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Estimates: Foreign Affairs, Defence and Trade Legislation Committee: Foreign Affairs and Trade Portfolio: Export Finance and Insurance Corporation

Estimates & Committees
Lee Rhiannon 13 Jun 2018

Friday, 1 June 2018

Efic

Senator RHIANNON: I wanted to ask questions about the PNG LNG decision and I need to set out the context for the questions I will ask. On 8 December 2009, the Minister for Trade announced a US$500 million loan to the Exxon Mobil-led PNG LNG project. US$400 million of this was on the National Interest Account, meaning that it was not just an Efic decision but in fact one that the trade minister would have made a decision about, having first been approved by cabinet. On 24 February 2011 at DFAT Senate estimates, Senator Scott Ludlam asked whether a national interest assessment was prepared to justify this loan. The DFAT representative, Mr Tighe, responded that there would have been a national interest proposal on PNG that would have been part of a submission that was put forward to cabinet. Cabinet then considered the submission, I understand, before approving the loan. Senator Ludlam asked that this national interest assessment/cabinet submission be tabled, but DFAT declined to provide it. I understand Efic provided advice on the national interest proposal. On 1 June 2017, you had a long exchange with Senator Ludlam about the risk assessments that you have done for the project. Senator Ludlam asked you to provide the Senate with the written risk assessments that you made about the potential for civil disobedience and armed conflict in the project area. However, in your answers all you did was refer to previous verbal interchanges at Senate estimates. You did not actually provide what the senator had asked for and I understood you took on notice.

Here is my first question. Once and for all I'd like to ask on the record: do these documents exist? Did you prepare a risk assessment of the PNG LNG project in connection with the minister's decision to approve the project?

Ms Dave : I call on John Pacey to see if he has that relevant history, because I don't.

Mr Pacey : The national interest transactions work such that Efic would refer the matter to the minister. We perform our normal risk assessment on such transactions, including our normal environmental and social risk processes.

Senator RHIANNON: The question was very clear. The question was about providing the documents after they were asked for on notice. Why didn't you provide the documents?

Senator McGrath: Aren't the documents you are referring to cabinet-in-confidence?

Senator RHIANNON: I don't understand that they're cabinet-in-confidence. We are talking about public money here and we're talking about after the fact.

Senator McGrath: I think that the documents were prepared for cabinet and therefore they are cabinet-in-confidence.

Senator RHIANNON: Is that the reason? I've never heard that reason before. Is that the reason that Efic is giving? Are you now saying that they're cabinet-in-confidence and that's why you didn't supply them?

Mr Hopkins : If they are cabinet in confidence, we obviously couldn't provide them, but they wouldn't be our documents to provide. They would be the minister's documents to provide.

Senator RHIANNON: But you've prepared the documents. All we were asking was for the document that you had prepared—

Mr Hopkins : We would have provided input into the national interest assessment, I assume, and, in doing so, that input would have gone into the relevant documents you were referring to, but those documents would be documents for the benefit of the minister.

Senator McGrath: To assist the committee: it was in the previous Labor government when this matter was decided, so it was a previous Labor minister.

Senator RHIANNON: Yes. I'm just asking the questions. I'm particularly interested in the advice that Efic gave DFAT on this matter. Are you now saying—because you haven't said before, everyone though this has been running for years, why you didn't provide the advice. You are now saying it is because it's cabinet-in-confidence now the minister has said, or is it because legally you are not obliged? Are you saying that or are you saying you only provided advice and not the actual document? What's your reason?

Mr Hopkins : When we we're asked to provide information for on the National Interest Account, as my colleague has said, we provide information as part of our normal due diligence, and that information is then taken by the minister and used to make a decision around the national interest.

Senator RHIANNON: So, even if you're not legally obliged, don't you think the Australian public have a right to know that, if their government requests a half-billion-dollar loan be made through Efic to a project that's got all this controversy—and not just controversy about this project. You know the history of some of these mining projects in PNG—it's just massive: people are killed; and there's confusion about where the money goes et cetera. On what basis was the decision made about whether a proper risk analysis was done? I'll say that again: even if you're not legally required, do you think the Australian public have a right to know, if their government requests a half a billion dollar loan through Efic for a project that's mired in controversy, on what basis the loan was made and whether a proper risk analysis was done?

