NAIF changes to fast-track infrastructure investment
18 April 2018
The Australian Government will amend the investment mandate of the Northern Australia Infrastructure Facility to increase its flexibility and improve its potential to support projects that deliver more jobs and economic opportunities to Northern Australia.
Minister for Resources and Northern Australia Matt Canavan said today the action was based on the findings of an independent expert review of NAIF, undertaken by Tony Shepherd AO.
"Mr Shepherd consulted widely with NAIF, investors, project proponents and Governments. He found the important need to develop the North still exists, but there have been challenges to making it happen," Minister Canavan said.
"The Government shares this view and we are committed to developing industry and job opportunities in Northern Australia.
"We will implement changes to the NAIF Investment Mandate recommended by the expert review, in response to a key finding that the NAIF's Investment Mandate is too restrictive.
"The Government's amendments will increase its flexibility and improve its potential to support projects in partnership with the private sector and northern jurisdictions. In particular, these changes will increase the proportion of a project that NAIF can finance and expand the types of infrastructure that will be eligible for NAIF finance..
"These changes will ensure NAIF is in the best position to help drive the infrastructure investment, in partnership with the private sector and state governments, that delivers jobs in Northern Australia.
"NAIF has worked with project proponents across the length and breadth of Northern Australia. There is a clear appetite for developing the entrepreneurial potential of the North.
"There are currently 17 projects in the due diligence and execution phases across all three northern jurisdictions. There are seven in the Northern Territory, five in Western Australia and five in Queensland.
"There are 90 active enquiries in the pipeline. These are from diverse sectors including energy generation and gas pipelines, transport, tourism, agriculture, manufacturing, water infrastructure and communications.
"The report commends NAIF for developing this pipeline but recommends that removing some of the restrictions on NAIF could assist in bringing projects to financial close.
"Notwithstanding the strong pipeline of projects, I recognise the challenges of finalising infrastructure investments in the North, given its smaller population base and the timeframes required to move infrastructure projects through the pipeline.
“Northern Australia accounts for only 6 per cent of our population, even though it contributes 12 per cent towards our gross domestic product (GDP).
"Projects also need to be considered on their merits, with the appropriate amount of due diligence, and that can take some time.
"However, with the additional flexibility that comes from these changes, the Government looks forward to further developing more infrastructure in the North.
"The Government is committed to delivering our Northern Australia development agenda.
“NAIF is a key component of this agenda, which also includes investment in roads and rail, water, agriculture, tourism and defence."
The key changes to the NAIF Investment Mandate are:
Removal of the 50 per cent cap
• This change will increase the amount of NAIF finance available to infrastructure projects by allowing the NAIF to finance up to 100 per cent of a project's debt, while ensuring the Commonwealth does not take the majority of the financial risk in a project. Originally, the Investment Mandate limited the finance available to 50 per cent of the total debt of the infrastructure component. In some cases, this may be insufficient to fill the financing gap, preventing projects that would otherwise provide economic and public benefit to the north from proceeding. Proponents must still be able to repay or refinance the loan, but the NAIF can provide them with finance on concessional terms, making more projects feasible and driving investment in the north.
Loosening the gap test
• The review found that the mandatory criteria that financial assistance is only provided if it is necessary to enable the project to proceed, or proceed earlier than otherwise able, was imposing unnecessary and onerous requirements to demonstrate a genuine finance gap. Board members are experts in their field, and relying on their discretion to determine whether NAIF support is required will maintain NAIF's role as a gap financier, while improving the efficiency of NAIF's operations.
Clarifying the definition of infrastructure
• The review found that the NAIF would be most effective if it would consider financing a broad range of infrastructure, to better reflect the infrastructure needs of regional and remote areas. Unlike more developed areas, there is often very little existing infrastructure available to proponents. This means that foundational infrastructure will often form part of a proponent's proposal. It is important that the NAIF considers financing this infrastructure too, as it is often integral to a broader proposal. It will also encourage additional local investment if this infrastructure has the potential to be made available to other users.
• The review also made a number of recommendations that support better funnelling of projects into the latter stages of NAIF's investment pipeline, particularly through the establishment of Regional Development Hubs. The Government will work to link existing processes with the NAIF, particularly our Cities agenda and the Major Project Approvals Agency. I am working with relevant ministers to identify and exploit mutually beneficial opportunities in this respect. It is also about identifying shared priority projects with the relevant state and territory.
The Government will further consider the report’s recommendation that the NAIF be able to take equity in projects as part of the broader scheduled review for 2019.
Minister Canavan's office: (02) 6277 7180