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A Case Study of Desalination Project: Victorian Desalination Plant Case Study

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Desalination Process: Introduction and Background Information

Desalination is termed as the process of purifying seawater. The aim is to obtain clean water from the saline seawater. The clean water is then used for domestic and irrigation purposes. Desalination process entails the use of highly specialised machines and vacuums, which apply the reverse osmosis technology (AquaSure 2012). The entire process consumes a lot of energy. Water is drawn from the sea using an elaborate network of pipes. The process is controlled to conserve the marine ecosystem. Water drawn from the sea is directed to a filter and then passed through a vacuum. The vacuum is used to separate water, minerals, and other substances. The separation is carried out using the aforementioned reverse osmosis technology (Fritzmann et al. 2007). After the separation process is complete, the water is directed into a purifying machine, and finally stored in a reservoir. From the reservoir, water is piped into homes, offices, industries, and farms for various uses. The figure below is an illustration of the desalination process:

Desalination Process.
Figure 1: Desalination Process. Source: AquaSure 2012.

The Victorian Desalination Plant

Several desalination projects were initiated in the past in several parts of the world. The projects are especially common in cities and other regions bordering a saline source of water. The sources include, among others, lakes and oceans. Australia is one of the countries in the world that has initiated desalination projects to provide the citizens with freshwater derived from the ocean. The Victorian Desalination Project is one of the initiatives in Australia with such an objective. It is the largest public- private partnership project and also the largest public investment in the water sector. The project is funded by the Victorian Government (Department of Sustainability and Environment [DES] 2012). The desalination plant is located along the Bass Coast. The coast borders Wonthaggi Town in Southern Victoria. The main purpose of this project is to provide the citizens with a reliable and constant supply of freshwater. It aims at reducing over- dependence on rain water, which is not reliable.

The project is expected to provide 150 million litres of water in a year. The main beneficiaries are the citizens of Melbourne and Geelong. The freshwater will be delivered via other connections passing through South Gippsland and Westernport towns. The 150 million litres of water represents about a third of Melbourne’s annual water demand. The envisaged structure of the project outlines marine intake and outlet tunnels. In addition, the project will include a network of 84 kilometres long transfer pipelines, a reservoir, 87 kilometre underground power supply system, and a source of renewable energy (Degre’mont 2012). The figure below is an illustration of the Victorian Desalination Plant:

An Aerial View of the Victorian Desalination Plant.
Figure 2: An Aerial View of the Victorian Desalination Plant. Source: Thiess 2012.

Due to the technical nature of this project, the Government of Victoria contracted the services of AquaSure Pty. Ltd., one of the most significant players in the desalination industry. The contractor was tasked with the responsibility of designing and implementing this project. The contracting process involved the drafting and signing of a Project Deed between the State and the Project Co. The project deed was dated 30th July 2009. The deed identifies the rights and obligations of Project Co. The Project Co. is authorised to carry out the necessary transactions with regard to the Victorian Desalination Project. In addition, it is tasked with the responsibility of operating and maintaining the project. It will hand over the plant to the state after 30 years (Lang 2012).

The project is estimated to cost the investors about $3.5 billion. According to Lang (2012), desalination is a very expensive undertaking. What this means is that the water provided through desalination projects is very expensive compared to water from other sources, such as rivers and rain. The AquaSure consortium brings together a number of investors. The investors include Degre’mont SA, Suez Environment, Thiess Pty. Ltd., and Macquarie Group. According to Thiess (2012), the consortium has entered into a partnership with the Capital Projects Division, which is under the auspices of the Department of Sustainability and Environment. The Department of Sustainability and Environment falls under the Federal Ministry for Environment, Water, Heritage, and Arts.

Scope and Limitations of the Victorian Desalination Project

The Victorian Desalination Project was commissioned with the aim of providing a constant and reliable supply of freshwater to Melbourne and its environs (National Affairs 2012). The project was initiated after a long spell of drought, which was caused by delays in relief rainfall. The drought led to water scarcity in the region. The authorities realised that there was the need for an alternative source of freshwater, given the unreliable nature of rainwater. The project is expected to supply Melbourne residents with an average of 200 million litres of water after it is expanded (Lang 2012). As already mentioned in this report, the expected amount of purified water from the plant is around 150 million litres annually. However, there are plans to expand the capacity and increase the production to 200 million litres of freshwater annually.

