Power plants seeds of doubt over sales

IN this period of unprecedented political dominance by a state government, concerns are emerging about the transparency of, and accountability for, decisions made by Mark McGowan and his team.

The recent decision to sell the Landgate building complex in Midland to construction company Georgiou for $17.3 million–and then lease it back at a cost of $85 million– has raised eyebrows.

“The deal stinks for the [Western Australian] taxpayer,” said veteran property law, sales and leasing consultant Paul Collins on his website blog.

“I fail to understand why this deal is so bad for the state government and outstandingly brilliant for the buyer.”

Before the Midland controversy, there was the secretive South Fremantle power station sell-off, which still hinges on a conditional agreement signed with an undisclosed private buyer seven months ago.

The amount paid, if anything, for the six hectares of beachside public asset remains confidential, and no-one in Synergy or the state government will reveal the buyer’s identity.

There has also been scrutiny of the 8.5ha East Perth power station deal, which was secured by billionaires Andrew Forrest and Kerry Stokes, after the land was valued at $1. So far, the government has spent about $70 million to prepare the land for the private developers, more than double its original commitment.

Separate to that arrangement, the premier still hasn’t explained why he alerted Mr Stokes–the media baron behind Channel 7 and the state’s daily and Sunday newspapers–to secret legislation aimed at billionaire Clive Palmer, moments before its 2020 introduction to parliament.

Another ongoing source of criticism for the government is the botched $205 million rail communications contract with controversial Chinese telco Huawei.

Terminating the Huawei deal has cost taxpayers an extra $128.6 million.

The $6.6 million settlement with Huawei and a replacement contract with Nokia Solutions and Networks have taken the project cost to $327 million.

But details of the new arrangement were kept hidden from the public for six months, as part of a decision by the government to sit on the information until the Huawei settlement was reached.

The state opposition has formally requested auditor general Caroline Spencer investigate, and she told Business News that was a possibility when being interviewed for this story.

“We’ll put that through our topic selection process, but just because the opposition has asked me to look at something it doesn’t mean I will,” Ms Spencer said.

“My independence is incredibly important.”

Midland sale

 Mr Collins, of Lloyd Collins Property Consultants, is a Liberal Party member, but he told Business News his critique of the Midland Landgate deal was driven by concerns about the value of a public asset being squandered under the government’s market-led proposal scheme.

He discovered that in addition to the $85 million government leaseback of 13,722 square metres, Georgiou gets a remaining 3,905sqm to lease as it wishes.

“There is a potential further income of $1.6 million per year,” Mr Collins wrote.

He believes the overall sale price could have reached at least $100 million if the government had gone ahead with an already budgeted refurbishment of more than $10 million.

Instead, the government announced it will save that money and pay Georgiou $5.7 million a year in rent for the next 15 years to house around 800 public servants.

“Government-guaranteed rent for 15 years is as good as a 10-year government bond, which currently sits at 4 per cent,” Mr Collins wrote.

Also included in the sale is a 3,693sqm car park nearby.

Under the terms of the contract, Georgiou can redevelop that land, but it must provide the same number of parking bays currently available for the Landgate buildings.

Georgiou is yet to comment on criticism about the deal, but has said it plans to spend $30 million refurbishing the buildings and adding a gymnasium for in-house workers and the public.

“Given the government’s sound financial position, why didn’t it do the refurbishment?” Mr Collins wrote.

“Why did the government do such a bad deal?”

Liberal Party WA leader David Honey described the $17.3 million sale as “the deal of a lifetime” for Georgiou, accusing the government of “giving away the building at tens of millions of dollars below its real worth”.

Dr Honey claimed the rental yield for the buildings, with a long-term government tenant, would normally be about 5 per cent and the rent closer to $1.4 million.

Planning Minister Rita Saffioti said the government’s market-led proposal steering committee handled the sale independently and made the decision after a great deal of analysis.

“It looked at the cost of refurbishing the Landgate building in the future, the cost of current accommodation for the public servants and the fact that the building was significantly underutilised,” Ms Saffioti told parliament.

