Part 4: Financial statements (continued)

Notes to and forming part of the financial statements

Note 16: Financial Instruments
Note 16A: Categories of financial instruments

	2010  $'000	2009  $'000
Financial assets
Loans and receivables
Cash and cash equivalents	1,196	1,367
Trade receivables	2,601	3,014
Carrying amount of financial assets	3,797	4,381
Financial liabilities
Liabilities at amortised cost
Finance leases	40	233
Payables - suppliers	1,662	3,853
Other payables	7,602	3,753
Carrying amount of financial liabilities	9,304	7,839

Note: Implicit interest rate on finance leases for 2010 is 5.92 per cent (2009: 6.24 per cent).

Note 16B: Net income and expense from financial liabilities

	2010  $'000	2009  $'000
Liabilities at amortised cost
Interest expense	(35)	(94)
Net gain/(loss) financial liabilities - at amortised cost	(35)	(94)
Net gain/(loss) from financial liabilities	(35)	(94)

Note 16C: Net fair values of financial assets and liabilities

The net fair values of cash and noninterest bearing monetary financial assets approximate their carrying amounts.

The net fair values of the finance leases are based on discounted cash flows using current interest rates for liabilities with similar risk profiles. The Treasury enters into finance lease arrangements in relation to certain major office equipment assets.

The leases are noncancellable and for fixed terms averaging 2.75 years, with a maximum of 3.25 years. The Treasury guarantees the residual values of all assets leased and there are no contingent rentals.

The net fair values for trade creditors and other liabilities are approximated by their carrying amounts.

Note 16D: Credit risk exposures

The Treasury is exposed to minimal credit risk as loans and receivables are cash and trade receivables. The maximum exposure to credit risk is the risk that arises from potential default of a debtor.

This amount is equal to the total amount of trade receivables (2010: $2,601,481 and 2009: $3,014,090). The Treasury has assessed the risk of default on payment as being minimal.

Other government agencies and staff members make up the majority of the Treasury’s debtors.

To aid the Treasury to manage its credit risk there are internal policies and procedures that guide employees on debt recovery techniques that are to be applied.

The Treasury holds no collateral to mitigate against credit risk.

Credit quality of financial instruments not past due or individually determined as impaired

	Not past due nor impaired 2010 $'000	Not past  due nor  impaired 2009 $'000		Past due  or impaired 2010 $'000	Past due  or  impaired 2009 $'000
Loans and receivables
Cash and cash equivalents	1,196	1,367		-	-
Trade receivables	1,817	2,496		784	518
Total	3,013	3,863		784	518

Ageing of financial assets that are past due but not impaired for 2010

	0 to 30  days $'000	31 to 60  days $'000	61 to 90  days $'000	90+ days $'000	Total $'000
Loans and receivables
Trade receivables	688	87	-	9	784
Total	688	87	-	9	784

 

Ageing of financial assets that are past due but not impaired for 2009

	0 to 30  days $'000	31 to 60  days $'000	61 to 90  days $'000	90+  days $'000	Total $'000
Loans and receivables
Trade receivables	398	69	34	17	518
Total	398	69	34	17	518

 

Note 16E: Liquidity risk

The Treasury’s financial liabilities are payables and finance leases. The exposure to liquidity risk is based on the notion that the Treasury will encounter difficulty in meeting its obligations associated with financial liabilities.

This is highly unlikely due to the appropriation funding mechanisms available to the Treasury and internal policies and procedures put in place to ensure there are appropriate resources to meet its financial obligations.

The Treasury is appropriated funding from the Australian Government. The Treasury manages its budgeted funds to ensure it has adequate funds to meet paymen
ts as they fall due.

In addition, the Treasury has policies in place to ensure timely payments are made when due and has no past experience of default.

Maturity of financial liabilities

	On demand 2010 $'000	within1 year 2010 $'000	1 to 2 years 2010 $'000	2 to 5 years 2010 $'000	Total 2010 $'000
Liabilitites at amortised cost
Finance leases	-	40	-	-	40
Payables - suppliers	-	1,662	-	-	1,662
Other payables	-	7,595	5	2	7,602
Total	-	9,297	5	2	9,304
	On demand 2009 $'000	within 1 year 2009 $'000	1 to 2 years 2009 $'000	2 to 5 years 2009 $'000	Total 2009 $'000
Liabilitites at amortised cost
Finance leases	-	193	40	-	233
Payables - suppliers	-	3,853	-	-	3,853
Other payables	-	3,741	5	7	3,753
Total	-	7,787	45	7	7,839

 

Note 16F: Market risk

The Treasury holds only basic financial instruments that do not expose the department to certain market risks.

The only interestbearing items on the balance sheet are finance leases. All finance leases entered into bear interest at a fixed interest rate and will not fluctuate due to changes in the market interest rate.

Current implicit interest rate is 5.92 per cent (2009: 6.24 per cent).

