Statement 8:
Statement of Risks
(Continued)
Contingent liabilities — unquantifiable
Agriculture, Fisheries and Forestry
Compensation claims arising from equine influenza outbreak
The Australian Government may become liable for compensation should the Department of Agriculture, Fisheries and Forestry be found negligent in relation to the outbreak of equine influenza in 2007.
On 12 June 2008, the Minister for Agriculture, Fisheries and Forestry released the Equine Influenza Inquiry report. Subsequently, a significant number of organisations have indicated their intention to proceed with legal action against the Government. To date 18 claims have been received. Court proceedings have commenced for two of these. The Department of Finance and Deregulation assumed responsibility for claims under its insurance arrangements with the Department of Agriculture, Fisheries and Forestry.
Exceptional Circumstances assistance for drought‑affected farmers
Exceptional Circumstances assistance is available, subject to eligibility criteria, to drought‑affected farmers and agriculture‑dependent small businesses primarily by way of interest rate subsidies and income support. The estimates assume that there will be no new drought declarations but that some existing declarations will be extended until June 2011. A continuation of adverse seasonal conditions or a return to severe drought conditions could result in higher‑than‑expected expenses for these forms of assistance. It is not possible to quantify the cost arising from such potential developments as this depends on the intensity, duration and scale of future drought conditions.
Attorney‑General's
Indemnities relating to the Air Security Officer program
The Australian Government has entered into indemnity agreements with Australian airlines that agree to allow their aircraft to fly with Air Security Officers on board. The indemnity agreements limit the Government's exposure 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 program caused a loss.
Native Title agreements — access to geospatial data
The Australian Government has entered into agreements with State and Territory government bodies and/or their agents to access their geospatial land tenure data. The data is essential to support the National Native Title Tribunal in achieving its outcome. Under these agreements, the Australian Government provides indemnities against third‑party claims arising from errors in the data.
Native Title costs
The Australian Government has previously offered to assist the States and Territories in meeting certain Native Title costs pursuant to the Native Title Act 1993 (the NTA), including compensation costs. No agreements under this offer have been entered into to date.
Separately, the Australian Government will be liable for any compensation found to be payable under the NTA in respect of compensable acts for which the Commonwealth is responsible.
The Australian Government's liability in both cases cannot be quantified due to uncertainty about the number and effect of compensable acts and the value of Native Title affected by those acts.
Northern Patrol and Response — Ashmore Guardian and Triton
The Australian Government has entered into contractual arrangements with Gardline Australia Pty Ltd for the provision of two vessels to strengthen enforcement activities in Australia's northern waters and to patrol and respond to incursions in the Ashmore Reef National Nature Reserve and the Cartier Island Marine Reserve. The contracts with Gardline Australia contain unquantifiable indemnities relating to the use or other operations of armaments or the presence of the armaments on the vessel. They also contain unquantifiable indemnities relating to damage to any property or injury to any person caused by the apprehended or escorted persons or their vessels.
Southern Ocean Maritime Patrol and Response Program
The Australian Government has entered into a contract to provide a Civil Charter Vessel to conduct patrols in the Southern Ocean and northern waters to undertake law enforcement activities in relation to illegal, unregulated and unreported fishing as well as people smuggling activities. This agreement will remain in force until 30 June 2014. The Australian Government's contract contains unquantifiable indemnities relating to the use or other operations of armaments and ammunition or the presence of the armaments and ammunition on the vessel. It also contains unquantifiable indemnities relating to damage to any property or injury to any person caused by the apprehended or escorted persons or their vessels.
Broadband, Communications and the Digital Economy
Extended Zones
The Telecommunications (Consumer Protection and Service Standards) Act 1999 requires the Minister to ensure customers in the Extended Zones have access to untimed local calls. The Extended Zones are geographical areas outside Telstra's standard local call charging zones where customers did not have access to untimed local calls prior to 1991. They are predominantly located in rural and remote Australia. The Australian Government's arrangements with Telstra to ensure the provision of these services are due to expire on 31 May 2011. Telstra and the Australian Government are holding discussions on the appropriate arrangements for the provision of untimed local calls in Extended Zones from the expiry of the current agreement and during the transition to the National Broadband Network.
