$700,000 a day bill for desalination plant

The controversial $2 billion desalination plant is costing $259 million a year to operate, Sydney Water’s boss revealed yesterday.

But while Premier Barry O’Farrell believes the plant is “not necessary”, he said yesterday he cannot shut it because the compensation bill to the private operators would be too high.

The independent pricing tribunal IPART is to report in October on how much the plant will add to annual water bills, with estimates between $100 and $200 per bill.

But Sydney Water ‘s managing director Kerry Schott said $17 million a month - or $204 million a year - was being paid in fixed costs or “availability charges” for the plant, under the 20-year contract Labor signed with the French private operators Veolia.

On top of that, Sydney Water was paying the operators 62c per kilolitre of water produced. Since the plant produced 90 billion litres a year, this was about $55 million.

In an interview to mark his first 50 days in the job, Premier O’Farrell said he did not believe the plant should have been built, but he could not shut it because that would lead to a large compensation bill.

“Was it necessary? No. It was a political stunt,” Mr O’Farrell said.

“The fact is, I couldn’t shut it down now because Labor’s entered into yet another contract which would require compensation.

“Would we have been better in raising the Warragamba wall? Would we have been better off investing in more recycling? Absolutely.

“Would we have been better off in encouraging more efficient use of water, particularly in rural and regional areas? Absolutely.

“It is there, and what we are going to do with it is unlock the assets that exist in it and use that money (for) infrastructure programs.”

The government plans to lease out the physical plant in a bid to raise $1.2 billion through a 25-year lease. But a large part of that money is expected to pay for the debt incurred when Labor borrowed to build the plant, at a cost of $2 billion.

The plant is operating at full capacity for its first two years of operation, as per the contract, and under Kristina Keneally’s Metropolitan Water Plan will run when dam levels fall under 70 per cent until they top 80 per cent.

Dam storage is now at 74 per cent, partly because 15 per cent of the city’s drinking water is being supplied by the plant.

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