The banks role in industry assistance – by Damon Cantwell

The advent of the National Reconstruction Fund offers the Federal Government an opportunity to learn from past industry programme mistakes, and make the whole process of industry support more efficient, writes Damon Cantwell.

The $15 billion National Reconstruction Fund programme is not offering grants, but a mixture of concessional loans, guarantees and some equity positions.

This makes a much-maligned but important set of stakeholders around industry assistance particularly important – the banks.

Government programmes can be notorious for the grey area of the role for banks in the overall picture.

The order of proceedings is often unclear – often governments won’t be interested in a project until after the banks have said no, creating a tightrope for the company around ‘if the banks aren’t willing to fund the entire project, why should the taxpayer contribute’.

This scenario also creates issues around a project not getting through the bank’s credit team, and running red flags for government on this basis.

The role of the banks also creates huge headaches for project proponents, particularly SMEs.

A lack of clarity around the role of bank (or private equity) finance can be a huge time sink for all involved, and mid-sized companies trying to establish a project are particularly time poor.

Government programmes such as this fund are underpinned by legislation, ministerial directives, guidelines and FAQs that run into the hundreds of pages.

In the case of previous programmes they have included reference to not ‘crowding out’ the banks, and having the taxpayer play banker when the private sector should be playing this role.

And of course – how do you delineate the difference?

One useful addition to the wad of information is for the NRF would be to stipulate (even a preferred) approach regarding the banks.

Would the government prefer companies to have sounded out a bank first before approaching the NRF?

If a project is knocked back, where does this leave the company in trying to convince the government that it is worthy of taxpayer investment.

The sweet spot for these programmes is where there is a funding gap.

A bank is interested to a certain level, but can’t find its way clear to support the entire project.

Not a flat no, nor a situation where there is appetite to fund the whole thing.

Again some structure for companies in this space would make the entire process more efficient, and spread the love regarding how many projects a circulating $15 billion can support, whilst lightening the taxpayer risk of a given project.

From the banks’ perspective, greater transparency is required in the sharing of documentation that confirms there is a funding gap, which the company could share with the government as part of the application process.

The NRF isn’t a fraction of the $500Bn+ in the US Inflation Reduction Act which is earmarked for renewables and energy transition projects – just one of seven priorities $15Bn is meant to cover in Australia.

Making the programme design as effective as possible, including its relationship with the banking sector in a high interest rate environment will be critical.

Damon Cantwell is a Director of McGarry House, and former Partner in Deloitte’s Government Grants & Incentives Team.

Picture: Damon Cantwell