❓ Mr. Johnston questions the Minister for Energy about the Muja AB refurbishment project's cost and risks, given past expenditures. The Minister defends the project based on future benefits, dismissing sunk costs and highlighting potential revenue and job creation.
AnsweredQoN 484Legislative Assembly
QuestionView source ↗
MUJA AB — REFURBISHMENT
484. Mr W.J. JOHNSTON to the Minister for Energy:
I refer to the Muja AB debacle and the minister's
comments today that the government had decided to proceed with the project for
a $52 million return over 10 years but only after writing off approximately
$300 million already spent.
(1) How much more is the taxpayer expected to pay for this
project to get it fully operational?
(2) Given that
the plant is already aged, what is the risk of further maintenance being
required that will erode the anticipated $52 million value over 10 years?
484. Mr W.J. JOHNSTON to the Minister for Energy:
I refer to the Muja AB debacle and the minister's
comments today that the government had decided to proceed with the project for
a $52 million return over 10 years but only after writing off approximately
$300 million already spent.
(1) How much more is the taxpayer expected to pay for this
project to get it fully operational?
(2) Given that
the plant is already aged, what is the risk of further maintenance being
required that will erode the anticipated $52 million value over 10 years?
AnswerView source ↗
I thank the member for the question.
(1)–(2) I urge the member
to read the report. All those answers are given in it in detail, but I will
answer now. The report is very comprehensive; it follows a request that I made
to have a very conservative estimate going forward. Nothing has been written
off. When we go out there and make a financial decision, things that are
already expended are not that relevant to the decision at hand; it is the
benefits going forward. Therefore, it did not include the sunk costs—the
$290 million already expended; it looked at the benefits going forward. It
found that on a 10-year basis, comparing the alternative—we had to look
at the alternative; that is, not completing 1 and 2—there is a $70 million
net present value to the state. Over 15 years it brings a $90 million benefit
for the state.
Mr B.S. Wyatt :
That is ignoring the $290 million sunk cost.
The SPEAKER :
Member for Victoria Park!
Dr M.D. NAHAN : The
question we faced—I am looking forward to the opposition's
position on this—was: what do we do now? We made a decision; we called
a halt.
Several members interjected.
Ms R. Saffioti interjected.
The SPEAKER : Member for West
Swan, I am finding this answer electric, so can you please keep your voice
down.
Mr
W.J. Johnston : Boom, boom!
Dr M.D. NAHAN : The
decision we faced was: what to do now? We asked a set of engineers to give us
independent technical advice, and they said they could not find any major risk
to completing the project and operating it successfully for 10 to 15 years.
Mr
W.J. Johnston : Haven't you read the report?
The SPEAKER : Member for
Cannington!
Dr M.D. NAHAN :
There might be some risks; there is always risk when operating plants, but
completing it will diminish the risk because there will be four operating units
rather than two. The benefits of going ahead with it are that it will generate
more revenue. The KPMG report, which is a very conservative assessment, shows a
$70 million to $90 million net present value in going ahead with the project. I
wonder what the opposition will do. They have been carping and whining on the
sidelines. Will the opposition support this decision? The member for Collie–Preston
does.
Several members interjected.
The SPEAKER : Members!
Dr
M.D. NAHAN : The member for Collie–Preston has been complaining that
we might not go ahead with it. I understand why. This project will generate 40
full-time jobs and 130 construction jobs within Collie. That is very important.
Several members interjected.
The SPEAKER : Members!
Dr
M.D. NAHAN : The real question is: what will be the overall benefits of
this? This assessment does not include the full benefits to Verve. It does not
include the portfolio benefits; that is, Verve's ability to use widely
in its portfolio the energy generated from Muja AB.
Mr W.J. Johnston :
What a load of rubbish; that's just stupid.
Dr M.D. NAHAN : The
member for Cannington is now an engineering expert!
Mr W.J. Johnston interjected.
Dr M.D. NAHAN : A
man who spent all his life climbing the greasy pole of the Labor movement is
now an engineering expert! Yeah, yeah, yeah!