Climate Change and Energy Efficiency
Kyoto Protocol — emissions target
As a party to the Kyoto Protocol, Australia is required to meet its target level for emissions over the first Commitment Period, 2008‑12. According to the latest projections of emissions over the Commitment Period, Australia is on track to more than meet its 2008‑12 target. Estimates of the likely net balance and value of these permits will be determined closer to the end of the entire Commitment Period.
Defence and Defence Materiel Organisation
ADI Limited — Officers' and Directors' Indemnities
Under the sale agreements for ADI Ltd, the Australian Government agreed to indemnify the directors, officers and employees for claims and legal costs associated with assistance related to the sale of the Australian Government's shares in the company. The Australian Government has provided an indemnity to ADI Ltd for uninsured losses relating to specific heads of claims.
Decontamination of Defence sites
Defence has made financial provision for the possible costs involved in restoring, decontaminating and decommissioning Defence sites in Australia where a legal or constructive obligation has arisen. The potential costs of these liabilities are unquantifiable.
Litigation cases
The Department of Defence is involved in a wide range of litigation and other claims for compensation and/or damages that may result in litigation where the matters are not able to be finalised by use of negotiation. The litigation includes common law liability claims, including for injury alleged to have resulted from the F‑111 Deseal/Reseal programmes. A claim has also been received for damage caused by the use of a Defence Practice Area.
Environment, Water, Heritage and the Arts
Murray‑Darling Basin Reform — additional net costs
Under the 3 July 2008 Intergovernmental Agreement on Murray‑Darling Basin Reform (Reform IGA), the Australian Government agreed that the Governments of New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory (Basin States) will not bear additional net costs as a consequence of the reforms agreed between the parties and the implementation of the Water Act 2007 (the Act). This undertaking ceases on 30 June 2015.
A methodology has been developed for agreement with the Basin States that enables the State and Australian governments to agree on the activities undertaken by a State that are relevant to the implementation of the reforms agreed under the Reform IGA and the implementation of the Act, and to monitor increased or decreased costs and/or revenues.
Murray‑Darling Basin Reform — risk assignment
The Water Act 2007 (the Act) provides the mechanism for defining liabilities and making payments to affected entitlement holders for the Australian Government's share of reductions in water allocations, or in the reliability of water allocations, in the Murray‑Darling Basin arising from the Basin Plan prepared under the Act.
Under the 3 July 2008 Intergovernmental Agreement on Murray‑Darling Basin Reform, the Australian Government agreed to accept responsibility for the States' shares of liabilities for such reductions that are attributable to new knowledge, under certain conditions. Amendments to the Act to include this additional liability came into force on 15 December 2008.
The Australian Government's liabilities will be mitigated by investment in water efficiency measures and the purchase of water entitlements under the Water for the Future initiatives.
National Aboriginal Islander Skills Dance Association (NAISDA) — construction works
The Australian Government has provided an indemnity from 1 June 2010 to 30 November 2012 in favour of the Festival Development Corporation, a New South Wales Government statutory authority and landlord of the Mt Penang Parklands, Gosford. The indemnity is in relation to construction works being carried out by the Australian Government on behalf of NAISDA Dance College at Mt Penang Parklands. The maximum potential liability is $20 million.
Finance and Deregulation
ASC Pty Ltd (ASC) — directors' indemnities
The Australian Government has indemnified the ASC directors for any claim made against them as a result of complying with ASC's obligations under the Process Agreement between the Electric Boat Corporation (EBC), the Australian Government and ASC. The Government has indemnified board members of ASC for any claim against them as a result of complying with ASC's obligations under the Service Agreement between ASC, the Department of Defence, EBC and Electric Boat Australia. The Government has indemnified board members of ASC for any claim and legal costs arising from the result of the directors acting in accordance with the Board's Tasks and Responsibilities, as defined under the indemnity. Fourteen people in total have been indemnified by these indemnities, including two current and twelve former directors.
