[Pil-pc-oceania] Desalination article

[Kerry Dawborn]

Hi All,

Potentially useful article on desalination plants for you...

cheers,

Kerry


  Desal option doesn't hold water

    *


    * * Kenneth Davidson
      <http://business.theage.com.au/opinion/kenneth-davidson> *
    * The Age December 10, 2007
    *

*In its obsession with PPPs, the State Government is ignoring taxpayer 
value.*

PREMIER John Brumby is rated by the "big end of town" as a great 
economic manager. It is not surprising. He has provided generous 
opportunities for "rent seeking" through public-private partnerships (PPPs).

A better description of these deals, which now include the building of 
government schools, would be "public pays for private profits" (PPPPs), 
according to one of my correspondents.

The essence of economics is "opportunity cost", which, roughly 
translated, means that a dollar spent on the roundabouts is a dollar 
that can't be spent on the swings.

The essence of good government is to recognise that even where the 
purposes to which public spending is to be directed are clear cut, there 
may be a number of ways to achieve an objective, and some will be 
cheaper and more cost effective.

Two of Melbourne's biggest infrastructure projects seem to have already 
been largely settled, even though the Brumby Government has yet to take 
Victorian taxpayers into its confidence about them.

I refer to the proposed $3.1 billion desalination plant in Wonthaggi, 
with annual production of 150 gigalitres of water, and the east-west 
tunnel, designed to relieve the pressure on the Eastern Freeway at 
Hoddle Street. The tunnel project will cost anything between $2 billion 
and $8 billion depending on the number of off ramps, the extent to which 
it is open cut, and whether it ends at the Tullamarine Freeway or is 
extended to Deer Park.

It has already been scrutinised and found wanting in an environmental 
impact statement, much to the annoyance of the Bracks government.

It is now subject to a more friendly $5 million inquiry under Sir Rod 
Eddington.

It is expected to get the go-ahead, even though the only changes since 
the original inquiry are "peak oil" and the spectre of climate warming, 
which are likely to make this type of infrastructure even more redundant 
in a city striving to maintain liveability.

The east-west tunnel won't relieve congestion created by traffic trying 
to get into the CBD. On the contrary. It will increase the pressure for 
more freeways, especially in the eastern suburbs, due to the population 
explosion in the south-eastern growth corridor.

The sensible option is to deal directly with congestion at a fraction of 
the cost by reorganising the public transport system, mandating it to 
improve service rather than maximise profit through maximised subsidies.

The desalination plant is also a no-brainer, unless the prime purpose of 
infrastructure spending is to create economic rents for the financial 
institutions that put the PPP deals together. The likes of ABN Amro, 
Macquarie Bank and Babcock & Brown are not interested in more 
cost-effective conservation measures that can reduce the demand for 
water but simultaneously reduce the scope for rent seeking.

There are alternatives for improving Melbourne's urban water security, 
all of them cheaper and less environmentally damaging.

Even Melbourne Water's favoured "build more dams" option is far superior 
to the desal option. If dams were built on the McCallister and Mitchell 
rivers in Gippsland with a capacity of 400 gigalitres, at about $2 
billion, the cost would still be a fraction of the desal plant.

The dam option, built by public borrowings at 6% repayable over 40 years 
would cost Melbourne Water about $80 million a year. This would not 
require a significant increase in wholesale water charges (although that 
would be desirable on environmental grounds).

By comparison, a $3 billion desal plant producing

150 gigalitres of water a year, built as a PPP requiring a 12% return on 
capital repayable over 25 years would cost Melbourne Water $450 million 
a year in operating and capital repayment costs, tripling the wholesale 
price of the additional water.

The Government's claim that a desal plant would be carbon-neutral 
because it would be offset by wind farms is a nonsense. The argument is 
medieval. It makes as much sense as the Catholic Church selling 
indulgences, allowing the rich to sin tonight and square the slate 
tomorrow by the purchase of sin offsets.

The desal plant would spew some 945,000 tonnes of carbon dioxide into 
the atmosphere each year - equal to another 240,000 cars on Melbourne's 
roads.

A private group is looking at piping water from lakes 600 metres above 
sea level in the north-west of Tasmania, under Bass Strait, to Victoria.

Gravity could carry the water as far as Ballarat, which is

450 metres above sea level.

The capital cost of the pipe would be less than $500 million.

This scheme would allow water to be diverted from the Thompson Dam into 
the Goulburn and Murray Darling river system, but it has been studiously 
ignored by the Brumby Government.

First cab off the rank must be water conservation. Incentives in the 
form of carrots (subsidies to induce households to invest in tanks to 
harvest rain water and recycle grey water) and sticks (in the form of 
pricing to promote water saving) have been widely canvassed.

A group called the Melbourne Water Catchment Network, which has grown 
out of the successful Otway Ranges Environment Network, put forward a 
powerful presentation to the Victorian Local Governance Association last 
week that produced scientific evidence that if clearfell logging in 
Melbourne's native water supply catchments was stopped, this would 
eventually create an additional 130 litres per household per day, equal 
to 16% of Melbourne's present consumption.

Their evidence suggested the net present value of sawlogs and pulp logs 
harvested from the catchments is $70-90 million compared with the net 
present value of water gained by ceasing logging in catchments of 
$360-470 million based on the water opportunity cost of $1000 per megalitre.

But if desal water is closer to $3000 a megalitre - based on Melbourne 
Water estimates - then the net present value of the water gained by not 
logging the catchment is between $1.1 billion and $1.4 billion. The cost 
of compensating the loggers to quit the catchment area would be less 
than $40 million.

The desal plant makes no sense unless the Brumby Government's priority 
is to shovel hundreds of millions of dollars into the palm of whichever 
consortium wins the PPP beauty contest for an environmentally ugly and 
economically wasteful project.

kdavidson at theage.com.au <mailto:kdavidson at theage.com.au>

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