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The terms of Malcolm Turnbull’s $444 million Barrier Reef grant were set by Scott Morrison, who as treasurer insisted the money not go to a Commonwealth agency. By Karen Middleton.

Exclusive: Morrison set reef grant terms

Prime Minister Scott Morrison in Sydney.
Credit: AAP Image / Joel Carrett

The federal government’s decision to grant $444 million in Great Barrier Reef protection funding as a lump sum to a private foundation came after then treasurer Scott Morrison insisted it was the only way to avoid the grant delaying a return to surplus and undermining the government’s economic credentials.

The Saturday Paper has confirmed much of the sequence of events that led to almost half-a-billion dollars being delivered to the Great Barrier Reef Foundation, now the subject of a Senate inquiry.

The paper has also confirmed that former prime minister Malcolm Turnbull – who endorsed Morrison’s approach and made the offer to the foundation personally – has agreed to answer questions from a Senate committee investigating the grant.

Government sources say that in the lead-up to this year’s May budget, Josh Frydenberg – then environment and energy minister, now treasurer – wanted the government to allocate substantial funding to protect the reef from further damage.

Morrison, who was treasurer at the time, responded that because of a solid budget position in 2017–18, funding was available – but only on the condition that it was all allocated and spent before the financial year ended on June 30, 2018.

The Saturday Paper understands Morrison argued that allocating reef funding in stages across the budget’s forward estimates was unacceptable because it would commit the government to fixed amounts in future years when other variables in the economy might limit the available cash. That could leave too little in the coffers and jeopardise the government’s chances of getting the budget back into surplus as promised in 2019–20.

Spending all the funds in the current year would avoid that.

But in order for the budget to designate the reef funds as having been spent – and not to have to carry over or reallocate any in future years – the money needed to be given to an organisation that wasn’t a Commonwealth agency.

This ruled out the Great Barrier Reef Marine Park Authority, the statutory agency tasked with managing the reef.

The government was not inclined to give it to the Queensland Labor government, so a private organisation was chosen. What is still not entirely clear is exactly who suggested the foundation.

Frydenberg revealed in parliament last month that he took two submissions to cabinet’s expenditure review committee in March seeking funding for water quality, tackling the crown-of-thorns starfish, reef science, Indigenous engagement and the government-owned Marine Park Authority’s on-water management program.

He said they also contained a proposal to establish a partnership with a non-government organisation, “which was the Great Barrier Reef Foundation”.

Prime Minister Scott Morrison’s office did not respond to The Saturday Paper’s request for comment.

The prime minister told journalists on Thursday that the grant given to the GBRF was “the biggest investment in reef research and science that any government has made for a very, very long time”.

“We support a healthy reef,” he said.

The foundation’s chairman, John Schubert, has told the Senate inquiry that Turnbull’s appointment secretary contacted him “two days before”, to arrange a meeting for April 9 in Sydney.

There, Turnbull and Frydenberg revealed their intentions. Foundation managing director Anna Marsden said later that it was like winning the lottery.

The grant was announced on April 29 and included in the budget on May 8. After guidelines and an agreement were drawn up, the entire $444 million sum was transferred to the foundation on June 28, two days before the end of the financial year.

Labor and the Greens criticise what they call a lack of proper process, establishing the Senate inquiry to investigate.

The Saturday Paper has confirmed that Malcolm Turnbull has now agreed to answer the inquiry’s questions.

The committee wrote to Turnbull, currently on an extended holiday in New York, seeking to question him about the grant.

Inquiry chairman and Greens senator Peter Whish-Wilson has told The Saturday Paper that Turnbull has asked to be sent questions and indicated he would respond.

Turnbull suggested this might avoid the need for him to return to Australia to give evidence in person.

The parliamentary inquiry has the power to compel the former prime minister to appear, now that he is a private citizen.

“He contacted me and indicated it might be preferable to send him questions, given he’s overseas,” Whish-Wilson said. “I put that to the committee.”

Whish-Wilson declined to say how the committee had responded or whether any deadline had been set for Turnbull.

The inquiry has been investigating how and why the massive one-off grant was made to a private foundation without advance consultation or any tender process and delivered in a lump sum.

During Senate hearings last week, Labor senator Kristina Keneally asked Treasury officials if the way the money is paid would affect the bottom line.

“If the measure had a different spending profile, it would have had a different impact,” replied Treasury assistant secretary Hamish McDonald.

Referring to years beyond 2017–18, he said: “If the government decision had been to spend money in those years and nothing else changed, that would make the budget worse in those years.”

Privately, government sources insist the Great Barrier Reef Foundation was not chosen because of any personal ties between ministers and members of the foundation’s board or its “chairman’s panel”, which includes executives of large corporations who sponsor the foundation’s activities through a $20,000-a-head annual fee – although The Saturday Paper is aware such connections exist.

Rather, the sources suggest both the Coalition government and its Labor predecessor had partnered with the organisation and that it had a good reputation for leveraging and managing funds, albeit in much smaller amounts.

They say the Department of Environment and Energy endorsed the foundation as a good recipient.

But the government has redacted information from documents that might shed more light on exactly who decided the foundation should be the recipient.

The Great Barrier Reef Foundation was clearly on the government’s radar before it was offered the grant.

