WATER INDUSTRY BILL

Second Reading

Adjourned debate on second reading.

(Continued from 27 July 2011.)

Mr WILLIAMS (MacKillop—Deputy Leader of the Opposition) (12:28): We are here today to debate the Water Industry Bill, the long-awaited, much-anticipated bill, it is fair to say. I will be the lead speaker for the opposition on this bill. I expect a number of opposition members will contribute. No part of public policy in recent years has had a greater focus in the community, probably over the life of the current government, than has water policy. There are a range of reasons for that, not the least being that we went through a very extreme drought that put a lot of pressure on our water supply systems and our ability to supply water. We went through a number of years with quite significant water restrictions in large parts of the state, in fact across most of the state.

We have seen a significant number of policy decisions taken, and I argue that a lot were taken in a knee-jerk way in response to that drought and, in my opinion at least, a lot of unfortunate decisions were taken by the government, decisions for which South Australians will pay for a long, long time. That is very unfortunate. It points to the inability of this government to have got its head around what it is to provide a water supply, what it is to provide water security into the future. I do not think that the government, even now, understands the business of water management in South Australia. The old rhetoric that we have heard so many times that we are the driest state in the driest continent may well be the case, but it does not mean that we have a paucity of water.

What it should mean is that we should think long and hard about our management systems and how we manage the water that we do have, how we make good use of it and how we have integrated systems; and, maybe, if the government had taken that course of action over the last 10 years we might well find ourselves in a very different situation than what we do today.

I will speak directly to the provisions of the bill later, but I want to put into context how we have got to this position and why, I think, this bill will do very little, if anything, to meet the fundamental challenges that we face as a state in providing a low cost, reliable water supply to the citizens of this state. That is what we should be aiming to do. We should be aiming to provide the lowest possible cost with the highest possible reliability of water supply across the state.

Let me just for a moment bring to the attention of the house a few figures which underline the point I was making a moment ago, and I am going to labour this point a little. Notwithstanding that we do live in a relatively dry state, we have significant amounts of water. I say 'traditionally' because if we talk about each of the five years before level 3 water restrictions were instituted in Adelaide (and I think that was in 2006; so, before we had water restrictions), the average usage of water in the greater metropolitan Adelaide area was 168 gigalitres per year.

We have had people talk about the fact that Adelaide's water usage is some 200 gigalitres. I do not think that it is that much, but SA Water does supply water to other purposes and I suspect that that water is counted in the numbers. SA Water through its infrastructure delivers significant quantities of water for irrigation purposes, and I suspect that, when we talk about 200 gigalitres of water, it probably includes that. However, in terms of the consumptive use for domestic and industrial purposes in metropolitan Adelaide (excluding commercial irrigation), my figure suggests that, in those five years, 168 gigalitres was the average usage.

Interestingly, the annual run-off for metropolitan Adelaide in an average rainfall year, in a normal sort of rainfall year, through our creeks and rivers to the sea is around 160 gigalitres; so, almost the same as the water that we use in Adelaide. I find it quite fascinating that we have been through the changes to policy and we have been through the anxiety that we have had in recent years and we have failed as a community to recognise that it is the lack of management of the water that we do have rather than just a paucity of water per se that has caused our problems.

I fully admit that, in those drought years, the run-off of metropolitan Adelaide was much, much less than that figure I have just quoted. That was the average. I fully admit and accept that those drought years went on for an extended period, but I wanted to make the point that, under normal circumstances, we could almost provide for our total water use simply from stormwater run-off off our city streets and our city roofs—those hard surfaces.

Interestingly, the historic run-off from the Adelaide Plains before white settlement of the Adelaide Plains was probably a fraction of that, and the numbers suggest about one eighth of that, about 20 gigalitres. Again, that points to a significant change in the Adelaide Plains and its environs, particularly our coastal waters, in that we now discharge eight times as much water into those coastal waters. I think it is fair to say that the quality of the water that is discharged from the Adelaide Plains into our coastal waters is quite different from what it would have been before white settlement.

