Contingent liabilities - quantifiable
Agriculture, Fisheries and Forestry
Compensation claim for defective administration
The Department of Agriculture, Fisheries and Forestry Australia is considering a claim made under 'The Scheme for Compensation for Detriment Caused by Defective Administration' (CDDA). CDDA is an administrative scheme established in 1995 to enable Commonwealth agencies to compensate persons who have been adversely affected by the defective action or inaction of agencies but who have no other avenues to seek redress. The claim, for an amount of $68.1 million, relates to a decision in 1985-86 by the then Export Inspection Service to ban the export of sultana table grapes.
Attorney-General's
Indemnities relating to the Air Security Officer programme
The Commonwealth has entered into indemnity agreements with Australian airlines that agree to fly aircraft with Air Security Officers on board. The indemnity agreements limit the Commonwealth's exposure up to a maximum of $2 billion per incident. The indemnity applies to the extent that any loss is not covered by existing relevant insurance policies held by the airline and only applies where the airline(s) can prove that an action on the part of an Air Security Officer under, or in connection with, the Air Security Officer programme caused a loss.
Communications, Information Technology and the Arts
Australian Broadcasting Corporation (ABC) Loan
The Commonwealth has guaranteed a loan entered into by the ABC. This loan has been largely used to meet costs relating to the construction of premises for the ABC at Southbank in Melbourne and Ultimo in Sydney. The principal amount covered by the guarantee at 30 June 2003 is estimated to be $40 million, a decrease of $50 million since June 2002.
Education, Science and Training
Unfunded higher education superannuation liabilities
A number of universities have employees or former employees who are members of State superannuation schemes which are unfunded or partly funded. The Commonwealth provides funding to universities to cover these costs. In turn, the Commonwealth has arrangements with the State governments to recoup part of the costs from them.
The Commonwealth's share of unfunded higher education superannuation is recognised in the Department of Education, Science and Training's financial statements as an administered commitment. The estimated Commonwealth share of the total unfunded superannuation is approximately $1.9 billion.
In 2002-03, the Commonwealth commenced a review of the cost sharing arrangements with the States, with a view to simplifying arrangements for all parties. This process will draw on a detailed actuarial assessment of the total unfunded superannuation costs involved, including the shares between the Commonwealth and the States. Once the review is completed, and discussions with the States have occurred, the Government will consider recognising the liability in the Commonwealth's financial statements. The estimate of the Commonwealth's share of the liability may change depending on the outcome of the review.
Employment and Workplace Relations
Special Employee Entitlements Scheme for Ansett group employees
A contingent liability of $104 million exists in relation to the Special Employee Entitlements Scheme for Ansett group employees (SEESA). This scheme was established by the Federal Government on 9 October 2001 under section 22 of the Air Passenger Ticket Levy (Collection) Act 2001 to provide a safety net arrangement for staff of the Ansett Group of companies who were terminated after 12 September 2001 due to their employer's insolvency. Contingent revenue also exists in relation to the SEESA.
Finance and Administration
Australian Industry Development Corporation (AIDC)
Under the Australian Industry Development Corporation Act 1970, certain obligations of AIDC are guaranteed by the Commonwealth. As at 31 March 2003, the AIDC's contingent liabilities, subject to Commonwealth guarantee, were approximately $127 million in respect of guarantees and credit risk facilities.
In addition, AIDC had outstanding Commonwealth guaranteed borrowings which totalled approximately $1.36 billion as at 31 March 2003. These borrowing obligations have been matched by AIDC's holdings of Commonwealth government guaranteed securities of similar value, largely eliminating the Commonwealth's guarantee exposure. These securities were purchased on-market by UBS Warburg and paid to AIDC as consideration for UBS Warburg's purchase of AIDC Limited's (a subsidiary of AIDC) financial assets. UBS Warburg manages this borrowing portfolio on behalf of AIDC. The UBS Warburg arrangement also provides a guarantee to cover any cash flow differences between the interest rate and maturity profiles of the matched borrowings and securities, together with any exchange rate movements in the borrowings. The Commonwealth's contingent exposure to these borrowings is therefore negligible and is consequently recorded as zero.
ComLand Limited
Bank borrowings by ComLand Limited are explicitly guaranteed by the Commonwealth up to a limit of $60 million, comprising $50 million for principal and $10 million for accrued interest and other costs.
Department of Finance and Administration litigation
The Department of Finance and Administration is involved in litigation where a counter-claim for damages has been lodged against the Commonwealth. The counter-claim seeks damages of $4.3 billion against the Commonwealth although the basis for this amount is yet to be fully provided.
Sale of Sydney Airports Corporation Limited
An indemnity has been provided to Southern Cross Airports Corporation as purchaser of the Sydney Airport Corporation Limited (SACL) in the event of a liability arising under Chapter 3 of the Duties Act 1997 (NSW) by reason of the sale of shares in SACL constituting a relevant acquisition in a land rich private corporation. In the event the liability arises it is estimated to be between $221.2 million and $282.8 million.
Foreign Affairs and Trade
Export Finance and Insurance Corporation (EFIC)
The Commonwealth guarantees the due payments by EFIC of money that is, or may at any time become, payable by EFIC to any body other than the Commonwealth. The Commonwealth also has in place a $200 million callable capital facility available to EFIC on request to cover liabilities, losses and claims. As at 31 March 2003, the Commonwealth's total contingent liability was $6.8 billion, comprising EFIC's liabilities to third parties ($3.3 billion) and EFIC's contracts of insurance and guarantees ($3.5 billion). The National Interest Account accounted for $2.5 billion of these liabilities.
