MARJORIE JACKSON-NELSON HOSPITAL

Mr GRIFFITHS (Goyder) (14:48): My question is to the Treasurer and it leads on from his recent answer. Is there an estimated change to the cost of the Marjorie Jackson-Nelson Hospital as a result of the higher returns now demanded by public-private partnership consortia? ABN AMRO's head of finance, Mr John Martin, said publicly yesterday that global infrastructure investors expect a much higher rate of return—in the vicinity of 15 per cent to 20 per cent compared to about 12 per cent a year ago.

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (14:48): I think I have just said that. You have two factors. One is that just getting the capital was going to be a challenge. As I said, one would hope that by 2010 it is not a challenge and, if it is still a challenge in 2010, the least of our worries will be whether or not this is a PPP or a direct build. We will have a lot of other budgetary and financial issues to try to grapple with. But it is not surprising that the private investors will want a higher return for the risk involved in borrowing capital and investing capital in these projects.

One of the factors of a financial crisis is that the cost of risk has risen, that people perhaps are now more appropriately pricing risk and what they expect to get as a return. One of the reasons that we have what we have in the world today is that there was no appreciation of what risk was. There was no proper pricing of risk. There was no understanding of risk and people did not care about risk. They just belted money out by the shovel load to people, packaged them up into derivatives; those derivatives were then on-sold to unsuspecting, gullible or naive retail investors, and many of these transactions were off-balance sheet from the finance companies involved. The number given was as much as $US40 trillion of derivatives on the back of shoddy and shonky, unsustainable and unsupported loans put out into the market primarily by US lenders, but certainly by some European lenders.

It comes back to the PPP. The delivery for a piece of public infrastructure by a PPP is not the issue; it is not the be all and end all. The decision to build a new piece of capital works is the primary issue and, having done that, one way you would deliver these projects is through a PPP, and there are a lot of pluses as to why you would do a PPP. But, if circumstances change, and the availability and cost of capital and the risk premium that people want to apply to these transactions increases, making it more expensive than doing a direct government procurement, you would do a direct government procurement.

Mr Hamilton-Smith: Well, tell him, because he is saying—

The SPEAKER: Order! The Leader of the Opposition will come to order.

The Hon. K.O. FOLEY: It is not rocket science. We will do what is the best delivery model based on fair value and value for money for taxpayers. That is exactly what your government did when it initially embarked on the project to build court houses and police stations. In the embryonic stage, the Minister for Infrastructure took carriage of that project, but you wrote the guidelines. The guidelines were that you do a PPP and sign up to a PPP, provided that it meets—or betters, at least—the public sector comparator, otherwise why would you do it? That will be the same with the hospital, it will be the same with the prisons, and it is the case with the schools.