Appendix C: 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.
A number of organisations have indicated their intention to proceed with legal action against the Government, with two claims filed in court to date. One claim, filed in New South Wales, has been discontinued. The other, which has commenced in Queensland, may become a class action. The number of potential plaintiffs has not been settled, and therefore no final quantum of damages sought can be calculated. 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 has received correspondence from two law firms indicating potential claims for compensation for alleged losses 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. 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 one of those law firms; however, this cannot be progressed until the question of legal liability has been determined. The Department of Agriculture, Fisheries and Forestry is working with the Department of Finance and Deregulation, the Australian Government Solicitor and the Attorney‑General's Department to assess the claims.
Emergency pest and disease response arrangements
National emergency response arrangements for animal, plant and environmental pest and disease outbreaks are largely funded through cost sharing agreements between Australian governments and, where relevant, agricultural industry bodies. 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. Limited funds are provided for the Commonwealth's contribution under emergency response agreements; potential costs vary and are dependent on the extent of outbreaks, frequency and location which are impossible to predict.
The Commonwealth may be further liable in situations where an incursion is not covered by a cost sharing agreement or where the relevant industry body is not party to an agreement. The Commonwealth may also provide financial assistance to an industry party by funding its initial share of the response. These contributions may subsequently be recovered from the industry over a ten‑year period, usually by a levy.
Broadband, Communications and the Digital Economy
Optus Financial Guarantee
The Commonwealth has provided a guarantee to Optus of NBN Co's financial obligations to Optus under the Optus HFC Subscriber Agreement. That Agreement extends for the period of the national broadband network roll out in Optus Hybrid Fibre Coaxial (HFC) areas.
Termination of the funding agreement with OPEL
Following the termination of its agreement with OPEL Network Pty Ltd (OPEL) under the Broadband Connect 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 August 2012, no legal proceedings have been filed.
Defence and Defence Materiel Organisation
Cockatoo Island Dockyard
On 13 October 2001, Cockatoo Island Dockyard (CODOCK) commenced proceedings against the Commonwealth (Defence) in the NSW Supreme Court seeking full reimbursement from the Commonwealth for personal injury claims costs incurred by CODOCK after 31 October 1995 in relation to asbestos exposure. Following decisions in the NSW Supreme Court on 17 December 2004 and 4 February 2005, and the NSW Court of Appeal on 23 November 2006, CODOCK was awarded a complete indemnity from the Commonwealth for its uninsured exposure to asbestos damages claims, plus profit of 7.5 per cent.
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. For those decontaminating and decommissioning Defence sites for which legal or constructive obligations have not been identified, the potential costs have not been assessed and are unquantifiable.
Indemnities and remote contingencies
The Defence Materiel Organisation carries 448 instances of contingencies (including Foreign Military Sales) that are unquantifiable. While these contingencies are considered remote, they have been reported in aggregate for completeness.
Finance and Deregulation
ASC Pty Ltd — Directors' indemnities
The Australian Government has provided former directors 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.
Infrastructure and Transport
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 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 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
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 2012‑13.
Treasury
Australian Taxation Office — Constitutional Challenge to the Minerals Resource Rent Tax
On 22 June 2012, Fortescue Metals Group Ltd and related companies filed an action in the High Court challenging the constitutional validity of the Australian Government's Minerals Resource Rent Tax (MRRT). The MRRT, which applies to the extraction of Australian coal and iron ore and which commenced operation on 1 July 2012, is estimated to raise $9.1 billion over the period 2012‑13 to 2015‑16. The Commonwealth defence was filed on 12 September 2012, and the case is likely to be heard late in the first half of 2013.
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 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 cap of $250,000 would replace the previous $1 million cap from 1 February 2012.
As at 31 August 2012, deposits eligible for coverage under the Financial Claims Scheme were estimated to be approximately $646.5 billion, compared to $623.1 billion at 29 February 2012, reflecting the increase in eligible deposits held. 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 per 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 July 2012, the face value of state and territory borrowings covered by the guarantee was $31.7 billion, down from $33.0 billion at 31 March 2012.
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 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 31 August 2012, total liabilities covered by the Guarantee Scheme were estimated at $86.4 billion, down from $94.8 billion at 30 March 2012. This is made up of $3.0 billion of large deposits and $83.4 billion (down from $91.8 billion) of long‑term wholesale funding. All guaranteed short‑term wholesale funding matured in March 2011.
As at 31 July 2012, institutions participating in the Guarantee Scheme had paid fees of $3.8 billion since its inception.
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