AquaSure is expected to provide high quality freshwater in line with international water standards. The company is also expected to provide a flexible supply of fresh water to the residents (Fritzmann et al. 2007). The water will be supplied as requested by the state. The company is not allowed to supply water to third parties. As a result of this, the company will be paid depending on the quantity of water delivered.

AquaSure Consortium has engaged the services of other companies to make this project a success. For instance, AGL Limited is sub-contracted to provide renewable energy, which is required to pump water from the sea to the plant. In addition, the company will supply the power needed to pump the water to the reservoirs and into homesteads and other locations as required.

The Victorian Desalination Project: Time Management

According to the deed, which is the document that established Victorian Desalination Project, the project started in 2009. The project was expected to start supplying purified, consumable water by December 2011 (DSE 2012). As already mentioned, AquaSure is expected to manage the plant for next 30 years. However, the company has faced various challenges in the implementation of the project. A case in point is the industrial action taken by employees of AquaSure against the company. As a result of this action, the company was unable to complete the project as scheduled. The project was completed on June 2012, and not on December 2011 as envisaged in the project’s deed (Water World 2012). To date, the company has not yet started pumping freshwater to homesteads in Melbourne and other target regions. The supply to homesteads is expected to late 2012.

Time management is an aspect of any project. It significantly determines the failure or success of a project. The reason behind this is because most projects are funded using either debt or equity. The investors involved in these projects expect returns on investment within a certain period of time. By adopting appropriate time management techniques, a project can realise early returns for the investors. In some cases, the project can maximise the wealth of the shareholders well before the set deadline.

Failure to adhere to the time frame in any given project may lead to devastating effects on the company contracted to carry out the project. According to the project deed, if AquaSure fails to adequately deliver on the various specified items, it will be penalised. The contract addresses the issue of abetment as far as the project is concerned. If the contractor disregards the various provisions of the contract consistently, the government may take drastic actions. For example, the government may cancel the contract or offer it to another company.

The Victorian Desalination Project: Communications Management

The communication system adopted by the organisation will determine the failure or success of such an organisation (Dorfman 2007). According to Hollman (2006), companies and projects have failed in the past for adopting an inappropriate communications management system. To address this issue, AquaSure Consortium- in collaboration with the Capital Projects Division- has formed a total of six different teams. The different teams are tasked with the responsibility of disseminating different information to the different stakeholders (DSE 2012). The six teams are analysed in detail below:

Commercial and Legal Team

The commercial and tendering team was formed to handle all the tendering and bid assessment associated with the project. The team awards tenders to the deserving bidders. It also handles all the legal affairs associated with the project.

Property Team

The team is charged with the responsibility of handling all matters related to the acquisition of land and other forms of properties. The key responsibility of the team is to negotiate with owners of the land that the project needs. Such land includes the one on which the plant is located, the land occupied by the power plant and power stations, and the land through which the pipeline crosses. In addition, the team takes care of the land where the reservoirs are built.

Technical and Engineering Team

The technical and engineering team was set up to advise the consortium on the technical and engineering issues touching on the Victorian Desalination Project. In addition, the team is charged with the responsibility of advising the AquaSure consortium on issues regarding hiring and firing of personnel.

Planning and Environment Team

The planning and environment team is tasked with the responsibility of ensuring that the implementation of the project adheres to all the laws touching on the preservation of the environment. The team’s mandate is to apply for and renew all the licences required for the project. It also seeks approval for projects related to the environment (Ludwig 2004). The significance of this team to the implementation of the project cannot be downplayed considering that the project is closely related to the marine environment.

Business Services Team

The team is tasked with the responsibility of communicating business related information to interested parties. Such information includes the availability of business opportunities in the company and in other areas of operation. The team communicates major changes in the project. The information disseminated by the team touches on the management of the project, work profile, new entrants into the consortium, and the success of the project (Ludwig 2004).

