PP 301

FINAL REPORT

MORGAN WATER TREATMENT

PLANT BALANCING STORAGE
PROJECT

564TH REPORT

OF THE

PUBLIC WORKS COMMITTEE

Tabled in the House of Assembly and ordered to be published, 28 March 2017

Second Session, Fifty-Third Parliament

 CONTENTS

THE PUBLIC WORKS COMMITTEE......................................................................................................................2

THE FUNCTIONS OF THE COMMITTEE...............................................................................................................2

PART ONE: PREAMBLE AND PROJECT BACKGROUND ................................................................................3

1.1 TERMS OF REFERENCE ...................................................................................................................................3
1.2 FURTHER REPORTING TO THE COMMITTEE ......................................................................................................3
1.3 SCOPE OF THIS REPORT .................................................................................................................................3
1.4 PROJECT BACKGROUND ..................................................................................................................................4
PART TWO: EXECUTIVE SUMMARY ...................................................................................................................5

PART THREE: PROJECT PROPOSAL AND PRE-CONSTRUCTION ASSESSMENTS..................................6

3.1 THE CURRENT PROPOSAL ...............................................................................................................................6
3.2 CONSULTATION ...............................................................................................................................................6
3.3 ABORIGINAL HERITAGE ....................................................................................................................................6
3.4 HERITAGE BUILDINGS ......................................................................................................................................7
3.5 ECOLOGICAL SUSTAINABILITY..........................................................................................................................7
PART FOUR: JUSTIFICATION AND IMPACT OF THE PROJECT ....................................................................8
4.1 PROJECT JUSTIFICATION .................................................................................................................................8
4.2 PUBLIC VALUE OF THE PROPOSED PROJECT ...................................................................................................8
4.3 W HOLE OF LIFE COSTS OF THE PROJECT ........................................................................................................8
4.4 ESTIMATED NET EFFECT OF THE W ORK, AND ITS USE, OF PUBLIC FUNDS ......................................................9
4.5 REVENUE EARNING CAPACITY OF PROPOSED PROJECT ................................................................................10
4.6 PROJECT DELIVERY.......................................................................................................................................10
4.7 THE EFFICIENCY AND PROGRESS OF THE PROJECT AND JUSTIFICATION OF ANY EXPENDITURE BEYOND
ESTIMATED COSTS .......................................................................................................................................11
PART FIVE: CONCLUSION & RECOMMENDATION.........................................................................................12

PART SIX: ATTACHMENTS .................................................................................................................................13

6.1 LIST OF W ITNESSES AND SUBMISSIONS .........................................................................................................13
6.2 LIST OF SUBMISSIONS ...................................................................................................................................13
 THE PUBLIC WORKS COMMITTEE

The Public Works Committee is established pursuant to sections 12A, B and C of the Parliamentary
Committees Act 1991, proclaimed February 1992.

The following members constitute the nineteenth Public Works Committee as reconstituted on
6 May 2014:

Mrs Annabel Digance MP (Presiding Member)

Hon Paul Caica MP
Ms Dana Wortley MP
Mr Michael Pengilly MP
Mr Tim Whetstone MP (until 18 October 2016)
Mr David Pisoni (from 18 October 2016)

Staff assisting the Committee:

Executive Officer: Ms Alison Meeks
Administrative Officer: Mr Ryan-Lee Piekarski

THE FUNCTIONS OF THE COMMITTEE

Section 12C of the Parliamentary Committees Act 1991 defines the functions of the Public Works
Committee as:

(a) to inquire into and report on any public work referred to it by or under this Act, including-
(i) the stated purpose of the work;
(ii) the necessity or advisability of constructing it;
(iii) where the work purports to be of a revenue-producing character, the revenue that it
might reasonably be expected to produce;
(iv) the present and prospective public value of the work;
(v) the recurrent or whole-of-life costs associated with the work, including costs arising
out of financial arrangements;
(vi) the estimated net effect on the Consolidated Account or the funds of a statutory
authority of the construction and proposed use of the work;
(vii) the efficiency and progress of construction of the work and the reasons for any
expenditure beyond the estimated costs of its construction;

