Appendix C: Statement of risks (Continued)
Contingent liabilities — quantifiable
Communications
NBN Co Limited — Equity Agreement
The Australian Government has entered into an Equity Funding Agreement with NBN Co. The Agreement formalises the Commonwealth's intention to provide equity to fund the roll out of the National Broadband Network, with such funding being conditional on the annual appropriation processes. In addition, it commits the Commonwealth, in the event of a termination of the National Broadband Network roll out, to provide sufficient funds to NBN Co to meet its direct costs arising from that termination. The NBN Co Equity Agreement terminates in 2021. As at 31 October 2013, NBN Co's termination liabilities were estimated at $5.3 billion.
Telstra Financial Guarantee
The Australian Government has provided a guarantee to Telstra in respect of NBN Co's financial obligations to Telstra under the Definitive Agreements. The Definitive Agreements are long‑term contracts and, in the case of the infrastructure component, involve terms of at least 35 years. The liabilities under the Definitive Agreements arise progressively during the roll out of the network as infrastructure is accessed and subscribers to Telstra's existing network are disconnected. As at 31 October 2013, NBN Co had generated liabilities covered by the guarantee estimated at $2.5 billion. The guarantee will terminate when NBN Co achieves specified credit ratings for a period of two continuous years and either:
- the company is fully capitalised; or
- the Communications Minister declares, under the National Broadband Network Companies Act 2011, that, in his or her opinion, the National Broadband Network should be treated as built and fully operational.
Defence
Indemnities and remote contingencies
As at 6 November 2013, Defence carried 1,755 instances of quantifiable significant remote contingent liabilities with a nominal value of $3.8 billion. These significant remote contingent liabilities are restricted in nature and details are not given due to reasons of commercial in confidence and/or national security. While these contingencies are considered remote, they have been reported in aggregate for completeness. The increase in the nominal value since the 2012‑13 Defence financial statements has predominantly resulted from indemnities relating to classified military exercises.
As at 31 October 2013, the Defence Materiel Organisation carried 78 contingencies that are quantifiable, to the value of $2.8 billion. These significant remote contingent liabilities are restricted in nature and details are not given due to reasons of commercial in confidence and/or national security. While these contingencies are considered remote, they have been reported in aggregate for completeness.
Environment
Low Carbon Australia Limited — Board of Directors' and senior management indemnities
The Australian Government has provided indemnities to directors and company officers of Low Carbon Australia Limited (LCAL). A total of seven indemnity deeds have been executed. Each indemnity covers liability incurred by a director or officer arising from the implementation of the merger of LCAL with the Clean Energy Finance Corporation. An aggregate cap of $100 million to cover all claims has been established, and the indemnities will operate for seven years from execution.
Foreign Affairs and Trade
Export Finance and Insurance Corporation
The Australian Government guarantees the due payment of money that is, or may at any time become, payable by the Export Finance and Insurance Corporation (EFIC) to anybody other than the Government. The Government also has in place a $200 million callable capital facility available to EFIC on request to cover liabilities, losses and claims. As at 31 October 2013, the Government's total contingent liability was $3.3 billion. The $3.3 billion contingent liability comprises EFIC's liabilities to third parties ($2.5 billion) and EFIC's overseas investment insurance, contracts of insurance and guarantees ($833 million). Of the total contingent liability, $2.6 billion relates to EFIC's Commercial Account and $725 million relates to the National Interest Account.
Social Services
Accommodation Bond Guarantee Scheme
The Accommodation Bond Guarantee Scheme (the Guarantee Scheme) guarantees the repayment of residents' accommodation bond and entry contribution balances if their approved provider becomes insolvent or bankrupt and defaults on its refund obligations. In return for the payment, the rights that the resident had to recover the amount from their approved provider are transferred to the Commonwealth so it can pursue the approved provider for the funds. In cases where the funds are unable to be recovered, the Australian Government may levy all approved providers holding bonds to meet any shortfall. On 30 June 2012, the maximum contingent liability, in the unlikely event that all providers defaulted, was approximately $13.1 billion.
Amendments were recently made to the Guarantee Scheme through the Aged Care (Bond Security) Amendment Act 2013 and the Aged Care (Bond Security) Levy Amendment Act 2013. These amendments extend the current guarantee for bonds paid by aged care residents, to also cover future lump sum accommodation payments paid by aged care residents. Under these amendments, bonds paid by aged care residents (before 1 July 2014), and refundable accommodation deposits and refundable accommodation contributions made by aged care residents (after 1 July 2014) are guaranteed by the Government if an aged care provider becomes insolvent or bankrupt.
