23 December 2009


There are people in the community who care very deeply about issues such as the Wonthaggi desalination plant. Unfortunately there are newspapers such as The Age which refuse to publish our letters - we are too bolshie for them and they kowtow to their editors and owners. Because the media is so pathetic, blogs have become a popular form of protest at what is going on in the world around us.

There is absolutely no reason in the world why Melbourne, as well as other cities around Australia can't use recycled water. Melbourne does not need to have water pumped from Tasmania, does not need the north-south pipeline, does not need a desalination plant.

Melbourne needs to have a recycling system! Just stand on any street corner when we have one of those rare events in Melbourne these days - a downpour with water falling from the skies. Look at the gutters and watch the amount of water flowing - to where?

Underground reservoirs built at low-lying positions to collect all this run-off and think of the millions saved by Victorians and the country using recycled water - not just from rare rain but from everything else we use water for and it gets flushed down our sewers and drains.

One day people will see the light and rebel against their capitalist-controlled governments and realise how they have been fooled for decades. Maybe then something realistic will be done, not just about water but about all those other things our governments do in our names!!!

Desal plant figures don't hold water

December 7, 2009

Comments 24

In the modern democratic state, the durability of the big policy lie is prolonged by secrecy, and where this is no longer tenable, by creating an artificial maze to make the relevant information as difficult as possible to find, and once found, almost impossible to interpret.

Take the case of the Wonthaggi desalination plant. Last month Premier John Brumby's office released a media statement based on a ''project summary'' that shows that the net present cost (NPC) of the 30-year project as a public-private partnership was $5.7 billion compared with $6.7 billion if the Government did the job. This is based on the public sector comparator (PSC), which is a government creation that purports to show the true cost to taxpayers if the Government undertook the project. Ergo, a saving of a billion dollars, which was duly reported in the media.

But even based on the figures the Government grudgingly includes in its summary, the PSC shows no such thing. A reasonable interpretation of the document shows that over the 30-year period, Victorians will pay $650 million a year for the water supplied by the PPP (Macquarie Bank, the French multi-national, Suez and the builder, Theiss). This compares to $425 million a year it would cost as a government project. The difference of $225 million a year is the rent that will accrue to the PPP groups and their financiers.

Public or private, the 150-gigalitre desal plant is not needed. The additional water could be produced at a sixth to a quarter of the cost by a judicious mixture of conservation, recycling and diversion dams.

The Government asked itself the wrong question and is offering as an answer a cover-up. Implicitly the project summary recognises that the construction and operating costs are the same for both the PPP and the PSC. The Government, like the PPP, AquaSure, would contract out construction and buy the stainless steel pipes and reverse osmosis filters from comparable sources and the main operating cost - electricity - would be bought from the National Electricity Market Management Company grid.

The main difference between the two NPCs postulated by the Government is the risk that is purported to be transferred from the Government to AquaSure. The PSC calculated that AquaSure would take on risks worth $782 million NPC, which translates to an annual burden equal to $82 million a year.

The main risks of operating a desal plant are many. For example, at some time in the next 30 years a future government might not want to take all the 150 gigalitres of desalinated water available; there could be interruptions to power supply; likely changes to the price of power and the exchange rate risk at the time when the foreign debt in the highly geared project needs to be rolled over.

The monthly service payments incorporate ''a security element that is paid to the extent that the project delivers water that is ordered or is capable of delivering 150 gl per annum'', which amounts to a ''take or pay'' contract, plus an unspecified usage payment depending on the water ordered each month, which probably amounts to a bonus.

Electricity prices will skyrocket because some form of carbon tax will be imposed on electricity generators, but the cost of this will be passed on to water consumers irrespective of who owns the desal plant.

All this does is simply underline the madness of using electricity to produce water when non-electric alternatives are available.

The project only got off the ground because AquaSure got a government guarantee for its borrowings. It was flooded with offers of loan money because the generous deal it got from the Government meant it could offer an interest rate slightly above the risk-free, long-term bond rate and a government guarantee at the same time.

In other words, the ''risk'' transfer that purports to make the PPP the superior proposal is a fiction. But the most egregious element in the PSC is to apply a discount rate of 7.3 per cent (real) to the comparator. This, after taking into account an underlying inflation rate of 2.5 per cent, implies the Government alternative had to earn a rate of return equal to 10 per cent to put it on a level playing field with the PPP bid even though the Government can borrow all it needs for a nominal interest rate 5.5 per cent interest.

The difference adds up to a colossal financial burden for the state. The difference between a return at current prices of 10 per cent apparently required by AquaSure and the 5.5 per cent needed to cover the costs of a publicly owned desal plant is an annual average extra payment of $225 million a year over 28 operating years based on an NPC of $5.7 billion.