(b) to perform such other functions as are imposed on the Committee under this or any other Act
or by resolution of both Houses.
 PART ONE: PREAMBLE AND PROJECT BACKGROUND

1.1 Terms of Reference

Parliamentary Committees
Parliamentary Committees have the specific task of examining individual initiatives, projects or
policies of the government of the day, or issues of importance to society as a whole. Standing
Committees are created by an Act of Parliament and charged with the ongoing examination of subject
categories such as public works.
Parliamentary Committees are made up of both government and opposition members, with numbers
of each calculated according to rules which reflect the numbers of seats each group holds in the
Parliament. Much of the Committee process is open to the public and completed reports are public
documents.
This Project
SA Water has referred the Morgan Water Treatment Plant Balancing Storage Project to the Public
Works Committee pursuant to the requirements of the Parliamentary Committees Act 1991. Please
refer to the "Functions of the Committee" on the previous page for a full description of the Committee's
tasks.

1.2 Further Reporting to the Committee

SA Water must notify the Committee immediately in writing should there be substantial changes to the
nature of the project or the evidence provided to the Committee. To enable appropriate monitoring of
the project, SA Water must also provide quarterly reports to the Committee on the progress of
construction. Pursuant to section 12C (vii) of the Act, these reports must outline the efficiency and
progress of construction and provide an explanation of any expenditure beyond the estimated costs
quoted in this report. Evidence of any substantial changes to, or the withdrawal of, any approval
(provisional or otherwise) must also be relayed to the Committee immediately with an appropriate
explanation, and an assessment of the probability of a suitable resolution.
In addition, the Committee requires that it be notified of the proposed date for the commissioning of
the works.
The Committee has the authority under Section 16 (1)(c) of the Parliamentary Committees Act 1991
to re-open investigations into any project for the purpose of further examination and monitoring.

1.3 Scope of This Report

This report examines the history of the proposal and the efficacy of the application of South
Australian taxpayer funds to the Morgan Water Treatment Plant Balancing Storage Project. The
report structure is guided by, and largely limited to, the terms of the Parliamentary Committees Act
1991. It describes, in summary, the evidence presented to the Committee and concludes with a
brief summary incorporating findings and recommendations.
Detailed evidence upon which the Committee’s decision is based is held in Parliament and, in most
cases, can be examined by making an application to the Committee Administrative Officer.
1.4 Project Background
The Morgan Water Treatment Plant, commissioned in 1986, has a capacity of 200 megalitres per
day, providing drinking water to approximately 130,000 people. It is situated at the beginning of the
379 kilometre Morgan to Whyalla Pipeline, and treats water as it is pumped into the pipeline. The
plant currently uses a single 12 megalitre filtered water storage, which SA Water informed the
Committee is small for a plant of this size.
The National Health and Medical Research Council will shortly release new Health Based Targets
for drinking water. They will be incorporated into the latest version of the Australian Drinking Water
Guidelines (ADWG). The draft Health Based Targets good practice guide recommends continuous
(or close to continuous) operation of a water treatment plant as a key contributor to achieving
compliance with the new targets. This project will support the continuing improvement in water
quality management for the Mid North and Yorke Peninsula residents, with the approach supported
by SA Health.
 PART TWO: EXECUTIVE SUMMARY

