Contingent liabilities — quantifiable
Attorney-General’s
Indemnities relating to the Air Security Officer programme
The Australian Government has entered into indemnity agreements with Australian airlines that agree to fly aircraft with Air Security Officers on board. The indemnity agreements limit the Australian Government’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.
Defence
Guarantees
Defence carries an extensive range of guarantees and undertakings, normally of a short-term nature, relating to business, training activities and other arrangements involving contracts, agreements and other Defence activities. Indemnities issued cover potential losses or damages for which the Australian Government would be liable.
There are 130 instances of contingencies that are unquantifiable, and 188 instances of quantifiable contingencies to the value of $4.8 billion. While these contingencies are considered remote, they have been reported in aggregate for completeness.
Finance and Administration
Australian Industry Development Corporation
Under the Australian Industry Development Corporation Act 1970 certain obligations of the Australian Industry Development Corporation (AIDC) are guaranteed by the Australian Government. As at 31 December 2004, AIDC’s contingent liabilities, subject to Australian Government guarantee, were approximately $126 million in respect of guarantees and credit risk facilities.
In addition, AIDC had outstanding Australian Government guaranteed borrowings which totalled approximately $537 million as at the most current valuation of 31 December 2004. These borrowing obligations have been matched by AIDC’s holdings of Australian Government guaranteed securities of similar value, largely eliminating the Australian Government’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 AG, the international parent company that has taken over from UBS Warburg, manages this borrowing portfolio on behalf of AIDC. The UBS AG 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 Australian Government’s contingent exposure to these borrowings is therefore negligible and is consequently recorded as zero.
Litigation
The Department of Finance and Administration is involved in litigation where a counter-claim for damages has been lodged against the Australian Government. The counter-claim, which will be vigorously defended by the Australian Government, seeks damages of $4.3 billion 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 Airports Corporation Limited in the event of a liability arising under Chapter 3 of the Duties Act 1997 (New South Wales) by reason of the sale of shares in Sydney Airports Corporation Limited 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
The Australian Government guarantees the due payments by the Export Finance and Insurance Corporation (EFIC) of money that is, or may at any time become, payable by EFIC to any body other than the Australian Government. The Australian Government also has in place a $200 million callable capital facility available to EFIC on request to cover liabilities, losses and claims. The Australian Government’s total contingent liability is $3.5 billion, comprising EFIC’s liabilities to third parties ($2.9 billion) and EFIC’s overseas investments insurance, contracts of insurance and guarantees ($546 million).
Immigration and Multicultural and Indigenous Affairs
Immigration detention services
The contract with GSL (Australia) Pty Ltd (previously Group 4 Falck Global Solutions Pty Ltd) commenced on 1 September 2003. The Australian Government has agreed to limit GSL’s exposure under the liability regime of the contract. While the general contract requires GSL to indemnify the Australian Government for certain claims of losses, the Australian Government has agreed to share the risk. Subject to certain conditions, GSL has been indemnified against claims of losses above a fixed amount to a capped amount. Where claims exceed the cap in any financial year, responsibility for the excess reverts to GSL.
A further limitation of liability has been provided in relation to loss or damage to Australian Government property or equipment as a result of the actions of detainees. Under the contract, GSL’s liability for detainee damage is subject to an annual limit, unless claims of losses exceed an agreed cap.
Industry, Tourism and Resources
Timor Sea Designated Authority — litigation
PetroTimor, a subsidiary of the Portuguese registered company Oceanic Exploration, was granted a concession for petroleum exploration in an area of the Timor Sea by Portugal in 1974. Following Indonesia’s annexation of East Timor, PetroTimor ceased operations. With the subsequent Timor Gap Treaty between Australia and Indonesia (and now the Timor Sea Treaty between Australia and Timor-Leste), Oceanic Exploration is arguing that its rights have been alienated and it is currently seeking damages against the Timor Sea Designated Authority up to US$30 billion (the Australian Government share of which could be up to US$3 billion) through the United States Court for the District of Columbia.
Transport and Regional Services
Maritime industry reform
On 18 August 1998, the Australian Government 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 are $107.1 million.
Treasury
Guarantees under the Commonwealth Bank Sale Act
Under the terms of the Commonwealth Bank Sale Act 1995, the Australian Government has guaranteed various superannuation and other liabilities amounting to around $12.8 billion. Of this amount, $9.3 billion was attributable to liabilities of the Commonwealth Bank of Australia at 30 September 2004 and $3.5 billion was attributable to liabilities of the Commonwealth Bank Officers’ Superannuation Corporation at 30 June 2004.
Reserve Bank of Australia — guarantee
This contingent liability relates to the Australian Government’s guarantee of the liabilities of the Reserve Bank of Australia. It is measured as the Bank’s total liabilities excluding capital, reserves and Australian Government deposits. The major component of the Bank’s liabilities are notes (that is, currency) on issue. Currently, notes on issue amount to $36.1 billion and the total guarantee is $43.8 billion.
International financial institutions — uncalled capital subscriptions
This contingent liability relates to the value of the uncalled portion of the Australian Government’s shares in the International Bank for Reconstruction and Development (US$2.8 billion — estimated value A$3.6 billion), the Asian Development Bank (US$2.4 billion — estimated value A$3.2 billion), the European Bank for Reconstruction and Development (US$81.7 million plus €77.5 million — estimated value A$235.6 million), and the Multilateral Investment Guarantee Agency (US$26.5 million — estimated value A$34.3 million).