To buy the approval of powerful local and global financial interests, the Government has mortgaged the future of this state to the hilt. The consequences of this are not yet even dimly perceived by those charged with the duty of providing good government.

Kenneth Davidson is an Age senior columnist:


We're dudded on water but no one rebels

December 21, 2009

Comments 32

It is tempting for governments to reward most the people who can keep them in power. They do it with tax cuts and subsidies. It is clear that this has increasingly become the modus operandi of the Brumby Government.

The question now is whether the Government is, in effect, becoming a kleptocracy with the passive co-operation of the Opposition, as all sides of politics refuse to justify or criticise my calculation that the cost of the Wonthaggi desalination plant will be $650 million a year over the next 30 years or $225 million a year more than if the project was financed with public debt.

Victoria's politicians, whatever their motives, show by their silence that they have more to gain politically by serving the interests of AquaSure and by keeping quiet rather than addressing the public interest concerns about the contract - which still hasn't been made public.

Both sides want to shut down debate. Yet Opposition Leader Ted Baillieu is in a win-win situation unless he is also part of the game.

The public-private partnership game depends on secrecy, embellished by complexity, which turns away all but the most curious and most obsessed about protecting the public interest. Complexity, which reinforces public apathy, is the favoured tool of rent-seekers of all types.

The most notorious example of rent-seeking throughout the 1970s was tax avoidance, tacitly promoted by the federal treasurer, John Howard, and sanctified by the Barwick High Court.

It blew up when the Painters and Dockers Royal Commission stumbled into a far bigger scandal in the form of ''bottom of the harbour'' tax schemes that ''deep-sixed'' companies after they had been stripped of all their money, including tax liabilities. This captured public imagination and tax avoidance became a significant factor in the defeat of the Fraser government in 1982.

The public waste, the failure to follow proper process and the continued secrecy about the desal contract between the government and Aquasure should also capture the public imagination.

I can't believe the scale on which Victorians are being dudded. The prospect of $20 billion over 30 years to undertake a project that isn't necessary, but could have been done for $12 billion, is financial turpitude on a scale hard to imagine - even in Third World countries that don't have or don't respect institutional checks and balances to keep executive government honest.

Since the election of the Kennett government in 1992 Victoria has progressively lost a professional public service capable of producing independent advice and an independent auditor-general with the confidence to write relevant reports in plain language, while FOI legislation has been reduced to a joke and parliamentary committees have seen their reports hijacked to reflect the executive agenda.

Brumby's silence in the face of the facts that have been gleaned from the limited information that has been made public is understandable.

Baillieu's silence is inexplicable - unless he has made the political judgment that the interests behind AquaSure can do his party more damage than the votes he would gain by articulating the public interest. A responsible Opposition could offer a way back from the financial precipice. Has Victoria now no defence against bad government?

There is one slim chance. Like public opinion when its attention to tax avoidance rorts was stirred by the ''bottom of the harbour'' evasion racket, unwelcome attention has been drawn to the desalination plant by the outrageous decision of the police to hand over files on peaceful demonstrators to AquaSure. It is a clear signal to public opinion about who really pulls the strings in this state.

Governments should be absolutely scrupulous in entering multibillion-dollar contracts, especially involving private partners such at the Macquarie Group and Suez. Macquarie gave us CityLink and tolls at least twice the level that would have been required to finance the project by public borrowings. The French multinational Suez has a record of corrupt dealings with governments over water contracts, with directors sent to jail as a result.

The Brumby Government cannot continue to be silent for long. The amounts wasted are too big to hide. Misleading statements won't wash.

For instance, the project summary tabled in Parliament states that the plant will produce water at a cost of $1370 per megalitre. Rubbish. Simple arithmetic based on the production of 150 gigalitres a year suggests revenue of $205 million a year would not even cover the plant's operating costs.

At the Dubai annual international desalination power conference last month it was stated that the best price for water produced by the best desal technology in the world was $5100 per megalitre - three times the cost of water from Tasmania and more than five times the cost from aquifer injection and conservation.

Victoria is going down a privatisation path that France began in 1985 but is now rolling back in favour of management contracts where government retains strategic control of water.

Kennneth Davidson is an Age senior columnist. His column will return in February.


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90 years old, political gay activist, hosting two web sites, one personal: http://www.red-jos.net one shared with my partner, 94-year-old Ken Lovett: http://www.josken.net and also this blog. The blog now has an alphabetical index: http://www.red-jos.net/alpha3.htm