The Morgan Water Treatment Plant is located at the commencement of the Morgan to Whyalla
Pipeline, treating water as it is pumped into the pipeline. It has a capacity of 200 megalitres per day
and provides drinking water to around 130,000 people.
The National Health and Medical Research Council is due to release new Health Based Targets for
drinking water. In order to meet these, an upgrade is required of the water treatment plant and its
storage facilities. This upgrade will allow for continuous, close to continuous operation of the plant
as recommended by the guidelines as good practice.
To support the continued pumping, increased storage capacity is required. This will allow a
decoupling of plant and Morgan to Whyalla Pipeline operations, which will enable a more
continuous operation. This project proposes to build a new 30 megalitre earth bund storage as well
as upgrade the 12 megalitre filtered water storage at a cost of $11.344 million (excluding GST).
SA Water informed the Committee that another advantage of the project is the ability to balance
out the power costs with possibility of more pumping at night, and take advantage of night
electricity tariffs. This has the potential to save SA Water hundreds of thousands of dollars.
The major construction works will occur over a 12-month period. Initially the new 30 megalitre earth
bank storage will be constructed to ensure the water treatment plant and pumping continues
uninterrupted. This will ensure there is no disruption to water supply to customers whilst the 12
megalitre filtered water storage is relined. The project is due to reach practical completion by
May 2018.
 PART THREE: PROJECT PROPOSAL AND PRE-CONSTRUCTION ASSESSMENTS

3.1 The Current Proposal

SA Water proposes to increase the storage capacity at the Morgan Water Treatment Plant. It will
address the identified non-compliance with the new Health Based Targets guidelines for drinking
water and allow essential repair works to the existing 12 megalitre filtered water storage.
Specifically the project includes the construction of a new, lined 30 megalitre earth bank storage,
and the relining of the existing 12 megalitre filtered water storage. The existing 12 megalitre filtered
water storage is a concrete tank that is now in need of maintenance
The provision of the additional storage will allow a decoupling of the plant and Morgan to Whyalla
pipeline operations enabling a more continuous operation of the water treatment plant, which is a
key recommendation of the updated guidelines.

Site Ownership
The new earth bank storage facility will be constructed on SA Water land, as well as the works for
the existing filtered water storage. There is no need to acquire additional land and easements as
part of the project.

3.2 Consultation
SA Water informed the Committee it is committed to ensuring a high level of stakeholder
engagement in order to manage expectations, concerns and any other stakeholder issues
associated with the project. It has developed a community and stakeholder engagement strategy to
identify key stakeholders, potential project impacts and highlight the key messages.
The Stakeholder Engagement Team will monitor the progress and effectiveness of the strategy
and provide regular reports to the Project Manager on issues and opportunities identified through
the stakeholder engagement process.
Construction works may create temporary and minor impacts on the neighbouring Morgan Bowling
Club such as the creation of a new club access road, increased highway traffic and general
construction activity during the construction program. The Stakeholder Engagement Team will
ensure that consultation is ongoing throughout the design and construction to minimise impact of
the works wherever possible.
In addition, the design and construct contractor shall submit site specific management plans
detailing how construction impacts such as noise, dust, traffic disruption, and community safety will
be managed and mitigated. A stakeholder management database will be utilised to track issues
raised by stakeholders as well as to provide feedback to the project team.
Through ongoing engagement with key stakeholders, the project team and the design and
construct contractor will target mutually beneficial outcomes through effective communication and
the development of a collaborative culture between the SA Water and external stakeholders.
Communication with various stakeholders is occurring in line with SA Water’s standard
communications process and it will be managed within SA Water current internal resources.

3.3 Aboriginal Heritage

The project site is close to the River Murray and SA Water recognises that the traditional owners
for the area continue to have strong, ongoing, spiritual connections to the area.
A search by SA Water of the central archive of the Aboriginal Affairs and Reconciliation Division
(Department of State Development) found no record of Aboriginal sites in the proposed
development locations. In addition, SA Water reviewed past cultural heritage surveys for the site
and surrounds and has not identified any sites within the immediate vicinity of the works.
The construction contractor will be required to comply with SA Water’s Standard Operating
Procedure for the Discovery of Aboriginal Sites during the construction work. Construction
employees will be inducted into the requirements of this procedure.
SA Water will liaise with the Crown Solicitors office with respect to any native title obligations that
may be associated with the project as the project develops.

3.4 Heritage Buildings

SA Water has informed the Committee that SA Water has not identified any potential heritage
impacts associated with this project.

