2007 (No. 21) 2007 PARLIAMENT OF TASMANIA REPORT OF THE AUDITOR-GENERAL No. 2 of 2007 GOVERNMENT DEPARTMENTS AND PUBLIC BODIES 2006-2007 Volume Two Government Businesses and Local Government Authorities November 2007 Presented to both Houses of Parliament in accordance with the requirements of Section 57 of the Financial Management and Audit Act 1990 By Authority: Government Printer, Tasmania 1 © Crown in Right of the State of Tasmania November 2007 Auditor-General’s reports are available from the Tasmanian Audit Office, HOBART. This report and other recent reports published by the Office can be accessed via the Office’s home page. For further information please contact: Tasmanian Audit Office GPO Box 851 Hobart TASMANIA 7001 Phone: (03) 6226 0100, Fax (03) 6226 0199 Email:- [email protected] Home Page: http://www.audit.tas.gov.au This report is printed on recycled paper. ISSN 1327 2608 2 TABLE OF CONTENTS VOLUME TWO Government Businesses ............................................................................. 4 1 Energy Businesses .............................................................................. 7 2 Government Business Enterprises – Introduction and key findings ... 14 Forestry Tasmania .......................................................................................17 Hydro-Electric Corporation ............................................................................28 Motor Accidents Insurance Board ...................................................................38 Port Arthur Historic Site Management Authority ............................................... 47 Printing Authority Of Tasmania ......................................................................53 Rivers And Water Supply Commission .............................................................57 Tasmanian International Velodrome Management Authority ............................... 64 Tasmanian Public Finance Corporation ............................................................69 3 State Owned Corporations – Introduction and key findings ............... 74 Aurora Energy Pty Ltd ..................................................................................77 Metro Tasmania Pty Ltd ................................................................................89 Tote Tasmania Pty Ltd ..................................................................................97 Transend Networks Pty Ltd .......................................................................... 106 TT-Line Company Pty Ltd ............................................................................ 114 Tasmanian Ports Corporation Pty Ltd ............................................................ 122 Hobart International Airport Pty Ltd ............................................................. 130 King Island Port Corporation Pty Ltd ............................................................. 138 Local Government Authorities ................................................................ 143 1 Local Government Authorities – Introduction and key findings ....... 143 Clarence City Council ................................................................................. 146 Devonport City Council ............................................................................... 153 Glenorchy City Council ............................................................................... 160 Hobart City Council .................................................................................... 166 Launceston City Council .............................................................................. 173 Central Coast Council ................................................................................. 181 Waratah-Wynyard Council ........................................................................... 189 West Tamar Council ................................................................................... 196 Latrobe Council ......................................................................................... 203 Break O’day Council ................................................................................... 210 2 Local Government Water Authorities Cradle Coast Water .................................................................................... 217 Esk Water Authority ................................................................................... 225 Hobart Regional Water Authority .................................................................. 232 3 GOVERNMENT BUSINESSES Government Businesses are entities that are established under specific legislation that defines the purpose for which they are established and their general functions. The State Government owns a diverse portfolio of businesses, which at 30 June 2007 comprise the following ten Government Business Enterprises and six State Owned Companies: Entity Responsible Minister Forestry Tasmania Minister for Economic Development and Resources Hydro-Electric Corporation Minister for Energy Motor Accidents Insurance Board Minister for Infrastructure Port Arthur Historic Site Management Minister for Tourism, Arts and the Authority Environment Printing Authority of Tasmania Minister for Infrastructure Rivers and Water Supply Commission Minister for Primary Industries and Water Tasmanian International Velodrome Minister for Sport and Recreation Management Authority Tasmanian Public Finance Corporation Treasurer The Public Trustee Attorney-General Aurora Energy Pty Ltd Minister for Energy Metro Tasmania Pty Ltd Minister for Infrastructure TOTE Tasmania Pty Ltd Minister for Racing Transend Networks Pty Ltd Minister for Energy TT-Line Pty Ltd Minister for Infrastructure Tasmanian Ports Corporation Pty Ltd Minister for Infrastructure These entities operate in many commercial markets including various primary industries, port operations, transport, financial services, construction, forestry and public utilities. Government businesses have $3.536b (2005-06, $3.896b) in net assets, generate $291.887m ($127.500m) in after tax profits, employ about 4 033 (3 900) full time employees and are of fundamental importance to the Tasmanian economy. Also of significance is that during 2006-07 these entities paid out $295.093m ($366.317m) in capital expenditure. The following sections of this Chapter provide commentary on groups of Government Businesses as follows: • Government business enterprises; and • State owned corporations. 4 Government Businesses For each Government Business this Report provides a comparative analysis of financial results for the three year period to 2006-07. In the case of the Energy Businesses a separate section is included comparing performance between the three businesses in 2006-07. TAXATION EQUIVALENTS The taxation equivalents regime provides for the payment of income tax equivalents and capital gains tax equivalents to the Consolidated Fund. Income tax equivalents are calculated, determined and paid to the Treasurer as if the Commonwealth income tax laws had applied. Capital gains tax (CGT) equivalents form part of the income tax equivalents regime. From 1 July 2001 a National Taxation Equivalent Regime (NTER) was established with the primary objective of promoting competitive neutrality, through the uniform application of income tax laws across NTER entities and their privately owned counterparts. The Australian Taxation Office was contracted by the Treasurer to administer the NTER from 1 July 2001. GUARANTEE FEES Guarantee fees are based on the amount of financial accommodation utilised by the entity and its subsidiaries at the end of the preceding year. For example, an explicit government guarantee is provided to businesses borrowing through the Tasmanian Public Finance Corporation. The Treasurer determines guarantee fees (subject to a maximum prescribed percentage of 1%). DIVIDENDS Consistent with commercial practice, the Board of a business recommends to the shareholding Ministers whether a dividend should be paid in respect of the previous financial year and the amount of that dividend. The Ministers will subsequently determine the dividend payable. As a general rule a dividend can only be paid out of profits earned. The Dividend Policy Guidelines for Government Businesses Enterprises imposes a distribution target of at least 50% of after-tax profits. PROVISION FOR DIVIDENDS Accounting Standard AASB 110 Events after the Balance Sheet Date applicable from 1 January 2005 establishes the disclosure requirements for dividends. Dividends declared (ie. appropriately authorised and no longer at the discretion of the entity) on or before the reporting date must be recognised as a liability as at that date. Dividends declared before the financial report is authorised for issue but not on or before the reporting date must be disclosed in the notes to the financial report. Government Businesses 5 COST OF CAPITAL The cost of capital is an opportunity cost and is calculated by reference to the return expected from other like assets that have a similar risk profile. The weighted average cost of capital (WACC) represents the minimum return required by capital providers from their investment in the business, having regard to the opportunity cost of debt and equity finance. Cost of debt is calculated as the weighted average cost of borrowings plus any applicable guarantee fees. The cost of equity capital is typically determined using the Capital Asset Pricing Model (CAPM), where the cost of equity capital equals the prevailing 10-year Commonwealth bond rate (30