There is a lot of noise on this forum about the NAIF and how it might interact with PSD. I have created this thread so that I can point new players to the most likely scenario.
Let’s start by understanding what SFG is going to do with Project Sea Dragon. PSD will be the world’s biggest prawn farm, based around Legune Station with other facilities in Exmouth, Kununurra, Gunn Point and Darwin. In short, Step 1: grow pathogen free prawns to be breeder-stock, take them to Gunn Point and get them to spawn, fatten-up their offspring, murder them and put them in packages and then ship them to Asia. Step two: profit.
The Northern Australia Infrastructure Fund is set up to help fund the development of “economic infrastructure” in Northern Australia. NAIF project have five mandatory eligibility criteria which are enshrined in law, and a Ministerial Directive of 2018 which adds more detail.
Mandatory Eligibility Criteria:
- The proposed Project involves construction or enhancement of Northern Australia economic infrastructure
- The proposed Project will be of public benefit
- The Project is located in, or will have a significant benefit for northern Australia
- The loan will be able to be repaid, or refinanced
- Indigenous engagement strategy
There is a really subtle, but critical point to be considered here – the difference between “economic activity” (doing something) and “economic infrastructure”. The NAIF cannot fund economic activities, it can only fund “economic infrastructure”. The first hurdle for any NAIF funding would be, is the thing being built “economic infrastructure”.
Each federal agency has its own specific definition of economic infrastructure that fits it's purposes. For instance, DFAT and AUSAID say economic infrastructure means "...transport, energy, large–scale water and sanitation, and ICT infrastructure investments". Infrastructure Australia defines "economic infrastructure" as "infrastructure that will materially improve national productivity. This definition includes roads, bridges, railways, harbours, water and sewerage and telecommunications." and the Reserve Bank holds that "Economic infrastructure (such as utilities, transport and communications networks) provides essential services to individuals, households and businesses, and influences the efficiency of an economy."
So while none of these definitions is exactly identical, the differences are pretty minor and tend to be around how an agency might interact with that economic infrastructure. We also see some pretty clear themes emerging: transport stuff, energy, water and sanitation, and communications networks.
So let's be clear by what we mean "the project" when we talk about PSD: the PSD project is "the stuff that results in prawns growing to be sold to make us money", and that project will rely on stuff that I will call "ancillaries", this is roads, ports, comms networks, electrical stuff and the like. These ancillaries might fit the definition of “economic infrastructure” required by any NAIF project. So, while a privately-owned prawn farm isn’t allowed to be considered as a NAIF project, some works within Project Sea Dragon might stand a chance for NAIF funding.
These would be the ancillary works that could be shared by other projects - in terms of power, transport, energy, water (although Legune was specifically picked because it already had all the necessary water infrastructure), maybe some additional mobile phone towers might be permissible under "other considerations" - specifically the "effect of project on other infrastructure"
Other Considerations:
The Board must be satisfied that NAIF’s return on the facilities it advances will cover at least the Commonwealth’s cost of funding and NAIF’s administrative costs.
The Board will also have regard to the potential effect of the project on other infrastructure and of the NAIF’s financing on the Australian infrastructure financing market and on the potential of the NAIF investment to encourage private sector participation in financing the project.
The “other considerations” section means that NAIF is not allowed to crowd out private money from investing in infrastructure – in the case of mobile phone towers, for instance, NAIF can’t just start paying states to build them because that would disincentivise someone like Telstra from building them with private money. This section also means that the NAIF can’t build an uneconomic asset (that is something that costs more than it is worth) – all they can do is help fund stuff that can help private industry grow in Northern Australia.
Let’s go further down the rabbit-hole and consider the act that established the NAIF (available at https://www.legislation.gov.au/Details/C2016A00041), the NAIF can only fund projects run by the states and territories - not private investments.
Part 2, section 7 of the NAIF act says:
7 Functions of Facility
(1) The functions of the Facility are:
(a) to grant financial assistance to States and Territories for the construction of Northern Australia economic infrastructure; and
(b) to determine terms and conditions for the grants of financial assistance; and
(c) as agreed between the Facility and the States and Territories, to provide incidental assistance to the States and Territories in relation to financial arrangements and agreements related to the terms and conditions of the grants of financial assistance.
That means the NT Government has to get the financial assistance from the NAIF to build stuff that might be useful to the project - and can be shared with other users in the area.
The Minister's direction to the NAIF (which has the power of law) published this year (available at https://www.legislation.gov.au/Details/F2018L00567) makes those eligibility criteria even stricter in schedule 1, but there may be a crack of light in 1b
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1. The proposed Project involves construction or enhancement of Northern Australia economic infrastructure.