3.5 Ecological Sustainability

SA Water’s Sustainability Policy sets out the organisation’s commitment to managing its assets
and operations in a manner that ensures that the needs of both current and future customers,
communities and stakeholders are met. This includes:
 taking into account and balancing both short and long term views,
 acknowledging the localised effects of global challenges, and
 recognising the interconnection between social, economic and environmental influence
The policy sets out four key principles to guide SA Water’s decision making and that underpin the
organisation’s eight strategic ‘Outcomes for Success’. These are good governance, economic
efficiency, environmental performance, and social responsibility. A triple bottom line multi-criteria
analysis has been undertaken by SA Water to support these sustainability policy commitments and
inform the options assessment for the project. The analysis considered the environment (run off
management), social (community impact and community service including water quality benefits),
economic/financial (cost and net present value), and technical/functionality (operability and
treatment optimisation) as part of the analysis.
The construction works will generate excess spoil, which will be managed under the Environment
Protection (Waste to Resources) Policy 2010, which aims to achieve sustainable waste
management by applying the waste management hierarchy consistently with the principles of
ecologically sustainable development set out in section 10 of the Environment Protection Act 1993.
SA Water also requires that the delivery contractor’s greenhouse emissions associated with a
project are quantified and reported.
SA Water is committed to ensuring that any potential impacts to the environment or to heritage
items associated with the proposed new storage at Morgan Water treatment Plant are minimised.
SA Water’s Environment and Heritage Services Team have undertaken a preliminary assessment
of potential impacts that may be associated with the project and this has informed the design to
date. Environmental aspects and impacts associated with the project will be considered as part of
further project development.
The construction contractor will be required to prepare and implement a project Environmental
Management Plan (EMP) outlining how they will address the site specific environmental issues
such as noise, dust, erosion and stormwater management as well as any environmental conditions
associated with approvals. SA Water’s Environmental and Heritage Services team will monitor
compliance with the EMP throughout the life of the project through regular surveillance, site visits
and environmental audits.
Based on the outcomes of the environment and heritage assessments, and with the
implementation of identified mitigation strategies, SA Water informed the Committee that it does
not anticipate any significant residual adverse impacts for the project.
 PART FOUR: JUSTIFICATION AND IMPACT OF THE PROJECT

4.1 Project Justification

This project will improve operations of the water treatment plant to ensure it meets the new Health
Based Targets guidelines. In addition, it will also provide additional system redundancy to allow
essential repair works to the existing 12 megalitre filtered Water storage to be undertaken without
additional operational risk. A further benefit is the opportunity to achieve a significant reduction in
pumping costs by enabling SA Water to take better advantage of lower (night) electricity tariffs.
In determining the project scope, a number of options were considered as to how best achieve the
necessary outcomes in an economic, social and environmental means. The following options were
considered.
Option 1 (Base Case): Business as usual with the need to replace the 12 megalitre filtered water
storage on failure. This option does not meet the project objectives as the treatment plant will
continue to operate in a non-continuous manner and remain non-compliant with the new Health
Based Targets guidelines.
Option 2 (preferred option) – Build a new lined 30 megalitre earth bank storage and reline the
existing 12 megalitre filtered water storage. This option involves the construction of a new 30
megalitre lined and covered earth bank storage. It meets the project objectives by enabling the
treatment plant to operate in a more continuous manner and hence achieve compliance with the
Health Based Targets, as well as allowing better management of electricity usage and hence
potentially reducing the cost of operating the water treatment plant and associated pumping
facilities.
Option 3 – Build a new 30 megalitre steel tank and reline existing 12 megalitre filtered water
storage. This option meets the project objectives but at a higher capital cost than Option 2.
Option 4 – Build a new 30 megalitre concrete tank and reline the existing 12 megalitre filtered
water storage. This option meets the project objectives but at a higher capital cost than Option 2.
Option 2 is the preferred option as it is the most economical and beneficial solution amongst the
four options assessed to address the current risk and achieve the project outcome.

4.2 Public Value of the Proposed Project

The project supports the following SA Water Strategic Objectives, outlined in the SA Water
Strategy 2016-2024:
 safe, clean water to ensure continued public health compliance,
 reliable services that will improve the resilience of our water supply and optimise asset life
and reliability, and
 value for money by improving operational efficiency and the efficiency of capital project
delivery.

