James Packer wants to build a casino in Sydney. But Echo Entertainment currently holds the exclusive casino licence which expires in 2019. The casino war is underway in New South Wales. Welcome to the Rum Corps world of NSW politics, writes ABC's Quentin Dempster.

James Packer is playing Premier Barry O'Farrell like a trout.

This state's famous way of doing business with powerful vested interests, evident from the spirituous liquor monopoly granted by Governor Lachlan Macquarie to the NSW Regiment way back in the early 1800s continues.

In an attempt to gain control, Lachlan Macquarie handed immense power and influence to the 'Rum Corps' which eventually subverted good governance.

James Packer is seeking to alienate public land claimed initially for a luxury hotel of 'six star' quality but made viable by VIP-only high-roller facilities for Chinese gamblers (no poker machines).

But as Packer organised an international design competition for invited architects it was clear the brief had changed. The winning iteration incorporates a massive podium which Packer's rival, Echo Entertainment, has publicly guesstimated at 10,000 square metres of gaming floor space, room for a 'casino on steroids'. As well the design incorporates up to 80 penthouse-style apartments ranging in price from $5 million to $40 million. All this is said to be necessary to make the $1 billion dollar-plus investment financially viable.

The casino wars come at a disturbing time for public confidence in the integrity of government.

The jurisdiction of New South Wales is currently under historic challenge from an extra-parliamentary powerbroker network now known as the 'Obeid Corps'. The Independent Commission Against Corruption's (ICAC) investigations into allegedly corrupt relationships which could enrich Eddie Obeid, his family and business associates beyond the wildest dreams of avarice, probably will face a wall of litigation, so high are the stakes.

In late July the ICAC will deliver its findings in three inquiries involving Eddie Obeid's relationships with former treasurer Eric Roozendaal and former mining minister, Ian Macdonald. Also under investigation is Ian Macdonald's relationship with John Maitland, former head of the CFMEU and his allocation, without competitive tender, of the Doyles Creek coal mining exploration licence.

While the ICAC may deliver findings of corrupt conduct the real test of the jurisdiction is in mounting prosecutions which will result in convictions. A corrupt conduct finding is merely an expression of considered opinion by an ICAC commissioner equipped with the equivalent of royal commission powers.

While the process is valuable in exposing corrupt practices is this good enough for such serious allegations involving the subversion of government which is meant to act at all times in the public interest?

The public must see that if there is corruption the criminal law will be applied to the offenders.

The Liberal/Nationals Coalition has been revelling in the political downfall of the Australian Labor Party whose traditional voter support base has been destroyed in NSW, largely through the perception of corruption. But so far Premier O'Farrell and his Attorney General Greg Smith SC, have not responded to calls for the appointment of a special prosecutor arising from the ICAC investigations. The current DPP's office is notoriously strapped for resources.

Casino contention

There is no direct evidence of corruption in the Packer casino wars at this stage. But there is contention around a very questionable process through the O'Farrell Government's 'unsolicited proposals' regime under which James Packer's bid has been accepted to Stage 2 of the 'assessment process'.

Packer's Crown Ltd has submitted an offer to build a 250-metre-high, 60-storey hotel casino said to assist the Government's strategy to double the 'visitor economy' by 2020. Packer has a two year window of opportunity negotiated with the site's leaseholder Lend Lease, which already has approval for a high-rise hotel.

The exclusive casino licence currently held by Echo Entertainment's The Star casino at Pyrmont, 500 metres from Packer's preferred western CBD site at Barangaroo, expires in 2019. James Packer has said that if he can secure government approval his hotel casino can be constructed by 2019. The Premier has indicated he is prepared to legislate to facilitate the Crown licence after Echo's exclusivity expires.

On June the 21 Echo will submit the detail of its own unsolicited proposal for a further billion-dollar investment its CEO has said will integrate current resort style entertainment, event, restaurant and gaming facilities with the city of Sydney to help drive the tourism experience (with a commitment to no additional poker machines).

Under the Government's unsolicited proposals process both bids are at Stage 2 requiring "the proponent and government to work cooperatively in the development and assessment of a detailed proposal. The outcome is advice to the proponent of progression to Stage 3, or that the Government does not wish to proceed."

Stage 3 is the point of no return: "Negotiation of final binding offer: Involves the finalisation of all outstanding issues with a view to entering into a binding agreement, if the government decides to accept the final offer".

Echo went public last month with pointed criticism of the Packer deal after Crown unveiled its Barangaroo building concept design, including the massive podium at its base.

Echo CEO John Redmond said this represented 'concession creep' and looked to him like James Packer had briefed all the competing architects to incorporate sufficient floor space for a 'massive casino' and not the niche or boutique gaming facilities for wealthy Chinese high-rollers Packer originally had told Premier O'Farrell was his primary motivation.

On April 9 the Premier announced the Government had received Echo's counter offer of further investment in return for extending its single casino licence exclusivity beyond 2019.

"Both proposals will now be comprehensively assessed, but because of their mutually exclusive nature only one proposal could proceed to Stage 3 of the unsolicited proposal assessment process," O'Farrell said.

The objective assessment of both proposals is being undertaken by former Future Fund and CBA head, David Murray, with retired Supreme Court judge Ken Handley QC assisting on probity.