Note 17: Income administered on behalf of Government

	2010  $'000	2009  $'000
Non-taxation revenue
Note 17A: Interest
Gross IMF remuneration	2,314	3,833
Less: Burden sharing	(78)	(86)
Add: Burden sharing refunds	-	-
Net IMF remuneration	2,236	3,747
Other interest	-	70
Total interest	2,236	3,817
Note 17B: Dividends
Reserve Bank of Australia	5,976,709	1,402,968
Total dividends	5,976,709	1,402,968
Note 17C: Sale of goods and rendering of services
GST administration fees - external entities	564,222	630,480
Guarantee Scheme for Large Deposits and
Wholesale Funding Fee	1,265,118	476,415
Guarantee of State and Territory Borrowing	101,647	-
Total sale of goods and rendering of services	1,930,987	1,106,895
Note 17D: COAG receipts from government agencies
Building Australia Fund receipts	411,000	1,005,000
Health and Hospital Fund receipts	117,925	109,200
Education and Innovation Fund receipts	28,724	-
Interstate road transport receipts	60,823	8,790
Non-government schools receipts	3,021,461	937,282
Total COAG receipts from government agencies	3,639,933	2,060,272
Note 17E: Other revenue
Write back of HCS Scheme	3,119	42,634
HIH Group liquidation proceeds	53,776	22,860
State cellar door subsidy savings	115,926	68,723
Other revenue	4,263	2,999
Total other revenue	177,084	137,216
Gains
Note 17F: Foreign exchange
IMF SDR allocation	289,805	-
IMF maintenance of value	1,136,045	-
IMF quota revaluation	(582,170)	-
IFIs revaluation	(55,445)
Other	2,626	-
Total net foreign exchange gains/(losses)	790,861	-
Note 17G: Other gains
Resources received free of charge	14,148	-
Total other gains	14,148	-
Total gains administered on behalf of Government	805,009	-
Total income administered on behalf of Government	12,531,958	4,711,168

Note 18: Expenses administered on behalf of Government

	2010  $'000	2009 $'000
Note 18A: Grants
Public sector:
State and Territory Governments	84,285,577	51,583,434
Payment of COAG receipts from government agencies	3,658,638	2,060,272
Other grants	30,000	(157)
Total grants	87,974,215	53,643,549
Note 18B:  Interest
IMF charges	11,413	14,265
Total Interest	11,413	14,265
Note 18C: Foreign exchange
IMF SDR allocation	-	102,292
IMF maintenance of value	-	996,192
IMF quota	-	(703,565)
Other	-	8,634
Total net foreign exchange losses/(gains)	-	403,553
Note 18D: Other expenses
HLIC claims1	(79)	(298)
OzCar Special Purpose Vehicle - impairment	4,922	-
Other expenses	9,975	66
Total other expenses	14,818	(232)
Total expenses administered on behalf of Government	88,000,446	54,061,135

1 HLIC claims expenses include an actuarial adjustment decreasing provision for insurance claims resulting in an offsetting negative expense.

Note 19: Assets administered on behalf of Government

	2010  $'000	2009 $'000
Financial assets
Note 19A: Cash and cash equivalents
Cash on hand or on deposits	4,063	8,230
Total cash and cash equivalents	4,063	8,230
Note 19B: Receivables
Guarantee Scheme for Large Deposits and  Wholesale Funding contractual fee receivable	2,840,078	2,660,585
Guarantee Scheme for Large Deposits and  Wholesale Funding fee receivable	106,442	83,730
Guarantee of State and Territory Borrowing contractual fee receivable	482,830	-
Guarantee of State and Territory Borrowing fee receivable	10,571	-
Net GST receivable from the ATO	33	9
HLIC premiums receivable	43	29
IMF related moneys owing	380	532
IMF maintenance of value	1,136,045	-
RBA dividend receivable	750,000	-
Total receivables (gross)	5,326,422	2,744,885
Receivables were aged as follows: Not overdue	5,326,422	2,744,885
Total receivables (gross)	5,326,422	2,744,885

 

Note 19: Assets administered on behalf of Government (continued)

	2010 $'000	2009  $'000
Note 19C: Investments
International financial institutions
Asian Development Bank	248,148	273,940
European Bank for Reconstruction and Development	89,698	91,288
International Bank for Reconstruction and Development	213,248	223,997
International Finance Corporation	55,531	58,330
Multilateral Investment Guarantee Agency	7,276	7,642
Total international financial institutions	613,901	655,197
Australian Government entities
Reserve Bank of Australia	11,144,000	18,502,000
Australian Reinsurance Pool Corporation	604,460	551,177
Total Australian Government entities	11,748,460	19,053,177
Total investments	12,362,361	19,708,374
Note 19D: Other investments
IMF quota	5,601,246	6,183,416
OzCar Special Purpose Vehicle1	-	-
Total Other Investments	5,601,246	6,183,416
Total investments and other investments	17,963,607	25,891,790
Total financial assets	23,294,092	28,644,905
Non-financial assets
Note 19E: Other
Prepayments - Infrastructure	57,346	-
Prepayments - GST payments to States and Territories	488,000
Total other	545,346	-
Total non-financial assets	545,346	-
Total assets administered on behalf of Government	23,839,438	28,644,905

1 An administered investment with a nil balance has been recorded to reflect the Australian Government’s control of the OzCar SPV.

