It looks as if the WA election may turn on a PPP scheme: Liberal leader Colin Barnett’s proposal for a canal bringing water from the Kimberleys to Perth. This seems to me like complete lunacy. The estimated construction cost is $2 billion, but given a 10-year staged construction process, accumulated capital costs will be closer to $3 billion by the time the first water flows. The private owner will want a nominal return of at least 10 per cent, and depreciation of 4 per cent. That’s more than $400 million a year in capital costs alone, or something like $800 a household. I think a saw an estimated water flow of 200 GL, which suggests $2/kl in capital costs.
But that’s just the start of it. Water is heavy. Every kilolitre of water is a tonne of matter that has to be transported nearly 3000km with no assistance from gravity. I have no idea how much this would cost, but I’d be amazed if it could be done for $1/kl. And all of this is before treatment and reticulation, and without even thinking about evaporation and seepage, environmental issues, native title, compensation for non-indigenous freeholders and so on. Desalination is considered expensive at $1-2/kl but it looks like a marvellous bargaing compared to this.
The proposed contract is take or pay, so if demand falls short (this scheme will supply around 400kl/household, more than total consumption for many) the loss will be borne by existing public water suppliers.
Barnett has apparently committed himself to the scheme without any sort of feasibility studies, and, according to the Fin, scored a big win with the TV audience in his debate with Geoff Gallop by doing so. But, on the evidence of this scheme, he’s unfit to be trusted with a footy club raffle, let alone running a state government.
One interesting feature of this kind of scheme is that I’m in agreement with the Institute of Public Affairs. We have very different views on infrastructure policy in general, but we can both recognise a boondoggle when we see one.
Update 5/04 The Fin quotes a Treasury report that estimates the cost at $6.50/kl which includes higher construction costs. That sounds about right to me, and confirms my conclusions about Barnett. The story says the $2 billion promise was based on a proposal from Tenix (the planned private partner) that was exceptionally sketchy – apparently they didn’t even know the route of a major gas pipeline in the area.
Further update Rob Corr is all over this story. For what it’s worth, I’d judge that Barnett has a few days left to back off the idea and claim he’s been misunderstood. Any longer than that and he’s better off brazening it out all the way to the election. But three weeks is a long time in politics.
fn1. It’s supposed to be a BOOT apparently, so the capital will have to be amortised over 25 years or so, making 4 per cent a lower bound.