Contingent liabilities — quantifiable
Defence and Defence Material Organisation
Indemnities
The Department of Defence (Defence) and the Defence Materiel Organisation (DMO) carry an extensive range of indemnities and undertakings, normally of a short-term nature, relating to business, training activities and other activities involving contracts, agreements and other Defence and DMO arrangements. Indemnities issued cover potential losses or damages for which the Australian Government would be liable.
Defence carries 315 instances of contingencies that are unquantifiable and 31 instances of quantifiable contingencies to the value of $1.6 billion. DMO carries 28 instances of contingencies that are unquantifiable and 186 contingencies that are quantifiable, to the value of $3.2 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 2006, AIDC's contingent liabilities, subject to Australian Government guarantee, were approximately $125 million in respect of guarantees and credit risk facilities.
In addition, AIDC had outstanding Australian Government guaranteed borrowings which totalled approximately $170 million as at the most current valuation of 31 December 2006. 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 Ltd'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.
Potential claims relating to superannuation benefits
On 20 April 2007, the High Court rejected the Commonwealth of Australia's appeal on a claim for negligent misstatement relating to superannuation benefits for a former employee of the Department of the Interior. The potential liability for the first 400 cases is estimated at $235 million. There is potential for more claims to arise from other former employees.
Sale of Sydney Airports Corporation Limited
An indemnity has been provided to Southern Cross Airports Corporation as purchaser of the Sydney Airports Corporation Ltd 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 Ltd constituting a relevant acquisition in a land-rich private corporation.
The New South Wales Office of State Revenue issued a notice of assessment on 17 November 2006, which the Australian Government disputes to be a valid assessment. In the event the liability is sustained it is estimated to be between $258.9 million and $401.5 million.
Foreign Affairs and Trade
Export Finance and Insurance Corporation
The Australian Government guarantees the due payment 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. As at 31 March 2007, the Australian Government's total contingent liability was $2.8 billion, comprising EFIC's liabilities to third parties ($2.2 billion) and EFIC's overseas investments insurance, contracts of insurance and guarantees ($0.6 billion).
Transport and Regional Services
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 whose members include all of Australia's major rail operators and track owners and representatives from smaller companies. The Australian Government has provided an indemnity to 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
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 $6.2 billion. Of this amount, $2.2 billion was attributable to liabilities of the Commonwealth Bank of Australia at 31 December 2006 and $4.0 billion was attributable to liabilities of the Commonwealth Bank Officers' Superannuation Corporation at 30 June 2006.
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$3.4 billion), the Asian Development Bank (US$2.4 billion — estimated value A$3.0 billion), the European Bank for Reconstruction and Development (US$81.7 million plus €77.5 million — estimated value A$229.3 million), and the Multilateral Investment Guarantee Agency (US$26.5 million — estimated value A$32.8 million).
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. Notes on issue amount to $40.6 billion as at 31 March 2007 and the total guarantee is $59.3 billion.