Dead in the water

The Australian Services Union (ASU) recently released the report (PDF 516KB) Dead in the Water - the case against privatisation.

They call on all political parties to make it known where they stand on the issue of water privatisation before the next New South Wales State election.

As a matter of interest I wrote to Premier Kristina Keneally on February 18, 2010 to raise the following concerns:

Desalination

Sydney Desalination Plant Pty Ltd ("SDP") is a wholly owned subsidiary of Sydney Water Corporation, with $86,876,582 in issued and fully paid up shares as at February 2010. The Company’s parent entity, Sydney Water Corporation, is a NSW statutory owned corporation. SDP can’t borrow from the market in its own name, so the NSW Treasury Corporation raises borrowings on its behalf.

Have NSW Treasury Corporation’s borrowings on behalf of SDP been underwritten by any external financial institution(s)? If so, which institution(s)?

SDP’s June 30, 2009 audited financial statements say “... when construction of the desalination plant at Kurnell is completed, it is expected that any maturing loans at that time will initially be refinanced. Subsequently, loans will be repaid over time when the Company is able to earn revenue in its own right from operating and maintaining the plant ...”

As Veolia has been awarded the licence to operate and maintain the plant for the first 20 years, does that mean SDP’s loans will be unpaid and accruing interest for that first 20 years? What happens to SDP’s revenue if, after 20 years, the asset itself has deteriorated to the point of requiring substantial repairs? Is "maintenance" in the contract with Veolia defined to prevent that?

You would be aware of reports in 2007 that executives in some overseas subsidiaries of Veolia Environnement had been convicted in the past of bribing foreign government officials to win contracts. The former water utilities minister, Carl Scully, referred probity concerns about Veolia to an independent auditor, the Deloitte partner Rory O'Connor, who gave the Australian division of the giant water company a clean bill of health.

Is the independent auditor’s report publicly available? If so, where? If not, why not?

Veolia Finance issued a press release on July 18, 2007 saying that “... The contract is for the complete design, build, operation and maintenance of a reverse osmosis desalination plant with expected consolidated turnover of approximately 570 million Euros for Veolia Water over the life of the project ...”

How much of this money, and how much interest on loans, could NSW taxpayers have saved had Sydney Water Corporation kept responsibility for operating and maintaining the desalination plant for the first 20 years?

Is the government committed to developing water technology for this and other desalination plants, or will taxpayers be paying ongoing licence fees to Veolia for the technology we are paying them to develop?

Indeed, has the government already signed licences for the use of one or more patents in relation to the desalination plant? If so, with whom and at what cost?

The Auditor-General’s Report to Parliament 2009 Volume Seven states that “... Once operational, the desalination plant will have the capacity to provide over 15 per cent of Sydney’s current water consumption by producing 250 megalitres of water per day, with a possibility of scaling up to 500 megalitres (up to 30 per cent of Sydney’s drinking water) in the future, if needed.”

Why the distinction between “water consumption” and “drinking water”? Careless usage or carefully crafted language?

The Auditor-General’s Report to Parliament 2009 Volume Seven says “... the power need of the desalination plant will be offset by renewable energy at a wind farm, as opposed to it being operated by renewable energy. The wind farm is located between Bungendore and Tarago and Renewable Power Ventures (a subsidiary of Infigen Energy) has built and will operate the wind farm. The wind farm, known as the Capital Wind Farm, has a capacity of 140 megawatts ...”

What provisions are there to ensure supply to customers if power outages occur? Are there provisions guaranteeing Veolia’s revenue if there is a power outage? Who pays for that? Sydney Water?

The Auditor-General’s Report to Parliament 2009 Volume Seven states that the NSW government has not decided on the operating rules for the plant. Contractually it will operate at full capacity for the first two years as part of the plant commissioning process.

Has the government now determined the operating rules? Have they been made publicly available? If so, where can we find them? If not, why not?

The Auditor-General’s Report to Parliament 2007 Volume Four (PDF 156KB) says Sydney Water will need price increases to fund its future cost of debt. It also notes the significant gap between Sydney Water’s “replacement” asset values and their value based on cash generating capability.

Are you prepared to guarantee that the Sydney Desalination Plant will only add an extra $2 a week to the average water bill?

Irrespective of the state of Sydney Water’s accounts, does the government remain committed to repairing pipes and protecting groundwater even if in the short term it might be more expensive than recycling surface water by sanitisation and desalination?

Will the government guarantee that it will not issue a ministerial direction to sell the Sydney Desalination Plant in the open market?

Sydney Water says the desalination plant will run non-stop for two years and afterwards will only be switched on if dam levels fall below 70 per cent.

On what basis has it been determined that 70 per cent represents a critical dam level?

How much do we pay Veolia if the plant just sits there?

If water from the desalination plant is piped to Erskineville and mixed with water from other sources, how will the NSW government or State Water verify the quantity of water produced by the desalination plant?

Wastewater

People don't yet appreciate the likelihood that recycled water may soon be a necessary source of drinking water, and that the ownership of recycled water supplies and the infrastructure that creates it or which it passes through will then be a very valuable asset. While the government may say it is not really privatising water, but rather delegating the management of utilities or operating them in partnership, the fundamental and very real issue is access to water. The key to access is control, and who ultimately controls the tap?

The Auditor-General’s Report to Parliament 2009 Volume 7 refers “... to an initiative to increase the use of recycled water to replace potable water use where appropriate. In Sydney, the total amount of recycled water supplied in 2008-09 was about 27.2 billion litres and additional projects are planned to increase the use of recycled water to over 60 billion litres per year by 2015 ...”

You will be aware that the Water Industry Competition Act 2006 provides that a licensed network operator is the owner of its water industry infrastructure, whether or not the land in, on or over which it is situated is owned by the network operator, and that infrastructure is not to be taken in execution of any judgment against a person other than the network operator under any process of a court.

You will also be aware that the Act defines "water industry infrastructure" as water infrastructure or sewerage infrastructure, and that "water infrastructure" essentially means any infrastructure that is, or is to be, used for the production, treatment, filtration, storage, conveyance or reticulation of water but does not include any pipe, fitting or apparatus that is situated downstream of a customer’s connection point to a water main, or any pipe, fitting or apparatus that is situated upstream of a customer’s connection point to a stormwater drain.

Where exactly does this leave the current and any future State government if it becomes necessary to cancel a licence in the interests of the public?

The Auditor-General’s Report to Parliament 2009 Volume 7 says that “... In May 2009, the NSW Government announced that the first licences have been issued under the Act. It issued the first licence to construct, maintain and operate a new recycled water plant at Fairfield as part of the Rosehill Recycling Scheme. This scheme will initially provide 4.3 billion litres of recycled water a year to industrial and irrigation customers in Western Sydney. A second licence was issued to allow high quality recycled water to be transported to users through a network of retrofitted gas pipes ...”

Is it appropriate that Ministers, rather than an independent body, have the ultimate power to grant and cancel licences?

Has the NSW government actually put in place a water industry code of conduct, a marketing code of conduct and a transfer code of conduct for the transfer of water supplies or sewerage services to, from or between licensed retail suppliers before handing over to "private" players the keys to our most importance resource? If not, why not?

Receipt of my letter was acknowledged but I am still awaiting a reply.

I entirely support the ASU’s call for all contenders at the next election to specifically state their position.