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House of Assembly - Fifty-First Parliament, Third Session (51-3)
2009-06-03 Daily Xml
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ROYAL ADELAIDE HOSPITAL

Mr HAMILTON-SMITH (Waite—Leader of the Opposition) (14:30): My question is to the Treasurer. Will the government have made a definite decision for South Australians to consider before March 2010 about how it intends to fund the rail yards hospital, or will there still be uncertainty about whether a PPP or debt-funded model will be used?

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (14:31): As I said yesterday, our preference has been for a public-private partnership but, to recap what I said yesterday and have said previously, since our decision to say it would be a public-private partnership, we have been confronted with the global financial crisis. What the global financial crisis has done is that it has made capital availability very difficult. Capital is scarce. Capital that can be raised on the debt markets is expensive debt for everybody, but more expensive for the private sector than it is for government.

So, what I call the 'spreads' are now very wide, and the cost to the private sector is very expensive. We will make an evaluation. At this stage, as I said yesterday, we had been intending to go to expressions of interest as a PPP and leave open the issue of whether or not consortia could bring sufficient capital to the table and whether or not that would be capital priced competitively. In fact, the information I have been given only this morning is that the cost of capital is becoming an issue for PPPs, as is the availability of capital.

The issue of whether or not we do what we call a DBOM for the hospital (design, build, operate, maintain), which I think, from reading the paper, is your preferred option, may yet be the way we go forward. We will make the decision prior to EOI as to how we will frame it. We have not made a decision. We will monitor capital markets and we will monitor availability of capital. When we are in a position to make the right judgment on that, we will. But my expectation would be that, when we go to expressions of interest, or certainly by the time we short-list (and that will be well before the election), we will ensure that the market knows exactly which is the best way to fund it.

Always remember that the attractiveness of a PPP is that you bring private sector design innovation to the table, you bring better capital utilisation to the table and you bring significant risk transfer to the table. That is what makes PPPs attractive, but they must always be put up against a robust public sector comparator. Just about every time I have spoken on this matter you will see that, without any attempt to be other than upfront, open and transparent, I have always said that if these PPPs do not provide value for money to the state we will proceed with a different delivery model.

Ultimately, the delivery model is not the issue. The issue is the actual model or the product that is being delivered. PPPs offer great innovation and significant risk transfer, so they are always my preferred vehicle for delivery in these projects, but they are not absolutes. At a time, unfortunately, when global capital markets have collapsed, when available capital is almost impossible to access, or certainly very difficult to access, and the price of that capital because it is a scarce resource has gone up, the attractiveness of PPPs is subject to some question. We will be very upfront very early in the process as to what will be the best and appropriate delivery model.

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