The change in State Governments in Victoria has created an ideal opportunity to revisit decisions from the past and critically assess them. While there is a strong element of making ‘political hay’ there is also an important opportunity to reassess past decisions in light of current reality.
One area to receive a lot of interest has been the previous government’s decision to invest a large amount on commissioning a desalination plant and contracts for future supplies of water.
The plant was run as a public private partnership (PPP) where private sector companies invests the capital to designing, building, financing, operating and maintaining a desalination plant in return for payment for the delivered service.
The new State Government recently released the contract details of the PPP – and with large swathes of Victoria recovering from floods – the details are not pretty. The 110228-Desalination-project-service-payments-PDF-565KB document summarises the contract payments.
This chart shows that even with floods the Victorian government has committed to extensive payments to their PPP counterparty.
The current State Government is highly critical of the desalination plant contracts. However, in evaluating the decision, you need to be aware of the context in which it was made to avoid an ex post (after the fact) versus ex ante (before the fact) judgement.
The objective of the desalination plant was to ensure Melbourne didn’t run out of water. It was made at a time when prominent scientists (such as Tim Flannery) were predicting that Australia would have the first major metropolitan ‘ghost cities’ as a result of climate change. Remember, the desalination plant decision was made during an extended drought – which went on for almost 16 years without a ‘wet month’ that is required to provide water to dams and rivers.
While the desalination plant may have been a bad idea (there could have been other, less political palatable options such as potable water), it is not fair to assess the decision purely on the fact that the state has been experiencing floods recently.
There was no way to know if the rains would come in time at the time the decision was made for the desalination plant.
Such is the difficulty of making decisions in an uncertain world.