Another own goal from EFIC

Here we go again, EFIC (the Export Finance and Insurance Corporation) is providing a $110 million loan to BHP-Billiton and Rio Tinto to enable these companies to invest in an expansion of its copper mining activities in Chile.  The loan is said to be on commercial terms.

WTF?

You can’t tell me that BHP and Rio are not well placed to finance this venture through private banking facilities.  So my guess is that these ‘commercial’ terms are actually a little less than ‘commercial’ from the companies’ point of view.  Why else would they bother going to EFIC for this financing deal?

This is an example of private banking being crowded out – not a legitimate role for a government agency.

And then there is the lame excuse that 80 or so small and medium enterprises in Australia will be able to secure work, supplying the new venture in Chile.  Que?  They would be able to do this anyway – there was no need for EFIC to intervene because:

  1. The venture would always have been privately financed
  2. BHP and Rio would be good payers when it comes to dealing with suppliers, be they Australian or otherwise  - ie. no real need for credit insurance.

As for EFIC returning a dividend to the taxpayer, this is neither here nor there because EFIC is undertaking activity for which there is no need.

As the PC recommended a while back, close the joint down and sell off the loan book.  If this is not achieved, then make EFIC concentrate entirely on the provision of trade finance for SMEs that might find it hard to secure this in the private sector – ie. ensure some additionality.  My preference is the first option.

Here is the story:

Australian taxpayers will lend $US100 million ($110.6 million) to a mining joint-venture run by BHP Billiton and Rio Tinto in Chile, under the latest funding deal by Australia’s controversial Export Finance and Insurance Corporation.

The loan to two of Australia’s largest and most profitable companies comes despite recent criticism of EFIC from the Productivity Commission, which advised the corporation to focus more on small exporters unable to secure finance, rather than big multinationals.

It also comes at a sensitive time for the Abbott government, which has denied financial aid to Holden and others amid its campaign to ”end the age of entitlement”.

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Under the terms of the loan, the $US100 million will be lent to a holding company called Minera Escondida Limitada, which is 57.5 per cent owned by BHP and 30 per cent owned by Rio, with Japanese companies Mitsubishi and Nippon Mining owning the rest.

Minera Escondida is the joint venture through which the miners operate the Escondida copper mine in Chile, and the money is designed to help Australian companies win work on a multibillion expansion of what is already the world’s biggest copper mine.

EFIC is ultimately a government body, but operates with a significant degree of autonomy, and is controversially exempt from freedom of information laws.

EFIC spokesman Peter Field said the big miners were the conduit to supporting about 80 Australian companies win export contracts on the Chilean project.

”From our perspective this is all about Australian jobs,” he said.

”Our funding is very much tied to the incremental provision of exports from Australians.”

EFIC did not disclose the interest rate being charged on the loan, but said it was at ”commercial rates” and pointed to the fact it pays an annual dividend to the Australian government.

”This has opened up an opportunity to these 80 Australian companies to pitch their wares and they have all now been contracted to provide their inputs,” Mr Field said.

Australia is just one of several nations that supplied loans through export credit agencies to Escondida’s expansion, estimated to cost about $US3 billion.

Greens senator Lee Rhiannon said the loan was “nothing short of corporate welfare”.

“The Prime Minister says the age of entitlement is over but this handout is going to BHP and Rio, two companies that should not be getting any handouts at all,” she said. “EFIC is exempt from freedom of information and environmental protection laws but government money is being used to assist this copper mine. People should be able to find out how this agency operates.”

Senator Rhiannon said the loan highlighted the need for the organisation to focus on small and medium enterprises.

Trade Minister Andrew Robb said the loan decision was made by EFIC from its commercial account not by the government and insisted it was not a handout.

“Eighty per cent of EFIC loans are provided to SMEs [small and medium enterprises]. Any loans that may benefit larger companies are only provided if they lead to a significant number of Australian SMEs gaining access to export opportunities that would not otherwise eventuate,” he said.

“This is certainly no hand-out. EFIC operates independent of government within an established commercial framework supporting viable companies where there is a financial gap in the market. In this case the finance will be to the benefit of some 80 Australian companies … who are engaged in the global mining supply chain.”

