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Knoll moves closer to winding up under-fire council

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Local Government Minister Stephan Knoll has given Coober Pedy Council three weeks to explain why he shouldn’t shut it down and replace the elected members with an administrator.

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Knoll was invited to consider sacking the council by Ombudsman Wayne Lines in a scathing report about the council’s role in a controversial $198 million electricity deal for the outback town.

The move, on the eve of local government elections, has been met with a degree of resignation from some members of the current council, which argues it has taken action to correct past dysfunction and budgetary failures. The council remains at loggerheads with the company that was awarded the 20-year power purchase agreement (PPA) – EDL.

The council has been dogged by claims of chaotic administration and adverse findings of the Ombudsman, with a revolving door of CEOs over past years and an apparent failure to meet its statutory reporting requirements. Those concerns led to the previous Labor Government ordering an Auditor-General’s examination of the council’s books – an inquiry which has not yet reported.

Knoll’s action is based on the most recent Ombudsman’s report which found “serious maladministration” in the way in which the council signed the power purchase agreement.

The council says it was pressured to sign the agreement by the State Government in 2016 – a claim denied by the Government and rejected by the Ombudsman. The CEO, mayor and some councillors who made that decision are no longer involved with the council.

As reported extensively by InDaily, the electricity deal – to build a new hybrid renewable system for the “off grid” town – was awarded without going to tender and despite a consultant’s report warning that it would cost $85 million more than it would have if it had been put to the open market. It was supported by a grant from the Federal Government’s renewable energy agency and backed by the State Government, which was heavily involved in negotiations because it carries the risk for the project via the electricity subsidies that it provides to remote communities.

Knoll has written to the Coober Pedy Council this week to give it 15 working days – more if it requires it – to respond to a range of concerns raised in the Ombudsman’s report.

While Knoll told InDaily via a spokesman that he had not yet made a final decision on the council’s future, his letter paints a grim picture.

The letter, addressed to acting mayor Paul Athanasiadis, says that the minister is considering exercise his powers under the Local Government Act to declare the council as a “defaulting council” – a step which would lead to the council members being suspended and replaced by an administrator.

He then provides a long list of reasons for his “proposed action”, taken from the Ombudsman’s report.

The list includes a “serious contravention or failure to comply” with the State Records Act, due to a failure to keep key records about the EDL project.

He says there are “serious irregularities in the conduct of affairs of the Council” including a failure to satisfy prudential obligations, particularly its failure to consider a BESTEC report into the prudential issues surrounding the EDL deal.

The Minister also references the Ombudsman’s key concern that the council did not consider the EDL deal under the terms of its procurement policy and his subsequent finding of maladministration.

In addition, the minister says the council “has not upheld the principle of ‘open, responsive and accountable government’… nor acted as an ‘informed and responsible decision-maker”.

These principles are required to be upheld by councils, under the Local Government Act.

He also considered that the council had not upheld the principle to seek to ensure that council resources are used “fairly, effectively and efficiently”, nor the requirement to “achieve and maintain standards of good administration”.

Under the heading “Reasons why I am considering taking action” under the Act, the Minister writes:

“The failures identified by the Ombudsman in relation to Council’s management of the PPA project, when viewed together, indicate a pattern of significant errors of a systemic nature in the Council’s fundamental practices, policies and procedures and are indicative of serious issues and irregularities within the general operations of the Council, both within the administration and elected member body.

“The Ombudsman has not identified or recommended specific actions that the Council could take to remedy the failings.

“The Council has had a high turnover in senior staff in the last few years – the negotiations of the PPA were managed by a total of six CEOs, which the Ombudsman considered: ‘This fact alone speaks to significant dysfunction within the council’. The Council continues to lack stability, both within the administration and the elected member body, with an Acting CEO (for an indefinite period) and an Acting Mayor (following the resignation of the Mayor), as well as vacancies of senior staff within the administration.”

Athanasiadis told InDaily that he would not necessarily oppose an administrator being appointed, but he believed the reasons being offered pointed the blame at the wrong people.

He said he had flagged financial problems and irregularities within the council to the State Government three years ago, but his warnings had gone unheeded.

The elected body and administration had in recent times taken action to get its financial house in order.

“We haven’t had an opportunity to explain to the new Minister what’s occurred in the past and what we have done to get to where we are,” he said. “Sure, there were problems in the past, but this group has done a lot to clean up the problems.”

He said the electricity arrangements within the town, whereby the council acts essentially as the electricity retailer and bills residents, was not sustainable.

“The company (EDL) bills us and we have to get that money from our constituents – a lot of them aren’t capable of paying their bills,” he said.

“It’s almost impossible with the rate base we have to continue operating.”

Knoll’s move puts a question mark over the coming elections.

If an administrator is appointed, he or she would have the same powers, functions and duties of an elected council and would not be under the specific direction of the Minister.

According to the Local Government Act, the Governor can make a proclamation declaring the council to be defaulting, effectively suspending all members and appointing an administrator, on the advice of the Minister.

Not earlier than three months after suspending all members, the Governor can declare the offices of all members to be vacant and fresh elections can be held, or an administrator can remain in place for up to 12 months, after which elections can be held.

What’s it all about?

Coober Pedy council essentially acts as the energy retailer for the town, with the South Australian taxpayer exposed via subsidies the State Government provides to the council to ensure electricity prices are kept on par with those in the city.

EDL, which ran the town’s old diesel generation, has upgraded the infrastructure to include a greater mix of renewables and battery storage. After the system was switched on in July last year, EDL argues it passed several significant milestones, including running entirely off renewable energy for more than 24 hours.

The council, though, has remained unhappy with the scope of the deal and its cost.

Despite approving the project, the council repeatedly raised concerns with EDL and the State Government about the potential cost to the community and the lack of a tender process. The council remains critical of the deal.

A consultant, engineer Graham Davies from Resonant Solutions, who ran as an SA Best candidate for the state seat of Waite, advised the council that the deal would cost $85 million more than it otherwise would have, if had been put to the open market – a contention rejected by the Government.

Council members later said they felt pressured at a January 2016 meeting to approve the deal or they might lose the $18 million grant to the project from the Federal Government’s renewable energy agency, ARENA, and face potential legal action. Members have also contended they felt pressured by the then-Labor Government to approve the deal – a claim refuted by Labor and given short shrift by the Ombudsman in his report.

Since then, the CEO has changed several times: currently the acting CEO is respected water engineer Colin Pittman, who wasn’t in the position when the electricity deal was signed. The current acting mayor did not attend the January 2016 meeting, which included a bare quorum of members.

 

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