Suburban Rail Loop focus of probe into politicisation of public service

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The Victorian government’s signature infrastructure project, the $125 billion Suburban Rail Loop, is a key focus of a highly anticipated ombudsman’s report into the politicisation of the state’s public service.

Victorian Ombudsman Deborah Glass’ report will be tabled on Wednesday, revealing the findings of a two-year probe, prompted by reports in this masthead about the influx of political operatives into senior public service ranks and the centralisation of decision-making within then-premier Daniel Andrews’ private office.

Suburban Rail Loop construction in Clayton last year.Credit: Jason South

The report is not expected to examine the merits of the proposed rail loop but the unorthodox and clandestine way it was developed by a team of private consultants working without the knowledge of senior transport and planning bureaucrats – and much of the cabinet – in the lead up to the 2018 state election.

This masthead has confirmed with four sources familiar with the ombudsman investigation, all speaking anonymously to detail confidential information, that the report closely examines the rail loop. The reflections and conclusions of the outgoing ombudsman, who has been a frequent critic of the Labor government, will be revealed when the full report is released.

The timing of the publication is politically and financially sensitive for the project, which the Allan government remains determined to build despite Victoria’s rising debt and uncertainty over federal funding.

The government is on the cusp of finalising its largest major financial investment in the project to date; a $3 billion to $4 billion contract with a consortium of Australian and overseas construction and engineering companies to bore the first section of twin tunnels between Cheltenham and Glen Waverley in Melbourne’s south-east.

Once signed, the contract will expose Victoria to significant financial penalties if the project does not go ahead.

The report could also cast further doubt on critical federal funding. Victoria has allocated almost $12 billion for the first stage of project and is seeking a matching contribution from the Commonwealth government, but Canberra has so far only pledged $2.2 billion.

While previous reports about the rail loop have focused on costs and figures, the ombudsman inquiry is the first to look into the political motivations behind the loop, which Labor insiders have credited with swinging votes in a group of eastern suburbs seats at the 2018 election.

Individuals named in the Ombudsman’s inquiry have been sent sections of the report related to them to give them a chance to respond. Some have strongly pushed back against elements of the report pertaining to them, three of the sources said.

The Suburban Rail Loop was the brainchild of Tom Considine, a former chief of staff to Treasurer Tim Pallas appointed to an executive job within Development Victoria, the government agency responsible for property development and capital works. The idea was championed by the then-chair of Development Victoria, James MacKenzie, a Labor-aligned businessman who costed the party’s 2014 election promises.

In a break from usual public service processes, the project was kept secret from the state’s two most senior transport bureaucrats, department secretary Richard Bolt and deputy Gillian Miles. Instead, it was developed by a team of PwC consultants, working in secrecy, with money funnelled from the Department of Premier and Cabinet (DPC) to Development Victoria, without the knowledge of the latter’s board.

The project was overseen by Simon Phemister, then working as a deputy secretary within DPC. The most senior transport infrastructure bureaucrat involved, Corey Hannett, was asked to sign a non-disclosure agreement that prevented him discussing the project with his boss.

Bolt, Miles, Phemister and Hannett have all left the public service. MacKenzie was made the inaugural chair of the Suburban Rail Loop Authority – a post now occupied by former deputy premier James Merlino. After serving as interim chief executive of the authority, Considine took a senior job with the Sayers Group, the eponymous consultancy of former PwC chief Luke Sayers, a close friend of Andrews.

Premier Jacinta Allan, then the minister for the Suburban Rail Loop, inspecting works in Burwood in August.Credit: Jason South

Jacinta Allan was the minister responsible for the rail loop project before she succeeded Andrews as premier.

The premier’s office could not comment until the ombudsman’s report was published. The ombudsman’s office declined to comment.

The ombudsman’s inquiry, named Politicisation of the Public Service, was prompted by an August 2021 investigation by this masthead that identified more than 30 senior public servants who served as advisers in the Andrews government. The series also exposed how the Victorian government bypassed its own bureaucracy to develop the largest and most expensive infrastructure project conceived by any state in Australia.

The Albanese government pledged $2.2 billion towards the $34.4 billion first stage of the orbital rail loop during the 2022 federal election campaign and the Albanese government has repeatedly assured Spring Street that the promise will be honoured. However, the Victorian auditor-general has raised concerns about the business case for the project, which Infrastructure Australia is still assessing.

Victoria has allocated $11.8 billion of state money towards the first stage, and is seeking billions more in either Commonwealth or private investment. Federal Infrastructure Minister Catherine King – who recently revealed $7 billion in cuts to projects across Australia in a bid to rein in excessing spending – said the Victoria government needed to continue discussions with Infrastructure Australia before more funding was committed.

“We’ve put money into that first bit. We haven’t made any decisions about putting any money into it further. I know that Victorians would like us to, and we’ll continue to have discussions with them about that,” she said on November 17.

Victoria’s net debt is forecast to top $171 billion within the next three years, prompting warnings from Auditor-General Andrew Greaves that without a clear plan to reduce what it owes, the government’s mounting interest bill will put further pressure on state finances.

Opposition Leader John Pesutto has called for the rail loop to be shelved until it is assessed by Infrastructure Australia.

The Victorian ombudsman, like Victoria’s Independent Broad-based Anti-corruption Commission, has been critical of how decisions are made within the state government and the increasingly blurred lines between political advisers and public servants.

Glass finishes her 10-year term in March next year.

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