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Accusations and threats fly over outback power deal

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Coober Pedy residents have accused some councillors of having a potential conflict of interest over their support for a controversial multi-million-dollar new power system for the outback centre - but the council members say they only voted for the scheme due to threats to the town's State Government funding.

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InDaily can reveal that the Coober Pedy councillors who moved and seconded a crucial vote on a controversial power deal for the town were office-holders in an organisation that negotiated a $10,000 annual grant from the company that was awarded the 20-year deal.

A Coober Pedy residents’ association wants every councillor who voted at that meeting to resign, but the councillors in question deny any conflict.

They say they didn’t want to support the deal, and only did so because they had advice from their administration that the State Government had threatened to withdraw energy subsidies from the town unless they signed on to the agreement. The State Government has strongly denied that it made any such threat.

Documents obtained by InDaily show the Coober Pedy Miners Association negotiated an annual $10,000 grant from Energy Developments Ltd (EDL) for two industry events held by the town each year – the Coober Pedy Gem Trade Show and the Coober Pedy Opal Festival.

That deal was concluded in April 2015 in the midst of negotiations between EDL, the council and the Department of State Development (DSD), but well before the council signed off on a 20-year deal for EDL to supply power to the town via a hybrid-renewable system.

InDaily has previously reported evidence that the council had deep concerns about the deal, but agreed to support the arrangement in principle at a confidential meeting in January 2016.

Minutes of that meeting show that the motion to accept the deal – which was successful – was moved by miners association committee member Boro Rapaic and seconded by the group’s president Paul Reynolds.

Reynolds is also on the management committee of the gem show.

DSD, which has been a strong supporter of the EDL deal, is listed as a “gold sponsor” on the show’s website.

InDaily has seen correspondence between EDL and Reynolds from April 2015 in which the sponsorship arrangement is detailed.

The letter, from EDL’s Keith Barker to Reynolds and then miners’ association vice-president John Dunstan, says that EDL believes the two events – the trade show and the opal festival – “provide benefit to the Coober Pedy community as a whole”.

Therefore, the company reasoned, it would be prepared to provide $10,000, split between the events, each year for as long as EDL operates the power station in Coober Pedy.

The head of the Coober Pedy Concerned Residents Group, George Naumovic, told InDaily that he believed all councillors present at the January 19 meeting should stand down.

He said the miners association clearly benefits from the EDL sponsorship.

“I really don’t see any excuse as to why they were voting on this issue, especially on something of this magnitude,” he said. “There were only four out of seven councillors in that room when this was voted on and two of them shouldn’t have been there. If they had have declared a conflict, a quorum could not have been obtained and none of this would be happening now.”

Rapaic and Reynolds both strongly denied any conflict of interest when approached by InDaily.

Rapaic insists he only moved the motion in January 2016 because of fears that the State Government would withdraw energy subsidies from the town, that EDL would sue the council and that federal funding of $18 million from the Australian Renewable Energy Agency (ARENA) would be withdrawn from the project.

He said the then council CEO, Tony Renshaw, had failed to provide the council with a report written by consultant engineer Graham Davies which detailed deep concerns about the cost of the EDL project, and risks to the council over the deal’s 20-year run.

Rapaic said the sponsorship arrangement did not benefit the miners association specifically, but was to support the entire community of Coober Pedy.

“It’s ridiculous even to think about something like that,” he said in response to questions about a conflict of interest.

Rapaic said he is strongly opposed to the deal because the council had been “misled” by the state and federal governments and EDL about the benefits of the project.

“They did not give us all the necessary information that they had before we made the decision on the PPA with them,” he said.

He said the outback town of Marree had gone to tender on a much smaller renewable energy project, and questioned why that process wasn’t followed in Coober Pedy.

Reynolds, who wasn’t on the council when the sponsorship deal was finalised, also dismissed any suggestion of a conflict, saying the sponsorship of the two events did not benefit him personally.

He said he had never sold opals at the gem show.

“It’s a community event – I get nothing out of that,” he said.

He echoed Rapaic’s claim that the council had not been shown the critical analysis provided by Davies, and that the council felt it had no choice but to agree to the deal.

He said that a further factor in his decision was his belief that the State Government had threatened to withdraw energy subsidies.

He had also been assured by then council CEO Renshaw that the deal with the government would ensure prices would not increase over its term – an assurance he now doubted.

“I made that motion in confidence that the prices would never go up above Adelaide prices,” he said.

“I regret not having that report from Resonant Solution (Davies’ company).”

Miners’ association vice-president John Dunstan told InDaily he had negotiated the sponsorship with EDL in order to support the town.

Renshaw hasn’t denied the specific allegation that he failed to give council Davies’ report, but has insisted he passed on to council members all of the relevant information that Davies provided to the council administration.