Australian Government domestic property
The Australian Government domestic property portfolio managed by the Department of Finance and Deregulation has approximately 100 properties. A small number of these have had potential remediation issues identified which are currently the subject of further investigation. To date none of these properties has had a provision recognised as neither the conditions for legal nor constructive obligations have been met, nor is a reliable estimate of the obligation currently possible.
Australian Reward Investment Alliance — immunity and indemnity
The Superannuation Act 1976, the Superannuation Act 1990 and the Superannuation Act 2005 provide for specific immunities for activities undertaken in good faith by the trustees of the Australian Reward Investment Alliance (ARIA), the Commissioner for Superannuation and staff, delegates of the trustee Board, and members of a Reconsideration Advisory Committee, provided these activities relate to the performance of their functions. These immunities do not prevent the trustee Board from being subject to any action, liability, claim or demand. Under the Superannuation Acts, other than in cases where the Superannuation Industry (Supervision) Act 1993 does not so permit, any money that becomes payable by the trustee Board in respect of such actions is to be paid out of the relevant fund. Where such payments are made, an equivalent amount is paid to the fund from the Consolidated Revenue Fund.
Comcover — insurance claims
Comcover provides general insurance services and promotes risk management across the Australian Government. Comcover provides for outstanding claims based on current information as disclosed in Comcover's financial statements. The nature of some claims means there is significant uncertainty around these estimates. Current claims that hold a high degree of risk include Pan Pharmaceuticals, equine influenza and Westpoint.
Future Fund Board of Guardians — indemnity
The Australian Government has provided the members of the Future Fund Board of Guardians with a Deed of Indemnity. The indemnity is intended to cover liabilities in excess of the Future Fund Board's insurance policies. Members of the Future Fund Board are indemnified, to the maximum extent permitted by law, in relation to all official actions. However, similar to members of boards that operate under the Commonwealth Authorities and Companies Act 1997 (the CAC Act), a member of the Future Fund Board is not indemnified: for conduct he or she engages in other than in good faith; in respect of any liability owed to the Board; or in respect of any act or omission that contravenes one of the civil penalty provisions of the Future Fund Act 2006. Also similar to members of CAC Boards, a member of the Future Fund Board is not indemnified for legal costs incurred by the member in unsuccessfully defending or resisting criminal proceedings, or proceedings against a declaration that the member has breached a civil penalty provision of the Future Fund Act. The indemnity is financially limited, in broad terms, to the value of the funds under management by the Future Fund Board.
Googong Dam
On 4 September 2008, a 150‑year lease for Googong Dam was signed between the Australian Government and the Australian Capital Territory Government. The Australian Government is liable to pay just terms compensation if the terms of the lease are breached by introducing new legislation or changing the Canberra Water Supply (Googong Dam) Act 1974 in a way that impacts on the rights of the Australian Capital Territory. The lease includes a requirement for the Australian Government to undertake rectification of easements or any defects in title in relation to Googong Dam. It also gives an indemnity in relation to acts or omissions by the Australian Government. The Australian Government is also responsible for remediation of any contamination it may have caused to the site.
Indemnities for the Reserve Bank of Australia and private sector banks
Under agencies' contracts for transactional banking services, the Australian Government has indemnified the Reserve Bank of Australia and contracted private sector banks. These banks are indemnified against loss and damage arising from error or fraud by the agency, or transactions made by the bank with the authority of the agency.