Note 20: Liabilities administered on behalf of Government

	2010  $'000	2009   $'000
Note 20A: Loans
IMF promissory notes	4,830,790	3,834,696
Other promissory notes	52,103	54,729
Total loans	4,882,893	3,889,425
Payable:
Within one year	-	-
In one to five years
In more than five years	4,882,893	3,889,425
Total loans	4,882,893	3,889,425
Note 20B: Grants
COAG grants payable	395,306	558,917
Total grants	395,306	558,917
Total grants - are expected to be settled in:
No more than 12 months	395,306	558,917
More than 12 months	-	-
Total grants	395,306	558,917
Note 20C: Other payables
GST appropriation payable	33	9
IMF SDR allocation1	5,454,469	899,016
IMF maintenance of value	-	996,192
IMF related monies owing	2,213	651
OzCar Special Purpose Vehicle - Guaranteed liabilities	4,922	-
Other	9,210	1
Total other payables	5,470,847	1,895,869
Total other payables are expected to be settled in:
No more than 12 months	14,165	10
More than 12 months	5,456,682	1,895,859
Total other payables	5,470,847	1,895,869
Note 20D: Unearned income
Guarantee Scheme for Large Deposits and  Wholesale Funding contractual guarantee service obligation	2,840,078	2,660,585
Guarantee of State and Territory borrowing contractual guarantee service obligation	482,830	-
Total unearned income	3,322,908	2,660,585

1 The IMF allocated additional SDRs during the global financial crisis to increase the liquidity of member countries. This resulted in an increase in Australia’s SDR allocation of A$4.8 billion.

Note 20: Liabilities administered on behalf of Government (continued)

	2010  $'000	2009  $'000
Note 20E: Other provisions
Provision for insurance claims	-	79
Provision for HCS Scheme	30,540	38,227
Total other pro visions	30,540	38,306
Other provisions are expected to be settled in:
No more than 12 months	-	-
More than 12 months	30,540	38,306
Total other provisions	30,540	38,306
Tota liabilities administered on behalf of Government	14,102,494	9,043,102

Note 21: Administered reconciliation table

	Notes	2010  $'000	2009  $'000
Opening administered assets less
administered liabilities as at 1 July		19,601,802	12,457,772
Adjustment for change in accounting policies
- International Financial Institutions		-	(55,584)
Adjustment for change in accounting policies
- HIH Claims Support Limited		-	1,499
Adjusted opening administered assets
less administered liabilities		19,601,802	12,403,687
Plus administered income	17	12,531,958	4,711,168
Less administered expenses	18	(88,000,446)	(54,061,135)
Administered transfers to/from Australian Government:
Appropriation transfers from OPA:
Annual appropriations for administered expenses		30,742	615,825
Administered assets and liabilities appropriations		601	65,749
Special appropriations (limited)		-	-
Special appropriations (unlimited)		61,712,765	44,177,404
Special Account - COAG Reform Fund		26,324,449	5,928,084
Refunds of receipts (s28 FMA)		20	1
Transfers to OPA		(15,413,838)	(2,208,912)
Restucturing		253,604	-
Administered investments - gains/(losses)		(7,304,717)	7,969,931
Closing administered assets
less administered liabilities as at 30 June		9,736,944	19,601,802

Note 22: Administered contingent liabilities and assets

Quantifiable administered contingencies

Quantifiable administered contingencies that are not remote are disclosed in the schedule of administered items as quantifiable administered contingencies.

Unquantifiable administered contingencies

Contingent liabilities

Housing Loans Insurance Corporation — guarantee

The Australian Government sold HLIC on 12 December 1997 and has assumed all residual contingencies. The contingent liability relates to the HLIC’s contracts of mortgage insurance and any borrowings approved
by the Treasurer up to the time of sale. The principal amount covered by the guarantee and the balances outstanding cannot be determined accurately.

Terrorism insurance — Australian Reinsurance Pool Corporation

The Terrorism Insurance Act 2003 established a scheme for replacement terrorism insurance covering damage to commercial property including associated business interruption and public liability.
The Australian Reinsurance Pool Corporation (ARPC) uses reinsurance premiums paid by insurers to meet its administrative expenses and to build a reserve for claims and purchase retrocession to help meet future claims.
The Australian Government guarantees to pay any liabilities of the ARPC above the reserve for claims and retrocession placed by the ARPC,
but the Treasurer must declare a reduced payout rate to insured parties if the Australian Government’s liability would otherwise exceed $10 billion.