I think it is important for us to understand that, too, because it goes to the whole issue of how we manage our water. Unfortunately, we seem to manage our water with a silo mentality, and stormwater is managed by a different group from other water, certainly the water that we use, particularly our potable water supplies. They are managed in complete isolation of each other, notwithstanding that they impact on each other.

The point I am trying to make is that they should impact on each other because the water that is created as stormwater run-off could well be used to supplement our other water supplies. But we could also derive an additional benefit by recovering the environmental disaster that we have visited upon our coastal waters by addressing both the volume of water that runs off into those coastal waters and the quality of that water that runs off.

They are issues which have to be addressed and met by the government here in South Australia for us to recover that coastal environment, and I direct members to read the reports, particularly the final report, of the Adelaide Coastal Waters Study, which spanned I think eight or nine years by the time it got to the final report. It is a very in-depth report that points to just about all the ills that have been caused in our coastal waters because of our lack of action in managing stormwater run-off, both quality and quantity. I think it is important to understand this because it points to policy failure, but it also highlights that we do have an asset, namely, stormwater, which should be used.

This bill, although it has been hailed as a great reform by the minister, does nothing to address that fundamental issue—or, should I say, those fundamental issues, being the environmental degradation. As it happens, the Minister for Water is also the Minister for the Environment and Conservation, so, whilst he has got at least one of his hats on, he should understand that issue, that it also should be giving us an insight into how to address the other problem we have, and that is getting water available for, shall I just say at this stage, commercial use rather than potable use. That is the first thing I think we need to get an understanding of, that there is at least that source of water which public policy in South Australia, to date, seems to have ignored.

There are several other things we have done in response to the drought that I want to talk about. One of them is that we have decided to build a desalination plant, and that is also, I think, integral to any discussion on public policy failure in this state—not because the decision to build a desalination plant was not one that had to be taken: it was the way the decision was taken and that the actual decision that was taken has left South Australia, in my opinion, much worse off than it should be.

First of all, the government refused to acknowledge that desalination was going to be part of the answer—I emphasise 'part of the answer'—to Adelaide's water security. The government only refused to acknowledge that because it was the idea of the opposition. That is the only reason the government refused to acknowledge that, and it has remained in that state of denial for a fair while. In fact, it then entered a process—which took about 12 months—to work its way into acknowledging that desalination was going to be part of the solution, and tried as hard as it could to fool the people of South Australia into thinking that it was the government's idea. That was bad enough because the delay in taking that, which was always going to be an inevitable decision, cost us, as a community, hundreds of millions of dollars.

I visited the Kwinana desalination plant in November 2006. The Western Australian government had contracted the construction of that plant a couple of years before that, and it was at that point in time, in November 2006, being commissioned. It was going through the processes that stage one of the Port Stanvac desal plant is going through right now. It was being cranked up and commissioned. From memory, the commissioning was expected to happen in April of 2007 and, unlike ours, that target was met.

That desalination plant, including the delivery pipeline to deliver the water back up to a point some distance remote from the desalination plant—probably at least the distance that the Port Stanvac desalination plant is from the Happy Valley storage tanks that we will be pumping water from—came to the Western Australian community at a cost of about $385 million.

I fully understand that if we had made a decision in a timely manner in South Australia we would not have got it at that price. The world was changing and I remember that the Treasurer, in particular, kept talking about how the steel prices had increased. Of course, in desalination plants it is not only steel; there is a fair bit of stainless steel and other fancy materials which are quite expensive. I accept that prices were going up.

The Western Australian government commissioned a second desalination plant the same size as the one we are building, and it came at a much, much lower cost than the one here in South Australia—a much, much lower cost. There are a couple of reasons for that, not the least being that they had already been in the game and already had the contacts with the manufacturers of desalination plants and that probably helped them a little bit, but also they made their decision in a sensible and timely fashion.

I have already presented to the house the evidence of a worldwide study that shows the construction of desalination plants in Australia, excluding the Western Australian experience—so in South Australia; Wonthaggi in Victoria; New South Wales; and South-East Queensland—where the governments all panicked and decided to very, very urgently build desalination plants. The evidence amassed from across the world suggested that the cost of constructing a desalination plant in Australia was about double, per litre of water design capacity, that of anywhere else in the world.

