Contingent liabilities — quantifiable
Communications, Information Technology and the Arts
Litigation
On 28 November 2005, proceedings were commenced in the Western Australia Supreme Court against the Australian Government (as one of two defendants) in which the plaintiff alleges that the Australian Government and the second defendant owe a debt of $5.4 billion to a third party. The Australian Government is currently obtaining legal advice in relation to this matter. Similar proceedings commenced by the plaintiff in the New South Wales Supreme Court were dismissed by the New South Wales Supreme Court on 3 November 2005.
Defence
Guarantees
The Department of Defence (Defence) and the Defence Materiel Organisation (DMO) carry 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 and DMO activities. Indemnities issued cover potential losses or damages for which the Australian Government would be liable.
There are 344 instances of contingencies that are unquantifiable and 184 instances of quantifiable contingencies to the value of $4.7 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 30 June 2005, 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 $340.8 million as at the most current valuation of 30 June 2005. 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.
Foreign Affairs and Trade
Export Finance and Insurance Corporation
The Australian Government guarantees the due payment by 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. As at 30 September 2005, the Australian Government's total contingent liability was $3.1 billion, comprising EFIC's liabilities to third parties ($2.5 billion) and EFIC’s overseas investments insurance, contracts of insurance and guarantees ($609 million).
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 $99.9 million as at 30 September 2005.
Code Management Company — indemnity for the Code of Practice for the Defined Interstate Rail Network
The Code Management Company (CMC) is a company owned by the Australasian Railway Association and includes all Australia's major rail operators and track owners and representatives from smaller companies. The Australian Government has provided an indemnity for CMC against any loss or expense that occurred prior to the transfer of ownership from the Commonwealth relating to the correct use or application of the Code of Practice for the Defined Interstate Rail Network. The Code sets out a national approach to operational and engineering practices, including uniform standards for safe working, train operations, and freight loading specifications. The indemnity is limited to an aggregate of $50 million for a period of six years from the date of transfer of ownership and expires on 15 July 2009.
Treasury
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 $36.6 billion and the total guarantee is $48.9 billion.