The Productivity Commission has raised concerns about governance at the Northern Australia Infrastructure Facility (Naif) and about the scope for political interference in the funding of projects, including a new coal-fired power station in Queensland, and the Adani rail link.



It has also criticised a raft of recent government interventions in the energy sector, including Malcolm Turnbull’s much vaunted Snowy 2.0 project, and Jay Weatherill’s $550m energy self-sufficiency program, characterising recent developments as “frenetic activity by governments, often in the midst of crises” that could ultimately drive up power prices for consumers.

The commission – the federal government’s independent research and advisory body on economic policy – has used its broad-ranging, annual review of industry assistance, to telegraph concerns about the Turnbull government’s interventions in infrastructure, energy, and also restate its opposition to the re-regulation of the Queensland sugar industry.

Of the Naif – the Coalition’s flagship $5bn concessional loan scheme for projects in northern Australia – the commission warns a “lack of transparency to date and the promotion of certain projects by politicians in the absence of credible supporting investment data” has raised concerns about the viability of projects currently under consideration.

The commission’s report, released on Saturday, puts an explicit question mark over three projects that have been floated through media coverage – a rail line attached to the controversial Adani project from the Gallilee basin to Abbott Point, one or more irrigation dam projects in various locations in Northern Australia, and more “clean” coal power generation in north Queensland.

The commission notes that Adani has said publicly it doesn’t need the loan to build the rail link, which it says raises questions about whether it can satisfy core Naif criteria for a loan.

It says new dam construction would likely meet the Naif criteria, “however, based on experience with large water catchment activities in northern Australia, there is a real question of whether any new dams would be sufficiently commercial to be able to repay a loan”.

On the new coal-fired power station championed by federal Nationals, including the deputy prime minister, Barnaby Joyce, and the former resources minister, Matt Canavan, the commission notes “the commercial viability of coal generation has been questioned, particularly if a carbon price is introduced in the future”.

As well as the risks associated with new coal investments at a time when countries are looking to reduce their carbon emissions, the commission says regional development strategies, like the Naif investments, “can also result in long-term dependency on industry assistance”.

In more general commentary, it warns there is a “real danger” of programs like the Naif triggering escalations in industry assistance by governments, as governments plough more and more funds into regional development in order to prevent their flagship infrastructure investments becoming “white elephants”.

The commission says it is critical that the Naif ensure that the business case for all proposed investments is able to demonstrate an ability to cover their operational costs and the costs of servicing the loan at market rates in the future.

As well as putting a significant question mark over the activities of the Naif, the commission also warns governments against stepping in a piecemeal fashion into a policy vacuum of its own making in energy.

Identifying Snowy 2.0, the Weatherill plan, and possible new coal plants in Queensland, the commission notes it is uncertain whether the mooted investments will proceed, “but there is a risk that they will lead to the wrong infrastructure in the wrong place and the electricity consumer will end up paying higher prices as a result”.

It says current behaviour by governments exposes future generation of taxpayers to significant risk. “It is important that any proposals be carefully evaluated and that consideration be given to alternatives that might address emerging problems in the electricity market in a more efficient and less costly manner”.

“A risk, otherwise, is that future generations of taxpayers will be called on to foot the bill for precipitate responses to perceived crises now”.

“The more that market forces dictate what and where, the less likely that the investments will end up as white elephants”.

While the commission’s sharply worded criticisms are likely to fall on deaf ears in Canberra, the arguments about the Naif echo concerns previously raised by the progressive thinktank, the Australia Institute, which has argued the fund lacks resources and is not being transparent about its internal procedures.

The Australia Institute released a report in March arguing the Naif is behind other comparable government organisations in terms of process and disclosure, and in operational funding.

The Australian National Audit Office has flagged interest in examining the Naif’s independence and systems of analysis in response to complaints about a lack of transparency.

In May, officials from Infrastructure Australia told a Senate estimates hearing they had not identified the proposed rail line linking the controversial Adani coalmine with the Abbott Point port as a priority, nor discussed the Adani project with the Naif, even though the rail project has completed its preliminary assessment and been referred for further consideration.