Govt to pay $125M to retire rest of PICL debt

5/6/94

Premier Richard Court announced today that the State Government would pay $125 million to the ANZ Bank to retire the last of the PICL debt.

Mr Court said the long-suffering taxpayers of Western Australia had finally been relieved of the financial burden of the petrochemical plant fiasco.

He said the PICL debt had resulted from the most infamous of all the WA Inc deals. It had been a direct result of the financial incompetence and 'grossly improper' conduct of the previous Labor goverment.

"The final payment of this debt brings to a close one of the sorriest chapters in this State's history," Mr Court said.

"The total cost to the taxpayers of Western Australia has been a staggering $413 million.

The Premier said the $413 million consisted of:

·       $175 million - initial investment

·       75 million - interim financing

·       111 million - interest on debt

·       27 million - settlement of contractor's claims

·       6 million - miscellaneous costs

·       12 million - legal expenses for defence of PICL law suit

·       7 million - legal expenses contribution to settle law suit.

Mr Court said the PICL debacle had impacted heavily on the past six State Budgets.

"Now, due to the responsible financial management of the Coalition Government, the 1994-95 Budget will ensure that taxpayers are free of the yoke of PICL for the first time since 1988," he said.

"Although PICL cost the State $413 million, it was just one of the many disasters of the WA Inc period.

"The effect of other WA Inc deals is still being felt by the taxpayer.

"The WA Inc years also had a long-lasting effect on business confidence in the Western Australian economy and on the image of government in this State."

Mr Court said the payment of the $125 million was an important demonstration of the Government's commitment to responsible financial management.

"In particular, it shows the Coalition Government is serious about reducing State debt," he said.

"The Government has received higher than expected revenues this year because of the rapid growth in the WA economy.

"Instead of squandering the money as some would have us do, the government has decided to relieve taxpayers of the burden of the PICL debt.

"The Government is acting responsibly in repaying this debt - a move that will go a long way towards burying the ghosts of WA Inc.

Mr Court said in the last five years of the previous Labor governments only $25 million had been paid off the initial $175 million debt it created, although it had budgeted for a further $25 million in its final year.

In contrast, the entire debt had been repaid in the first two years of the Coalition Government.

Mr Court said if the existing schedule of payments had been complied with, it would have taken another four years to extinguish the debt.

BACKGROUND DETAILS - THE PICL STORY

The State Government's payment of $125 million to the ANZ bank to retire the last of the identified PICL debt brings to a close one of the sorriest chapters in this State's history.

The total cost to the State has been $413 million. This is made up of:

$175M - initial investment

75M - interim financing

111M - interest on debt

27M - settlement of contractor's claim

6M - miscellaneous costs

12M - legal expenses for defence of PICL law suit

7M -  "      "    contribution to settle law suit

$413 million

The PICL story is one of such extraordinary waste, political expediency, Parliamentary deceit and Government duplicity that many Western Australians are still reluctant to believe that an elected Government could have been involved in it.

They find it hard to believe that solely for political self-preservation the then Labor Government would squander so much of taxpayers' funds on a deal that had no commercial merit or prospects and involved such sustained deceit and financial risk.

The facts of the PICL deal are such that they ought to be known and remembered by present and future generations so that the State may never again suffer from such chicanery.

In July of 1985 a joint venture comprising Dempster Nominees Pty Ltd and Mallina Holdings submitted a proposal to the State Government's Department of Resources Development for a petrochemical complex.

In January 1987 the State Government granted a six-month 'mandate' to Petrochemical Industries Company Limited (PICL), at that time jointly controlled by Mr Dempster and Mr Connell.

Through 1987 and the first half of 1988 the PICL proponents engaged in planning and studies for the complex.  Discussions of a commercial nature took place between PICL representatives and SECWA.  At no time during that stage did the Government make a commitment to financially support the project, although there is evidence that PICL was representing to its financial advisers that the Government was inclined towards providing support.

The Royal Commission concluded:

'We are satisfied that, in the first half of 1988, without a Government guarantee/support mechanism the collapse of the project was imminent and, with knowledge of that situation, Mr Parker supported SECWA's position and decided not provide the support . . . . The precarious position of the project and Mr Parker's knowledge of that position, are significant . . . . in the context of the Government decision to purchase PICL in conjunction with Bond Corporation.'

Although there was no substance in the PICL project, the Government became involved with the Bond Corporation in an elaborate takeover of the PICL interests for the extraordinary price of $400 million.  Its purpose for this untenable commercial deal was not to build a petrochemical industry but to provide funds, through L R Connell, to Rothwells.  Rothwells was in danger of collapsing and its collapse would have caused substantial political embarrassment to the then Government.

