Jenolan Story

The most beautiful caves in the world filled with deception, lies and dishonesty

CHAPTER 1 - THE JENOLAN GAMBLE

A Public-Private Partnership

This is the story about the NSW government’s intricate plan to acquire the historic Caves House without paying for it. It resulted in 25 people being treated as collateral damage.[1]

Documents obtained under FOI explain how the government acquired the hotel at a bargain price when the Jenolan Caves Reserve Trust was being operated without a Trust Board. For the next 10 years, 6 Premiers,[2] 7 Treasurers [3]  and 9 Ministers for the Environment [4] had access to cabinet files that identified the New South Wales government’s plan to acquire the property and the intricate practices they used.

                                041230 Pics Henness

The Jenolan Story is only one example of dishonest conduct by the New South Wales government in public-private partnerships. At the same time, in 2003, the government was investigated for corruption in its handling of the Cross City Tunnel contract. [5] The business owner considered refinancing the investment but was prevented from doing so by the government’s attempt to recover millions in stamp duty.[6] The government also changed the road system, which damaged the tunnel’s profitability.[7] Whilst the circumstances differed slightly, in the Cross City tunnel case the government attempted to purchase the now troubled motorway at a discount. [8]

In 2015, the government is again seeking capital from the public by entering into another public-private partnership, which it will manage. The Jenolan Story explains how the New South Wales government changed legislation,[9] breached contracts with its partners [10] and made it impossible for them to seek damages.[11]

Background

The 99-year lease of Caves House was granted to Jenolan Caves Resort in 1990. A Trust Board was set up by an earlier Liberal government and consisted of commercial and conservation specialist members. In 1996 the Trust Board was restructured, removing the commercial members.[12] The performance of the Trust suffered and infrastructure maintenance backlogs occurred.

Reception Lobby Main Staircase

In 2003, the government commissioned a Special Review of the Trust. The review was carried out by the Council on Cost and Quality of Government (CCQG). It recommended infrastructure funding and purchasing the lease. However, the review and members of the Trust were kept in the dark about a caveat placed on the use of government funds that would benefit the businesses.

Following the review, the Minister invited the Trust Board not to seek reappointment. They would, instead be replaced by an administrator. The government could have carried out this restructuring lawfully under the National Parks and Wildlife Act (1974), however it chose to do this unlawfully instead. The JMA Parties, in 2011, obtained legal advice by Senior Counsel that noted the appointment was unlawful. All members of Parliament received access to this advice on 12 October 2005.[13]

In 2005, the Premier, Treasurer and Environment Minister all had access to this advice.

Key Challenges

In a Cabinet Minute dated 3 September 2003, it was decided that the Council on the Cost and Quality of Government (CCQG) would undertake a Special Review into the Jenolan Caves Trust.[14] This was to enable the optimal business model for the Jenolan Caves precinct to be developed.

 Floor Lounge Area Caves House

The special review outlined a number of key issues facing the Trust:

  • Tension between the Trust’s conservation and commercial objectives;
  • Lack of capital funding to upgrade ageing infrastructure;
  • Declining tourist visitation over the last seven years;
  • Impact of public sector salary increases on expenses;
  • Transport access to Jenolan Caves and the need for road upgrades; and
  • Lease arrangements between Jenolan Caves House (a private operator) and the Trust”.[15]

Infrastructure

As will be explained later in the Jenolan Story, problems regarding government underinvestment in maintenance at Jenolan of electricity, water and paths made ageing infrastructure a matter of public liability.[16] Risk assessments by Trust staff since 1996 revealed that consistent government underfunding of capital works resulted in risk of falls, electrocution, and fumes from degrading lead handrails and old lights.[17]

Library

The Trust was not meeting its statutory obligations to care for the caves infrastructure.[18] Treasury had failed to fund the cost of dealing with the ageing infrastructure despite the Trust’s 1999 Five Year Capital Maintenance Strategic Plan to provide $10.5m in funding. It only granted $1.1m between 1999 and 2003.[19] The CCQG found that in 2003 there existed a $14m capital work deficit.[20] This was a significant problem for the businesses.

Declining Tourist Numbers

Tourist numbers at Jenolan Caves had fallen from 272,443 in 1996-97 to 214,453 in 2002-03.[21] The decline in visitor numbers occurred following the government’s restructuring of the Trust Board to contain no commercial members and this concerned the Jenolan Caves businesses greatly. The businesses also expressed a view that declining visitor numbers were the result of increased ticket prices.[22]

Retail Shop

The Special Review found that the Trust was spending less than industry average on advertising.[23] However, it is unclear whether the Special Review members had sufficient expertise or skills to recommend an investigation into how this decline had occurred during the previous 10 years and how it could be avoided in the future.