Communications and Stakeholders’ Relations Team

According to Diamond (2007), the team is also known as the public relations team. The team updates the key stakeholders on the progress made in the project. It avails such information by holding press conferences. Its mandate is to ensure that the public image of the project is maintained.

Victorian Desalination Project: Integration Management System

An integrated management is required for this project considering that it is carried out by a consortium (Lakein 2011). Another reason for an integrated management system has to do with the fact that the success of the project is a priority for the state since it is a public-private partnership. An integrated management system is defined as a managerial structure that brings on board various organisations in efforts to achieve a common goal (Pariz & Levin 2003). The system enhances success of the venture by utilising the available resources efficiently.

An integrated management system was adopted for this project because it is a partnership between the consortium and the Capital Project Division. The goals of the two entities are synchronised using this system. The adoption of this form of management has ensured the success of the project in the short-term.

Victorian Desalination Project: Cost Management

The consortium adopted an effective cost management structure with the aim of accomplishing the project on time. In addition, the structure was adopted to improve the financial position of the company (Benislimane et al. 2005). According to Ludwig (2004), the contractor is expected to finance, design, construct, operate, and maintain the project. AquaSure has subcontracted other companies and subsidiaries to manage the cost of operation (AquaSure 2012). Subcontracting ensures that all the members of the consortium are equally represented (Thiess 2012).

To manage the costs related to design and construction of the plant, AquaSure sub-contracted D&C Contractors, a subsidiary of Thiess and Degre’mont. To operate and maintain the plant, the consortium sub-contracted O&M Contractors (Water World 2012). O&M is a subsidiary of Degremont (60%) and Thiess (40%). Each of the two sub-contracts had terms and conditions protecting AquaSure from directly handling extra costs as a result of failure of the subsidiaries.

Approximately 90 Watts of power is required to operate the plant and the pipeline each year. To manage the costs associated with the demand for energy, AquaSure has sub-contracted AGL to provide the project with renewable power. Furthermore, AquaSure has adopted innovative systems to minimise power consumption in the plant (AquaSure 2012).

Victorian Desalination Project: Risk Management

A range of risk management measures are put in place to ensure the wellbeing of the environment and the project is not jeopardised. The measures involve, among others, conservation of the environment, conservation of marine life, and management of waste disposal. Others include measures to address risks associated with water supply and connection, operational risks, power supply risks, and financial risk.

Environmental risks are significant to the company. To address the risks, AquaSure has agreed to adhere to all the laws and regulations pertaining to environmental control (Ludwig 2004). To this end, the company avails annual environmental assessment reports to all stakeholders. The planning and environmental team, with the help of the legal team, manages this risk.

Conservation of marine life is one of the major objectives of this consortium. To this end, the company has designed a modern marine conservation park to ensure marine life is not adversely affected by the activities of the desalination plant (Blanc 2008). Waste from the plant is disposed in areas where water movement is fast. The measure ensures that salt, a major by-product of the desalinations project, is not concentrated in one place (Fritzmann et al. 2007). In addition, detectors are put in place to alert the company in case of any leakages (National Affairs 2012). Environmental risks are managed by the Suez Environment Company.

The consortium transferred the risks associated with water supply and connectivity to O&M and D&C sub-contractors. The two sub-contractors are subsidiaries of Thiess Pty. Ltd. and Degre’mont SA companies. To address risks associated with power supply, AquaSure sub-contracted AGL Limited. The company will address any power shortages and power disruptions encountered in the execution of the project.

The project is funded by various organisations, meaning that it is exposed to varying financial risks. The use of debt leads to high interest rates paid to the investors. On the other hand, the use of equity leads to increase in the demand of shareholders. Various financial institutions, including the Victorian state and the public, have played a significant role in raising the required capital for this project. All the risks associated with such transactions are managed by Macquarie Group in conjunction with the business services team.

