeks of a transaction being signed.34

2.24 DFAT emphasised the need for Efic, like other financial institutions including banks, export credit agencies and multilateral development finance institutions, to respect the commercial in confidence information of its clients and borrowers:

This means it is not always able to disclose fully detailed transaction information. Efic must safeguard its clients’ legitimate financial or business interests. Without the ability to protect commercial-in-confidence information, Efic would not be able to operate.35

Efic's capability and expertise in infrastructure financing 2.25 Some evidence to the Inquiry questioned whether Efic has sufficient capability to undertake activities under the new infrastructure mandate.36 In its submission, Efic reported that its dedicated Corporate, Sovereign and Project

Finance team has 'a strong track record of supporting infrastructure and large projects in the region and around the globe'.37 Furthermore, DFAT advised that Efic can 'draw on expert independent advisers when assessing projects' and also:

For many infrastructure projects, where financing is often syndicated, Efic will work with other financiers active in the region, including the Asian Development Bank, the World Bank, other export credit agencies and commercial financers, which bring their skills and experience to project assessment and management.38

2.26 In its submission, CCB Envico, a construction organisation that has undertaken projects in the Pacific with Efic's support, noted that the increased focus on the Pacific may require Efic to build on the external expertise it has traditionally utilised.39

2.27 At Additional Estimates, Ms Swati Dave, Managing Director and Chief Executive Officer, Efic assured the Committee that Efic has the 'capability in

34 DFAT Submission 9.1, p. 3.

35 Submission 9.1, p. 3.

36 World Vision Australia, Submission 7, [p. 3]; International Women's Development Agency,

Submission 10, [p. 3].

37 Submission 8, p. 2. Annexure 1 of Efic's submission provides examples of projects and transactions

supported by Efic.

38 Submission 9.1, pp. 2-3. See also: Efic, response to Additional Estimates 2018-19 question on notice,

no. 28.

39 Submission 22, [p. 1].

16

the organisation to do the kinds of transactions that are contemplated' in accordance with the Bill.40 It was noted that additional staff may be required but that 'will really depend on the pipeline: how quickly it builds and whether the pipeline is enough for us to hire more people'.41

Increase in callable capital 2.28 As noted in chapter 1, the Bill proposes to increase Efic's callable capital on its commercial account by $1 billion. The next section starts with a brief summary of Efic's existing activity on its commercial account, discusses the implications

of the increased callable capital for Efic's operations, and concludes with a discussion on issues raised in relation to the Bill.

Existing activity on the commercial account 2.29 Currently, Efic's capital base on its commercial account is approximately $675 million, comprised of $475 million of cash and $200 million of callable capital. Callable capital is an amount specified in the Efic Act 'that the

Government will make available to Efic in the event that Efic is (for whatever reason) unable to meet its expected losses or liabilities'.42 Efic's latest annual report confirms that the $200 million of callable capital 'to date has never been called'.43

2.30 Efic manages the commercial account in accordance with its Statement of Expectations from the Minister for Trade, Tourism and Investment. Under the Statement of Expectations, Efic is required to manage risk in accordance with guidance from APRA. Taking account of APRA's guidance, the Efic Board 'generally applies an upper limit of 25 per cent of Efic’s capital, for country, sector and non-bank counterparty exposures'.44

2.31 As at 31 December 2018, Efic's total exposure under the commercial account was $2.1 billion.45

What will the increase in callable capital mean for Efic's operations? 2.32 The Bill proposes to increase Efic's callable capital on its commercial account by $1 billion to $1.2 billion and as a consequence will increase Efic's total capital base to approximately $1.675 billion.46

40 Proof Estimates Hansard, 21 February 2019, p. 116.

41 Proof Estimates Hansard, 21 February 2019, p. 116.

42 Efic, Submission 8, p. 5.

43 Efic, Annual Report 2017-2018, p. 91.

44 Efic, Submission 8, p. 5.

45 Efic, Submission 8, p. 5.

46 Efic, Submission 8, p. 5.

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2.33 Efic explained that the additional callable capital would give it increased flexibility in their operations as it will 'allow the Efic Board to establish higher individual, or country exposure limits'.47 The additional capital will mean:

Efic’s upper financing limit for individual or country exposures could reach a more impactful maximum of $420 million (approx.), compared with the current upper limit of between $160 to $170 million.48

2.34 Efic pointed out that the additional capital will enable its Board to 'set individual maximum exposure limits that are more in line with other ECAs [export credit agencies] within the region' as Efic's current lending capacity is low compared to its counterparts.49 DFAT also noted that compared to Efic, other financiers have larger capital bases and can offer much larger amounts for infrastructure deals.50

2.35 Efic also noted it is already approaching the upper limit for country exposures to countries such as Papua New Guinea and Sri Lanka under its existing capital base.51 According to DFAT, the increase in callable capital is 'vital' to enable Efic to continue providing finance to those counties where it is approaching its lending limits and will secure Australia's 'credibility and flexibility as an infrastructure financier'.52

2.36 The Export Council submitted that 'Efic has a strong track record as a responsible lender' and the increased callable capital 'will increase its ability to support Australian businesses, particularly in countries where it is nearing its lending limits'.53

2.37 DFAT acknowledged that even with the increase in callable capital, 'Efic's total capital will still be modest compared to its international peers' requiring Efic 'to be selective when considering which projects to finance'.54 It was DFAT's view that without the capital increase 'Efic’s ability to provide finance for infrastructure projects will continue to be constrained, and its ability to use its infrastructure power would be limited'.55

47 Submission 8, p. 5.

48 Submission 8, p. 5.

49 Submission 8, p. 5.

50 Submission 9, p. 6.

51 Submission 8, p. 5.

52 Submission 9, p. 6.

53 Submission 14, [p. 2].

54 Submission 9, p. 6.

55 Submission 9, p. 6.

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2.38 Austrade supported the increase to callable capital which 'will allow Efic to offer more meaningful participation in projects which are generally larger than Efic's core business to date'.56

2.39 The Australia-Papua New Guinea, Australia-Fiji and Australia-Pacific Islands Business Councils noted that the increase in callable capital, as well as the introduction of the Australian benefit test, will enhance 'Australia's relevance and relationships across the Pacific region' and expand the range of projects that Efic can support.57

Issues raised by submitters 2.40 Some submissions expressed concern about the additional capital that will be available, including whether there was a demonstrated need.58

2.41 However, other submissions, such as the ANZ, highlighted that overseas ECAs are typically able to support higher value transactions than currently available to Efic:

In ANZ’s experience, the amount of support Efic provides to individual projects and transactions is, on average, markedly lower than the support typically provided by overseas ECAs to foreign transactions and projects…

Providing Efic with access to additional capital to increase its support capacity for individual transactions and projects will ensure it keeps pace with and, where required, can compete with other ECAs.59

Australian Infrastructure Financing Facility in the Pacific 2.42 As well as enabling Efic to use its commercial account for commercially viable infrastructure project loans, the new overseas infrastructure financing power will allow Efic to administer AIFFP lending. In its submission, DFAT

explained:

In order to be operational by 1 July 2019, the AIFFP has sought to build on existing experience within government on infrastructure financing. The AIFFP will draw on established processes and use the Government’s National Interest Account, administered by Efic, to manage loans. This minimises the need for new or complex bureaucratic architecture while the AIFFP is established.60

56 Submission 23, [p. 4].

57 Submission 21, p. 1.

58 The McKell Institute, Submission 6, pp. 7-8; Oxfam Australia, Submission 18, [p. 4].

59 ANZ, Submission 19, p. 3. Other submissions also supported the callable capital increase including:

Oil Search, Submission 1, p. 2; ESS Weathertech, Submission 2, [p. 1]; Aspen Medical, Submission 3, p. 2; CCB Envico, Submission 22, p. 1.