Mr Pacey : We do do extensive due diligence on large projects of the nature of the PNG LNG project. Due diligence encompasses credit analysis, country risk analysis and technical risk analysis, and we do due diligence on environmental and social risks. We also do due diligence around what we call transaction risk assessment, which is know your customer and anti-money-laundering issues. To make such a decision—our processes have extensive due diligence—

Senator McGrath: I might jump in there: it's not up to Efic to decide if the public has a right to know in relation to this. They don't get to decide what is and isn't cabinet in confidence. These documents are cabinet in confidence: they cannot be released.

Senator RHIANNON: Let's move onto due diligence—your comments about the public having a right to know when we're talking about half a billion dollars are interesting but probably not surprising.

Senator McGrath: The documents are cabinet-in confidence-documents.

Senator RHIANNON: Let's move onto due diligence. The responses that have just been given—

Senator McGrath: Are you saying we should release more cabinet-in-confidence documents?

CHAIR: Sorry: you're both talking at once. Senator Rhiannon, you did ask a question and the minister was endeavouring to answer it. So, Minister, if you could finish your answer and then Senator Rhiannon, next question.

Senator McGrath: Cabinet-in-confidence documents are not released. It is not a decision for Efic to decide to release these documents or not, because these documents are cabinet in confidence.

Senator RHIANNON: Moving onto due diligence: when you spoke about due diligence, you did mention social risks and transaction matters. Are you aware that no royalties have been paid to project owners in Hela province, which is the main site of the project, largely because I understand that it's not clear who the landowners are; you haven't worked that out—is that due diligence?

Mr Parsons : We're aware of the processes that have to be followed before royalties can be distributed. That is a matter for the PNG government. The project itself has a whole range of community support initiatives, which it's undertaken under its own banner; however, the matter of royalty payments is purely a matter for the PNG government and is between the PNG government and landowners.

Senator RHIANNON: Seriously, you're saying that it's not your responsibility in any way—and remember we hear all this, I won't say propaganda, information about how this project will be wonderful for PNG with all the benefits it will bring et cetera—and you're just passing the buck over to the PNG government to be responsible. This was one of the major problems with this project—I think they've got hundreds and hundreds of security people because of the unrest. It's really serious.

Mr Parsons : We're aware of the risks associated with the landowner payments, or royalty payments. However, under PNG law, it's a matter for the PNG government; it's not a matter—

Senator RHIANNON: But did you do due diligence on that before we got to this point—did you know that before the project started?

Mr Parsons : We did a range of due diligence and that would have been one of the factors that was considered in the decision-making, yes.

Senator RHIANNON: So you knew at the start that it was not clear who owned the land and therefore who should benefit—because that's how it sounded from your answer?

Mr Parsons : There's a process that needs to be followed under PNG legislation. At the time of the due diligence and at the time of the project was decided, we were aware of the processes that had been followed, which were following the requirements under PNG law.

Senator RHIANNON: Have any of the people from Efic here read On shaky ground, the project by Jubilee Australia about the PNG LNG and the consequences of development failure? Has anybody read it?

Mr Day : Yes, we've all read it.

Senator RHIANNON: You've all read it; that's excellent. So, you're aware this document reports increasing acts of violence and landowner disconnect in connection with the project since 2016. We also know that it's been on the front page of the major newspaper, the Post-Courier. Are you also aware that several provincial governors of PNG have come out in support of the On shaky ground report? The report makes for alarming reading; I would hope we could at least agree on that. Those governors have demanded action from the PNG government. Are you aware that is where it's up to with this report?

Ms Dave : We have discussed the report with various stakeholders. Jan, maybe you want to give a bit of an explanation of what we have done?

Senator RHIANNON: Can you say which stakeholders you have discussed it with, please?

Mr Parsons : Firstly, Efic is aware of the situation in Papua New Guinea, not solely on the grounds of that report but through various other measures and reporting that Efic undertakes—monitoring of the project that Efic undertakes. We were aware of the information in that report. We have a regular multi-stakeholder forum. At the moment, we are having that every six months. It's between us and a whole range of stakeholders. We had a meeting of couple of weeks ago with those groups, and we did discuss that report at that time, yes.