The criteria for assessment are to identify 'the potential benefit to government' presumably including job generation, tourism, GST and casino tax revenues.

Public? Keep out

The assessment process is secret. No public submissions are invited, a prohibition particularly galling to many Sydneysiders concerned at the merit of the Packer building design which would have to withstand comparison with the globally recognised Sydney Harbour Bridge and the Opera House.

Former PM and noted aesthete Paul Keating, who resigned from the Barangaroo Delivery Authority's design excellence panel soon after the change of government in 2011 has indicated his in-principle support for a Packer casino as long as it displayed a quality form like a Constantin Brancusi sculpture.

Philip Thalis, the Sydney architect who'd won the original design competition for Barangaroo in 2007 but whose design was not progressed at Keating's insistence, says Packer's winning hotel casino design by UK architects Wilkinson Eyre is an insult to Brancusi. It was a commercial floorspace grab for precious public land, which, when added to the already bulky Lend Lease office towers approved by Keating and now under construction, would build a massive wall between the city and its harbour.

John Redmond, Echo's new CEO, told the Sydney Business Chamber on May 28 that the Packer podium and other gaming floor space was almost two football fields in size. "Now let's be clear … I like casinos, but do Sydneysiders really know what they might be signing up for? It amazes me as a newcomer to this city that there has been no public response or discussion".

Remond also questioned Packer's tourism drawcard claims. With 350 hotel rooms it represented a 1.4 per cent increase in Sydney's capacity.

"[It] simply cannot have a material impact on tourism - no matter how tall it is or how many luxury apartments it accommodates. It simply does not offer the scale and diversity of attraction required to draw the Chinese middle class in large volumes as has been claimed." Crown's Melbourne operation, by contrast, was a genuine integrated resort with 1,600 hotel rooms and diverse attractions.

Because the NSW Stage 2 process is secret the public will not see exactly how David Murray negotiates a higher return for the Government, let alone makes a determination on Echo's critique or the design merit of a structure which , in Packer's case, could change forever the cityscape of Sydney.

Last month James Packer downsized his equity in Echo Entertainment, even after winning the regulator's approval to increase it. This led to fevered speculation that he was cashing up for his Barangaroo bid and was anticipating O'Farrell Government approval later this year.

Premier O'Farrell has gone out of his way to publicly support and encourage the Packer proposal.

His Cabinet has avoided its obligation to make a threshold decision on exclusivity beyond 2019.

The Cabinet has avoided its obligation to make a threshold decision on splitting the casino market in Sydney. The Department of Premier and Cabinet, its principal advisor, has not done any homework on the downside of such a split through the creation of a competing licensee at Barangaroo, 500 metres from an existing casino operator with an 80-year licence.

If exclusivity is to be abandoned after 2019 it has not done a feasibility study into granting a casino licence to either Wollongong or Newcastle (or both) to enhance desperately needed regional tourism and local job creation. Queensland Cabinet did this exercise and that state now has casinos at the Gold Coast, Brisbane, Townsville and Cairns with enhanced economic and regional tourism benefits.

Casinos are regulated by state and territory governments. They provide legal gaming facilities and since their introduction in Australia in the 1980s at least have removed or greatly diminished the illicit market once controlled by organised crime and corrupt police.

State and territory governments have collected substantial revenue from casinos through up-front payments from licensees at the outset and ongoing casino tax based on turnover. In New South Wales Treasury has collected $4 billion in taxes, license fees and other charges since the Pyrmont casino was approved by the Carr Government in 1995.

Is it wise to make outlets compete with each other in the same city even with the claimed potential growth from Chinese high-rollers? No other government in this country has taken such a decision because it can fragment the tourism investment and consolidated revenue. Shareholders in such entities are prepared to pay a premium for the certainty of exclusivity for such a highly taxed and regulated operation with board, management and all staff having to undergo forensic probity checks to ensure there is no infiltration by organised crime.

Packer would not tolerate such a split in Melbourne or Perth on these substantive grounds.

James Packer's father Kerry did not get the Sydney casino licence when it went to competitive tender in 1995, something which has rankled with the Packers ever since.

Therein lies the NSW Rum Corps context of all this.

Premier O'Farrell revealingly acknowledged as much when he told the AFR's Boss magazine (March 8): "It's the same sort of thing that Lachlan Macquarie did in 1812 when the officers of the Rum Corps came to him and said we'll build you a hospital in exchange for giving us the right to import rum into the colony of NSW. Unsolicited bids have been coming into government ever since there's been government here and the difficulty is always: how do you deal with them?"

The answer is, with very great respect: you don't deal with them.

You're the Government.

You decide what is the best strategy for doubling the visitor economy by 2020. You decide if it is wise to split the casino market into competing facilities. And with the biggest bear pit majority in the electoral history of New South Wales you don't go weak at the knees when a charming tycoon walks in the door. You don't let him manoeuvre you on to his billion dollar hook and then change the brief.

After the latest ICAC revelations New South Wales should be moving way beyond its Rum Corps roots.

Pull yourself together please Barry.

In the likely event the Premier does not heed this gratuitous advice?

Place your bets on Packer.

Quentin Dempster presents 7.30NSW on ABC 1. Ethical declaration: Quentin has an interest in a property near Barangaroo. View his full profile here.

Editors note: Lines referring to the history of Governor Lachlan Macquarie have been altered to provide some clarification.