60 Submission 9, p. 7.

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Concerns about Efic's role to administer the AIFFP 2.43 The development and design of the AIFFP and Efic's anticipated role was discussed in evidence to the inquiry. A view put to the Committee in several submissions was that the relationship between Efic and the AIFFP remains

unclear.61

2.44 Submissions also suggested that Efic should not be the administering agency for the AIFFP.62

2.45 DFAT provided further information about how DFAT and Efic will work together regarding the AIFFP. DFAT will manage the AIFFP and 'assessments of the development merits of projects will be undertaken by DFAT and the AIFFP Board'.63

2.46 With respect to Efic's role, DFAT advised that 'Efic will not be responsible for decision making for AIFFP infrastructure loans'.64 Efic's role will be to:

…provide technical and expert financial advice (such as credit assessment and loan structuring), portfolio management and operational support to the AIFFP. Efic will draw on its longstanding experience in financing projects in emerging markets.65

2.47 Ms Dave, Efic emphasised that Efic will not be involved in decision making about the AIFFP as 'that is something that DFAT will be responsible for'. However, Ms Dave noted that Efic 'will help the AIFFP in terms of operationalising' the facility because that is where Efic's capability lies.66 On the question of what level of interaction there will be between the two agencies about the AIFFP, Ms Dave advised the Committee at Additional Estimates:

There may be situations or there may be projects where it's appropriate for Efic to provide some commercial financing and the AIFFP to provide some blended financing or some grant financing. So you could have co-financings. That's one where there might be interaction.67

2.48 Efic informed the Committee that it is working with DFAT to determine what advice and operational support will be required to assist with decision making

61 World Vision, Submission 7, [p. 4]; Jubilee Australia, Submission 12, p. 2, Development Policy

Centre, Submission 17, pp. 7-8; ACFID, Submission 20, p. 8.

62 World Vision, Submission 7, [p. 4]; Jubilee Australia, Submission 12, pp. 11-13; ActionAid Australia,

Submission 13, [p. 4]; ACFID, Submission 20, [p. 6]; Dr Susan Engel, Submission 5, p. 1.

63 Submission 9.1, p. 4. DFAT also provided further information about how risk analysis is informing

the design process for the AIFFP; response to Additional Estimates 2018-19 question on notice no. 78.

64 Submission 9.1, p. 4.

65 Submission 9.1, p. 4.

66 Proof Estimates Hansard, 21 February 2019, p. 118.

67 Proof Estimates Hansard, 21 February 2019, p. 119.

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processes and the provision of advice and support 'will be the subject of a formal Service Level Agreement between DFAT and Efic'.68

Other provisions

Name change 2.49 A small number of submitters explicitly discussed the proposed name change and indicated their support.69 The Export Council noted that Export Finance Australia 'is a much simpler name that more accurately conveys the services

[Efic] provides'.70 Furthermore, the Export Council recommended that, as the name change will require a major rebranding exercise, the Government should lower its required dividend for the current and next financial years to 'adequately fund this exercise'.71

Committee view 2.50 The Committee notes the Bill further demonstrates the Australian Government's ongoing commitment to broaden its engagement in the Pacific. As highlighted in this Inquiry and others, the infrastructure needs of the

Pacific are significant and will require a range of funding and financing options.

2.51 The Committee acknowledges that the $1 billion increase to Efic's callable capital on its commercial account will give Efic greater flexibility to conduct its operations. Importantly, while continuing to adhere to APRA guidelines, it will allow the Efic Board to set higher individual or country exposure limits which will ensure Efic is more in line with its international export credit agency counterparts. The Committee was reassured to note that although increased individual or country limits will be available to Efic, they will not be uniformly applied. The Board will continue to assess limits against the commercial viability of projects on a case by case basis. Furthermore, while the capital available to Efic will be increased, there will be no increase to the existing $6.5 billion Commonwealth maximum liability as set by the Export Finance and Insurance Corporation Regulations 2018.

2.52 The Committee supports the intent of the Bill to build on Efic's existing mandate to support overseas infrastructure projects that meet the requirements of the Australian benefit test. This broad test will mean that Efic can take account of both direct and indirect benefits for Australia and Australian businesses when considering overseas infrastructure projects.

68 Efic, response to Additional Estimates 2018-19 question on notice no. 22.

69 See for example, ESS Weathertech, Submission 2, [p. 1].

70 Submission 14, [p. 1].

71 Submission 14, [p. 2].

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Importantly, broad indirect benefits such as building stronger relationships with our regional partners will be considered as part of the Australian benefit test.

