Senate Economics Legislation Committee, , 8:41:26 to 9:01:33
The department outlines energy grid underwriting and the investment mandate of the National Reconstruction Fund.
Topics: Electricity grid, Renewable energy, Government spending
Speakers: Hon Matthew Canavan, Meghan Quinn PSM, Hon Tim Ayres, Jocelyn Cooper, Louise Talbot, Lisa Darmanin
>> Thank you, chair. Just um so going back to the tomago situation. So got an agreement to have an agreement. Uh uh is there uh uh is there a commitment from the owners of Tomigo to to continue this facility uh regardless of the terms of the power purchasing agreement that is finalized?
>> Well, it's uh it's an it's an agreement to work together to deliver a particular
But what if the outcome is not to the owner's liking? Would they still walk away?
>> The the agreement needs to deliver the outcome that we um that is in the interests of the Commonwealth and New South Wales and the owner and the workers in that facility.
>> Has something been signed? Is there a contract that's been signed or?
>> No, I I'll go to the officials in terms of just to describe uh the character of the agreement thus far.
>> Thank you and thank you, Senator. Um, so what I can confirm is that there are discussions. They are occurring. There are discussions underway. Um,
>> get I'm going to try and get you done by dinner so you can go. You probably got interest in that. >> So the the quicker I get an answer, the quicker we go. Um, so has is there a signed contract with the owners of Tomago?
>> So there are discussions on way at the moment.
>> Is there a signed contract?
>> Oh, discussions continue.
>> No. Is there a signed contract? The
discussions are continuing. [laughter] The discussions are continuing. And
>> so there's no psych. >> I mean, I'm just trying to understand because it was great fanfare. The government announced that look, these jobs are saved and there's a thousand odd jobs there. It's uh very serious for these people.
>> There is a commitment
>> and there's actually nothing on paper at the moment.
>> Well, there are there are commitments from all parties to continue discussions and those discussions are intensive and
[clears throat] >> what's the nature of those commitments? It's just just what somebody has said.
As as always in commercial discussions uh there are different stages where people decide to come together or or go apart. There there were a series discussions at the end of last year uh between parties about um the what was happening in the Tomago um aline smelter. Uh there was agreement to continue discussions and and to step up and go into a greater level of detail and specificity. uh and that is what we are doing and we have a time uh frame working with all parties and it's uh active consideration at the moment
>> and as you can understand the commercial nature commercial a handshake by the sound of it so
>> the commercial nature of the discussions is such that we don't want to go into details it's an important facility for Australia uh and we are working very closely with colleagues uh both across the commonwealth and with New South Wales and with the various parties that are party tomago um people are expending energy and money and time on uh these discussions and so there is a commitment from all parties to reach agreement.
>> So uh the the muted uh long-term power purchasing agreement is there a decision on how long that will have to go for. So
>> all of those matters are under consideration. Right.
>> We are we are right in the middle of those uh those discussions and um it's uh there there is um it's uh it's a it's a lot of progress uh from uh uh where we were as part of a successful agreement. Of course, the facility stays open and it has not made a uh has not made a decision to do anything else. uh contribute at least a billion dollars in capital and major maintenance investment over the top of what they otherwise would have done over the next decade. Um that is uh that is very significant progress. We made sure that uh that we uh registered that publicly and with workers because that was the right thing to do ahead of Christmas. Uh it's a significant advance on what the puditive leader of the Liberal Party did in 2012, which was advise them to close. That was his plan uh for Tomago Aluminium. I assume it's why he build a $600 billion nuclear power plant which would have put every electricity based manufacturer in Australia out of business. But anyway, we'll see what uh see what happens over
a couple days. Um this plan uh is to underwrite uh the um the installation of more solar and wind electricity. Is that right? Um,
so it is, uh, I'm quoting from the press release here, um, that over coming months, Tomago Aluminium will work with the federal and New South Wales governments on a long-term renewable energy solution to support the smelter's viability when its current energy contracts expire in 2028.
>> I'm just quoting from the minister from the press conference and he said he's quoted saying, "This deal will underwrite the development of more electricity, more generation, more storage, more transmission." So is that that's right. So it will underwite
parents will do.
