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Foreign Affairs, Defence and Trade Legislation Committee—Export Finance and Insurance Corporation Amendment (Equity Investments and Other Measures) Bill 2021 [Provisions]—Report, dated August 2021


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August 2021

The Senate

Foreign Affairs, Defence and Trade Legislation Committee

Export Finance and Insurance Corporation Amendment (Equity Investments and Other Measures) Bill 2021 [provisions]

© Commonwealth of Australia 2021

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ISBN 978-1-76093-279-4 (HTML Version)

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iii

Committee Members

Chair Senator the Hon Eric Abetz LP, TAS

Deputy Chair Senator Kimberley Kitching ALP, VIC

Members Senator Tim Ayres ALP, NSW

Senator the Hon David Fawcett LP, SA

Senator the Hon Concetta Fierravanti-Wells LP, NSW

Senator Jacqui Lambie JLN, TAS

Participating Senator Senator Larissa Waters QLD, AG

Secretariat Lyn Beverley, Committee Secretary Christopher Sautelle, Principal 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

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Table of Contents

Committee Members ........................................................................................................................ iii

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

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

Conduct of the inquiry ........................................................................................................................ 1

Background ........................................................................................................................................... 1

Purpose of the Bill ................................................................................................................................ 2

Context for the Bill ............................................................................................................................... 3

Financial implications .......................................................................................................................... 4

Scrutiny by other committees ............................................................................................................. 4

Structure of this report ........................................................................................................................ 4

Chapter 2—Key Issues ....................................................................................................................... 5

Infrastructure in the Indo-Pacific region .......................................................................................... 5

Environmental and social aspects ...................................................................................................... 7

Committee view ................................................................................................................................. 10

Australian Greens Dissenting Comments ................................................................................... 13

Appendix 1—Submissions and answers to questions on notice ............................................. 19

1

Chapter 1 Introduction

Referral of the Bill 1.1 On 4 August 2021, the Export Finance and Insurance Corporation Amendment (Equity Investments and Other Measures) Bill 2021 (the Bill) was introduced into the House of Representatives by the Assistant Treasurer, the Hon Michael

Sukkar MP for the Hon Dr David Gillespie MP, Minister Assisting the Minister for Trade and Investment.1

1.2 On 5 August 2021, 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 (the Committee) for inquiry and report by 20 August 2021.2

Conduct of the inquiry 1.3 The Committee advertised the Inquiry on its website, calling for submissions by 12 August 2021. 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 those who made submissions.

Background

Functions of Export Finance Australia 1.5 Export Finance Australia (EFA) is the Australian Government’s export credit agency. It 'provides finance to support Australian exporting businesses and in support of overseas infrastructure development that delivers benefits to

Australia'.3

1.6 The functions of EFA are detailed in the Export Finance and Insurance Corporation Act 1991 (the EFIC Act). EFA is required to:

 facilitate and encourage Australian export trade and overseas infrastructure development by providing finance;  encourage banks and other financial institutions to finance exports and overseas infrastructure development;

1 House of Representatives, Votes and Proceedings No. 131, 4 August 2021, p. 2101.

2 Journals of the Senate, No. 109—5 August 2021, p. 3849.

3 DFAT/EFA, Submission 1, p. 2.

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 provide information and advice about finance to help support Australian export trade;  assist other Commonwealth entities and businesses in providing finance and financial services; and  administer payments in relation to overseas aid projects financed by the

Commonwealth.4

1.7 The Department of Foreign Affairs and Trade (DFAT) and EFA noted that in performing its functions, EFA:

 co-operates - rather than competes - with private financiers to operate within the ‘market gap’; and  focuses on supporting:

− small and medium-sized enterprises (SMEs) − the infrastructure needs of Pacific Island countries (including Timor-Leste) and the broader Indo-Pacific region − defence-related exports − critical minerals projects and related infrastructure.5

1.8 The second reading speech noted that:

In 2019-20 Export Finance Australia supported 136 Australian businesses with $1.1 billion in support, enabling $2.45 billion of export contracts which supported just under 10,000 jobs in Australia.6

