Inside the NAIF conflict machine
The Northern Australia Infrastructure Facility has suffered a bit of bad press since it was established in mid 2016. The NAIF, as it’s known, was designed to inject $5 billion in concessional loans to projects across Western Australia, the Northern Territory and Queensland. But progress has been slow.
Early on, the government-owned statutory non-bank lender faced protests when it contemplated funding a rail line to support Adani’s Carmichael coalmine in Queensland’s Galilee Basin.
The minister with sole NAIF responsibility, Resources and Northern Australia Minister Matt Canavan, had publicly supported Adani and advocated both increased coalmining and a new coal-fired power station in Queensland.
After winning re-election, the Queensland Labor government vetoed NAIF money flowing to the rail line.
Still, the Adani project has not been the independent statutory body’s only controversy.
NAIF’s communications director Aaron Wakeley – a former journalist and media adviser to then Queensland Liberal National Party premier Campbell Newman – had to be “counselled” after posting anti-Labor messages on social media.
The fund’s board members, whom Canavan selected and appointed, have faced criticism over conflicts of interest, particularly their links to the mining industry.
NAIF executives have never denied the potential for conflicts of interest but have declined to detail them either before or after investment decisions, citing privacy laws and commercial-in-confidence considerations.
They say standard corporate best practice is followed for managing them.
But now, responding to a series of questions on notice from Labor senator and economics committee chairman Chris Ketter, the NAIF has provided a glimpse of how extensive those conflicts are.
Officials revealed that in the first 19 months of the organisation’s operation, board members declared 33 conflicts in relation to 23 separate projects.
The projects were among 205 it had considered at the time.
The facility’s conflict-of-interest policy statement says board members “must absent themselves from board discussions where they have a conflict of interest”.
In its response to Ketter’s questions, the NAIF said: “There have been a number of meetings at which the only or principal item of business on the agenda was a matter in respect of which one or more directors had declared a conflict of interest.”
It confirmed directors who declare a conflict are “ineligible to attend those meetings”.
The NAIF’s legislation requires that its board have a chair plus between four and six other members. When it has six or more members, the quorum for making decisions is four.
On its current configuration – the minimum of a chair plus four – the quorum is three members.
NAIF chief executive Laurie Walker told The Saturday Paper there had been “no instances where the board was unable to make a decision because it couldn’t form a quorum”.
“Directors recuse themselves any time a project on which they have a conflict is discussed by the board,” Walker said. “This includes both updates on the organisation’s engagement with a proponent in addition to any decisions that may need to be considered.”
She did not say whether issues around conflicts have slowed down or otherwise affected deliberations.
Currently, the NAIF has an acting chairman, Queensland-based legal consultant Khory McCormick, replacing inaugural chairwoman Sharon Warburton, who was also serving on the board of Fortescue Metals.
Its four other board members are: former Northern Territory Country Liberal Party deputy chief minister and treasurer Barry Coulter, who has experience in the infrastructure and mining sectors; lawyer and former investment banker Justin Mannolini from Western Australia who also chaired the board of Jindalee Resources; Queenslander, deputy chair of Regional Development Australia and former Cassowary Coast mayor Bill Shannon; and Karla Way-McPhail, the chief executive of several mining and training companies, also from Queensland.
Senator Canavan has declared he is a personal friend of Way-McPhail, whom Labor has also accused of political bias relating to her social media posts.
The minister told a Senate estimates hearing earlier this year that it was inappropriate for him to “direct her one way or another” as she was an independent board member.
It was the links to the resources sector – involving at least three of what was originally seven board members – that prompted conflict queries, especially when related or competitor companies were inquiring about applying for loans.
In July last year, the seventh board member – Queensland-based lawyer, corporate governance expert and adjunct professor at Queensland University’s business school Dr Sally Pitkin – resigned just a year into her three-year term.
The NAIF did not announce her departure, she has given no public explanation, and her seat hasn’t yet been filled.
None of this has helped the NAIF attract potential clients.
At that point, just over 18 months into the NAIF’s five-year tenure, loan applications were fewer than the government had hoped and none had progressed to the contract stage, frustrating senior members of Prime Minister Malcolm Turnbull’s government, including, it seems, Turnbull himself.
Outside parliament, there was speculation that the politicisation of the NAIF’s activities – including the fact that Labor would not commit to retaining the fund if it won government – was making some potential applicants reluctant to proceed with costly feasibility studies in order to even apply.
Aside from the Adani controversy and the criticisms of the board, which Canavan rejected, the government was concerned about structural impediments.
The NAIF’s investment mandate requires that it fund no more than 50 per cent of a project’s debt and focus on projects greater than $50 million with a public benefit.
Big projects naturally have long lead times, requiring environmental, native title and other approvals before final endorsement.
After the NAIF’s first year, five projects had progressed to the due diligence stage but the NAIF had not made any investment decisions.
In September last year, the NAIF made its first – to lend $16.8 million to the Onslow Marine Support Base in WA. The contract took another eight months to finalise.
But the concern about obstacles remained.
In November, after one Senate inquiry had raised concerns about the NAIF and another had been established, Canavan commissioned his own “expert review”.
