Why Adani may still get its government loan

Even though the Queensland Premier Annastacia Palaszczuk announced she would be vetoing the around A$1 billion loan to Adani for a rail link to its proposed Carmichael coal mine, funds could still flow to the company.

Currently in caretaker mode for the Queensland election, the premier would need the consent of the opposition party to exercise such a right. That is very unlikely given the LNP’s longstanding support of Adani’s mine.

This means any veto could not be exercised until late November, or more realistically, December 2017.

As the Northern Australia Infrastructure Facility (NAIF) loan doesn’t need state approval (but rather explicit veto) it could also mean the money will make its way to Adani, without any direct action by the state government.

How would Commonwealth money make its way to Adani?

The NAIF body was established in 2016 and administers A$5 billion in Commonwealth funds. It’s been empowered to award grants to the northern states and Northern Territory for infrastructure projects. Practically, however, these jurisdictions are used as financial conduits to pass this money to large corporations operating in northern Australia.

The NAIF is established under the “tied-grants” provision of the constitution, section 96, which states:

…the [Commonwealth] Parliament may grant financial assistance to any State on such terms and conditions as the [Commonwealth] Parliament thinks fit.

This section was intended to provide for a short-term (around 10 years) mechanism for central funds to be granted to the new states affected by the restructuring of national public finances, after federation. However, the Commonwealth Parliament continued to use this section well into the 20th century (and increasingly today) to grant funds to cash-strapped states.

Over time, the Commonwealth started to impose terms that required the states do things that were outside of the Commonwealth’s legislative power - such as education or, indeed, infrastructure development.

The early 20th Century High Court concluded that this was acceptable, as long as the state technically consented to the terms and conditions of the grant.

While the NAIF legislation does not require such consent, under rules issued by the Commonwealth Minister the NAIF has to:

commence consultation with the relevant jurisdiction as soon as practicable after receiving an investment proposal

In Adani’s case, the Investment Rules indicate that the “jurisdiction” is the “State or Territory the infrastructure Project is located”, namely Queensland. The state government after reviewing project and investment may provide:

written notification that financial assistance should not be provided to a project

If that is the case then the NAIF is not permitted to provide the grant money to the applicant (Adani). But that doesn’t mean the state hasn’t consented to the loan.

The problem is that the High Court has never really addressed what the word “state” means in section 96. Specifically who should the money be paid to: the “Parliament of the State”; “Government of the State” or, as seems to be implied in the Palaszczuk statements the “Premier of the State”?

Conventionally, when we talk of “state consent” to funds, we envision a complex process by which money is paid into a central state fund under the control of state parliament. However, the NAIF legislation appears to allow for merely the state government to consent in a very minimal way, simply by passing the money directly to Adani without the state parliament ever reviewing or approving the transaction.

The NAIF legislation also doesn’t specify who in the government might consent. To date, it is the Treasurer who seems to have been most actively involved in working with the NAIF, and indeed Adani. It seems that, so long as the state has been “consulted”, unless it takes active steps to stop the loan, it will go ahead.

Does Premier Palaszczuk have a ‘veto’ power?

The premier’s reasoning for the veto is a continuation of her government’s legacy of having “no role to date in the federal government’s NAIF Loan Assessment Process for Adani” and no “role in the future”.

These statements seem to be contrary to earlier ones by the Queensland Treasurer, Curtis Pitt, that the government would “do what is required” to facilitate Commonwealth funds going to Adani. In fact, as early as November 2016, Pitt declared in state parliament:

Since we came to office, we have been working very closely with the Commonwealth government to facilitate … the NAIF — in North Queensland… It is through the NAIF facility, which the state wholeheartedly supports, that Adani can get the infrastructure support that it needs.

As a result, it would seem that everything needed to pass the NAIF funds to Adani is provided for. The only thing to actively stop it is a formal, written statement by Palaszczuk to the NAIF refusing the loan (not to the Prime Minister as she claimed). Given Palaszczuk’s statement that she intends to write this statement, it is clear that no formal notice has yet been issued to the NAIF.

However, it would seem that a “Master Facility Agreement” between Queensland and the NAIF has already been agreed to and set up. This agreement seems to envision the treasurer of Queensland passing the money to Adani, without it ever going into the state’s bank accounts. Hence, in May this year, the Queensland treasurer confirmed that:

Our role, for constitutional reasons, is the legal financing contract, the loan agreement including the drawdown and timing, repayment of interest — all of those things have to have state involvement constitutionally.

So, unless the Queensland opposition takes the very unlikely step of agreeing to a veto, Palasczuki would appear to lack the power to issue one herself until after the election.

In the interim, NAIF has no legal restrictions on issuing the loan and, with the apparent agreement of the Queensland treasury, this money is likely to flow through to Adani. While Palasczuki can say her government gave no active assistance to Adani, without active measures to block the loan, it would certainly be a silent partner in the process.