Vic govt bet on commercialisation based on ‘inaccurate’ advice

Joseph Brookes
Senior Reporter

The state enterprise in charge of Victoria’s rail infrastructure misled the government while convincing it to invest $82.5 million into commercialising unproven technology in partnership with Xerox, according to a scathing audit.

The startup venture, known as Eloque, flamed out last year with a total cost to taxpayers of more than $20 million and multiple instances of its management making unauthorised decisions.

A highly anticipated audit of the venture and its establishment released on Wednesday found the advice justifying Elqoue was “inaccurate and incomplete”, and the state’s transport department did not conduct sufficient due diligence before investing.

Governance failed, with boards of the public organisations involved not effectively overseeing the venture and being late to identify problems with the tech and the chief executive’s conduct, the audit said.

Victoria’s Auditor General has released a scathing report of  the government backed Eloque venture

Eloque was pitched to the government by the Victorian Rail Track Corporation (VicTrack) as a way to commercialise FiBridge, a fibre optic technology that could remotely monitor the condition of bridges in real time.

VicTrack said a venture to commercialise the technology would generate annual revenue of $422 million after 10 years, at a 41 per cent return on investment, and be a boon for local advanced manufacturing jobs.

The projections came from an untested and unverified consultant’s report that VicTrack had fast-tracked, despite the venture being unprecedented for the government and a radical departure from standard procurement.

The consultants had warned the projections were only estimates and should not be used for investment decisions. But VicTrack used it in a Cabinet submission to the Andrews government.

“VicTrack’s advice to the government about commercialising FiBridge and setting up the joint venture was inaccurate and incomplete,” a report from Victoria’s Auditor-General’s Office said.

“It gave an over-optimistic view of FiBridge as market-ready, and did not transparently outline how the commercial aspects of the venture would work.”

In fact, the FiBridge technology was not ready for market and had only undertaken limited testing by VicTrack and Xerox. Both knew it required further development over several years, the audit said.

But the government backed the project and set up another company HoldCo to oversee the government’s 37.5 per cent interest in Eloque. Xerox owned the remaining 62.5 per cent.

VicTrack invested $32.5 million from its own budget to commercialise FiBridge. Through the state budget that year, the government allocated an another $50 million to the then-Department of Transport over five years for deployment of FiBridge technology on state infrastructure.

VicTrack’s then chief executive Campbell Rose was seconded to lead the new venture as an interim chief executive, a move he was actively involved in, despite lacking the identified skills and experience needed for something like Eloque.

The Auditor General found no documented evidence that it had been an open, transparent recruitment or that Eloque had made any efforts to recruit a permanent chief executive.

The audit found Mr Rose, who retained roles at VicTrack and became company secretary at HoldCo did not disclose that the planned 50/50 split of equity was Xerox was changed to 62.5 per cent in the private company’s favour until after it had been finalised.

HoldCo and Xerox both invested $7 million cash in Eloque but the private company was deemed to have held far more intellectual property.

When the venture was establish there was no commitment for either party to fully contribute the $65 million that would eventually be required to commercialise FiBridge. The lack of clarity was a factor in Eloque being wound up last year, the audit said.

Mr Rose was also acting outside the terms of his secondment to Eloque by attempting to implement a remuneration and equity scheme from which he would have benefited, the audit found. He also offered without authorisation an executive level salary to a VicTrack employee seconded to Eloque, despite an independent review finding the salary was too high.

Reviews last year found gaps between the Department of Transport’s expectations for the FiBridge technology and what Eloque was delivering.

Eloque collapsed last year, 16 months after it had been set up and spent $16 million in taxpayers’ funds. Xerox said commercialisation of the technology would take “more efforts than initially expected”.

In VicTrack’s response to the audit findings it said its trust in Mr Rose to commercialise the technology had been “misplaced” and his conduct had been “unacceptable”.

VicTrack rejected the auditor’s wider criticism that it had provided inaccurate and incomplete advice to government in justifying the venture, arguing it had only sought “in principle support” for Eloque rather than an investment approval, and claimed that HoldCo was responsible for governance of the project once it was established.

Mr Rose said some of the audit’s findings are “objectively wrong” and the final report is “fundamentally flawed”.

Do you know more? Contact James Riley via Email.

Leave a Comment

Related stories