2.53 The Committee notes that some submissions expressed concern that the focus on Australian benefits may not allow for sufficient consideration of the interests of recipient countries. More broadly, some concerns were raised about whether Efic's due diligence and project assessment processes are sufficient to enable it to meet the requirements of its new mandate. However, the Committee was assured by DFAT that the interests of recipient countries will be considered, including the appropriateness of the infrastructure, the way it is procured and its impact on the local community. In addition, the Committee is aware that Efic applies robust due diligence processes to its operations including analysing debt sustainability and compliance with international economic, financial environmental and social risk standards. It will be important for Efic to continue to apply its sound due diligence processes when considering projects both on its commercial account and when administering loans for the AIFFP. This will ensure Efic continues to uphold best practice environmental and social standards in its transactions.

2.54 While some submissions raised concerns about the level of expertise and skill in Efic to undertake its new role, the Committee acknowledges evidence from Efic in their submission and at Additional Estimates emphasising their institutional expertise to finance international loans and the broad capability of their officers. In addition to existing capability, the Committee was advised that Efic can also draw on expert independent advisers when assessing projects.

2.55 While the Committee recognises that the Bill is focused on Efic's infrastructure capabilities, the fact that the expanded mandate will enable Efic to administer loans for the AIFFP raised some questions for submitters about how Efic and DFAT will work together to administer the AIFFP, as well as the broader design and operation of the AIFFP. The Committee notes evidence from both Efic and DFAT clarifying their roles which will utilise their organisations' respective strengths and expertise.

2.56 On the broader matters of the AIFFP, the Committee welcomes and supports the consultation being undertaken by DFAT with a range of domestic and international stakeholders to inform the design of the AIFFP as well as to ensure the new facility supports the development priorities of Pacific countries and Timor Leste.

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Recommendation 2.57 The Committee recommends that the Bill be passed without amendment.

Senator the Hon Eric Abetz Chair

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Additional comments by Labor senators

1.1 It is clear that the infrastructure needs of the Asia-Pacific cannot be met on current expenditure projections and that developed countries like Australia must do their bit to contribute to the sustainable infrastructure needs of developing countries. Some $26 trillion in infrastructure investment is needed over the next decade. Specifically, the Pacific will require the highest relative level of investment in infrastructure, both in per capita terms and also as a percentage of GDP as identified by the Asian Development Bank.

1.2 Both the Opposition and the Government have identified infrastructure in the Pacific as a national priority and this Committee has been tasked with examining the legislation to implement the Prime Minister’s announcement in November last year. As a matter of bi-partisanship the Opposition and the Government both agreed to this inquiry. This has been a useful exercise allowing for community consultation as well as the examination of any unintended consequences of the organisational structure the Government has chosen to pursue.

1.3 While many of the public submissions were generally supportive of the Government’s initiative there were some submissions which were critical of the Government’s proposal and a few which outright opposed it. While Labor Senators do not agree that this legislation should be opposed outright, Labor Senators do agree that there are some elements of this Bill which may have some unintended consequences. Many of these issues should be addressed in the Minister’s Statement of Expectations to EFIC which will need to be updated as a result of the passage of this legislation - something which this Committee could not consider as it is yet to be made public.

1.4 Labor Senators have recommended that a statutory review of the changes this Bill implements should be conducted 18 months after its assent. This is important for two reasons. Firstly it will ensure that the aims of the Australian Government are being met. Secondly it will ensure that the infrastructure needs of our Pacific neighbours are being met.

Recommendation 1

1.5 Labor Senators recommend that a statutory review of the changes this Bill implements should be conducted 18 months after its assent.

1.6 A month before the Prime Minister’s announcement the Leader of the Opposition announced that a Shorten Labor Government would establish a government-backed infrastructure financing facility. He said:

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

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

I see this financing facility as a way Australia can elevate our status as a 'partner-of-choice' for Pacific development and enhance security and prosperity in the region.1

1.7 This month, Senator Wong has said about Labor’s announcement and the Government’s proposal:

I know there are some concerns in the sector about the model outlined by the Government.

A Labor Government will work with the aid and development sector to ensure the implementation of a model that is fit for purpose and contributes effectively to our development goals in line with our values and national interest.

While this work continues, we would seek to utilise the mechanisms established by the current Government as a starting point.

