The Auditor-General’s latest report details how the $10 million Supporting Reliable Energy Infrastructure Program relied on only “partially appropriate” advice in awarding Shine Energy a $3.3 million feasibility study for a proposed coal-fired power station in Collinsville, north Queensland.
Following a preliminary investigations and a request by then-shadow energy minister Mark Butler that referenced Shine Energy’s feasibility study, ANAO’s review of the SREI Program last week found Shine Energy was awarded the grant despite only “partially meeting” selection criteria per Commonwealth Grants Rules and Guidelines, including a departmental assessment finding significant risk of the company not completing the study. The ANAO report further details probity, conflict of interest and due diligence failures by the department.
Today, The Mandarin provides a comprehensive overview of the report and, more broadly, what it says about the politics and economics of coal in Australia.
Inadequate applications, department advice, and probity checks
Announced on 26 March 2019 by the Morrison government as a $10 million, two-year program, the SREI program was designed to provide funding for a bankable feasibility study of a proposed coal plant in Collinsville — which, as Guardian Australia reported last year, was controversially announced for Shine Energy two days before the company was asked to officially apply on February 10, 2020.
The program was also meant to fund procurement of a strategic study to examine northern and central Queensland’s current and future energy needs and a series of ad hoc, non-competitive grants to support feasibility studies and business cases for generation or new energy infrastructure projects identified through the strategic study. Additionally, in approving the design, Taylor requested the department “investigate options for electrification of Curtis Island LNG terminals”.
Program funding was included in the April 2019 budget, and was identified in the 2019 election policy platforms for both the Liberal Party and the National Party. Administered by the Department of Industry, Science, Energy and Resources, the program is separate but complementary to the Underwriting New Generation Investments Program.
In its investigation, the ANAO finds that the department’s funding recommendations briefings clearly demonstrated that Shine’s application only met 71% of criteria — with failed criteria relating to time-frame and funding eligibility — while a separate application by Blue Hydro, which received $2 million, met all criteria.
The department, ANAO notes, concluded that Shine’s application would not result in a bankable feasibility study being produced by 30 June 2021 that enables a final investment decision on the construction of an (somewhat misnamed) “high energy low emissions plant”. But the company nonetheless received funding related to the first two (of four) stages of a feasibility study, with funding sources for the remaining stages were not identified as Shine Energy admitted it may not have enough funds to complete the study without additional contributions from government or private bodies, and completion of the study is not due until February 2023.
Additionally, while the application was found not to properly use commonwealth resources, the the department shrank the potential $4 million grant by $694,440 to exclude “ineligible” expenditure related to phone, printing etc.
On the department’s end, the Auditor-General finds due diligence on the grant applications was incomplete and not up to date for the Shine Energy grant, which was undertaken a full nine months before Shine’s application was received. In both Shine Energy and Blue Hydro’s case, checks were found to not be comprehensive.
Appropriate arrangements were also not in place to manage probity risks, namely:
- a probity plan was not developed, and while probity frameworks were documented for the two awarded grants those documents did not apply to other program activities (such as the procurement of consultants to undertake a strategic study) and did not cover earlier engagement with the project proponents;
- there were no conflict of interest registers for the program and an absence of conflict of interest declarations for the program from staff, including senior officials overseeing the development of grant guidelines, the assessment of the grant applications, and provision of funding recommendations to the minister;
- there were deficiencies in the procurement of a consultant to conduct the strategic study, including inadequacies in the approach to identifying and managing the risk of conflicts of interest. The assessment of competing tenders also did not meet the Commonwealth Procurement Rules’ requirement for adequate records on the process that was followed and how value for money was considered and achieved;
- confidential Australian government information had been transmitted to various non-government email accounts.
Three recommendations have now been made addressing program design, managing probity risks and improvements to due diligence activities, all of which have been agreed to by the department:
- For programs established to fund a series of ad hoc, non-competitive grants, the department of Industry, Science, Energy and Resources develop a single set of opportunity guidelines.