Salary Increases

Following government salary increases, the Trust was required to fund a 6% wage increase for staff.[24] These increased costs would have impacted on the long-term finances of the Trust.[25] The Trust had a history of raising ticket prices to fund increased expenses, this concerned businesses greatly when visitor numbers had already declined.

Road Upgrades

Jenolan Caves Road, the main Sydney road access into the caves, was assessed by the Roads and Traffic Authority (RTA) and was found to be one of the most dangerous in the state.[26] The Trust Board’s safety concerns forced the closure of the road for eight days in May 2003. This closure lowered visitation by an estimated 20% from the same period in 2002.[27]

The Special Review recommended urgent road upgrades to avoid placing the public at risk.[28] However, before the review was complete, Minister for Roads, Carl Scully, MP, had agreed to provide funding of $24.5m for three stages of the road repairs.[17] Prior to the Minister attending the Trust meeting on 6 December 2003, the road funding had already been approved.

Lease Arrangements

The Special Review identified problems in the relationship between the Trust and the lessee, especially concerning visitation levels and infrastructure maintenance.[29] It therefore included five options for the government to pursue.

Main Bar

The options included:[30]

Option 1: Vary Lease

Negotiations should take place between the government and lessee to vary the lease. Aspects of the lease that could be negotiated included changing the lease to a 20-year structure with some scope to link rental to visitation levels.[31]

Option 2: Commercial Buy-out

A commercial operator buys the lessee’s interests in Caves House lease and enters into a management agreement with the government to run all tourism functions at Jenolan Caves.[32]

Option 3: NSW Government Buy-out

The government negotiates directly with the lessee to buy out the lease. The government will then contract out the operations of Caves House.[33]

Option 4: Compulsory Acquisition

The government uses the terms of compulsory acquisition legislation to buy back the Caves House lease on just terms.[34]

Option 5: Termination due to Default

The NSW government terminates the lease due default by the lessee. [35]

Impossible Options

The Cabinet approved Minister Debus’ request for a Special Review on 3 September 2003. [36] It included a condition or caveat that was not known to the review members or the Jenolan Caves Reserve Trust.[37] The caveat required no government money be spent that would benefit the lessee.

Therefore, the options 1 to 4 mentioned above could not be considered.

A cabinet minute obtained on 12 February 2015 under FOI revealed the government had no plans to comply with the terms of the public-private partnership agreement.[38] The minute notes that no public money could be used that would benefit the lessee. This caveat had the effect of invalidating the development plans set out in the original tenders for the lease.[39][40] The development application had already been approved by the Trust but was no longer a legitimate option.

One Option: Default

When the Budget Committee were briefed on the Special Review, it would have become evident that with the caveat in place 4 options were not relevant. Only Option 5 could be contemplated. The hotel had to be obtained through the lessee’s default.

By 2004, the hotel’s star rating had increased from 1 to 4½ stars and its current value was $11.5m.[41] To accomplish the default option under the lease and return the hotel to the State Government was in the long term a ‘very high risk’ option.[42][43] The government’s handling of the public-private partnership in 2003 would, over time, become public knowledge. However, the reputation of the Jenolan Caves brand and the financial viability of the tourism businesses in the village would be permanently damaged.[44]

To sum up…

The JMA documents obtained under FOI explain how the government could have acquired the Caves House lease lawfully or unlawfully. Instead, it damaged prospects for future public-private partnerships. The fact that all senior government members had access to this information adds to the heartbreak of this story.

During the next three months, the JMA Parties will publish twenty chapters of this story. It explains how successive governments spent vast sums of money to conceal deception, lies and dishonesty by their colleagues. The story reports on the dismal standards of governance that have continued in New South Wales for the past 20 years.

JMA Parties would appreciate feedback on this Chapter, including information that should be corrected

Please contact us by This email address is being protected from spambots. You need JavaScript enabled to view it.

Bibliography

The supporting documents will be uploaded soon ...  


[1] In 2013, 25 people attempted to resolve their differences with government in relation to managing Jenolan Caves Reserve Trust without a Board.

