Privatisation of the Kurnell desalination plant

The Coalition will win the upcoming NSW election, there is no doubt of that. The only question is which sports the Labor lower house representatives will have the numbers to field a team in (i.e. Cricket 11, Rugby Union 15, AFL 18, etc).

So, aside from ‘non-core promises’ and ‘Labor blackhole’ efforts, we should be looking at the Coalition election promises and preparing for the battles ahead. Today I’ll have a look at the privatisation of the Kurnell desalination plant.

To be fair, the Liberal Party policy is to enter into a long-term lease for the plant. As I understand it such an arrangement is akin to privatisation, albeit in a long-term yet temporary form.

I won’t get into the debate of positives/negatives of privatisation, others have argued this much better than I could hope to. It will suffice to point you in the direction of John Quiggin and Bob Walker, which will also indicate my own leanings.

However I do want to explore the importance of the terms often put into the contracts of Public Private Partnerships or leasing arrangements such as this. These are generally hidden under the catch-cry of ‘commercial in-confidence’, and only discovered after the original Minister responsible has moved on and is beyond account, with the rest of us mob bearing the consequences.

The contracts often contain clauses that appear to be designed to fatten up the asset before sale. This can be done by reducing risk to the buyer and therefore increasing the sale price.  So what, you say, if it just means a business giving more money to the Government? Well, no, because the risk does not magically disappear, it is simply moved to the taxpayer, citizens or service user.

By way of example, we can look at how contracts have been formed in Public Private Partnerships for toll roads in NSW.  One example is the Government guaranteeing minimum traffic, or paying customers, through various roads projects. If road users fall below a certain level, the Government is obliged to make a compensation payout to the toll road operator. So the price is fattened up by transferring risk from the road operator to the tax payer.

Another is a clause rumoured to be contained in the Cross City Tunnel contract. The contract has not been released to the public, so this cannot be confirmed. As the suggestion stands, the operator was given a veto over any new public transport capacity covering the same catchment as the road corridor. So the risk was transferred from the company to the people living, working or playing in that area, to the benefit of the Government of the day.

All this talk about roads, how does it relate to the desalination plant?

Given the above example of a (secret) commercial contract having influence over Government policy, in the case of the privatisation of the Kurnell desalination plant we need to be careful that potential operators of the plant are not offered the power to oppose cheaper competing sources of water to the water supply system. This might come in the form of increased capacity in the dams, or even private sector investment in recycling through the Water Industry Competition Act NSW (2006). Either way, if there are cheaper sources of potable water available, households should have access to them rather than facing inflated water bills.

Another issue to watch is the trigger point at which the desalination plant is turned on. As I understand it, this trigger point was set by Sydney Water. When dam levels fall below 70%, the plant is turned on. When they reach 80%, off goes the plant.

The concern here regarding the privatisation of the Kurnell desalination plant is that this figure will be manipulated further as a means of guaranteeing higher revenue to the corporation involved in the purchase, in order to fatten up the asset before sale. Again, to the detriment of all Sydney Water customers.

As a final aside, $1.2 billion is projected to be raised through this leasing, and this will provide seed funding for an infrastructure fund called Restart NSW.

The Restart NSW fund will be overseen by the board of the new Infrastructure NSW, which appears to be a genuine attempt to circumvent the pork barrelling often associated with such programs. Here’s hoping the justification and evidence for each project is published, making it difficult for the Government to make numerous cancellations and re-annunciations of the same projects, without any action, in the mould of NSW Labor.

Of course, $1.2 billion could be raised through other means, including through borrowing, and used in the same way.  So we shouldn’t be fooled into thinking that the infrastructure can’t be built without the privatisation. Watch for this furphy once the heat gets turned up.

(Oh, and I know that John Howard is not a member of the NSW Opposition, but when I wanted an image of a politician playing a team sport, there was only one man to turn to.)


One response to “Privatisation of the Kurnell desalination plant

  1. Pingback: Fattening up the cow | Translations

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