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'Little or no probity': multi-million-dollar SA power scheme to cost "double" what it should

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A $192 million contract for a state and federal government-backed new electricity system for Coober Pedy was granted without going to tender, in a decision that an independent consultant estimates will cost $85 million more than it should over the life of the contract.

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The Coober Pedy Council, which signed off on the deal early last year, has now engaged lawyers to get more information about the costings behind the contract, which the independent consultant says was executed with “minimal probity”.

But responsibility for the decision to go ahead with this deal for a hybrid renewable system for the off-grid outback town can also be sheeted back to the State Government, which subsidises Coober Pedy’s electricity, and the federal Australian Renewable Energy Agency (ARENA), which backed the deal to the tune of $18.4 million in capital funding.

If a consultant’s report obtained by the state Liberals is correct, the deal will potentially ramp up costs for Coober Pedy residents, and expose the South Australian taxpayer to much higher costs in subsidies over the next two decades – an extra $2.4 million per year.

The State Government disputes that analysis, saying it believes the project will save the Government $5.4 million over 20 years “against the diesel generation business as usual case”.

However, desperate locals, including a new councillor who was elected after the deal was sealed with private company, Energy Developments Ltd (EDL), fear the contract has the potential to cripple the town with increasing costs.

Questions are being asked about why the deal was signed by the council despite its consultant’s concerns, why it didn’t go out to tender, and why the State Government and ARENA backed the EDL proposal over other options.

Adelaide engineering firm Resonant Solutions was engaged by the council to examine the deal with EDL, which involves replacing the town’s diesel power system with a mix of wind, solar and diesel generation, supported by batteries and control technology.

In February 2016, Resonant’s Graham Davies presented the council with a peer-reviewed report that found the power purchase agreement with EDL would cost double that proposed by three companies with more experience and who were not permitted to tender.

“The new PPA (power purchase agreement) will also substantially increase State Government subsidies,” says a costing overview of Resonant’s report, produced last week for the council.

The report, obtained by the Liberals and seen by InDaily, says the Department for State Development has been a “strong advocate” for the project and will fund the difference between Adelaide’s electricity prices and Coober Pedy’s.

“This subsidy is currently around $3.5m p/a and will increase by $2.4m when the new PPA takes effect,” it says.

“DSD and ARENA assured Council that ‘this was a good deal’. ‘Council would be no worse off’ as espoused by Project proponents.”

In addition, Resonant warns there are other risks.

“Detailed reports indicate many additional risks of a technical, commercial and contractual nature with the new PPA, and are available subject to confidentiality,” the summary report says.

These risks, detailed in a redacted version of Resonant’s original February 2016 report, include “grid defection within 5-10 years and a doubling of the kWh rate”.

The report also says the deal “has had minimal or no transparency, probity and competitive tension”.

After Davies presented his original analysis to the council administration in February 2016, InDaily understands that Resonant’s contract was terminated. According to the State Government, the council had agreed at a meeting in January 2016 to proceed with the project, before it had received Resonant’s report.

Since then, the council’s administration has changed, with then CEO Tony Renshaw leaving his position in March 2016 and eventually being replaced by current CEO Fiona Hogan, the latest in a long list of CEOs appointed by the council since 2015.

Coober Pedy councillor Justin Freytag, elected last June, can’t understand why the deal received the backing of the council, the South Australian Department for State Development and ARENA.

He said his primary concern was that Coober Pedy residents would not only continue to pay very high electricity charges, but face potentially a much higher impost as the State Government feels the pinch from the deal.

The council’s legal action was designed to get information from EDL, which insists that Resonant’s costings are wrong.

“This action by the council against EDL is to get them to present their analysis and costings to prove that he’s wrong but they refuse to do it,” Freytag said.

The State Opposition, alarmed by the Resonant report’s concerns, has asked the Auditor-General to investigate.

Liberal deputy leader Vickie Chapman says that, like the Government’s now defunct Gillman land deal, a multi-million-dollar business opportunity has been given to one company without going to tender.

She has sent the Auditor-General a copy of Resonant’s redacted full report and costing summary, and asked him to examine the deal.

“If accurate then the people of Coober Pedy will be hit with a massive increase in their power bills,” her letter reads. “Alternatively, if accurate and the State Government provides a subsidy or an extension of the RAES scheme, the taxpayers of South Australia will foot the bill.”

This concern is echoed in Resonant’s full report.

“DCCP (District Council of Coober Pedy) have the intention to be a viable, vibrant town with an iconic renewable project in order to attract increased tourism,” the report says. “Resonant is of the opinion this vision is at serious risk, due to the significant costs and risks mentioned above.”

The Department for State Development told InDaily that it was involved in negotiations to reduce the risks of the project, but also sought to distance itself, saying it was not a party to the contract, and emphasising that the council had managed the procurement and tendering process itself.

“The extensive negotiations held between Energy Developments Ltd and the District Council of Coober Pedy, with assistance from DSD (Department of State Development), sought to reduce any risks to as low as reasonably practical, the DCCP obtained its own independent legal advice from Kelledy Jones,” a departmental spokesperson told InDaily.

The department, which contacted a renewable energy consultant, The SABBLE Group, to provide advice on value for money, disputed the Resonant analysis of costs.

“The Coober Pedy Hybrid Renewable project is forecast to save the government $5.4 million over the 20 year period against the diesel generation business as usual case,” the department said.

The department also said the project went through ARENA’s “rigorous” funding process, including technical and financial reviews and an independent third party review by Ernst and Young.

The new system, reported on positively on green energy websites, is nearing completion.

InDaily contacted mayor Michelle Provatidis but she did not wish to comment, referring queries to CEO Hogan. Hogan has not responded to InDaily’s calls.

ARENA has promised to respond to the criticism of the deal and this story will be updated when that happens.

A spokesperson for EDL said the new electricity generation system for Coober Pedy would cut power costs for the town by reducing the system’s exposure to the volatile diesel price.

Coober Pedy has a complicated and, as residents have complained for many years, expensive electricity arrangement.

The town isn’t connected to the state’s electricity grid, instead relying on its own diesel generation, which, like the new system, is run by EDL and supplies the energy under a power purchase agreement (PPA).

Residents and business users are levied set supply and usage charges by the council which is the “retailer”. The charges are meant to be equivalent to Adelaide’s charges, with a subsidy provided from the State Government via the Remote Areas Energy Scheme (RAES) to make up the difference between the cost of supply and the charges to customers.

Resonant’s analysis finds that the current subsidy under RAES of around $3.5 million per year would increase by $2.4 million when the new PPA comes into effect later this year.

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