Several members interjected.
The SPEAKER :
Members!
Dr M.D. NAHAN :
Verve's assessment is based on including the portfolio benefits and the
fixed costs. Muja AB is fixed in the middle of the Muja energy power plant
complex, which includes Muja A, B, C and D and they share all sorts of
facilities, such as transmission lines and water. It is Verve's
estimate that once we include the ability to defray those fixed costs and the
portfolio benefits—the ability to operate on a short-term energy
market, which is real; members opposite might not be able to imagine that but
it is real—most, if not all, of the sunk cost will be recouped.
(1)–(2) I urge the member
to read the report. All those answers are given in it in detail, but I will
answer now. The report is very comprehensive; it follows a request that I made
to have a very conservative estimate going forward. Nothing has been written
off. When we go out there and make a financial decision, things that are
already expended are not that relevant to the decision at hand; it is the
benefits going forward. Therefore, it did not include the sunk costs—the
$290 million already expended; it looked at the benefits going forward. It
found that on a 10-year basis, comparing the alternative—we had to look
at the alternative; that is, not completing 1 and 2—there is a $70 million
net present value to the state. Over 15 years it brings a $90 million benefit
for the state.
Mr B.S. Wyatt :
That is ignoring the $290 million sunk cost.
The SPEAKER :
Member for Victoria Park!
Dr M.D. NAHAN : The
question we faced—I am looking forward to the opposition's
position on this—was: what do we do now? We made a decision; we called
a halt.
Several members interjected.
Ms R. Saffioti interjected.
The SPEAKER : Member for West
Swan, I am finding this answer electric, so can you please keep your voice
down.
Mr
W.J. Johnston : Boom, boom!
Dr M.D. NAHAN : The
decision we faced was: what to do now? We asked a set of engineers to give us
independent technical advice, and they said they could not find any major risk
to completing the project and operating it successfully for 10 to 15 years.
Mr
W.J. Johnston : Haven't you read the report?
The SPEAKER : Member for
Cannington!
Dr M.D. NAHAN :
There might be some risks; there is always risk when operating plants, but
completing it will diminish the risk because there will be four operating units
rather than two. The benefits of going ahead with it are that it will generate
more revenue. The KPMG report, which is a very conservative assessment, shows a
$70 million to $90 million net present value in going ahead with the project. I
wonder what the opposition will do. They have been carping and whining on the
sidelines. Will the opposition support this decision? The member for Collie–Preston
does.
Several members interjected.
The SPEAKER : Members!
Dr
M.D. NAHAN : The member for Collie–Preston has been complaining that
we might not go ahead with it. I understand why. This project will generate 40
full-time jobs and 130 construction jobs within Collie. That is very important.
Several members interjected.
The SPEAKER : Members!
Dr
M.D. NAHAN : The real question is: what will be the overall benefits of
this? This assessment does not include the full benefits to Verve. It does not
include the portfolio benefits; that is, Verve's ability to use widely
in its portfolio the energy generated from Muja AB.
Mr W.J. Johnston :
What a load of rubbish; that's just stupid.
Dr M.D. NAHAN : The
member for Cannington is now an engineering expert!
Mr W.J. Johnston interjected.
Dr M.D. NAHAN : A
man who spent all his life climbing the greasy pole of the Labor movement is
now an engineering expert! Yeah, yeah, yeah!
Several members interjected.
The SPEAKER :
Members!
Dr M.D. NAHAN :
Verve's assessment is based on including the portfolio benefits and the
fixed costs. Muja AB is fixed in the middle of the Muja energy power plant
complex, which includes Muja A, B, C and D and they share all sorts of
facilities, such as transmission lines and water. It is Verve's
estimate that once we include the ability to defray those fixed costs and the
portfolio benefits—the ability to operate on a short-term energy
market, which is real; members opposite might not be able to imagine that but
it is real—most, if not all, of the sunk cost will be recouped.
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