Tasmanian Times

Bob McMahon

What the hell is going on?

Bob McMahon

I thank Mr. Gillies for his prompt reply to my questions and I wish to assure the readers of this article that my letter to Mr Gillies was an open letter. The explanations supplied by the RBF raise many further questions, but before I make a public response I invite the readers to contribute to this debate. Your questions and points of view would be much appreciated, either in these columns or privately via email: bob@orielstudio.com.au

The debate over the sale of State assets has a long way to run given that the government has offered the Southern Cemetery Trust for sale and there are strong rumours that other assets, such as water, will also be put on the market. I know the alarm bells are ringing around the state because it is assumed, correctly or incorrectly, that the push is on by the Lennon government to raise funds for pulp mill infrastructure or for the pulp mill itself. RBF members, is your money paying for pulp mill infrastructure?
The sale of the Hobart Airport to a consortium of Macquarie Group and the State superannuation scheme, the Retirement Benefits Fund (RBF), occasioned a little interest from the mainstream media on the day of the announcement and none since. A couple of weeks before the sale Treasurer Aird was reported as having said he hoped to get $40 million for the sale. The eventual enormous sale price of $350 million was touted in the media as a “windfall” for the State Labor Government, but the only attempt I have seen to explain the disparity in price was a throwaway line in the print media alluding to strong bidding from other contenders. Who were these contenders and how strong must the bidding have been to push the price more than four times higher than the market value estimates in the print media, following the sale, of somewhere in the vicinity of $80-85 million?

The RBF, using Tasmanian superannuants’ money, picked up half the tab of $175 million. Members of the RBF started wondering what the hell was going on. As a member of the RBF, and on behalf of other members who had communicated their concerns to me, I wrote to the RBF seeking some answers. What follows are the questions I asked and the answers supplied on behalf of Simon Gillies, Chief Executive Officer.

1. Would you please provide me with the names of the directors of RBF and indicate the names of those directors who were appointed by the Tasmanian Government?

Referral to the 2007 Member report provides detail of each Board member and how they were appointed. Damian Egan: President of the RBF Board (non-voting) Nominee of the Minister with the agreement of the Tasmanian Trades and Labor Council. Andrea Schiwy: Deputy President of the RBF Board, Nominee of the Minister. John Wilcox: Nominee of the Minister. Kim Besharati: Nominee of the Minister. Lindsay Jones: Nominee of the Tasmanian Trades and Labor Council. Neroli Ellis: Elected by the members of the RBF Contributory Scheme. Kim Backhouse: Elected by members of the Tasmanian Accumulation Scheme. Wendy Sawford: Substitute Board member – currently a substitute for Andrea Schiwy – Ms Sawford is Director of the Revenue, Gaming and Licensing Division within the Dep’t of Treasury and Finance. Simon Gillies: Chief Executive Officer.

2. Would you please provide me with the minutes of the meetings in which the purchase of the Hobart Airport was discussed? The identity of the proposer of the motion to purchase, the seconder and the names and nature of the votes of all the directors is also requested at this time.

It is not possible to release to you the Board minutes concerning the Board’s investment in the Tasmanian Gateway Consortium as the decisions taken are commercial in confidence.

3. If the minutes do not include the substance of all discussion with Macquarie Capital and the Tasmanian State Government re the airport purchase, would you please provide me with transcripts/minutes of those discussions?

It is not possible to release to you the substance of any discussions with Macquarie Capital and the Tasmanian State Government as those discussions are commercial in confidence.

4. Would you please clarify the status of the ownership of the Hobart Airport in regard to the portfolio of investments held by RBF on behalf of its members? What I am getting at is do the members of the RBF share in the profits/losses that result from the joint operation of the airport with Macquarie Capital?

The Board’s investment in the Hobart Airport is via shares in an investment vehicle established by the Tasmanian Gateway Consortium for the specific purpose of acquiring Hobart Airport. This investment has been allocated to the RBF Infrastructure asset class. Therefore, RBF members who have invested in any of the Member Investment Choice (MIC) options which include an exposure to Property and Alternative Investments will receive returns generated from the Board’s investment in the Tasmanian Gateway Consortium. The RBF Contributory Scheme also has an exposure to the investment in the Tasmanian Gateway Consortium.

5. What proportion of the Hobart Airport does the RBF own and how much did the RBF pay for that proportion? In what proportion does RBF share in the profits/losses from the operation of the Hobart Airport?

The Board owns 49.9% of the shares in the Tasmanian Gateway Consortium with the balance owned by the Macquarie Group and associated interests. This investment represents approximately 9% of the RBF Property and Alternative Investments asset class and less than 3% of total funds under management. The investment meets the objectives of the Board’s investment strategy as it compares favourably on a risk adjusted return basis.