Forensic audit

Ultimately, it’s the auditor general, Ms Spencer, who examines the propriety of government asset sales, commercial contracts and cost benefits.

Ms Spencer told Business News her office had begun a painstaking inquiry into “significant land transactions by government over the last decade” as part of its forensic audit program.

“This is a very substantial piece of forensic work that we’re doing,” Ms Spencer said.

While stopping short of announcing which government deals were being looked at, Ms Spencer said some involved Paul Whyte, the corrupt former senior bureaucrat who was jailed for stealing more than $20 million of taxpayers’ money.

She said the forensic audit, which will take at least a year to complete, would find any impropriety in a long list of government land deals.

“Even acting on inside information before government announcements,” Ms Spencer said.

“So, the timing of land transactions, for example.”

The auditor general said she understood why there were calls from some sections of the media and community for up-to-date information about the South Fremantle power station deal.

“There’s obviously a process the government has to go through, but government agencies should expect steps in that process are made public, because these are our assets,” Ms Spencer said.

“The questions and scrutiny by journalists are so important to the proper functioning of our democracy.”

Energy Minister Bill Johnston has repeatedly said he is “not aware of any details of the sales process”, which came about through a government call for expressions of interest.

“I have previously explained that this process is being conducted independently of me and my office by Synergy,” Mr Johnston told parliament earlier this year.

“Synergy was asked by me to deal with the entire matter as a commercial transaction without political interference, and that is exactly what is occurring.”

News website WAtoday recently reported that Mr Stokes’ private family company, Australian Capital Equity, was the mystery buyer and that a conditional sale agreement had been reached for the site.

ACE won’t comment, but if the report is correct, Mr Stokes will become the full or partial owner of two prime disused power station sites.

Former Fremantle mayor and current Greens MP Brad Pettitt said he had no issue with Mr Stokes investing in public assets in need of expensive redevelopment.

“But what they pay for it, what they’re expecting from the government and what they’re planning to do with a public asset should be in the public realm and able to be seen,” he said during an interview on 6PR radio this month.

“It’s opaque, non-transparent processes like these that, I believe, are not good for good governance and getting good value for ratepayers.”

This government’s approach to the South Fremantle project is in stark contrast to its push for greater transparency when it was in opposition.

In 2014, then Labor MP Amber-Jade Sanderson asked a series of questions in parliament’s Legislative Council about plans to sell the East Perth power station at the time.

She wanted to know who the potential buyers were and the site’s value.

Colin Barnett’s government cited commercial-in-confidence reasons for refusing to answer, but an auditor general’s report later found it was “unreasonable” and “not appropriate” to withhold the land’s value from the public.

Colin Murphy was the auditor general then, and he supported the decision to keep the names of potential buyers of the power station hidden at that time.

Ms Spencer became his successor in 2018. “The business of government is complex, and we recognise that,” she said.

“We recognise that certain negotiations, whether it be contractual provisions or payments, are not broadcast during the process.”

East Perth deal

While the final plans for the East Perth site remain a work in progress, the government said the land would be transformed into a residential, recreational and tourism precinct once remediation work was completed.

“It will be a bit like when going into the heart of the world’s great cities,” Mr McGowan replied, when asked in parliament last month when the Stokes-Forrest redevelopment might begin.

“The value of the private sector development is around 10 times the state government’s investment.”

Since 2019, the amount of taxpayer money committed to preparing the site for private development, which includes decommissioning an electricity switching yard, has increased from $30 million to almost $70 million.

“Obviously, it is a very, very difficult site because it needs remediation and all sorts of services, such as electricity and gas infrastructure on the site that needs to be moved, so it has a cost attached to it,” Mr McGowan said in parliament.

“That is the reality. But once that is done and the site is redeveloped, the total cost for the private sector to redevelop the site, I am advised, will be around $1 billion.”