Beyond funding, Labor’s support for infrastructure would also offer:

 Capacity building.  Job opportunities and training.  Support for governance and project management.  Technical assistance to help achieve appropriate design and financing

arrangements, including for climate resilience.

While much of the infrastructure financing will be focused on the Pacific, under a Shorten Labor Government there will be opportunities to finance and assist with infrastructure in Southeast Asia too.

As a disaster prone region, we can support climate-resilient infrastructure and systems.

Labor will help our neighbours ensure their infrastructure is sustainable and resilient.2

1.8 It is clear that while both the Government and the Opposition are well intentioned, as are those who made submissions to this inquiry, there is a variety of opinions on the best way forward. This is not a unique situation to Australia, as many developed countries have pursued similar but uniquely different models themselves. It is therefore appropriate to support the Government’s proposed model at this time, with a statutory review in 18

1 The Hon Bill Shorten MP, Speech, 'Address to the Lowy Institute, the foreign policy

of the next Labor Government', Sydney, Monday, 29 October 2018,

https://www.billshorten.com.au/address_to_the_lowy_institute_the_foreign_policy_of_the_next_l abor_government_sydney_monday_29_october_2018

2 Senator the Hon Penny Wong, Speech, 'Rebuilding Australia's international development program

for a time of disruption', 12 March 2019, https://www.pennywong.com.au/speeches/rebuilding-australias-international-development-program-for-a-time-of-disruption-2019-annual-lecture-in-political-science-and-international-studies-university-of-queensland/

25

months which will ensure proper implementation of this new initiative and deliver the best outcomes for our regional neighbours.

Senator Alex Gallacher Senator Claire Moore

Deputy Chair

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Dissenting report by the Australian Greens

1.1 The Australian Greens oppose the Export Finance and Insurance Corporation Amendment (Support for Infrastructure Financing) Bill 2019 [Provisions] on several grounds. Firstly, we do not agree that this is the right way to support our Pacific neighbours and play our role in the region. Secondly, we hold deep concerns about the role of EFIC in using taxpayer dollars to fund fossil fuel projects in an era of climate breakdown. Thirdly the passage of this Bill has been rushed - not allowing for appropriate consultation. Prime Minister Morrison first announced the policy in November 2018 with it passing through the House of Representatives in February this year before coming to the Senate. The speed at which this Bill is being propelled leaves little time to consider some of the real concerns over its appropriateness.

1.2 As Stephen Howes pointed out in his submission on behalf of the Development Policy Centre at the Australian National University:

There is a risk that that the Efic reforms will undermine governance in the Pacific by encouraging a supply-side, project-proponent-led, non-competitive approach to infrastructure. This is widely perceived to be a problem with Chinese export credit to the Pacific.

Efic projects, even if commercially viable, may be against the national interest of the recipient country in a poor policy environment. But Efic lacks both the capacity to make policy assessments and the mandate to promote policy dialogue and reform.

Efic will be mandated to pursue infrastructure projects that are in Australia’s interests, and to maximise Australian participation. In other words, it is required to put Australia first, which is bad for the Pacific, and inconsistent with our official position of backing openness and competition.1

1.3 These risks should be thoroughly explored before it is allowed to be brought to the Senate as should the specific concerns outlined below.

Australia in the Pacific 1.4 The Greens believe that Australia should be stepping up our engagement with the Pacific and doing far more to support our Pacific neighbours. The best way of doing this is by boosting our aid budget from its lowest ever levels as a

proportion of Gross National Income (GNI), to put us on a trajectory to reaching 0.7% of GNI by 2030. The Pacific region would reap the benefits of a decent Australian aid budget, alongside an increase in Australia’s contribution to climate finance and Australian Government policies to wean Australia off dangerous fossil fuels.

1 Submission 17, p. 1.

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1.5 The Greens fully support the submissions made by a number of development sector stakeholders, who overwhelmingly expressed serious concerns regarding the substance of the bill, as well as the lack of consultation and scrutiny surrounding it.