In order to induce Bond Corporation to participate, the Government agreed to provide financial support to the project. The Royal Commission found that the Government agreed with Bond Corporation that they would jointly buy PICL for $400 million and that the Government would contribute $175 million of that sum.  Further, the Government would provide sufficient support and guarantees necessary to enhance the value of PICL to approximately $400 million.  The figure of $400 million was not related to any perceived value of PICL but to an amount thought necessary to sustain Rothwells.  Cabinet authorised the Hon Julian Grill to sign a Memorandum of Understanding with Bond Corporation on July 28, 1988.

It was determined to use Western Australian Government Holdings Limited (WAGH) as the vehicle for the Government's $175 million investment.  One reason given for the use of this company was that:

'. . . . it was perceived to have the legal capacity to engage in the project and it appeared on the face of it that the Treasurer could guarantee the obligations.'

In order to sell the Government's involvement in this project to the public, First Boston Corporation was hired to provide a valuation of the Government's interest.  Only a cover letter to the First Boston Report was made public at the time though according to the Royal Commission the

'. . . . evidence and the valuation graphically demonstrate both the extraordinarily difficult position into which the Government had placed itself and the low value of PICL before the Government support mechanism was put in place.  It allowed Bond Corporation to control the situation.  Commercially speaking it was quite indefensible and absurd for the Government to pay a price created by its own value enhancement.  This was the result of impropriety due to the fact that the Government was so desperate to avoid a collapse of Rothwells.'

The Government paid over its $175 million on October 17, 1988.  In spite of the Government's financial injection into Rothwells it collapsed on November 3, 1988.  The Government was left with a project managed by Bond Corporation with 100 per cent of the running costs met by Government.

In the run up to the February 1989 election the Dowding Government maintained that the project would be non-recourse financed, without Government support, and without Government guarantees.  They knew that to be wrong.  The briefing note prepared for Cabinet when it approved the Government's participation contained the statement:

'The Government, through WAGH, has undertaken to assist the project to raise the required construction finance by providing a credit support mechanism to ensure that the cash flow from operations is adequate to meet loan principal and interest repayments over the 10 year life of the loan.'

Put in simple words, that means the entire amount needed to build a petrochemical plant was to be borrowed and the Government was to guarantee all running costs and loan repayments.  Bond Corporation would have no such obligations.

Because there was already a $400 million millstone hanging around the project's neck the Royal Commission noted:

'. . . . that sufficient support would be provided by the Government to enhance the value of PICL to the region of $400 million and ensure access to finance.  That agreement was reached with the full knowledge and concurrence of Mr Dowding, Mr Parker, Mr Grill and Mr Edwards.  In our view those actions were motivated by a determination to avoid the collapse of Rothwells.  That determination existed because such a collapse was perceived as electorally disastrous for the Government.  No consideration was given to the interests of the public.  The entire approach was grossly improper.'

At the February 1989 election the Dowding Government was returned.  The Government introduced into Parliament a Western Australian Petrochemical Industries Authority Bill ('WAPIA Bill') which failed on third reading on April 19, 1989.   The WAPIA Bill was reintroduced in May 1989 and again was rejected.

At that point it was clear to the Dowding Government that PICL was a doomed project, but it took until August 22, 1989 for the then Premier, Peter Dowding, to make a public statement that the PICL project would not proceed.

During the entire period of more than 12 months that the Government was actively involved in the PICL project it continuously deceived Parliament about its intentions, its obligations and its spending.  The Royal Commission was not empowered to examine what went on in Parliament, and consequently it made no comment on this deception.  Anyone reading the Royal Commission's report and comparing it with the hundreds upon hundreds of questions asked by the then Opposition in Parliament will appreciate the extent to which the then Government avoided, disguised, and sometimes bluntly denied the truth.  It was the sorriest period in the State's Parliamentary history.

Following the Government's action to wind up PICL, Bond Corporation Holdings and others issued a writ in the Supreme Court for damages.  This was replaced in March 1990 with a second action against the Government which in the aggregate rose to a $960 million claim.  It is that action which was settled in February this year for $7 million as a partial contribution to the legal costs of the successors to Bond Corporation.

The repayment of $125 million to the ANZ Bank is the last chapter in the PICL story. Though PICL cost the State $413 million it was just one of the many disasters of that period known as WA Inc. The tragedy of PICL has affected every Budget from 1988/89. In our 1994/95 Budget Western Australians will be free of the yoke of PICL for the first time since 1988.  The after-taste will be with us for a long time.