The Bulk Water Alliance audit focused on ACTEW's establishment and management of the Bulk Water Alliance, as outlined in pages 28 to 31 of the audit report (paragraph 1.39 states the objective of the audit). Dr Cooper had no involvement in the Bulk Water Alliance. Independent experts were engaged to assist in the audit and all the fieldwork was undertaken by Audit Office staff. Theaudit quotes these independent experts and provides reasons for all audit key findings and conclusions. Accordingly, all of these can be scrutinised. The audit was also independently quality assured.
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The activities of the Water Security Taskforce were outside the scope of the audit. While this is the case, for this audit (as is done for all audits by all staff in the Audit Office), actual and apparent conflict of interests are considered. While it was considered there was no conflict of interest for Dr Cooper, her involvement in the Water Security Taskforce has been made explicit in the Bulk Water Alliance audit report (paragraph 1.50) where it is stated that information relating to the Taskforce (as is other information) was presented as background.
We have not had any issues raised with us regarding conflicts of interest in relation to the Bulk Water Audit. As mentioned in the Bulk Water Alliance audit report, paragraphs 1.30 to 1.38, the Audit Office was, and is, communicating with an entity that had made a public interest disclosure. However, I do not recall that there were any issues of conflict of interest raised. The entity making the disclosure offered to provide assistance to the Audit Office for the performance audit on the Bulk Water Alliance and this was declined.
With respect to cost estimates for the Enlarged Cotter Dam, the Bulk Water Alliance audit report outlines the various cost estimates that have been variously presented for the Enlarged Cotter Dam. The Bulk Water Alliance audit report did discuss the development of the cost estimates over time and the findings of previous reviews that have examined these cost estimates, namely the ICRC review that was completed in 2010. I refer you to paragraphs 5.4 to 5.6 of the report which discuss the various 'cost estimate milestones' for the Enlarged Cotter Dam between April 2004 and August 2009. Appendix A of the report discusses two previous reviews that have examined these cost estimates and quotes findings from these reviews. Page 162 of the report quotes the 2010 report from the ICRC which states:
The Commission notes that there were four cost estimates between 2005 and 2009. The first two cost estimates were inadequate for use as the basis for final approval of the [Enlarged Cotter Dam] project. Significantly, these estimates explicitly excluded costs which would have been reasonably expected to be included at the time the decision to proceed with the [Enlarged Cotter Dam] was being taken. These costs were:
· owner costs - subsequently revealed to be $64 million or a little over 50% of the direct construction costs which were being considered at the time the decision was taken to proceed with the [Enlarged Cotter Dam]
· contractor margins and fees - subsequently revealed to be a significant percentage of the direct construction costs.
It is clear to the Commission that the $145 million estimate was deficient for the purposes of approving the [Enlarged Cotter Dam] project due to the preliminary nature of the estimates as well as an absence of market testing of the costs assumed in 2007. Additional feasibility studies were required to ensure that the costs were tested and the design of the dam refined. The Commission is concerned that the $145 million estimate was used in the decision to recommend the dam in 2007 to the ACT Government. As a consequence, ACTEW at that time made decisions which favoured the [Enlarged Cotter Dam], and the favouring of this one option influenced the process for considering other options. The Commission is concerned that the 2007 recommendation ultimately led to the decision to proceed with the [Enlarged Cotter Dam] in 2009 despite the economic returns associated with meeting the water needs of the community being maximised by not proceeding with the [Enlarged Cotter Dam] project once the full cost of the project were known.
Therefore, the audit focused on aspects of the Enlarged Cotter Dam project that have not been independently reviewed.
With respect to your comment about costs and the Water Security Taskforce, I refer you to pages 12 and 13 of the Executive Summary of the Water Security Taskforce report which states:
Review of Financial Implications
The ACT Department of Treasury reviewed the financial implications of the individual options proposed in ACTEW's Water Security Program. In doing so, it noted that quantifying the costs and benefits of long-term major capital works such as those associated with the options presented is an uncertain process. Actual costs can vary considerably from estimates and benefits are subject to climatic outcomes, which even over the long-term are unpredictable. Treasury test the sensitivity of the net economic benefits calculated by ACTEW for the individual options to:
· the risk aversion factor applied by ACTEW to Stage 4 Water Restrictions, which has the effect of considerably increasing the economic benefit of avoiding time in Stage 4 restrictions; and
· the capital costs associated with the various options increasing by a 30% contingency (which is within the bounds of accuracy of the cost estimates provided by ACTEW for the enlarged Cotter Reservoir).
After the sensitivity testing, only the Tantangara and enlarged Cotter Reservoir options remained positive in terms of net economic benefit. The other options, including the Water Purification Plant (both the smaller and larger options) and the larger new Tennent Dam proposals are marginal or negative in terms of net economic benefits. Given the information available and the uncertainty of the cost and benefit data presented, Treasury considers that in the short-term it is worth pursuing the option of enlarging the Cotter Reservoir.
