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Water plans drift behind a veil of secrecy

Date

Kenneth Davidson

So many questions and no answers as the desal plant costs keep rising.

Before Easter your correspondent sent several questions to Water Minister Tim Holding, to Aquasure (the consortium that is building and will operate the Wonthaggi desalination plant) and to the Essential Services Commission. The questions related to the public-private partnership contract, signed six months ago.

The desal plant, when originally announced in 2007, was to cost $3.1 billion. It became clear that farmers would not countenance overhead power lines, so under-grounding increased the cost to $3.5 billion.

Then last July the then Aquasure chairman announced that the $3.5 billion was only the cost of construction and the full cost would be $4.8 billion with financing. Last November the Victorian government tabled a document showing the cost would be $5.7 billion.

The contract can no longer legitimately claim to be ''commercial in confidence''. The reply from Department of Sustainability and Environment public relations came with a reference that turned out to be the tender document submitted last year with the crucial amounts blacked out.

Clearly there are things to hide - otherwise the public could see the finished contract. The project will be a burden on Victorian water consumers and taxpayers over the 30-year life of the contract. In brief, I believe the capital cost of the plant will amount to $600 million a year before even one gigalitre of water is produced.

If the plant operates at full capacity producing 150 gigalitres a year - about 40 per cent of Melbourne's 3A restricted use or about 30 per cent without restrictions - the cost of the water will be $280 million a year. If we needed this water (we don't), it could have been made available by conservation, recycling and new flood diversions for a capital cost of $350 million and an annual operating cost of $50 million.

It is no surprise the government is lifting water restrictions, but the decision has irritated households who have adapted to the restrictions and who feel good about the reduced consumption, seeing it as a real contribution to the environment. Lifting restrictions is not just about getting re-elected. It is about increasing revenue by increasing consumption to pay the huge ongoing and rising costs of manufacturing potable water.

The current system is cheap to operate because it uses gravity to move water. The desalination plant is located at sea level, which means that any water must be pumped to customers. This means that Melbourne's water price will escalate in line with the price of electricity.

Over the past five years the price of electricity has increased 13 per cent a year in Victoria - and in NSW prices have risen 28 per cent a year in each of the past two years. For as far ahead as we can see the price of electricity will continue to rise at the current rate for two reasons: some sort of carbon tax will be imposed and the existing generators must be replaced early in the 30-year life of the desal contract for a multibillion-dollar cost, irrespective of whether the power source is coal-fired or renewable energy.

Assuming the costs of electricity generation at a conservative 10 per cent, desal operating costs are likely to rise from $280 million in the first year to $450 million and $4.8 billion in the 30th year.

On these figures alone, it is unlikely that Victoria will ever achieve a surplus budget without an increasing burden of taxation. All the alternatives to the desal plant to produce extra water (recycling, conservation and diversions to trap flood water) use gravity, not electricity to transport water.

But there is a further complication. The pipe they are building from Wonthaggi to the Cardinia distribution dam for Melbourne is too small without branch lines to Melbourne being opened close to sea level.

This means the Melbourne water network will be pressured from the bottom up rather than gravity fed. This will put the whole ageing network at risk of burst mains.

There is no evidence of any risk analysis for Melbourne's pipe network or the cost of supplementary pumps across Melbourne.

The operating costs compared to other sources of water show that the desal plant should not be turned on because it is too expensive. The question is: does the contract allow for the plant to be mothballed?

The budgetary implications are so huge, that without the answer to this question election campaign talk about more policemen, more hospital beds, or more public transport is simply a waste of time.

There is an even darker interpretation. Most of the politicians on both sides don't know and don't want to know the implications of current policy. But the relevant senior executives in the Treasury, Sustainability and Environment, Melbourne Water and Aquasure should know.

If policy drift behind a veil of secrecy is allowed to continue through to the November election, the post-election government is likely to be presented with water privatisation throughout the state as a fait accompli.

Kenneth Davidson is an Age senior columnist.

kdavidson@dissent.com.au

40 comments

  • I have no problem with the building of a desalination plant, but the details outlined above show the government to be stark raving mad. PPPs don't work for anyone except the Private consortium who rips off the government (taxpayers). Why do we have such a large government and public service framework and then outsource any major infrastructure project. It is foolish, wasteful and as you have clearly shown, known by all which is why they keep everything shrouded in secrecy.
    Such a shame the opposition appears more incompetent than the incumbent government.