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The Board must be satisfied that the Project incorporates (in whole or in part) construction or enhancement of physical structures, assets (including moveable assets) or facilities which underpin, facilitate or are associated with: (a) the transport or flow of people, goods, services or information; or(b) the establishment or enhancement of business activity in a region; or (c) an increase in economic activity in a region, including efficiency in developing or connecting markets; or(d) an increase in population.
The Project must bring new capacity online either through the construction of new infrastructure or by materially enhancing existing infrastructure.
The refinancing of existing debt that does not involve the creation of new capacity is ineligible.
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But I'm not convinced that PSD could fit in that crack of light. When you consider 1b in the context of the rest of MC1 and the meaning of "economic infrastructure" a prawn farm wouldn't be a good fit - establishing a community-owned ISP might be a good fit, or a toll-road maybe, NAIF has already been involved in some rail lines between some mining areas (where multiple mining companies share a line rather than building their own). But even if you could squeeze a prawn-farm through 1b, things would fall apart when you got snookered by MC2:
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2. The proposed Project will be of public benefit.
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The Board must be satisfied that the Project will produce benefits to the broader economy and community beyond those able to be captured by Project Proponent.
In assessing public benefit, the Board may, without limitation, consider whether the Project will have the capacity to serve multiple users (either immediately or during the expected life of the Project).
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So, PSD might be able to use NAIF for something like port-works, road, rail, or as I believe they'll try - for the electrical infrastructure, the farm itself would not fit this definition of "public benefit".
Some participants in this forum believe I’m mistaken. They point to a statement in the EGM presentation which read:
Seafarms continues with its discussions/engagement with project lenders and equipment financiers, Federal Government’s A$5B Northern Australian Infrastructure Fund (NAIF) and the Northern Territory's Infrastructure Fund (A$0.2B. Changes in NAIF’s mandate strengthens its (sic) capacity and flexibility to provide finance to projects like PSD as well as removing the 50% debt cap limitation.
These are two different statements: statement one - the company is taking to three groups of people - project lenders, equipment financiers and the NAIF. statement two - By the way, the NAIF has more flexibility than it used to have, because it used to only be allowed to finance stuff with a 50% debt-cap.
What this doesn't tell us is what things they are going to ask each of these three groups to finance. It would not make sense to talk to equipment financiers about building sheds, for instance - just like it wouldn't make sense to talk to the NAIF about leasing bulldozers.
When you consider this throw-away line in the context of what the NAIF was designed, legislated and mandated to do (under the updated mandate alluded to in the EGM presentation), the hopes that NAIF is going to write a cheque for $2bln to get PSD financed from end-to-end just doesn't stack up. Yes, PSD might have a case to ask for a loan to build some of its ancillaries, but in the context of the $300 million required to build phase one, any NAIF funding is going to be small-beer.
The people here who disagree with this assessment of NAIF and how it might interact with PSD have yet to provide a rationale that could get through the Senate Estimates Committee or a rational that could pass the pub-test.
If I'm completely honest, I suspect most of the objections of my interpretation of the NAIF rules is based more in hope that I'm wrong than any deep understanding public administration and pork-barrelling jargon.
Ultimately it doesn't matter what the company says about the NAIF in it’s powerpoint presentations, what matters is what the NAIF is legally allowed to do - and the NAIF itself is quite limited in what it can do.
This is laid out in Part 2, section 7 of the NAIF directive:
- Matters to be considered when making Investment Decisions
- Before making an Investment Decision to offer a Financing Mechanism, the Board must be satisfied:
(a) the Investment Proposal has met all mandatory criteria in Schedule 1 to this Direction; and
(b) that any return will cover at least the Facility’s administrative costs, and the Commonwealth’s cost of borrowing.
(2) In making an Investment Decision, the Board must have regard to:
(a) the extent of any concession that may be offered to a Project Proponent, in accordance with section 9 of this Direction; and
(b) the potential effect of the Project on other infrastructure; and
(c) the potential effect of the Financing Mechanism on the Australian infrastructure financing market; and
(d) the potential of the investment to encourage private sector participation in financing a Project.
(3) The Board, in making an Investment Decision, must consider a preference for:
(a) a diversified portfolio, including with respect to industrial and geographic spread across the States and Territory that comprise Northern Australia; and
(b) Projects that address an infrastructure need identified through a Commonwealth, State or Territory assessment process, pipeline, or priority list such as the Northern Australia Infrastructure Audit.
Go read the Northern Australia Infrastructure Audit for yourself (http://infrastructureaustralia.gov....cations/files/IA_Northern_Australia_Audit.pdf) and you will see it talks about road, airports, electricity, gas, port facilities, population growth, water facilities (like dams and water treatment plants), rail lines and communications stuff - all of which we categorised as "ancillary" a few posts ago.
