Appendix E: Summary of Operating Costs and Expenses and Benchmark

Under the CEFC Act, the Corporation must include in its Annual Report:

The Corporation’s operating costs and expenses for the financial year
A benchmark of the Corporation’s operating costs and expenses for the financial year against the operating costs and expenses of other comparable entities for that financial year.

The CEFC’s operating costs and expenses for the financial year are reported in the Financial Statements and Notes, and are reproduced below in extract for convenience.

About the CEFC structure

The CEFC is a corporate Commonwealth entity with an independent Board that makes investment decisions to invest in renewable and clean energy technologies under the CEFC Act and according to ministerial directions supplied by an Investment Mandate. The CEFC’s investment focus is on debt and equity that is solely or mainly Australian-based. The CEFC cannot invest directly in non-financial assets and does not have a large cash investment function. At 30 June 2017, the CEFC had 93 employees (86 full-time equivalent) based in Sydney (headquarters), Brisbane and Melbourne. The CEFC has drawing rights against the Clean Energy Finance Corporation Special Account maintained by the Department of the Environment and Energy.

Note on comparisons

Direct comparisons of the CEFC with other entities are difficult because:

There are very few Government-owned public purpose entities that perform the type of function the CEFC does at a similar scale
Current financial year data on other entities is not necessarily readily available
Data is not always reported using the same expense categories across different entities.

Entities for comparisons

In order to provide meaningful comparison as required under Section 74 of the CEFC Act, the Corporation has compared its 2016–17 operating costs and expenses against the latest publicly-available information for the Future Fund Board of Guardians as supported by the Future Fund Management Agency (Future Fund), the Export Finance and Insurance Corporation (Efic), the Northern Australia Infrastructure Fund (NAIF) and the UK Green Investment Bank (GIB) (all Government-owned entities formed for public purpose with a commercial mode of operation).

Future Fund Management Agency (Future Fund) – Structure

The Future Fund was established under Division 2 of Part 5 of the Future Fund Act 2006 and is governed by an independent Board, which makes investment decisions according to ministerial directions supplied by an Investment Mandate. It is not geographically nor sector-limited to renewable and low carbon technology in the same way the CEFC is, and pursues a broad sectoral spread in a range of investments – primarily equities (39.4 per cent), property, infrastructure and timberland (14.2 per cent), alternative assets (14.8 per cent), debt securities (10.6 per cent) and cash (21.0 per cent) at 30 June 2017. It had circa AUD$133 billion funds under management invested in Australia and overseas at 30 June 2017. For more information visit www:futurefund.gov.au

Export Finance and Insurance Corporation (Efic) – Structure

Efic is a corporate Commonwealth entity governed by an independent Board. Efic operates on a commercial basis and partners but does not compete with banks. Efic has four key functions under its enabling legislation:

To facilitate and encourage Australian export trade by providing insurance and financial services and products to persons involved directly or indirectly in such trade
To encourage banks and other financial institutions in Australia to finance or assist in financing exports
To manage the Australian Government’s aid-supported mixed credit program (a facility which has now been discontinued, although loans are still outstanding under it)
To provide information and advice regarding insurance and financial arrangements to support Australian exports.

Efic’s investment function is primarily related to the issuing of insurance and security guarantees, working capital guarantees and longer-term finance guarantees within these functions. Efic is headquartered in Sydney, provided facilities totaling $390 million during 2015-16 and had some $2.9 billion under management at 30 June 2016 (made up of circa $2.1 billion on the Commercial Account and $0.8 billion on the National Interest Account). For more information visit www:efic.gov.au

Northern Australia Infrastructure Facility (NAIF) – Structure

NAIF was established on 1 July 2016 as a corporate Commonwealth entity under the Northern Australia Infrastructure Facility Act 2016 (NAIF Act).

A commercially focused independent Board oversees the NAIF and is responsible for making investment decisions to deploy finance. The NAIF offers up to $5 billion in debt or alternative financing mechanisms, which may be on concessional terms, to benefit northern Australia. It is designed to be a key catalyst for longer term transformation of the northern Australian economy and population through the construction of infrastructure in northern Australia. This may include developments in airports, communications, energy, pipelines, ports, roads, rail and water. NAIF investments may support growth in sectors across the north, such as food and agribusiness, international education, medical research, tourism, energy and resources. For more information visit www:naif.gov.au

Green Investment Bank (GIB) (UK) – Structure

The Green Investment Bank (GIB) was formed as a public company owned by the UK Government in May 2012 and became fully operational in October 2012 when it was granted State Aid approval by the European Commission to make investments on commercial terms. The GIB was privatised via sale to the Macquarie Group, which was completed on 18 August 2017. While the GIB remained government-owned throughout the 2016-17 financial year, the most recent publicly available information for comparison is for the year ended 31 March 2016.

