House of Assembly Fifty-First Parliament, Third Session (51-3) 51 3 Parliament of South Australia House of Assembly published Question Time Royal Adelaide Hospital ROYAL ADELAIDE HOSPITAL Mr HAMILTON-SMITH House of Assembly Waite Leader of the Opposition ROYAL ADELAIDE HOSPITAL Mr HAMILTON-SMITH (Waite—Leader of the Opposition) (14:46): My question is to the Treasurer. Has the government further shifted its position on the proposed funding arrangement for the hospital at the rail yards from a public-private partnership financing arrangement to a government debt and build model? On 28 June 2007 during budget estimates the Treasurer said: All this debate about debt becomes irrelevant. The debt is held by the private sector, and we effectively take a long-term lease payment over it. The Treasurer has since advised that there will be a mix of PPP and government funding, but on 26 May the Treasurer stated publicly: The infrastructure around rail electrification and the extensions of rail (in partnership with the Rudd government), new hospitals, desalination plants, these major projects, will be funded by debt, and that is a good thing. The Hon. K.O. FOLEY House of Assembly Port Adelaide Deputy Premier Minister for Industry and Trade Minister for Federal/State Relations ROYAL ADELAIDE HOSPITAL The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (14:47): I am not quite sure that I follow that. The rail project is funded as a government debt/state government build project. The desalination plant will be a publicly-funded, debt-financed utility built by the private sector and maintained and operated by the private sector. The hospital's $220 million research facility, which the minister has been an absolute champion of and for, together with the professionals in this sector, will be debt funded on the rail yard site. As for the government's hospital in itself, as we first said, if I can recap, we have always wanted that to be a private sector public-private partnership provided that it met the value for money test. The very first thing you do in all these exercises is that you see whether or not you get value for money by engaging the private sector, or whether you get better value for money by doing it as a government build project. That method is used in all PPPs by all sides of politics since they have been utilised in government. What has occurred, of course, since my first statements and the minister's first statements on this is the global financial crisis. That has meant that capital has dried up globally, and even state governments have been in some serious difficulty in terms of raising their capital needs to borrow as a state government to build capital infrastructure. Indeed, the state of Queensland led the argument and the request that the commonwealth provide its banking guarantee behind state governments for our bond issuances to ensure that we can get them away in the marketplace given that the commonwealth was already there. I might just add to that, at this stage, and I said this in a press conference recently, what we are seeing is an improvement in global capital markets. Now, whether or not this will be the beginning of recovery (the green shoots theory) or whether it is just a temporary aberration and the capital markets continue to remain constrained, we will not know for some months. We are seeing—certainly in Australia—a significant improvement in the ability of various entities to raise capital. I think the ANZ Bank itself has recently got away quite a sizeable placement. From this state government's point of view, we are not, at this stage, of a need to utilise the commonwealth guarantee. We are able, at this stage, to source our borrowing needs without paying the premium of the commonwealth guarantee. It is nice to know that it is there if it gets tough to borrow, but at this stage, with what would appear to be the loosening and beginning of the proper functioning of world capital markets, that may not be needed. What does this mean for the hospital? The hospital is $1.7 billion. One would want at least two, and preferably three, good solid, strong consortia to bid, so that you have that competitive tension. What has concerned the government, and I have articulated this in a number of forums, I think, including this place, is that the ability, certainly of a couple of months ago, and probably even just a month ago, for two or three consortia to raise, separately, their own parcel of $1.7 billion would be very difficult, and certainly in the early part of this year, at that particular point, nigh on impossible. What we are doing is we are going to the expression of interest in the very near future and we will be asking for consortia that have formed, or are forming, to provide some information on their finance and capabilities in the EOI. I am hopeful that over the next few months, as we go through this process, the world capital markets will get back to proper functioning and the full $1.7 billion can be provided by the capital markets. If that is not the case, the option that the government does have, which is a variation of an option that was used up in Queensland, I think, where Queensland had trouble getting the private sector to be able to get away much more than $300 million or $400 million, they actually had their own financing authority provide a large proportion of capital to the private consortia. We will look at, but only if necessary, a capital contribution from the state if there is an overall difficulty in raising the sum total. What does that mean for the project? What it would mean is that the rental stream from the private operator would be discounted by the value of the equity grant to the project, but whatever we did, it would be, in my opinion, a no-strings-attached grant so that the risk still stayed with the private sector. We have a number of models. We have had the Royal Bank of Canada giving us advice, from memory, on the various options available. They are options that are being used in other states. But I am quietly hopeful, given the period that it will take to take this project through to tender, that by the time we get to selecting the successful consortia or downsizing the list to a competitive three there will be a return to normality of global markets and we will get this project away fully financed by the private sector.