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House of Assembly - Fifty-Second Parliament, Second Session (52-2)
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Auditor-General's Report

AUDITOR-GENERAL'S REPORT

In committee.

(Continued from 1 November 2012.)

The ACTING CHAIR (Hon. M.J. Wright): I open the examination of the Minister for Sustainability, Environment and Conservation, Minister for Water and the River Murray, and Minister for Aboriginal Affairs and Reconciliation for 30 minutes.

Ms CHAPMAN: The jurisdictions for which the minister is responsible include the South Australian Water Corporation. That is reported in the section commencing on page 1837 of Volume 6. Page 1852 commences a four-page summary of the current operations surrounding the Adelaide desalination project. At page 1855, under the subheading at about point 4 is 'Operator contract', which I think is commonly referred to as the O&M contract—the operations and maintenance contract—which I am sure the minister is familiar with, as distinct from the design and construction contract.

The report states, 'Under the contract, the volume of water to be produced by the operator is specified by SA Water.' While the government specifies the volume of water to be produced, what is the agreed base payment per annum to the operator once the plant is fully commissioned, regardless of how much water is produced?

The Hon. P. CAICA: As I have reported to the house previously, it is $30 million.

Ms CHAPMAN: Per year?

The Hon. P. CAICA: Yes.

Ms CHAPMAN: Further down the page there is reference to SA Water's 2011-12 financial statements, including expenditure of $6.5 million for operating the plant. Total expenses paid to the operator since the inception of the project to 30 June 2012 was $11 million. Will the minister confirm how much water has been produced by the plant to that date?

The Hon. P. CAICA: I am advised that to date just a few gigalitres have been produced, but I will get the exact figure out as of today and take that one on notice.

Ms CHAPMAN: I think the project, as I understand it, as of August 2012 was the completion of the 50 gigalitre capacity, that by September the 50 gigalitre had reached full capacity and that by October this year both 50 gigalitre plants had commenced performance tests; is that right?

The Hon. P. CAICA: The honourable member is correct.

Ms CHAPMAN: At page 1853, at about point 6, under the design and construct contract, it states:

The Public Works Committee approval for the ADP expansion works indicated practical completion by August 2012—

which from your previous answers has occurred—

with handover occurring by the end of December 2012.

Is there a date yet for the proposed handover?

The Hon. P. CAICA: What we are saying is that it will be completed by the end of December. We believe that it will be on or around 22 December, but of course in doing that I do not want to be held to account if it is not that particular date, but that is the date we are working to and everything is on track for that date.

Ms CHAPMAN: The balance of funds for payment under the DC contract is something like $700,000. That is the last payment due under the design and construct. Is there any indication at this stage that those funds will not be paid in full?

The Hon. P. CAICA: I am not quite familiar with the figure the honourable member is referring to, and it would be useful if she could find where it is so that we could then analyse it a little better. I would make this point: on all the evidence that has been provided to date, our expectation is to come in on the time frames I have stated and also on budget.

Ms CHAPMAN: I suppose I was not asking whether there was any extension of the budget. I accept that you are on budget. Has there been any circumstance in respect to the desal plant in completing the DC contract that would mean that you would hold back any of the balance of those moneys?

The Hon. P. CAICA: I am advised that there will be a small amount that will be factored in for payment during or beyond the warranty period.

Ms CHAPMAN: So, it is your expectation that, whatever balance is held pursuant to the $1.8 billion project, they will be paid?

The Hon. P. CAICA: The answer is yes.

Ms CHAPMAN: In relation to the $11 million that has been paid under the operator contract, what was the basis upon which the $6.5 million had been paid for the operation of the plant, which is obviously clearly well prior to the completion of even the first 50 gigalitre plant on August 2012?

The Hon. P. CAICA: As she quite rightly points out, SA Water's 2011-12 financial statements include expenditure of $6.5 million for the operating of the plant. This was specifically to cover ongoing maintenance of the equipment, training of operators, development (amongst other things) of an operation manual, and factors dealing with the commission of the 50 gigalitre plant.

Ms CHAPMAN: I will come back to the operator contract in a moment. In respect of the DC contractor at this point, which is, as best we understand it, about to be concluded, are you in any current dispute with the DC contractor and/or their suppliers concerning the end caps for the membrane chambers?

The Hon. P. CAICA: I am advised no we are not.

Ms CHAPMAN: I refer to page 1854, the third point. The deed of settlement was executed in May 2012, which was basically to settle up certain claims. If I can summarise it, I think I am right in saying that subsequent to that tragic death in the preceding year there had been a number of renegotiations of the contract, delays and settlement, in respect of payments. It states:

Importantly the deed of settlement related to both the construction of the operational and maintenance contracts, and was consequently signed by SA Water, DC contractor and operator.

Then there is further commentary down the page. Did that settlement include any provision for claims in respect of the safety aspect of the membrane chambers?

The Hon. P. CAICA: I am advised there was nothing whatsoever to do with the safety or otherwise of the membrane section.

Ms CHAPMAN: That was in May 2012. Subsequent to that date of settlement had there been any reports of malfunction involving equipment of the membrane chambers?

The Hon. P. CAICA: I am advised no. There were normal commissioning issues, but the membrane chambers were not one of those issues.

Ms CHAPMAN: Again, this relates to the whole settlement arrangement. Paragraph 7 states:

The negotiation process and the deed of settlement...Prior to the approval of the SA Water Board considered legal counsel from Crown Law and other external legal advisors, and a risk assessment on the project.

How much was spent on outside legal advice on this?

The Hon. P. CAICA: I have not got that specific figure in front of me, but knowing how sharp the member for Bragg's pencil is, there was cost involved with one representative legal counsel, but I will get back to you on that exact figure.

Ms CHAPMAN: I will cover the cost of some legal matters. On page 2123, the water department's legal fees jumped from $473 to $720 last year. What was the total value of legal work completed in respect to the former premier's and current Premier's pledge to challenge the Murray-Darling Basin plan in the High Court?

