7 March, 2016
The top half of Australia is easily recognisable on any map. Sparsely populated, Northern Australia is rich in terms of natural resources (minerals, gas, water) and agricultural land, but without the necessary infrastructure to fully exploit what is there.
On the doorstep of the Asia Pacific region, the Commonwealth Government has recognised the strategic importance of doing more to develop Northern Australia. Increasingly, infrastructure investors and developers are also considering the development opportunities in this region.
The Commonwealth Government recently released a blueprint outlining a vision for unlocking the potential of Northern Australia to develop into an "economic powerhouse". In parallel, the Northern Territory Government currently has 16 resources and infrastructure projects with "Major Project" status.i
With an abundance of project opportunities, coupled with regulatory and policy reform, government co- operation and concessional loan opportunities, Northern Australia is more attractive than ever from an investment perspective.
What is "Northern Australia"?
Northern Australia is broadly defined as the region above the Tropic of Capricorn which includes the whole of the Northern Territory and parts of Queensland and Western Australia.
Northern Australia Fast Facts
Northern Australia accounts for over 40% of Australia's land mass
Northern Australia accounts for only 5.6% of the Australian population
In 2013, Northern Australia generated over 11% or A$178bn of Australia's GDP
A flight from Darwin to Singapore takes just over 4 hours
Northern Australia's location, in close proximity to regions of increasing economic and population growth in South East Asia, provides Northern Australia with access to a number of high-demand markets, and provides these markets with valuable links to Australia's vast resources.
The White Paper
Encouraging innovation, fostering connections with investors and reducing red tape are key themes in the Commonwealth Government's White Paper, Our North, Our Future: White Paper on Developing Northern Australia released on 18 June 2015 (White Paper). The White Paper describes Northern Australia as a developing "trade gateway" at the intersection of Asia and the Tropics, and includes a vision for a more welcoming investment environment in Northern Australia.
The White Paper identifies key strategies to:
- enable greater use of natural resources;
- create a more attractive investment environment;
- invest in infrastructure, including road, rail and air services;
- reduce barriers to employment; and
- improve governance arrangements.
The Government has proposed a concessional loan scheme to fund major infrastructure projects such as rail, roads, ports, pipelines and energy projects.
Recognising the importance of Northern Australia, the Prime Minister in September last year appointed the Hon Josh Frydenberg MP as Minister for Resources, Energy and Northern Australia. More recently, an additional stand-alone portfolio was created for Northern Australia, which is held by Senator the Hon Matt Canavan. Each of these appointments is a strong sign of the Government's commitment to the development of the economy of Northern Australia.
Commonwealth Government investment in infrastructure
Unsurprisingly, the most significant financial commitments in the White Paper relate to improvements to infrastructure.
An audit undertaken by Infrastructure Australia in 2015 identified 180 infrastructure needs in Northern Australia. The report identified infrastructure gaps across sectors including airports, communications, energy, ports, rail, roads and water. The audit also acknowledged that a range of funding and financing solutions would be needed to deliver the projects to meet these needs.
Concessional loan scheme
The Commonwealth Government has announced the establishment of the Northern Australia Infrastructure Facility (NAIF) which will provide up to A$5bn in concessional loans from the Commonwealth Government, to complement private sector and State and Territory investment.
An exposure draft of the Northern Australia Infrastructure Facility Bill 2016 was released on
28 January 2016. The Government has indicated that it is incorporating feedback received on the exposure draft into a Bill that will be introduced to Parliament in March 2016. The Government intends the legislation to commence on 1 July 2016 with funds to be available from that date.
The NAIF loans will be used to finance major infrastructure projects such as rail, roads, ports, pipelines and energy projects. The NAIF aims to expedite infrastructure construction, and to enable infrastructure projects which would not otherwise obtain sufficient funding.
The goal of the NAIF is "not to crowd out private investment; rather … to offer just enough assistance for projects to attract the equity they need to proceed. NAIF loans will only fund projects that are financially viable, and the extent of their concessionality will be carefully calibrated to the needs of specific projects".ii
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Key features of the exposure draft of the Bill |
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A$5bn in financial assistance to the States and Territories for the construction of Northern Australia economic infrastructure |
The NAIF will provide grants of financial assistance to the States and Territories for the construction of Northern Australia economic infrastructure. This is infrastructure that:
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Establishment of an Investment Mandate and powers of the Minister |
The Minister for Resources, Energy and Northern Australia will give directions to the NAIF in the Investment Mandate (comprising a legislative instrument made under the Act). The Investment Mandate: may include directions about the objectives of the NAIF, strategies and policies to be followed, loan characteristics, eligibility criteria for financial assistance and risk and return parameters; must not direct the NAIF to provide loans for particular infrastructure or to particular persons. The Minister must be notified of all proposals for financial assistance. There is a power for the Minister to reject a proposal (ie instruct the NAIF not to provide financial assistance) if the Minister is satisfied that providing the financial assistance would:
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Establishment of an independent NAIF Board |
The NAIF Board will be responsible for decisions under the NAIF. The NAIF Board will consist of between five and seven members, and will act in accordance with directions given by the Minister under the Investment Mandate. |
The Investment Mandate has not yet been finalised and will be subject to separate consultation in coming months. The Northern Australia Infrastructure Facility Consultation Paper indicated that the eligibility criteria for funded projects would include:
- the project involves construction or enhancement of economic infrastructure (ie roads, rail, public transport, water, energy, ports, airports and communication networks);
- the project will be of public benefit (ie capable of serving multiple users and producing benefits beyond those capable of being captured by the project proponent);
- the project would be unlikely to proceed, or will only proceed at a much later date, without NAIF assistance;
- the project is located in, or will have a significant benefit for, Northern Australia;
- Commonwealth loan monies are not the majority source of project funding; and
- the loan will be able to be repaid.
