NAIF Act and Investment Mandate

NAIF Act and Investment Mandate

There are three core pieces of legislation that govern NAIF’s functions:

  1. NAIF came into effect on 1 July 2016 under the Northern Australia Infrastructure Facility Act 2016 (NAIF Act) which was passed with bipartisan support. NAIF is an initiative of the Commonwealth Government’s strategy to develop northern Australia.
  2. The Northern Australia Infrastructure Facility Investment Mandate Direction 2018 (Investment Mandate) is made under the NAIF Act. The responsible Minister (Minister for Resources and Northern Australia) provides directions to the NAIF about the performance of its functions through the Investment Mandate. The NAIF must take all reasonable steps to comply with the Investment Mandate.
  3. The Public Governance, Performance and Accountability Act 2013 (PGPA Act) applies to NAIF, as a Corporate Commonwealth Entity, and sets out requirements in relation to corporate governance, reporting and accountability which are in addition to those in the NAIF Act.

NAIF’s independent commercial Board is solely responsible for making all Investment Decisions (being decision to offer finance to infrastructure projects in northern Australia).  Subject to provisions in the NAIF Act and Investment Mandate, the Board’s decisions are unfettered.

1)   NAIF Act

The NAIF Act establishes the NAIF, as a Corporate Commonwealth Entity, to provide grants of financial assistance to Jurisdictions for onlending to project proponents.

The NAIF Act outlines the overarching functions of NAIF:

  1. to grant financial assistance to Jurisdictions for the construction of Northern Australia economic infrastructure; and
  2. to determine the terms and conditions for grants of financial assistance; and
  3. to provide incidental assistance to the Jurisdictions in relation to financial arrangements and agreements related to the terms and conditions of grants of financial assistance as agreed with those Jurisdictions.

Financial Assistance

Financial assistance refers to the financing mechanisms the Board may decide to provide to a jurisdiction to on‑lend to a project proponent.

Loans are the default type of financial assistance, however the Board may consider an alternate type of financial assistance, such as a guarantee, where it may be more appropriate for a specific project or it is necessary to encourage private sector participation for financing a project.

Providing financial assistance, rather than one-off grants, reduces the impact on the Commonwealth Budget and imposes more commercial terms on recipients.

Should the Board determine an alternate type of financial assistance to be appropriate, agreement must be sought from the responsible Minister, the Minister of Finance and the Treasurer.

In determining any concessions to offer a project, the NAIF Board must have regard to:

  • the extent and mix of all concessions necessary for the project to proceed; and
  • the extent of the project’s public benefit.

Concessions must be the minimum the Board considers necessary for the project to proceed and can include:

  • longer loan tenors (up to nearly 28 years under current Commonwealth borrowing conditions);
  • lower interest rates (not below the Commonwealth bond rates);
  • extended periods for interest capitalisation beyond construction completion;
  • deferral of loan repayments or other tailored repayment schedules;
  • lower or different fee structures to commercial financiers; and
  • ranking lower than commercial financiers for purposes of cash-flow or enforcement of security.

Northern Australia

For NAIF’s purposes, Northern Australia includes all of the Northern Territory, and those parts of Queensland and Western Australia above and directly below or intersecting with the Tropic of Capricorn. It also includes the regional centres of Gladstone, the Gladstone Hinterland, Carnarvon and Exmouth, as well as the Local Government Areas of Meekatharra and Wiluna in Western Australia. Territorial seas up to twelve nautical miles offshore adjacent to these areas are also included in the definition.

Projects do not need to be entirely within the boundaries of Northern Australia if they produce significant benefits for the north. For example, a project that enhances north-south connectivity may be eligible.

 Independent Board

The NAIF Act establishes the independent NAIF Board which consists of the Chair and between four and six other members. Functions include:

  • to decide, within the scope of the Investment Mandate, the strategies and policies to be followed by NAIF;
  • to ensure the proper, efficient and effective performance of NAIF’s functions; and
  • any other functions conferred on the Board by the NAIF Act.