>> Yeah. Okay. We'll underrite. Uh I'm just trying to understand has the Commonwealth government ever or at the moment I should say to make it a question you can answer is has the Commonwalth government is the Commonwealth government underwriting an electricity contract for any other major energy user
>> in Austral. So you could argue the the the um the CIS program. Um
>> I'm I'm talking about for a customer though, like for an individual customer
here. Uh so I mean I'd have to take that on notice because certainly there's been uh previous uh relationship that deals between uh comalth with states for various entities um that have related to energy costs. I'm thinking to the previous arrangements um with different aluminium smelters and the like. >> So certainly the government has um used mechanisms like this in other parts of the system uh over time. Um
There is a bit of a tangle. You know, there's, as Senator Colbeck was saying, you know, you look at Bella Aluminium, it's there because there was a there was a stateowned um electricity utility providing for lowcost electricity for the facility. Similarly, the history in New South Wales is publicly owned uh electricity uh generators providing preferential uh electricity power purchasing agreements. Uh there's a new electricity system being built. So >> uh and it's a different and it's a and it's a it's not a publicly owned market. Um so this is um >> this is a different kind of facilitation uh that is uh that is being contemplated here but the details um are being worked through and I'm hope that when we come back to a future estimates >> we'll be able to flesh them out uh for
you completely. So, it always does perplex me that we're constantly told that solar and wind electricity are the cheapest form of power and very cheap. Why would uh the owners of Tomago need to have the installation of that type of so-called cheap electricity underwritten >> to continue operations
>> because they can't afford unreliable clapped out coal fired power stations uh that provide electricity that is too expensive and too unreliable for their purposes. Uh the [snorts] owners of this facility
>> 40 years
>> the the owners of this Yeah. worked for 40 years and the world has changed. Uh I know it's um difficult to wrestle with for some but the world keeps changing. Uh the electricity market is changing. Technology is modernizing. Uh and uh you know the owners of these facilities aren't sort of hippies. They
they are making a hard judgement off they're going to make a lot of money off
they are making a hard commercial
judgement [laughter] because you've >> to certain types of power and now they're going to make bank off you or off the off the taxan
you were part of a government so you were part of a government >> that sat on its ass for 10 years and did
nothing about electricity >> minister is I can attend when I get out
of 28 power stations which you claim to
love in the pasture that the world's walking away from
>> announced their closure over the life of that miserable period of the government that you were a part of that you were a
part of somebody I would like I'm trying to >> there is there is I'm trying to move on
topic you made a political that >> uh I'm I'm going to respond uh if you can ask questions that I think actually that are serious Yes. Well, we'll see how we go.
>> I think the uh potential underwriting of billions, possibly billions of dollars of electricity generation is a serious question. Now, moving on to a related topic onto net zero. I noticed the um announcement of the net zero sub fund. Now, is that in this section or or that's
>> this this section?
>> It is this section. It's sort of coming out of the national reconstruction fund. Is that right? But you you'll be
administered.
>> so this is the announcement only I think last week it was to well I think the announcement of the fund had been some time ago but details were announced last week I believe of this net zero sub fund uh that was uh that is set to offer a uh a return rate 1 percentage point below the government bond rate. Is that right?
>> That's right. Yes.
>> Okay. So that's this section. Um so does the rest of the U reconstruction fund portfolio still remain at the original target rate of 2 to 3% above the bond rate.
>> Uh so the renewable energy as the national reconstruction fund has a portfolio of of activity some of it directed to particular priority areas. There is a sub fund under it which is the uh renewable the the I'll get the emission reduction fund uh but there but which is the one that was announced last week. There's also the e economic resilience program which was announced in the election which is being delivered by the national reconstruction fund.
>> So just going back to my question does the rest of the fund the rest of the reconstruction fund is it apply a two to
three percentage point? So no because the e economic resilience program is
also a subs.
Yes.
>> What rate does it have? >> The economic resilience program.
>> It uh senator sorry Jocelyn Cooper, head of um industrial capability and supply chains division. Um the economic resilience program will um provide zero interest loans.
>> Zero interest, right? That's right. Um and this one 1 percentage point below. Uh was Treasury and Finance consulted on the decision to provide the 1 percentage point discount to the bond rate on the net zero fund?
>> It was a cabinet decision.
>> Right. Uh did you assess make an assessment of the market? Why did why does we need a discount provided for these investors?
So all of that was part of the assessment uh that went to the expenditure review committee and the cabinet. Uh and this this is about supporting uh manufacturing companies to transform and invest in capital and processes to reduce emissions.
>> Are all are all of the disposals the draw downs from this fund are they all uh are they all off balance sheet? Are they all below the line below the underlying cash balance line?
>> So the the the National Reconstruction Fund is a separate entity and it
>> it's a special investment vehicle. Yes. >> And so even with the decision last week to offer a discount interest rate, it's still all thea the case that all of the draw downs in that special investment vehicle are below the line.
>> They they are under the same arrangements as each other.
>> How does that make any sense? Because we are borrowing money at the moment. We're going to debt and the interest rate on that debt is well you've got a I think the six-month rate is what you're using. Is that
right? >> To the extent that there's any
>> you see where I'm going but I mean yes >> how can that at all be off balance
>> So to the extent that there's any impact on the underlying cash balance that is captured in the underlying cash balance.
>> So there is a there is a
>> there is an element of the of it if it's below the cash.
>> Okay. Sorry, I thought you said there
hadn't been are separately accounted for like they've got a spe they've got a their own draw down facilities, their own mechanisms for financing these deals.
Yeah.
>> Um to the extent that there is any uh impact on uh the underlying cash balance that is captured in the application.
>> Okay. So how much is that reduction the US UCB from this decision last week?
