The Productivity Commission released its Draft Report on National Water Reform on the 11th February 2021.
In relation to water infrastructure spend, the Commission found that decisions “reflect a suite of weaknesses in decision making by governments” in the following ways:
- Project selection processes do not always identify a clear issue, or consider the full suite
of options (including non-infrastructure) to address that issue
- Business cases are not long-term or comprehensive, and assumptions are not always
rigorous or transparent
- Decision-making processes lack transparency.
The Commission used the example of the fast-racked Dungown Dam project near Tamworth as an example – a project currently under the scrutiny of a NSW Upper House Inquiry.
Flawed decision making for Dungowan Dam (page 171)
“… the proposed dam is a costly way to protect general security licences, relative to the value of the water. The dam is estimated to provide an additional 6 GL of water (annual average) which has a current market value of only $11 million. By comparison, if the additional water was issued as entitlements to general security irrigators at full cost, it would
be valued at more than $60 000/ML”
“Moreover, the prospect of ‘new’ water is illusory. Because the proposed project is within a fully-allocated water system, it will result in an implicit (and expensive) transfer of water. Any infrastructure that improves reliability for one user will affect water availability for others.”
“The PC noted what it described as the “flawed” planning process for the Dungowan Dam near the northern inland NSW city of Tamworth. The project, initially priced at $150 million, is now slated to cost the federal and NSW governments $484 million for water the commission estimates is worth just $10 million a year.”
“… the commission has now declared the project is based on “flawed decision-making”. It highlighted the prospect of ‘new’ water is “illusory”, and because the project is already in a fully-allocated water system, it will lead to an expensive transfer of water. “Any infrastructure that improves reliability for one user will affect water availability for others,” the report read.”
“It found the cost-benefit ratio was based on ‘optimistic assumptions’ like the willingness of the locals to pay for fewer water restrictions. The original analysis ignored no-build options like purchasing general security entitlements, which would likely come at just two per cent of the Dungowan Dam construction cost. And, the scope of the project was “narrowly” defined, focused only on long-term water supply, rather than ensuring water security in extreme droughts.”
“If the extra water was offered to farmers, it would be worth about $60,000 a megalitre compared to relative current prices of $1341 a megalitre. “Irrigators are unlikely to be willing to pay for the additional water, highlighting the poor viability of the project,” it found.”
“RECENT rainfall has prompted renewed calls for the state government to explore recycled water options rather than building new dams.”