Ann: $150M Debt Funding Approvals Secured, page-45

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The federal fund set up to kick-start economic development in Australia’s north is urgently reviewing $3.84 billion in loans amid concerns about the risk to taxpayers from cost blowouts and rising interest rates.

Northern Australia Infrastructure Facility chief executive Craig Doyle said the NAIF might back out of up to $840 million in approved loans – but which have yet to receive final sign-off – if projects were deemed too risky, given costs had increased by between 40 per cent and 60 per cent over the past two years.

Mr Doyle revealed that, following the financial collapse of the Kalium Lakes potash project in Western Australia in August, the board considered scrapping a $490 million loan to another salt and potash project in WA that is backed by billionaire Kerry Stokes.

The Kalium Lakes project had already drawn down $83 million in taxpayer money before it collapsed.

“If things are changing we might have a closer look. We might just drop off and choose not to fund because it is too high a risk,” Mr Doyle told The Australian Financial Review.

The NAIF was established as a $5 billion fund by the former Coalition government, and Labor tipped in another $2 billion earlier this year.

Mr Doyle said the facility was looking closely at the $3.84 billion in projects it approved to ensure proponents reached certain conditions before they could draw down on the taxpayer-funded loans.

This included a $490 million loan to BCI Minerals for its Mardie salt and potash project in the Pilbara three years ago.

ASX-listed BCI Minerals is 39 per cent owned by the private company of AFR Rich Lister Mr Stokes and more than 14 per cent owned by the nation’s biggest pension fund, AustralianSuper.

With costs escalating, the company recently asked NAIF and other lenders for more money.

NAIF told BCI Minerals the “situation had changed” since the original approval. However, it decided to commit to the loan after the company abandoned potash in the first stage of the project.

“We’ve redone the public benefit figures, rechecked the price of salt, rechecked the fundamentals on the margins and decided we are still comfortable to fund that based on that information,” Mr Doyle said.

“As things change as they get to final investment decision, they need to reach certain conditions. It’s not going out until we’re happy.”

Apart from the Kalium Lakes potash project, which went into receivership last month, a number of other NAIF projects have been hit by increased costs including the Lake Wells potash project in WA ($140 million loan) and Metro Mining’s bauxite mine expansion in north Queensland ($47 million loan).

The Lake Wells project and Metro Mining are working through their final investment decisions.

Mr Doyle, who has led the NAIF for the past 15 months, said he was surprised there had not been more impaired loans from the taxpayer-funded body, set up in 2016 to back riskier projects unable to get private finance.

He said most project proponents used a NAIF loan as leverage to gain debt or equity from private financiers who had previously steered clear.

He acknowledged the facility’s mandate – to fund projects to help economic development in north Queensland, northern WA and the Northern Territory – was “pretty broad”, but the assessment of projects was thorough.

A $610 million NAIF loan was critical to getting Genex Power’s Kidston pumped hydro project off the ground. Brian Cassey

“We don’t set out to have impaired loans, I can assure you that is not our mandate,” Mr Doyle said.

“I was surprised there hadn’t been any impaired loans [before the Kalium Lakes project]. I’m not saying that’s acceptable. But we are in a high-risk environment. That’s what we were set up for. I’m not saying north Australia is special, but it’s harder [to get projects off the ground].”

NAIF has committed $3.84 billion to 29 projects. Of those, 25 projects have reached financial close and can start drawing down on the loans. Only $1.6 billion in loans have so far been drawn down.

The largest NAIF loan has been $610 million to Genex Power’s Kidston pumped hydro project in north Queensland, while the smallest loan was $7 million to Humpty Doo Barramundi farm in the Northern Territory.

Genex Power’s chief executive James Harding last month admitted the NAIF loan was critical in getting the $777 million energy project across the line.

“They [NAIF] have been absolutely key in getting Kidston to financial close,” he said.

NAIF stuck with the Kidston project, despite a leakage in a tunnel between reservoirs which spooked some investors.

NAIF officers have weekly meetings with project proponents to keep a close eye on progress and costs, Mr Doyle said.

Four NAIF projects have started repaying their principal and interest from the NAIF loans which have a duration of 16 years and a fixed rate based on government bonds.

Mr Doyle said the criticism of NAIF in its early years about the slow pace of money out the door was no longer valid.

In its first six years in operation, about $600 million in loans went out the door. Last financial year, another $600 million was drawn down, and the same amount is expected this financial year.

Despite concerns Labor would review NAIF, or potentially even scrap it after it won office last year, the Albanese government tipped in another $2 billion, including earmarking at least $500 million for critical minerals developments.

The NAIF was established as a $5 billion fund by the former Coalition government, and Labor tipped in another $2 billion earlier this year.

Mr Doyle said the facility was looking closely at the $3.84 billion in projects it approved to ensure proponents reached certain conditions before they could draw down on the taxpayer-funded loans.

This included a $490 million loan to BCI Minerals for its Mardie salt and potash project in the Pilbara three years ago.

ASX-listed BCI Minerals is 39 per cent owned by the private company of AFR Rich Lister Mr Stokes and more than 14 per cent owned by the nation’s biggest pension fund, AustralianSuper.

With costs escalating, the company recently asked NAIF and other lenders for more money.

NAIF told BCI Minerals the “situation had changed” since the original approval. However, it decided to commit to the loan after the company abandoned potash in the first stage of the project.

“We’ve redone the public benefit figures, rechecked the price of salt, rechecked the fundamentals on the margins and decided we are still comfortable to fund that based on that information,” Mr Doyle said.

“As things change as they get to final investment decision, they need to reach certain conditions. It’s not going out until we’re happy.”

Apart from the Kalium Lakes potash project, which went into receivership last month, a number of other NAIF projects have been hit by increased costs including the Lake Wells potash project in WA ($140 million loan) and Metro Mining’s bauxite mine expansion in north Queensland ($47 million loan).

The Lake Wells project and Metro Mining are working through their final investment decisions.

Mr Doyle, who has led the NAIF for the past 15 months, said he was surprised there had not been more impaired loans from the taxpayer-funded body, set up in 2016 to back riskier projects unable to get private finance.

He said most project proponents used a NAIF loan as leverage to gain debt or equity from private financiers who had previously steered clear.

He acknowledged the facility’s mandate – to fund projects to help economic development in north Queensland, northern WA and the Northern Territory – was “pretty broad”, but the assessment of projects was thorough.