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House of Assembly - Fifty-First Parliament, Third Session (51-3)
2009-06-17 Daily Xml
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Question Time

PUBLIC-PRIVATE PARTNERSHIPS

Mr HAMILTON-SMITH (Waite—Leader of the Opposition) (14:19): My question is to the Treasurer. What arrangements has the government made to compensate consortia bidding for the now cancelled prisons PPP, how much will be paid to each consortia and when?

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (14:19): I have been upfront and public about this. It was a very difficult decision to cancel the prisons, particularly given that a large amount of work had gone into the bids by at least three consortia, that I am aware of. As I said, in both the budget presentation in this house and other places, ultimately something had to give. A number of these capital works projects had been committed to prior to the global financial crisis and prior to the dramatic fall away in state revenues, and it would not have been a proper budgetary position to endeavour to do all the capital works projects to which we had committed ourselves; hence, we took the decision on the prisons as it was still some years away. We had already deferred the prisons in the midyear review, and the prison construction activity was still some years away, and, hopefully, by then the economy would be more than back to a robust state.

In terms of the Rudd government's requirement that we not substitute commonwealth capital programs for our own capital programs, we were unable to (nor did we want to, I might add) defer or delay (quite the opposite) the rail network. We wanted to bring that forward. The prisons were a clear target for cancellation in that budgetary sense. That was a difficult decision for a variety of reasons, none more important, of course, than the actual care of the people who are in these institutions, but also because in good faith we had entered into bargaining with consortia. What we have said—and we wrote to the companies—is that we acknowledge that we will have to pay—sorry, I will rephrase that. Under our contractual obligations, I am advised that we are not obligated to make any payment. We do have in our bidding documents a clause that allows us to terminate the process should we so choose without paying compensation.

I took the view, and the cabinet agreed with me, that that would not be fair and proper in terms of the way in which we have treated these bidding companies and that we should compensate fairly. We have written to these companies saying that we will consider submissions from them for reasonable costs. I will not give the leader a figure because that would be telling the consortia what they should put on the table, and that would not be a particularly clever way to negotiate our way through this. Equally, I have said that I will not be stingy in this regard. I think I have to accept that one must properly compensate these consortia. I saw in the paper a figure of some $10 million floated by a consortia. I can assure members that that figure is a highly exaggerated ambit claim; I can certainly put that on the public record. It will be nothing of that order.

However, it will be in the millions across the consortia. I accept that that is the right thing to do bearing in mind that we are getting in excess of a half a billion dollar plus budget benefit out of this measure. As we enter into negotiations for PPP projects in the schools and with hospitals, you want to be able to keep the confidence of the market. By offering that compensation it is the right and proper thing to do. The deputy leader has a big smirk on her face. I am not sure whether she has other reasons to be happy, but these are the tough decisions you have to make in government. These are the tough decisions.

The easy decision would have been to continue the program of building them and had our credit rating downgraded. Had the credit rating been downgraded, the cost to our borrowings would have well exceeded the compensation payment. Ensuring that we retained the AAA credit rating and not paying more money for our borrowings is a better financial outcome for us than if we had proceeded and not paid compensation. It was a prudent financial thing to do. We are ahead of the game financially. I also think it is a proper acknowledgment to industry. If they deal with this government in good faith and they incur costs in that process and we make a decision to cancel a project, we should be fair and reasonable in our compensation.

As I said, I am advised contractually that, through our bidding documents, we are not required to make payment. In effect, this is an ex gratia commitment to them. I do not mean to use those Latin terms. Is it Latin?

The Hon. P.F. Conlon: Yes.

The Hon. K.O. FOLEY: It is. I just checked that it was Latin. I did not want to make—

Members interjecting:

The Hon. K.O. FOLEY: It is Latin. That is where we are at, Mr Speaker.

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