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Abbott proposes ‘Dirty Energy Finance Corp’ for northern infrastructure

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In this year’s budget the federal government has allocated funding for what could possibly become a ‘Dirty Energy Finance Corporation’ for Northern Australia.

The proposed Northern Australia Infrastructure Facility would provide up to $5 billion in concessional loans for new roads, rail, water, electricity, ports, airports and communications projects in the region.

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Borrowing the money required to lend the money to the states and commercial project proponents will cost Australia $138 million over the three years from 2016-17 onwards, while repayments on the loans are aren’t expected to start until 2021.

Unsurprisingly the Queensland Resources Council welcomed the announcement, stating “this is great news for boosting the resource sector potential of Cape York and the North West minerals province”.

The government acknowledges that loans will be available to support projects that the private sector ‘would not be able to finance without government assistance’.

What is concerning is that Adani, the proponent of the Carmichael Coal and Rail project and the associated port expansion at Abbot Point, is currently looking for funding.

It’s not a stretch of the imagination to think Adani might put in an application for funding under this scheme.

The conditions for commercial applicants are not onerous. Loan recipients would only be required to return at least the Government bond rate over the term of the loan. In other words, the Federal Government will borrow on behalf of projects that are uneconomic, and expect no risk premium in return.

Contrast this with the Government’s attitude towards the Clean Energy Finance Corporation, a statutory authority that is co-investing with the private sector to reduce emissions while also making a profit for taxpayers.

Despite this excellent record, in March this year the Government altered the investment mandate of the Clean Energy Finance Corporation, requiring the CEFC to earn a higher return while maintaining the same risk profile.

In doing this, it looks as if the Government is attempting to set up the CEFC to fail to meet its mandate.

Responding to this change, the Chair of the CEFC, Jillian Broadbent AO, said “achieving these increased returns would require CEFC to consistently out-perform the market by a large margin”.

So while the government insists on significant out-performance for a profit making body working with the private sector to reduce greenhouse gas pollution in Australia, it is happy with underperformance for risky new infrastructure projects in Northern Australia.

The only ray of hope in this plan is the statement that Treasury will engage with experts to decide on the appropriate criteria to consider for projects applying for funding under the proposed facility. It would be concerning if any criteria did not refer to robust cost-benefit analysis guidelines such as those of Infrastructure Australia.

In a press release related to this announcement, the deputy Prime Minister and Minister for Infrastructure and Regional Development said “this work will assist in allocating funding to infrastructure projects that return the highest benefits to communities for a stronger and more prosperous northern Australia”.

The key test for the proposed Northern Australia Infrastructure Facility will be whether or not projects selected, once they’re selected, do indeed return the highest benefits to communities in northern Australia.

The proposed Northern Australia Infrastructure Facility will be open as of 1 July 2015.

It will be interesting to see who turns up to this cheap money party.

Lots of leading global banks, including many of the biggest lenders to Australian fossil fuel projects, have raised concerns about Adani’s proposed Carmichael coal mine and rail project and port expansion, including Société Générale, BNP Paribas, Credit Agricole, Barclays, Royal Bank of Scotland, Deutsche Bank, HSBC, Citi, Morgan Stanley, JP Morgan and Goldman Sachs.

Australian citizens would be justifiably appalled if this risky and unpopular coal mine ended up getting funded with their taxpayer dollars.

Tristan Knowles is an Energy Analyst at the Australian Conservation Foundation

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  • Phil Gorman

    The exponential rate of our LNP politicians’ retreat from reality has barely been checked in this desperate budget.

    How can supposedly responsible adults fail to learn anything from unfolding epoch changing events in the real world? Such wilful ignorance, refusal to face facts and entrenched denialism speaks of group-think, mass delusion, folly and madness. Is it some crazed ideology, an innate perversity, or corrupting influence that drives them?

    More worrying still is the high percentage of the general populace that shares their perverse fantasies to the extent that they vote for them when it is clearly against their own interests.

    • Farmer Dave

      Great comment, Phil. The phenomenon of people voting against their interests is discussed in some detail by Richard Denniss in his 2015 Manning Clark Lecture, which can be heard at http://www.abc.net.au/radionational/programs/bigideas/what-can-economists-learn-from-manning-clark/6293242

    • Steve159

      Agree with Farmer Dave, great comment.

      It’s incredible to think that we’re squandering a once-in-a-generational opportunity — to lead the world in renewables.

      as Jeremy Rifkin said in the Four Corners program,

      “Australia is the Saudi Arabia of renewable energy. There’s so much sun, there’s so much wind off the coast . . . it makes absolutely no sense: when you have an abundance of renewable energy why would you rely on a depleting supply of fossil fuel with all of the attending consequences to society and the planet. It Absolutely makes no sense whatsoever.”

      • 小杜 (xiao du)

        South Africa – same exact boat, same exact short sightedness.

  • john

    As soon as I heard the mention of Northern Australia Infrastructure Facility I immediately thought Abbot Point.
    The port and rail corridor would use all of this fund in one hit.
    Justified on the grounds of development and jobs.

  • lin

    Demanding that the CEFC gets a return on investment substantially higher than the rest of the market, while providing finance for projects that the private sector view as highly risky and very likely to become stranded assets is an unbelievably arrogant and ideological decision by the worst government Australia has ever had. The words “treachery” and “criminal” come to mind. Is there any way the politicians responsible can be held to account in future, or will we burn with impotent anger as we watch them swan from polling disaster to massive parliamentary pensions and cushy board positions for the rest of their lives?

  • Michel Syna Rahme

    Australians and the Australian media now apparently say it’s ok for all of us to rock up to the airport from overseas carrying our dogs unannounced in a basket and walce straight through, so maybe it’s ok now for multinationals via the back door to use friends and puppets in government to funnel Australian taxpayers money to fund their sovereign risk developments that banks want no part of! Hang on, gotta go, Prince Harry update on the news….

  • John