Watershed’s response to Governments announcement

 

From the Premier of Victoria   -   and responses from Watershed Victoria

AUSTRALIA’S BIGGEST (ONLY ONE LARGER OPERATING IN THE WORLD*) DESALINATION PLANT TO SECURE WATER AND A FEW JOBS

Thursday, 30 July 2009

The Premier, John Brumby, today announced the AquaSure consortium had been awarded the contract to build Australia’s biggestdesalination plant, which will secure Victoria’s water supplies, deliver as many as 1700 direct new jobs and help ease tough water restrictions.

Despite a Labor dominated Parliamentary Inquiry in June saying, desalination “should not displace development of other water sources such as stormwater and recycled water in Melbourne”, the government said one month later that they have abandoned significant recycling from the Eastern Treatment Plant, and instead will pump nearly 100 billion litres of Class-A water out to sea. The scale of the plant is huge, even a DSE document created for the EES** shows that with the current drought and population increase continuing, and expected usage, the dams will fill and restrictions not return until after 2060 with no further augmentation, no further; recycling, stormwater capture, decent incentives for rainwater tanks or efficient appliances. Sustainable water policy will vanish. Although there are jobs for a couple of years of construction, their number are no more, and probably magnitudes less than other water supply options would provide. When operating the plant will employ only 40-50 full time positions, representing something like $100 million per long term job created.

 

Mr Brumby said the Victorian Government selected AquaSure, consisting of Suez Environnement, Degremont, Thiess and Macquarie Capital Group to build the $3.5 billion desalination plant, with key features including:

•    A guarantee to deliver desalinated water by the end of 2011;

•    Value for money for water users;

•    Delivery of water to meet Victoria’s high water quality standards;

•    Flexibility to supply between 0 and 100 per cent of the plant’s capacity in block increments;

•    Proven and secure desalination technology; and

•    Security of finance for the project in a constrained global economy

The ABC’s Stateline program, Friday 31st July, has revealed that we are to pay enough in our water rates to cover nearly $5 billion in construction costs for the silver-bullet desalination plant, not $3.1 billion, as we have been told by government for the last two years, or $3.5 billion that the government now stated here. And if the doubling of our water rates isn’t enough to cover this, or if the French based consortium can’t find the money elsewhere, the state will step in to spend more of our money where others wouldn’t.

·       Other plants around Australia and the world have not come on line within timeframes, e.g. QLD still having problems;

·       Desalinated seawater is more expensive than all other options, especially when it needs to be pumped such a long distance to its market;

·       Boron?;

·       See below for likelihood that the consortium would not have ensured it gets full return for a decade or more to cover its investment. Although they won’t say how much it seems the government will pay the consortium an “availability cost” even if no water is provided;

·       The technology works yes, but the local conditions have been poorly studies, without adequate testing of the offshore faulted seabed, and apparently without long term knowledge of algal bloom potential, etc in the area of Bass Straight.

·       Security by the government committing our taxes, and its credit rating, to ensure it proceeds.

 

“I am delighted to announce today that AquaSure will build Australia’s biggest desalination plant near Wonthaggi,” Mr Brumby said. “This desalination plant will be operational from the end of 2011 and is critical to securing water supplies for Melbourne, Geelong and towns in Western Port and South Gippsland.

Other options could have been started years ago to just as adequately secure our water security***. They are cheaper to implement and operate, and even at this late stage, given that it will be at least two and a half years yet before the desalination plant can be completed, they could still be implemented within similar timeframes.

Towns like Geelong and in those in Westernport and South Gippsland believe they can adequately source their own water security. Their utitities may take the water from a desalination plant in an emergency, but would not want to pay a premium for it.

“Our Government is committed to Victoria’s Desalination Project because we must deliver a solution that is not rainfall dependent in an era of climate change.

Recycling and efficiency measures are rainfall independent, and stormwater capture and treatment is nearly so, especially as there is at least as much stormwater available to be diverted, as the total volume of water that Melbourne currently uses. Why wouldn’t the government be including these options as part of a diversified mix of solutions, given their better outcomes and cheaper cost?

 “Together with the Food Bowl Modernisation Project and Sugarloaf Pipeline, our new desalination plant will help ease water restrictions. I expect these projects will see our water storages begin to recover in 2012 and restrictions progressively eased.

The government should expect this to be the case. Just consider that 225 billion litres proposed from these two projects is hugely excessive at nearly 60% more water than we are currently using. A DSE** document prepared for the Government shows dams would be expected to fill by 2015/16 and without any other augmentation (no more recycling, stormwater harvesting or decent incentives for rainwater tanks or efficient appliances) the dam levels won’t drop into restrictions for more than 50 years. This is with the current levels of drought and population increase continuing and 2005/06 levels of consumption (before restrictions), and even if there is 50 billion litres less coming from the two projects.

