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 it 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 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.
Compensation claims arising from suspension of livestock exports to Indonesia
The Australian Government may become liable for compensation following the decision by the Minister for Agriculture, Fisheries and Forestry to suspend the export of livestock to Indonesia for a period of 1 month in 2011. A potential class action has been received from a law firm on behalf of 21 clients. The Department of Agriculture, Fisheries and Forestry has also received a claim under the Scheme for Compensation for Detriment caused by Defective Administration (CDDA) from a law firm on behalf of three of its clients. The department is working with the Department of Finance and Deregulation, the Australian Government Solicitor and the Attorney‑General's Department to progress the claims.
Emergency Animal Disease Response Agreement and Emergency Plant Pest Response Deed
The Australian, State and Territory governments and some peak agricultural industry bodies are parties to cost sharing agreements that specify how responses to emergency animal diseases and plant pest and disease outbreaks will be funded. Under the terms of the agreements, the Commonwealth is typically liable for 50 per cent of total government funding to respond to a disease or pest outbreak and may also provide financial assistance to industry by funding its share of the response. Any funding of industry contributions would subsequently be recovered from the industry, usually by a levy. Potential costs vary based on circumstances and are dependent on outbreaks of animal diseases or plant pests or diseases, the extent of outbreaks, frequency and location.
Attorney‑General's
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, which 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. Consistent with the policy of considering this issue on a case by case basis, a National Partnership Agreement was executed in 2010 between the Commonwealth and Victoria, under which the Commonwealth will provide a contribution towards the settlement of two native title claims. No other agreement under this offer has been entered into to date.
The Australian Government will also 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 scenarios cannot be quantified owing 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 and the presence of 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 and the presence of 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
NBN Co Limited — Board Members' Insolvency Indemnity
The Australian Government has provided each Director of NBN Co with an indemnity against liability as a result of the Government failing to meet its funding obligations to NBN Co. The liabilities covered by this indemnity would be the same as those covered by the NBN Co Equity Agreement, with the exception of any legal expenses incurred by individual Directors arising from this indemnity. The Directors are also indemnified in relation to claims arising out of their involvement in the negotiation and entry by NBN Co into the Financial Heads of Agreement with Telstra.
Optus Financial Guarantee
The Australian Government has provided a guarantee to Optus in respect of NBN Co's financial obligations to Optus under the NBN Co‑Optus Agreement, which is subject to satisfying the conditions precedent to the Agreement. That Agreement covers the period of the NBN roll out in Optus Hybrid Fibre Coaxial areas. As at 31 March 2012, the conditions precedent in the NBN Co‑Optus Agreement had not been satisfied and the guarantee had therefore, not come into effect.
Termination of the funding agreement with OPEL
Following the termination of its funding agreement with OPEL Network Pty Ltd (OPEL) under the Broadband Connect Infrastructure program, the Commonwealth made provision towards costs incurred by OPEL in producing its Implementation Plan. OPEL was wound up on 13 March 2009. The liquidators of OPEL have indicated that they consider the Australian Government to have a liability with regard to the termination of the funding agreement. As at 31 March 2012, no legal proceedings have been filed.
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, 2008‑2012. According to the latest projections of emissions over the Commitment Period, Australia is on track to more than meet its 2008‑2012 target. Estimates of the likely net balance and value of these permits will be determined when the final reconciliation of Australia's emissions against its commitments is completed in 2015.
Defence and Defence Materiel Organisation
Indemnities and remote contingencies
As at 31 March 2012, Defence had no unquantifiable significant remote contingent liabilities, revised from the 9,985 instances reported in the 2011‑12 MYEFO. Defence has recently reviewed its reporting of contingent liabilities and found previously reported liabilities (such as novated leases, fleet management agreements and minor indemnities) to be insignificant and no longer required to be disclosed in the Statement of Risks. The Defence Materiel Organisation carries 460 instances of contingencies (including Foreign Military Sales) that are unquantifiable. While these contingencies are considered remote, they have been reported in aggregate for completeness.
ADI Limited — Officers' and Directors' indemnities
Under the sale agreements for ADI Limited, 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 Limited for uninsured losses relating to specific heads of claims.
Decontamination of Defence sites
Defence has made financial provision for the possible costs to remediate contamination of Defence sites in Australia where a legal or constructive obligation has arisen. Defence has identified other sites where an obligation may exist; 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 programs. A number of claims have also been received for damage caused by the use of a Defence Practice Area. There is also the potential for a number of claims to arise out of reviews into Australian Defence Force and Defence culture.