The Hon. P. CAICA: I do not have those exact figures with me as to what component, if indeed there is any, within that increase of fees and its relationship or otherwise with respect to the question about whether or not that encompassed any fees for any preparatory work on any legal challenge, should that eventuate, but I will get back to you with an answer to that.

Ms CHAPMAN: Aside from the total value, if in fact that cost is not encompassed in the legal fee increase would the minister provide to the committee the explanation for the expenditure of the $720,000?

The Hon. P. CAICA: So, you are asking for what is encompassed within that 750? I cannot see a problem with the provision of that information. If there is, I will get back to you.

Ms CHAPMAN: For the purposes of information you are getting, minister, at page 1854:

The deed of settlement provides for the project handover for all works by the DC contractor by 22 December 2012. A large payment is still linked to achieving the full project handover.

So, my question is: how much is the balance of payment then to be paid by SA Water?

The Hon. P. CAICA: Again, I do not have that particular figure with me, but we can provide that to you.

Ms CHAPMAN: I would appreciate that for the exact amount, minister, but you have the head of the department sitting next to you, does he have any idea: more than a million, less than a million?

The Hon. P. CAICA: I reinforced this point earlier and I know that you acknowledged and appreciated the fact that the project is going to come in (we expect) on budget and on time. I am advised that it could be in the vicinity of between $30 million and $50 million with respect to that, but again I do not have the exact figure. If you want ballpark figures I can give them to you but if you want exact figures you will have to wait for them.

Ms CHAPMAN: At page 1856, there is reference to commonwealth funding. As I think all members of the committee appreciate, the commonwealth government has committed a total of $328 million toward the cost of the ADP (the desalination plant): $100 million for the first 50 gigalitre plant and then another $228 million for the expansion. The Auditor identifies though that there is funding of $46 million still to come from the commonwealth and that requires three things: one is that there be an agreement with respect to the high reliability entitlement; the second is that there be agreement to annual reporting in a format that, basically, they have set out; and the third is to achieve practical completion and tests to demonstrate the operation of the 100 gigalitre annual expansion works and the submission of a final report. When is it expected that there will be a practical completion, those tests identified and the report provided? Is that at the end of 2013 or 2014, or, for that matter, whenever?

The Hon. P. CAICA: The practical completion will be completed before the handover, so that will be the point.

Ms CHAPMAN: 22 December?

The Hon. P. CAICA: The 22nd, or thereabouts, of December, before it is handed over to operations.

Ms CHAPMAN: The question is: when do you get the next $46 million? It is suggested in this report that there are three things you have to do before you get the final $46 million from the commonwealth. My question is: because that last one requires certain testing to be done and a report to be provided, is that expected to be all done at the time of handover or is that to be at the end of the two year period of testing? Perhaps I am at cross-purposes here, perhaps the testing does not mean the operational testing for two years. If it is working as at 22 December of this year we get the money. Is that the position?

The Hon. P. CAICA: That is providing we have met those other two dot points above that. So, you are correct.

Ms CHAPMAN: Is it your expectation, minister, that your department, for example, will have provided the information and signed up to the agreements and terms for all these three (that is, the other two in particular) by that time and that the money will be paid before the end of December? A nice Christmas present if it is, but is that the expectation?

The Hon. P. CAICA: That is certainly my expectation.

Ms CHAPMAN: Page 1858 refers to the charging dispute between SA Water and United Water. This was an issue that came to a head under the minister's watch but, of course, its origin was many years preceding that time. The report gives a summary of what had happened. At about point 5 on page 1858, the report states:

During September 2012, SA Water and United Water reached a commercial settlement on all disputes between them concerning the 1995 Adelaide Metropolitan Outsourcing contract.

The report then identifies that as a condition of that settlement the amount to be paid to United Water under the September 2012 settlement was $6.3 million, with no admission of liability. On 1 September 2009, the former treasurer, the Hon. Kevin Foley, said, 'We have been overcharged by the French to the order of some tens and tens of millions of dollars.'

Will the minister confirm that the $6.3 million is the total payment to SA Water from United Water for the alleged overcharging? Or is it in addition to the $14 million that was referred to as the first settlement in February 2011?

The Hon. P. CAICA: I am not sure whether I understand the question, but I will try to answer it as best I can. In regard to there being no liability, that is the case and that is how it was settled. Also, all that money has been received—

Ms CHAPMAN: The $6.3 million?

The Hon. P. CAICA: —under my watch. So, it is $14 million plus $6.3 million, which is roughly $20 million or thereabouts.

Ms CHAPMAN: You will recall, minister—and I am sure that you have read the pleadings in this case avidly—that United Water had lodged a counterclaim against SA Water in the Supreme Court proceedings. They referred to comments made by the former treasurer and, indeed, made that counterclaim based on the diminution, they claimed, of their reputation as a result of what it saw—and I will summarise this, but you will get the gist of the pleadings—as the outrageous statements the treasurer had made about the bona fides of United Water and sought, of course, to reduce the payment to SA Water. Was there any settlement in respect of the comments made by the treasurer in respect of his allegations?

The Hon. P. CAICA: As I have said previously, we cannot be held responsible for what the then treasurer said at that stage. Quite simply, it was determined in two parts that SA Water was, for want of a better term, using my language, owed that money. This justifies, to a very great extent, the decision to pursue that particular determination. In a way, it could be argued that it justifies the comments of the former treasurer, but you would have to speak to him about that. As I said, I take no responsibility for what he said at that time.

What I will say is that this matter was resolved successfully under my watch, which I am very pleased about. As the Auditor-General mentioned in this report and that of the previous year, in particular, those matters can further improve—well, he talks about contractual arrangements but, in fact, we have considered all the matters from this dispute the impact on our future contractual arrangements. That is the very nature of an audit, of course: to get the audit to see where you can do things better; we make a commitment to do that. We are very pleased that not only were we able to settle this particular matter but it certainly, through that process, justified SA Water to take that course of action.

Ms CHAPMAN: Minister, what were the total legal costs incurred by SA Water in respect of that action?

The Hon. P. CAICA: Again, I do not have those exact figures, but in regard to the legal costs incurred by SA Water with respect to both of these matters (that is, the $20 million), I am advised that it could be at or around $2 million. But, I will get back with the exact figure because, as I said, I do not have that.