Industry, Tourism and Resources
Australian Magnesium Corporation (AMC)
The Commonwealth has provided a conditional guarantee to cover borrowing by AMC to assist in developing a magnesium smelting facility in Stanwell, Queensland, which will commercialise Australian-developed magnesium refining technology. The maximum value of the guarantee is $100 million, which may be called between 1 July 2005 and 31 July 2012. The loan itself is to be provided by the ANZ Banking Group.
Liability for damages caused by space activities
The Commonwealth Government requires anyone seeking approvals under the Space Activities Act 1998 to insure up to the level of maximum probable loss (MPL), up to a maximum of $750 million each launch and each return of a space object. The Commonwealth also accepts all liability for damage suffered by Australian nationals up to a value of $3 billion above MPL.
Transport and Regional Services
Aviation War Risk Insurance - indemnities for Australian carriers, airports and service providers
Following terrorist attacks in the United States on 11 September 2001, commercial insurance cover for acts of war and terrorism was withdrawn or significantly limited, placing global aviation operations at risk. In common with other countries, the Commonwealth has been providing temporary third party war and terrorist risk indemnity cover to air operators, airports and other aviation service providers.
With the return of insurance coverage to the aviation sector, only three parties remain indemnified under the scheme. The notional upper limit of the Government's contingent liability for these three remaining indemnities is approximately $3.3 billion, based on the difference between the amount of commercial insurance currently held by the relevant entity and the level of cover provided under its deed. The spread in activities of the parties makes it unlikely that the total liability would ever be realised but a terrorist incident could nevertheless involve claims from several of the indemnified parties.
Maritime industry reform
On 18 August 1998, the Commonwealth provided a guarantee to cover borrowings made by the Maritime Industry Finance Company Limited to finance redundancy-related payments in the stevedoring and maritime industries. Outstanding borrowings covered by the guarantee as at April 2003 were $130.1 million.
Treasury
Guarantees under the Commonwealth Bank Sale Act 1995
Under the terms of the Commonwealth Bank Sale Act 1995, the Commonwealth has guaranteed various liabilities of the Commonwealth Bank of Australia (CBA), the Commonwealth Bank Officers' Superannuation Corporation (CBOSC) and the Commonwealth Development Bank.
The guarantee for the CBA relates to both on and off-balance sheet liabilities. Of the existing contingent liability, 33 per cent involves off-balance sheet liabilities. As at 30 June 2002, the balance of the guarantee was $12.1 billion, a reduction of $1.6 billion on the previous year.
The guarantee for CBOSC covers the due payments of any amount that is payable to or from the Officers' Superannuation Fund (the Fund), by CBOSC or by CBA, in respect of a person who was a member, retired member or beneficiary of the Fund immediately before 19 July 1996. Total accrued benefits at 30 June 2002 have been valued at $3.7 billion. The outstanding value subject to the guarantee is estimated to be $3.7 billion.
As of 1 July 1996, the Commonwealth Development Bank ceased to write new business and no additional liabilities are being incurred. The existing contingent liability will gradually decline with the retirement of existing loans and exposures. The revised estimate for the balance of this guarantee was $18 million as at 30 June 2002.
Reserve Bank of Australia (RBA) guarantee
This contingent liability relates to the Commonwealth's guarantee of the liabilities of the RBA. It is measured as the Bank's total liabilities excluding capital, reserves and Commonwealth deposits. The major component of the Reserve Bank's liabilities are Notes (that is, currency) on issue. As at 2 April 2003, Notes on issue totalled $32.4 billion. In total, the guarantee for the RBA was $42.8 billion as at 2 April 2003.
Terrorism insurance - Australian Reinsurance Pool Corporation (ARPC)
On 25 October 2002, the Government announced detailed plans for a scheme for replacement terrorism insurance, to operate until the market recovers. The scheme will cover commercial property and infrastructure facilities and associated business interruption and public liability. It will commence on 1 July 2003.
The scheme will provide for a pool of funds (initially planned to accumulate to about $300 million) generated by reinsurance premiums paid to the ARPC. The pool will be supplemented by a back-up bank line of credit of $1 billion, underwritten by the Commonwealth, as well as a Commonwealth Government indemnity of $9 billion, giving aggregate cover of up to $10.3 billion when the pool is fully funded.
Under the Terrorism Insurance Bill 2002, the Commonwealth guarantees the payment of liabilities incurred by the ARPC. The Treasurer has the ability to declare a reduced payout rate to insureds if, in the absence of such a declaration, the Commonwealth's liability would exceed $10 billion. While the guarantee to the ARPC is unlimited, the pro-rata reduction will be used to limit the Commonwealth's exposure to $10 billion.
The ARPC may recoup payouts under the scheme by increasing premiums for terrorism reinsurance, and pass these funds on to the Commonwealth. However, such repayments to the Commonwealth may take some years.
Uncalled capital subscriptions - international financial institutions
The liability relates to the value of the uncalled portion of the Commonwealth's shares at 31 March 2003 in the International Bank for Reconstruction and Development (US$2.8 billion - estimated value A$4.6 billion), the Asian Development Bank (US$2.4 billion - estimated value A$4.1 billion), the European Bank for Reconstruction and Development (US$81.7 million plus EUR77.5 million - estimated value A$274.3 million), and the Multilateral Investment Guarantee Agency (US$26.5 million - estimated value A$43.8 million).