Finance and Deregulation
ASC Pty Ltd — Directors' indemnities
The Australian Government has provided former directors and one current director of the ASC Pty Ltd (ASC) with indemnities in relation to three matters: for any claim against them as a result of complying with the ASC's obligations under the Process Agreement between the Electric Boat Corporation (EBC), the Australian Government and the ASC; for any claim against them as a result of complying with the ASC's obligations under the Service Level Agreement between the ASC, the Department of Defence, EBC and Electric Boat Australia; and for any claims and legal costs arising from the directors acting in accordance with the Board's tasks and responsibilities, as defined under the indemnity.
Australian Government domestic property
The Australian Government's domestic property portfolio managed by the Department of Finance and Deregulation has approximately 90 properties. A small number of these have had potential remediation issues identified which are currently the subject of further investigation. None of these properties has had a provision recognised as the conditions for neither legal nor constructive obligations have been met, nor is a reliable estimate of the obligation currently possible.
Comcover — insurance claims and reinsurance recoveries
The Department of Finance and Deregulation (Finance) manages Comcover, the Australian Government's general self‑insurance fund, which provides related services to Australian Government departments and agencies. Finance's liability for outstanding claims includes the expected future cost of claims notified to Comcover as well as claims incurred but not reported. The provision for claims is subject to inherent uncertainty in the estimation process.
Following from the settlement of claims associated with Pan Pharmaceuticals, Comcover is now in dispute with its reinsurers regarding the amount recoverable through reinsurance arrangements. Comcover has sought legal advice and is pursuing the amount that is considered recoverable.
On 20 April 2007, the High Court of Australia found against the Australian Government on a claim for negligent mis‑statement relating to superannuation benefits for a former employee of the then Department of the Interior. There is potential for more claims to arise from other former temporary employees who upon their retirement can demonstrate negligent mis‑statement over their eligibility to join an Australian Government superannuation scheme.
Commonwealth Superannuation Corporation — immunity and indemnity
The Governance of Australian Government Superannuation Schemes Act 2011 (the Governance Act) provides for specific immunities for activities undertaken in good faith by directors and delegates of the board of the Commonwealth Superannuation Corporation (CSC), provided these activities relate to the performance of their functions. These immunities do not prevent CSC from being subject to any action, liability, claim or demand. Under the Governance Act, other than in cases where the Superannuation Industry (Supervision) Act 1993 or regulations under that Act do not so permit, any money that becomes payable by CSC in respect of the superannuation schemes or funds for which it is responsible, is to be paid out of the relevant superannuation fund or if there is no fund, the Consolidated Revenue Fund (CRF). Amounts paid from a superannuation fund are reimbursed to the fund from the CRF.
Future Fund Management Agency and Future Fund Board of Guardians — indemnity
The Australian Government has provided certain staff members of the Future Fund Management Agency (FFMA) and the members of the Future Fund Board of Guardians (Board members) with Deeds of Indemnity. The indemnities are intended to cover liabilities in excess of the insurance policies of the Future Fund Board and its subsidiary entities and the Agency. Board members are indemnified in relation to the exercise of their powers and performance of their functions as members of the Future Fund Board of Guardians. Agency staff members are indemnified in connection with the performance of functions or the exercise of powers in their capacity as a director or officer of Future Fund Board of Guardians investee companies and/or subsidiaries. Both staff members of the FFMA and Board members are indemnified, to the maximum extent permitted by law.
Agency staff members are not indemnified to the extent they are indemnified by an investee company or a subsidiary or they are paid under a Directors and Officers policy of the investee company or subsidiary or to the extent that they are granted and receive financial assistance under Appendix E of the Legal Services Directions. Both Board members and Agency staff members are not indemnified for conduct they engage in other than in good faith; or in respect of any liability owed to the Board or the Commonwealth; or in respect of any act or omission that contravenes one of the civil penalty provisions of the Future Fund Act 2006 (the Future Fund Act). Board members and Agency staff are not indemnified for legal costs incurred by them in unsuccessfully defending or resisting criminal proceedings, or proceedings against a declaration that they have 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 of Guardians.
Googong Dam
On 4 September 2008, a 150‑year lease for Googong Dam was signed between the Australian Government and the Australian Capital Territory (ACT) 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 ACT. The lease includes a requirement for the Australian Government to undertake rectification of easements or any defects in title in relation to Googong Dam, and remediation of any contamination it may have caused to the site. It also gives an indemnity in relation to acts or omissions by the Australian Government.
Indemnities for the Reserve Bank of Australia and private sector banks
In accordance with Government entities' contracts for transactional banking services, the Australian Government has indemnified the Reserve Bank of Australia and contracted private sector banks against loss and damage arising from error or fraud by the entity, or transactions made by the bank with the authority of the entity.