Ms CHAPMAN: In respect to SA Water, they obviously have expenses, which are set out there in the financial accounts, including the rent paid for premises headquartered at Victoria Square. Minister, what premises are occupied by the SA Water Corporation other than the headquarters at Victoria Square?

The Hon. P. CAICA: I thank the honourable member for her question. As she would be aware, we actually house personnel across the length and breadth of the state. I will not go into detail about all those places, otherwise it will take us to the end of this report.

Ms Chapman interjecting:

The Hon. P. CAICA: What I will say, with respect to metropolitan Adelaide, is that we have two premises located on Pirie Street that are occupying staff at this point in time. One of those premises on Pirie Street relates to those personnel that are part and parcel of the North-South Interconnector Project (NSIP), and their time there is limited, given that the project will be concluding.

There is another premises in Pirie Street that contains our information technology section, and there is also a small warehouse in Netley that houses some staff. It is a facility that actually deals with the metering, and we do have a small number of staff operating at that premises. So, we have three others in metropolitan Adelaide, and a multitude of places across the length and breath of the state. If the honourable member wants a list of all those places, I am happy to take her along and show them to her.

Ms CHAPMAN: Thank you; I look forward to my list and a long and happy inspection tour with the minister. It raises the question though, minister, of the whole transfer of the SA Water enterprise to Victoria Square. It was before your time, but you might recall that treasurer Foley explained the importance of not buying SA Water House, as it was known, which was in Grenfell Street, I think, at the time, and the need to move to Victoria Square so that all the operations at headquarter level could be in one place. So, rather than buying out the tail of a lease which, I think, was something like $20 million, they could have owned a whole building; now, we are renting one and paying a lot of money. In any event, the EPA, I think, is still in the premises at SA Water. I am not sure how much rent they pay or what share of the rent they pay, but is any consideration being given to taking the EPA out of that building?

The EPA is, of course, a regulator whose work includes, sometimes, fining SA Water. They are all in the same building. It is a little curious to me but, especially if the other operations are burgeoning out to other premises, is the APA going to be moved or what is the situation there?

The Hon. P. CAICA: I do not know what the APA is—

Ms Chapman: EPA.

The Hon. P. CAICA: —but I am presuming you mean the EPA; that is right. That is alright; we all make mistakes, Vickie.

Members interjecting:

The Hon. P. CAICA: Yes, that's right. We have seen that over the years—you are quite right—and I am looking at it right now.

The ACTING CHAIR (Hon. M.J. Wright): The minister has been well behaved—

The Hon. P. CAICA: I have been.

The ACTING CHAIR (Hon. M.J. Wright): —as has the shadow minister.

The Hon. P. CAICA: That is right, we have been very well behaved. It is starting a new standard. At the moment, the EPA occupies almost two floors there. I make no comment on the previous comments that you made about whether we would buy that building or not. It is owned by the church, I think, and I am not sure they were ever going to sell it anyway. Our building is currently occupied by the department for transport.

Ms Chapman: Now, it is.

The Hon. P. CAICA: Yes, that's right.

Ms Chapman interjecting:

The Hon. P. CAICA: The EPA occupies almost two floors there. At this point in time, there have not been any formal discussions with me whatsoever about whether or not they will be vacating that premises for new premises but you never say never. Currently, there is no formal proposal to do so.

Ms CHAPMAN: I will ask one question in relation to the north-south interconnector—my favourite project. That has been completed. It is $403 million worth and that, of course, includes new pumping stations and so on and an extra pipeline across my electorate, not to mention others. My question is: has the project expenditure exceeded the $403 million and, if so, on what?

The Hon. P. CAICA: Just to correct the honourable member, I know she is new to this portfolio but it has not actually been completed yet: it soon will be. In answer to the specific question, I know she had several community forums in which this matter was raised and I attended, I think, many of those—in fact, all of those—across the various electorates.

I was very pleased at the opening of the pump station at Waite to see and listen to one of the residents who had told not just me but the TV cameras that were there that the way in which SA Water conducted that consultation with the community, notwithstanding the initial difficulties that occurred at the start, was a credit to what was essentially a government controlled project with respect to that consultation. The answer to that is no, it will be on or slightly under budget.

The ACTING CHAIR (Hon. M.J. Wright): Thank you, minister; thank you, shadow minister. We now move to the Auditor-General's Report in relation to the Minister for Manufacturing, Innovation and Trade, Minister for Mineral Resources and Energy, Minister for Small Business. I remind members that they are to be on their feet and all questions must be directly referenced to the Auditor-General's Report.

Mr MARSHALL: I am referencing the Auditor-General's Report, Part B, Volume 3, and his report begins on page 1009 regarding this department. My first question is just regarding the 'Financial assistance grants' heading on page 1011. Can the minister please advise how many of the grants he was responsible for were transferred to the other agency, which is referred to in the Auditor-General's Report, and what was that other agency?

The Hon. A. KOUTSANTONIS: I will take most of that question on notice, but I will say that I understand that the other department is PIRSA and that the grants that were transferred, I am advised, were the regional development grants, but I will get more information for the member.

Mr MARSHALL: Can the minister advise which company the Auditor-General is referring to at the bottom of page 1011 when he said that the obligations of one company were unmet for a period exceeding 60 days?

The Hon. A. KOUTSANTONIS: I am advised that we do not have the details of the one that is over 60 days late, but I do note, however, the Auditor-General's comments at the same period last year when there were 44, with 13 being over 60 days late—he makes positive comment. I will get some details for the member about the one which is over 60 days and get back to the house.

Mr MARSHALL: Can the minister update the house on how many remain outstanding at this point in time?

The Hon. A. KOUTSANTONIS: I only have advice up to 30 June.

Mr MARSHALL: Can the minister just confirm that the other agency the Auditor-General was referring to was, indeed, PIRSA and not SAFA, because previously the minister has suggested that the responsibility for following up outstanding grants had moved in some instances to SAFA.

The Hon. A. KOUTSANTONIS: Just so that I am clear, your initial question was: which was the other agency that was being referenced? The advice I was given was PIRSA. I am advised that the financial assistance grants in the Auditor-General's Report make reference to PIRSA rather than SAFA.