Commitment to the expanded IMF New Arrangements to Borrow (NAB)

Australia has made a line of credit available to the IMF under its NAB since 1998. In line with G20 Leaders’ commitments, Australia has agreed to join with other countries to increase its credit line under an expanded NAB.
Australia’s contribution to the expanded NAB will be by way of an SDR 4,370 million contingent loan (estimated value AUD$7.6 billion as at 30 June 2010), replacing Australia’s existing SDR 801 million commitment.
This will help ensure that the IMF has the resources available to maintain stability and support recovery in the global economy.
The funds would be drawn upon by the IMF only if needed and would be repaid in full with interest. The principal amount that may be called by the IMF cannot be determined accurately.

Grants to States and Territories

As the Treasury has responsibility for all payments to the states and territories under the Federal Financial Relations Framework there may exist contingent liabilities which are remote and unquantifiable in relation
to some agreements between the relevant agency with policy responsibility and the states and territories.
Whilst the Treasury does not bear the risk of the contingent event, the resultant payment would be made by the Treasury under the Federal Financial Relations Framework.

Standby loan facility for the Government of Indonesia

Australia has made up to US$1 billion (estimated value AUD$1.17 billion, as at 30 June 2010) available to the Government of Indonesia in the form of a standby loan facility,
to be drawn down should Indonesia be unable to raise sufficient funds on global capital markets due to the impact of the global financial crisis.
The facility was announced in December 2008 and will continue to be available until the end of 2010.
A drawdown f
rom the facility will be dependent on a request from the Indonesian Government and subject to certain criteria being met.
Any funds provided would be repaid in full. Contributions to the standby loan facility will also be provided by the World Bank, the Asian Development Bank and the Government of Japan.
As at 30 June 2010 Indonesia has not requested any drawdown on the facility. Indonesia is being offered the loan at Australia’s cost of borrowing which is lower than their own.
As such the loan will be considered concessional if it is drawn down by Indonesia.
The concessional component of the loan cannot be determined accurately and as such is classified as an unquantifiable contingent liability.

Contingent assets

HIH Claims Support Scheme

As the beneficiary of the HIH Claims Support Trust, the Australian Government is entitled to the residual balance of the Trust, after the collection of recoveries.
Due to the inherent uncertainty of future recoveries, it is not possible to quantify these amounts accurately.
During 2009-10 the Treasury received distributions from the Trust, however the amount and timing of future recoveries and subsequent distributions are unknown.

International Monetary Fund

Since 1986, the IMF has used its burden sharing mechanism to make up for the loss of income from unpaid interest charges on the loans of debtor members and to accumulate precautionary balances in a Special Contingent
Account to protect the IMF against losses arising from the failure of a member to repay its overdue principal obligations.

The mechanism works by providing for additions to the rate of charge on IMF loans and deductions to the rate of remuneration for creditor members such as Australia.
Resources collected from individual members under the burden sharing mechanism are refundable to them as arrears cases are resolved, or as may be decided by the IMF.
Thus, resources collected for unpaid charges are refunded when these charges are eventually settled.

Likewise, precautionary balances held in the Special Contingent Account would be distributed back to members in proportion to their cumulative contributions when there are no overdue charges or principal balances.
The IMF could also decide to make an early distribution. 

As there is considerable and inherent uncertainty around the timing and amounts of burden sharing to be refunded to Australia this contingent asset cannot be reliably measured and as such is recorded as an unquantifiable contingent asset.

Significant remote administered contingencies

Guarantees

The following borrowings have been guaranteed by the Australian Government within the Treasury portfolio:

Borrower	Legislation authorising guarantee	Principalcovered by guarantee 2010 $'000	Balance outstanding 2010 $'000	Balance outstanding 2009 $'000
Papua New Guinea	Papua New Guinea 1949 Papua New Guinea 1975 Papua New Guinea Loans Guarantee Act 1975	3,880	3,880	4,480
Commonwealth Bankof Australia1	Commonwealth Bank ofAustralia Act 1959 s117	900,000	900,000	1,800,000
Commonwealth Bank of Australia - Officers Superannuation Corporation1	Commonwealth Bank of Australia Act 1959 s117	3,602,000	3,602,000	3,600,000
Financial Claims Scheme	Banking Act 1959 s70C	690,000,000	690,000,000	660,000,000
Guarantee Scheme for Large Deposits and Wholesale Funding	Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Act 2008	162,953,390	162,953,390	139,885,000
Guarantee of State and Territory  Borrowing	Guarantee of Stateand Territory Borrowing Appropriation Act 2009	69,751,850	69,751,850	-
OzCar Special  Purpose Vehicle2	Car Dealership Financing Guarantee Appropriation Act 2009	139,985	139,985	-
Reserve Bank of Australia1	Reserve Bank of Australia Act 1959 s77	57,845,000	57,845,000	76,965,000
Total		985,196,105	985,196,105	882,254,480

