Victorian Desalination Project

The State initiated Victorian Desalination Project under its water management strategy referred to as Our Water Our Future in June 2007 to support Melbourne’s water supply. This was a reaction to rapid population growth, a decrease in water reserves, and climate change noted from 2007 Winter-Spring rain and floods of 2010.

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Victorian Desalination Project

Victorian Desalination Project (the project) is “the largest seawater desalination plant initiated in Australia in the year 2009” (Capital Projects Division, 2009). The project stakeholders included the government of Australia and the public. AquaSure Pty Ltd was the project’s successful bidder. The project objective was to supply up to “150 gigalitres (GL) of water every year to Melbourne, Geelong and other connections like South Gippsland and Western Port towns, with the capacity to upgrade and supply up to 200 GL in the future” (Capital Projects Division, 2009). The project shall produce a capacity of almost “one-third of Melbourne’s annual water consumption from a source that does not rely on rainfall” (Capital Projects Division, 2009). This project shall be the source of water security in Melbourne.

The original project had 150 GL per year consisting of marine intake, outlet tunnels, power supply, and transfer pipes. Any additional capacity required shall only involve the upgrade of the plant.

The project claimed the status of the world’s largest Public-Private Partnership (PPP). It also claimed to be the most “aggressive financial transaction since the Great Depression” (Capital Projects Division, 2009).

The project value was $5,720 million (NPC as of September 2009). A capital cost of $3.5 billion came from the private sector. The government acted as “a lender of The State initiated Victorian Desalination Project under its water management strategy referred to as Our Water Our Future in June 2007 to support Melbourne’s water supply. This was a reaction to rapid population growth, a decrease in water reserves, and climate change noted from 2007 Winter-Spring rain and floods of 2010.

The amount for the project was a long-term for debt funding of $1.7 billion. The banks agreed to provide funding of seven to ten years. The financial stakeholders completed their “syndication process within two months” (Capital Projects Division, 2009). This implied that the State’s responsibility of supporting liabilities was no longer necessary.

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The project was successful due to the PPP robustness and the role of leading banks and the State in structuring PPP to attract international investment through Value for Money initiative.

Objectives

The project aimed at providing water security for the country’s population, economy and alleviating threats of drought and climate changes. The initial capacity was “150 GL with the ability to expand up to 200 GL per year” (Capital Projects Division, 2009).

The objective of the project also covered the quality of delivered water. The desalinated water had to meet water quality requirements. Further, the project was to vary water supply depending on the need to optimise the supply network. It also ensured that the project delivered water in a manner consistent with the State water policy.

The Project Scope

The project scope included the plant, marine, pipeline, power supply, and renewable energy.

The plant

The plant upon its completion shall provide 150 GL of fresh water per annum. It also has a capacity for expansion to 200 GL. The plant shall rely on energy-efficient processes, reverse osmosis for desalination, and modern technology. It shall also have a living green roof.

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Marine

The plant shall derive water from the sea. It also has outlet structures. The plant shall also protect the marine environment through tunnelling “intake and outlet structures under sand dunes, seabed, and beach” (The State, 2012). All operations management must meet Australian environmental standards.

Marine

Pipelines

The project shall transfer water using 84 km underground pipeline. It will also connect other regional areas. The plant shall have a two-way pipeline.

Power supply

The project shall rely on “90MW of power for production of 150 billion litres of water per annum” (The State, 2012). Power supply shall vary depending on the quantity of water needed. Renewable energy certificate (REC) shall offset all power used in the plant. The plant shall also use green energy from the solar, wind farms, and landfill gas energy. The plant has underground power supply to reduce visual impacts.

The project shall use high voltage alternating current (HVAC) due its reliability. There shall also be fibre optic cables installed with the power line for serving local communities communication needs.

Renewable energy

REC shall offset all power supplied to the plant. This implies that the project will consume the same amount of renewable energy in the electricity grid. The plant shall rely on renewable energy for reducing coal-fired power. This is a strategy of reducing emission of greenhouse gases. The project needs more green energy than generated. Therefore, the State and AquaSure shall compensate by buying the REC.