In the same 24 hours that Turnbull contacted it to arrange the short-notice meeting, the foundation hosted the Prince of Wales, Prince Charles, at a roundtable on coral degradation on Lady Elliot Island on the Barrier Reef.

The prince was in Australia to open the Commonwealth Games, and the Department of the Prime Minister and Cabinet helped set his official itinerary. On Friday, April 6, Prince Charles visited Lady Elliot Island to attend the roundtable and spoke later of his concern about the need to prevent further reef damage.

The roundtable chairman was Dr Russell Reichelt, who is chairman and chief executive of the government-owned Great Barrier Reef Marine Park Authority and also serves on the GBRF’s board.

The event provided the backdrop for property company LendLease to announce it was partnering with the GBRF and the federal and state governments on a reef habitat protection project.

The federal government and LendLease were contributing $5 million each, with the foundation and the state government making up the remaining $4 million.

LendLease’s managing director, Steve McCann, attended the roundtable with the prince, along with other corporate executives involved in the reef foundation.

It is understood the $5 million was the first formal partnership the federal government had entered into with the foundation. Officials revealed to the Senate inquiry last week that the $5 million grant still has not been finalised.

Keneally, who the government has accused of leading a “witch hunt” about the grant, suggested it was ironic that a $5 million grant had not yet been resolved but the more recently proposed $444 million had been transferred to the same organisation so quickly.

The Environment and Energy Department told the Senate inquiry it conducted due diligence on the foundation before the offer but declined to give details.

The department’s legal due diligence report – of which the index and cover pages were provided – was dated June 8.

It included due diligence on the foundation’s board members.

Two days earlier, the Australian Competition and Consumer Commission announced it had charged one of the foundation’s directors, investment banker Stephen Roberts, with criminal cartel behaviour over a $2.5 billion share deal in 2015. Roberts resigned from the foundation’s board.

Emails released to the Senate indicated those events caused concern within at least one government agency – the Australian Institute of Marine Science, whose former chief executive officer John Gunn is on the foundation board and current chief executive Dr Paul Hardisty serves on its international scientific advisory committee.

Townsville-based AIMS manager Frank Tirendi alerted acting chief operating officer John Chappell to the issue on June 8.

“I think it’s not unreasonable to request a ‘please explain’ from the GBRF,” wrote Tirendi.

Chappell wrote: “At the very least, this is terrible timing.”

At their council meeting several days earlier, minutes of which were also released to the Senate, AIMS executives had described “positive” outcomes for their institute from the funding announcement because $100 million of it was to be devoted explicitly to reef science and research.

Other documents indicate the foundation is being asked to triple this amount by leveraging private donations.

A record of an AIMS executive discussion about the grant the day after it was announced appears to confirm why it went to a private organisation.

“This is about the revenue windfall,” the note reads, apparently referring to the upcoming budget. “The money can only be expensed in government if the money has left the government.”

Minutes to another AIMS council meeting in early June record its chair, Penny Wensley, as having commented “that there is a high level of apprehension and concern amongst organisations working on reef issues about the new funding arrangements, including concerns over potential duplication of investment and effort”.

The summary of the council’s general discussion notes the government had “an appetite … to do things differently”.

The executive director of strategy and development, David Mead, told the meeting there was “a disconnect between government’s understanding of what will be delivered from the $100 million and what can actually be achieved in the short term”.

Hardisty suggested the “government does not yet fully understand the time or investment required for large-scale restoration interventions”.

The summary of a separate AIMS executive meeting held on June 12 appears to suggest the idea of a private grant may have been around for a while.

“The concept of the partnership has been discussed for a long time, similar to national monument arrangement in the US – this is a trial case to see if not-for-profits can be used to deliver big government programs,” the summary says, attributing the comments to “RR”, believed to be Russell Reichelt of the Great Barrier Reef Marine Park Authority.

The summary also says the government’s keywords about the grant were “governance, leverage and innovation”.

The summary reports the foundation believes “the best way out of the recent criticism (media, senate estimates) about their capacity is to demonstrate their leveraging capability”.

The government says the foundation was chosen for its capacity to leverage the lump sum to attract further private funds.

Environment groups have speculated the lump-sum grant may have been designed to head off any international accusations that the government had not kept its promise to spend at least $716 million on reef protection and restoration by 2020. Failure to keep that promise could jeopardise the reef’s World Heritage listing.

Australian Conservation Foundation chief Geoff Cousins has called it a bit of accounting “trickery”.

Officials from the Department of the Environment and Energy sidestepped questions from senators Keneally and Whish-Wilson during inquiry hearings last week.

Departmental secretary Finn Pratt and others declined to detail deliberations on the grant, saying the budget process was confidential.

“It’s a lot more than just a budget process,” Whish-Wilson observed of the grant’s unusual trajectory.

Pratt said: “I agree.”

Whish-Wilson continued. “It’s a totally new way of doing business on a scale that we’ve never seen before.”

The departmental secretary did not dispute it.

“I agree,” Pratt said.

The inquiry has sought to extend its reporting deadline to December.

The questions, it seems, will continue.

This article was first published in the print edition of The Saturday Paper on Sep 29, 2018 as "Exclusive: Morrison set reef grant terms". Subscribe here.

Karen Middleton
is The Saturday Paper’s chief political correspondent.