1. Under the terms of the Commonwealth Bank Sale Act 1995 , the Australian Government has guaranteed various liabilities of the Commonwealth Bank of Australia (CBA),
   and the Commonwealth Bank Officers’ Superannuation Corporation (CBOSC). The guarantee for the CBA relates to both on and off balance sheet liabilities.
   The guarantee of the CBOSC covers the due payments of any amount that is payable to or from Officers’ of the Superannuation Fund (the Fund), by CBOSC or by CBA,
   in respect of a person who was a member, retired member or beneficiary of the Fund immediately before 19 July 1996.
   The guarantee of the CBA and CBOSC reflected in the above table is the value at 31 December 2009.
2. The OzCar SPV had guaranteed liabilities of $140 million as at 30 June 2010. However, the SPV also held $136 million is available in cash assets — refer to Note 1.27 for more information.
3. The contingent liability for the RBA, relates to the Australian Government’s guarantee of the liabilities of the RBA. It is measured as the Bank’s total liabilities excluding capital, reserves,
   the Bank’s distribution to the Commonwealth and Australian Government deposits.
   The major component of the Bank’s liabilities are notes (that is, currency) on issue. As at 30 June 2010, notes on issue totaled $48.8 billion.

Financial Claims Scheme

 

The Australian Government has established a Financial Claims Scheme to provide depositors of authorised deposittaking institutions and general insurance policyholders with timely access to their funds in the event of a financial institution failure.

The Australian Prudential Regulation Authority (APRA) is responsible for the administration of the Financial Claims Scheme. Under the Financial Claims Scheme any payments to eligible depositors or
general insurance policyholders will be made out of APRA’s Financial Claims Scheme Special Account.

The Early Access Facility for Depositors established under the Banking Act 1959 provides a mechanism for making payments to depositors under the Government’s guarantee of deposits in authorised deposittaking institutions.
The Government announced that, from 12 October 2008, deposits up to $1 million at eligible authorised deposittaking institutions would be eligible for coverage under the Financial Claims Scheme.
This $1 million cap will continue until October 2011.

As at 30 June
2010, deposits eligible for coverage under the Financial Claims Scheme were estimated to be approximately $690 billion.

The Policyholder Compensation Facility established under the Insurance Act 1973 provides a mechanism for making payments to eligible beneficiaries with a valid claim against a failed general insurer.
Amounts available to meet payments and administer this facility, in the event of activation, are capped at $20 billion per failure for payments to insurance claimants and
$100 million for Financial Claims Scheme administration expenses under the legislation.

Any payments made under the Financial Claims Scheme would be recovered through the liquidation of the failed institution. If there were a shortfall, a levy would be applied to industry to recover the difference
between the amount expended and the amount recovered in the liquidation.

 

Guarantee Scheme for Large Deposits and Wholesale Funding

 

The Australian Government announced the guarantee of eligible deposits and wholesale funding for authorised deposittaking institutions from 12 October 2008 under the Guarantee Scheme for Large Deposits and Wholesale Funding.

On 7 February 2010, the Government announced the closure of the Guarantee Scheme from 31 March 2010. Since then, Australian authorised deposittaking institutions have been prohibited from issuing any new guaranteed
wholesale funding or accepting new guaranteed deposits above $1 million. Existing guaranteed wholesale funding is guaranteed to maturity.
Depositors who covered their balances above $1 million under the Guarantee Scheme can have those funds covered to maturity for term deposits up to five years, or until October 2015 for at call deposits.

The expected liability for deposits under the Guarantee Scheme is remote and unquantifiable. Australia’s financial system is considered among the strongest and best regulated in the world. Authorised deposittaking institutions are
subject to prudential regulation by APRA in accordance with international standards, which are designed to ensure that financial institutions have the capacity to meet their financial obligations.
This framework requires institutions to be adequately capitalised and have appropriate risk management systems in place.

Government expenditure would arise under the large deposit guarantee only in the unlikely event that an institution failed to meet its obligations with respect to a commitment that was subject to the guarantee and the guarantee
was called upon. In such a case, the Government would likely be able to recover any such expenditure through a claim on the relevant institution.
The impact on the Government’s budget would depend on the extent of the institution’s default and its ability to meet the Government’s claim.

As at 30 June 2010, total liabilities covered by the Guarantee Scheme were estimated at $163 billion, including $6.6 billion of large deposits and $156.4 billion of wholesale funding.

Guarantee of State and Territory Borrowing

The Australian Government announced on 25 March 2009 that a voluntary and temporary guarantee would be put in place over state and territory borrowing. The Guarantee of State and Territory Borrowing commenced on 24 July 2009.

The guarantee will close to new issuances of guaranteed liabilities on 31 December 2010. Securities covered by the guarantee will continue to be guaranteed until these securities either mature or are bought back and extinguished by the issuer.

The expected liability under the guarantee is remote and unquantifiable. Government expenditure would arise under the guarantee only in the unlikely event that a State or Territory failed to meet its obligations with respect to a
commitment that was subject to the guarantee and the guarantee was called upon.
In such a case, the Government would likely be able to recover any such expenditure through a claim on the relevant State or Territory at a future date. The impact on the Government’s budget would depend upon the extent of the default and the State or Territory’s ability to meet the Government’s claim.

As at 30 June 2010, the face value of state and territory borrowings covered by the guarantee was $69.8 billion.