Purpose of the Bill 1.9 The Bill will amend the Efic Act and according to the second reading speech will:

give Australia's export credit agency, Export Finance Australia, a new equity investment power and the ability to provide standalone overseas infrastructure guarantees. These initiatives will support infrastructure development in the Indo-Pacific and export-linked projects in Australia, as well as provide enhanced support for the financing activities of the Australian Infrastructure Financing Facility for the Pacific.7

1.10 The Explanatory Memorandum (EM) provided further detail on the ability for EFA to 'offer guarantees for overseas infrastructure transactions without also needing to provide a loan to the same transaction'. This will:

improve the flexibility and efficiency of Export Finance Australia’s and the Australian Infrastructure Financing Facility for the Pacific’s (AIFFP) overseas infrastructure financing activities, particularly in the Pacific, where transactions may be most appropriately financed in local currencies. Export Finance Australia providing a guarantee for another lender’s loan

4 DFAT/EFA, Submission 1, p. 2.

5 DFAT/EFA, Submission 1, pp. 2-3.

6 The Hon Michael Sukkar MP, House of Representatives Hansard, 4 August 2021, p. 4.

7 The Hon Michael Sukkar MP, House of Representatives Hansard, 4 August 2021, p. 3.

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in local currency is an effective way of facilitating local currency borrowing. Export Finance Australia’s equity investment power will also be available to the AIFFP, which relies on Export Finance Australia’s governing legislation for delivery of its loans.8

1.11 It was highlighted that these amendments will 'complement its existing suite of financing powers comprised of loans, guarantees, bonds and insurance'.9

Context for the Bill

Supporting Infrastructure investments in the Indo-Pacific and export-linked sectors in Australia 1.12 On 24 June 2021, the Minister for Trade, Tourism and Investment, the Hon Dan Tehan MP, announced that EFA would be given 'broader powers to finance

transactions that serve Australia's national interests and priorities'. The Minister advised that the equity power 'would enable EFA to better support overseas infrastructure development and export-linked Australian businesses in sectors of economic significance'.10 The Minister added:

Currently EFA can only provide debt instruments to support Australia's investment aims…While used sparingly, this power will give EFA more flexibility to support important infrastructure investments in the Indo-Pacific or export-linked projects in Australia.11

1.13 The EM further detailed the need for the Bill:

The current lack of an equity investment power restricts Export Finance Australia to a narrower range of transactions. Equity investments are a suitable form of financial support for important projects that support Australia’s national interests, when other financing tools are either unavailable or inadequate.12

1.14 DFAT and EFA provided further context for these aspects of the Bill:

As outlined in the Government’s 2017 Foreign Policy White Paper, Australia is committed to working with regional partners to build an Indo-Pacific that is safe, secure, and prosperous.

The bill enhances EFA’s ability to:

 finance regional infrastructure. In 2019, the Government provided EFA with the power to support overseas infrastructure projects in our region to the benefit of Australia or Australians. In broadening its financing

8 EM, p. [1].

9 The Hon Michael Sukkar MP, House of Representatives Hansard, 4 August 2021, p. 3.

10 The Hon Dan Tehan MP, Minister for Trade, Tourism and Investment, 'Reforms to Export Finance

Australia', Media release, 24 June 2021.

11 The Hon Dan Tehan MP, Minister for Trade, Tourism and Investment, 'Reforms to Export Finance

Australia', Media release, 24 June 2021.

12 EM, p. [1].

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powers to include equity investments, EFA will be able to make investments in a greater range of infrastructure projects, and at an earlier stage of development. The equity power will also be made available to the AIFFP, further supporting Australia’s Pacific Step-up; and  support the development of export-linked sectors of economic

significance in Australia when other financing tools, both public and private, are either unavailable or inadequate.13

Aligning EFA with international and domestic peers 1.15 The Minister further noted that:

This reform will align Australia with other countries, like the USA, China, Japan, Canada and South Korea, which are already making equity investments in our region to support their development and commercial objectives.14

1.16 DFAT/EFA added that:

the Bill aligns EFA with other Australian Government financing agencies, like the Northern Australia Infrastructure Facility and Clean Energy Finance Corporation, which are already able to make equity investments.15

Financial implications 1.17 The EM states that the Bill will have no impact on the Commonwealth's underlying cash balance.16

Scrutiny by other committees 1.18 The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill.17 The Parliamentary Joint Committee on Human Rights had not reported on the Bill at the time of tabling this report.