>> Uh I think I take that on notice. um like because
>> surely you have that
>> so
>> I mean they used to do that even with a knife even when we were charging above
>> so we have so there were sort of scenarios and analysis
>> you would know that
>> well
>> well I'll keep going if you if you can try and find that because I'm sure you would have worked that out with Treasury um so this is effectively turning the fund now into a bit of a grant giving body isn't it because you're charging we're seeking a return below the rate of return we borrow at.
>> So that so the funds uh there's no changes to the legislation. Uh and so the the the tools that the fund has available to it have not changed. Uh the borrow the borrowing requirements to the extent that they issue debt under these facilities. It's on average over time uh as well. Uh and so it was always the case that there was likely to be some that would be above and some below uh except for the exe economic resilience program which is explicitly at zero uh So they are not grants they are going to be debt or equity or guaranteed instruments.
even if we pay it back even if they're paid back so
>> grants typically aren't paid back. So there's a difference between
>> well this is hang on this is my point. So say it's a 5year um it's not really a loan is it but a 5year investment 5 year payback of the uh of the uh investment and the I think the six month rate last time looked was about 4.2%. So you give it to them at a target of 3.2. We're borrowing the money at 4.2
>> on average over time.
>> We'll only get back
>> on average over time.
>> Yeah. We'll only get back one percentage point less.
>> And it's on average over time. It's a
great [laughter] it's absolutely not some of these >> uh some of these interventions will be >> uh some of it will be loans and some of it will be guarantees uh there is uh not enough capital uh available uh or active in Australia uh around manufacturing
manufacturing going to be a wash with this we're going to have lower interest
>> this um
>> what happened
>> well well this This is this is not a new development Senator Canavan that the risk appetite >> uh and the and the capacity of the Australian investment community in terms of manufacturing is not very strong. >> What this uh what this fund uh will do and what this allocation will do is set the risk appetite in terms of this portion of the fund um that is not the same as the returns that the fund achieves over time. It sets it sets where the board and the investment and the investment team >> uh go to. >> It is not the same as the return that they will achieve over time.
>> Well, just note that we when we signed to net zero, we're promised lower interest rates. That was the promise and what you've just said is that uh we're actually getting higher interest rates which is happening and less capital flowing into the country. It's not working. So, just going on to the battery. I've only got a few brief questions here. It shouldn't take long. Um uh I believe this was announced in 2022 uh during the election. Uh an Australian made battery pre precinct. What was the
Senator Joselyn Cooper um head of division. The battery precinct was a joint commitment of the um Commonwealth and um Queensland government at the time um to bolster Australia's battery manufacturing capability, support jobs and also build national scale for battery industry.
>> Okay. Um how how much has been spent on the precinct today?
So, Senator, um the Commonwealth government remains very committed to developing battery industry. Um in 2024, government released its battery strategy and you'll have seen new initiatives like the battery um breakthrough initiative. Um things like the future made innovation fund.
>> Just because we're trying to go to dinner, I'm sorry. Just how much has been spent?
>> So, uh nothing has been invested in the
precinct. $100 million commitment
>> with the previous government. It was a um matched commitment.
>> And just to be clear though, we we did spend um some funds to do due diligence and advisory support as part of the
discussions with the
>> 5.6 million. In 2425, what's the current
Is it going ahead or?
>> Uh so we understand that the current Queensland government, as I mentioned, it was a commitment made with the previous Queensland government. Um the current uh Queensland government has new and different industrial priorities around defense, biomed, and um bofuel industries. Um and given this shift in approach, we're no longer um collaborating actively with the Queensland government um on the precinct, but with the Commonwealth actively supporting the industry through a range of other initiatives.
>> Is it is the project ceased then from the Commonwealth level or is it still is the the 100 million is still in the in your budget for
>> So the government still considering its next steps with the clarification from the Queensland about what their priorities are.
>> 5.6.
>> Can I clarify sorry there as well? Um there's no funding that the $100 million was a commitment. There's no kind of money set aside for
>> Oh, it's not in the budget at all.
>> No.
>> Okay. Um the 5.6 million was that just spent on internal costs or were external consultants engaged?
>> I believe external consultants were used.
>> That's right.
>> Okay. Well, maybe could get on notice exactly um which external consultants and how much that was or for each. Just quickly, I just wanted to quickly touch on the AI stuff. I wanted to do more but um I mentioned earlier um it um so just to be clear this is is this focused this AI uh I've forgotten the name you called it um
>> safety institute
>> the AI safety institute
>> safety institute this is to provide services to other government agencies is it not to not to protect safety of the broader Australian public from AI
>> uh it's about uh the area looking after this uh are not here but the requirements
>> so I'm in the wrong program or
>> yes it's in the it's in the science and
technology we can do it then >> I think um
>> but at a high level it's about um evaluating AI capabilities and sharing
information >> no we'll wait till then okay sorry I thought it was this one thank you
>> thank you so that concludes the session uh for outcome one program 1.1 uh we will have a suspend for a dinner break now and be back at 700 p.m. Thank you