    Commenter
    Gilly
    Location
    Melbourne
    Date and time
    April 12, 2010, 7:34AM
    • the various governments operate without significant restriction from her majesties subjects here.there is no way they can restrict government since sovereignty resides in the sovereign, as executed by her servants in parliament and public service.

      since, as i hope you will concede, australia nor its states and territories are in any sense a democracy, why then do you pretend that publishing numbers is of any value? is this just a gossip column?

      Commenter
      al loomis
      Date and time
      April 12, 2010, 7:47AM
      • Well at least it may serve as a white elephant sized marker & reminder for future generations to not vote for irresponsible labor governments in the future. I don't care either way about politics, but the fools we seem to get in power are getting worse.

        Commenter
        Dr. Phil
        Location
        Melbourne
        Date and time
        April 12, 2010, 7:58AM
        • You are spot on Ken. For inept policy planning and execution, the State Gov water policy is up there with the Fed Gov insulation bungle and schools revolution. Expect more spin, coverups and diversionary tactics.

          Commenter
          Andrew
          Location
          Melbourne
          Date and time
          April 12, 2010, 8:04AM
          • Fact: Almost all Victorians want the insurance policy of a desal plant. They know the costs but are prepared to wear it. The idea of a responsible government simply hoping that it rains some time in the hundred years is ridiculous. All the politically motivated pressure groups - either from the extreme right or extreme left - two sides of the same coin, can damage the government but should not be allowed to stop the project. It is the least worst alternative.
            Fiction: That we can get water from Tasmania. We would have more chance of getting it from the moon.

            Commenter
            Paul
            Location
            Melb
            Date and time
            April 12, 2010, 8:16AM
            • Once again Kenneth, another great story from you. Can't anybody see how the actions of this government are set to ruin us financially for many years to come? Given the magnitude of what is happening here, why are you almost the lone voice in the (media) wilderness asking the questions???? How anyone could vote Labor at the next election is beyond comprehension.

              Commenter
              Dale
              Location
              Rowville
              Date and time
              April 12, 2010, 8:28AM
              • It's not a good idea to lift the water restrictions that is for sure. As to the increased cost of water the sooner we start paying the real cost of water the sooner we may start treating water with the respect it deserves. If paying because of the desal plant being built is one way this happens then maybe that's a good thing

                Commenter
                Jack
                Location
                Melbourne
                Date and time
                April 12, 2010, 8:36AM
                • Another good article. Both parties are as thick as thieves with big-business. The desal. plant is a way to donate taxpayer money to big-business. There's so much that the Brumby/Bracks government does to the detriment of the people of Victoria, and the opposition stands by and lets it happen. It seems it'll be business as usual for whoever is elected. What hope for good governance when both sides only pay lip service to it? They both (parties) ignore what the public want, and spin everything bad as if it were good.

                  Commenter
                  Brian
                  Date and time
                  April 12, 2010, 8:57AM
                  • Great story and info. Do we really need more taxes. Great alternative idea, "If we needed this water (we don't), it could have been made available by conservation, recycling and new flood diversions for a capital cost of $350 million and an annual operating cost of $50 million."
                    you should be in Parliament, at least you do your background, fact finding first. When this desal is up and running, do we need higher electricity & water costs, just to keep this "idea going". Very hastily considered project, not much though went into it. I like the part in the article about mothballing it, and not to turn it on because it will turn out to be a very, very expensive source of water. Sound to me like another "MYKI" project.

                    Commenter
                    Laughing
                    Location
                    Melb
                    Date and time
                    April 12, 2010, 9:29AM
                    • Two thoughts:
                      * Water is traditionally provided as a service. Although recent decades have brought a per litre charge, I can't believe that the government would get increased revenue if more water is used. I'm open to the idea that private water retailers might. The suggestion about there being votes in lifting water restrictions is very believable, although lifting restrictions could both gain or lose votes.
                      * Whether it comes from dams or treatment plants, water needs to be pumped up hill, to reservoirs at the tops of hills. Pumping water from a dam to reservoir is only cheaper to operate than pumping water from a treatment plant if the dam is on the side of the hill and the reservoir is on the side of same hill but the treatment plant is at the base or on the side of a different hill. It is not foreseeable that Melbourne will have a dam on the side of every hill or a water treatment plant so the difference between the two in the cost of pumping water is almost certainly negligible.

                      Commenter
                      EJ
                      Date and time
                      April 12, 2010, 9:52AM

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