Structure of this report 1.19 Chapter 2 of this report provides an overview of issues raised in evidence and contains the Committee's views and recommendation.

13 DFAT/EFA, Submission 1, p. 3.

14 The Hon Dan Tehan MP, Minister for Trade, Tourism and Investment, 'Reforms to Export Finance

Australia', Media release, 24 June 2021.

15 DFAT/EFA, Submission 1, p. 4.

16 EM, p. [1].

17 Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 12 of 2021, 11 August 2021,

p. 9.

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Chapter 2 Key Issues

2.1 This chapter outlines the key issues raised with the Committee as well as the Committee's views and recommendation.

Infrastructure in the Indo-Pacific region 2.2 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia argued that:

[i]nfrastructure investments in the Indo-Pacific region should be led by the priorities of the relevant country, not by the national interest of Australia or the commercial interests of Australian businesses'. Australia's Pacific neighbours have clear priorities for infrastructure investment, and supporting these initiatives should be prioritised.1

2.3 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia submitted that 'EFA should give consideration to these priorities alongside Australia's national interest'. It was recommended that EFA's Statement of Expectations should be 'amended to require EFA to consider whether a project to be financed (including where the financing is an equity investment) delivers benefits for the recipient nation'.2

2.4 DFAT responded to this suggestion by noting that:

The Minister’s Statement of Expectations requires EFA to “reasonably satisfy itself through due diligence…[that] the infrastructure project is appropriate for the relevant nation and the governance surrounding project procurement is sound”. EFA’s due diligence processes include debt sustainability analysis and compliance with a range of international economic, financial, environmental and social risk standards.3

Constraints on equity power 2.5 DFAT and EFA also advised the Committee that '[t]he Government will instruct EFA to ensure equity investments are only considered for significant transactions that support Australia’s national interests'. In addition:

Constraints will also be placed on the use of the equity power, including through a direction from the Minister for Trade, Tourism and Investment and an updated Statement of Expectations to EFA. These constraints are:

1 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia,

Submission 2, p. 3.

2 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia,

Submission 2, p. 4.

3 DFAT, Submission 1.2, p. 2.

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 Equity investments will be limited to the National Interest Account (i.e. the Australian Government - not EFA - will make the final decision on equity investments);  Equity investments will be limited to a minority interest unless there is

a compelling reason otherwise;  Equity investments should be $20 million or higher unless there is a compelling reason otherwise;  EFA will only bring forward proposals where other financing options

are unavailable or inadequate;  EFA will ensure equity investments have appropriate exit arrangements and target commercial rates of return; and  EFA will encourage participation from the private sector and like-

minded Governments and multilateral bodies.4

2.6 In addition:

These constraints will ensure EFA is not crowding out private finance, but instead filling a gap in the market. Debt solutions like loans, guarantees, and bonds will continue to be the mainstay of EFA’s support to Australian exporters and for overseas infrastructure development in the region.5

Transparency 2.7 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia suggested that the enhancement of EFA's powers should come with an 'enhancement of EFA's transparency and accountability, both to

Australian taxpayers and to communities overseas'. It was suggested that one way this could be achieved is by removing EFA's partial exemption from the Freedom of Information regime.6

2.8 DFAT responded that EFA is subject to a range of transparency and governance requirements, in addition to being accountable to the Minister for Trade, Tourism and Investment and to the Parliament. DFAT provided the following detail:

 Within eight weeks of a transaction being signed, EFA is required to publish detailed information on its website about each transaction. These details include the name of the client, the sector, the goods/services or overseas infrastructure involved, the country, the type of facility and the value of the facility of the export of overseas infrastructure support.  EFA also publishes an annual report, which provides details on the

transactions EFA finances. EFA discloses its proposed involvement in transactions with the potential for significant environmental and/or

4 DFAT/EFA, Submission 1, p. 4.

5 DFAT/EFA, Submission 1, p. 4.

6 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia,

Submission 2, p. 4.