Mr MARSHALL: Just for clarity, have you actually transferred the responsibility of following up financial assistance grants to SAFA?

The Hon. A. KOUTSANTONIS: I am advised that that was done in previous years but not in this financial year.

Mr MARSHALL: There was no transfer during the financial year that was covered by this Auditor-General's Report? That was the question. That is the financial year we are talking about.

The Hon. A. KOUTSANTONIS: I think your questions are getting muddled and confused. You have asked a number of questions, initially about which agency we were talking about and I was advised that was PIRSA; then you asked for clarification that it was not SAFA and I said to you I was advised it was PIRSA; and now you are asking a different question and I think you are trying to muddle the two. The advice I have received is that the agency in question that the transfers were made to is PIRSA. If SAFA has had any involvement, I will get back to the house.

Mr MARSHALL: Can you advise whether it is your department's responsibility to continue to follow up the financial assistance grant provided to Autodom or aiAutomotive?

The Hon. A. KOUTSANTONIS: I am advised that responsibility resides within the Department of Treasury and Finance.

Mr MARSHALL: Can you also advise the house whether there is any other financial assistance that your department has provided to the auto sector and the auto supply chain, and whether there are any grant moneys that your department is currently administering?

The Hon. A. KOUTSANTONIS: What I will do, rather than read it into Hansard and try and find the ones that are not related to the automotive industry, is give the member a breakdown of all the grants.

Mr MARSHALL: Will you be able to provide the committee with all grant money administered by the department last financial year?

The Hon. A. KOUTSANTONIS: Yes.

Mr MARSHALL: My next question is on page 1029, headed 'Remuneration of Employees'. Can you indicate to the committee who the person is in your department paid last financial year between the band $584,000 and $593,999?

The Hon. A. KOUTSANTONIS: I do not have the details of the name of the person but I will get that to you. I understand that is not his entire package. That package includes a termination payment. I will get back to you.

Mr MARSHALL: Can the minister outline, on page 1029, which is the remuneration for the deputy chief executive Mr Lance Worrall?

The Hon. A. KOUTSANTONIS: I do not have those details with me but we will get them to you.

Mr MARSHALL: I turn to page 1042, looking at the remuneration of board and committee members. Can you indicate what the payments are to the individual members of the Advanced Manufacturing Council, the amount paid last financial year, but also the amount that was negotiated last financial year to be paid on an ongoing basis?

The Hon. A. KOUTSANTONIS: I am advised: Mr Nixon Apple was paid $3,500; Mr Donald McGurk, I have no payment for; Mr Stephen Myatt, I have no payment for; Mr Göran Roos, who is the chair, I have a payment of $7,000, I am advised; and Mr Jonathan Law, $5,250, which comes to a total of $15,750. If there are any outstanding amounts that have not been mentioned, I will obviously get them to you.

Mr MARSHALL: The amount for Göran Roos, that was the payment last financial year, or was that the ongoing payment per annum?

The Hon. A. KOUTSANTONIS: I am advised that Professor Roos was paid a total of $7,000 up to the 30 June, but I will take the rest of your question on notice and get back to you.

Mr WILLIAMS: I will not re-reference—it is the same set of pages of the Auditor-General's Report—but I will refer to page 1013, under 'Administered items', particularly in regard to the collection of royalties. The Auditor-General's Report states that $176 million in royalties was collected in the 2011-12 year, compared with the $156 million in the previous year. Can you give us a breakdown of that between the minerals sector and the petroleum and gas sector?

The Hon. A. KOUTSANTONIS: I am glad that you are showing an interest in your old portfolio areas. I will get a detailed answer back for the member as quickly as I possibly can, but I do not have that breakdown here with me now.

Mr WILLIAMS: I note that in the 2011-12 budget, the predicted figure for royalties for that particular year was originally budgeted at $202 million. In the most recent 2012-13 budget, it was taken down to an estimated result of $182.9 million, which is coming in even lower than that at $176 million. Do you have an explanation for that reduced figure?

The Hon. A. KOUTSANTONIS: The Auditor-General has made no comments whatsoever on that, and I am not quite sure why the member is asking me about questions relating to budget matters.

The ACTING CHAIR (Hon. M.J. Wright): All questions should be referenced to the Auditor-General's Report.

Mr WILLIAMS: The Auditor-General's Report states that overall the total of $176 million in royalties was collected in 2011-12, but back in May the budget estimated that it was going to be $182 million.

The Hon. A. KOUTSANTONIS: Mr Acting Chair, the Auditor-General has reflected accurately our royalty intake.

The ACTING CHAIR (Hon. M.J. Wright): Yes, I think the member should be careful what he asks. It needs to be specifically referenced to the Auditor-General's Report and not to the last budget.

Mr WILLIAMS: The Auditor-General's Report is saying there is a large discrepancy. Can the minister explain why there is a discrepancy between the estimated result in the budget and what the Auditor-General has reported? That is my question.

The Hon. A. KOUTSANTONIS: Can I ask the member to reference the part where the Auditor-General makes adverse findings on the—

The ACTING CHAIR (Hon. M.J. Wright): Which page number was it from?

Mr WILLIAMS: I read that out a moment ago: it is page 1013.

The Hon. A. KOUTSANTONIS: Mr Acting Chairman, the member for MacKillop said that there were 'adverse findings'. This is what the—

Mr Williams: No, I never used the word 'adverse'.

The Hon. A. KOUTSANTONIS: You said he made comments. This is what he said:

The responsibility for the minister in the collection of royalties levied on mineral and petroleum production on behalf of the State Government was transferred to the Department on 1 January 2012. For the six months to 30 June 2012 the Department administered the collection of $93 million in royalties which were paid into the Consolidated Account.

Hear, hear!

A further $83 million in royalties was collected and paid into the Consolidated Account by the transferor agency from 1 July to 31 December 2011. Overall a total of $176 million in royalties was collected in 2011-12 compared to $156 million in 2010-11.

He makes no reference to the budget papers.