Senator RHIANNON: Can you provide a list of the stakeholders, or take it on notice and provide it as soon as possible?

Mr Parsons : We will take that on notice.

Senator RHIANNON: Are you aware of the letter that Jubilee sent to former minister Mr Crean on 27 October 2009? One of the issues that was posed was:

Is there a risk of the project leading to social unrest and even violence?

The answer was most definitely yes. This is from the letter:

Yes. The landowner consultation process has not been handled well.

Are you aware of that letter?

Mr Parsons : I'm not aware of that letter, no.

Mr Hopkins : For 2009—I'm not sure whether we—

Senator RHIANNON: With all due respect, it is a big project. It's half a billion dollars. You're trying to be proud of it; you'd think you would know the history here. So, the answer is no?

Mr Hopkins : Not of that particular letter.

Senator RHIANNON: Going back and putting things in context, you spelled out that a lot of work had been done on due diligence and you spelled out all those different areas: the threat, the technical aspects, environmental and social risks and others as well. When you are doing that work, do you also consider the other big mining projects that have occurred in PNG and the massive disruption that they have caused, largely because of how—this is probably one way of referring to it—the benefits were divided up? I'm referring to the Porgera copper mine, the Panguna one in Bougainville, Ok Tedi—these have been extraordinary developments, and I would have thought that, in terms of due diligence, that is where you can draw experience from. The Porgera one has 400 to 500 security people because there's so much conflict. Within that, in terms of how they operate, they are licensed to use legal force. That's why people are dying.

CHAIR: Senator Rhiannon, I'm not trying to be pedantic, but is there a question in there somewhere?

Senator RHIANNON: The question was in the context of due diligence. There were a whole lot of details given about how that due diligence was one. One aspect of the due diligence is the existing big mines and how they've played out and the impact they've had on landowners and local people.

Mr Parsons : When we work on a large project in any country, the history of that particular industry in that country would be examined as part of our due diligence.

Senator RHIANNON: Were those three mines specifically looked at in you due diligence?

Mr Parsons : As I said, when we work on a project in any big country, we look at the history of that industry in that country. When we were working on PNG LNG projects, we would have looked at the history of relevant projects in Papua New Guinea.

Senator RHIANNON: I note that is not actually a yes, but I will move on. If you want to give us more, I'm happy to, but that was not a yes. The industry is different from those three mines and the experience there. Okay. We didn't have an answer there. I will move on.

CHAIR: Five more minutes, Senator Rhiannon.

Senator RHIANNON: I thought I was going through to the end, Chair.

CHAIR: I have exceeded my time, but I have five minutes or so of questions, so if you—

Senator RHIANNON: Can we split the difference—seven minutes each?

CHAIR: Seven minutes each.

Senator RHIANNON: Okay, I've only got seven minutes. It's been cut down. We could have stayed here until 11 o'clock tonight! So whether you told them or not, what I can take from the evidence here, and previously, is that the minister and the cabinet were aware of the risks?

Mr Parsons : Well obviously Efic—

Senator RHIANNON: Nobody is denying that?

Mr Parsons : Efic can't comment on whatever information the minister and the cabinet used to make a decision.

Senator RHIANNON: But they were supplied with information about the risks. You're not denying that—correct?

Mr Parsons : Efic would have provided the information requested by the minister or by DFAT at the time, yes.

Senator RHIANNON: That includes information on the risks because that's part of the due diligence, that you assess the risks? You're denying that—correct?

Mr Parsons : That's correct.

Senator RHIANNON: Thank you. Yet they proceeded with the project knowing what these risks were. Do you not think there is something wrong with this national interest account process where poor decisions can be made without accountability and yet we're supposed to live with them? We're not even allowed to see what you supplied. We're talking about half a billion dollars—public money, unrest, people die—and it's really hard to get you to even answer the questions with a yes or a no.

Mr Parsons : National interest accounts are not Efic's decision making. That's a matter for government, not for Efic.

Senator RHIANNON: You may say that this is a government matter, but is it not true that 20 per cent—that is, $100 million of this loan—was on Efic's commercial account, which means that it is entirely a matter for the Efic board. Isn't that the case?

Mr Parsons : That's correct, yes.

