In November 2005, the government agreed that the new RCH project should proceed on the basis outlined in the final business case and approved the project to be delivered under a Partnerships Victoria model, subject to private sector bids satisfying value for money criteria.
The government committed funding for the project on the basis that $90 million was to be provided by RCH to reduce the net cost to government of the project, broken down as follows:
• $50 million from the RCH, on the basis of a qualified commitment given by the RCH Board to raise the funds, with any shortfall to be possibly underwritten by other fundraising by the Royal Children's Hospital Foundation (RCHF)
• $30 million from RCH financed by a loan from Treasury Corporation Victoria (secured against future RCH car park revenues), as agreed by the RCH Board
• $10 million from RCH asset sales, after the commissioning of the new hospital, as agreed by the RCH Board.
When approving the final business case for the project, the advice put to government said that $30 million of this contribution from RCH was expected in 2009-10 with the remaining $60 million expected in 2010-11.
In November 2007, other government advice said that the cost of delivering the $1 billion RCH project through the private sector was cheaper than if it was to be done by the Victorian Government alone.
The Public Sector Comparator (PSC) for the project estimated the net present cost of the project to be $1.016 billion. The net present cost of the Children's Health Partnership consortium's winning bid was $946 million at financial close in December 2007 representing a saving of around 6.9 per cent when compared against the PSC.
The state will make quarterly services payments (QSP) over the 25 year operating phase of the contract. This will commence after the construction of the facility is completed, as expected, in December 2011. The QSP are expected to cover the capital cost of construction and services to be delivered by the private sector over the term of the agreement.
The state's financial commitment over the 25 year period is $3.742 billion in nominal dollar terms or $1.016 billion in net present value terms, as at 30 June 2008.
The 2007-08 RCH Annual Report states that the financial arrangement will be reviewed prior to the completion of the project to determine whether the lease will be recognised as a finance lease or operating lease by the RCH.
In terms of the expected contribution of $90 million to government from RCH towards the cost of the project, DHS and the Department of Treasury and Finance agreed in April 2008 that a commitment in CHP's winning bid to secure donations of $35 million to RCH could be used by RCH to partly satisfy its funding obligation.
Issues have subsequently emerged around the timing and certainty of receipt of the $35 million due to the downturn in global financial markets and the enforceability of the commitment. This matter is dealt with in Part 5 of this report.