The GIB was established with a mission similar to the CEFC: “to accelerate the UK’s transition to a greener, stronger economy…” The GIB also had a broader ‘Green Impact’ mandate that extended beyond renewable and low carbon energy and emissions reduction into areas such as recycling and reduction of landfill. Like the CEFC, the GIB could invest in projects in the form of equity, debt and guarantees. Also like the CEFC, it is still a relatively young business and during its financial year ended 31 March 2016 committed circa UK£770 million (~AU$1.5 billion) to 30 new projects, with circa £0.9 billion ($1.8 billion) of cumulative investments funded at the end of its financial year (March 2016).

	CEFC 2016-17		Future Fund 2015-16 (c)		EFIC 2015-16 (c), (d)		GIB 2015-16 (e)
	$'000	%	$'000	%	$'000	%	$'000	%
Employee benefit expenses
Wages and salaries	19,020		33,877		17,700		30,434
Superannuation	1,174		2,094		1,800		2,196
Leave and other entitlements	462		1,290		500
Other expenses	-		-		1,000		3,170
Total Employment Benefit Expenses	20,656	49	37,261	13	21,000	11	35,800	36
Board remuneration
Wages and salaries	367		805
Superannuation	35		76
Total Board Remuneration	402	1	881	0	-	0	652	1
Total Employee and Board Remuneration and Benefits	21,058	50	38,142	13	21,000	11	36,452	37
Other Costs
Interest expense	-	0			130,400	70
Provision for impairment and irrevocable loan commitments	2,421	6			19,600	11	8,992	9
Concessional loan discount (b)	11,433	27
Professional fees and expenses	1,243	3	207,685	72	1,580	1	9,045	9
Other investment portfolio expenses	385	1	20,332	7	500	0	20,589	21
Travel and incidentals	745	2			1,000	1
Office facility costs	1,759	4			1,600	1	2,824	3
Insurance	207	1
Marketing and communications	378	1			2,600	1
Depreciation and amortisation	745	2	1,467	1	4,200	2	10,005	10
Auditors’ remuneration	171	0	223	0	220	0	1,148	1
Administrative, IT and other expenses	1,656	4	20,350	7	3,700	1	10,678	11
Total Expenses	42,201	100	288,199	100	186,400	100	99,733	100

Figure 64: CEFC operating costs and expenses benchmark – Comparison with Annual Reports (a)

	CEFC 2016-17 (Actual)		Future Fund 2016-17 (Estimate) (f)		NAIF 2016-17 (Estimate) (g)
	$'000	%	$'000	%	$'000	%
Employee benefits	21,058	50	40,644	9	274	4
Supplier costs	6,544	15	390,088	90	5,837	96
Depreciation and amortisation	745	2	2,513	1
Concessional loan discount (b)	11,433	27
Allowance for impairment of assets and irrevocable loan commitments	2,421	6
Total Expenses	42,201	100	433,245	100	6,111	100

Figure 65: Operating costs and expenses benchmark – Comparison with Portfolio Budget Statements

^Notes:^{(a) Like for like comparisons are not strictly possible since different entities group and report costs differently}^{(b) Non-cash charge that reverses over the life of the underlying loans}^{(c) From 2015-16 Annual Report since 2016–17 information is not available at the time of preparing this report.}^{(d) Costs are shown gross before National Interest Account allocation}^{(e) Green Investment Bank Group for 12 months ended 31 March 2016. Amounts converted at 30 June 2016 average exchange rate of 1 GBP = 2.0389 AUD}^{(f) From Portfolio Budget Statements 2017-18 for the Finance Portfolio}^{(g) From Portfolio Budget Statements 2017-18 for the Industry, Innovation and Science Portfolio}^{(h) Efic does not appear separately in the 2017-18 Portfolio Budget Statements and its 2016–17 Corporate Plan does not provide this level of detail.}^{(i) Individual percentage value may not add to 100 due to rounding}