OzCar Special Purpose Vehicle

The OzCar SPV was established as a trust on 2 January 2009 to provide liquidity to eligible car dealers who may have been left without wholesale floor plan financing as a result of the proposed departure of GE Money Motor
Solutions and GMAC from the Australian market following the onset of the global financial crisis. As at 30 June 2010, the face value of borrowings covered by the OzCar SPV guarantee was $140 million.
However, as referred to in Note 1, the Treasury has assessed the financial position of the Trust and recorded a liability of $4.9 million representing the expected call on the Government’s guarantee.

Note 23: Administered investments

The principal activities of each of the Treasury’s administered investments are as follows:

Development Banks

The European Bank for Reconstruction and Development (EBRD) was established in 1991 to assist postcommunist, democratic, eastern European countries develop their private sector and capital markets.
The EBRD now has operations in 29 countries in Europe and central Asia. It provides project financing for banks, industries and businesses, both new ventures and investments in existing companies.
It also works with publicly owned companies, to support privatisation, restructuring stateowned firms and improvement of municipal services.
The EBRD uses its close relationship with governments in the region to promote policies that will bolster the business environment.

The Asian Development Bank (ADB) was established in 1966 and has a mandate to reduce poverty and promote general development in its developing member countries.
The ADB does this by financing (through a mix of loans, grants, guarantees and cofinancing activities with both other donors and the private sector) public sector and private sector activities.
It also provides technical assistance to developing member countries so they can improve their policy and business investment environments. A significant portion of the ADB’s activities are focused in the infrastructure and energy sectors.

The World Bank was established in 1944 and comprises the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC) and the
Multilateral Investment Guarantee Agency (MIGA). The IBRD provides financing and technical assistance to middle income countries and lends on harder terms than the IDA.
The IDA provides concessional finance and technical assistance to low income countries. The IFC supports the development of the private sector by providing direct finance to private sector operations.
MIGA provides guarantee services for projects, which reduce the risks for other cofinancing partners including the private sector.

International Monetary Fund

The IMF is an organisation of 187 countries, working to foster global monetary cooperation and exchange rate stability, facilitate the balanced growth of international trade, and provide resources to help members in balance of
payments difficulties or to assist with poverty reduction. The IMF undertakes surveillance and annual economic assessments, and provides technical assistance to developing countries.

Australian Government entities

The Australian Government’s investment in controlled entities and companies in the Treasury portfolio are measured at their fair value. Fair value has been taken to be the net assets of the entities as at balance date.

OzCar Special Purpose Vehicle

The OzCar SPV was established a
s a trust on 2 January 2009 to provide liquidity to eligible car dealers who may have been left without wholesale floor plan financing as a result of the proposed departure of GE Money Motor
Solutions and GMAC from the Australian market following the onset of the global financial crisis. The Commonwealth has guaranteed the borrowings of the OzCar SPV.
As at 30 June 2010, the OzCar SPV has total assets of $136.3 million and total liabilities of $140.8 million.

Note 24. Administered Financial Instruments
Note 24A: Categories of financial instruments

	2010 $'000	2009 $'000
Loans and receivables
Cash and cash equivalents	4,063	8,230
IMF related moneys owing	380	532
Guarantee Scheme for Large Deposits and Wholesale Funding contractual fee receivable	2,840,078	2,660,585
Guarantee Scheme for Large Deposits and Wholesale Funding fee receivable	106,442	83,730
Guarantee of State and Territory Borrowing contractual fee receivable	482,830	-
Guarantee of State and Territory Borrowing fee receivable	10,571	-
Net GST receivable from the ATO	33	9
IMF maintenance of value	1,136,045	-
RBA dividend receivable	750,000	-
Other receivable	43	29
	5,330,485	2,753,115
Available for sale financial assets
International financial institutions	613,901	655,197
Australian Government entities	11,748,460	19,053,177
IMF Quota	5,601,246	6,183,416
	17,963,607	25,891,790
Carrying amount of financial assets	23,294,092	28,644,905
Financial liabilities
At amortised cost
Promissory notes	4,882,893	3,889,425
Grant liabilities	395,306	558,917
IMF SDR allocation liability	5,454,469	899,016
Other payables	16,345	652
IMF maintenance of value	-	996,192
Guarantee Scheme for Large Deposits and
Wholesale Funding contractual guarantee
service obligation	2,840,078	2,660,585
Guarantee of State and Territory Borrowing
contractual guarantee service obligation	482,830	-
GST appropriation payable	33	9
Other liabilities	30,540	38,306
	14,102,494	9,043,102
Carrying amount of financial liabilities	14,102,494	9,043,102

Note 24. Administered Financial Instruments
Note 24B: Net income and expenses from financial assets

	2010  $'000	2009  $'000
Loans and receivables
Guarantee Scheme for Large Deposits and Wholesale Funding fee	1,265,118	476,415
Guarantee of State and Territory Borrowing	101,647	-
Interest revenue	-	70
Net gain/(loss) loans and receivables	1,366,765	476,485
Available for sale financial assets
Interest revenue	2,236	3,747
Exchange gain/(loss)	498,430	(292,627)
Net gain/(loss) available for sale financial assets	500,666	(288,880)
Net gain/(loss) from financial assets	1,867,431	187,605

