Courting controversy over PPP report

Kenneth Davidson, October 30, 2006

WITH public-private partnerships, the devil is in the detail. In Parliament's Public Accounts and Estimates Committee report on PPPs, 30 pages that referred to specific PPP contracts were removed from an earlier draft of the report before it was tabled in Parliament among a flood of reports on the final day of sitting before November 25.

Why committee chairwoman Christine Campbell would agree to the deletion of the most sensitive part of the report is understandable. She is a former minister in the Bracks Government and is believed to be a contender for the position of Speaker of the Legislative Assembly if the Bracks Government is returned to office.

What hasn't been explained is why none of the other members of the nine-member committee didn't complain publicly and loudly about the censored report.

The shadow treasurer, Robert Clark, was responsible for the Opposition's acquiescence to removal of the most important and damaging section of the report.

Clark could have insisted on the relevant pages being re-incorporated into the report or, if the Government members used their numbers to support the position taken by Campbell, exercised the Opposition's right to produce a minority report.

Clark did not take the opportunity to point out the Government's cavalier attitude to spending taxpayers' money by insisting on the inclusion of the details of contracts such as the County Court redevelopment, Southern Cross Station redevelopment and the already highly sensitive buyback of government concession notes worth some $2.2 billion for $900 million from the operators of CityLink to gift the franchisees a return of 11 per cent.

In a telephone interview with Clark last week, he said he wasn't prepared to fight Campbell over the excised pages because from the time she showed the censored draft to the committee to the time it had to be printed to be tabled in Parliament, the committee had no opportunity to check whether the pages were "factually correct". Had they not been, the Opposition may have been "exposed to criticism".

The important thing, said Clark, was that the report contained the recommendations that the Opposition wanted, and it was important to get these out. Maybe. It is worth noting that the inquiry into PPPs extended over two parliaments and committee members also travelled to Europe and interstate in pursuit of the report's findings.

At the very least, committee members should have complained about the behaviour of Campbell, who sat on the edited draft report for more than a month before showing it to the committee — too late for members to read, digest and question what they were expected to sign off in the report.

The behaviour of Campbell, and the lazy, mushroom-like acquiescence of the committee members, makes a mockery of the recommendation on governance, evaluation and accountability arrangements, which stated the Government should "improve opportunities for parliamentary oversight of public-private partnership financial arrangements and commitments".

The contempt that executive government holds for parliament is summed up in the contrast between the committee recommendation that "long-term peppercorn leases extending beyond the concession period should not be given to a private consortium, unless it can be clearly demonstrated that there is a public benefit" and a study by Ernst & Young.

The latter was designed to promote more property PPPs such as the County Court, in which four of the participants were bureaucrats from the departments of Human Services, Infrastructure and Treasury and Finance.

The peppercorn lease recommendation only makes sense against the details of the County Court PPP contract discussion that was censored from the committee report. Fortunately, the main elements of the contract can be put together from official documents.

These show that the private partner (project financier ABN Amro) was given a 99-year lease on the site on the corner of Lonsdale Street and William Street for a peppercorn rental of $1 for 99 years. In return, it was required to build and operate the County Court, to be leased to the Government over 20 years for $533 million, for a structure that cost $140 million to build.

At the end of the lease period, the Government will have nothing. If the Government in 2022 decided to buy an equivalent building, it would cost about $500 million, given the inflation in land and building costs.

By contrast, the owners of the County Court will have a building with a depreciated value of $108 million on prime land in the CBD-leased site for a further 79 years, for a peppercorn rent.

The deal is a scandalous waste of taxpayers' money, and the major beneficiary was the Packer family's Challenger Financial Services Group.

Contrast this with the Ernst & Young report, which said this property deal "ranks as one of the most innovative … the state purchases court facilities on the basis of time used, i.e. the volume risk is transferred to the private sector, and the facility does not revert back to the state at the end of the contract, i.e. residual risk is also transferred".

Yes, you read correctly. Taxpayers have been spared the risk of having a redundant building on their hands if crime abates. (In that unlikely event, wouldn't the rational response be to sell the site, which would probably be worth some $300 million?)

The mind boggles at the possibility of negative property values emerging in the CBD in the next 20 years. It is only conceivable in the context of events so terrible and so remote that the negative value of the property would be trivial by comparison, if it registered at all.

kdavidson@theage.com.au