- The Department of Industry, Science, Energy and Resources comprehensively address probity risks in programs it administers so that there is a full record of the reasons for all procurement decisions and all officers involved in the program design and delivery are required to declare whether they have any conflicts of interest.
- The Department of Industry, Science, Energy and Resources when undertaking due diligence checks of ad hoc grant applications examine all relevant entities/individuals and update those checks where there has been a delay between their conduct and the receipt of a grant application and/or provision of a funding recommendation.
What the ANAO report says about the politics and reality of coal
Funding for Shine’s feasibility study was developed and approved against the backdrop of two important trends: a lack of sector interest or need for a new coal-fired power plant in north Queensland, and a political interest in building one, namely substantial pressure from National and LNP politicians for a new plant in Collinsville and passive support from Scott Morrison.
As commentator and former public servant Bernard Keane outlined at Crikey on Friday, Minister for Energy and Emissions Reduction Angus Talor made an unsourced claim in announcing the SREI projects in February 2020, namely that “an independent strategic study has identified system strength is a real concern in central and north Queensland, and new synchronous generation is a priority to meet the energy needs of customers in the region.” Taylor has yet to respond to requests for said study.
Additionally, energy transition specialist Simon Holmes a Court recounted last year in an extensive Twitter thread that:
- AEMO’s 2020 Integrated System Plan identifies no such system requirement;
- Peak body the Australian Energy Council made a similar conclusion in a July 2017 analysis of a proposed new coal-fired generator, which also cites carbon, funding, market and other risks; and
- Per a request from Shine Energy for indemnification from the Morrison government, the Australia Industry Group calculated that any such plan would require $14 billion in funding.
Shine, notably, launched as a renewables company in 2016, shortly pivoted to coal, but has yet to build anything. The company also claims to be a “traditional owner company” but Guardian Australia notes that local Birriah representatives have accused the company of using Indigenous connections as a “smokescreen”.
The company also listed Glencore as a partner in a separate application for the Collinsville proposal, while RenewEconomy notes several senior management connections with the Katter Australia Party i.e. CEO Ashley Dodd, executive team member Les Muckan, and former company director Luke Shaw all either previously standing as election candidates and/or being involved in the running of Katter’s election campaigns.
In its analysis of due diligence, ANAO notes that not only did Shine not apply before receiving the ad hoc grant or subsequently fail selection criteria, the company’s proposal did not win out in the SNEI’s separate function, the creation of “a strategic study to examine northern and central Queensland’s current and future energy needs”.
While Taylor proposed to Scott Morrison on August 7, 2019 that a grant be awarded to Shine Energy, the Prime Minister’s 13 September 2019 response required that the (non-binding) strategic study be completed before any grants were considered; the study’s Phase 1 findings, at just 22% engagement with total stakeholders at 18 December 2019, showed Shine’s proposal ranked behind three projects (including Blue Hydro) and equal with two others in a categorisation of identified synchronous projects.
These findings were prepared and submitted for Taylor, along with a recommendation to seek approval for an ad hoc grant to Shine, but in August 2020 the department advised the ANAO that the “brief was never considered by the minster and was overtaken by a subsequent briefing”.
Finally, the ANAO finds that Taylor uses private email accounts for work, namely Gmail and MSN accounts, and that the department warned Taylor and his staff to comply with the commonwealth’s IT security policies; in its coverage of the report, RenewEconomy also notes correspondence sent by Shine to a departmental official “was forwarded to a non-government email account of their spouse.”
The ANAO report follows a series of significant the latest in significant findings by the ANAO — “sports rort”, the Leppington Triangle, The EPBC Act — and a warning last month from Auditor-General Grant Hehir that the office will need to reduce the number of performance audits it conducts each year without renewed funding; 2020 analysis by the Centre for Public Integrity found that ANAO funding has been cut by $23.7 million in real terms since 2016-17.