Indemnities relating to other former asset sales, privatisations and IT outsourcing projects
Ongoing indemnities have been given in respect of a range of asset sales, privatisations and IT outsourcing projects that have been conducted by the Department of Finance and Deregulation, and the former Office of Asset Sales and Commercial Support and its predecessors. The probability of an action being made under one of these indemnities diminishes over time. Details of indemnities in respect of the other asset sales and privatisations have been provided in previous Budget and Mid‑Year Economic and Fiscal Outlook papers, and previous annual reports for Finance and the Office of Asset Sales and Commercial Support. Indemnities (including the year they were raised) are still current for: ADI Ltd (1998), Australian Airlines (1991), Australian Industry Development Corporation (1996), Australian Multimedia Enterprise (1997), Australian National Rail Commission and National Rail Corporation Ltd (1997 and 2000), Australian River Co Ltd (1999), Australian Submarine Corporation Pty Ltd (2000), ComLand Ltd (2004), Bankstown Airport Limited (2002), Camden Airport Ltd (2002), Commonwealth Accommodation and Catering Services (1988), Commonwealth Bank of Australia (1993 to 1996), Commonwealth Funds Management and Total Risk Management (1996 to 1997), Employment National Ltd (2003), Essendon Airport Ltd (2001), Federal Airports Corporation's Airports (1995 to 1997), Home Loans Insurance Commission Ltd (1996), Health Insurance Commission (2000), Hoxton Park Airport Limited (2002), National Transmission Network (1999), Sydney Airports Corporation Ltd (2001), Telstra (1996, 1999 and 2006), and Wool International (1999). Apart from instances noted elsewhere Finance does not currently expect any other action to be taken in respect of these indemnities.
Superannuation
On 20 April 2007, the High Court of Australia found against the Australian Government on a claim for negligent misstatement relating to superannuation benefits for a former employee of the Department of the Interior. There is potential for more claims to arise from other former temporary employees who upon their retirement can demonstrate negligent misstatement over their eligibility to join an Australian Government superannuation scheme. The Department of Finance and Deregulation has assumed responsibility for the claims under its insurance arrangements with the relevant agencies or their predecessors.
Foreign Affairs and Trade
Export Finance and Insurance Corporation — board member and senior management indemnities
The Australian Government has provided certain indemnities to Export Finance and Insurance Corporation (EFIC) board members and senior management to protect against civil claims and legal expenses for unsuccessful criminal claims relating to the implementation of EFIC's alliance/divestment of its short‑term export credit insurance business.
Health and Ageing
Australian Medical Association
An agreement is held between the Australian Medical Association (AMA), the Australian Government, the Australian Private Hospitals Association Ltd (APHA), the Australian Health Insurance Association (AHIA) and Beyond Blue Ltd for participation in and support of the Private Mental Health Alliance and for the collection and analysis of a national minimum data set from private, hospital‑based psychiatric services. Each party to the agreement has agreed to indemnify each other in respect of any loss, liability, cost, claim or expense, misuse of confidential information or identified information, or breach of the Privacy Act 1988. Each party's liability to indemnify the other parties will be reduced proportionally to the extent that any unlawful or negligent act or omission of the other parties or their employees or agents contributed to the loss or damage. The indemnity survives the expiration or termination of the agreement.
Australian Red Cross Society — indemnities
The Deed of Agreement between the Australian Red Cross Society (ARCS) and the National Blood Authority (NBA) in relation to the operation of the Australian Red Cross Blood Service (ARCBS) includes certain indemnities and a limit of liability in favour of ARCS. These cover a defined set of potential business, product and employee risks and liabilities arising from the operations of the ARCBS. The indemnities and limitation of liability only operate in the event of the expiry and non‑renewal, or the earlier termination, of the Deed of Agreement, and only within a certain scope. They are also subject to appropriate limitations and conditions, including in relation to mitigation, contributory fault, and the process of handling relevant claims.
Blood and blood products liability cover
A National Managed Fund (NMF) has been established which pools the liability risks associated with the supply of blood and blood products by the Australian Red Cross Blood Service (ARCBS) between the Australian Government, the ARCBS and the States and Territories. The NMF is covered by a Memorandum of Understanding (MoU) between the Australian Government, the States and Territories, and the ARCBS. It provides for liabilities incurred by the ARCBS where other available mitigation or cover is not available. The MoU provides for the parties to contribute to the NMF, taking into account potential claims payments; the level of funds in the NMF and investment earnings; and a prudential allowance for liabilities incurred but not yet the subject of claims. If there are insufficient funds to cover claim costs, the Jurisdictional Blood Committee (JBC) considers a report provided by the National Funds Manager to determine the level of funds required. Each party must contribute funds, as determined by the JBC, in accordance with allocation provisions prevailing at the time. Under the MoU, the blood and blood products liability cover for the ARCBS remains in force until all parties agree to terminate the arrangements from an agreed date.