Renewable energy

Planning

The aim of this phase was to establish early dates for the project deliverables. The project manager took control of the planning process. It also identified the project parameters and roles of key stakeholders (Lester, 2006).

The project manager was able to control the Victorian Desalination Project because he had a detailed plan of activities. This stage required all information needed for the project relating to resources for every stage. These included workforce, time, equipment, and finance. The planning stages for the project involved estimation, identification of dependencies, sequence of tasks, distribution of responsibilities, resources allocation, project representation, and refining the plan.

Artist’s impression: General View of the Victorian Desalination Plant
Figure 1: Artist’s impression: General View of the Victorian Desalination Plant

Procurement

The project relied on the PPP approach during the planning phase because of its nature. The PPP model eliminated risks in procurement, waste of funds and time and improved the project value. The PPP model was appropriate due to the following reasons. First, the traditional State funded procurement ensured the public sector operation and maintenance of the plant, or limited involvement of the private sector in the process. Second, the State funded alliance ensured that there shall be an alliance with either the public sector or extended alliance with the private sector in operation and maintenance of the plant. Third, the State funded procurement under the DBOM model enabled the private sector takes over activities of the plant. Fourth, partnership Victoria privately funded PPP where the private takes over the responsibilities of the project for a given period of time.

The PPP model provided stakeholders with opportunities to implement effective risk transfer, improve life efficiency, enhance asset and service quality, improve design and innovation, ensure timely delivery and operational flexibility of the project. All these efforts aimed at achieving the Value for Money strategy.

The State relied on its laws and Acts in controlling the tender process. The tender process was competitive so as to identify “a private sector that could deliver the project” (Capital Projects Division, 2009). The State initiated the tender process under Partnerships Victoria Policy so as to receive the best value for money. The process involved submission of initial proposals, amendment of proposals, and final proposals.

Cost Management

The main aim of cost management was to prevent wastage of money or unauthorised increase in costs. In most cases, such disruptive changes are due to poor planning of the project (Ward, 2007). The State prevented itself from incurring additional costs through the PPP model where AquaSure would bear the responsibilities of increased costs. Cost management ensured that money spent and received related with the budget. At the same time, it also ensured that timing of all transactions matched the cash flow schedules (Rad, 2001; Dobson, 2001).

Through Value for Money approach and PPP model, the State managed to control the cost of the project with substantial savings as shown in the below tables.

Components of the Public Sector Comparator (PSC)
Hypothetical risk-adjusted estimate of the most efficient, likely and achievable form of public sector delivery
Net Present Cost $m
(150 GL output per annum)
Capital Costs 3,272
Operating and Asset Replacement Costs (27 years) 2,602
Raw PSC 5,874
Transferred Risk 782
Competitive Neutrality 0
PSC 6,656
Public Sector Comparator
(Net present cost)
AquaSure’s Winning Bid
(Net present cost)
saving
$6,656 billion $5,720 billion 14.1%

The capital cost of the project was $3.46 billion. This was the AquaSure winning bid. The AquaSure would bear any increased cost and not the State. The project maximum cost would be $5.72 billion after 30 years. This cost shall account for additional features like underground power supply, landscaping, state-of-the-art technology, world-class architecture, upgrade of roads, water supply, and fibre optic cables.

The State can regulate this cost based on the quantity of water supplied every year. The State shall take possession of the plant in 2039 at no extra cost. The PSC showed that if the State delivered this project, it would have cost $6.7 billion. Therefore, the PPP enabled the State to save 14.1 percent of the project cost. This is equivalent to $1 billion in saving achieved through AquaSure.