Mr WILLIAMS: Notwithstanding that—

The ACTING CHAIR (Hon. M.J. Wright): I see the member for MacKillop is agreeing with his body language.

Mr WILLIAMS: Notwithstanding that, Mr Acting Chairman, it is a substantially lower figure than what was in the most recent budget. I thought the minister might have had his finger on the pulse. He might have—

The ACTING CHAIR (Hon. M.J. Wright): I'm sure he does—

Mr WILLIAMS: I'm sure he doesn't.

The ACTING CHAIR (Hon. M.J. Wright): —but he is pointing out that you are not referencing it to the Auditor-General's Report.

Mr WILLIAMS: The minister, I do not believe, even knows what is going on in his agency, but we will leave it at that. I refer to page 1028, TVSPs. It is noted that employees who received a TVSP or early termination payment during 2011-12 were five, compared with 51 the previous year. Were any of those TVSPs in the minerals part of the agency and/or were any of them in the energy part of the agency?

The Hon. A. KOUTSANTONIS: For the interests of the shadow minister for energy and the shadow minister for mineral resources, I will get a breakdown for both members of what TVSPs have been accepted in which departments.

Mr WILLIAMS: Is it expected that there will be more TVSPs in the next year, or is that the end of the reductions in your agency?

The Hon. A. KOUTSANTONIS: As I said, as measures are rolled out the department will liaise with the Department of Treasury and Finance about the most appropriate methods to meet those savings.

Mr WILLIAMS: The Auditor-General noted on page 1030 that there has been considerable growth in the number of consultancies and contractors. Contractors' total payments increased from a bit over $2.5 million in the previous year to virtually $7 million, and consultancies have increased from just over $1 million to $2½ million. I note that the number of consultancies between $10,000 and $50,000 in the previous year was 14, and in the most recent year there were 25, and for over $50,000 the number of consultancies went from eight in the previous year to 19. Can the minister explain why there are so many consultancies within his agency?

The Hon. A. KOUTSANTONIS: I am advised that they reflect machinery of government changes. The department has grown, there is a greater focus on manufacturing, innovation, trade and small business. We brought the energy department into DMITRE. It means an increased workload. It means increased expenditure.

Mr WILLIAMS: Can the minister provide the committee with a breakdown of those consultancies?

The Hon. A. KOUTSANTONIS: I am advised that they will be tabled in the annual report.

Mr WILLIAMS: Page 1031, under 'Grants and subsidies', there is a list of some $5.487 million in grants and subsidies made to entities within the South Australian government. Just over $1 million of these are in the energy sector. Can the minister provide a breakdown of what those are? There is $1.3 million in the minerals and petroleum sector, can the minister provide a breakdown of what they are?

The Hon. A. KOUTSANTONIS: I am advised the energy grants in 2011-12 were $1.056 million, which reflects six months of operations of the energy division transferred from DPTI and RenewablesSA transferred from DPC as part of machinery of government changes that were effected from 1 January 2012. Grants relating to the first six months of 2011-12 and for 2010-11 are included in DPTI, I understand, and DPC Remote Areas Energy Supplies Aboriginal communities, the University of South Australia Renewable Energy Fund and the University of Adelaide Renewable Energy Fund. I will get you some advice on the minerals and petroleum section as well.

Mr WILLIAMS: Similarly, just below that on the same page, there are grants and subsidies payable to entities external to the South Australian government, the energy class at some $3.692 million (almost $3.7 million) and then minerals and petroleum at $921,000. Can the minister provide a breakdown of those? While you are doing that, within the minerals and petroleum figure does that include the payments under the PACE scheme?

The Hon. A. KOUTSANTONIS: Energy grants to non-South Australian government entities. I am advised that energy grants in 2011-12 were $3.692 million. The increase relates to the transfer of energy and RenewablesSA programs as part of the machinery of government changes. The 2011-12 year reflects only six months of operations. Grants relating to the first six months of 2011-12 and for 2010-11 are included in the Department of Planning, Transport and Infrastructure and the Department of the Premier and Cabinet. I understand the recipients were: Clean Carbon Capture, Sundrop Farms, WorleyParsons Services Pty Ltd, West Beach Trust—that is from, I am advised, the Renewable Energy Fund. The others are: District Council of Coober Pedy, Jeril Enterprises Pty Ltd, trading as Andamooka Power House, and Dalfoam Pty Ltd, they are a part of the Remote Areas Energy Supplies state/independents. The Yalata Community Incorporated is a Remote Areas Energy Supplies Aboriginal communities, Oak Valley (Maralinga) Incorporated Remote Areas Energy Supplies Aboriginal communities, Opal Inn Proprietary Limited remote renewable generation program, Stuart Ran remote renewable generation program, District Council of Coober Pedy remote renewable generation program, other various programs, the Australian Energy Market Commission (AEMC), Department of Resources, Energy and Tourism.

Then there were the various grants under the solar hot water subsidy scheme to the value of about $500 each. In terms of the minerals and petroleum area for non-South Australian government entities, I am advised that minerals and petroleum grants in 2011-12 were $.921 million. The increase relates to the transfer of minerals and petroleum functions as part of the machinery of government changes. The 2011-12 year reflects only six months of operations. Grants relating to the first six months of 2011-12 and for 2010-11 are included in the Department of Primary Industries and Regions South Australia.

I am advised that Cameco, Core Exploration, CSIRO, Lincoln Minerals Limited, Phoenix Cooper Ltd, Pepinnini Minerals Ltd, Regional Development Australia Far North, Teck Australia Pty Ltd, Trafford Resources Ltd, Uranium Equities Ltd, University of Adelaide, University of Western Australia and the University of Adelaide were PACE recipients. Other various programs under the Department of Resources, Energy and Tourism, were the Multiple Land Use Framework and the National Mine Safety Framework. There was a minerals grant to the Roxby Downs council, and there were, I understand, $8,000 in minor grants.

Mr WILLIAMS: So, all those PACE grants are within that $921,000 figure?

The Hon. A. KOUTSANTONIS: I am advised that it is within the $921,000 but, if there are more, I will get back to the house with a more detailed response.