South Fremantle mystery

Travel about 30 kilometres south of the city and the future of what Mr Johnston described as “the iconic” South Fremantle power station site will remain less clear until the plans of its undisclosed new owner–be that Mr Stokes or someone else–are made public.

“If Synergy can dispose of this asset for less than the potential cost of rehabilitation, it will have done a great job and I will congratulate it,” Mr Johnston said under questioning in parliament.

“But what I will not do is follow the suggestion from the shadow minister and have political interference in this process.”

Synergy’s 2021 annual report suggested the name of the successful bidder would be announced by September that year, and that the power station site “has a carrying value of nil”.

Meanwhile, glossy brochures have been prepared showing how the old site will integrate with a new mixed-use commercial and residential development called Shoreline.

“The long-term vision for the building includes a selection of restaurants, cafes, retail, community art and tourism,” the material reads.

“Whether you prefer fish and chips or lobster and salad, each meal will come with the same spectacular ocean views.”

The Liberals’ Dr Honey has previously questioned the expressions of interest process for the heritage[1]listed site.

“The South Fremantle power station sits on prime real estate, and it would be a disgrace if it was sold for just $1 in a rushed sale,” he said last year.

Gas exemption

The Stokes name also came into play back in 2020, when Mr McGowan announced a new domestic gas policy, which exempted just one LNG producer from the strict new export rules.

 Beach Energy, of which Mr Stokes’ Seven Group Holdings is the majority shareholder, does not have to comply with a ban preventing the export of LNG produced onshore to the eastern states or overseas.

At the time of proclaiming the extension to WA’s 15 per cent gas reservation policy, Mr McGowan said the Beach Energy-Mitsui owned Waitsia gas field would be exempt for a “short period of time” because the Mid West project was about to start construction.

“The Waitsia Gas project stage two is an exemption to the policy,” Mr McGowan said.

“Once sanctioned, it will provide urgently needed jobs, royalties and economic stimulus.”

 At a press conference in August 2020, the premier refused to say if he had discussed the exemption with Mr Stokes or his son Ryan, the chief executive of Seven Group Holdings.

“I’m not going into any private conversation I have about commercial matters,” Mr McGowan said.

On the back of the policy announcement, Beach Energy’s share price increased by 6.8 per cent and the exemption allowing Waitsia to export its product will last until the end of 2028.

“I can’t control the share price,” Mr McGowan said at the press conference.

“The majority of the gas, at least half, is coming to WA.”

About a year later, a second onshore LNG producer, Bennett Resources, was also exempted from the export ban.

Text messages

An insight into the premier’s relationship with Mr Stokes came in March, when Mr McGowan was called to give evidence at the defamation trial playing out between him and Clive Palmer.

Mr Palmer’s barrister, Peter Gray, produced text messages between Mr Stokes and Mr McGowan on the day his government brought in legislation to stop the Queensland mining magnate from claiming billions of dollars in compensation from a stalled mining development in WA.

The first text was sent by the premier one minute before the closely guarded details of the law were introduced on August 11 2020, by Attorney-General John Quigley.

“Kerry, we just introduced legislation to block a claim by Clive Palmer against the state of WA for $28 billion,” it read.

“The claim was currently in arbitration and was based on two decisions Colin Barnett made in 2012. Barnett rejected a proposal by Palmer to develop the Balmoral South mine. Obviously, he won’t be happy. I’ll call to discuss.”

Three days later, Mr Stokes sent a congratulatory text to the premier.

“Mark, well done,” the text began. I think no-one else could have achieved the legislation in the speed you did. Reckon the insect heads should make a Telethon sales item. People are with you! Kerry.”

The reference to the insect heads was a boast about a series of spiteful front-page headlines and illustrations Mr Stokes’ morning paper had aimed at Mr Palmer.

Mr McGowan sent a text back.

“Thanks Kerry. I was asked about those marvellous front pages today, and I said, ‘I think The West has gone a bit soft’. I appreciate the support enormously. All the tut-tutting by some people about Palmer’s ‘rights’ makes me sick.”