The PPP model allowed the State to rely on the expertise of the private sector in designing, constructing, and maintaining the project. At the same time, the PPP enabled the State to protect the interest of the public and keep water publicly owned. The PPP model guaranteed the State the best deal in funding and water consumption through eliminating and sharing risks with AquaSure. This model also ensured that the plant has innovative designs and solutions as ways to achieve the best Value for Money approach.

The project shall operate on fixed price energy. Under this arrangement, AquaSure shall buy 100 percent of renewable energy under REC. Fixing the cost of energy consumed for 30 years implies that any increase in costs of energy shall not affect the State. The project shall also result into increments of water prices in all States.

The State is also likely to incur costs related to legal challenges from groups like Your Water, Your Say. The group argued that the State did not consult or provided reports to it. There is also a new challenge from Watershed Victoria.

Risk Management

Risks in projects vary from minor inconvenience to total disasters (Lock, 2007; (Chapman and Ward, 2003). The project manager identified causes and effects of every possible risk during the project life. The project manager identified the project risks and classified them as site risks, scope risks, design, construction and commissioning risks, operational risks, industrial relations, asset risks, change in law, and sponsor and finance risk. The State and AquaSure distributed these risks between themselves under the project agreement (see the Project Summary for complete definitions of risks and allocations). In addition to risks allocations, the PPP model also aimed at reducing risks (Capital Projects Division, 2009).

The project also experienced legal challenges from Your Water, Your Say, and Watershed Victoria. Your Water, Your Say claimed that the State did not consult or provide it with the project reports. The group main concerns were “initial water requirement figures, feasibility studies and environmental effects reports amongst other issues” (The State, 2012).

The PPP model guaranteed effective risk transfer between “the State and private sector during construction and beyond to cover operation and maintenance” (Capital Projects Division, 2009). The private sector had to deliver water and maintain the project. The State expected the private sector to meet water quality, technology, and environmental conditions.

The PPP model also aimed at achieving the “whole of life project efficiency”. Strategy encouraged bidders to consider all costs of the project including capital and ongoing maintenance costs during the project lifecycle.

The PPP was to enhance the asset and service quality of the project. This way the project would achieve exemplary control over the quality of services and infrastructures. There was a high degree of rigour, control and robustness due to the PPP procurement process. This process ensured that the project team met all performance standards.

The model also ensured that the project achieved high standards of design innovation. The process was competitive. The private sector had to deliver innovative solutions so as to acquire the best whole life cycle for the project, manage risks and meet performance standards.

The State depended on the PPP model in order to reduce risks associated with the project delay and achieve timely delivery. The State wanted water delivery by late 2011. Thus, the model was appropriate in mitigating risks of delay. Finally, this model also offered operational flexibility in terms of water supply from zero to full capacity.

The state also offered limited and specific approaches to combat risks in the financial market that could affect the debt funding of the project. The State based this assumption on the effect of the global financial crisis of 2008. Such approaches included an equal sharing of losses with AquaSure, share risks up to specified rates and recover losses late. The State also opted for procuring an alternative funding, a State supported guarantee, or a termination of the project deed, pay the balance of non-refinanced debts and adopt any other agreed solutions (Capital Projects Division, 2009).

Dial Before You Dig strategy

The State urges the community to contact the project team before undertaking any work near the plant that involves digging. This strategy aims at protecting underground power supply and pipeline. The project also has an easement so as to control activities that can occur near the plant and ensure safety of its infrastructures. The State relied on the Memorandum of Common Provisions regarding the property ownership and usages.

Water Cost

The cost of water shall increase considerably in Melbourne with over 64 percent within the next five years. Essential Services Commission showed that water providers will also increase their charges between 87% and 96%. The State claimed that residents must help pay for such water projects.

Integration Management

Integration management covered decisions that concerned distribution of resources, allocation of activities and identification of potential problems (Meredith and Mantel, 2003). The project manager had to integrate the project objectives, resources, processes, and activities in order to ensure completion of the project and water supply by 2011.

Communications Management

Before the start of the project, the State engaged “the affected communities and landowners in 2008 when it released ESS for public comments and feedback” (The State, 2012).

