Kennett's blind spot


February 14, 2010

The revelation that Premier Jeff Kennett negotiated a $250 million property deal with his wife's brother-in-law is the latest example of him failing to understand the issue of conflict of interest. Michael Rodd, the managing director of real estate firm Richard Ellis, should never have been brought in to help Rino and Bruno Grollo sell the new SECV headquarters.

At the time, Finance Minister Ian Smith was playing hardball, threatening to tear up an outrageous $646 million 20-year lease on the building signed by the former Labor Government in early 1991. Bruno Grollo says three or four financial institutions were prepared to pay more than the Government's final offer of $250 million, but they were scared off because Mr Smith was refusing to pay rent. The hiring of Mr Rodd's firm was not surprising, especially given that it had acted for the Grollos on the earlier $135 million sale of Shell House.

However, when it became clear that the Government was the only potential buyer of the SECV headquarters, the Premier and his wife's brother-in-law should have run a million miles from the negotiations.
Instead, they stayed involved.

To this day the Grollos quite rightly harbor deep grudges about the tough negotiating tactics of Mr Smith.

Threatening to legislate a contract out of existence if a building were not sold to the Government at a rock-bottom price is a pretty outrageous abuse of power. Having a "cowboy" minister refusing to pay rent on or buy a building in which $250 million of family money was tied up was a huge problem. It was restricting the Grollos ability to tender for big projects such as the permanent casino, which it subsequently won a few months later.

When Mr Kennett does respond he will doubtless argue that the outcome he engineered with his "can-do" fix-it approach to running the state saved the taxpayers bucketloads of money. But that is not the point. He and his wife's brother-in-law chose to ignore a massive conflict of interest.

Mr Kennett was approached by Bruno Grollo and Mr Rodd after it was clear they were getting nowhere with Mr Smith who was offering $150 million. During negotiations the Valuer-General decided the building was worth $40-50 million without the lease and $275 million with it. So on the Government's own numbers, Mr Kennett's intervention saved $25 million, but Mr Grollo says he had other offers as high as $330 million. Ironically, the Grollo's got their $250 million in cash just one day before Mr Kennett and his wife officially opened the Rialto observation deck on July 19 last year.
Mr Grollo stresses this was totally coincidental.

The SECV deal is not the only instance in which Mr Kennett has tolerated apparent conflicts of interest.

It was inappropriate for Mr Kennett and his good friend Ron Walker to sanction the application of Mr Kennett's son Edward for an unprecedented $7000 basketball grant from the Crown casino. This would be deplorable at any time, but to do it right in the middle of sensitive negotiations between a Cabinet sub-committee chaired by Mr Kennett and Crown over extra gaming capacity makes it totally unacceptable.

Similarly, his Government tolerated Andrew Peacock being chairman of Transurban's bid committee for the $1.7 billion City Link project when he is one of Mr Kennett's best friends. Mr Kennett appears to have a major blind spot over the issue of commercial conflicts.

While not suggesting any form of corruption here - and while on the subject of declaring interests, I worked in his office as a press secretary for 18 months until June 10 last year - he continues to display a basic misunderstanding about conflict of interest. He should not be involved in making any decisions that affect Ron Walker because he is both a close personal friend and the Federal Treasurer of the Liberal Party. At the very least he should resign from the casino sub-committee of Cabinet, admit the $7000 Crown sponsorship deal was wrong and adhere to the same code of conduct which he expects public servants to follow.

This would demonstrate he has a clear understanding about conflict of interest and the public could then focus on his significant achievements in government.