Emails obtained by The Australia Institute through freedom of information reveal Canavan particularly sought out businessman Tony Shepherd, who had chaired the Abbott government’s commission of audit, signing a $55,000 contract for Shepherd to undertake the review over three weeks in December.
The resulting report, for which Shepherd ultimately charged $45,000, recommended the NAIF’s investment mandate be eased to encourage applicants seeking less than $50 million and allowing it to fund up to 100 per cent of the debt, provided the risk was not excessive and there was a reasonable chance of repayment. The public benefit test – though not specifically defined – would remain.
It also recommended further restricting access to the NAIF information through FOI, noting that the Adani issue had seen it swamped by more than a thousand requests.
Following Shepherd’s recommendation, the government issued a new investment mandate on April 24, making it easier to apply.
“Progress hasn’t been exactly what we thought,” Canavan told an estimates committee hearing in June.
Last week, the latest Senate inquiry raised serious concerns about NAIF’s slow, opaque operations. Coalition senators dissented from the majority-Labor-Greens report. Canavan dismissed it as a “partisan stitch-up”.
The Australian National Audit Office is also reviewing the NAIF’s activities at the request of former Labor treasurer Wayne Swan. It is due to report in December.
The board’s make-up is likely to feature.
Chairwoman Warburton resigned on April 30, citing family health issues.
Khory McCormick remains acting chairman and nobody has filled the general board vacancy.
Since April, the NAIF has announced two more investment decisions, confirmed the original Onslow loan contract has been signed, and offered conditional support to a fourth project.
They span all three jurisdictions. None is in the resources sector.
It has approved – but not yet contracted – a $7.18 million loan to aquaculture producers and exporters Humpty Doo Barramundi Pty Ltd in the Northern Territory and $96 million for a technology innovation centre at James Cook University in Townsville – a total across the three approved projects of $120 million.
The conditional approval it announced last week for $516 million for Genex’s Kidston stage 2 solar and pumped hydro project in north Queensland would take that to $636 million, leaving about $4.4 billion in concessional loans to dole out over the next three years.
Laurie Walker says the NAIF has another 115 active projects in the pipeline, 16 in due diligence, and the changed mandate had “an immediate effect”.
Queensland water projects may be on the list.
Deputy Prime Minister Michael McCormack told the ABC’s youth network Triple J this week that aside from central Queensland’s Rookwood Weir, which received $46 million in federal funding through the separate National Water Infrastructure Development Fund, there was another water project in the works.
McCormack did not say what it was or how it would be funded – through a grant or a loan – although anything funded through the NAIF would be decided independent of government, with the minister able to veto anything deemed not in the national interest.
Katter’s Australian Party leader Bob Katter told The Saturday Paper he spoke recently with a NAIF official who was expressing interest in a proposed micro-irrigation project at Hughenden, south-west of Townsville.
The NAIF would not confirm individual projects.
“But we will look at any infrastructure project that meets our eligibility criteria,” a spokesman said, emphasising it must have a proponent and not just be an idea.
Katter is also pushing a longstanding proposal for the Hells Gate dam to irrigate sugar cane and other crops and, combined with a pipeline, potentially stabilise Townsville’s water supply. It could also host a pumped hydro scheme.
Katter believes the government’s sudden enthusiasm for water projects is electorally motivated.
“I think that Turnbull is getting really scared,” Katter told The Saturday Paper. “He’s got six marginal seats in Queensland. He’s had $5000 million just sitting there. This will be the third election he’s going into saying he’s going to do northern development emphasising water, and nothing’s happened.”
Katter says the government is “hitting the panic button”.
“But I would argue [it’s] too late,” he says. “Because people are not going to believe you.”
The former Liberal National MP for the Townsville-based seat of Herbert, Ewen Jones, believes a water project would be a winner in his area.
Jones, who lost his seat to Labor in 2016 by 37 votes and suffered a surprise preselection defeat last week, advocates raising the wall of the Burdekin Dam as an alternative project to improve Townsville’s water. “If someone came up with a deadset solution for water, that would win votes,” Jones says.
But fairly or not, the NAIF has developed a bad reputation.
“I don’t think anyone up here is impressed with the NAIF at all,” Jones says. “There hasn’t been enough done.”
Praising the idea behind the NAIF, he believes it aimed too high initially.
“It’s about scale,” Jones says, saying the altered criteria could help attract viable smaller projects. He credits Canavan for making the change.
But Matt Canavan isn’t universally popular in the Queensland LNP after publicly rebuking the state opposition leader, Deb Frecklington, for promoting renewable energy in her budget reply speech in June.
He accused her of wanting renewables “force fed”.
Six days later, when the Genex company notified the Australian Stock Exchange about the NAIF’s conditional approval of its half-billion-dollar solar-and-hydro loan, some of Canavan’s state colleagues guffawed.
They sniggered privately that the pro-coal minister was having to endure the fund he administers approving its largest loan yet, not for a coalmine but renewables.
When even the NAIF’s biggest good news story becomes the butt of its proponents’ political jokes, it really does have a PR problem.
This article was first published in the print edition of The Saturday Paper on Jul 14, 2018 as "Inside the NAIF conflict machine". Subscribe here.