The Northern Australian Infrastructure Facility (NAIF) presents a promising opportunity to project proponents that are seeking to undertake projects in Northern Australia.
On 17 July 2020, Keith Pitt, the Minister for Resources, Water and Northern Australia, announced that the statutory life of NAIF would be extended by five years to 30 June 2026. In making the announcement Keith Pitt stated:
“This execution is the first step under the statutory review of the NAIF that aims to implement changes to enable a more flexible and faster approval process for proponents looking to access the facility.”
The extension of NAIF's statutory life and corresponding statutory review is a promising development as NAIF's statutory life was due to expire on 30 June 2021 despite it only having committed approximately $2.1 billion of its $5 billion lending facility (as at 21 July 2020). Provided the approval process can be accelerated moving forward, the continued existence of NAIF is likely to be a stimulant, and a key source of finance, to Northern Australia's economy as it seeks to recover from the COVID-19 pandemic.
History and function of the Northern Australia Infrastructure Facility
Established under the Northern Australia Infrastructure Facility Act 2016 (Cth) (the Act), NAIF is a development financier with a $5 billion lending facility provided by the Commonwealth Government to deliver loans to infrastructure projects and businesses across Northern Australia (being the Northern Territory, areas north of the Tropic of Capricorn in Queensland and Western Australia, Gladstone, Gladstone Hinterland, Carnarvon, Meekatharra and Wiluna).
The core functions of NAIF are:
- to grant financial assistance to States and Territories for the construction of Northern Australia economic infrastructure;
- to determine terms and conditions for the grants of financial assistance; and
- 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.
Some notable projects that have received funding from NAIF include:
- Onslow Marine Support Base (Western Australia): Development of a multi-user marine supply facility providing chandlering, heavy lift capabilities, reserve logistics, refuelling, transport, freight and emergency services.
- Queensland Airports Limited (Queensland): Redevelopment and expansion of Townsville Airport Terminal.
- Allinta Energy Pty Ltd – Chichester Solar Gas Hybrid Project (Western Australia): A 60 MW Solar PV power station, transmission infrastructure, switchyards and substations.
- Beyondie SOP Project (Western Australia): Financing the construction of a 78 kilometre gas pipeline, gas fired power station and other supporting infrastructure for Kalium Lakes Limited's sulphate of potash project.
- Darwin Shiplift Project (Northern Territory): Expansion of Darwin Harbour, including the construction of a new shiplift and associated marine infrastructure.
A full list of projects which NAIF has provided, committed or is considering funding may be found here.
Characteristics of NAIF funding
Loans are the default financing mechanism considered for all funding applications. However, NAIF may consider using alternative financing mechanisms (for example, a guarantee) where it may be more appropriate for a specific project, or where it is necessary to encourage private sector participation in financing a project.
NAIF does not, and cannot under the Act, provide equity or grant funding to a project.
Interest rates and concessions
The interest rate and payback period for NAIF's loans is determined on an individual basis for each project.
However, NAIF does have the ability to provide concessions on the basis that:
- such concessions are limited to the minimum necessary for a project to proceed; and
- any interest rate or other concession that NAIF may offer cannot be below the combined cost of the Commonwealth Government's borrowing and administration costs.
Security and risk profile
The type of security required for a project is determined on a project-specific basis. Significantly NAIF's corporate plan provides that security may not necessarily be equivalent to that required by a commercial lender. This is because NAIF can accept a higher risk than commercial lenders, particularly where the risk relates to factors that are unique to investing in Northern Australia, including distance, remoteness and climate, and there is a corresponding public benefit to the broader economy.
Qualifying NAIF's higher risk tolerance is based on the following:
- NAIF or the Commonwealth Government must not be the majority holder of financial risk in relation to the project; and
- NAIF must be satisfied that it can appropriately manage its risk exposure to the project.
Interaction with Northern Territory, Queensland and Western Australian Governments
Importantly, NAIF does not provide its loans directly to project proponents. Instead all funding is provided, depending on a project's location, through the Northern Territory, Queensland or Western Australian government.
As a result, following receipt of a funding application, NAIF must consult with the relevant State or Territory about the proposed project as soon as reasonably practicable. If at any time NAIF receives notification from the relevant State or Territory that the funding should not be provided, it must reject the application.
Eligibility for funding
NAIF will consider applications for funding against the following mandatory criteria:
|1.The proposed project involves construction or enhancement of Northern Australia economic infrastructure||NAIF must be satisfied that the project incorporates (in whole or in part) construction or enhancement of physical structures, assets or facilities which underpin, facilitate or are associated with:|
|1. the transport or flow of people, goods, services or information;|
|2. the establishment or enhancement of business activity in a region;on;|
|3. an increase in economic activity in a region, including efficiency in developing or connecting markets; or;|
|4. an increase in population.|
|The project must bring new capacity online either through the construction of the new infrastructure or by materially enhancing existing infrastructureion.|
|2.The proposed project will be of public benefit||NAIF must be satisfied that the project will produce benefits to the broader economy and community beyond those benefits able to be captured by the applicant.|
|3.The project is located in, or will have a significant benefit for, Northern Australia||Projects do not need to be entirely within Northern Australia if they produce significant benefits to that region.|
|4.The loan will be able to be repaid, or refinanced||The applicant must present comprehensive financial modelling to demonstrate the project's ability to repay the debt in full and on time, or refinance.|
|5.Indigenous engagement strategy||The applicant must provide a strategy which sets out objectives for Indigenous participation, procurement and employment that reflects the Indigenous population in the region of the project.e.|
Project proponents considering applying for NAIF funding must carefully consider their project in light of the considerations and parameters governing NAIF funding eligibility. In particular, if aspects of a project do not meet the criteria listed above, the correct structuring of the project will become critical to ensure the project remains eligible for NAIF funding.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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