In 2018 the Department of Infrastructure paid 10 times the appropriate amount for a triangle of land near the proposed Western Sydney Airport, providing a windfall to a significant Coalition donor.
The government department then behaved unethically when the Australian National Audit Office (ANAO) investigated the matter.
It’s not clear from the ANAO’s remarkable report on the scandal why exactly this happened. What is somewhat clearer is the how of the process.
Leppington Pastoral Company (LPC) was paid just under $30 million for a block of land that the department just 11 months later assessed as worth just $3 million. LPC is owned by the billionaire Perich brothers, whose parents founded the dairy company in the 1950s. The company has given about $149,000 to the Liberal and National parties since 2002, and $28,000 to Labor between 2002 and 2007.
The disparity between the amount paid for the land and the valuation at the end of the financial year was enough for the ANAO to trigger an inquiry after it audited the department’s finances. What it found is deeply troubling.
The audit shows that there were 10 valuations for the LPC parcel of land next to the proposed airport, which the Commonwealth has been interested in obtaining since the late 1980s.
Two of them, valuing the 12-hectare block at $1.47 million, were obtained by LPC. Two were obtained by the NSW valuer-general — one for $3.7 million and another for $1.3 million. One was from the NSW Roads and Maritime Services (RMS), for $6.1 million. Four were obtained by the department — including two for the end-of-year financial statements, for $3 million and $4 million, and another for $920,000.
But the department went for the one valuation dramatically in excess of all the others — for $26-$29 million. That valuation was obtained by the department jointly with LPC, despite this not being standard practice — which is for both parties to obtain independent valuation, as the NSW government had when purchasing land in the area.
Instead the department “sole sourced” a valuer from a list submitted by LPC. The valuer was instructed by the department to only do a “desktop valuation”, although the valuer did look at the land “from the kerbside”, having not been given permission to actually inspect the property.
Why the department’s western Sydney unit only ordered a desktop valuation — good only for an “indicative assessment” — hasn’t been explained.
But it got worse. The department then asked LPC about what instructions to give the valuer. LPC demanded that the land not just be assessed for “highest and best use” but “highest and best use, including industrial purposes”. Then the instruction to the valuer was upgraded by the department to “rezoned for industrial purposes, adjacent to an operating airport”.
Amazingly, it was the valuer who pushed back on that. It warned the department “the revised instruction sits far outside typical valuation methodology” which meant “a figure which would be significantly higher than current land prices being achieved for property with speculative industrial rezoning”.
This forced the department to revise its instructions back to “existing planning parameters with highest and best use reflected in speculative industrial rezoning potential”.
During the audit, the department tried to tell the ANAO there had been no additional instructions to the valuer, completely at odds with what the records showed.
Even then, the valuer was unhappy with the department’s instruction, warning that the department and LPC “need to acknowledge the report should not be construed as a valuation report“.
Before accepting the report, the department also found out from NSW RMS that the latter had a much lower valuation — around 1/20th of the cost — for land in the area, which was dismissed by the department as “misconceived”.
Why the department was so hellbent on accommodating LPC isn’t clear from the report. The ANAO does, however, note that “the ANAO identified instances where meetings with landowners were held in coffee shops, with only one departmental officer present and where there was no record of the discussion”.
It also noted “telephone conversations between Department of Infrastructure officers and LPC were recorded in an ad hoc manner”.
At no stage in the process of the $30 million acquisition being sent up the line to the appropriate delegate for approval, nor in the advice provided to the minister, was the fact that the government was paying far more than other valuations, mentioned.
Decision-makers were in effect kept in the dark about the fact that they were paying far too much. That prompted the ANAO to make this conclusion:
This approach was misleading and did not support informed decision-making. Overall, the lack of transparency evident in briefings concerning the basis for valuations and the price being paid was inconsistent with an ethical approach to public administration.
This is an extraordinarily serious statement from the ANAO. This is the most damaging audit for this department since the fuel levy excise scandal of the early 2000s, but far more serious in its conclusions about the behaviour of departmental staff.
At the very least, heads needs to roll. Even for an era of “scathing” ANAO audits, this is a profoundly troubling one — and it’s about bureaucrats, not ministers or staffers.