This article was written by Stephan Cerni and Andy Wu.
The increasing demand for agricultural resources in Asia presents a tremendous opportunity for Australia, given its reputation as a high-quality, reliable producer of agricultural products. In response to this opportunity, the Australian Government has identified Northern Australia as a region well-placed to meet a share of this demand and has recently outlined concrete steps to promote its development, including a A$5 billion infrastructure facility.
What is “Northern Australia”?
Put simply, Northern Australia is generally defined as the land above the tropic of Capricorn and encompasses all of the Northern Territory and significant parts of Queensland and Western Australia. It makes up approximately 40 per cent of Australia’s land mass (being over 3 million square kilometres) and receives more than 60 per cent of national Australian rainfall yearly.
Compared with the rest of the country, Northern Australia has a geographical advantage given its proximity to Asia (being between 3 to 5 hours flight time from Darwin from most South East Asian nations).
The government’s first step: Our North, Our Future: White Paper on Developing Northern Australia
In June 2015, the Australian Government released its Our North, Our Future: White Paper on Developing Northern Australia. Its purpose was to outline the regional economic opportunities presented to Northern Australia and the vision and implementation plan for achieving widespread economic development and population growth in Northern Australia.
Opportunities for Northern Australia
As outlined in the White Paper, the opportunities and returns on investment and development of Northern Australia are best seen through the prism of the economic growth story in China and more widely Asia. The rapidly emerging middle class in China (defined as having income between U.S.$20,000-100,000) and across Asia is estimated to more than triple by the mid-2020s, and by 2030 Asia combined will represent approximately two-thirds of the global middle class population and middle class consumption.
The rise in per capita income (and related disposable income) and ongoing urbanisation of populations across Asia has led to increased demand for higher quality food products and western produce. For example, forecasts by the Australian Bureau of Agricultural and Resource Economics and Sciences calculate that between 2009 and 2050, the real value of beef consumption in China is projected to rise 236 per cent, dairy consumption 74 per cent, sheep and goat meat consumption by 72 per cent and sugar consumption by 330 per cent (in 2009 US dollars). These are significant increases not just in percentage terms but also in terms of quantity which will likely be reflected across South East Asia more widely as economic growth and development continues.
Challenges in the region
While the White Paper mentions that there is up to 17 million hectares of irrigable land in Northern Australia, there is only one tenth of the water currently available in storage to meet this potential. The region is sparsely populated with just over 1.3 million people growing at a rate of 0.3 per cent per annum in the Northern Territory in 2016(compared for example with national average of 1.7 per cent).
The White Paper summarises the challenges to Northern Australia development being the lack of water capture and storage, limited telecommunications, a small population, lack of transport and intermodal infrastructure, biodiversity and biosecurity threats and the navigation of native title claims and the inability of native title holders to develop land through secured lending.
The Australian Government’s infrastructure initiatives
Following the release of the White Paper the Australian Government outlined key concrete steps for the realisation on the development of Northern Australia.
National Water Infrastructure Development Fund
The Australian Government recently committed A$200 million to building water infrastructure in Northern Australia as part of the new National Water Infrastructure Development Fund. This includes funding for various water survey examinations and new and augmented water infrastructure, such as dams, pipelines and managed aquifer recharge projects.
Northern Australia Roads Programme
The Australian Government has also established a A$600 million Northern Australia road development package to update priority roads and improve the reliability and efficiency of agricultural carriage year round. Such funding is intended to cover road sealing, widening, overtaking lane construction and pavement renewal.
Northern Australia Infrastructure Facility
Perhaps the most significant initiative following the release of the White Paper was the creation of the Northern Australia Infrastructure Facility (NAIF). The NAIF is a A$5 billion five year fully capitalised fund set up to fast track growth in Northern Australia to provide concessional debt funding in conjunction with private sector debt for the development of economic infrastructure in Northern Australia. As outlined in the legislation creating NAIF, such funding is subject to key criteria including that such economic infrastructure creates “new capacity” and is not limited to rail, water, energy, communications, ports and airports and must be unable to be funded at such point in time solely with private debt. There is also non mandatory criteria for NAIF funding – for example that such funding must be over A$50 million.
NAIF is run as a body corporate by an independent board consisting of a Chairperson (Sharon Warburton), Chief Executive Officer (Laurie Walker) and six additional members. The board is responsible for reviewing and analysing (with assistance from Commonwealth government agencies) applications for NAIF funding according to the mandatory and non-mandatory eligibility criteria of the fund and ultimately negotiating and approving NAIF funding for economic infrastructure projects. The Minister for Northern Australia retains a 21 day right of consideration and ultimate veto over NAIF projects approved by the NAIF board. Such veto may only be given if the proposed NAIF funding would be inconsistent with the objectives and policies of the Commonwealth Government, have adverse implications for Australia’s national or domestic security or have an adverse impact on Australia’s international reputation or foreign relations.
NAIF funding is available not only to Australia domestic entities, and internationally and foreign investors are also encouraged to apply.
Recent Developments in NAIF
In December 2016 it was announced that the NAIF provided preliminary approval (subject to final detailed board approval and ministerial approval) for approximately A$1 billion concessional loan to Adani Mining Pty Ltd for the development of a 310 kilometre rail link from the Adani Carmichael coal mine to the Port of Abbot Point in Queensland. The proposed rail line is expected to provide capacity of 100 million tonnes of coal per year, increasing access to the Galilee Basin. It will likely be able to be used by multiple users, contributing an expected A$368 million annually to the Queensland economy once in operation.
Additionally, in February 2017 Senator Matthew Canavan, Minister for Resources and Northern Australia confirmed that several electricity generators had expressed interest in NAIF funding for baseload power (including clean coal) projects in Northern Australia, specifically in the Galilee basin and other parts of North Queensland. The Minister has noted that there is no base load coal-fired power north of Rockhampton in Queensland and there is a market for new base load power construction given significantly high prices for power consumption in Northern Australia.
Enquiring with NAIF for Future Projects
If you are interested in applying for NAIF funding or are interested in economic infrastructure projects in Northern Australia (including through other Australian government initiatives), please contact us and we can discuss your next steps.