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social impacts on its website prior to making a decision on the provision of finance.7

2.9 Importantly, DFAT noted:

Like other financial institutions - including banks, export credit agencies and multilateral development finance institutions - EFA must respect the commercial-in-confidence information of its customers. This means it is not always able to disclose details of transactions under consideration. EFA is obliged to safeguard its customers’ legitimate financial or business interests. Without the ability to protect commercial-in-confidence information, EFA would not be able to operate.8

Independent review 2.10 The Committee notes that DFAT has commissioned Mr Stephen Sedgwick AO to conduct an independent review into the infrastructure investment operations of EFA, following the 2019 amendments to the EFIC Act to enhance

EFA's ability to finance infrastructure projects. The Committee also notes that this review was agreed as part of the Government's July 2019 response to the Senate Foreign Affairs, Defence and Trade Legislation Committee Report on the proposed amendments.9

2.11 The Terms of Reference for the review are:

 Consider the operation of EFA's overseas infrastructure financing functions and the extent to which it has supported the Government's aims and the infrastructure needs of our Pacific neighbours.

 Examine the impact of amendments made by items 1, 2, 4 to 9, 11 and 12 of the Export Finance and Insurance Corporation Amendment (Support for Infrastructure Financing) Bill 2019 (the Bill) on EFA's ability to finance overseas infrastructure projects.

 Consider the views of a wide range of stakeholders, including those who provided submissions to the 2019 Senate Committee inquiry into the Bill.

 Not consider the operations of the Australian Infrastructure Financing Facility for the Pacific.10

Environmental and social aspects 2.12 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia, while acknowledging that 'the equity finance amendment

7 DFAT, Submission 1.2, p. 3.

8 DFAT, Submission 1.2, p. 3.

9 See https://www.dfat.gov.au/news/export-finance-australia-independent-review-overseas-infrastructure-financing-powers, accessed 13 August 2021.

10 See https://www.dfat.gov.au/news/export-finance-australia-independent-review-overseas-infrastructure-financing-powers, accessed 13 August 2021.

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to EFA is not designed with increased fossil investment in mind', suggested that a trigger be included which relates to climate change and financial risk.11

2.13 They recommended that a new Schedule 3 be inserted into the Bill 'to introduce a requirement to consider Australia’s commitments relating to climate change'. In addition, it recommended inserting in Schedule 3 that 'EFIC is to perform its functions in a way that contributes to Australia's implementation of the Paris Agreement'.12

2.14 It was noted by DFAT and EFA that in performing its functions, EFA must also have regard to Australia’s international commitments relating to:

 sustainable lending practices;  environmental and social issues;13  the prevention of bribery and corruption; and  the security of 5G networks and future communication technologies.14

2.15 Providing further detail on its environmental and social assessment processes, DFAT and EFA advised the Committee:

EFA will continue to conduct rigorous due diligence for equity investments in a manner which is consistent with its high standards for assessing debt transactions. This includes robust environmental and social risk assessments…15

2.16 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia were of the view that Environmental and Social Review Policy and Procedures should be strengthened.16

2.17 In a supplementary submission responding to the concerns raised by Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia, DFAT confirmed:

Export Finance Australia (EFA) assesses requests for its financing support on a case-by-case basis, consistent with its mandate to support Australian export-related businesses and overseas infrastructure development that delivers benefits to Australia. There are a range of policies and directives that EFA must take into account when assessing fossil fuel-related transactions and projects. These include its Ministerial Statement of

11 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia,

Submission 2, p. 2.

12 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia,

Submission 2, pp. 2-3.

13 Note: This includes considering gender impacts. See Answers to written questions on notice from

DFAT, received 17 August 2021.

14 DFAT/EFA, Submission 1, p. 3.

15 DFAT/EFA, Submission 1, p. 5.

16 Jubilee Research Australia, the Australian Conservation Foundation and ActionAid Australia,

Submission 2, p. 6.

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Expectations, as well as international standards and benchmarks EFA is required to have regard to, such as the OECD Arrangement on Officially Supported Export Credits, the World Bank’s International Finance Corporation (IFC) Performance Standards and the OECD Common Approaches. In addition, EFA is a signatory to the Equator Principles, a risk management framework for determining, assessing and managing environmental and social risk in projects.