Mr WILLIAMS: On page 1033, under 'Receivables', there is an allowance for doubtful debts. In the previous year, it was $3,000; the allowance has now grown to $161,000. Can the minister give the committee an explanation of what that is?

The Hon. A. KOUTSANTONIS: I am advised that it is a result of machinery government changes. Other departments coming in to form the new department have brought with them, of course, accounts receivable and therefore the figure has increased. Is the shadow minister for mineral resources going to ask me a question?

The ACTING CHAIR (Hon. M.J. Wright): The member for Davenport, I think, has the call. No, the member for MacKillop; he has given ground.

Mr WILLIAMS: Thank you, Mr Acting Chairman. Minister, can you provide for the committee the total cost of the machinery of government changes within your agency in the year in question?

The Hon. A. KOUTSANTONIS: I am advised—you taught me that, Iain—that on 21 October 2011 the Premier announced a number of changes to the ministerial responsibilities in government departments, including the establishment of the Department for Manufacturing, Innovation, Trade, Resources and Energy (DMITRE).

DMITRE brings together the former departments of trade and economic development, minerals and resource division, the Olympic Dam task force and a component of the investment and policy units of PIRSA, the energy division from the former department for transport, energy and infrastructure (DTEI), and RenewablesSA from DPC. Transferred out of DMITRE, the Regional Development Unit to PIRSA, and the Strategic Policy and Population Policy and Migration units of DPC. DMITRE will provide a stronger focus on integrated approaches and policies for resource, energy, manufacturing, inward investment and trade.

All transfers were gazetted effective on 1 January 2012. There is ongoing work to fully integrate all functions of the new department. I am advised that, as of the end of June 2012, the cost of establishing the new department is $130,000, comprising the following components: $75,000, I am advised, for additional staffing; $5,000 for the relocation of staff; $16,000 for signage changes; $13,000 for business cards and letterhead reprinting; and $21,000 in additional software licences.

Mr WILLIAMS: I refer to page 1046, the Extractive Areas Rehabilitation Fund. Back in 2005, the parliament amended the royalty rate for extractives from 20¢ per tonne to 35¢ a tonne, with the amount going into the EAR Fund, increasing from 10¢ a tonne to 25¢ per tonne. This is because it was believed that the fund was not going to keep up with the payments for the work that was being done to rehabilitate worked-out mine sites or quarries and sandpits.

I note that in the six years since then the fund has accumulated a significant balance. It was reported on that page that there are some $17 million in the balance as at 30 June, with commitments of about $3 million, suggesting that $14 million has been accumulated in the fund in the 6½ years since we changed it. Why is this money being accumulated, and was the parliament given incorrect information when it changed the royalty rate back in 2005?

The Hon. A. KOUTSANTONIS: As the member knows, the funds collected are used to limit damage to any aspect of the environment by such mining operations, in addition to the promotion of research into methods of mining engineering and practice for which environmental damage might be reduced.

As the balance was $17.184 million of the Extractive Areas Rehabilitation Fund, I think it is a good thing that the government is keeping a watching brief to make sure that we can deliver the very best environmental outcomes for South Australians. It is a budget decision. If the new shadow minister has a problem with that, I am sure he can move the appropriate amendments.

The ACTING CHAIR (Hon. M.J. Wright): I thank the minister and also the shadow minister. We now move to the Minister for Finance and Minister for the Public Sector. I remind members that they are to be on their feet and that all questions must be directly referenced to the Auditor-General's Report.

The Hon. I.F. EVANS: Thank you, Mr Acting Chair. Page 64 of Part C sets out the summary of adjustments to 2010-11 budget, new operating savings. The minister is, of course, in charge of monitoring the savings for the government. I note that there is a saving for the 'Procurement efficiencies' totalling about $4 million to $5 million over the forward estimates. Can the minister advise, in relation to that, whether that saving includes the recent announcements of the stationery/school purchase tender that was announced in recent weeks? Is that including that savings measure?

The Hon. M.F. O'BRIEN: The decision to work up an across government stationery contract was really a result of the issue we were having with the printer cartridges. I had a referral from the Western Australian Corruption and Crime Commission—an ICAC equivalent—and commenced an investigation. The investigation was then bolstered by another inquiry undertaken by the Victorian Ombudsman. With Victoria not having an ICAC, the Victorian Ombudsman did that work.

Our findings very much reflected the findings of the Western Australians and Victorians in terms of the necessity of putting in place a series of controls to deal with what was basically a criminal infiltration of our procurement processes in relation to stationery but specifically cartridges. The across government stationery contract is a direct response to that particular issue, so it is not included in those savings.

The Hon. I.F. EVANS: So, the savings then that you have announced of, I think, $5.36 million are on top of the $4.2 million, are they? That is on page 64. So, is there another $5.36 million on top of that $4.2 million or does the $5.36 million include the $4.2 million?

The Hon. M.F. O'BRIEN: The member for Davenport is probably aware of the delay with the implementation of the Health eProcurement proposition. You availed yourself of the opportunity to take the tour of Shared Services. I am glad you took up that offer and I am hoping that the briefing was more than adequate, so you are aware that we have some issues there in terms of a delay in the rollout of the eProcurement proposition.

The savings in relation to the across government stationery contract and other savings that we have achieved in terms of travel and the like will ultimately be reflected at a future date. There are a number of savings initiatives. With travel, I think we are securing a $0.5 million a quarter reduction in the cost of travel, so that is another $2 million. There are other areas in which we are undertaking reform.

The Hon. I.F. EVANS: Just in relation to the procurement of the stationery/school contract that the minister has raised, does the saving that is made go to the schools or does it go to the central budget?

The Hon. M.F. O'BRIEN: It would go to the schools and all other agencies because we are locking in all of government. So, there would be savings for Country Health and Health proper and every agency of government because every agency uses stationery in some form.

The Hon. I.F. EVANS: Given that schools have their own budgets, is it the intention of the government to try to recoup the savings by then cutting the school's budget to reflect the savings or is it the intention of the government to allow the schools to keep the savings and use the money at their discretion?

