Cost blowouts on Wyangala and Dungowan dam upgrades are putting at risk the credit rating of WaterNSW, the agency tasked with building the dams.
The New South Wales water minister, Melinda Pavey, faced questions on the controversial projects in the upper house on Monday.
Documents obtained under state freedom of information laws by water consultant, Maryanne Slattery, and a call for papers by the upper house, show that Pavey has had to direct WaterNSW to undertake the final business case after the agency warned it would breach its “head room” – the amount it can spend before it breaches a statutory debt-to-equity ratio.
The business cases and early works are estimated to cost $250m.
The agency has also warned it could put at risk its credit rating and has sought a guarantee from the state government that if the dams do not proceed it will be reimbursed for the sunk costs.
The business cases were due in October but are still to be completed.
The cost of actually building two dam projects, announced with much fanfare in October 2019 by the deputy premier, John Barilaro, and the deputy prime minister, Michael McCormack, have also blown out.
As the Guardian reported last year, the cost of biodiversity offsets to compensate for sensitive habitat that will be destroyed by Wyangala dam on the Lachlan river, is likely to see the dam cost blow out to as much as $1.5bn. This has now risen to as much as $2.1bn. It was originally projected to cost $680m.
The Dungowan dam, to be built on the Peel river, could cost as much as $870m instead of $484m and has been strongly criticised by the Productivity Commission.
One of the big criticisms of Dungowan dam is it will add only six to seven gigalitres of water to the supply, making it a very expensive way to increase water for Tamworth.
Last month the Productivity Commission recommended the state government consider buying back water from farmers instead, which it said could be achieved at a fraction of the cost.
But Pavey was “very upset by the Productivity Commission” and accused it of “not understanding the water cycle in the Peel Valley” where the dam is to be built.
“The real benefit is that there will be more stored water going into dry periods,” she said.
She argued that withdrawing water from agriculture would affect downstream jobs in meat processing.
Greens MP Cate Faehrmann, who chaired an inquiry into the government’s dams project, accused Pavey of failing to give straight answers to a budget estimates committee on Monday.
“The minister issued a direction to WaterNSW, claiming exceptional circumstances, to “deliver business cases, pre-construction activities and an early works package’ for raising the Wyangala Dam Wall and building new Dungowan and Mole River Dams.
“Yet, today she would not give an assurance that the government would reimburse WaterNSW for all sunken costs relating to this directive should the dams not be built.
“No evidence has been provided that these dams will increase water security, yet despite this the minister is directing WaterNSW to do something that puts its investment credit rating at risk.”
Pavey also revealed she had written to the federal water minister, Keith Pitt, about NSW’s marquee sustainable diversion limits, the Menindee lakes project.
“I wrote to minister Pitt about seven weeks ago informing him that Menindee lake project can’t go ahead in its current form, as well as Yanko [Creek project],” she said.
“We have failed in our ability to communicate and garner respect of those communities. I accept that.”
The project was designed to save up to 106GL of water by reducing evaporation from the lakes but has stalled after wholesale opposition from stakeholders, from farmers to Indigenous groups.
A new plan has been presented to the community but it is also meeting opposition.
NSW now faces the prospect of being unable to deliver its contribution to the sustainable diversion limits part of the plan by 2024. This could trigger more buybacks of water in NSW, particularly in the northern basin.
“I have been going to ministerial council meetings with the [Murray Darling Basin Authority] on two occasions and saying that the timelines and the deadlines that have been set in stone need to be shifted,” Pavey said.
