In light of Macquarie’s win in the Ontario courts last Friday – it wants to raise tolls on Highway 407 in Toronto, without government permission – Greg Barns asked Crikey to send the followng letter to Ontario Premier Dalton McGuinty via the internet.
Hon Dalton McGuinty
Premier of Ontario
Office of the Premier,
Legislative Building, Queen’s Park, Toronto ON M7A 1A1
Macquarie Bank, the Australian owner of Macquarie Infrastructure Group, has a chequered history in its dealings with governments. Its controversial determination to pursue its right to raise tolls on Highway 407 without seeking your government’s permission, comes as no surprise to those who observed Macquarie’s dealings with governments in Australia over the past decade.
I got to know Macquarie Bank well during my time in the late 1990s as Chief of Staff to Australian Finance Minister John Fahey. When the Finance Department sold its government car fleet to Macquarie Bank in 1997, the sale agreement quickly ended up in protracted litigation that Macquarie eventually won.
Macquarie Bank was also partly responsible for the Australian government abandoning, in 1996, a scheme designed to stimulate infrastructure investment in Australia. As well known Australian shareholder activist, publisher and former Victorian government adviser, Stephen Mayne recalls, “The use of infrastructure bonds was also shut down by [the Australian Treasury Department] after Macquarie issued more than $1 billion of them” to finance – Transurban – a toll road project in Victoria. “These bonds were so tax effective that both dividends and capital gains for the original investors in Transurban were tax free for the first few years. This ended up costing Treasury at least $200 million in lost tax revenue,” Mayne said in 2001.
Macquarie Bank has also recently come in for stinging criticism last year from an independent inquiry appointed by the New South Wales government inquiry over its dealings with Sydney’s Liverpool City Council in a billion-dollar property project known as the ‘Oasis project’.
The ‘Oasis project’ was an ambitious venture involving the Liverpool Council, a leading Rugby League football club and Macquarie Bank. The plan was to build sporting facilities and residential towers.
Liverpool Council did not put this massive project to tender and according to an investigation by the leading Australian business magazine, Business Review Weekly (BRW) reported on July 272004, Macquarie Bank may have taken advantage of the Liverpool Council’s relative lack of expertise. “Although the onus was on Liverpool City Council to organise the tender, as is standard practice among governments, the question is whether the bank should have taken a less aggressive approach in dealing with a local council that has less experience in high finance,” BRW said.
Macquarie, according to the BRW report, says this property deal “was struck in exceptional circumstances where the council needed to find a partner to rescue its property plans”.
But also quoted is Councillor Col Harrington of Liverpool Council, who says that “Macquarie’s presentation to the council inquiry shows their main interest was in real estate . . . in many ways they tied the council up in knots”.
The New South Wales Government Inquiry, conducted by a former planning professor from Sydney University, Maurice Daly, looked into the Macquarie property deal and heard evidence from Macquarie executive, Peter Wright.
According to BRW, at the inquiry “Wright revealed that the council did not have any local government guidelines to follow in its dealings with the bank. The inquiry also discovered that although Macquarie held half the seats on the key controlling board of the [entity established to oversee the Oasis project], it did not have the responsibilities of a legal partner in the deal.”
As BRW observed, “In other words, Macquarie extracted a deal from the Liverpool City Council that would be unprecedented for non-government business partners. It is most unusual for any arrangement between two groups where there are equal decision-making powers not to be deemed a partnership.”
Daly’s inquiry reported in July 2004. Professor Daly, was scathing about Macquarie’s role in the ‘Oasis project’.
Daly wrote that Macquarie “refused to pass on its financial model to the council. That model was the only document providing an economic rationale for the Oasis project. The council lacked the skills to create its own model. It requested that its advisers [accounting firm Price Waterhouse Coopers] undertake an analysis of the model and its assumptions, but Macquarie refused to provide the detailed model that would have allowed PwC to do so. The council was left placing its faith in Macquarie when it signed the Agreement. Within a few months of the Agreement being signed, Macquarie stepped away from the Oasis project after disagreements with the Bulldogs. Macquarie was motivated by self-interest in doing this. It paid no heed to the consequences for the council.”
Daly described Macquarie’s actions in this view as either “opportunistic, if one is generous but a more appropriate term might be that they were predatory”.
In Australia, Macquarie Bank is known as the ‘millionaires factory’ because of its capacity to generate enormous profits year in, year out. Playing it tough with governments around the globe certainly helps to fill its coffers-something your government is now discovering.
Good luck in the next round of your battle to bring Macquarie Bank to heel over Highway 407!