Figure 4: Summary of Investment Decisions made in or shortly after the end of FY18-19

[1] This project will not proceed to financial close. Since NAIF’s Investment Decision several changes to Pilbara Minerals’ regional operating environment have resulted in the company reassessing its investment in the Pippingarra Road as its primary haulage route and as such this project will now not proceed. To support future expansion of the Pilgangoora Lithium-Tantalum Project, Pilbara Minerals is undertaking an internal infrastructure assessment to understand what investment is required to support a larger operation. Pilbara Minerals and NAIF are continuing to engage with regards to future infrastructure requirements and potential NAIF investment support.

[2] While this project is not included in FY18-19 performance results it is noted in Figure 4 given that substantial work associated with the Genex Power Kidston Stage 2 Investment Decision was undertaken in FY18-19 and the formal Investment Decision was made shortly after the end of that period on 8 July 2019.

1. Generate public benefit and 2. Indigenous Engagement

The Mandatory Criteria to be eligible for NAIF financial assistance under the Investment Mandate requires that the Board must be satisfied that the proposed Project:

1. will be of public benefit and will produce benefits to the broader economy and community beyond those able to be captured by the Project Proponent; and
2. has an Indigenous Engagement Strategy (IES) which must set out objectives for Indigenous participation, procurement and employment that reflect the Indigenous population in the region of the Proposed Project.

Public benefit was assessed in line with NAIF’s Public Benefit Guideline which was updated during the period. The potential benefits vary for each Project and have been assessed spanning different periods depending on the life of the asset. Benefits and costs to the Proponent and ‘Outside of the Proponent’ are assessed quantitatively where possible to come to a net public benefit number. Where it is not possible to value costs and benefits in monetary terms, they are considered qualitatively. Construction jobs and operational jobs are also forecast.

The six FY18-19 Investment Decisions are forecast to generate $1.1 billion of public benefit and 2,405 jobs, which will contribute to economic and population growth in the regions of those projects¹.

The Genex Power project² is forecast to generate $814 million of public benefit (to the economy and community) including $235 million of direct value add to Far North Queensland, and jobs (including the supporting transmission line) being 510 in the construction phase and 20 operational.

Each of the FY18-19 Investment Decision Project Proponents developed and adopted an IES to be implemented over the life of the Project. NAIF assesses each IES on a case by case basis, noting there are many ways the Proponent can meet the IES criterion. Refer to the NAIF Indigenous Engagement Strategy Guideline which was updated in the period. Monitoring and reporting requirements are agreed with each Proponent in the NAIF loan facility documentation. These include mechanisms to understand and address issues arising during the implementation of the IES and to provide for accountability where there is not a demonstration of genuine effort to pursue an approved IES.

More specific details on the public benefit assessed and IES commitments for each project can be found in the case studies for each project in this report.

3. Investments in infrastructure projects in northern Australia

In making the six FY18-19 Investment Decisions, NAIF met its target of between 5 to 10 transactions. This is an increase of 50 percent on last financial year. The projects supported reflect the breadth of NAIF’s role in developing northern Australia. Those Investment Decisions comprised offers of finance for Projects in each of the three northern Australia jurisdictions (Western Australia, Northern Territory and Queensland). They were also diversified across sectors, namely tourism and airports (Townsville Airport and NT Airports), mining, (Kalium Lakes and Sheffield Resources), renewable energy (Alinta Energy) and roads (Pilbara Minerals³).

Investment Decision making, being the decision to offer or not offer finance, as defined in the NAIF Investment Mandate, is used for this measure as that is what the NAIF Board is responsible for.

NAIF committed new investment finance of $479 million through the FY18-19 Investment Decisions for projects against a target of $500 million to $1.5 billion, this is an increase of 220 percent on last financial year. The total capital value of those projects supported was $1.4 billion which was at the upper end of the target range of $750 million to $2.5 billion, and a 318 percent increase on last financial year.