4.3 Whole of Life Costs of the Project

SA Water estimates that the capital expenditure for the project is $11.344 million in nominal dollars
(excluding GST). The current approved budget for this project submitted as part of the state
government Mid-Year Budget Review was $13.261 million. The remaining budget will be
reallocated to/from the Water Quality Management program.
The expenditure for the project will occur over at least four financial year periods. The capital
expenditure, per financial year is outlined below.
 Pre-2016-17 2016-17 2017-18 2018-19 Total
(ex GST)
Capital $ 337,000 $ 525,000 $ 9,430,000 $ 1,051,000 $ 11,344,000
Expenditure

This project has been included in SA Water’s Regulatory Business Proposal for 2016-20, and as
such, the cost is included in SA Water’s current approved capital plan. The project will have no net
impact on SA Water’s overall capital plan, borrowings or contributions to Government.

Operating Costs
SA Water informed the Committee that one of the advantages it anticipates from the project is the
ability to balance out the power costs with the possibility of more pumping at night, taking
advantage of night electricity tariffs. This has the potential to save SA Water hundreds of
thousands of dollars.

4.4 Estimated Net Effect of the Work, and Its Use, of Public Funds
A financial analysis of the project has been undertaken by SA Water in accordance with Treasury
Instructions and corporation guidelines. The analysis is based on a 30-year study period and uses
a cost of capital (discount rate) of 4.6 percent (real, pre-tax), which is SA Water’s regulatory
Weighted Average Cost of Capital (WACC) as determined by the Essential Services Commission
of South Australia (ESCOSA) for the current regulatory period.
Options 2, 3 and 4 were compared against the Base Case to determine the best net present value
(NPV).

Option 1 Option 2
Option 3 Option 4
(Base Case) (Preferred)

Review period (years) 30 years 30 years 30 years 30 years

Total capital expenditure ($k) 6,250 10,866 16,183 16,597

Total residual value ($k) 2,077 2,367 1,786 2,707

Total revenue ($k) 0 0 0 0

Total operating expenditure ($k) 6,404 705 235 235

Total NPV ($k) (10,577) (9,204) (14,632) (14,124)

NPV incremental to Base Case ($k) 0 1,373 (4,056) (3,548)

NPV ranking 2 1 4 3
Note: 1. All numbers in the above table are discounted real dollars.

The results of the financial analysis indicated that Option 2 is the preferred option. Option 2 is
financially preferred to the Base Case due to ongoing operating cost savings primarily by allowing
SA Water to take better advantage of lower electricity tariffs when they occur. Furthermore, Option
2 will address the identified water quality risks that were not quantified in financial terms under the
Base Case. Option 2 is financially preferred to Option 3 and 4 due to the lower capital cost.
SA Water applied sensitivity testing to the discount rate (increase/decrease 2 percent). The
analysis shows no change in the preferred option (option 2) as the discount rate decreases by 2
percent. When the discount rate increases by 2 percent to 6.6 percent, the preferred option in
terms of the net present value analysis becomes the Base Case and Option 2 moves to second
best. However the Base Case does not address the existing water quality risks that could not be
quantified in financial terms and hence SA Water still prefers Option 2 under the higher discount
rate.
Economic analysis of the project was also conducted by SA Water using a 2.96 percent discount
rate (real, pre-tax) as per the Department of Treasury and Finance guidelines for the evaluation of
public sector initiatives. This analysis differs from the financial analysis presented above by only
the discount rate used. SA Water informed the Committee that the results of the economic analysis
did not change the ranking of the options.

Employment Opportunities
SA Water is aware of the Industry Participation Policy (IPP), administered by the Office of the
Industry Advocate and will ensure that this policy is complied with in relation to this Project. SA
Water estimates that the project will create around 17 new construction jobs.

4.5 Revenue Earning Capacity of Proposed Project

Other than the current revenue raising capacity from the sale of water to customers, there is no
addition revenue raising capacity for the project.