CSL Ltd
CSL Ltd is indemnified against claims made by individuals who contract specified infections from specified products and against employees contracting asbestos‑related injuries. CSL Ltd has unlimited cover for most events that occurred before the sale of CSL Ltd on 1 January 1994, but has more limited cover for a specified range of events that occurred during the operation of the Plasma Fractionation Agreement from 1 January 1994 to 31 December 2004. Where alternative cover was not arranged by CSL Ltd, the Australian Government may have a contingent liability. Given the open‑ended nature of some of the indemnities, damages and risk cannot be quantified.
Guarantee Scheme for aged care accommodation bonds
A Guarantee Scheme has been established through the Aged Care (Bond Security) Act 2006 and Aged Care (Bond Security) Levy Act 2006. Under the Guarantee Scheme, if a provider becomes insolvent or bankrupt and is unable to repay outstanding bond balances to aged care residents, the Australian Government will step in and repay the bond balances owing to each resident. In return, the residents' rights to pursue the defaulting provider to recover the accommodation bond money transfer to the Government. In the event the Government cannot recover the full amount from the defaulting provider, it may levy all providers holding accommodation bonds to recoup the shortfall. It is not possible to quantify the Australian Government's contingent liability in the event that the Guarantee Scheme is activated. On 30 June 2009, the maximum contingent liability, in the unlikely event that all providers defaulted, was $9.1 billion.
Indemnities relating to vaccines
The Australian Government has provided indemnity to the manufacturer of smallpox vaccine held in the National Medical Stockpile, covering possible adverse events that could result from the use of the vaccine in an emergency situation. Further, under certain conditions, certain indemnities have been provided to particular manufacturers of pandemic and pre‑pandemic influenza vaccines for the supply or future supply of influenza vaccines (including H1N1 and H5N1).
Medical Indemnity Exceptional Claims Scheme
In May 2003, the Australian Government announced that the Medical Indemnity Exceptional Claims Scheme was to assume liability for 100 per cent of any damages payable against a doctor that exceeds a specified level of cover provided by that doctor's medical indemnity insurer, currently $20 million. These arrangements would apply to payouts related either to a single large claim or to multiple claims that in aggregate exceed the cover provided by the doctor's medical indemnity insurer, and would apply to claims notified under contracts‑based cover since 1 January 2003.
Whole of Government — Australia's bid for the 2015 Asian Football Confederation (AFC) Cup — Government Guarantees
The Australian Government has committed to support Australia's Bid for the 2015 Asian Football Confederation (AFC) Cup. For the bid to be compliant, the Australian Government must provide guarantees which will come into effect if the bid is won. These guarantees include requirements on immigration, work permits, customs, taxation, security and protection of commercial rights, and provide broad indemnities.
Agencies will continue to work together on risk mitigation strategies to minimise the risks associated with each guarantee.
If the Bid is successful, it is expected that some of the Government Guarantees will commence in 2010 and conclude in 2015. The guarantees will not come into effect if the bid is unsuccessful.
Whole of Government — Australia's bids for the Federation Internationale de Football Association (FIFA) World Cup in 2018 or 2022 — Government Guarantees
The Australian Government has committed to support Australia's Bid for the 2018 or 2022 Federation de Football Association (FIFA) World Cup. For the bid to be compliant, the Australian Government must provide guarantees which will come into effect if the bid is won. These guarantees include requirements on immigration, customs, work permits, taxation, security, protection of commercial rights, banking and foreign exchange operations, communications and information technology, and legal issues and indemnification.
Agencies will continue to work together on risk mitigation strategies to manage the risks associated with each guarantee.
If the 2018 World Cup Bid is successful, it is expected that some of the Government guarantees will commence in 2010, and conclude up to two years after the tournament. The guarantees will not come into effect if the bid is unsuccessful.
Immigration and Citizenship
Immigration detention services — liability limit
The Department of Immigration and Citizenship (DIAC) has entered into a contract with Serco Pty Ltd, which commenced on 29 June 2009, to deliver immigration detention services in Australia on behalf of the Australian Government at immigration detention centres. In this contract, DIAC has agreed to limit Serco's liability to DIAC to a maximum of any insurance proceeds recovered by Serco and $75 million. Serco's liability is unlimited for specific events defined under the contract.