EFA will assess equity investments by conducting appropriate due diligence. This includes due diligence on environmental and social issues, which includes consideration of climate-related risks.17

2.18 In relation to the suggestion that EFIC perform its functions in a way that contributes to Australia's implementation of the Paris Agreement, DFAT advised:

Export Finance Australia is already required by law to have regard to Australia’s obligations under international agreements and will continue to support projects on a case-by-case basis that are consistent with Australia’s international obligations. The Australian Government is responsible for Australia’s Paris Agreement implementation and commitments.18

2.19 DFAT further detailed how EFA’s policy and procedure is consistent with international practice:

The Statement of Expectations requires EFA’s Policy and procedures for environmental and social review of transactions (the Policy) to be consistent with international best-practice environmental and social standards, including the:

 IFC Performance Standards, which define responsibilities for managing environmental and social risks;  OECD Guidelines for Multinational Enterprises, a comprehensive set of recommendations on responsible business conduct;  Equator Principles, a risk management framework adopted by financial

institutions for determining, assessing and managing environmental and social risk in projects; and  OECD Common Approaches, which seeks to align OECD export credit agencies’ environmental and social due diligence practices through

information sharing and monitoring of projects.19

2.20 Responding to the suggestion that Environmental and Social Review Policy and Procedures should be strengthened DFAT reiterated that:

the Minister’s Statement of Expectations requires EFA to apply a range of international standards and benchmarks for the assessment of projects and to make public its Policy and procedures for environmental and social review of transactions (the Policy). EFA’s Policy is reviewed at a minimum of every

17 DFAT, Submission 1.2, pp. 1-2.

18 DFAT, Submission 1.2, p. 2.

19 DFAT, Submission 1.2, p. 2.

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five years with feedback sought from interested parties as part of the review process.20

Committee view 2.21 The Committee notes that as outlined in the government's 2017 Foreign policy white paper, Australia is committed to working with regional partners to build an Indo-Pacific that is safe, secure, and prosperous. This Bill enhances EFA's

ability to support infrastructure development in the Indo-Pacific and export-linked projects in Australia.

2.22 In 2019, the government provided EFA with the power to support overseas infrastructure projects in our region that benefit Australia or Australians. The Committee notes that this requires a range of funding and financing options.

2.23 In broadening its financing powers to include equity, EFA will be able to make investments in a greater range of infrastructure projects, and at an earlier stage of development. Notably, equity investments will be reserved for exceptional circumstances.

2.24 The Committee therefore supports providing EFA with a new overseas equity investment power and a stand-alone guarantee power in order to expand its range of capabilities and bring it into alignment with international and domestic peers.

2.25 The Committee notes that the Bill will enhance EFA's role in supporting Australia's economic growth and facilitating stronger links between Australian businesses and the Indo-Pacific region.

2.26 Importantly, the Bill maintains EFA's robust processes for assessing commerciality, risk and environmental and social impacts. EFA will continue to conduct rigorous due diligence for equity investments in the same manner as other transactions. This includes robust environmental and social risk assessments.

2.27 The Committee notes that the issues raised with the Committee will be further considered as part of the independent review into the infrastructure investment options of EFA which is being undertaken by Mr Stephen Sedgwick AO.

Recommendation 1

2.28 The Committee recommends that the Bill be passed.

20 DFAT, Submission 1.2, p. 3.

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Senator the Hon Eric Abetz Chair

13

Australian Greens Dissenting Comments

1.1 Just weeks ago, the Intergovernmental Panel on Climate Change declared a “code red for humanity” and warned that “unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach”.1 This followed advice in May 2021 from the traditionally conservative International Energy Agency that investment in new coal, oil and gas projects must cease for the world to have any chance of keeping global heating to 1.5 degrees.2

1.2 Australia cannot continue to ignore these stark warnings. We must get out of fossil fuel projects at home and abroad.

1.3 Since 2009, Export Finance Australia (EFA) has invested at least $1.57 billion in fossil fuel projects, including providing guarantees for financially risky projects like the Wiggins Island Coal Export Terminal and the Gladstone LNG plant adjoining the Great Barrier Reef.3 Without restrictions on fossil fuel investment, this Bill risks more public money being used to prop up coal, oil and gas projects and accelerate the climate crisis.

