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House of Assembly - Fifty-First Parliament, Second Session (51-2)
2008-04-10 Daily Xml
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PUBLIC-PRIVATE PARTNERSHIPS

Mr WILLIAMS (MacKillop) (15:08): Unfortunately, sir, my question is to the Treasurer.

An honourable member interjecting:

Mr WILLIAMS: It is an important question, and I would like the answer. Why has the government chosen to have a different PPP model for the—

An honourable member interjecting:

Mr WILLIAMS: I said 'chosen'. If you were listening you might have picked it up. The purpose is not to pick on people's speech: it is to actually ask questions. Why has the government chosen different PPP models for the desalination plant proposed at Port Stanvac and the proposed Marjorie Jackson-Nelson Hospital, and why is it no longer important for the government to own hospitals, while it is important to the government to own a desalination plant?

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (15:09): I am really glad that you are getting a briefing in 20 minutes' time. This just shows why you need it. The question was: why has the government chosen a different PPP model for the desal plant as to the Marjorie Jackson-Nelson? We have not chosen a PPP model for the desalination plant. It is not a PPP; it is not a different PPP.

An honourable member: Rubbish!

The Hon. K.O. FOLEY: Rubbish!

The Hon. P.F. Conlon: You're a dill!

The SPEAKER: Order!

The Hon. K.O. FOLEY: My head is bursting. I cannot believe the lack of understanding of these people. The desalination plant is not a PPP. It is not a public-private partnership.

Members interjecting:

The SPEAKER: Order!

The Hon. K.O. FOLEY: I will attempt to explain again, as I did the other day, why we chose the model of procurement, but I will not yell above these people. If they want to listen, I am happy to give them the answer, but I will not compete with interjections. First, as I said, I am glad that the member for MacKillop is getting a briefing on what is a PPP and what is not a PPP. We chose, again on advice—

Members interjecting:

The Hon. K.O. FOLEY: I know it is a remarkable thing that we take advice, but we considered four procurement approaches and they were reviewed and compared. They were: an alliance contract, a managing contractor, a DBOM which we chose—that is design, build, operate and manage, not own, that is why it is not a PPP because if it was a PPP the private sector would own it—get the difference?

Mr Williams: Yes.

The Hon. K.O. FOLEY: Then good, you have learned something—and a PPP. The comparison was placed on a weighted score of key project objectives: delivery time; cost; optimal risk transfer; expansion capability; and complexity of procurement.

Mr Williams: So, you did the same for the hospitals.

The SPEAKER: Order!

The Hon. K.O. FOLEY: I am not going to compete.

The SPEAKER: Order!

The Hon. K.O. FOLEY: KPMG, which we contracted to give us this advice, recommended the DBOM (design, build, operate and management) as the preferred option. The alliance and managing contractor options ranked behind the DBOM and the PPP options on all three of the main criteria listed above. Alliance and managing contracting are best suited to projects with high degrees of uncertainty in project cost and delivery program. There are potential benefits in creating a risk-sharing alliance with the contractor.

In the case of the desalination plant, whereby they can essentially be bought 'off the shelf', the risk factors are more readily identifiable.

Members interjecting:

The Hon. P.F. Conlon: No, he doesn't want to know.

The Hon. K.O. FOLEY: They are laughing at KPMG's advice.

Mr Williams: No, we are laughing at you.

The SPEAKER: Order! The member for MacKillop.

The Hon. K.O. FOLEY: The level of uncertainty is therefore not sufficient to justify the cost, risks and complexities of alliance and managing contracting approaches. The DBOM narrowly outranked the PPP option. Importantly, the PPP ranked behind the DBOM in terms of project delivery time. Remember that we said the other day that, under a design, build, operate and management contract, we can finish six months earlier, because you do not have a lot of the time that is taken up with the financial tendering.

The Hon. P.F. Conlon: That will be like the car lease documents.

The Hon. K.O. FOLEY: Yes, that'll be drawing up the car-leasing documents. Other supporting arguments for the DBOM delivery against a PPP were the following: the Adelaide plant will be able to operate as a peaking plant. It may be shut down for periods of time. That would not suit itself to a PPP where the owners would expect a consistent income stream. KPMG believe that the private sector would have difficulty pricing the risks associated with the PPP operating model that was operating as a peaking plant, resulting in the private sector pricing into their tendering an excessive risk premium.

In contrast, the Victorian desalination plant, which is to be delivered as a PPP, is a base-load plant that does not face the uncertainties of periodic shutdown. KPMG believes that this operating model is more supportive of a PPP. That is why we made the decision because, on balance, the advice from KPMG was that a DBOM (design, build, operate, and manage and maintain) procurement process would be better than a PPP.

Under the DBOM approach we provide the capital; it is on our balance sheet. It is not a PPP; there is not a variation of PPP. A project is either a PPP or not, or it is a DBOM. I hope I have given you some information that you will have taken from today's question time from which you may learn.

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