Treasury
Australian Taxation Office — tax disputes
At any point in time the Australian Taxation Office is involved in a range of dispute resolution processes, including litigation, relating to tax disputes.
Details of the outcome of dispute resolution processes are uncertain until a court ruling is made and/or an agreement is reached with the taxpayer at some future date. As a result, in most cases it is not possible to estimate with any reliability the likely financial impact of current disputes. The estimated aggregate value of tax in dispute as at 31 October 2013, for which a provision has not been made, is $7.0 billion.
Outcomes of dispute resolution processes, including objections, settlements and court and tribunal decisions, as well as amounts owed by taxpayers that are subject to dispute, including objections and appeals, are set out in the Commissioner of Taxation's Annual Report each year.
Guarantees under the Commonwealth Bank Sale Act 1995
Under the terms of the Commonwealth Bank Sale Act 1995, the Australian Government has guaranteed various superannuation and other liabilities; $751 million is attributable to liabilities of the Commonwealth Bank of Australia, as at 30 June 2013, and $4.2 billion is attributable to liabilities of the Commonwealth Bank Officers' Superannuation Corporation, as at 30 June 2013.
International Financial Institutions — uncalled capital subscriptions
The Australian Government has held an uncalled capital subscription in the International Bank for Reconstruction and Development (IBRD) since 1947. The Government is contributing additional resources to the IBRD as part of the general capital increase agreed in 2010. As part of this process, Australia will increase its uncalled capital subscription so that it totals US$3.6 billion (estimated value A$3.8 billion as at 14 November 2013).
The Australian Government has also held an uncalled capital subscription in the European Bank for Reconstruction and Development (EBRD) since 1991. Australia increased its uncalled capital subscription (effective 20 April 2011) to the EBRD as part of its 2010 general capital increase, so that it totals EUR237.5 million (estimated value A$342.3 million as at 14 November 2013).
The Australian Government has further held an uncalled capital subscription in the Asian Development Bank (ADB) since 1966. Australia increased its uncalled capital subscription (effective 11 January 2010) to the ADB as part of its 2010 general capital increase, so that it totals US$7.0 billion (estimated value A$7.5 billion as at 14 November 2013).
Australia has further held an uncalled capital subscription in the Multilateral Investment Guarantee Agency of US$26.5 million (estimated value A$28.3 million as at 14 November 2013). None of these international financial institutions have ever drawn on Australia's uncalled capital subscriptions.
International Monetary Fund
Australia has made a line of credit available to the International Monetary Fund (IMF) under its New Arrangements to Borrow (NAB) since 1998. The value of Australia's NAB credit arrangement is Special Drawing Rights (SDR, the IMF's unit of account) 4.4 billion (estimated value A$7.2 billion at 30 September 2013). This is a contingent loan to help ensure that the IMF has the resources available to maintain stability and support recovery in the global economy. As agreed by G20 Finance Ministers and IMF Governors in late 2010, the credit arrangements of all NAB participants, including Australia, will be reduced when the increase in IMF quotas come into effect. This was anticipated to occur in 2012‑13; however, due to a delay in the implementation of the above agreement by the United States it is now anticipated to occur in 2013‑14.
In addition to the NAB credit line, as part of a broad international effort to increase the resources available to the IMF, Australia has committed to provide a US$7.0 billion (calculated as SDR 4.6 billion, approximately A$7.6 billion at 30 September 2013) contingent bilateral loan to the IMF. This loan entered into force following passage of enabling legislation in June 2013. The contingent loan is on terms consistent with separate bilateral loan and note purchase agreements to be concluded between the IMF and all contributing countries. It will be drawn upon by the IMF only if needed to supplement the IMF's quota and NAB resources and any loans would be repaid in full with interest. The increase in the IMF's resources will help ensure that it has the capability to address any potential vulnerability facing the global economy.
Reserve Bank of Australia — guarantee
The Australian Government guarantees the liabilities of the Reserve Bank of Australia. It is measured as the Bank's total liabilities excluding capital, reserves, and Australian Government deposits. The major component of the Bank's liabilities is notes (that is, currency) on issue. Notes on issue amount to $59 billion, as at 31 October 2013, and the total guarantee is $65 billion.
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