No Treasury risk assessment of uni merger

The Malinauskas Government’s Treasury Department didn’t test cost assumptions or do risk assessments for merging the universities of Adelaide and South Australia before building a $444.5m package to support the union.

Sep 05, 2023, updated Sep 05, 2023
Under treasurer Rick Persse. Photo: Tony Lewis/InDaily

Under treasurer Rick Persse. Photo: Tony Lewis/InDaily

Under Treasurer Rick Persse and Deputy Under Treasurer Tammie Pribanic appeared on Monday before the parliamentary inquiry into the establishment of Adelaide University.

The Department of Treasury and Finance was responsible for developing the state government’s $444.5m funding package – made up of land purchases, perpetual funds and grants for international student attraction – to support the merger championed by Premier Peter Malinauskas.

The universities had earlier told the inquiry that their cash balance would be in an “unacceptable risk position” without this government support as the merger requires a one-off investment between $500m and $650m.

Last month, officials from the state government’s higher education unit told the inquiry they did no risk assessment of the merger nor asked the universities for their full business case.

Persse and Pribanic gave similar evidence to the inquiry on Monday, saying they did not produce a risk assessment report nor were they provided with “all of the working papers” from the universities due to commercial in confidence considerations.

“We were not tasked by government to consider the first principles merits of a merger,” Persse said.

“Our focus… was to develop a funding package overall that attended to some of those risks and opportunities that were required to be attended to by the universities if they were to continue down this path.”

Also appearing before the committee was Group of Eight (G8) chief executive, Vicki Thomson.

The G8, which consists of the nation’s leading universities, has said they would invite Adelaide University to join its ranks once established.

Thomson said the merger would provide an opportunity for South Australia to increase its global competitiveness in terms of research and she also highlighted the opportunities within the defence sector.

“We have the opportunity in this state to be streets ahead,” Thomson said.

“The ability to attract investment, to attract the right students, to attract the right researchers, to encourage our young kids who might be 15 or 16 thinking, ‘Oh yeah, I might do engineering because I might get this great opportunity building submarines or whatever it might be’. I think they’re all the things that I would be looking at if I was looking at what a merged institution could potentially bring that may not be able to bring now.”

Business SA chief executive Andrew Kay also appeared before the inquiry to express support for the merger.

Deputy Premier Susan Close said “most of the evidence” presented to the inquiry has been “firmly in favour” of the merger.

“There have of course been some people who’ve raised concerns and questions about the merits,” she told reporters on Monday.

“But largely the balance has been about recognising the importance of having a larger institution, an institution that carries the weight and prestige of being a Group of Eight Institution, a university that’s able to attract more international students, is able to offer more services to a broader range of domestic students, and absolutely crucially is able to engage in high quality, prestigious research.

“It is essential for the South Australian economy that we have an institution that is regarded as being in the top 100 in the world and is able to undertake the level of research that can make a clear difference to our economy.”

Finance assumptions

Opposition education spokesperson John Gardner asked whether Treasury did any analysis of the assumptions within the universities’ merger business case, such as the costs for integrating IT systems.

Persse replied: “Look, I think overall our focus was on negotiating that (financial) package.”

“The information that was shared during those discussions with chief financial officers and the vice chancellors was detailed but not at the sort of sub-atomic detail level that would have been required, and I’m certain they would have had much much further and deeper information pertaining to the current state of individual systems.

“We didn’t certainly run any specific analysis to test the sort of robustness of that, other than our broader experience of other government priorities and projects that come about from time to time and the normal Treasury role of sense testing those rather than… coming up with an alternate blow by blow breakdown.”

If you’re seeking a particular, you know, traffic light report with risk ratings… that was not an artefact that we produced

Gardner then asked whether Treasury did any analysis on potential risks to the government or the taxpayer if the merger transition costs were underestimated and the universities require more public money.

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Persse replied: “I think the way I saw it was that we, in all of our advice, in all of our dealings, have an eye to risk.

“The universities themselves had done clearly a considerable body of work. I think (UniSA) Vice Chancellor (David) Lloyd in his evidence to this committee talked about a ‘voluminous’ risk report.

“We didn’t have access to… all of the working papers and so on, because they were commercial in conference.

“In the materials that were provided at that sort of more macro level, there was reference to risk.

“But ultimately, our focus was… looking at the future and the enablement of the macro goals of the merger, but mindful though that we have a risk responsibility not just to assist in the merger but we have a risk responsibility to the taxpayers of South Australia and our budget position – all of those were within that frame of that.

“But if you’re seeking a particular, you know, traffic light report with risk ratings… that was not an artefact that we produced as a result of this.”

Gardner then asked: “Are you aware of any risk analysis, policy advice on the broader questions that has been done by anyone within government?

Persse replied: “No, within government I’ve not been privy to a particular document with… risk assessment on the title.”

The two universities last month publicly released a 28-page “summary” business case which has a quarter page – or just over 100 words – dedicated to “risk considerations”.

The universities have refused to release the full risk register publicly, citing commercial in confidence, although University of Adelaide’s chief risk officer and UniSA’s head of risk and assurance have agreed to give confidential evidence to the parliamentary inquiry on Wednesday.

Treasury officials were also questioned about the state government’s agreement to provide a commercial rate loan of “last resort” to the universities if they’re unable to secure private credit.

Deputy Under Treasurer Pribanic told the inquiry they did not expect the universities to need the loan and it would be a decision for the government how much money to provide.

“The universities have a pretty strong credit rating and have good access to credit,” she said.

“But it was one of those things when you talk about risk and risk mitigation strategies that we put in place.

“So, we haven’t we haven’t made any other government hasn’t made any decisions about what the nature of the finance facility would be at this stage – it would depend a bit on the risks facing the universities at the time.”

According to the summary business case, the merger investment will require the two universities to dwindle their combined cash balance from $802m in 2023 to $340m by 2029. The universities have set a liquidity floor of $250m.

The merger inquiry continues public hearings today, with the committee due to issue its report on October 17.

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