garry goddard, sa government - state government expereince: looking at asset sales experience and...
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Department of Treasury and Finance
South Australian Asset Sales – Learnings from Forestry SA and SA Lotteries
Key Parameters – Forestry SA (FSA)
Forward Rotations
• Announced in the 2008/09 MYBR (December 2008)
• Developed a model to maximise price, transfer risk and meet
various forestry / public policy commitments
• Cabinet approval to proceed (May 2011) – following a RIS
process and extensive pre-sales analysis
• 3 stage competitive process (EOI, Indicative Bids and Final Bids /
negotiation with preferred bidder)
• Role of the South East Forestry Industry Round Table (SEFIR)
• Treasurer’s conditions: – Forestry (rotation length, domestic supply, annual reporting and contract
extensions); and
– Policy (fire protection, FSA’s future role and carbon, water and land
ownership).
FSA – Key Outcomes
• Financial close (October 2012) – $670 million (incl. stamp duty)
• Purchaser was One-Forty-One Plantations (consortium incl. the
Campbell Group and Australia’s Future Fund)
• Purchased three rotations (of plantations) and rights to use the
plantation land for commercial forestry (via a 100+ year lease)
• State retains land, water and carbon rights and FSA remains (as
a planation manager on a 5 + 5 years basis)
• Treasurer’s conditions met – contractual obligations (i.e. on
rotation length, domestic supply and a reporting / penalty regime)
• Significant de-risking of the State (e.g. in terms of the impacts of
commercial, silvercultural and natural disaster events)
• A-G’s findings (October 2013) – acknowledged that “DTF
implemented sound processes and controls …”
FSA – Key Challenges
• Stakeholder management (e.g. S-E region concerns with industry
and employment impacts, RIS process and SEFIR)
• Target entity co-operation – esp. board and senior management
• Commerciality of sales model (e.g. nature of property rights and
FSA’s plantation management role)
• Policy complexities (e.g. forestry conditions, water policy and fire
protection)
• Business conditions (esp. for structural grade timber and pulp)
• CHH / CFMEU applying pressure (in the final 3-4 months) – one
outcome was a commitment to a $27 million industry co-
investment fund in the S-E region
• Resourcing – balance of “in-house” versus “consultancy”
resources (difficulty in DTF recruiting the necessary skills)
• Project management – lots of moving parts …
FSA – Key Learnings
1. Retain control of the project – there are key policy and
legal questions as well as commercial issues …
2. Governance – DTF used a multi-agency Steering
Committee with a probity adviser (reporting direct to the
Treasurer) and a range of working groups / specialist
advisors
3. In-house team – need adequate resourcing, a diverse
skill set and avoid a standing start (planning) – better one
too many than one too few …
4. External advisors – prior sector and government asset
sales experience are key factors ...
5. Timing – be realistic and be prepared for a marathon and
not a sprint …
Key Parameters – SA Lotteries (SAL)
Master Agency Agreement
• Announced in the 2011/12 Budget (June 2011)
• A key objective was to position the SAL brands to grow in the
face of market changes (e.g. new technology and competition)
• Preserve (rate) and grow (volume of) gambling tax revenue (i.e.
for the hospitals and sport and rec. funds)
• Maintain a strong consumer protection regime
• Treasurer’s conditions: – Agents (agency fees kept stable at current rates, agency commissions
maintained and contracts reset on 5 + 5 years basis); and
– SAL staff (no redundancies for non-executive staff, staff entitlements
preserved and a new contract manager role for SAL).
• Developed a model to maximise price, protect the tax take,
transfer risk and meet various agents / policy commitments
SAL – Key Outcomes
• Financial close (December 2012) – $427 million (incl. stp. duty)
• Purchaser was Tatts Group
• Purchased the exclusive right to operate the SAL brands and
products for 40 years
• State retains ownership of the SAL brands and tax continues to
be paid (at existing rates) to hospitals and sport and rec. funds
• SAL will remain (in a revised capacity) to administer the master
agency agreement
• Treasurer’s conditions met – contractual obligations (e.g. on
agent’s fees, agency commissions and contract renewal)
• Significant de-risking of the State (e.g. in terms of future
commercial and technological impacts on dividends and tax take)
• A-G’s findings (October 2013) – acknowledged that “DTF
implemented sound processes and controls …”
SAL – Key Challenges
• Trade-off issues:
» upfront sale price vs. ongoing tax take;
» legislative vs. contractual model; and
» competitive process vs. small bidder field.
• Getting comfortable with sales price (rather than tax rates)
as the key variable …
• Getting comfortable with a contractual model (for
assignment of property rights) …
• Getting comfortable with a direct negotiation approach
(with a fall back competitive process) …
• Maintaining confidentiality …
• Stakeholder management (less so than FSA)
• Project management (less so than FSA)
SAL – Key Learnings
1. As per FSA (esp. retaining control and governance
through a multi-agency Steering Committee (reporting
direct to the Treasurer))
2. Be flexible – no two transactions are the same …
3. Listen to your advisors (but test their advice) …
4. Stakeholders – identify early, esp. those that could
disrupt the sales process …
5. It isn’t always over when the ink is dry – there can be
considerable post-transaction activity (i.e. 18 month
transition period for SAL / Tatts)
Key Reasons for Asset Sales
• A matter for the Government of the day
• Can include one, some or all of the following:
» Retire debt and improve the State’s credit rating
(protect or regain AAA rating or other fiscal targets);
» Recycle debt for key infrastructure investment;
» Risk transfer (e.g. reduce exposure to commercial,
natural disaster, capital cost events, etc.); and
» Recognition that the private sector may be able to
achieve greater efficiency and productivity gains.
Key Treasury Perspectives
• Selling income producing assets » need a robust retention / reserve price hurdle (to inform the trade-off between
operating and debt impacts)
• Treatment of embedded CSO / policy activities of Government
Business Enterprises being divested » either cease these activities, transfer or fund from budget
» if funded from budget, then need to include these (continuing) costs in the
reserve price hurdle
• Risk transfer aims » need to be clear about this and ensure these are put on the table (and priced)
as part of a structured sales process
• Infrastructure recycling » need to be clear about why asset sale proceeds are being recycled rather than
used to retire debt (e.g. a focus on priority assets / services and / or
overcoming barriers to private sector investment)
Questions ?