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House of Assembly - Fifty-Second Parliament, First Session (52-1)
2011-04-06 Daily Xml
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ROYAL ADELAIDE HOSPITAL

The Hon. I.F. EVANS (Davenport) (14:20): My question is to the Premier. How does the Premier reconcile the government's election claim that the total cost of the new Royal Adelaide Hospital would be $1.7 billion when the Macquarie Bank equity information presentation to potential investors has the total cost of the new Royal Adelaide Hospital at $2.73 billion?

The Hon. J.D. HILL (Kaurna—Minister for Health, Minister for Mental Health and Substance Abuse, Minister for the Southern Suburbs, Minister Assisting the Premier in the Arts) (14:21): As I tried to inform the Leader of the Opposition when she asked the question, I will give the same advice to the member for Davenport that I gave to the house. We have yet to reach financial close with the organisations who are building—

Ms Chapman interjecting:

The Hon. J.D. HILL: We have yet to reach financial close, but what members have to understand is that when the government procures—

An honourable member interjecting:

The SPEAKER: Order!

The Hon. J.D. HILL: That is complex so you might struggle a little bit, but let me try to work you through it.

Members interjecting:

The SPEAKER: Order!

The Hon. J.D. HILL: When the government procures a project through the normal, traditional government procurement processes, for example, when it built the original QEH 50-odd years ago, it would have set a budget, gone out to the marketplace and found a builder to design and build it and it would have been built. The amount of money that it would have cost—let us say $100 million, for the sake of argument—to build that building would have been the construction cost.

It is a bit like when somebody who wants to build a house and has a piece of land goes to a home builder who says it will cost $250,000 to build a house on that property. What they do not say to you is you are going to have to borrow that money and there will be an interest cost payable over 35 years. When you get to your bank and sign the documents, you know how much you are going to pay over a 25-year period.

What government doesn't do when it procures under traditional means is bring to the book the cost of the financing of that project. It just says what the construction cost is. Anybody who has ever bought a house knows that because, when you sign your mortgage, you are not only paying for the construction but also the interest over a period of time.

In addition to that, in the procurement of the new Royal Adelaide Hospital, because it is being done through a PPP process, what we get as a state is the benefit of risk transfer. So we transfer risk—

An honourable member interjecting:

The Hon. J.D. HILL: I am getting to that. Just listen. It is complex. What we do is transfer to the—

Mrs Redmond interjecting:

The SPEAKER: Order!

The Hon. J.D. HILL: I am trying to let the public know but you keep interrupting me. What we do is transfer risk to the corporation that is building the project, and there is a cost associated with that risk. But the benefit, of course, is that you are guaranteed to get the project built in the time frame and for the sum of money. That is why you do that. There are other projects in the history of our state—and every state is littered with such projects—which have been committed to where there has been a cost overrun. So it is a bit like a person who is building a house getting a fixed price contract. You pay a little bit more but you get what you committed for. That is the other element of this.

In addition to that, in relation to the Royal Adelaide Hospital, of course, we are getting a management contract for the length of the project. So the project will be completed by the end of 2015, then we have a 29½-year running cost. So there will be a cost associated with the running of the project, that is, the maintenance, repairs and provision of certain services and non-clinical services. All of those things have a cost. What we sign up to is a project which has—

Members interjecting:

The SPEAKER: Order!

The Hon. J.D. HILL: —all of those elements in it. So, the construction cost, the risk cost, the financing cost and the management cost—all of those things brought together. You cannot then compare all of that with the construction cost of an alternative hospital, because—

Ms Chapman interjecting:

The SPEAKER: Order, member for Bragg!

The Hon. J.D. HILL: The point I would make is you cannot then compare that with what it would cost for government to build and construct a hospital on another site and not take into account the other costs associated with the financing of that, the risks associated with that, the maintenance and all those other things. So, you have to compare like with like. That is what we have in relation to this hospital. The costs associated with those elements will be made plain, as we have said before, prior to the budget, and—

Members interjecting:

The SPEAKER: Order, member for Waite!

The Hon. J.D. HILL: The opposition, I know, objects to this new hospital. They would like to see South Australians continue to be served in a 50-year-old building which is no longer fit for purpose. That is their vision. A vision for South Australia for hospital patients to be seen in a set of infrastructure which is 50 years old and no longer fit for purpose. That is their vision; let's be plain about it. We are doing the right thing by South Australia building a new hospital. It will have a cost. That cost will be known to the public in due course.

Members interjecting:

The SPEAKER: Order!

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