The Hon. M.F. O'BRIEN: The intention is to allow the schools to retain the savings. I would not say that the savings are incidental, but if we had a fully-fledged ICAC and the ICAC had undertaken this particular investigation, I think that it would have arrived at the same set of proposals that we have taken on board, firstly, that there should be an across government stationery contract.

Western Australia was targeted by this criminal group as well, and it has now adopted the across government stationery contract, and all other states in Australia already had it in place. When we made inquiries as to how other governments—both the commonwealth government and other state governments—were dealing with this particular criminal activity, we were informed that they had no issues because they actually had across government stationery contracts in place.

I see that as an effective firewall to keep out this type of corrupting activity. The other thing that we did was inserting in all contracts that if gifts were offered by a supplier then the contract would be automatically terminated. The third thing that we did was to insert in all our purchase orders several lines that made the offering or the providing of gifts with that particular order not acceptable. So, there were three things that we did, but the savings actually came out of that process.

It may well be that at some time we would have struck an across government stationery contract because that is the financially prudent thing to do, but the major driver was trying to crack down on corrupt and corrupting activity.

The Hon. I.F. EVANS: Just explain to me how it cuts down on corrupt activity, because you still have private providers providing the product so there is still the opportunity for corruption. Other than putting it in contract so that it becomes a breach of contract issue, how is anyone any better protected by having two suppliers rather than having 10? Can the same clauses not be written into the existing contracts and offer the same protection? If it is just a contract issue, how are you better protected by having only two suppliers rather than going to the existing suppliers and rewriting the contracts to insert those clauses?

The Hon. M.F. O'BRIEN: Member for Davenport, the issue that we faced with this broad approach to procurement was that any school or country hospital in particular could deal with whomever they liked. What this particular Victorian criminal operation was doing—and it is reflected in the report prepared by the Victorian Ombudsman—was that it would assiduously determine some of the most junior personnel in a particular operation, telephone them, alert them to the fact that the telephone conversation was being recorded and then make an offer to them and, if they dealt with this particular company or number of companies for the purchase of printer cartridges, they would be offered a gift.

If they accepted they were then offered the option of having the gifts delivered to their home address or to the office address. It was also pointed out to them that they would receive two invoices. The first of the invoices would detail the cartridges and the second would detail the gift, and they were then asked whether they wanted the second invoice, which detailed the gift, sent home. The inference being that a public servant could receive a gift and there would be no evidence that the gift had been received. All of the paper documentation would be sent to the home address along with the gift.

That worked extremely well. I think that, with respect to the case of schools, we are currently investigating 38 separate sites. There has been one individual who has been sacked and who will face criminal prosecution, two have been suspended and the fourth has resigned. We believe that it may well be as many as eight individuals employed within DECD who will face criminal prosecution. So we had a real issue there. Fortunately, the Victorian Ombudsman gave us a full explanation of the modus operandi of this particular group and made the point that those organisations in Victoria (which were Arts Victoria, one prison and a number of schools) were accessed because they had made a decision to step outside the Victorian across-government stationery contract.

It became apparent to us, from what the Victorian Ombudsman had written, from comment from New South Wales and Queensland and from the response in WA with their ICAC, that the only way we were going to close this down and effectively erect a firewall was to adopt the practice of having an across-government stationery contract.

The Hon. I.F. EVANS: How do the government's new arrangements impact on things like public officers who are seeking to negotiate debt arrangements with outside providers, or associations? What is to stop a public official saying, 'If you give me tickets to an event or give me a gift, I will negotiate certain debt repayments for you'? What is to stop the public officer doing that? It is one thing to get an actual gift based on a purchase, but a public officer can ask for gifts or benefits through a whole range of transactions. Is there an issue with a public officer saying, as part of a debt negotiation, 'I want five tickets to this or a gift here,' and, if so, how has the government dealt with that in a review of this matter?

The Hon. M.F. O'BRIEN: Member for Davenport, I take it you are going above and beyond stationery, given the fact that we believe we have dealt with that particular issue. This has fleshed out the necessity to inform all public servants that they are not to accept gifts.

The Hon. I.F. Evans: Or ask for gifts?

The Hon. M.F. O'BRIEN: Or ask for gifts, and on the purchase order the purchase order will state that gifts are not to be provided and, if a gift is provided with the item, then the contract will be suspended. The Commissioner for Public Sector Employment has been assiduously conveying that proposition to CEs and human resource managers, and we hope the message has got through.

The Hon. I.F. EVANS: No doubt there would be a written minute from the commissioner to the various CEs setting out the new arrangements. Is it possible for the minister to undertake to provide the opposition with a copy of the minute and the new arrangements?

The Hon. M.F. O'BRIEN: We can provide that, yes.

The Hon. I.F. EVANS: Can we move to Part C at page 54, which is the public sector and wage agreements? The PSA website claims that they have won extra job security and protection of existing conditions as two conditions in the IRC certified agreement. I am wondering how this reconciles with the issue of the government's abolishing tenure immediately after the 2014 election, if it wins.

The Hon. M.F. O'BRIEN: On the issue of tenure, the Premier at a media conference probably three or four weeks ago that I attended in the state administration building reaffirmed our commitment to the ending of tenure in the sense of no forced redundancies. I know there is now bipartisan support for the notion that, for those in the private sector, if a function has become redundant in the true sense of being redundant then the act of making people redundant can occur.

The Hon. I.F. EVANS: I am a little bit confused by what you have just told me. I am a simpleton in these matters, minister; you are going to have to walk me through this. Are you saying that the no forced redundancies provision that the government has promised only refers to positions that are made redundant, or are you saying that the no forced redundancy promise of the government allows the government after the election to say that you wish to reduce the Public Service even though the positions may not be redundant? What is the government's position?

The Hon. M.F. O'BRIEN: Having a private sector background, I think the notion of redundancy is clearly understood. If a position is redundant and if the function is no longer required—and I have been in private sector organisations where a decision is made that, for argument's sake, they want to close down a particular area of a sales operation because they no longer want to offer that particular set of products—then it is clear that those positions are redundant. This is not open slather because there is and will continue to be clear protection for public sector employees. This is not a tool for basically moving on large numbers of individuals without any recognition of due process. I think I have made myself understood in respect of redundancy.