The project manager adopted a written communication plan to guide the project operation. It outlined, highlighted, and detailed all communication needs and expected feedback for the whole project. The process included regular updates, weekly reports, and necessary conferences to update the public.

The project relied on both formal and informal forms of communication. Formal communication was necessary in preparation of terms of references, communicating to team members and stakeholders, project negotiation, preparation of the project outcomes and feedback, progress report, formal presentation and production of the final report. The project also used informal communication to prepare terms of reference, aid group discussions, address team members, review progress, present findings, facilitate clarity and escalate issues.

Communication played a significant role in this project between the State and affected landowners. The project affected 125 landowners. The State had been consulting with landowners since 2007. As a result, the State showed commitment to close landowner liaison through compensations. The project team (AquaSure and its team) consulted with landowners on design and construction, reinstatement and rehabilitation of the affected infrastructures.

Map of the affected areas
Map of the affected areas

Executing

This process started as soon as both the State and AquaSure initiated the project. It continued till the project acquires certain deliverables (Project Management Institute, 2008; Kerzner, 2000).

AquaSure started the project in 2009. The project is now in commissioning stage. This is a preparation for reliability test that will cover quality of drinking water, transfer of water, quantity needed, pipeline, and power supply. This is crucial to ensure that the desalination plant works well.

On September 2012, the project constructors announced that the project had commenced “producing drinking water that meets Australian Drinking Water Guidelines” (The State, 2012).

The plant must meet water quality requirement before supplied to consumers. AquaSure, DSE, Department of Health, and water authorities test for water quality before are responsible for ensuring that the “desalinated water meets quality requirement under Safe Drinking Water Act 2003 and Health (Fluoridation) Act 1973” (The State, 2012). In addition, an Environmental Auditor and an Independent Reviewer must also ensure that water meets set standards of quality. Once these teams ascertain water quality, AquaSure shall transfer water to consumers through its networks. On 17 September 2012, these teams confirmed the quality of water and announced to the public.

Production shall increase slowly in order to make sure that the project has met its objective of producing the targeted amount of water per annum. The quantity of water pumped depended on reliability tests conducted. The plant shall be fully functional by the end 2012, and full commissioning shall be on February 2013.

Time Management

Some aspects of the project progress such as date of water supply commissioning did not match the planned time. Thus, time management is critical for timely completion of the project.

The project commenced on 2009, and it was to delivery water in 2011. However, the contract for the project shall expire in 2039. Milestone showed progress of the project and summary of deliverables for the team. Milestone also provided immediate project targets due to long schedules running into several years. Thus, through milestone, we can see progress, communicate information, focus on results, show targets for the team, manage the project activities, and achieve effective delegation of activities.

The project milestone and key dates from the Victoria Desalination Project Summary:

Key Events Date
Contract Close 30 July 2009
Financial Close 02 September 2009
Commercial Acceptance (water delivery) 19 December 2011
Reliability Testing January – June 2012
Contract expiry date 30 September 2039

As we can see above from the milestone, all activities of the project did not commence on the same date. The project manager relied on project sequencing to schedule activities.

The chart shows us the project schedule. Thus, the team used it as an effective tool of monitoring and controlling the project activities. It shows key events, milestone achieved and remaining period to the project completion. This tool shows both actual and planned activities and specific dates of project activities.

According to Stephen Drill of the Herald Sun, the plant was likely to experience four months of delay due to cyclonic weather and unionised workers slowdown. AquaSure claimed that it lost “70 days of production because of “cyclonic” weather at the Wonthaggi site from April 2010 to August 2011”, and additional 193 days as a result of industrial action (Drill, 2011).

In February 2012, AquaSure claimed that it experienced about 99 percent of failure rates due to faulty valves. Under the contract, the State will not incur losses due to delay because AquaSure was responsible for the project design and construction.

