Contingent liabilities — quantifiable
Defence and Defence Materiel 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 one contingency that is unquantifiable and remote and 129 instances of quantifiable contingencies to the value of $180 million. DMO carries 469 instances of contingencies (including Foreign Military Sales) that are unquantifiable and 57 contingencies that are quantifiable to the value of $3.0 billion. While these contingencies are considered remote, they have been reported in aggregate for completeness.
Finance and Deregulation
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 2008 (the latest available estimate), AIDC's contingent liabilities, subject to government guarantee, were approximately $90 million in respect of the Fairfax Paper Bond Guarantee and credit risk facilities.
Litigation
The Department of Finance and Deregulation is involved in litigation in which a counter‑claim for damages has been lodged against the Australian Government. The litigation relates to the Davis Samuel case where Finance is engaged in legal action seeking recovery of funds misappropriated during 1998. The counter‑claim is from the parties to whom Finance believes the misappropriated funds were channelled.
It is counsel's advice that the counter‑claim is without merit. The counter‑claim, which is being vigorously defended by the Government, seeks damages of $4.3 billion. Hearing of the Government's claim, and the counter‑claim, concluded in the ACT Supreme Court in September 2008. Judgment is expected to be delivered in the second half of 2009.
Sale of Sydney Airports Corporation Limited
An indemnity has been provided to Southern Cross Airports Corporation as purchaser of 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. The Australian Government maintains that there are no grounds for the assessment. Action has been initiated in the NSW Supreme Court to overturn the assessment. The amount disputed is estimated at $491.6 million as at 31 March 2009.
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 Government. The 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 2009, the Government's total contingent liability was $3.0 billion, comprising EFIC's liabilities to third parties ($2.1 billion) and EFIC's overseas investments, insurance, contracts of insurance and guarantees ($0.9 billion).
Immigration and Citizenship
Immigration detention services
A contract with G4S Australia Pty Ltd, previously GSL (Australia) Pty Ltd, commenced on 1 September 2003 to deliver immigration detention services in Australia on behalf of the Australian Government. At that time, the Government agreed to limit G4S' exposure under the liability regime of the contract. While the general contract requires G4S to indemnify the Government for certain claims of losses, the Government has agreed to share the risk. Subject to certain conditions, G4S 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 G4S.
A further limitation of liability has been provided in the contract in relation to loss or damage to Government property or equipment as a result of the actions of detainees. Under the contract, G4S' liability for detainee damage is subject to an annual limit, unless claims of losses exceed an agreed cap.
The original contract was signed with Group 4 Falck Global Solutions Pty Ltd. The company's current name, G4S Australia Pty Ltd, is effective from 5 January 2009.
Infrastructure, Transport, Regional Development and Local Government
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 Government in relation 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 1995
Under the terms of the Commonwealth Bank Sale Act 1995, the Australian Government has guaranteed various superannuation and other liabilities amounting to around $5.3 billion. Of this amount, $1.8 billion is attributable to liabilities of the Commonwealth Bank of Australia at 31 March 2009 and $3.6 billion is attributable to liabilities of the Commonwealth Bank Officers' Superannuation Corporation at 31 December 2008.
International financial institutions
As at 30 March 2009 the Australian Government had uncalled capital subscriptions in the International Bank for Reconstruction and Development (US$2.8 billion — estimated value A$4.1 billion), the European Bank for Reconstruction and Development (US$81.7 million plus €77.5 million — estimated value A$268.2 million), and the Multilateral Investment Guarantee Agency (US$26.5 million — estimated value A$38.6 million).
The Government has also had uncalled capital subscriptions in the Asian Development Bank (ADB) since 1966. Australia will contribute additional resources to the ADB as part of its recently announced general capital increase, to assist in supporting countries in the Asia‑Pacific region during the global recession and meet the region's ongoing development needs. The paid‑in component of Australia's contribution is a measure in this Budget. Australia will also increase its uncalled capital subscription so that it totals US$8.0 billion (estimated value A$11.6 billion), which would only be drawn down in the unlikely event that the ADB is unable to meet its financial obligations.
None of these international financial institutions has ever drawn on Australia's uncalled capital subscriptions.
Australia has made a line of credit available to the International Monetary Fund (IMF) under its New Arrangements to Borrow (NAB) since 1998. In line with G‑20 Leaders' commitments, Australia will join with other countries to increase its credit line under an expanded NAB. Australia's contribution to the expanded NAB will be by way of a US$7.0 billion (estimated value A$10.2 billion) contingent loan. This will help ensure that the IMF has the resources available to maintain stability and support recovery in the global economy. The funds would be drawn upon by the IMF only if needed and would be repaid in full with interest.
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 is notes (that is, currency) on issue. Notes on issue amount to $48.96 billion as at 18 March 2009 and the total guarantee is $76.97 billion.
Standby loan facility for the Government of Indonesia
Australia will make up to US$1 billion (estimated value A$1.5 billion) available to the Government of Indonesia in the form of a standby loan facility, to be drawn down should Indonesia be unable to raise sufficient funds on global capital markets due to the impact of the global recession. Contributions to the standby loan facility will also be provided by the World Bank, the Asian Development Bank and the Government of Japan. A drawdown from the facility will be dependent on a request from the Indonesian Government and subject to certain criteria being met. Any funds provided will be repaid in full with interest.
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