1.6 As Oxfam notes in its submission:

In line with the Boe Declaration, and with best practice globally in providing development loans as well as Australia’s obligations under both the Paris Declaration and global human rights standards, any loan facility increasing Australian funding for infrastructure to developing countries must:

 have Pacific Island nations’ views, needs and interests at its heart;  operate with a high level of transparency and accountability;  apply best practice standards, due diligence and safeguards, including in relation to gender, human rights, climate change and community

consultation and consent;  be sustainable, both from an environmental and social perspective, especially with regard to climate change being “the single greatest

threat to the livelihoods, security and wellbeing of the peoples of the Pacific” as outlined in the Boe Declaration; and  be actively inclusive of small and medium scale infrastructure, particularly in the areas of agricultural and water infrastructure, which

are proven to be pro-poor.

At present, EFIC does not have the mandate, operational framework or expertise that would enable it to accommodate these core elements. The draft legislation does not include provisions that would change EFIC’s governance, structures or processes to ensure that any of these core elements are taken into account in the future.2

1.7 Furthermore, the Australian Council for International Development (ACFID) notes in its submission:

There is insufficient evidence that Efic’s standards of governance; capability; risk management; environmental and social safeguarding; and transparency and accountability can effectively deliver on its proposed expanded mandate constituted in this Bill and will be commensurate and aligned with the high development standards and principles employed in Australia’s development cooperation program by the Department of Foreign Affairs and Trade (DFAT).3

1.8 EFIC has a mandate to put Australia first, not the Pacific. The Australian Greens are deeply concerned that this bill does not put Pacific needs first and may lead to outcomes against the national interest of the recipient countries.

2 Submission 18, [p. 2].

3 Submission 20, [p. 2].

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Fossil Fuels 1.9 We also hold deep concerns about the possibility for this funding to finance fossil fuels. This government has repeatedly shown they will attempt to use every cog in the machinery of government to spend taxpayer money on coal.

1.10 As The Australia Institute pointed out in their submission:

The Government has made it explicit that Efic could fund projects to promote Australian fossil fuel exports:

''In the energy sector, Efic's new power would enable it to finance the construction of LNG receivable terminals, leading to increased energy exports or engineering services''.

While the minister’s quote refers only to gas, this could equally apply to coal infrastructure. Efic has a long history of funding fossil fuels, and has claimed that Australia’s commitments adopted by parliament under the Paris Agreement do not apply to its activities.

New FOI documents show numerous coal companies have lobbied Efic for funding. With these changes, Efic could have taxpayers fund new coal power stations, then fund coal mines to fuel them, all against our broader climate change commitments.

Efic is ill-suited for development work and has a poor track record on large overseas infrastructure. The largest fossil fuel project it has funded has sparked civil conflict bordering on civil war.4

1.11 The Greens attempted to move an amendment to this bill in the House of Representatives on the 20th of February, 2019. This amendment would prevent EFIC from facilitating and funding the mining and export of thermal coal. This amendment was voted down by both Labor and the Coalition Government. Despite Labor’s insistence that it does not support taxpayer funding for the Adani Carmichael project - despite their Queensland Labor colleagues promoting it - federal Labor MPs sided with the Coalition to keep the door open to fund new coal projects using public money.

1.12 There is a real danger that prior to the upcoming Federal election the government attempts, through EFIC or another means, to provide taxpayer funding to Adani or other fossil fuel projects will be successful. This Bill provides one such avenue.

1.13 The Greens have a number of material concerns with this bill. However, the proposition that EFIC could spend taxpayer dollars on thermal coal mining is particularly reprehensible both for the planet and the Pacific neighbours it purports to ‘help’ who will be first and worst affected by climate breakdown.

1.14 If, as it currently appears, the ALP and the government have come to an agreement to pass this bill, it is critical that at the very least the Labor Party works with the Greens to ensure our amendment passes. The amendment does

4 Submission 15, p. 2.

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not remove any sections from the bill, it simply limits the ability of EFIC finance to be directed toward thermal coal, and thus should be unobjectionable to Labor.

Recommendation 1

1.15 That this Bill not be passed.

Recommendation 2

1.16 In the event the Bill proceeds to pass, it should be amended to include the following:

Schedule 1, page 4 (after line 10), after item 4, insert:

4A At the end of section 7

Add:

(4) EFIC must not perform a function, or exercise a power, to the extent that the performance of the function or the exercise of the power relates to a project that involves, or would facilitate, the mining and export of thermal coal on a commercial scale.