Pilot desalination plant

Monitoring and controlling

The milestone enabled us to see the progress against the project original schedule. However, this project has a tight deadline within the initial period of commencing. Therefore, it needs regular monitoring and controlling (Williams, 2008).

The process of monitoring was both informal and formal. It had a clear agenda based on the project initial set objectives and scope. The process was thorough in assessing the completed objectives of the project. This was because the process of monitoring and controlling provided the necessary feedback the project team relied on for corrective action (Devaux, 1999).

The State had to monitor the quality processes, water quality, and delivery of water at every delivery point. The State also had to make sure that the desalination met all the quality standards.

Closing process

All projects must come to their ends. This is also the stage of finalising the project and maximising the impact. As a project approaches its completion, the project manager shall close it once his team achieve all the deliverables. However, the project is still ongoing with the recent commissioning of water for reliability testing and full commissioning by February 2013. The contract expires in the year September 2039 when AquaSure shall handover the plant to the government.

The Close down Report

The project is still under construction and scheduled to end in February 2013. However, AquaSure shall return the plant to the State by the year 2039. When this time comes, the formal closure notice shall indicate that the project has come to an end. It will show the project title, project number, effective closure date, reason for closure, any specific instructions or recommendation, and signature authorizing the closure.

In addition, the close down report will also show the following.

Performance indicators: these shall include water commissioning, reliability testing results of water quality, pipeline, and power supply against their original objectives and scope. This section will also provide explanations for issues like 99 percent of failure rate experienced in valves and union workers slowdown. Performance indicators must be consistent with project objectives.

The project success factors: the project manager will identify the main factors responsible for the success of the project like high standard design, adequate financing, use of the state-of-the-art technology, manpower skills, and the reliability of the PPP model.

Resources used in the project: the project manager will show resources used against the planned quantity. This shall cover resources in the plant, power supply, and pipeline. Any variance like changes in faulty valves and the State’s decision to use underground power supply instead of overhead must have an explanation. The project manager will also account for the budget, agree and close it down.

Strengths and weaknesses: the project manager shall explain the project strengths in terms of expertise in design and construction, timely execution, water quality, and technology used. Still, the report must provide challenges like faulty valves, unionised workers slowdown, cyclonic weather that caused delays, opposition from some organisations, lawsuits, and the plant effects like increase in the cost of water.

The project close down report will be detailed as necessary so that others can learn from it. It will also show recommendations about the project.

Reference

Capital Projects Division 2009, Partnerships Victoria Project Summary: Victorian Desalination Project, Capital Projects Division, Melbourne.

Chapman, C and Ward, S 2003, Project Risk Management: Processes, Techniques and Insights, 2nd edn, Wiley & Sons, Chichester.

Devaux, S 1999, Total Project Control: a Manager’s Guide to Integrated Planning, Measuring and Tracking, Wiley & Sons, New York.

Dobson, MS 2001, Project Management for the Technical Professional, Project Management Institute Inc, Pennsylvania.

Drill, S 2011, Wonthaggi desalination plant faces four-month delay. Melbourne: Herald Sun.

Kerzner, H 2000, Applied Project Management: Best Practices on Implementation, Wiley, New York.

Lester, A 2006, Project Management, Planning and Control, 5th edn, Elsevier Science & Technology Books, Loughborough.

Lock, D 2007, Project Management, 9th edn, Gower Publishing Limited, Hampshire.

Meredith, J and Mantel, S 2003, Project Management: A Managerial Approach, 5th edn, Wiley & Sons, New York.

Project Management Institute 2008, A Guide to the Project Management Body of Knowledge: PMBOK Guide,4th edn, Project Management Institute Inc, Pennsylvania.

Rad, P 2001, Project Estimating and Cost Management, Management Concepts, Vienna.

The State 2012, Government Initiatives, Web.

Ward, G 2007, Project Manager’s Guide to Purchasing, Gower, Aldershot.

Williams, M 2008, The Principles of Project Management, SitePoint Pty Ltd, Collingwood, Australia.

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