When asked by some reporters why he chose to give Mr Stokes a heads-up about the anti-Palmer law, the premier used the unresolved defamation case as cover.

“The judge has not handed down a judgement and I cannot say anything about matters before the court,” he said in March.

Mr McGowan has promised to explain his reasons for messaging Mr Stokes once the Palmer case is resolved.

Property developers

The relationship between property developers and government is something the Corruption and Crime Commission chief John McKechnie thinks should be reviewed.

In the June 13 edition of Business News, Mr McKechnie said there was a need for the government to “deal with property developers at arm’s length”.

In WA, the political donations system enables property developers to give money to political parties.

Mr McKechnie argues this state hasn’t “got it right”.

Last year, Mr McGowan was the guest of honour at a Labor Party fundraiser hosted in the Peppermint Grove home of WA’s largest property developer, and long-time Liberal Party member, Nigel Satterley.

The premier’s default position when asked questions about the gathering was to say fundraising was a matter for the party’s head office.

Past lessons

Two months after winning his first election in 2017, the premier ordered an inquiry into “the decision-making processes, transparency and financial consequences of projects and contracts under the former government”.

Overseen by former state under-treasurer John Langoulant, the inquiry was asked to report on “lessons to be learned for current and future governments”.

The main hook for the inquiry was the record $30 billion of debt incurred by the Barnett government during its eight years in office.

Mr Langoulant made numerous references to a lack of transparency across a range of government projects.

“Information about government programs and projects should be open for scrutiny,” he concluded.

“Based on shared principles, the government should develop a transparency framework for reporting details of major projects.

“The framework must require continuous disclosure.”

How would those comments sit alongside some of the taxpayer-funded projects currently in the pipeline?

Despite a conditional deal being done months ago to sell the South Fremantle power station to a private developer, there hasn’t been a government media release about the site since June 2021.

Mr Johnston maintains that his hands-off approach regarding the sale of the asset, and therefore the public’s, is appropriate.

It was only under questioning in parliament that a government minister revealed the value placed on the East Perth power station land was $1.

Huawei hangover

When the opposition has previously asked about the Huawei rail communications contract, it’s been ridiculed by the premier for being anti-China.

Ms Saffioti has blamed the collapse of the contract on a trade dispute between the US and China, and said it was Huawei that couldn’t fulfil its contractual obligations.

That doesn’t explain why WA taxpayers are forking out the $6.6 million settlement sweetener, or why the replacement deal with Nokia is costing an additional $122 million.

Before parliament rose to begin its winter recess at the end of June, opposition leader Mia Davies made transparency and accountability the cornerstone of a final debate.

“We do not have to go back far in history to understand why transparency and accountability matter,” Ms Davies said.

“It matters because if governments are not transparent, we will end up in the situation we had in the past with the government’s side of politics, with the issues that arose around WA Inc.

“It took some considerable time and effort to find that out. I would think, knowing that history, that this Labor government would make itself above and beyond reproach and be open and accountable.”

Ms Saffioti’s response was to accuse the opposition of manufacturing outrage “over something that does not exist”.

“We will continue to operate under all the legislative frameworks that exist for financial accountability and transparency,” Ms Saffioti said.

“When information is available, we report on changes in scope and cost.

“When decisions are made and contracts are changed, we will report that. We do that by way of media statements or statements in this place.”

Transparency key

Ms Spencer said transparency was crucial to the government’s 2019 market-led proposal (MLP) policy, which encourages private enterprise to make unsolicited bids around state infrastructure needs, public-owned government assets and the provision of goods and services.

The auditor general can see merit in the policy.

“Market-led proposals are interesting,” Ms Spencer said.

“In a sense government has been giving away land forever. Whether it be soldier settler blocks, community spaces or green spaces. So, on principle, MLPs are not a bad idea.”

But she warned too much secrecy would justifiably arouse suspicion about who was involved and what was being planned.

“Transparency in the process builds confidence in the process, and then you’re not casting aspersions on people or organisations who are involved,” Ms Spencer said.