Although committed new investment finance was $21 million short of the lower end of the target range, aggregating the above figures with those for Genex Power means committed new investment finance would increase from $479 million to $1.1 billion (an increase of greater than 600 percent on FY17-18).

The Proponent has informed NAIF that the Pilbara Minerals project for which an Investment Decision was made in FY18-19 will not proceed. This was due to matters beyond NAIF’s control but the Proponent is continuing to work with NAIF on other potential NAIF investment, refer to footnote 1 on Figure 4 for further detail.

4. Effective risk management

Compliance with NAIF’s Risk Appetite Statement (RAS) for the six FY18-19 Investment Decisions has been independently audited by NAIF’s internal auditor. The internal audit confirmed compliance with NAIF’s RAS for the six Investment Decisions made during the reporting period.

NAIF’s RAS provides a clear articulation of the target level of risk in executing the NAIF’s strategic objectives. It guides risk appetite, identifies tolerance measures (including for making NAIF Investment Decisions) and has been developed in consultation with the responsible Minister and the relevant northern Australia jurisdictions. The RAS also addresses other operational matters including governance and operations.

Under Section 12(4) of the Investment Mandate NAIF may have a high risk appetite in relation to factors that are germane to investing in Northern Australia infrastructure, including, but not limited to, Northern Australia’s distance, remoteness and climate.

NAIF’s Investment Mandate gives it the tools to respond to the northern Australian investment landscape by also providing that NAIF’s finance can be lent on concessional terms. NAIF used its full range of concessions across the six FY18-19 Investment Decisions including:

• long tenors with an average of 16.8 years and range of between 10 and 20 years;

• interest rates at market equivalent and also at the maximum concessional rate;

• extended capitalisation periods (average of 3.5 years) and extended interest only periods (average of 9 years); and

• senior secured (on five projects) and senior unsecured (on one).

In line with best practice NAIF adopts a continuous improvement approach and regularly reviews its risk management framework and policies by considering emerging trends and risks, changes to existing risks and any changes to NAIF’s Investment Mandate and Government policy. In the period, this included a detailed review of the Board’s RAS to ensure it remained appropriate, particularly in light of the revised Investment Mandate.

5. Encourage private sector contribution to financing projects

Four out of the six or ~67 percent of the projects that NAIF supported with FY18-19 Investment Decisions have private sector financiers also providing finance for the project in addition to NAIF’s loan. This meets NAIF’s target of greater than 50 percent of projects supported having private sector finance.

NAIF uses its role to also assist projects with early conditional credit approvals and made two such decisions in the FY18-19. It sought to catalyse both private and public sector interest in these two projects. One of those is in the agricultural sector being Signature Onfarm loan for $25 million and another in mining, being the provision of a $160 million indicative term sheet to Verdant Minerals Limited for the Ammaroo Phosphate Project in the Northern Territory.

6. Raise awareness of NAIF value through dissemination of information to industry stakeholders

Public awareness and interest in NAIF has grown, as confirmed by the 100 new Active Enquiries during the year. In addition, 16 of the 29 projects (55 percent) in due diligence originated in the FY18-19 year, showing the impact NAIF’s origination team is having in deploying NAIF’s amended mandate to benefit northern Australia by moving appropriate projects through the assessment phases in line with project development and Proponent timeframes.

NAIF’s Board and executive have engaged in significant communication and stakeholder engagement activity during FY18-19 including:

• The Board, Board members, CEO or NAIF staff met with more than 5,500 interested stakeholders and gave presentations that reached audiences of over 8,800 people;
• NAIF participated as a key note speaker, presenter, panel member or delegate in 36 events in FY18-19 covering various sectors and interest areas relevant to NAIF’s mandate including infrastructure, engineering, construction, procurement, transport, energy, agriculture, tourism, water, mining and resources, regional growth, economic development and major projects;
• NAIF executive engage frequently with other lenders, project sponsors, advisers and participants through both pipeline development and due diligence assessment processes. Opportunities to explain the NAIF mandate and discuss with other financiers how NAIF may be able to work with other lenders have been pursued;
• Regional communities and their leaders are afforded opportunities to meet NAIF Board members or executives to discuss their strategic planning and infrastructure priorities. Board meetings were held in northern Australia, including Cairns, Townsville and Mackay, a meeting was also held in Brisbane, in Canberra and two were held in Perth. Roundtables and networking events were held in Mackay and Perth;
• The NAIF Board members and NAIF senior executives have continued to meet regularly with Western Australian, Northern Territory and Queensland government stakeholders to discuss upcoming projects and their priorities. Those associations have continued to strengthen including through making further Investment Decisions in each jurisdiction and progressing projects through the final assessment stages;
• NAIF has met with a range of Indigenous groups, businesses and agencies throughout the year to develop its understanding of our Indigenous stakeholders and the role of NAIF in broader Indigenous economic development opportunities in the north, including contributing to the Indigenous Reference Group discussions at the Northern Australia Ministerial Forum. Meetings have also been held with Indigenous Business Australia and the Indigenous Land and Sea Corporation exploring opportunities for collaboration to derisk and therefore increase investment in Indigenous enterprise. NAIF has also engaged with a range of Traditional Owner groups, Prescribed Bodies Corporate, Native Title Representative Bodies, Indigenous businesses and agencies (federally and across the jurisdictions) in relation to project IES prior to the Board making its Investment Decisions;
• NAIF engages on a consistent basis with Members of Parliament from all political parties, both at a state and federal level, including through targeted meetings and correspondence on activities; and
• NAIF consults regularly with Commonwealth departments and agencies and broader networks including the Regional Development Australia network, Development Commissions and the northern Australian based universities.

7. Building diverse pipeline of potential infrastructure projects

NAIF reporting is focussed on its transaction pipeline of Active Enquiries which comprise deals in various stages of the NAIF pipeline including Active enquiries, Strategic Assessment, Due Diligence, Execution and Closed Funded.

The Active Enquiries are a subset of the total NAIF enquiry pipeline. During FY18-19 NAIF reviewed and filtered its total enquiry pipeline to enable a stronger focus of NAIF resourcing on those projects that it assessed as more likely to proceed to execution and conversion to financial close. Part of that pipeline management involved identifying projects assessed as not proceeding or inactive. This is reflected in the number of Active Enquiries as at 30 June 2019 of 86 reduced from 115 Active Enquiries when compared to 30 June 2018. A number of deals were moved to the not proceeding category due to several factors including an assessment that information required to progress projects had been outstanding for a significant period. In a number of instances NAIF notified persons who had made enquiries without following up that NAIF would formally close its file.

Figure 3 (NAIF Performance Summary for FY18-19) shows during FY18-19:

• There was growth by 100 projects of new enquiries, 16 percent of which moved into the due diligence phase in the same year they were introduced to the pipeline demonstrating strong growth in the quality of projects coming into the NAIF transaction pipeline. Due diligence is the stage in which detailed project assessment prior to an Investment Decision being made is undertaken.
• Overall there was also a maturing of the Active Enquiries pipeline with a substantial increase (by 81 percent) to 29 from 16 projects moving into the due diligence phase compared to 30 June 2018. Those projects in due diligence comprised 34 percent of the Active Enquiries pipeline compared to 14 percent as at 30 June 2018.
• Both the Active Enquiries and projects in due diligence are diverse in terms of both jurisdiction and sector.

8. Achieve sound financial performance

NAIF’s external auditor, the ANAO, issued an unmodified audit opinion on NAIF’s FY18-19 Financial Statements.

NAIF has managed expenses carefully to ensure that operating expenses were within NAIF’s appropriated budget.

For each of the six FY18-19 Investment Decision commitments, contracted revenue for the NAIF financial assistance will include an administration fee (payable at financial close) and the interest rate on the NAIF loans is above the Commonwealth borrowing rate. Pricing takes into account NAIF’s target to cover the cost of borrowings and NAIF’s operating costs at an Investment Decision portfolio level over the life of the NAIF loans supported by its Investment Decisions (both currently approved and projected).