1.4 The Department of Foreign Affairs and Trade (DFAT) has recently commissioned an independent review of the infrastructure investment operations of the EFA.4 The EFA’s Environmental and Social Review Policy is also currently under review, with submissions noting the need for more robust analysis of potential investments.

1.5 Given global signals on climate action and recognition of adverse environmental, social, and financial impacts on fossil fuel investment, it is premature to expand the financing options available to EFA while these two critical reviews are underway.

Recommendation 1

1.6 That the Government delay introduction of the Bill until the independent review of infrastructure investment operations and the review of the Environmental and Social Review Policy have concluded.

1 Intergovernmental Panel on Climate Change, 'Climate change widespread, rapid and intensifying

- IPCC', Press Release, 9 August 2021, http://www.ipcc.ch/2021/08/09/ar6-wg1-20210809-pr/ (accessed 18 August 2021).

2 International Energy Agency, Net Zero by 2050: A Roadmap for the Global Energy Sector,

iea.org/reports/net-zero-by-2050 (accessed 18 August 2021).

3 Jubilee Research Australia. 2021. Hot Money: Australian Taxpayers Financing Fossil Fuels.

www.jubileeaustralia.org/resources/publications/hot-money-2021 (accessed 19 August 2021)

4 See www.dfat.gov.au/news/export-finance-australia-independent-review-overseas-infrastructure-financing-powers

14

Climate finance risks 1.7 The DFAT / EFA submission notes that broadening financing powers to include equity will allow investment in a greater range of infrastructure projects, and at an earlier stage of development.5 The Explanatory

Memorandum for the Bill states:

Equity investments are a suitable form of financial support for important projects that support Australia’s national interests, when other financing tools are either unavailable or inadequate.6

1.8 As the global transition to net zero emissions gains pace, fossil fuel companies, banking and insurance institutions are finding it more difficult to access finance.7 Even if finance is secured, fossil fuel projects still face high risks of becoming stranded assets as global markets move to sustainable energy options.

1.9 Jubilee Research Australia has found that export credit agencies providing guarantees or early-stage loans can give unwarranted confidence to private lenders by “de-risking” large fossil fuel projects that they might otherwise avoid.8

1.10 This Bill, like recent amendments to the Northern Australia Infrastructure Facility Act, will allow more public money to be used to prop up coal, oil and gas projects that the private sector deems too risky. This could “leave the Government holding a stake in stranded fossil fuel assets long after the market has lost interest in investing in them.”9

1.11 DFAT / EFA advised that “equity power, if enacted, would be used sparingly and that a majority equity position would be taken only in exceptional circumstances.”10 The Ministerial Statement of Expectations will also be updated to prevent EFA from taking majority equity stakes unless there are “compelling reasons otherwise”. However, no detail has been provided as to what exceptional circumstances or compelling reasons would justify significant investment.

5 DFAT / EFA, Submission 1, p. 3.

6 Explanatory Memorandum, p. 1.

7 Readfern, G. “Australia’s fossil fuel industry admits it is harder to finance projects as climate

concerns grow”, The Guardian. 15 May 2021, www.theguardian.com/australia-news/2021/may/15/australias-fossil-fuel-industry-admits-it-is-harder-to-finance-projects-as-climate-concerns-grow

8 Jubilee Research Australia. 2021. Hot Money: Australian Taxpayers Financing Fossil Fuels.

www.jubileeaustralia.org/resources/publications/hot-money-2021 (accessed 19 August 2021), p. 7.

9 As above, p. 6.

10 DFAT / EFA response to questions on notice from Senator Waters.

15

1.12 In response to questions on notice, DFAT / EFA confirmed that “the Government is responsible for decision making, and is liable for any losses, on the National Interest Account.”11 Given this government’s stubborn, negligent attachment to coal and gas, any extension of EFA’s financing options must be qualified by explicitly prohibiting investment in fossil fuel projects.