That same report showed that the main reason for that was that the Australian governments all went in bidding at the same time, because they were all panicked by the drought in south-eastern Australia—all bid at the same time, all with the same degree of urgency to overcome a failure of public policy. That, again, was one of the responses we had to the drought. I do not believe that the bill before us today will in any way address that.

The other interesting thing about the decision to build the desalination plant—and we supported the initial decision, other than the fact that it was at least 12 months too late in coming; and I have talked about the cost impost created by that—was that the government took the amazing decision, the absurd decision, I would say, to double the capacity from 50 gigalitres to 100 gigalitres a year. I say that because you would build a desalination plant to provide water security.

In a place like South Australia, where I would argue we do not have a paucity of water (we just have a paucity of water management), you do not build a desalination plant to provide a large portion of your water needs; you build it to provide water security and to ensure that you can, at any time, provide secure drinking water and secure water to provide for the community's health needs. Washing, cooking and toilet flushing are things that are essential for the survival of any community that lives the sort of life that we do—that is, in a city or a close-knit community. You need a guaranteed water supply, and that was never an argument.

The question is: how much water do we need? Although the government tried to sustain the argument that our water supply was in dire straits and under severe stress—and it was under considerable stress—we were still getting some run-off from the Adelaide Hills each year, even through the drought, and we still had access to some water in the River Murray; in fact, significant amounts of water in the River Murray. I never saw any evidence to suggest that either of those systems were ever going to dry up completely. Remember that our use, without water restrictions, was about 168 gigalitres a year, and that included watering all our gardens and parks and playing fields, washing the car out in the street, and washing down the cement footpaths.

I think it is reasonable to assume that our critical water needs would be substantially below that. The water restrictions that were imposed actually reduced our water usage at the margin. The restrictions brought it down, but it was still 130 gigalitres a year.

An honourable member: It reduced it.

Mr WILLIAMS: It reduced it somewhat, but it did not reduce it by 60, 70 or 80 gigalitres. I think it was about 40 gigalitres a year.

The Hon. P. Caica interjecting:

Mr WILLIAMS: If I have those figures wrong, the minister will correct them. However, the point I am making is that the restrictions we had in Adelaide were level 3 restrictions. Other parts of southern and eastern Australia had much more severe water restrictions than we had in Adelaide. It is possible to reduce water needs substantially more than we did in Adelaide. I would argue that, if you are going to provide a very expensive water source to ensure that you have water security under the most extreme conditions, you would do some very in-depth research into how much water you would need for that purpose.

In my opinion, you certainly would not need 70 per cent of the water that you would use when there are no restrictions whatsoever. However, that is what we have done here in South Australia. We have developed a desalination plant with a capacity of 100 gigalitres a year which will provide close to 70 per cent of our water needs under the conditions that I described in the five years before 2006.

I think the decision to double the size of the desal plant was one which was not borne on any good science or rigorous work as to what would be the absolute minimum water that we might need to provide Adelaide's water security. I think it would be hard to argue that we would have a drought much more severe than what we had been through, both in the length of time it was going to last and the impact.

Notwithstanding that, the government took the decision to double the desalination plant, and in doing so not only did it drive the cost up, there was some fancy figure work in the costs of the desal plant. The original cost as we were told was $1.1 billion. Additional to that was the $300 million north-south connector to connect the northern and southern systems, which brought the cost to $1.4 billion.

By sleight of hand over a period of time, the north-south interconnector disappeared but the price remained at $1.4 billion. So, we had a $300 million blowout in the cost of the original desalination plant, the 50-gigalitre version. The government then announced that it was going to double the size, bearing in mind that probably the most expensive part of the desalination plant, the tunnels out to provide the inlet and outlets for the plant, were incorporated into that first cost of the 50-gigalitres. The tunnels were built with a capacity to provide for the doubling of the size. The doubling of the size increased the cost by a bit over $400 million, bringing it up to $1.8 billion, again, without the north-south interconnector.