 

“At the same time as securing our water supply, we are securing 1700 direct jobs and as many as 3050 indirect jobs during construction in a tough global economy.”

See first point above - More jobs and for less cost in the alternatives. Only 40 to 50 jobs long term for perhaps $5 billion investment.

Mr Brumby said AquaSure had committed to additional features and projects, to ensure Victoria’s desalination plant was not only Australia’s biggest, but Australia’s most advanced, including:

•    Secure underground power supply;

•    Commitment to renewable energy projects to offset the plant’s energy use;

•    Minimising the impact on the local environment, including continued use of Williamson’s Beach and the best possible visual amenity at the plant site; and

•    Delivering benefits to the local community, such as a new broadband fibre optic cable and a secure local water supply.

·       See same point near end of release;

·       This means tying up more renewable energy than is currently available in Victoria just to cover the obscene consumption of this new infrastructure. Given that the alternatives would have achieved the same level of security at around a quarter the carbon emissions, this means that the other three quarters of that renewable energy can’t be used to reduce Victoria’s existing emissions, or to put it another way, Victoria will be emitting around 900,000 tonnes more carbon emissions every year than it needs to;

·       ‘Best possible’ probably means something similar to the ‘where practicable’, the Government put as riders on many of the EES panels recommendations, i.e. meaning if it doesn’t cost much!

·       Governments must commit to these broadband requirements anyway;

·       South Gippsland Water have said that they have plans in place already to secure their own water supply to 2050, and would be unlikely to call upon the desal water. Westernport likewise has long term security plans in place, one of which is increasing a dam wall height by a metre, but Government have delayed that option.

 

Water Minister Tim Holding, said household water bills were increasing as a result of the water projects, but reiterated the Brumby Labor Government’s commitment that average bills would not more than double by 2012.

The consortium hasn’t been able to find funding for around half the money they need. The State Government has put in place instruments using Victoria’s credit rating to guarantee loans, and if  there is no-one else that will lend to this project then they will. In what other ways will Victorian’s have to pay for this decision. Can the consortium cover its borrowings costs and a need to make a good profit for its shareholders with the hundreds of dollars of rate increases currently being offered alone? Have increasing energy costs under an ETS scheme been factored into what we will be paying over the coming decades? What of the losses in agricultural production along the pipeline and power routes, and the losses to the fishing and tourism industries? There is an argument that opportunity benefits from incorporating recycling and stormwater capture into our water supply have been lost. Similarly considerably more expenditure will be required in Melbourne to cater for the additional flows in these systems from the excess of water generated by the desalination option.

 

“Importantly, Victoria’s Desalination Project is being delivered as a Public Private Partnership which ensures that water remains in public hands and delivers value for money,” Mr Holding said.

Water policy is to construct large infrastructure projects, interconnected with pipelines, so that water can be moved and traded to where it has the highest value. There is the potential for environmental concerns around how that water is produced or extracted, and whether equitable arrangements will be put in place to ensure there is not social disadvantage in the donor region. This project is the thin end of a wedge where the future is likely to see many private concerns coming forward to supply water into a system where governments have abrogated their responsibilities to water supply.

 

Mr Holding said the bidders had been able to secure finance for the project in the most challenging economic climate since the Great Depression.        But far from all the finance they need.

“The capacity of AquaSure to raise the necessary funds in such a tough global economic environment is a testament to the strong Victorian economy under the Brumby Labor Government,” Mr Holding said.

“AquaSure will now seek to diversify its investor base, with the Victorian Government providing a Treasurer’s Guarantee of Syndication.       The consortium desperately trying to sell off its debt.

This means the State will be a lender of last resort if required, at commercial rates.

“This innovative arrangement will ensure the project can be delivered on time, despite the global financial crisis.”

Should this read,”The government, with huge borrowings, where it is currently unable to pay the interest on those borrowings without further borrowings, is guaranteeing or possibly putting itself in a position to have to come to the rescue of the consortia, who are unable to secure their own funding”? Might we ultimately be saddled with the proverbial ‘white elephant’?

 

Mr Holding said the desalination plant was being built to deliver up to 150 billion litres of water a year, with the capacity to increase production to 200 billion litres if necessary.

“Victoria’s desalination plant will give water users complete flexibility – with the capacity for the Government to order water in annual block increments, starting at zero, then 50, 75, 100, 125, 150 billion litres as required,” Mr Holding said.

Mr Holding has already instructed Melbourne Water to take the full output of the plant until dam levels reach 65% at their low point in a year. This could happen very quickly if rains have returned to something more like historical averages by the time the plant is operational. Will the consortium have extracted, or are they still working on writing contractual, or other, arrangements to ensure they somehow otherwise quarantee their profitability? 