Direct funding
In addition to providing concessional loans for infrastructure projects, the Commonwealth Government proposes to allocate:
- A$600m for road projects including consideration of the Great Northern Highway, Arnhem Highway, Flinders Highway, Barkly Highway, Hann Highway, the Outback Way and the Tanami Road; and
- A$5m for analyses of freight rail projects with an initial focus on a pre-feasibility study of the proposed Mount Isa to Tennant Creek Railway.
Furthermore, the Commonwealth Government is proposing to invest A$3.7m to develop an "infrastructure projects pipeline" to provide businesses with information on potential projects. This pipeline is intended to provide investors with information on infrastructure needs and plans in Northern Australia in order to streamline development and ensure cost- efficiency for all parties.
Direct funding
In addition to providing concessional loans for infrastructure projects, the Commonwealth Government proposes to allocate:
- A$600m for road projects including consideration of the Great Northern Highway, Arnhem Highway, Flinders Highway, Barkly Highway, Hann Highway, the Outback Way and the Tanami Road; and
- A$5m for analyses of freight rail projects with an initial focus on a pre-feasibility study of the proposed Mount Isa to Tennant Creek Railway.
Furthermore, the Commonwealth Government is proposing to invest A$3.7m to develop an "infrastructure projects pipeline" to provide businesses with information on potential projects. This pipeline is intended to provide investors with information on infrastructure needs and plans in Northern Australia in order to streamline development and ensure cost- efficiency for all parties.
Northern Territory Government driving infrastructure projects
Deloitte Access Economics estimate that the Northern Territory economy will grow by an average annual rate of 4.2%, which is anticipated to be the highest average annual growth rate of all Australian jurisdictions.iii
As mentioned above, the Northern Territory Government currently has 16 resources and infrastructure projects with "Major Project" status. The Department of the Chief Minister is responsible for working with other government agencies to administer these projects. It has been estimated that the collective value of at least ten of these projects is A$45bn.
The Department of the Chief Minister has been actively promoting infrastructure concessions. In 2014, it commenced the competitive bid process for the development of a pipeline connecting the Northern and Eastern Australia Gas Markets, known as the "North East Gas Interconnector" Project (NEGI).
Jemena was recently announced as the successful bidder in the competitive bid process to proceed with the NEGI Project. The pipeline will be 623km long and link Tennant Creek to Mount Isa. Construction of the NEGI is expected to be completed by 2018. This project is valued at approximately A$800m.
The NEGI will support further exploitation of the Northern Territory's vast untapped unconventional gas reserves. It is estimated that more than half of Australia's oil shale resources are in the Northern Territory, centred on the Macarthur Basin.
It has been suggested that onshore shale and tight gas production has the potential to drive significant growth in the Northern Territory economy.iv Deloitte Access Economics estimate that, under an "Aspirational" scenario, it could provide a cumulative A$22.4bn increase in Gross State Product between 2020 and 2040 in net present value terms.
Infrastructure investment case studies
Location: Link between Mount Isa (Queensland) and Tennant Creek (Northern Territory)
Length: 600km
Government commitments: The Northern Territory Government has committed A$1m in funding for studies for the project. The Northern Territory Government, Queensland Government and Commonwealth Government are working co- operatively on the project. The Commonwealth Government has committed funding for the pre- feasibility studies for the project.
Status: The tender for a scoping study of the project has been awarded.
Mount Isa to Tennant Creek Railway Project
Port of Darwin
Location: Darwin, Northern Territory
Status: In late 2015, the Northern Territory Government announced that it had entered into a 99-year lease of the Darwin Port to the Landbridge Group. The Territory is expected to r
Challenges
Despite Northern Australia's geographic location and abundant natural resources, the cost and service challenges inherent in the region, climatic factors such as the wet season, and land tenure and native title arrangements have historically affected investment.
The White Paper observes that development can be impeded by complex native title processes and inadequate land administration frameworks in indigenous communities. To address these challenges, the White Paper has proposed measures including:
- working with the Council of Australian Governments to streamline native title processes, with a view to resolving all existing claims within ten years;
- allocating A$20.4m to support effective engagement between native title stakeholders and potential investors;
- consulting with stakeholders to support the use of exclusive native title rights for commercial purposes; and
- ● investing A$17m to improve land administration in the Northern Territory and support the negotiation of 99-year township leases on Aboriginal land.
Conclusion
As noted in the White Paper, Australia's reputation for quality and sound governance present undeniable "brand advantages" for potential investors. Australia is also politically and economically stable, with an impressive international credit rating and a history of encouraging private infrastructure investment.
The Commonwealth and Northern Territory Governments, as well as the relevant State Governments, have made it clear that they are keen to work closely with infrastructure providers to identify, evaluate and possibly support opportunities in this region.
For further information, please contact:
Tony Denholder, Partner, Ashurst
tony.denholder@ashurst.com