I know of no infrastructure plan anywhere in the public service that says "you know what we need? the world’s biggest prawn farm in the middle of a cattle station"...
We don't need misleading hype - we need hard-headed analysis and clear expectations.
Once again, we’re left with ancillary parts of PSD being good candidates for NAIF consideration – for instance a small power-station built by a smaller electricity player might make sense - they could claim "yes, we're going to get money for this power station because people will buy the kWhs, but without power that prawn farm won't be built - and all those people won't get jobs" and that might fit the NAIF rules - but it's very hard to argue that a company that's going to build a huge prawn farm has a public benefit. The car manufacturers employed a lot of people, but their "public good" wasn't enough to keep the subsidies flowing.
Let's also consider scale - PSD is going to take a lot of money - phase one (as it currently stands) is going to require a sum of money that would be more than 10% of the NAIF's entire facility.
Finally, I just want to focus on where this "NAIF loan" myth came from - April, 2016, a bunch of media did the rounds where an NT Government employee was lobbying for a change to the NAIF rules - one of the stories (available at https://icn.org.au/news/northern-te...lopment-project-sea-dragon-northern-territory) contains this section:
"In a previous interview with ABC Rural, the general manager of the Northern Australia Development Office in Darwin, Luke Bowen, said Project Sea Dragon would be deserving of consideration for a NAIF loan.
"The benefits of that [project] when it's fully developed will be enormous in terms of the number of people being employed in the region," he said.
"The knock-on effect to contractors, suppliers and people in the local community could be enormous.
"So we'd argue that the criteria for [NAIF funding] needs to be flexible enough so that we do have the capacity for projects like that, which do have much wider benefits to a region, to be considered, or at least components of them that relate to critical enabling infrastructure."
Sounds like a slam-dunk, right? Well, strip away the public servant guff, and you get:
"we'd argue that the criteria for [NAIF funding] needs to be flexible enough so that projects which have much wider benefits to a region or at least components of them that relate to critical enabling infrastructure, can be considered"
If you go back to the original interview you can see that the NAIF intention is not to help build businesses in Northern Australia - it's designed to help fund the things that businesses rely on that Northern Australia doesn't yet have - http://www.abc.net.au/news/rural/20...for-developing-the-north-naif-funding/7237482
The NAIF rules were changed in 2018 so that Mr Bowen got his wish. In the ministerial directive, issued this year, the NAIF can consider those components of PSD which might be considered "critical enabling infrastructure" can be considered for financing by NAIF - I've just categorised them as "ancillary things" because they are not directly related to getting all those yummy prawns paying those yummy dividends into my under-nourished bank account
Look, if someone can show me the flaw in my reasoning, then I'm happy to change my mind. But this "NAIF myth" is dangerous: all it would take is some journalist to ask the NAIF PR team "why didn't you fund PSD", or "why aren't you funding businesses", and for the NAIF PR team to answer honestly and we're down significantly. Thursday/Friday last week we got our first shorters - if they take hold, what does it mean for our attractiveness to bankers, and such.
If you look at what NAIF has funded - listed here http://www.naif.gov.au/application-process/naif-investments/
- A wharf and harbour expansion
- A solar project at a fish farm, and a few expansions to that farm
- A university building, lab, and conference centre
- A road upgrade
Maybe if you look and squint at the fish farm, maybe you see something - but SFG would need about 50 times that commitment to make a dent in PSD’s capital requirements.
But the simple reality is that it doesn't matter what I say or how thoroughly I take people through why the NAIF isn't important to us - they want to believe in the tooth fairy. And good luck to them. I just wish they'd stop spreading their Santa-Claus fundamentalism.
The last point I’d make is the NAIF's project pipeline (available at http://www.naif.gov.au/application-process/pipeline-information/ )
Of 245 enquiries to the NAIF, only are still 119 currently "active". And of those, only 15 are in the "Due diligence" phase. 5 are related to "renewables and energy", 5 relate to "transport and manufacturing", 4 relate to "resources" (that's government for mining) and 1 is about "social infrastructure" (which is government for schools, hospitals, sports grounds, libraries, etc). There is no aquaculture category of any currently "active" opportunities.
So I doubt that a NAIF announcement is at all imminent.
I’m happy to engage with anyone who is prepared to look at all of this and come up with a counter-argument using facts, and citations and stuff I can think about. What is starting to really annoy me is the constant “yeah, but I don’t like this – I think we’re going to NAIF because NAIF is good for us”. That’s not helpful to our dialogue and quite frankly it's driving me nuts. If you'd like to disagree with any of this, I'd appreciate it if you'd show the courtesy of a considered analysis with citations and facts so that I can look at my own view and hopefully learn something.
(20min delay)