(5) Without limiting subsection (4), EFIC must not perform a function, or exercise a power, to the extent that the performance of the function or the exercise of the power relates to:

(a) providing insurance or financial services or products in relation to a project that involves, or would facilitate, the mining and export of thermal coal on a commercial scale; or

(b) encouraging banks, or other financial institutions, carrying on business in Australia to finance, or assist in financing, export contracts or eligible export transactions in relation to a project that involves, or would facilitate, the mining and export of thermal coal on a commercial scale; or

(c) providing information or advice to any person regarding insurance or financial arrangements available to support the export of thermal coal on a commercial scale.

[EFIC’s functions]

Senator Sarah Hanson-Young

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Dissenting comments from Senator Storer

1.1 This Bill has several weaknesses that should be addressed before it is passed by the Parliament.

1.2 First, there is a risk that the Efic reforms will give a green light to Australian businesses to push projects in neighbouring countries, regardless of whether it is in the best interest of the country in question. The risk is that proponents with better connections, rather than better projects, will be funded, and that good governance will be undermined.

1.3 Furthermore, what really matters for infrastructure success is not financing availability but the domestic policy framework. If that policy framework is sound, financing will follow. If it is not, no amount of official financing will lead to sustainable development. This Bill does nothing to address the fundamental issues constraining infrastructure development.

1.4 Efic should be required to certify that the policy framework for any infrastructure project it supports is satisfactory before approving an investment. If it is able to do this, and if the project is commercially viable, then we will know that the project is in the interests of the recipient. Absent a satisfactory policy framework, even commercially viable projects may not be in the interests of the recipient.

1.5 Efic could possibly be allowed to certify that the policy framework would be satisfactory if a number of agreed policy reforms are made. Such an approach adds the risk that the policy reforms won’t actually be made, but is consistent with the practices of the multilateral banks. It would also encourage the country in question to create the necessary policy frameworks.

Recommendation 1

1.6 Amend the definition of "overseas infrastructure financing" to "lending money to support overseas infrastructure development, if EFIC reasonably believes that lending the money is likely to result in an Australian benefit and there is an appropriate domestic policy framework for the infrastructure development''.

1.7 The Efic legislation does not mandate tying to Australian producers, but it does require that benefits to Australia be maximised. There is no requirement that competitive tendering be used. This will be bad for the Pacific, and bad for Australia’s reputation. At fora such as G20 and APEC, we will continue to promote the virtues of open markets and competition. But in practice, we will be putting pressure on potential recipients to maximise Australian content in return for Australian financing.

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1.8 This issue should be addressed by removing the requirement for Efic to perform its overseas infrastructure financing functions in such a manner as Efic reasonably believes is likely to result in the ''maximum Australian benefits''.

Recommendation 2

1.9 Remove "maximum Australian benefits" requirement by deleting subsection 5(4).

1.10 Under Article 2 of the Paris Agreement, Australia committed to "making finance flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development". Any investments Efic makes under these new arrangements should be consistent with this commitment.

Recommendation 3

1.11 Amend Bill to require any infrastructure financing undertaken by EFIC to be consistent with the aims and objectives of the Paris Agreement.

Senator Tim Storer

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Appendix 1 Submissions

1 Oil Search Limited 2 ESS Weathertech Pty Ltd 3 Aspen Medical 4 Rhodes Project Services Pty Ltd 5 Dr Susan Engel 6 McKell Institute 7 World Vision Australia 8 Export Finance and Insurance Corporation (Efic) 9 Department of Foreign Affairs and Trade

 9.1 Supplementary to submission 9

10 International Women's Development Agency 11 National Australia Bank 12 Jubilee Australia 13 ActionAid Australia 14 Export Council of Australia 15 The Australia Institute 16 Asian Development Bank 17 Development Policy Centre, Crawford School of Public Policy, The Australian

National University 18 Oxfam Australia 19 ANZ Banking Group Limited (ANZ) 20 Australian Council for International Development (ACFID) 21 Australia-Papua New Guinea, Australia-Fiji and Australia-Pacific Islands

Business Councils 22 CCB Envico 23 Australian Trade and Investment Commission (Austrade) 24 Dr Jolyon Ford 25 CIMIC Group