DIAC also entered into a separate contract with Serco, which commenced on 11 December 2009, to deliver immigration detention services in Australia on behalf of the Australian Government at immigration residential housing, immigration transit accommodation and alternative places of detention. In this contract, DIAC has agreed to limit Serco's liability to DIAC to a maximum of any insurance proceeds recovered by Serco and $17 million. Serco's liability is unlimited for specific events defined under the contract.
Infrastructure, Transport, Regional Development and Local Government
Airservices Australia
On 31 August 2004, the then Minister for Transport and Regional Services, pursuant to section 16 of the Airservices Act 1995 (the Act), gave a direction to Airservices Australia to provide an operating control tower and approach radar control services in certain volumes of airspace. Sub‑Section 16(4) of the Act provides that Airservices Australia may seek reimbursement from the Australian Government for any financial detriment it suffers as a result of complying with a direction. At this time, the quantum or nature of any financial detriment is uncertain, as is the nature of any consequent fiscal risk to the budget.
Australian Maritime Safety Authority incident costs
In the normal course of operations, the Australian Maritime Safety Authority is responsible for the provision of funds necessary to meet the clean‑up costs arising from ship‑sourced marine pollution and, in all circumstances, is responsible for making appropriate efforts to recover the costs of any such incidents. The Australian Government meets costs that cannot be recovered from such incidents. It is not possible to estimate the amounts of any eventual payments that may be required in relation to these incident costs.
Maritime Industry Finance Company Ltd — board members' indemnity
Indemnities for Maritime Industry Finance Company Limited (MIFCO) board members have been provided to protect them against civil claims relating to their employment and conduct as directors. MIFCO was placed into voluntary liquidation on November 2006 and was deregistered on 24 April 2008. The indemnity is not time limited and continues even though the company has been liquidated. Until the indemnity agreements are varied or brought to an end, they will remain as contingent and unquantifiable liabilities.
Tripartite deeds relating to the sale of federal leased airports
Tripartite deeds apply to 12 federal leased airports (Adelaide, Alice Springs, Bankstown, Brisbane, Canberra, Gold Coast, Darwin, Launceston, Melbourne, Perth, Sydney and Townsville). The tripartite deeds between the Australian Government, the airport lessee company (ALC) and financiers amend the airport (head) leases to provide for limited step‑in‑rights for financiers in circumstances where the Commonwealth terminates the head lease to enable the financiers to correct the circumstances that triggered such a termination event. The tripartite deeds may require the Commonwealth to pay the ALC and financiers compensation as a result of its termination of the (head) lease. The Commonwealth's contingent liabilities are considered to be unquantifiable and remote.
Innovation, Industry, Science and Research
Australian Nuclear Science and Technology Organisation — indemnity
The Australian Government has indemnified the Australian Nuclear Science and Technology Organisation and its officers from liability that might be incurred from the conduct of activities authorised under the Australian Nuclear Science and Technology Organisation Act 1987. This indemnity is additional to commercial insurance covers obtained from the Comcover Insurance Pool and other insurers.
Liability for damages caused by Kistler space activities
In accordance with the United Nations Convention on International Liability for Damage Caused by Space Objects, an agreement was signed in 1998 and amended in 1999 between the Department of Industry, Tourism and Resources, Kistler Woomera Pty Ltd and Spaceport Woomera Pty Ltd to support the launching of the K 1 Aerospace Vehicle and satellites into space from Australia. Under the agreement, the Australian Government provides indemnity support to a maximum of US$1.5 billion (estimated value A$2.2 billion), above the level of insurance cover obtained under the requirements of the agreement.
Liability for damages caused by space activities
Under the United Nations Convention on International Liability for Damage Caused by Space Objects, the Australian Government is liable to pay compensation for damage caused to nationals of other countries by space objects launched from, or by, Australia. The Government requires the responsible party for a space activity approved under the Space Activities Act 1998 to insure against liability for damage to third parties for an amount not less than the maximum probable loss, up to a maximum of $750 million indexed for inflation. Under the Space Activities Act, the Government also accepts liability for damage suffered by Australian nationals, to a maximum value of $3.0 billion above the insured level.