4.6 Project Delivery

The major construction works will occur over a 12-month period. Initially the new 30 megalitre earth
bank storage will be constructed to ensure the water treatment plant and pumping continues
uninterrupted. This will ensure there is no disruption to water supply to customers whilst the 12
megalitre filtered water storage is relined.

Activity Commence
Full Financial Approval March 2017
Major Orders Placed April 2017
Start Major Works June 2017
Practical Project Completion May 2018
Final Completion / End Defect Period May 2019

Project Management and Governance

This project is to be managed in accordance with the SA Waters’ Corporate Project Management
Methodology by a senior project manager from SA Water’s Infrastructure Delivery Group. The
project manager is responsible for the development and delivery of the overall project including
seeking the necessary approvals and management of the selected contractor and works. They will
be supported by the relevant departments in SA Water.

Project Procurement
SA Water has engaged GHD consulting engineers to develop a detailed concept design for the
new storage and associated works. Once the concept design is received, and subject to full
financial approval of the project, SA Water intends to conduct a competitive tender process for the
delivery of a Design and Construct (AS4300) Contract.
SA Water will arrange a select tender to four or five Tier 1 Construction Panel members for the
provision of design and construct services. The contract shall be award for the Design and
Construct Contract in accordance with SA Water’s Delegation of Financial and Procurement
Authority and applicable Department of Treasury and Finance and government policies.

Risk Assessment
SA Water has reviewed this project under the Business Risk Management Policy and Framework,
which requires the identification of risks, their likely impact and severity, and proposed risk
mitigation strategies. The policy and framework are consistent with the Australia/New Zealand Risk
Management Standard AS/NZS ISO 4360.
The extreme and high ranked risks that were identified are all part of the Base Case option and will
be mitigated as part of the proposed upgrade. Those risks are:
 SA Water non-compliance with the “continuous water treatment plant operation”
recommendation of the new Health Based Targets for drinking water, and
 the loss of opportunity to undertake essential maintenance on the existing 12 megalitre
filtered water storage.
Design and construction risks will continue to be evaluated during the detailed design process via
safety in design and project constructability workshops. There are no extreme or high construction
risks related to the preferred option.
All project risks are logged and monitored in a live risk database and addressed as appropriate by
the team during the life of the project.

4.7 The Efficiency and Progress of the Project and Justification of Any
Expenditure Beyond Estimated Costs
The Committee will monitor the progress of the Morgan Water Treatment Plant Balancing Storage
Project as required by the Parliamentary Committees Act 1991 through the regular reports SA Water
is required to provide prior to the completion of construction (refer to "Further Reporting to the
Committee"). The Committee will provide a further statement to Parliament in the event that
subsequent information provided renders this report inaccurate or misleading.
 PART FIVE: CONCLUSION & RECOMMENDATION

The Public Works Committee has examined written and oral evidence in relation to the Morgan
Water Treatment Plant Balancing Storage Project. It has also been assured by SA Water officials
that acquittals have been received from the Department of Treasury and Finance, Premier and
Cabinet and the Crown Solicitor that the works and procedures are lawful. The Committee is satisfied
that the proposal has been subject to the appropriate agency consultation and meets the criteria
for examination of projects as set out in the Parliamentary Committees Act 1991.
Based upon the evidence considered, and pursuant to Section 12C of the Parliamentary Committees
Act 1991, the Public Works Committee reports to Parliament that it recommends the proposed public
work.

M s Annabel Digance MP
PRESIDING MEMBER 22-- March 2017
 PART SIX: ATTACHMENTS

6.1 List of Witnesses and Submissions

The following people appeared before the Committee on 16 March 2017 at Old Parliament House,
North Terrace, Adelaide:

Mr Randall Bonner – Senior Manager Project Delivery, SA Water

Mr Patrick Burley – Senior Project Manager, SA Water

6.2 List of Submissions

SA Water, Morgan Water Treatment Plant Balancing Storage Project, March 2017