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 (Finance), 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 MYEFO papers, and previous annual reports of 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), Housing Loans Insurance Corporation 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.
Litigation — Davis Samuel case
The Australian Government is subject to a counter‑claim for damages in relation to legal action before the Australian Capital Territory Supreme Court. The Australian Government is seeking to recover funds which were misappropriated from the Department of Finance and Deregulation during 1998. The counter claim is subject to sufficient uncertainty that it is not possible to quantify the amount, if any, of the liability. The Department is vigorously defending this counter claim. The hearing concluded in September 2008 and judgment is yet to be handed down.
Foreign Affairs and Trade
Export Finance 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 them 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, the Australian Government, the Australian Private Hospitals Association Ltd, the Australian Health Insurance Association 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 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
Deeds of Agreement between the Australian Red Cross Society (the Red Cross) and the National Blood Authority in relation to the operation of the Australian Red Cross Blood Service and the development of principal manufacturing sites in Sydney and Melbourne include certain indemnities and a limitation of liability in favour of the Red Cross. These cover defined sets of potential business, product and employee risks and liabilities. 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 relating to the operation of the Red Cross or the cessation of funding for the principal sites, 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 between the Australian Government, the Australian Red Cross Blood Service (the Blood Service) and the State and Territory governments which spreads the liability risks associated with the supply of blood and blood products by the Blood Service. The NMF provides for liabilities incurred by the Blood Service where other available mitigation or cover is not available. Under certain conditions, the Australian Government and the State and Territory governments jointly provide indemnity for the Blood Service through a cost sharing arrangement for claims, both current and potential, regarding personal injury and loss or damage suffered by a recipient of certain blood products. If there are insufficient funds in the NMF to cover claim costs, the Jurisdictional Blood Committee will consider a report provided by the National Funds Manager to determine the level of additional funds required. The Australian Government's share of any additional liability is limited to 63 per cent of any agreed net cost.
CSL Ltd
CSL Ltd (CSL) is indemnified against claims made by individuals who contract specified infections from specified products and against employees contracting asbestos‑related injuries. CSL has unlimited cover for most events that occurred before the sale of CSL 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, the Australian Government may have a contingent liability.
The Australian Fractionation Agreement with CSL, which has operated since 1 January 2010, includes a requirement that the National Blood Authority make a defined payment to CSL, in certain circumstances only, in the event that the volume of plasma supplied annually to CSL is less than a specified amount.
Indemnities relating to vaccines
The Australian Government has provided an indemnity to the manufacturer of smallpox vaccine held by the Australian Government, 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).
Legal proceedings against the Professional Services Review impacting on the validity of past Committees
On 28 July 2011 the full Federal Court ruled that five Professional Services Review (PSR) committee matters were invalid as a result of the appointment process used to appoint the members. The finding has the potential to extend to a significant proportion of past committee cases. On 10 February 2012, the High Court granted the Commonwealth special leave to appeal the full Federal Court decision.
In addition to the five matters subject to the High Court appeal there are four further PSR matters currently on hold in the full Federal Court pending the decision of the High Court.
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 either related 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.
Immigration and Citizenship
Education Services to Minors in Alternative Places of Detention — liability limit
South Australia
The Department of Immigration and Citizenship has entered into a formal arrangement with the Government of South Australia (as represented by the South Australian Department of the Premier and Cabinet) by way of an exchange of letters dated 17 December 2010. The letters represent the Government of South Australia's agreement to provide a range of services (such as education, health, police and emergency services) to people in immigration detention in the State of South Australia in advance of signing a Memorandum of Understanding. This agreement is based on the understanding that the Commonwealth indemnifies the State, and its servants or agents engaged in the provision of the services, to the value of $5 million per claim or event, in relation to any damage or loss incurred by the State, arising out of or incidental to the provision of the services. This effectively represents an uncapped liability.
Immigration detention services — liability limits
The Department of Immigration and Citizenship (DIAC) has entered into a contract which commenced on 14 January 2009 with International Health and Medical Services Pty Ltd (IHMS), to deliver health services to people in detention in Australia on behalf of the Australian Government. Under this contract, DIAC has agreed to limit IHMS's liability to DIAC to a maximum of $20.5 million; however, IHMS's liability is unlimited for specific events defined under the contract.
DIAC has also entered into a contract which commenced on 29 June 2009 with Serco Pty Ltd (Serco), 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 entered into a separate contract which commenced on 11 December 2009 with Serco, 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.
