Federal Labor Government decisions to fund the Adelaide Desalination Plant have been slammed in a damning report by the Commonwealth Auditor-General.
The Audit Report into $328 million of Commonwealth funding follows an October 2012 written request from the Coalition’s Murray-Darling Basin spokesman, Senator Simon Birmingham.
“The Auditor-General has found that proper grants processes were not followed, that the project failed cost-benefit analyses and that even the responsible minister was kept in the dark,” Senator Birmingham said today.
“This is a damning report, which again exposes Labor’s poor judgement and propensity for wasteful spending.
“It’s clear that political point-scoring was put before proper process when decisions were made to fund the Adelaide Desalination Plant.
“With an eye to scoring favourable media coverage federal Labor committed $328 million to help out their state Labor mates, ignoring negative cost-benefit analyses, sidestepping proper funding processes and even sidelining the responsible minister.
“Proposals for funding had been flatly rejected by Infrastructure Australia, yet were later approved by a group of just four Cabinet ministers – including Julia Gillard and Wayne Swan – despite Labor’s election policy explicitly requiring Infrastructure Australia approval of such projects.
“Thanks to Labor’s decision once again to spend first and think later, South Australians are left with a white elephant of a plant, hundreds of millions in additional debt and significantly higher water prices.”
The full report and audit summary can both be found online at http://www.anao.gov.au/Publications/Audit-Reports/2012-2013/Grants-for-the-Construction-of-the-Adelaide-Desalination-Plant (see below for selected key points).
On the Desalination Plant not meeting the National Urban Water and Desalination Plan’s funding criteria:
“neither of the ADP grants awarded under the NUWDP demonstrably satisfied the program merit criteria.” (Para 21)
“the second grant was awarded through a truncated process that did not accord with the grants administration framework established by the Government, nor the NUWDP program guidelines.” (para 21)
“the grant proposal did not demonstrably satisfy three of the five merit assessment criteria.” (para 34)
“No agency had undertaken an assessment of the ADP expansion proposal against the NUWDP guidelines.” (para 23)
“the awarding of further funding to the ADP was inconsistent with the competitive bidding process outlined in the NUWDP program guidelines.” (para 34)
“the size of the grant ($228 million, representing 50 per cent of the estimated project costs) was significantly greater than permitted under the program guidelines (which limited NUWDP funding contributions to 10 per cent of eligible capital costs, to a maximum of $100 million)” (para 34)
On the failure to undertake a cost-benefit analysis:
“the May 2008 Budget Papers had stated that funding should only be provided to public infrastructure projects that meet a minimum benchmark  social rate of return, determined through rigorous cost-benefit analysis, with Infrastructure Australia identifying that the ADP expansion proposal did not pass this test.” (para 23)
“The advice indicated that the proposal was not supported by a full business case, the quality of the costings was low and the Commonwealth’s exposure to project risk was high. (para 33)
On the ‘gang of four’ (Rudd, Gillard, Swan & Tanner) circumventing proper process and shutting out Minister Wong from the decision making process:
“Neither the department  nor its then Minister became aware of the funding decision until more than one week after it had been taken.” (para 25)
“an approach that would generally not be viewed as conducive to good government.” (para 25)
On the Desal plant pushing up water prices for SA households:
“The assumption that the plant would operate at maximum capacity each year meant that the cost of water to be produced was understated in the funding application.” (para 30)
“Further, the assessment advice provided by DEWHA to the then Minister made no reference to the cost of water that would be produced, notwithstanding that the published guidelines had indicated that this was a key measure of project cost-effectiveness” (para 30)
Labor’s broken promise to ensure NUWDP projects were approved by Infrastructure Australia:
“The election policy document Labor’s national plan to tackle the water crisis had stated that Infrastructure Australia would undertake an independent cost-benefit assessment of all proposals for NUWDP.” (para 1.14)
Infrastructure Australia analysed the project after an application for funding from SA under the Building Australia Fund, not NUWDP. Nonetheless, their findings were ignored in the approval process.
“Funding of the ADP expansion project through the NUWDP was considered after Infrastructure Australia concluded that the project had not demonstrated economic merit and, as a result, Ministers had been advised that the project was not eligible for funding from the Building Australia Fund. (para 22)
“Infrastructure Australia concluded that the project was not supported by robust cost?benefit analysis and, in any event, the BCR calculated for the project was too low such that it did not offer a net economic benefit.”(para 32)
On Departmental failures:
“The department’s advice as to how to explain the decision to award funding was not sound”(para 23)
On persistent project delays:
“However, the most significant factor in the delay in finalising the governance arrangements for the $228 million grant related to South Australia meeting the funding condition adopted after the SPBC approval of the grant, which required that the expanded ADP provide environmental benefits.” (para 37)
“Obtaining an acceptable proposal from South Australia was challenging” (para 37)