The Victorian Desalination Project: Procurement Process

The process of procuring the raw materials required for this project is termed as one the most transparent processes in the country. A procurement and oversight committee was put in place to oversee this. Members of the committee were drawn from representatives of the consortium to enhance fairness. The items to be procured were listed and the relevant technicians consulted. The process ensures that only materials of the highest quality are used in executing the project.

After the internal quality check for the items needed was finalised, tenders were placed in the local and international markets. After the bidding process, the tender was awarded to the most qualified and most deserving supplier. Tendering was not based on the value of the bid placed, but on the quality of the items provided. The entire process is meant to ensure that the project is not only successful, but also promotes fair competition in the procurement process. It also ensures that the company uses only the best materials in completing the project. The use of high quality materials improves the overall quality of the project.

Challenges Facing the Implementation of the Victorian Desalination Project

The project has faced numerous challenges. The major challenge was securing the $3.5 billion dollars capital required for the project. To address the problem, a number of financial institutions were contracted to provide the necessary capital. The use of various financial institutions ensured that the risks associated with the project are spread and not concentrated on one company.

Another major challenge that the project faced is stiff opposition from the public. The opposition started immediately after the project was proposed. Court battles have been witnessed, delaying the project significantly. The public outcry has extended into the parliament, with politicians debating the benefits of the project. The project has faced political hostility, with politicians terming it as a ‘white elephant project’.

In addition, industrial actions have been taken against the company (National Affairs 2012). Such actions have affected the implementation of the project (Lewis & Roehrich 2009). They have delayed the completion of the water delivery system. AquaSure has paid a total of 1.8 billion Australian dollars as abatement charges.

Conclusion

The Victorian desalination project is one of the largest public-private partnerships in the country. The success of the venture is crucial to the state. The project has faced various challenges, including opposition from members of the public, political manipulations, and high investment costs. Other challenges include the increasing prices of raw materials due to the recent economic crisis.

In conclusion, the project is described as a success and a milestone in public-private partnerships. AquaSure has managed to put in place one of the most advanced desalination systems, improving the standards of living for people in the country. The company has effectively managed the cost of running the project. It has also reduced the attending risks. Conservation of the marine environment is one of the objectives of the company. In addition, the company ensures that implementation of the project adheres to the provisions of the Environment Protection and Biodiversity Conservation Act and the Environment Protection Authority (EPA).

References

AquaSure 2012, Victorian Desalination Plant, Web.

Benislimane, Y Plaisent, M & Bernards, P 2005, ‘Investigating search costs and coordination costs in electronic markets: a transaction costs economics perspective’, Electronic Markets, vol. 15, no. 3, pp. 213–224.

Blanc, R 2008, Achieving objectives made easy! Practical goal setting tools & proven time management techniques, Cranendonck Coaching, Maarheeze.

Degre’mont 2012, Victorian Desalination, Web.

Department of Sustainability and Environment 2012, Victoria Desalination Project, Web.

Diamond, J 2005, Collapse, Penguin Books, London.

Dorfman, S 2007, Introduction to risk management and insurance, Prentice Hall, Englewood Cliffs.

Fritzmann, C Lowenberg, J Wintgens, T & Melin, T 2007, ‘State-of-the-art of reverse osmosis desalination’, Desalination, vol. 216 no. 1 p. 76.

Hollman, K 2006, An integrated approach to portfolio, program, and project cost management, McGraw Hill, Morgantown.

Lakein, A 2011, How to get control of a project, P.H. Wyden, New York.

Lang, A 2012, Victorian Desalination Plan, Web.

Lewis, M & Roehrich, J 2009, ‘Contracts, relationships and integration: towards a model of the procurement of complex performance’, International Journal of Procurement Management, vol. 2, no. 2, pp. 125-142.

Ludwig, H 2004, ‘Hybrid systems in seawater desalination – practical design aspects, present status and development perspectives’, Desalination, vol. 164, pp. 1–18.

National Affairs 2012, Victorian Desalination Plant, Web.

Pariz, F & Levin G 2003, Business and economics, J. Ross Publishing, Sydney.

Thiess, 2012, Victorian Desalination Plant, Web.

Water World 2012, , Web.

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