Industry, Innovation, Science, Research and Tertiary Education
Australian Nuclear Science and Technology Organisation — indemnity
The Australian Government has indemnified the Australian Nuclear Science and Technology Organisation and its officers from any liability that might be incurred from the conduct of activities authorised under the Australian Nuclear Science and Technology Organisation Act 1987. This indemnity is in addition to commercial insurance cover obtained from the Comcover Insurance Pool and other insurers.
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 (the Act) 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 Act, the Government also accepts liability for damage suffered by Australian nationals, to a maximum value of $3.0 billion above the insured level.
Infrastructure and Transport
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 Limited — board members' indemnity
Indemnities for Maritime Industry Finance Company Limited (MIFCO) board members were 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 relate to applicable federal leased airports. 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.
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 site 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 signed in 2012.
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 and Energy. 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 responses, and potential compensation for industry arising from Australian Government directions under the Act.
Snowy Hydro Limited — directors' indemnities
The Australian Government, together with the co‑shareholder governments of New South Wales and Victoria, has 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 11 years of the corporatisation date of 28 June 2002.
Snowy Hydro Limited — water releases
The Australian, New South Wales and Victorian governments have indemnified Snowy Hydro Limited 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 applies to liabilities for which a claim is notified within 20 years from 28 June 2002.
Sustainability, Environment, Water, Population and Communities
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 a risk assignment mechanism for making payments to any affected entitlement holders for reductions in water allocations, or changes in the reliability of water allocations, because of the Murray‑Darling Basin Plan (which is anticipated to be finalised in late 2012). The Commonwealth is taking steps to ensure that there is no such reduction in water allocations as a result of reductions in sustainable diversion limits established in the Basin plan. The steps being taken by the Commonwealth to address this risk include the acquisition of environmental water entitlements equivalent to the Commonwealth's share of the reduction in sustainable diversion limits.
The Government will provide funding of $310 million per annum from 2014‑15 to bridge any remaining gap between the level of water returned to the Murray‑Darling Basin under existing Water for the Future initiatives, and the level required to be returned under the sustainable diversion limits set in the final Basin Plan. The additional funding will be used to continue buying back water entitlements each year beyond 2014, subject to the availability of water for purchase from willing sellers. This funding has been included in the forward estimates.
The total cost (if any) of the operation of the risk assignment mechanism will depend on water recoveries. The total cost is not able to be quantified until the Basin Plan has been finalised and may not be able to be quantified until significantly after this time when the new sustainable diversion limits come into effect.
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.
The Australian Prudential Regulation Authority (APRA) is responsible for the administration of the Financial Claims Scheme. Under the Financial Claims Scheme, any payments to eligible depositors or general insurance policyholders will be made out of APRA's Financial Claims Scheme Special Account.
The Financial Claims Scheme 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 $1.0 million at eligible authorised deposit‑taking institutions would be eligible for coverage under the Financial Claims Scheme. The Government confirmed in December 2010 that the Financial Claims Scheme will be a permanent feature of the Australian financial system. The Government announced in September 2011 that a new cap of $250,000 would replace the $1.0 million cap from 1 February 2012.
As at 29 February 2012, deposits eligible for coverage under the Financial Claims Scheme were estimated to be approximately $623.1 billion, compared to $780.8 billion at 30 June 2011, largely reflecting the change in the eligible deposits cap.
The Financial Claims Scheme established under the Insurance Act 1973 provides a mechanism for making payments to eligible beneficiaries with a valid claim against a failed general insurer.
In the very unlikely event of a failure, any payments made under the Financial Claims Scheme would be recovered through the liquidation of the failed institution. In the even more unlikely event there was a shortfall, a levy would be applied to industry to recover the difference between the amount expended and the amount recovered in the liquidation. Initial amounts available to meet payments and administer the Financial Claims Scheme, in the event of activation, are $20.1 billion an institution, under the legislation.
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 and closed 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. Australian 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 Australian 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 2012, the face value of State and Territory borrowings covered by the guarantee was $33.0 billion, down from $36.8 billion at 30 September 2011.
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 that the Guarantee Scheme would close to new liabilities 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 $1.0 million. Existing guaranteed wholesale funding is guaranteed to maturity. Depositors who covered their balances above $1.0 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 30 March 2012, total liabilities covered by the Guarantee Scheme were estimated at $94.8 billion, down from $117.0 billion at 21 October 2011. This is made up of $3.0 billion (down from $3.2 billion) of large deposits and $91.8 billion (down from $113.8 billion) of long‑term wholesale funding. All guaranteed short‑term wholesale funding matured in March 2011.
As at 29 February 2012, institutions participating in the Guarantee Scheme had paid fees of $3.4 billion since its inception.
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 $10.0 billion.
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