Senator RHIANNON: Okay, so you've agreed that it's actually a matter for the Efic board. Can you not see the danger to Efic's reputation regardless of how much Efic is involved in final decisions like this? This shaky ground and what it reveals about the PNG LNG, that's hanging over you like a really bad smell. It's really affecting your reputation. Aren't they things that you consider and reassess?

Mr Parsons : As I said earlier, that report did not introduce any new risks or issues that we weren't already fully aware of, so it's your opinion whether that's affected Efic's reputation or not. The risk and issues raised in the report were fully aware and fully known by Efic.

Senator RHIANNON: Thank you. I will move on to a few questions about Adani. There's analysis by Environmental Justice Australia, and it's found that if Efic funds Adani's Carmichael coal mine, it will expose Efic's directors to significant legal and political risk. Is that your assessment?

Ms Dave : I don't know how I can answer that. Is there a—

Mr Hopkins : It's a hypothetical set of facts—

Senator RHIANNON: No, it's not hypothetical. Environmental Justice have done a report on this. So you're not aware of that report?

Mr Hopkins : I'm aware that APRA has raised some issues more broadly for directors around their directors making decisions to support projects that may have a climate change impact. Our board have discussed that report, as I'm sure many boards have across Australia, as part of their ongoing education and due diligence as a board.

Senator RHIANNON: Okay. You answered some questions previously about Efic and Adani. You spoke about an SME that's involved. Is that where you've been in discussions about providing concessional support to a company in Adani's supply chain? Is that what you're referring to when you refer to this SME?

Ms Dave : Can I just clarify that we don't provide any concessional financing. I guess our mandate is to provide commercial financing—

Senator RHIANNON: Okay, I will drop the word 'concessional'.

Ms Dave : Thank you.

Senator RHIANNON: Let's just take the word 'concessional' out. I'm trying to understand this. You spoke about the SME. Was that a company in Adani's supply chain that you were referring to?

Ms Dave : It was a very small SME that would be providing some services.

Senator RHIANNON: So it's part of Adani's supply chain? That must be how it works; Adani needs them.

Mr Hopkins : We need that link in order to create an export opportunity so that Efic can be involved. So, yes, they'd have to be in that supply chain if Adani was going to export something.

Senator RHIANNON: I understand that the trade minister can direct Efic to support Adani's project via the National Interest Account but such a direction must not be unreasonable. I understand that what that means is that a project must be commercially viable, in the national interest and in the public interest. Is that a fair way to describe how it works?

Mr Hopkins : That's a fair assessment. Although, I'm not privy to the discussions of cabinet and the minister when making these decisions around what the national interest is.

Senator RHIANNON: Is Efic's board subject to stricter obligations than the directors of Australian companies? I understand that you must act ethically as well as with care and diligence, so are you under stricter obligations than directors of Australian companies?

Mr Hopkins : Directors of the majority of Australian companies have to comply with provisions in the Corporations Act. Efic, as a corporate Commonwealth entity, has to comply with the provisions in the PGPA Act. There are many similarities between those two pieces of legislation, but there are slight differences. Arguably you could say that directors of government entities may be held to a higher standard than those in the private sector, but that is an arguable point.

Senator RHIANNON: That's an interesting argument. I understand that Efic did not publically provide its board's assessment of the Adani project. Isn't this in contravention of section 9 of the Efic Act?

Mr Hopkins : We have not considered providing support to the Adani project.

Senator RHIANNON: You don't have anything that should be released publicly or anything about Adani that you've worked on?

Mr Hopkins : We answered a series of questions earlier to Senator Gallacher—

Senator RHIANNON: I'm just checking.

Mr Hopkins : We stand by those statements.

Senator MOORE: I will just acknowledge that this is probably Senator Rhiannon's last Senate estimates. I wanted to put that on record and my deep respect for the interest that she has always shown in the estimates process.

Senator McGrath: We'll miss you, Senator.

Senator MOORE: Thank you very much, Senator.

CHAIR: Thank you very much, Senator Moore, for that reminder. I too would like to extend my thanks to Senator Rhiannon. It is always interesting and challenging—and there are sometimes philosophically diverse discussions—but you've always been incredibly professional and courteous of the chairs, and it's been a great pleasure working with you. As I said on social media, I will see you on the other side of the street.

 

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