The Hon. I.F. EVANS: Given that the PSA are claiming a victory over the government, in that they are saying that they have won 'job security provisions' and 'protection of existing conditions provisions' in the EBs negotiated over the last 12 months, can the minister provide to the house a list of all the job security provisions and all the protection of existing conditions provisions that have been inserted into the EBs negotiated over the last 12 months? Can you provide those to the house in due course?

The Hon. M.F. O'BRIEN: I can, and I have been advised that the references made by the PSA apply to the current term of this government. They are applicable only in the period up until the next election. That is the information I have been given.

The Hon. I.F. EVANS: So that I am crystal clear, the way I understand the answer is that the minister is advising that, when the PSA referred to 'job security' and 'protection of existing conditions', those matters only go up to the March 2014 election in the EBs that have been negotiated over the last 12 months?

The Hon. M.F. O'BRIEN: I have been advised that we will check on the claims that they have made on their website and return to you with a cogent answer. The information that I have supplied and the advice that I have been given stands, but we will see how that marries with the statements that the PSA have been making on their website.

The Hon. I.F. EVANS: Minister, you are in charge of Super SA, are you not?

The Hon. M.F. O'BRIEN: Yes.

The Hon. I.F. EVANS: One of the great joys. I suspect I know the answer to this question but I want to get it on the record. Is there an impact on the unfunded liability of the superannuation schemes under the federal government's proposal to lift the superannuation contribution from 9 per cent to 12 per cent? Does that have any impact on the unfunded liability going forward and, if so, what is it?

The Hon. M.F. O'BRIEN: I have been informed that it will not, in that the unfunded liability refers to a funding situation in the past and that all present contributions are adequate to cover expenses incurred, if I could describe it that way. The move from 9 per cent to 12 per cent will be fully funded by the agencies.

The Hon. I.F. EVANS: That is what we thought, but it is good to have it on the record. Part B, Volume 5, page 1766. The last paragraph towards the bottom of the page refers to future benefit payments being based on the salary increase of 1.5 per cent over CPI. Why has that figure peaked? We cannot find it in the legislation anywhere, that the future benefit payments are based on salary increases of 1.5 per cent over CPI. How has the government arrived at that figure and where does it come from?

The Hon. M.F. O'BRIEN: It is a historic, long-term average of wage growth, which is CPI plus 1.5 per cent. It is based on historic experience. We can return with that information. It has been put together on the basis of actuarial advice.

The Hon. I.F. EVANS: On Fleet SA, Part B, Volume 5, page 1575 refers to fleet management arrangements. On the government's tenders and contracts website there is a contract for the provisions of fleet management services worth $10.2 million over three years and the provision of vehicle disposal services worth $5.6 million over three years. In the 2010-11 budget, there was a $3.5 million saving over the three years for the outsourcing of fleet arrangements. I understand those contracts have now been signed. How does the value of the new fleet contracts compare with the in-house arrangements and have these savings been achieved?

The Hon. M.F. O'BRIEN: Apparently, the short answer is yes, but I have a longer response, and I can table that if you would like.

The Hon. I.F. EVANS: Yes. We appreciate the opportunity to walk through and have a look at Shared Services. Shared Services is raised a number of times in Part A of the report. Are the staff in Shared Services allocated to one agency and, if so, which one, or are the staff in Shared Services allocated back to various agencies depending on where they come from? When we are doing the headcount are the staff in the Department of the Premier and Cabinet all counted?

The Hon. M.F. O'BRIEN: According to the DPC.

The Hon. I.F. EVANS: Part A, page 21 shows a table of savings. In regard to the table, the total for savings allocated to initiative prior to reform, I am trying to reconcile the difference between this table in the Auditor-General's 2010-11 report and this year's report. While there is no difference in the totals for 2010-11 and 2011-12 for future ICT savings, SA Supply warehouses and ICT mobile carriage services, the 2011-12 totals are higher than the 2010-11 totals by the following amounts: 2011-12, $580,000; 2012-13, $1.198 million; 2013-14, $2.728 million; and 2014-15, $2.798 million. What is the reason for the difference in the two reports?

The Hon. M.F. O'BRIEN: We do not have the budget papers with us and we will check, but my understanding is that the way Shared Services operates is that it has a scale of fees it actually charges for the functions it performs on behalf of agencies and that is a full cost recovery model. Where there is a gap, that could be attributed to reform costs that cannot be borne by the agency and that would be funded out of general revenue, but I will check on that for you.

The Hon. I.F. EVANS: I am assuming there is some appeal mechanism for the fees being set. Shared Services says, 'Here's your fee for the year,' and if the agency is not happy there must be some appeal mechanism to some independent arbiter. So, who is the independent arbiter and have there been any disputes in the past 12 months?

The Hon. M.F. O'BRIEN: The process of determining the fee structure or the service level agreement is negotiated between Shared Services and the agency. To date, there have been no disputes, but in the event of a dispute it is envisaged there would be some negotiation and a common point of agreement reached through negotiation.

The Hon. I.F. EVANS: So, there has been no dispute in three years of Shared Services between an agency and Shared Services as to how much they charge. Okay.

The CHAIR: The time for the examination has ended, unless you have a quick question?

The Hon. I.F. EVANS: Tranche 4 of the ICT Services—last question—went from a compulsory arrangement to an optional arrangement, and according to the Auditor-General has now been abandoned. What was the reason for the abandonment? How much was spent on tranche 4 implementation, as last year's Auditor-General Report listed it as $10.5 million? Is that the total cost?

The Hon. M.F. O'BRIEN: Basically, member for Davenport, the decision to abandon Tranche 4 was, in part, due to budget pressures, but I also had a view that we ought to slow down the process of adding additional services to Shared Services until it well and truly got on top of issues, particularly in relation to accounts payable and payroll. I was of the view that we were making progress but that there was still a significant amount of work to be done, and to take on board the reform of the ICT across government proposition, I thought, was asking a little too much. We also had this issue of budget constraints. The figures that you have sought, I will supply to the member.

Progress reported; committee to sit again.

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