The State Government's announcement on water on Tuesday triggered several predictable responses.
Clearly the most justified of these was the Opposition pointing out the hypocrisy of a Government now supporting the concept of a desalination plant that it had ridiculed during an election campaign just seven months earlier.
Another Government backflip was to include as part of its plan a pipeline that would enable 75 billion litres of water, saved in northern Victoria, to be sent to Melbourne.
As it has been an axiom of water policy, at least since Bolte's time, that no water from north of the Divide should be sent south, it was hardly surprising that the National Party and farmers' groups complained that the result would lead to -- in the colourful words of Nationals leader Peter Ryan -- "the future of the Goulburn Valley flushed down Melbourne's toilets".
In reality, opposing water being sent south, particularly as it relates to individual farmers selling their water rights, makes about as much sense as saying that no food grown north of the Divide should be sent to Melbourne. In both cases, farmers are making the choice to sell something for the best possible economic return.
The third predictable reaction came from opponents of private-sector financing of government projects, who expressed concern that the Government was directly contributing only $600 million of the $4.9 billion plan and this might lead to consideration of public-private partnerships.
There are those who seem to believe that whatever the project is, it should be debt-financed by government. However, by allowing the consideration of PPPs for capital works, governments are provided with a useful brake on what otherwise might be rushed capital expenditure on ultimately wasteful projects.
Victoria's PPP policy, Partnerships Victoria, requires that all projects must offer value for money as a government investment, independent of the delivery method. Within the assessment process, the need to analyse whether a commercial rate of return can be delivered from a project to a private investor is surely a good way of assessing whether a project will deliver value for money.
Looking at the amount of water that will be added to the overall pool under the Government's plan, it is worth noting the greater return on investment that the Goulburn works and pipeline provide, compared with the desalination plant -- some 225 litres of water per dollar invested versus 50 litres per dollar invested. Given that fact, it will be interesting to see if, upon more detailed consideration, the desalination plant does actually offer any value.
No Victorian would want the desalination plant to join the list of infrastructure white elephants. Projects that fail to deliver are usually ones with problems fundamental to their nature, not to their method of being financed. Both fully government-funded projects and PPPs can fail to deliver on expectations.
There is a further risk with PPPs that governments could use them as an excuse to defer payment for required infrastructure, instead using what would have been capital works money to increase recurrent spending. Those who would like to see more government funding of infrastructure projects should perhaps become forceful advocates of cutting recurrent government spending if they want to see more of their plans come to fruition.
But until that happens, governments need to have the full range of funding options available to pay for capital works and that includes PPPs. Last year, the Public Accounts and Estimates Committee found problems with how PPPs were being assessed. While improvements in the transparency of Treasury processes are crucial, it is equally important that the PPP concept is not abandoned.
Allowing the private sector to share in the risks and rewards of building new water infrastructure will be vital components of a sane water strategy.
The other important issue that needs further study in the wake of Tuesday's announcement is the increased charges for water for households. While consumers have been undercharged in the past, the State Government's doubling of household charges, on the pretext of paying for their plan, appears somewhat misleading, given the fact that the water itself only accounts for 15 per cent of the cost of providing water to households.
Their lack of transparency on this point does not augur well for the delivery of a sound water strategy, PPPs or not.
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