Recommendation 2

1.13 The Government amends the Bill to expressly prohibit EFA investment, including refinancing and equity investment, in fossil fuel projects

Aligning EFA with international peers 1.14 When introducing the Bill, the Minister said:

This reform will align Australia with other countries, like the USA, China, Japan, Canada and South Korea, which are already making equity investments in our region to support their development and commercial objectives.12

1.15 Many of these countries have also taken measures to prohibit export finance agencies investing in fossil fuel:

 President Biden has directed the US export credit agency to “identify steps through which the United States can promote ending international financing of carbon intensive fossil fuel-based energy”.13

 In March 2021, the UK Government banned its export credit agency from funding any new coal and gas projects overseas.14  In April 2021, Denmark, France, Germany, the Netherlands, Spain, Sweden and UK launched the Export Finance for the Future Coalition, with each

country committing “to massively increase support for sustainable projects and to assess how to best phase out export finance support to oil and gas industries”.15

11 DFAT / EFA response to questions on notice from Senator Waters.

12 The Hon Dan Tehan MP, Minister for Trade, Tourism and Investment, 'Reforms to Export Finance

Australia', Media release, 24 June 2021.

13 U.S. International Climate Finance Plan, 22 April 2021, www.whitehouse.gov/wp-content/uploads/2021/04/U.S.-International-Climate-Finance-Plan-4.22.21-Updated-Spacing.pdf (accessed 16 August 2021)

14 UK Government, “Aligning UK international support for the clean energy transition”, March 2021,

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/fil e/975753/Guidance_-_Aligning_UK_international_support_for_the_clean_energy_transition_-_March_2021_.pdf (accessed 16 August 2021)

15 Director General of Treasury, France, “Seven countries launch international coalition “Export

Finance for Future” (E3F) to align export finance with climate objectives”, 14 April 2021,

16

 South Korea has committed to end public financing for overseas coal-fired power plants.16

1.16 If the government is serious about aligning Australia with other major economies, it will restrict the EFA’s capacity to finance fossil fuel projects.

Transparency 1.17 The joint Jubilee Research Australia, ACF and ActionAid submission objects to the lack of transparency around EFA investment activity and calls for removal of the EFA’s exemption under the Freedom of Information Act.17 Limited

access to this information undermines efforts to audit the effectiveness of funded projects or to assess the return on investment of public money.

1.18 The supplementary DFAT / EFA submission outlines existing disclosure practices, and notes the need to keep confidential commercially sensitive details of its investment.18

1.19 It is clear that current practices fall short of the transparency expected for investment of public funds. The Productivity Commission has previously recommended that the FOI exemption be removed, and noted that the FOI Act already includes protections for national security and commercially sensitive data. Other jurisdictions, including the UK and US do not provide a blanket exemption from disclosure for their export credit agencies. There is no justification for Australia to maintain the exemption.

Recommendation 3

1.20 That Export Finance Australia’s exemption from the Freedom of Information Act be repealed

Environmental and social impacts 1.21 The Jubilee Research Australia, ACF and ActionAid submission criticises EFA’s process for assessing the impacts of funded projects, including prioritisation of Australia’s interests over those of the host country, lack of

gender analysis, and lack of consideration of a project’s contribution to global emissions reduction efforts.19

www.tresor.economie.gouv.fr/Articles/2021/04/14/seven-countries-launch-international-coalition-export-finance-for-future-e3f-to-align-export-finance-with-climate-objectives

16 Heesu Lee, “South Korea Shuns Coal-Power Financing Amid Rising U.S. Pressure” Bloomberg, 22

April 2021, www.bloomberg.com/news/articles/2021-04-22/south-korea-shuns-coal-power-financing-amid-rising-u-s-pressure?sref=qm26bHqj

17 Jubilee Research Australia / ACF / ActionAid, Submission 2, p. 4.

18 DFAT / EFA, Submission 1.2, pp. 1-2.

19 Jubilee Research Australia / ACF / ActionAid, Submission 2, pp. 3, 5-6.

17

1.22 The current independent review of the Environmental and Social Review Policy must ensure EFA policies align with international best practice regarding these issues.

Senator Larissa Waters

19

Appendix 1

Submissions and answers to questions on notice

1 Joint submission of Department of Foreign Affairs and Trade and Export Finance Australia  1.1 Supplementary to submission 1

2 Jubilee Australia Research Centre, ACF and ActionAid

Answer to Question on Notice 1 Department of Foreign Affairs and Trade - answers to written questions on notice (received 17 August 2021)