6. Given the Hobart Airport’s low revenue and profit levels how does this justify the high purchase price?

As trustees of the Retirement Benefits Fund, the Board has an obligation to ensure that the Board’s functions and powers are performed and exercised in the best interests of the beneficiaries and, in respect of the RBF Contributory Scheme, having regard to the interests of the State. The Board has made this investment after due diligence processes that utilised expert assessment. The Macquarie Group is considered to be the world’s leading value-adding airport infrastructure manager and investor. The Board has been working alongside Macquarie Group for many months conducting detailed due diligence on valuations of similar global assets. The Board has confidence in its bid strategy as a co-investor and believes that the asset has strong long term portfolio returns and that its sound cash flow positioning compliments (sic) other high quality assets in the Board’s portfolio.

7. It has been reported in the press that the reason why $350 million was paid for the Hobart Airport is because of strong bidding by other contenders for the purchase. Would you please substantiate this report?

The Board does not speculate on media reports. Globally, airport assets attract strong investor interest and the recent sale of Hobart Airport represented one of the rare opportunities in recent years where 100% of the asset has been offered to the market.

8. What similar purchases, i.e. of properties and businesses which the RBF owns and operates wholly or in partnership, have been made by the RBF in the last four (4) years?

The Board has approximately $50 million invested directly in Tasmanian real estate of which approximately $10 million has been invested in the last four years. The Board is currently investigating redevelopment options on the Myer Hobart site which was devastated by fire in September 2007. Whilst the Board’s exposure to Hobart Airport is its first direct investment in infrastructure, the Board has been conducting research in this area for over eighteen months.

In summary, the Board has every confidence in its new investment in Hobart Airport. The Airport has low volatility with stable cash flows and growth potential. As the only major airport in southern Tasmania, there is little competition within the market to threaten or reduce current service levels.
Simon Gillies Chief Executive Officer

I thank Mr. Gillies for his prompt reply to my questions and I wish to assure the readers of this article that my letter to Mr Gillies was an open letter. The explanations supplied by the RBF raise many further questions, but before I make a public response I invite the readers to contribute to this debate. Your questions and points of view would be much appreciated, either in these columns or privately via email: bob@orielstudio.com.au

The debate over the sale of State assets has a long way to run given that the government has offered the Southern Cemetery Trust for sale and there are strong rumours that other assets, such as water, will also be put on the market. I know the alarm bells are ringing around the state because it is assumed, correctly or incorrectly, that the push is on by the Lennon government to raise funds for pulp mill infrastructure or for the pulp mill itself. RBF members, is your money paying for pulp mill infrastructure?

On a different tack the government is also considering the sale of certain Department of Housing assets in order to pay off some of the more than $200 million housing debt owed to the Commonwealth.

Bob McMahon
www.abetteraustralia.com

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13 Comments

13 Comments

  1. Patricia Dasic

    November 20, 2008 at 6:49 pm

    To John Hayward, I’ve also heard a theory that fluoride in drinking water keeps the population docile, thus the predisposition of governments to be so concerned about dental decay. It is said to have been added to the water in parts of Europe during WW2.

  2. ted sands

    February 9, 2008 at 3:48 pm

    further to the debate on affordable housing we need to look further as the city of salisbury in sa are doing and explore the development of unwanted council land for low and middle income earners. In this proposal the subdivision is developed and houses built by developers BUT the cost of the land is not paid by the purchaser until that person decides to sell later into the future. I believe all councils in this state have land that can be developed and I will be pursuing this proposal with the Launceston City Council. This is a totally different action to state housing and is one that will allow many families to enjoy home ownership without the onerous cost upfront of buying the land. As is evident the astronomical cost of the land purchase denies many people the chance to get out of the rental market. More news on this proposal later

    Ted Sands Launceston City Council

  3. crud

    February 5, 2008 at 1:27 pm

    i had to laugh when i heard lara giddings on the radio saying..we are serious about housing,what a joke,paul and lara are swanning around adelaide looking at govt.housing.they have no intention of building houses for the poor/homeless,instead syphoning off hundreds of millions of dollars of YOUR money for infrastructure and maybe finance for a dodgy project while people are living in tents,and never ending hospital waiting lists etc etc.

  4. Tony Saddington

    February 4, 2008 at 3:08 pm

    I dont think you would find many who would oppose selling one assett,such as the Airport, if it was in order to fund a much needed or noble cause such as hospitals, dental and care facilities.
    I think the basis of Bob McMahon’s argument lies in who is considered worthy of financial assistance, who gets it and how much do we sell?

    So I ask, is a privately owned company such as Gunns worthy? Is a dubious pulp mill owned by same, entitled to obscene amounts of public money being thrown into it in promotion, research and operation whilst our health and care facilities languish through lack of funds?

    Gunns has the financial support of its shareholders, many who live outside of Tasmania. It has aquired Auspine and Carter Holt (NZ).
    If we sell off Tasmania’s “cash cows”, it must be for the Tasmanian public, not to make someone in Melbourne or Sydney richer.

    Gunns, in my opinion, is not worthy enough to subsidise. We have serious services and infrastructure that do.

  5. Richard

    February 3, 2008 at 11:50 pm

    One of the reasons there is current value in the airport is its location. People from other parts of the world who have money to travel choose to come to Tasmania to see the beauty of its pristine wilderness and the ideal balance between beach and mountain, creeks and streams, city and hamlet, and the clean air. They enjoy the quaint unintended humor of the bed and breakfasts with their signs put out saying “shut for long weekend” and they like driving through the forests and seeing some great rivers flow. They may even see a funny furry half bald little creature hopping about in the half light – a native merkin or just the premier – who knows ?

