The Wonthaggi desalination plant is a monument to bad government and financial chicanery. It seems fantastic but the $4.8 billion that AquaSure (Macquarie Bank, Suez and Thiess) raised on international capital markets to fund the plant was guaranteed by the government.
The deal was undertaken without proper process, which would have involved an inquiry into whether the water the plant was designed to produce -- 40 per cent of Melbourne's annual consumption - was needed, and if so, were there cheaper alternatives? (There were plenty of experts pointing out these alternatives, but they were studiously ignored.)
The $4.8 billion AquaSure borrowed comprised $3.5 billion to build the plant, a cost that was well above the going rate for this type of facility, and a further $1.3 billion to service their own equity in the project.
An astute reader might ask how much equity capital the AquaSure partners stumped up to finance the project. The answer appears to be almost nothing, apart from the $12 to register the company.
Who needs to stump up equity when the government is guaranteeing the debt that finances the equity?
After the money was raised, the government proudly announced the capital guarantee was withdrawn. Most outsiders thought this had been replaced with a ''take or pay'' contract for the water. The government denied this, but refused to say what agreement it had made instead, saying it was ''commercial-in-confidence''.
What it said was the ''net present cost of the water was $1.37 a kilolitre'', which was unbelievable, but apparently it satisfied the Liberal Party, supposedly the party of financial acuity.
The Greens had the cheek to ask what the net present cost meant in terms of the actual money paid for the water. They were fobbed off, along with others who asked why the emperor was naked.
But now we know. Even if the plant produces nothing, the government will be forced to pay under its contract $570 million a year for 30 years. This is equal to $3.80 a kilolitre without the supply of any water.
The figures were buried in the Department of Sustainability and Environment annual report tabled under hundreds of other reports.
But there is more.
If the plant is turned on, it uses electricity. The government promised it would be carbon neutral. This means consuming power at the renewable wind farm rate, which is $125 a megawatt hour compared to base rate coal-fired power of $35.
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