Note 24C: Net income and expenses from financial liabilities

	2010  $'000	2009  $'000
Financial liabilities - at amortised cost
IMF charges	(11,413)	(14,265)
Exchange gain/(loss)	292,431	(110,926)
Net gain/(loss) financial liabilities - at amortised cost	281,018	(125,191)
Net gain/(loss) from financial liabilities	281,018	(125,191)

 

Note 24D: Net fair value of financial assets and liabilities

The net fair values of the Treasury’s administered financial instruments are equal to the
carrying amount. The net fair value of financial assets and liabilities are classified into three levels as follows:

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 — inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 — inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Treasury has no Level 1 administered financial assets or liabilities in 2009-10 and 2008-09.

The net fair value of cash and cash equivalents, Net GST receivable from the ATO and GST appropriation payable are not included in the following tables.

Note 24D: Net fair value of financial assets and liabilities (continued)

	Level 2 in the fair value hierarchy
	2010  $'000	2009  $'000
Financial assets at fair value - Level 2
Loans and receivables
Guarantee Scheme for Large Deposits and
Wholesale Funding fee receivable	106,442	83,730
Guarantee of State and Territory Borrowing
fee receivable	10,571	-
IMF related moneys owing	380	532
IMF maintenance of value	1,136,045	-
RBA dividend receivable	750,000	-
HLIC premiums receivable	43	29
	2,003,481	84,291
Carrying amount of financial assets - Level 2	2,003,481	84,291
Financial liabilities at fair value - Level 2
At amortised cost
Promissory notes	4,882,893	3,889,425
Grant liabilities	395,306	558,917
IMF SDR allocation	5,454,469	899,016
IMF maintenance of value	-	996,192
IMF related monies owing	2,213	651
OzCar Special Purpose Vehicle - Guaranteed liabilities	4,922	-
Other payables	9,210	1
	10,744,091	6,344,202
Carrying amount of financial liabilities - Level 2	10,744,091	6,344,202

Note 24D: Net fair value of financial assets and liabilities (continued)

	Level 3 in the fair value hierarchy
	2010   $'000	2009  $'000
Financial assets at fair value - Level 3
Loans and receivables
Guarantee Scheme for Large Deposits and  Wholesale Funding contractual fee receivable	2,840,078	2,660,585
Guarantee of State and Territory Borrowing contractual fee receivable	482,830	-
	3,322,908	2,660,585
Available for sale financial assets
International financial institutions	613,901	655,197
Australian Government entities	11,748,460	19,053,177
IMF quota	5,601,246	6,183,416
	17,963,607	25,891,790
Carrying amount of financial assets - Level 3	21,286,515	28,552,375
Financial liabilities at fair value - Level 3
At amortised cost
OzCar Special Purpose Vehicle - Guaranteed liabilities	4,922	-
Guarantee Scheme for Large Deposits and  Wholesale Funding contractual guarantee service obligation	2,840,078	2,660,585
Guarantee of State and Territory Borrowing contractual guarantee service obligation	482,830	-
Other provisions	30,540	38,306
	3,358,370	2,698,891
Carrying amount of financial liabilities - Level 3	3,358,370	2,698,891

 

There was no transfer of financial assets or liabilities between Level 1 and Level 2 in 2009-10 or 2008-09.

	Loans and receivables
	2010  $'000	2009  $'000
Financial assets at fair value - Level 3
Opening balance	2,660,585	-
Issues	662,323	2,660,585
Closing balance	3,322,908	2,660,585

Note 24D: Net fair value of financial assets and liabilities (continued)

	Available for sale financial assets
	2010  $'000	2009  $'000
Financial assets at fair value - Level 3
Opening balance	25,891,790	17,273,878
Adjustment for change in accounting policy	-	(55,584)
Total gains or losses for the period recognised
in profit or loss1	(623,466)	703,565
Total gains or losses recognised in other
comprehensive income2	(7,304,717)	7,969,931
Closing balance	17,963,607	25,891,790

1 These gains and losses are presented in the schedule of administered items under other gains, net foreign exchange gains and Net foreign exchange losses.

2 These gains and losses are presented in Note 21: Administered reconciliation table.

	At amortised cost
	2010  $'000	2009   $'000
Financial liabilities at fair value - Level 3
Opening balance	2,698,891	144,793
Total gains or losses for the period recognised
in profit or loss3	1,803	(42,664)
Issues	662,323	2,660,585
Settlements	(4,647)	(63,823)
Closing balance	3,358,370	2,698,891

3 These gains and losses are presented in the schedule of administered items under other expenses.

 

Note 24E: Credit risk exposure

The maximum exposure to credit risk of the Treasury’s administered financial assets is the carrying amount of ‘loans and receivables’ (2010: $5,330,485,000 and 2009: $2,753,115,000) and the carrying amount of ‘available for sale
financial assets’ (2010: $17,963,607,000 and 2009: $25,891,790,000).

