Statement 8:
Statement of Risks
(Continued)
Contingent liabilities — quantifiable
Defence and Defence Materiel Organisation
Indemnities and remote contingencies
Defence carries 8,381 instances of unquantifiable remote contingent liabilities and 116 instances of quantifiable remote contingent liabilities, to the value of $2.9 billion, increasing from $2.1 billion at MYEFO. The Defence Materiel Organisation carries 468 instances of contingencies (including Foreign Military Sales) that are unquantifiable and 190 contingencies that are quantifiable, to the value of $5.9 billion. This figure has remained steady since MYEFO. 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 2009 (the latest available estimate), the AIDC's contingent liabilities, subject to Australian Government guarantee, were approximately $75 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 now expected to be delivered by the end of 2010.
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 (NSW) 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 $524.5 million as at 5 April 2010.
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 2010, the Government's total contingent liability was $2.3 billion, down from $3.2 billion at MYEFO. This comprises EFIC's liabilities to third parties ($1.8 billion) and EFIC's overseas investment insurance, contracts of insurance and guarantees ($0.5 billion).
Treasury
Financial Claims Scheme
The Australian Government has established a Financial Claims Scheme to provide depositors of authorised deposit‑taking institutions and general insurance policyholders with timely access to their funds in the event of a financial institution failure.
On 15 October 2009, the Minister for Financial Services activated the Financial Claims Scheme Policyholder Compensation Facility for a small general insurer. The estimated claims and administrative costs for that insurer are approximately $2.5 million.
See also the related unquantifiable contingent liability titled Financial Claims Scheme.
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 $4.5 billion as of 31 December 2009. Of this amount, $0.9 billion is attributable to liabilities of the Commonwealth Bank of Australia and $3.6 billion is attributable to liabilities of the Commonwealth Bank Officers' Superannuation Corporation.
International financial institutions
Australia has had uncalled capital subscriptions in the International Bank for Reconstruction and Development (IBRD) since 1947. The Government will contribute additional resources to the IBRD as part of its recently announced general capital increase. G‑20 Leaders have committed to ensure that the IBRD and other multilateral development banks have sufficient resources to address key development challenges and fulfil their development mandate. The paid‑in component of Australia's contribution is a measure in the 2010‑11 Budget. Australia will also increase its uncalled capital subscription so that it totals US$3.6 billion (estimated value A$3.9 billion).
Also, at 30 March 2010 the Australian Government had uncalled capital subscriptions in the Asian Development Bank of SDR5.8 billion (estimated value A$9.6 billion), in the Multilateral Investment Guarantee Agency of US$26.5 million (estimated value A$28.8 million), and the European Bank for Reconstruction and Development (EBRD) (US$81.7 million plus €77.5 million — estimated value A$202.7 million).
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$7.6 billion) contingent loan (which includes Australia's existing US$1.2 billion commitment). 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 to supplement the IMF's usual quota resources, 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, the Bank's distribution to the Commonwealth and Australian Government deposits. The major component of the Bank's liabilities is notes (that is, currency) on issue. Notes on issue amount to $49.2 billion, as at 24 March 2010, and the total guarantee is $57.9 billion, down marginally from $58.1 billion at MYEFO.
Standby loan facility for the Government of Indonesia
Australia has made up to US$1 billion (estimated value A$1.1 billion, as at 30 March 2010) 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 financial crisis. The facility was announced in December 2008 and will continue to be available until the end of 2010. 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. As at 30 March 2010 Indonesia has not requested any drawdown on the facility. Contributions to the standby loan facility have also been provided by the World Bank, the Asian Development Bank and the Government of Japan.
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