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My Opinion Pieces

Herald Sun: Victoria's good standing can't be put at risk

   Monday, 23 February 2015

Herald Sun 23 February 2015

Daniel Andrews is fast assuming the mantle as the most dangerous Labor leader since Mark Latham by his refusal to rule out the use of Parliament to annul the East West Link contract and any compensation the State Government is liable for.

The Melbourne business community is simply aghast at the long-term consequences of “sovereign or political risk” becoming a legitimate concern for overseas and domestic investors seeking opportunities in Victoria.

It is rare for large-scale infrastructure projects to be cancelled in first-world countries. It’s even rarer in jurisdictions where the rule of law prevails for a contract to be retrospectively annulled by statute.

There are, however, examples in the developing world, which illustrate how irresponsible this Labor Government is being with Victoria’s reputation. The first case comes from Venezuela after Hugo Chavez came to power in 1998. The government entered into a highway contract with a private sector company and failed to put in place tolls according to the contract. The contract was ultimately abandoned by the company and an international tribunal awarded damages against the government, ruling it to be liable for a number of breaches under the terms of the contract.

Then in Kazakhstan in 2007, the Parliament voted unanimously to grant the government the right to alter or cancel contracts unilaterally should they, in the president’s opinion, “lead to a significant change to the economic interests of the Republic of Kazakhstan … giving the government the right to ask to change the contract conditions”.

Sovereign risk and the subsequent cancellation of public-private infrastructure projects in the developing world have made headlines over recent decades. Interestingly, a World Bank report found that “only 48 private infrastructure projects in developing countries were cancelled in 1990—2001, a small fraction of the nearly 2500 projects that reached financial closure over this period”.

In two other World Bank reports, some observations are made regarding governments which breach contracts. One suggests “less-democratic and resource-dependent governments are more likely to breach contracts” and the other suggests contractual breaches “are higher in countries under the control of political parties conventionally described as left wing”.

It has been a while since we could call the Victorian Labor Party merely “left wing”. Now the Socialist Left faction is back running Labor — and Victoria — it’s like the Cain-Kirner years again. Chavez would be proud.

Andrews said on 3AW: “I didn’t sign these contracts.” True, Premier, you didn’t, but any sensible first-world government knows you ought to be bound by contractual obligations of your predecessors, in the same way the Napthine government was bound by the disastrous myki and desalination plant contracts of the previous Labor government.

The popular thing to do was to walk away from the mess, but the Coalition did the right thing and persevered with the projects in the interests of the state’s finances and business confidence.

Even in Libya after the fall of Qaddafi, Libya’s National Transitional Council stated publicly: “All lawful contracts will be honoured.”

It is undemocratic to think new governments should be bound by the policy positions of their predecessors. But it is an assault on the rule of law if incoming governments decide that existing contracts do not bind them.

Laws on contracts should be prospective and apply equally to everyone and, most importantly, should not confer special privileges on the Government.

When the private sector engages in a contract with the government of the day, they have not entered into a contract with one side of politics, but the State itself and, in our system, the Crown. If the Andrews Government tries to escape its contractual obligations by using legislation, it will have forever undermined the consistency and predictability which underpins the confidence private citizens and businesses require when dealing with the Victorian Government.

There is no way Andrews can escape paying substantial compensation to the East West Link consortium, despite his misleading statements to the contrary before the state election, without taking the extraordinary step of using the Parliament, like a third-world despot, to rescind Victoria’s obligation.

Legal advice, released by the shadow treasurer, from Allan Myers QC, shows the contract is binding and the previous government had full authority to enter into the contracts.

Andrews is proving he has no understanding of our economy and how vital confidence, particularly from international investors, is to our future growth.

If he goes down this path, then Victorians will experience the adverse ramifications for years to come.