2016-08-09 Services & Organisation Committee Agenda

SERVICES & ORGANISATION COMMITTEE MEETING AGENDA                                  9 AUGUST 2016


4.   CEO’s Assessment

CCIQ Noosa has shown great initiative in bringing forward this concept. They have carefully
researched and developed their concept in a professional manner.

The CCIQ Noosa proposal did not necessarily envisage that this project would be a Council
constructed and operated project. There are a number of alternative funding models available
that would lend themselves to different management or ownership models (e.g. Market Led
Proposal (MLP) Build Own Operate Transfer (BOOT) or Private Public Partnerships (PPPs) are
three examples).

However, the report by AEC has highlighted the challenges to make such a concept
commercially viable. Both the CCIQ Noosa and AEC reports identified that there are economic
benefits to such a project. That is to be expected for the scale of the proposed investment.

However, the clear advice from AEC is that these facilities will have an annual operating loss in
the order of $2M assuming that there were no borrowing costs and that all of the capital costs
would be grant funded. An additional annual amount of between $930K and $2.790M would be
required depending on grant funding and borrowing requirements if this was a Council funded
project. While there are many different scenarios depending on assumptions (grant funding,
annual costs, number of conventions etc), it seems that the net annual impact will be somewhere
between $2.881M (6.26% general rate increase) and $4.810M (10.45% general rate increase).

I should also highlight to Council that my experience with major projects over the years is that the
final capital costs are almost always higher than original estimates. This is not a criticism of any
projects but simply reflects “scope creep”, more detailed Quantity Surveyor cost analysis and the
impact of broader market pricing for major projects.

The question for Council then becomes – who pays for both the initial investment (capital cost)
and the ongoing operational expense to achieve the economic benefit? Should it be all
ratepayers who pay? Should it only be those ratepayers who may get a direct benefit who pay?
Should it be the private sector or community segment that gets the economic benefit?

Given the AEC report, I could not recommend this project to Council as a project that all
ratepayers should fund with general rate increases of between 6.26% and 10.45% depending on
the level of loan funding required. I would however advise Council that if the private sector can
make a project such as this commercially viable without a subsidy from ratepayers, then it is
something that we could consider. Both the AEC and CCIQ Noosa reports identified economic
benefits.

Opportunities for Market Led Proposals

The State Government has recently been promoting the concept of Market Led Proposals
(MLPs). Traditionally, a government would call an EOI or tender for a project and the market
would respond with prices and proposals to implement that project. That model assumes that
governments have the good ideas and the role of the market is to respond.

MLPs are different and are based on the premise that the market may see an opportunity for a
project and bring forward their proposal for the consideration of government. The marketing
concept behind MLPs is - “bringing good ideas to life”. To some extent, the proposal by CCIQ
Noosa is an example of such an approach. Queensland Treasury has developed a detailed
website (www.treasury.qld.gov.au/mlp) with information about the concept which is summarised
well in this brochure.

One of the key issues for MLPs is the availability of relevant information about an issue. The
private sector can make the best market decisions when it has access to good information.

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