[2] “Cabinet Leak on tunnel stack not corrupt; ICAC, Anne Davies, State Political Editor, April 20 2006, The Sydney Morning Herald, smh.com.au, http://www.smh.com.au/news/national/cabinet-leak-on-tunnel-stack-not-corrupt-icac/2006/04/19/1145344153561.html

[3] “Sydney’s Cross City Tunnel enters voluntary administration, blames Government for financial woes”, Nonee Walsh, Updated 14 September 2013, 6:11pm, ABC News- http://www.abc.net.au/news/2013-09-14/cross-city-tunnel-owners-blame-government-for-debt-woes/4958084

[4] Ibid

[5] “Cabinet Leak on tunnel stack not corrupt; ICAC, Anne Davies, State Political Editor, April 20 2006, The Sydney Morning Herald, smh.com.au, http://www.smh.com.au/news/national/cabinet-leak-on-tunnel-stack-not-corrupt-icac/2006/04/19/1145344153561.html

[6] “Sydney’s Cross City Tunnel enters voluntary administration, blames Government for financial woes”, Nonee Walsh, Updated 14 September 2013, 6:11pm, ABC News- http://www.abc.net.au/news/2013-09-14/cross-city-tunnel-owners-blame-government-for-debt-woes/4958084

[7] Ibid

[8] “NSW considers buyback of Cross City Tunnel,” Financial Review, September 20 2013 at 8:13am, updated at 8:37am, http://www.afr.com/business/nsw-considers-buyback-of-cross-city-tunnel-20130919-j0dql

[9] 1997 Amendments to NPW Act changing the composition of the Trust Board

[10] Failure to comply with the Services Agreement to supply a continuous supply of potable water.

[11] Mislead the NSW civil and administrative tribunal in relation to its decision to appoint a Trust administrator and comply with the Services Agreement.

[12] reference

[13] Advice by Senior Counsel, Robertson, T that was referred to members of parliament on 12 October 2005.

[14] Cabinet Minute by the Cabinet Standing Committee on the Budget, Review of the Jenolan Caves Trust to be Undertaken by the Council on the Cost and Quality of Government, 3 September 2003  (document accessed 12 February 2015). 

[15] Ibid

[16] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015). page 28

[17] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust: Findings, Tab E, 31 October 2003 (document accessed 12 February 2015), page 17

[18] Special Review, p 28

[19] Ibid

[20] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015), page 29.

[21] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015), page 26.

[22] Reference

[23] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015), page 30.

[24] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015), page 20.

[25] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust: Submission to Budget Committee of Cabinet, 31 October 2003 (document accessed 12 February 2015), page 1.

[26] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015), page 33

[27] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015), page 35.

[28] Letter to Bob Debus, Minister for the Environment, MP, from Carl Scully, Minister for Roads, MP, 19 November 2003.

[29] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015), page 38

[30] Options set out Special Review of Jenolan Caves Reserve Trust pages 53-54

[31] Ibid. Option 1 (risk assessed low to medium) was not possible due to the government’s caveat. Also, the scale of the project set out in the Peppers tender in 1990 required the hotel to be fully developed in line with escalating land rent charges. 

[32] Ibid. Option 2 (risk assessed medium) was again not possible due to the caveat. Also it would not allow the lessee to recover its initial costs in upgrading the hotel to NRMA 4½ star standard. 

[33] Ibid. Option 3 (risk assessed medium) was a sound choice for the government; however it suffered from the decision by the government to impose a caveat on funding. 

[34] Ibid. Option 4 (risk assessed very high) was very high risk because it required the government purchase the hotel on just terms. 

[35] Ibid. Option 5 (risk assessed very high) was very high risk because the lessee and sub-lessee in 2003, had been suffering from the effects of brown water, broken pipes and aging infrastructure.

[36] Cabinet Standing Committee on the budget minutes of the meeting held on Wednesday 3 September 2003; Item 3, page A1.   

[37] Cabinet Standing Committee on the budget minutes of the meeting held on Wednesday 3 September 2003, page A3.

[38] Ibid.

[39] Plans of addition to Caves House, Jenolan Caves, Bill McMahon Architect, May 2002.

[40] Stage 6 Development Caves House, Trust provides owners consent, 30 March 2004

[41] Valuation Report of the Jenolan Caves Resort, prepared for An Intending First Mortgagee, 16 February 2004.

[42] Council on the Cost and Quality of Government, CCQG Special Review of Jenolan Caves Reserve Trust, 31 October 2003 (document accessed 12 February 2015), page 54.

[43] At some point the hotel would need to be sold, and if the advice by Robertson T, SC, was not found to be incorrect the resale of the property would not be an option.

[44] Photos that were taken in 2004 depict the high standards of buildings and bedrooms in the resort.

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