The expert, transparent and arms-length design of the Board lends credibility to financial markets, while ensuring the Commonwealth invests in projects which are viable, provide public benefit and unlock the potential of northern Australia.

Members of the Board are appointed by the responsible Minister. Members are appointed on a part-time basis for a period up to three years. The NAIF Act outlines the experience or expertise an individual must have to be eligible for consideration for an appointment.

Remuneration of Board members is determined by the independent Remuneration Tribunal. The Remuneration Tribunal is an independent statutory body that handles the remuneration of key Commonwealth offices and is governed by the Remuneration Tribunal Act 1973 (Cth).

Jurisdictions

The NAIF Act is designed for the NAIF to work in partnership with the northern Australia Jurisdictions. Financial assistance from the Commonwealth, on the terms and conditions approved by the NAIF Board, is offered to the relevant jurisdiction to on-lend to the project proponent.

The involvement of the Jurisdictions helps to maximise the gains from infrastructure investment in northern Australia given the Jurisdictions have knowledge of projects in their regions and the likely benefits those projects will generate. Each Jurisdiction is consulted on the projects in their region which are under consideration by NAIF and have a right of veto should they not want to support the provision of financial assistance to a particular project.

The Master Facility Agreement (MFA) is the document which guides the relationship between the Commonwealth, NAIF and each relevant Jurisdiction.

Responsible Minister

The responsible Commonwealth Minister for NAIF is the Minister for Resources and Northern Australia. The Department of Industry, Innovation and Science (DIIS) supports the Minister in this role. NAIF must act in accordance with directions given by the Minister which are given via the NAIF Investment Mandate.

The responsible Minister’s legislative responsibilities for NAIF include:

  • issuing the Investment Mandate; and
  • appointing NAIF Board members.

Once the NAIF Board makes a final Investment Decision to offer financial assistance to a particular project, the Board must inform the responsible Minister. The responsible Minister has a 21-day consideration period which can be extended to 60 days.

During the consideration period the responsible Minister may provide written notification to NAIF that financial assistance is not to be provided to a project. The responsible Minister may reject the proposed financial assistance only if, providing the financial assistance would:

  • be inconsistent with the objectives and policies of the Commonwealth Government; or
  • have adverse implications for Australia’s national or domestic security; or
  • have an adverse impact on Australia’s international reputation or foreign relations.

If the responsible Minister issues a rejection notice, NAIF cannot progress with offering financial assistance to the project.

2)   Investment Mandate

The responsible Minister is required to give directions to NAIF about the performance of its functions and these are outlined in the Investment Mandate.

The Investment Mandate must not direct NAIF to provide financial assistance for the construction of particular infrastructure or in relation to a particular person. All decisions regarding financial assistance are the responsibility of the independent NAIF Board.

The Investment Mandate provides direction as to what constitutes infrastructure. It provides for infrastructure such as physical structures, assets (including moveable assets) or facilities which underpin, facilitate or are associated with:

  1. the transport or flow of people, goods, services or information; or
  2. the establishment or enhancement of business activity in region; or
  3. an increase in economic activity in a region, including efficiency in developing or connecting markets; or
  4. an increase in population.

The Investment Mandate provides examples of the types of Projects that NAIF can invest in. These include energy and communications networks, ports, airports, rail, roads, water, social infrastructure (including health facilities, education facilities, research facilities, training and related accommodation facilities) and processing facilities (including abattoirs and agricultural processing plants) and transhipment vessels.

3)   PGPA Act

As a corporate Commonwealth entity, NAIF’s operations are governed by the Public Governance and Performance Accountability Act 2013 (PGPA Act). The PGPA Act requires Commonwealth entities to:

  • meet high standards of governance, performance and accountability;
  • provide meaningful information to the Parliament and the public;
  • use and manage public resources properly; and
  • work cooperatively with others to achieve common objectives, where practicable.