VICTORIAN taxpayers could be asked to throw a financial lifeline to the state’s desalination plant, after the Government agreed to underwrite its new private partners in the multibillion-dollar project.
The AquaSure consortium, led by French water company Degremont, yesterday was named as the winning bidder to design, build and operate the $3.5 billion water factory, which is hoped to secure Melbourne’s drinking supplies at a cost of rising water prices.
Crucial financial details — including how much taxpayers will pay at times when the plant is not producing water — will remain secret until the deal is finalised in September.
More than two years after the plant was first announced, the controversial project has weathered fierce opposition on the Bass Coast, a Federal Court challenge and a major economic downturn to become the centrepiece of the State Government’s water plan.
With a maximum production of 150 billion litres each year, the plant could supply more than a third of Melbourne’s annual water consumption, and will begin pumping water to Cardinia Reservoir in late 2011.
The losing consortium included French corporation Veolia — making it the second time in recent weeks that Veoliahas lost a major tender in Victoria, after its subsidiary Connex was dumped as the operator of Melbourne’s trains.
Desalination will be a major factor in household water bills rising up to 64 per cent within four years, but the Government’s surprise decision to act as the project’s guarantor means taxpayers could end up paying even more in the short-term.
The chairman of the winning consortium, Tony Shepherd, said AquaSure had secured $800 million in equity and $4 billion in debt, and would now seek to sell down its debt to superannuation funds.
Premier John Brumby said the Government would take the debt off the consortium’s hands at commercial rates if buyers for the debt could not be found. But Mr Brumby stressed he did not expect this to occur.
Sources suggested the Government’s maximum lifeline would be less than $2 billion, and it is hoped that some of the 10 banks aligned to the unsuccessful bid would seek to become involved with AquaSure.
Another source intimately involved in the desalination tender process said the Government’s role as guarantor was a symptom of the economic downturn, and would not have occurred in the economic climate of two years ago.
Mr Shepherd said the project was ‘‘by far’’ the biggest public-private partnership (PPP) in the world since the global financial crisis began.
Yet with the ultimate risk carried by the Government, Monash University expert Dr Graeme Hodge questioned whether it should be called a PPP at all.
‘‘Having a background government guarantee puts a new label on the project. Is this a public-private partnership for infrastructure or is it an industry support mechanism, a donation to the construction sector?’’ Dr Hodge said.
The Nationals leader and member for Gippsland South, Peter Ryan, said underwriting the project ‘‘defeats the basic purpose of having a PPP’’.
Under the deal announced yesterday, the Government has committed to making fixed, periodical payments to the private operators, even in times when no water is required.
The Government is also bound by a water use fee, which rises and falls depending on how much water is supplied.
While it has retained the right to order no water in a given year, the Government will still have to pay a fixed, periodic payment for the 30 years of the contract. More details of how much those fees will cost Victorians are expected to be released in September.
The contract forbids the private operators from selling water to anyone other than government-run water authorities.
Water Minister Tim Holding would not say what dam levels would be required for the Government to stop ordering water from the plant.
However, Melbourne’s water retailers have been told to expect the plant to operate at full capacity if the city’s dams are below 65 per cent on March 31 each year.
An 11-hour push from the Government for the plant’s power connections to be buried underground succeeded, with both bids abandoning the option of connecting the plant to the electricity grid with 85 kilometres of overhead power lines.
It was a massive win for local campaigners, many of whom are farmers. Around 75 per cent of public submissions to the Environmental Effects Study into the project were focused on power lines.
Despite earlier plans for a two-year, two-kilometre exclusion zone along neighbouring Williamsons Beach, Mr Brumby yesterday said the beach would now stay open.
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