Mr Holding has said that the consortium will be paid even if the plant doesn’t provide any water in a year, but he won’t tell the public how much that will be!

 

An independent reviewer and environmental auditor will ensure quality design and environmental protection.

“Victoria has set high international standards for the project with strict environmental safeguards as well as undersea inlet and outlet tunnels to minimise the impact on marine life,” Mr Holding said.

Who will this be, how long will they operate for and how ‘independent’ will they be? The EES process was one of the government overseeing itself at every turn. There was no funding for any ‘independent’ study or questioning from anywhere not instigated by the Government. Will those outside Government circles who wish to monitor compliance even have the chance with exclusion zones and lack of funding?

Already the government has allowed, against the EES experts advice, the outfall to be over moderate relief rocky reef, with rich marine life, rather than the advised sandy bottom further off shore where better mixing would occur.

 

“AquaSure has committed to develop, in partnership with AGL, the Oaklands Hill 63MW wind farm near Glenthompson which will create 200 new jobs.

A 63MW wind farm produces about one third that in equivalent full time output, at best 24MW. This means that, with the whole process of delivering the desalinated water to its customers being about 120MW, a wind plant of this size would only be delivering one fifth the energy needed to run it. What are the guarantees that carbon offsets will be properly accounted for and audited anyway? Perth’s much smaller plant was found to have a wind farm supposedly supplying offsetting renewable power and yet carbon credits were being separately sold elsewhere.

 

Mr Brumby welcomed AquaSure’s commitment to power the plant by the Government’s preferred option – an underground power line travelling largely along the desalination pipeline alignment to Cranbourne.

“We listened to the local community and concluded that underground power was the preferred option to power the desalination plant,” Mr Brumby said.

“By securing underground power, the project will have the least impact on landowners, farmers and other people living and working in the area.

One of the main benefits the EES panel espoused for the construction of the plant was that the new power supply would boost the capacity of that area of Gippsland’s power grid, avoiding black and brown-outs. However the Government have now said the new power connection will only provide power to the plant and not boost supplies in Gippsland. This may have been because the power distribution companies didn’t want to be involved in a partnership with the consortium.

 

“AquaSure has also committed to running a high speed broadband cable alongside the power line, in another great result for the local community.” See above (happening anyway)

Other local projects to be delivered with the desalination plant include:

•    $12 million in road upgrades, many of which are underway; and

•    Development of a housing strategy for workers coming to the region.

·       The road upgrades are to two little used roads that lead directly to the desalination plant site, and will only benefit a few local farmers and others situated along them.

·       Rents are skyrocketing now in Wonthaggi and surrounding towns and some tenants have already been given 120 days notice without explaination.

 

 

Mr Brumby thanked BassWater – consisting of Veolia, John Holland and the Royal Bank of Scotland – for their highly professional and competitive bid.

“I believe that either consortium could have successfully delivered the project, however BassWater was unsuccessful in its bid,” he said.

Financial close on the contract will occur by 4 September. AquaSure will begin construction in October on the desalination project, which will include the plant at Wonthaggi, the 86-kilometre transfer pipeline to connect to Melbourne’s existing network, the underground power source and renewable energy projects.

One would have to wonder just how competitive the tendering process was, with the other consortium’s partners having recently lost sizeable chunks of their international business, reputations or credit ratings. There is the question of why the loosing bidder is to be paid something like $10 million. Could they have spent this much to bring a few containerised laboratories on site and connect up to the seawater sampling pumps that the government paid for, and take a few water samples from over the side of small boats?

* The only plant operating in the world at a larger scale is: Jabail - Saudi Arabia, opened May 2009 in conjunction with an on-site power station.

** Analysis done by the Department of Sustainability and Environment (Aug 2008) shows that even allowing for the N-S pipe only operating at 1/3 capacity, if the desalination plant operates at its initial proposed capacity, dams will fill by around 2015/16 and restrictions not return until around 2060. This is the outcome with no further augmentation past the desalination plant, with the inflows continuing under the existing drought averages, with population continuing to increasing at current rates and water consumption much higher than now, at rates equivalent to 2005/06 consumption before restrictions were imposed. Your Water Your Say and Watershed Victoria have also provided analysis coming to a similar conclusion. http://www.watershedvictoria.org.au/content/wp-content/uploads/2009/06/basic-determination-of-a-sensible-level-of-augmentation-required-for-greater-melbournee28099s-water-supply9g.pdf

***http://www.watershedvictoria.org.au/content/2009/02/examples-of-alternative-water-supply-options/

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