BHP is Australia’s largest company and recently reported an $US8.1 billion profit for the six months to December 31.

Rio Tinto is the 11th largest company trading on the ASX and made underlying profits of $US10.2 billion in the year to December 31.

BHP paid about $US9 billion worth of taxes to state and federal governments in Australia last year while Rio Tinto paid $US5.7 billion.

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22 Responses to Another own goal from EFIC

  1. Alfonso

    ” where there is a financial gap in the market…”
    Something wrong with BHP’s credit worthiness then?

  2. Bugger me. Why? Why? Why?
    After all, when push came to shove, these big miners backed Labor, not Liberal.
    Another example of intellectual gutlessness from our Center Left Liberal Government.

  3. rickw

    “Export Finance and Insurance Corporation”

    What is this and why do we have it? (Honestly, first time I’ve heard of it).

    If the market won’t support an investment, then it’s probably not a good investment, so why the hell do taxpayers get to carry the risk???????

  4. Steve D

    The Export Finance and insurance Corporation is under the Foreign Affairs and Trade Portfolio, reporting to the Minister for Trade and Investment.

    Time to write a letter or two?

  5. Johno

    Looks like the Age of Entitlement might be over for car and canned fruit makers, but is alive and kicking for whinging cockies and rich miners.

    Bishop and Robb have a Turnbull approch to accountability. I’m only the responsible Minister, what can I do!

  6. politichix

    That’s a bad look. Is it possible EFIC is chock full of Labor appointees?

  7. Andrew

    Greens senator Lee Rhiannon said the loan was “nothing short of corporate welfare”.

    Sez Green communist who was no doubt campaigning in Hobart about the evil Abbott666 Regime not giving handouts to multinational companies on Sat. Perhaps it’s different because these are miners.

    Frankly, I’m not that excited about this news. EFIC cops a fee and if they wake money that would otherwise have given the major banks their 20% ROIC then I’m not overly fussed.

  8. johno

    Greens senator Lee Rhiannon said the loan was “nothing short of corporate welfare”.

    Mark this down as a historic moment. The Stalinist is correct. This is corporate welfare and Tony Abbott should be saying no way. There is no justification for the EFIC.

  9. Gab

    “Export Finance and Insurance Corporation”

    What is this and why do we have it?

    No idea. I thought we had banks for things like loans. Abbott should shut it down, (he won’t of course) there is no need for EFIC. Just another example of an unnecessary Big Government department.

  10. eb

    If I am reading this correctly, the loan was made because a lot of smaller Aussie companies were going to get the contracts. The loan is, indirectly, benefitting those coys, not the big miners. But the big miners’ subsidiary company is going to take on the loan, effectively guaranting the smaller coys?

  11. Here’s a list of the Board – some of them vaguely familiar, in a hands out begging bowl sort of way.
    Wonder what they pull in a year?

  12. How strange. Linky thing won’t link.

  13. Token

    No idea. I thought we had banks for things like loans.

    Have we grown up enough to realise that in the days of microfinance, when protesters in a lefty march are holding advertising for Crowd Funding companies, there really is no need for governments to replicate the finance functions of banks and similar organisations?

  14. Baldrick

    Senator Rhiannon said …

    Who gives a toss what the commie trollup has to say!

    Having said that, let me say this … the EFIC should be shut down.

  15. motherhubbard'sdog

    Robb is a loose cannon if ever there was one. TA should get rid of him at the first opportunity.

  16. Bill Posters

    Surprising there is a story on news.com about BHP Billiton pledging $10m to Mozambique farmers. I am not saying the farmers do not need assistance but if BHP can do that why do they need a handout?

  17. Uh oh

    Sorry to disagree but if Lee Rhiannon is against it, I’m all for it; whatever it is.

  18. Splatacrobat

    <blockquote EFIC Board

    Plenty of diversity here. Four out of ten board members are female. There’s your problem.

  19. wazsah

    Like rickw – I had never heard of EFIC – I am curious as to the origins of EFIC – but can not understand how BHP/RIO would need taxpayer funded help – probably just another QUANGO badly in need of the axe.

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