Aboriginal Land Economic Development Agency

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 (20202024) 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.