    What is true is that when it is all buggered up they wont come here any more. Its beautifully simple.

  6. George Harris aka woodworker

    February 3, 2008 at 10:14 pm

    Sorry, B&J;, (post 4), I was responding to Bob McMahon’s assertion that public asset sales were for the particular purpose of funding pulp mill infrastructure, or the pulp mill itself, when this is not the case. I was seeking to point out that the public cost of funding the new hospital, and various other stated projects was far and away greater than any infrastructure cost demands that the pulp mill proposal would send in the direction of the public purse. That’s all. Do you see that now? I am sorry if I did not make that sufficiently clear by the way I wrote it…

  7. Beezo

    February 3, 2008 at 9:33 pm

    I can answer #8!

    It’s iodine deficiency.

    Don’t laugh…check it out.

  8. John Hayward

    February 3, 2008 at 8:32 pm

    1.Like a bunny in the headlights, i.e. like the RBF member that I am, I ask, why were we not even given the names of the competing bidders?.

    2. On what factors did the purchase price more than quadruple, given that the airport’s projected revenue does not indicate any corresponding increase in profits?

    3. Does Macquarie carry the same risk profile as Mac?

    4. How much has the RBF had to borrow for this purchase, and on what terms?

    5. What percentage of the purchaser’s risk does the RBF carry?

    6. Why was the majority, 50.1% holding, granted to Macquarie, given the RBF’s presumed fiduciary duty to its members.?

    7. How much of the proceeds of the airport’s sale will go to projects ordinarily paid for out of normal revenue, such as hospitals and log truck transport?

    8. What explains the extraordinary docility of Tasmanians?

    Thanks for the answers.

    John Hayward

  9. Alex Wadsley

    February 3, 2008 at 7:35 pm

    Leaving aside the public policy debate on the merits of selling assets at high prices on the basis of their perceived monopoly, whose value, plus profit, must later be recouped at a cost to Tasmanian businesses and families; the sale process aint a bad model.

    The role of the RBF creates a murky line between public and private ownership, public and corporate accountability, but is ultimately in the public interest. The superannuation liabilities of public servants weigh heavily on the governments balance sheet, better value management of state assets is the easiest way to fix them up. The best model of improving management is bringing in private sector ‘value maximisers’ while the government acts independently as the regulator.

    This has been effectively achieved, with the government selling half the airport to Macquarie Bank for $175 million and transferring management of the remaining public interest to the RBF.

    We should be concerned about the capability of government appointees, the politicised under-promise and over-deliver on expected asset prices and WHERE THE MONEY WILL BE SPENT. But I don’t see any smoking gun here.

    If there is a downturn, the government will have divested half. If it goes well, public servant superannuantion investors get half. A fair bet.

    Now could the government do the same thing partially divesting Forestry Tasmania, Hydro … The real under-performers in the governments asset portfolio. Perhaps let Max ‘the AXE’ Moore-Wilton do his job?

    The government still has billions in unfunded super to sort out, something that could be resolved through a ‘Future Fund’ to improve investment returns. This might involve strucures similar to the Airport sale.

    On what to do with the money? Well the government could invest in existing assets, buying shares and bonds etc, but my view as an economist is that we need to be undertaking more asset creation rather than bidding up the price of existing assets. So polluting pulp mills aside, infrastructure hubs or Myer re-developments are not a bad place to invest if we wish to keep the baby boomers financially secure into their retirement.

  10. Buck and Joan Emberg

    February 3, 2008 at 4:49 pm

    Hey Woodworker….please explain your prose. We don’t know which path you are on. You write well though. B&J;

  11. George Harris aka woodworker

    February 3, 2008 at 12:58 pm

    Oh dear! The conspiricy theorists with brains the size of a grey pea are all going manic! The infrastructure requirements are a drip in the ocean compared to the cost of building the new Royal Hobart Hospital and decommissioning the old one. It becomes an even smaller drip in the ocean when seen against the totality of infrastructure projects around the state that are being pursued. Go and make a cup of tea, and find a good book…

  12. Buck and Joan Emberg

    February 3, 2008 at 11:49 am

    Death of bad government is caused by open covenants and agreements openly arrived at. We are in a political era in which government hides its decisions under the facade of “leadership”.

    We need new governments that do not hide and do not make hidden pacts with business, unions and the big end of town.

    Real leadership listens to the people and tries to deliver the wants and needs of the people.

  13. Watcher On The Balcony

    February 3, 2008 at 4:36 am

    We clearly have an interesting scenario in which the plot can thicken. And, if memory serves me at all, the RBF has played some interesting roles in past productions.
    In this case, could the devious Machiavelli have set up some stooges to carry out some whims in the thrust for power and glory? Will the likely sacrificial victim be the pending retirees of the state – or the Tamar environment?
    Can we find the answers to these questions and more by going to watch the film Sweeney Todd?

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