Resources, Energy and Tourism
British atomic test site at Maralinga
The Australian Government is responsible for 14 unlimited indemnities relating to the Maralinga Rehabilitation Project (1995‑2000). In November 2009 the Australian Government agreed to the handback of the former nuclear test sites at Maralinga to the Maralinga Tjarutja people. Under the terms of the handback, the Australian Government has indemnified the Maralinga Tjarutja people and the South Australian Government in respect of claims arising from test site contamination.
Gorgon liquefied natural gas and carbon dioxide storage project — long‑term liability
The Australian and Western Australian governments have agreed to provide an indemnity to the Gorgon Joint Venture Partners (GJV) to indemnify the GJV against independent third‑party claims (relating to stored carbon dioxide) under common law following closure of the carbon dioxide sequestration project, and subject to conditions equivalent to those set out in the Offshore Petroleum and Greenhouse Gas Storage Act 2006. It is proposed that the Western Australian Government will indemnify the GJV, and that the Australian Government will indemnify the Western Australian Government for 80 per cent of any amount determined to be payable under that indemnity. The formal agreement between the Australian and Western Australian governments in relation to the indemnity is expected to be completed by 2011.
Liability for costs incurred in a national liquid fuel emergency
The Australian Government has responsibility for the Liquid Fuel Emergency Act 1984 (the Act) which is administered by the Minister for Resources, Energy and Tourism. In addition, the State and Territory governments have entered into an inter governmental agreement (IGA) which coordinates the use of the powers under the Act in a national liquid fuel emergency. The IGA contains three areas where the Australian Government may incur expenses in the unlikely event of a national liquid fuel emergency. These relate to the direct costs of managing a liquid fuel emergency and include the possibility of the Australian Government reimbursing the State and Territory governments for costs arising from their response, and potential compensation for industry arising from Australian Government directions under the Act.
Snowy Hydro Ltd — directors' indemnities
The Australian Government has, together with the co‑shareholder governments of New South Wales and Victoria, indemnified the members of the Board of Snowy Hydro Limited for liabilities arising from entering into agreements to implement corporatisation of the Snowy Mountains Hydro Electric Scheme, and from liabilities to Snowy Hydro Limited at corporatisation. The indemnity applies to liabilities arising within five years of corporatisation, and for which a claim is notified to the Governments within eleven years of the corporatisation date of 28 June 2002.
Snowy Hydro Ltd — water releases
The Australian, New South Wales and Victorian governments have indemnified Snowy Hydro Ltd for liabilities arising from water releases in the Snowy River below Jindabyne Dam, where these releases are in accordance with the water licence and related regulatory arrangements agreed between the three governments. The indemnity will apply to liabilities for which a claim is notified within 20 years from 28 June 2002.
Treasury
Car dealer financing — Australian Government guarantee of the OzCar Special Purpose Vehicle
The Australian Government is guaranteeing all non AAA‑rated securities issued by the OzCar Special Purpose Vehicle (SPV) to facilitate the purchase of those securities by Australia's four major domestic banks.
The guarantee will result in a call being made on the Government if the assets underlying the guaranteed securities fail to generate sufficient income for the SPV to cover its outlays and any losses from failed car dealerships.
The overall size of the OzCar SPV is currently around $170 million. OzCar will be available to provide funding to participating financiers until 30 June 2010.
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 unlikely event of a financial institution failure.
The Early Access Facility for Depositors established under the Banking Act 1959 provides a mechanism for making payments to depositors under the Government's guarantee of deposits in authorised deposit‑taking institutions.
The Government announced that, from 12 October 2008, deposits up to $1 million at eligible authorised deposit‑taking institutions would be eligible for coverage under the Financial Claims Scheme. This $1 million cap will continue until at least October 2011, when it will be reviewed.
As at 31 March 2010, deposits eligible for coverage under the Financial Claims Scheme were estimated to be approximately $670 billion.
