Pilot Capital Fund
In response to the challenge of securing capital for remote area development, a Pilot Capital Fund (PCF) has been modeled.
Worth around $60m in the pilot phase, the Fund is a commercial investment mechanism that partners public and private investment for a commercial return. It is designed to bring capital onto Aboriginal land for the first time, financing the development of infrastructure and so creating wealth (equity) for the landowners, and then using that equity to stimulate commercial activity.
The leveraging of private investment via public funds is a well-established process, working effectively in the Clean Energy Finance Corporation (CEFC) and the Export Finance Insurance Corporation (EFIC). The Pilot Capital Fund draws on these models, and the current focus on developing the north provides a policy environment for this type of arrangement, with the Fund being an ideal fit for the $5b concessional loans announced in the White Paper. Productive discussions have been held with the Northern Australian Infrastructure Facility concerning inputs into the PCF.
The PCF addresses a key gap in current economic development policy and programs: the cost of infrastructure and source of that capital. There is currently no policy framework or funding source for the infrastructure required to commercialise Aboriginal land. Aboriginal landowners have no equity to approach commercial lenders for the level of funding required; government agencies do not invest in commercial infrastructure on Aboriginal freehold; other grant-funded options are risk-averse and focused on short term social outcomes, and the level of investment required makes an operator’s business model unviable.
The PCF is therefore designed to match public and private investment to stimulate this development. Revenue from the resulting commercial activity will repay this investment. In the meantime, the infrastructure itself will form the landowners’ ongoing equity, and the commercial activity will also generate jobs. Profits secured by the landowners after loan repayments can be used to support the community development projects that they determine will contribute to the wellbeing of the whole group.
The PCF is based in the Strategy’s pilot phase (2020−2024) on developing six farming enterprises on Aboriginal land in the NT. The cost of these projects is around $60 million and the Fund has been modelled by working backwards from the capital required, ensuring that the resulting enterprises can generate enough revenue to repay the investment.
The only security landowners can provide is the leases provided for under section 19 of the Aboriginal Land Rights Act. Work has already been done using the Act in its current form to enable these section 19 leases to be borrowed against. The financial sector has confirmed that such leases can be used as security, and that the financial assumptions in the model are sustainable. Independent legal advice has supported this.
The Fund is based on a turn-key model, whereby the projects will be developed to the point where an operator can generate a return immediately. This reduces the lease length and provides security for the operator, since experience has shown that operator/investors are not prepared to invest in remote green field sites.
The NT Government have provided strong support through proving up soil and water capabilities for the pilot locations, allocating irrigation quotas from the relevant groundwater basins and preparing to adjust the NT Water Act to include a Strategic Indigenous Water Reserve applicable in water management zones across the NT. In addition, the pilot phase of the Strategy has been awarded Major Project Status from the NT Government.
An Information Memorandum on the Fund is required to demonstrate the strength of the proposal to potential investors. This is anticipated in 2020.