This is a tale of two cities – Melbourne and Sydney – and their policies concerning urban water supplies and the delivery of containerised cargo from the ports in each city to and from the outer suburbs where factories and warehouses are now mainly located.
Melbourne has had a clear competitive advantage in the case of water. The bountiful water catchments produce runoff even in periods of drought, enough water to satisfy Melbourne's growing needs now, and in the future with massive population growth forecast – if reinforced by conservation and recycling measures that are now routine in most cities.
The cost to the state and water users of the desalination plant is huge.Credit:Tim Young
Because of Melbourne's central location in the population triangle bounded by Newcastle, Hobart and Adelaide and sensible investment in the Port of Melbourne, Melbourne became the largest container port in Australia.
Both these competitive strengths, which have contributed so much to Melbourne's liveability and Victoria's high living standards, are now under threat thanks to successive mediocre governments.
Second-rate politicians, particularly at the state level, and businessmen who have risen to the top through rent-seeking are nothing new. As Donald Horne said in The Lucky Country in 1964, "Australia is a lucky country run mainly by second-rate people who share its luck…"
But in a conversation with the author later in life he made an exception: second-rate politicians were balanced by first-rate mandarins.
A permanent bureaucracy giving "frank and fearless" advice was abandoned at both the federal and state level – supposedly to make the bureaucracy more "responsive" to the wishes of the government of the day.
The Bracks/Brumby government would not have got away with the decision to build the largest reverse osmosis desalination plant in the world against the advice of the experts in Melbourne Water under the old bureaucratic regime.
The cost to the state and water users is huge. In 2007, before the desalination plant was announced, water cost 82¢ per kilolitre. Today the cost is $2.62 per kilolitre – a 320 per cent lift, equal to an annual price increase of 14 per cent a year. This can be largely attributed to the $640 million a year financing costs paid to the desalination plant financiers as capital cost.
To add insult to injury, the $6.4 billion cost of capital to Victorian water users tied up in the desalination boondoggle is 11.04 per cent – three to four times the cost of capital if it had been raised directly by the government using its AAA credit rating.
Worse, government has had at least three opportunities to renegotiate the PPP contract on the grounds that the private operator, AquaSure, has failed to meet the terms of its contract. The latest is its inability to meet the contract for 50 gigalitres of water under the terms of the "take of pay" contract because the underground power line from the Latrobe Valley is presently unserviceable.
Why? Successive state governments put a higher priority on servicing the financial interests behind AquaSure than taxpayer interests. Relationships are too close, and they converge at Infrastructure Partnerships Australia, which is the peak advocacy body for PPPs but also includes on its board senior public servants (who should be neutral advisers of ministers, not advocates). The chairman of Infrastructure Partnerships Australia, Adrian Kloeden, is also chairman of AquaSure. Another IPA board member is the chief executive of Transurban, Scott Charlton, who heads the company responsible for the design and construction of the $5.5 billion Western Distributor toll road.
Also on the board of IPA are Jim Millar (ex-chairman of Macquarie Capital), chairman of Infrastructure Victoria, which is responsible for independent advice to the government on new infrastructure projects (not including the Western Distributor). Another board member is David Webster, deputy secretary of the Victorian Treasury and Finance Department with responsibility for strategic commercial advice, risk assessment, the Victorian balance sheet PPPs and GBEs.
Meanwhile, the government has not released the $58 million already set aside to implement the Port Rail Shuttle project, which would take 3500 trucks off Melbourne's roads, reducing congestion, pollution, health risks and accidents and lifting the capacity of the port. Is the problem that it would take business away from the Western Distributor?
No reason has been given for the freezing of the Port Rail Shuttle project despite calls from shippers, including truckers, to prioritise it. The managing director of Qube Holdings, which is now handling 300,000 containers a year by rail through Sydney, told the recent parliamentary inquiry into the POM sale "we have given up on Victoria…we have formed the view that there is no political will for metro intermodal rail, which is happening in Sydney".
It is scandalous that, while the volume of container traffic by rail out of POM has fallen from 12 to 8 per cent of the total in the last decade, a NSW company in partnership with the NSW government has plans to double the ship to rail share of Port Botany's containers to 28 per cent, using its 220-hectare site at Moorebank near Liverpool.
Kenneth Davidson is a senior columnist: kdavidson@dissent.com.au
Kenneth Davidson has been writing for The Age on economics and public policy since 1974. He was winner of the Walkley award for best news story in 1977 and National Press Club/Ford Australia Award for Canberra Press Gallery Journalist of the Year in 1980. He remains a committed Keynesian and opponent of economic rationalism. In his spare time he is co-editor of Dissent magazine.
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