The Policyholder Compensation Facility established under the Insurance Act 1973 provides a mechanism for making payments to eligible beneficiaries with a valid claim against a failed general insurer. Amounts available to meet payments and administer this facility, in the event of activation, are capped initially at $20.1 billion under the legislation.
The expected liability under the Policyholder Compensation Facility is remote and unquantifiable. With the exception of the declaration of the Policyholder Compensation Facility in respect of a small insurer on 15 October 2009 noted in the quantifiable contingent liabilities, the likelihood of a collapse that requires the activation of the scheme is low and the payments made under the scheme would be likely to be recovered through the liquidation of the failed institution. If there were a shortfall, a levy would be applied to industry to recover the difference between the amount expended and the amount recovered in the liquidation.
See also the related quantifiable contingent liability titled Financial Claims Scheme.
Guarantee of State and Territory Borrowing
The Australian Government announced on 25 March 2009 that a voluntary, temporary guarantee would be put in place over state and territory borrowing. The Guarantee of State and Territory Borrowing commenced on 24 July 2009.
The guarantee will close to new issuance of guaranteed liabilities on 31 December 2010. Securities covered by the guarantee will continue to be guaranteed until these securities either mature or are bought back and extinguished by the issuer.
The expected liability under the guarantee is remote and unquantifiable. Government expenditure would arise under the guarantee only in the unlikely event that a State or Territory failed to meet its obligations with respect to a commitment that was subject to the guarantee and the guarantee was called upon. In such a case, the Government would likely be able to recover any such expenditure through a claim on the relevant State or Territory at a future date. The impact on the Government's budget would depend upon the extent of the default and the State or Territory's ability to meet the Government's claim.
As at 31 March 2010, the face value of state and territory borrowings covered by the guarantee was $72.6 billion.
Guarantee Scheme for Large Deposits and Wholesale Funding
The Australian Government announced the guarantee of eligible deposits and wholesale funding for authorised deposit‑taking institutions from 12 October 2008 under the Guarantee Scheme for Large Deposits and Wholesale Funding.
On 7 February 2010, the Government announced the closure of the Guarantee Scheme on 31 March 2010. Since 31 March 2010, Australian authorised deposit‑taking institutions have been prohibited from issuing any new guaranteed wholesale funding or accepting new guaranteed deposits above $1 million. Existing guaranteed wholesale funding is guaranteed to maturity. Depositors who covered their balances above $1 million under the Guarantee Scheme can have those funds covered to maturity for term deposits up to five years, or until October 2015 for at call deposits.
The expected liability for deposits under the Guarantee Scheme is remote and unquantifiable. Government expenditure would arise under the guarantee only in the unlikely event that an institution failed to meet its obligations with respect to a commitment that was subject to the guarantee and the guarantee was called upon. In such a case, the Government would likely be able to recover any such expenditure through a claim on the relevant institution. The impact on the Government's budget would depend on the extent of the institution's default and its ability to meet the Government's claim.
As at 5 April 2010, total liabilities covered by the Guarantee Scheme were estimated at $169.6 billion, including $14.1 billion of large deposits and $155.5 billion of wholesale funding.
Housing Loans Insurance Corporation — guarantee
The Australian Government sold the Housing Loans Insurance Corporation (HLIC) on 12 December 1997 and has assumed all residual contingencies. The contingent liability relates to the HLIC's contracts of mortgage insurance and any borrowings approved by the Treasurer up to the time of sale. The principal amount covered by the guarantee and the balances outstanding are unable to be reliably measured.
Terrorism insurance — commercial cover
The Terrorism Insurance Act 2003 established a scheme for replacement terrorism insurance covering damage to commercial property, including associated business interruption and public liability. The Australian Reinsurance Pool Corporation (ARPC) uses reinsurance premiums paid by insurers to meet its administrative expenses and to build a fund and purchase reinsurance to help meet future claims. The Australian Government guarantees to pay any liabilities of the ARPC, but the Treasurer must declare a reduced payout rate to insured entities if the Government's liability would otherwise exceed $10 billion.
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