The moment that decision to double the size to 100 gigalitres was taken, the north-south interconnector had to be constructed. Without that, the capacity of the plant could have been utilised in the southern part of the system, particularly with rearranging the pumping from the River Murray and desisting from pumping water from the River Murray to Mount Bold, utilising the desalinated water in the southern part.

As soon as the decision was made to double the capacity there was nowhere to use all of the water coming out of that plant without building the north-south interconnector. Then, lo and behold, when the announcement was made that the north-south interconnector was back on the table, it was no longer $304 million, it was $403 million. So, there is another $100 million blowout there.

So, the project, which started off as a $1.1 billion project, including the north-south interconnector which is absolutely essential if you are to build a 100-gigalitre desal plant at Port Stanvac, is now $2.2 billion. We have doubled the cost; doubled the capacity and doubled the cost. What I am questioning is: did we need to double the capacity and could we afford the cost?

I think that is fundamental to any discussion we have in South Australia on the delivery of our water needs to metropolitan Adelaide. Unfortunately, we cannot undo that decision. We are stuck with it. South Australian water consumers are stuck with paying for it. Now we are getting closer to some of the clauses in this particular bill because one of the fundamentals of this bill goes to supposedly independent pricing. So, supposedly we will have independent pricing. I am going to talk a lot more about this because it is an interesting concept: independent pricing.

The Hon. P. Caica: You support it though.

Mr WILLIAMS: I do, but this bill does not deliver independent pricing, minister. The bill basically sets up a regime where the Treasurer provides to ESCOSA, which is supposed to be the independent price setter, a thing called a pricing order and ESCOSA must set the price according to the parameters and the criteria in the pricing order. So, nothing has changed in South Australia. At the moment Treasury basically sets the water price and, in the future, the Treasurer will issue ESCOSA with a pricing order, which will restrict ESCOSA as to how it can determine what the price of water in South Australia is going to be.

The reason I point this out in this part of my contribution is that, if we had a new regime of truly independent pricing in South Australia—and this was actually raised by ESCOSA in the discussion paper that they put out about 12 months ago, the Economic Regulation of the South Australian Water Industry: Statement of Issues—one of the issues is whether the cost of the decision to double the size of the desalination plant (that $1.1 billion decision) should be part of the pricing structure for delivery of water to the South Australian community.

I would accept that if it was a good decision, a well-founded decision, made on the basis of good science and a rigorous understanding of the needs of the South Australian community, or particularly the Adelaide community, under severe drought conditions. If all that work had been done and the answer came back that we absolutely need to double the size of the desalination plant, I think it would be fair and reasonable for the Treasurer's pricing order to ESCOSA to say that the whole of the cost of the desalination plant has to be factored in to the price of water paid by South Australian consumers.

If that body of work came back—as I suspect it would, if it was done—saying, 'No, the decision to double the size of the desal plant was not based on the absolute need of the South Australian community but it was based on the political imperatives of the government of the day,' I think there is a sound argument that the cost of that $1.1 billion decision should be borne by the government of the day from its Consolidated Account and should not be passed on to the water consumers of South Australia.

Again, I think that is a fundamental that we should have an understanding of as we debate legislation like this, because there is absolutely no doubt in my mind that that was a political decision taken to achieve a political outcome, not a decision based on good science. If it was based on good science and the government had a fantastic reason for doubling the size of the desalination plant, I am absolutely certain that the in-depth and rigorous reports that backed up that decision would have been tabled and we would have all seen that, but we have not seen anything.

I have stood in this place and asked questions of a number of ministers now over a fair period of time and all I have seen is ducking and weaving from that fundamental question. That is why the Liberal Party and I are convinced that the decision to double the size of the desalination plant is one which should have been paid for by the government, because it was a political decision, from the Consolidated Account and not one that will be paid for by water consumers over the next 30 years.

That is one of the fundamental problems with this bill, because this bill is going to force that cost impost onto the people of South Australia through their water bills. The government has already been doing this and now the government wants to be able to say that it has an independent price setter, who is at arm's length from the government, who is saying, 'This is a fair and reasonable price.' I seek leave to continue my remarks.

Leave granted; debate adjourned.

[Sitting suspended from 13:00 to 14:00]