Shareholder advice on Government businesses

(Budget Output 1.3)

Financial returns from Government businesses

A total of $174 million in Government business sector dividends, tax equivalent payments and guarantee fees was collected from Government businesses in 2007–08. We provided advice to the Treasurer on these financial returns, which have been applied to fund essential Government services for the Tasmanian community.

Corporate and business plans

Under the Government Business Enterprises Act 1995, all Government business enterprises are required to submit annually a corporate plan for approval by the Treasurer and the Portfolio Minister. It is also expected that all State-owned companies submit a business plan annually for the consideration of the two Shareholder Ministers. We reviewed the 2007 plans for all businesses and provided advice to the Treasurer.

To improve the communication between the Portfolio Ministers and the boards of Government businesses, we initiated a new process whereby the Portfolio Ministers wrote to each business at the beginning of the 2008 planning cycle to outline their expectations and preferences regarding the strategic direction of each business and identifying any specific issues that should be addressed in the plan. Positive feedback was received from Government businesses on the new process.

Governance review

We consulted with Government businesses and other key stakeholders on a governance review report that we prepared for the Treasurer. The report included recommendations and draft guidelines to formalise the process for selecting and appointing directors, and the key governance and reporting arrangements for subsidiaries and joint ventures of Government businesses. Following this consultation, a number of recommended amendments to the draft guidelines were prepared for the Treasurer's consideration.

Divestment of Government businesses

A decision was made by the Government to sell the Hobart International Airport Pty Ltd, the Printing Authority of Tasmania and the Southern Regional Cemetery Trust. The funds from the sale of these businesses are to be reinvested in high-priority infrastructure projects. We facilitated the sale process, including the appointment of specialist consultants, and managed the bid process. Gross sale proceeds exceeded $360 million.

The airport was sold to a consortium of Macquarie Capital Group Limited, Macquarie Global Infrastructure Fund III and Tasmania's own Retirement Benefits Fund. The Printing Authority was sold to Victorian-based PrintLinx Pty Ltd.

Southern Cemeteries, a part of HC Millington Pty Ltd, purchased the Kingston Lawn Cemetery and St Margaret's Cemetery at East Risdon and will lease the Cornelian Bay Cemetery from the Government for 50 years.

Capital structure of Hydro Tasmania and Transend Networks

The Government announced in October 2007 that it would provide a $50 million equity injection to Hydro Tasmania to fund its cash investment requirements for the Roaring 40s Renewable Energy joint venture. We facilitated the transfer of $50 million from Transend Networks by way of a capital reduction with an equivalent special appropriation to Hydro Tasmania through the Consolidated Fund Appropriation (Supplementary Appropriation for 2007–2008) Act 2007.

The Government also announced in October 2007 that it would conduct an independent due diligence review of Hydro Tasmania's capital structure and investment funding requirements. We managed the review that was undertaken by Ernst & Young, and the final report was completed in May 2008. This led to the Government's decision to undertake an equity restructuring of Hydro Tasmania and Transend Networks. The equity restructure was achieved by transferring $220 million of debt from Hydro Tasmania to Transend Networks. Following approval by Parliament we facilitated the transaction, which was completed on 30 June 2008.

Revised guarantee fee methodology

Guarantee fees are levied on all Government businesses to ensure that they do not receive any interest-cost advantage, relative to the private sector, by borrowing through Tascorp. Over the past year, conditions in global credit markets have deteriorated, resulting in significantly higher differentials between Tascorp and private sector interest rates. In response, we developed a revised methodology, based on fixing the guarantee fee rate for the life of each loan. This is closer to the private sector practice of hedging interest rate exposures. Transitional arrangements have been instituted for 2008–09.