Sydney’s desalination plant will be paid to stay available irrespective of dam levels, under the O’Farrell government’s plans to privatise the $1.9 billion asset.
NSW Finance and Services Minister Greg Pearce has written to the state’s economic regulator asking it to determine prices for the plant at Kurnell, on Botany Bay, declaring the move “a precursor to a possible refinancing of the desalination plant by way of a lease or similar agreement”.
The government has ordered that the prices for the plant, which can provide up to 15 per cent of Sydney’s water supply, should encourage it to be “financially indifferent as to whether or not it supplies water” by allowing it to charge for supplying drinking water and also for being available.
The move comes as the regulator prepares to consider linking prices for the Sydney Catchment Authority, which provides water from the Warragamba Dam to Sydney Water, to dam levels. Sydney Water buys most of its water from the catchment and from the desalination plant.
Last night, Greens MP John Kaye reacted angrily to the plans for desalination plant pricing, saying that investors in the plant would be able to make an income “and we, the mug punter households, end up paying for it”.
“Yet again it’s the households that will pay over the next 20 years for a plant that is still unnecessary,” he said.
Dr Kaye said that Labor gave Veolia, which operates the plant for Sydney Water, a “risk-free investment” and now the Coalition was “locking that in to make their privatisation deal pay”.
Under Veolia’s interim agreement with Sydney Water, it is paid for water produced by the plant and also $12.7 million a month to stay available.
The Coalition promised during the March election campaign to lease the Kurnell desalination plant, as it would take pressure off the government’s finances by unlocking funds.
The Independent Pricing and Regulatory Tribunal will this year consider the merits of “scarcity pricing”, where prices rise when dam levels are low and fall when they are high.
IPART’s plan to consider scarcity pricing is revealed in a new submission to the Productivity Commission, where it says it will review a study into the practice commissioned by the National Water Commission.
On scarcity pricing, IPART chief executive Jim Cox said that new sources of bulk water were now available in the state, including the commissioning of the desalination plant. There was a question as to whether operation of the desalination plant should be triggered by rules, prices, or both.
“The decision that society has got to make is what water should be taken when,” Mr Cox said. “The question is, does price have any part to play there?”
Under the existing operating rules for the desalination plant, it operates at full capacity when dam levels fall below 70 per cent and stops at 80 per cent, to avoid the dam spilling. Mr Cox said the proposal was being considered at the wholesale level, meaning that fluctuating water prices would be dealt with by Sydney Water rather than showing up in household bills.
NSW Primary Industries Minister Katrina Hodgkinson said she was “looking closely at the models that are being proposed” but that value for money and the best possible service were important.
“Any model which sounds good for pure economic reasons must also work in a practical way,” Ms Hodgkinson said.