Under the Local Government Act, a councillor who votes on a matter where she or he has a material conflict of interest can be fined up to $5000 – where there is no intention to gain a benefit from the vote. A councillor can be imprisoned for up to four years, or fined up to $15,000 if there is intention to gain a benefit.

A spokesperson for DSD denied that any threat had been made to the council’s energy subsidies.

“The South Australian Government agreed to provide 20 years of legally binding RAES (Remote Areas Energy Supply scheme) funding to support this project as requested by council,” he said.

“The decision to proceed or not to proceed was entirely council’s and at no stage was the removal of RAES subsidies discussed with councillors or council administration.”

The power deal has exposed deep divisions in the outback town.

Naumovic believes some in the town are attempting to pass too much blame to the State Government, instead of the council taking responsibility for its decision.

He is also angry that the council failed to make good its promise to undergo extensive community consultation on the EDL deal before signing the power purchase agreement (PPA).

The construction of the new electricity system is nearing completion, at a capital cost of $36 million. The total project cost over 20 years is estimated at $192 million. Under the deal, Coober Pedy council will purchase the electricity from EDL and “retail” it to customers in the town. The State Government provides subsidies to the council to keep the costs at Adelaide-equivalent levels, although many in the town believe they pay much more than city rates.

Davies’ report says the deal could have been done for half the cost if it had been put out to tender. He also warns of risks of escalating costs and “grid defection”.

While the council fears it is vulnerable to huge financial risk as a result of the deal, the major risk appears to be borne by South Australian taxpayers more generally.

DSD, which has been involved in the deal’s development since its most early stages, insists the project is a good one, which will save $5.4 million over its 20-year life.

A long trail of correspondence and council documentation, seen by InDaily, shows deep concerns within council about the EDL proposal going back to 2015.

Yet, despite these concerns which often centred on a lack of information, the council signed off on the various landmarks, including giving EDL support to approach the ARENA for funding. This approach was successful, with ARENA providing $18 million to the project and describing it as one of the best projects of its kinds that it had seen.

In December 2015, mayor Michelle Provatidis wrote to Energy Minister Tom Koutsantonis to detail a long list of concerns about the deal.

The letter tells Koutsantonis that the council’s advisory team believe the SA Government and taxpayers “have a tangible and tactile increased risk in proceeding with the EDL opportunity”.

The risk was related directly to the Government’s energy subsidies to the council, but also to the lack of competitive scrutiny of the deal, which didn’t go to tender.

“The consequences of the proposed EDL agreement suggest that it is just as likely as any other outcome, that EDL, after settling any liquidated damages for non-peformance, will earn greater income and improved profitability, all at the expense of the South Australian Government and South Australian taxpayers,” the letter says.

The mayor’s letter says the council had identified up to eight “equivalent or superior service providers” who had offered alternative models with lower capital demand and lower generation costs.

The letter says that “should the council determine to proceed to test these alternatives, we welcome your government’s participation and membership of a Tender Panel and Tender Review Panel.”

After sending this letter, the council met with Koustantonis and, in January, with EDL, DSD and ARENA.

These meetings appear to have eased the concerns of the council’s then CEO Renshaw, due to assurances about the continuity of electricity subsidies.

Council members, though, continued to have concerns, despite signing off on the deal later in 2016. They are now in dispute with EDL and are seeking to find our more information about the company’s costings.

The DSD spokesman said that the mayor’s letter was used to inform ongoing discussions about the project.

“The Minister and the Department advised council that the decision to proceed or not to proceed was entirely the council’s responsibility. DSD understands that the council’s own legal advice was to similar effect.

“After receipt of the letter from Mayor Provatidis, the Department facilitated discussions between the Mayor, Acting CE and councils advisors (Resonant and Kelledy Jones) to address a range of concerns and determine a future pathway. Following these discussions the Council resolved at their January council meeting to approve the project. The PPA was then executed by Council at the end of March 2016.”

Councillors who have spoken to InDaily insist that Davies’ critical report was never presented to the council by its administration.

Mayor Provatidis told InDaily today that she believed a threat to the town’s funding under the Remote Areas Energy Supply (RAES) scheme funding was implicit if the council didn’t approve the EDL deal.

She said RAES funding had been cut by the State Government before, in 2011 – a decision which caused widespread outrage across South Australia’s outback areas.

“They had already done it previously – at one stage they had withdrawn the subsidy to Coober Pedy. The fact is that they could do it again.”

She said the council had agreed to the deal only on the understanding that the Government would underwrite prices for the next 20 years – an assertion she says was undermined by Koutsantonis in Parliament last week.

Koutsantonis told the House of Assembly that while the current Government had committed to remote areas subsidies, he couldn’t speak for future governments.

 

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