However, the international financial institutions that the Treasury holds its financial assets with, hold a minimum of AA credit ratings. The contractual fee receivable arising from the Guarantee Scheme for Large Deposits and
Wholesale Funding and Guarantee of State and Territory Borrowing that the Treasury holds relates only to prudentially regulated authorised deposittaking institutions and State and Territory Governments.
These entities hold a minimum of AA credit ratings, therefore the Treasury does not consider any of its financial assets to be at risk of default.

Note 24F: Liquidity risk

The Treasury’s administered financial liabilities are promissory notes, grant liabilities, the IMF SDR allocation and HIH and HLIC provisions. The contractual guarantee service obligation arising from the Guarantee Scheme for Large Deposits and Wholesale Funding and State and Territory Borrowing are not included as there are no liquidity risks associated with these item. They are contingent on the value of the associated contractual fee receivable. The exposure to liquidity risk is based on the notion that the Treasury will encounter difficulty in meeting its obligations associated with administered financial liabilities. This is highly unlikely due to appropriation funding through special appropriations and nonlapsing capital appropriations as well as internal policies and procedures put in place to ensure there are appropriate resources for the Treasury to meet its financial obligations. The following tables illustrate the maturities for financial liabilities:

	On demand  2010   $'000	Within 1 year   2010  $'000	1 to 2 years  2010  $'000	2 to 5 years  2010  $'000	> 5 years   2010   $'000	Total   2010  $'000
Promissory notes	-	-	-	-	4,882,893	4,882,893
Grant liabilities	-	395,306	-	-	-	395,306
IMF SDR allocation liability	-	-	-	-	5,454,469	5,454,469
Other payables	16,345	-	-	-	-	16,345
Other liabilities	30,540	-	-	-	-	30,540
Total	46,885	395,306	-	-	10,337,362	10,779,553
	On demand   2009  $'000	Within 1 year   2009  $'000	1 to 2 years   2009   $'000	2 to 5 years   2009  $'000	> 5 years&nb sp; 2009  $'000	Total  2009   $'000
Promissory notes	-	-	-	-	3,889,425	3,889,425
Grant liabilities	-	558,917	-	-	-	558,917
IMF SDR allocation liability	-	-	-	-	899,016	899,016
Other payables	652	-	-	-	-	652
Other liabilities	38,306	-	-	-	-	38,306
Total	38,958	558,917	-	-	4,788,441	5,386,316

Note 24G: Market risk

Foreign currency risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. The Treasury is exposed to foreign exchange

currency risk primarily through undertaking certain transactions denominated in foreign currency.

The Treasury is exposed to foreign currency denominated in USD, EUR and SDR.

The following table details the effect on the profit and equity as at 30 June 2010 from a 14 per cent (30 June 2009 from a 10 per cent) favourable/unfavourable change in AUD against the Treasury with all other variables held constant.

			Effect on
Risk variable	Change in  risk variable  per cent		Profit and loss   2010  $'000	Equity   2010  $'000
IFI Investments	14.00%		75,391	75,391
IFI Investments	-14.00%		(99,937)	(99,937)
IMF related moneys owing	14.00%		(47)	(47)
IMF related moneys owing	-14.00%		62	62
Quota	14.00%		(687,872)	(687,872)
Quota	-14.00%		911,831	911,831
Promissory notes	14.00%		6,399	6,399
Promissory notes	-14.00%		(8,482)	(8,482)
IMF allocation liability	14.00%		669,847	669,847
IMF allocation liability	-14.00%		(887,937)	(887,937)
Other liabilities	14.00%		272	272
Other liabilities	-14.00%		(360)	(360)
			Effect on
Risk variable	Change in risk variable per cent		Profit and loss  2009  $'000	Equity  2009  $'000
IFI Investments	10.00%		59,563	59,563
IFI Investments	-10.00%		(72,800)	(72,800)
IMF related moneys owing	10.00%		(48)	(48)
IMF related moneys owing	-10.00%		59	59
Quota	10.00%		(562,129)	(562,129)
Quota	-10.00%		687,046	687,046
Promissory notes	10.00%		4,975	4,975
Promissory notes	-10.00%		(6,081)	(6,081)
IMF allocation liability	10.00%		81,729	81,729
IMF allocation liability	-10.00%		(99,891)	(99,891)
Other liabilities	10.00%		59	59
Other liabilities	-10.00%		(72)	(72)

The sensitivity analysis of the Treasury’s exposure to foreign currency risk at the reporting date has been determined by the Department of Finance and Deregulation based on the five main currencies (USD, EUR, GBP, JPY and NZD) the Commonwealth is exposed to.

The Guarantee Scheme for Large Deposits and Wholesale Funding and State and Territory Borrowing contractual obligation liabilities represents Treasury’s obligation to provide a guarantee service to authorised deposit-taking
institutions and State and Territory governments. These obligations will always be mirrored by the Guarantee Scheme for Large Deposits and Wholesale Funding and State and Territory Borrowing contractual fee receivables.