07/09/2016 - 13:26

Ord expansion failing to deliver

07/09/2016 - 13:26

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The $529 million Ord-East Kimberley expansion project cost more and took substantially longer than originally expected, has not delivered the expected benefits, and left the region with an unclear pathway for future development, auditor general Colin Murphy has found.

A part of the Ord-East Kimberley irrigation area.

The $529 million Ord-East Kimberley expansion project cost more and took substantially longer than originally expected, has not delivered the expected benefits, and left the region with an unclear pathway for future development, auditor general Colin Murphy has found.

The expansion of the Ord River irrigation area was one of the Barnett government's signature projects and came after years of planning and project studies.

It raised hopes the East Kimberley would become a food bowl to service the growng Asian market, but in practice there has been modest growth in agricultural production and considerable uncertainty surrounds the area's future development.

The expansion project had two parts - the state government committed $220 million to expanding the Ord River irrigation network in 2009, while the Commonwealth kicked in $195 million to fund social, health and educational infrastructure projects.

However, the irrigation expansion cost the state an extra $114 million - construction went up by $59 million, project management and administration rose by $22 million and the cost to build and operate a 250 person workers camp in Kununurra increased by $14 million.

The irrigation expansion also took three years longer than expected to complete, with spending on the combined projects having risen to $529 million.

Mr Murphy said inadequate planning and costings at the initial stages of the project resulted in time delays and budget overruns.

"The original time and cost to deliver the irrigation expansion was unrealistic," his report states.

"Although the irrigation expansion project had to deal with an unusually long wet season in 2010-11 and the normal difficulties of working in the Kimberley, these were not the main cause for delay or budget increase.

"The main factor was an unrealistic initial estimate that significantly underestimated the work needed to expand irrigation and develop the land.

"The desire to start the project quickly, in keeping with the National Partnership Agreement with the Commonwealth, exacerbated this weakness."

Mr Murphy said he had expected to find comprehensive supporting evidence for the project.

"Although there was a good case for investment in the East Kimberley to address socio-economic need, the information supporting the project was insufficient for a project of this scale," he said.

"There was no specific business case or detailed costings undertaken for the entire project prior to commencement of the project in 2009."

However, there were costings for the first construction phase extending the main irrigation channel.

Upon completion of the infrastructure expansion, the state government had planned to divide the 8,000-hectare Goomig area into 25 freehold lots for farming.

After failing to attract suitable applicants, it negotiated a deal to lease the entire area to private company Kimberley Agricultural Investment, which is backed by Chinese interests.

At June 2016, KAI had 1,600ha under crop, and expects to have 4,000ha under crop by October 2016.

KAI's long term plan was to develop a sugar mill near Kununurra, but this would only be possible if it was able to plant 30,000ha in sugar cane. In the interim, it is planting grains and sorghum.

Mr Murphy said the state government has still not finalised its development lease with KAI, three years after it was originally expected.

“This has delayed farming on Goomig, the realisation of broader economic benefits and increased possible risk to the state,” he said.

Mr Murphy noted that negotiating a single large-scale development raised very different challenges from a series of smaller freehold sales.

“A key problem has been finalising guarantee arrangements with KAI’s overseas parent companies, caused by an unclear definition in the development agreement’’ Mr Murphy said.

“This led to disagreement between parties. Until the guarantee is finalised, the state cannot grant formal leases, which limits the incentive to increase activity.”

In lieu of a finalised development lease, a series of early access agreements since June 2013 has granted KAI access to prepare the land and start farming.

Looking ahead, Mr Murphy said the state government had made clear it did not intend to fund further major infrastructure to support future development in the Ord.

Instead, it wanted developers to manage their own infrastructure needs.

“While this is a clear policy, there are no clear arrangements to facilitate this shift,” Mr Murphy said.

He noted that the steering committee with oversight of the development advised in May 2013 that more roads, irrigation channels, and raising the level of Lake Argyle might be needed to service the expansion of agriculture in the area.

Mr Murphy said a key part of this new approach was to transfer land tenure from lease to freehold once developers meet certain conditions.

“A new pathway has been outlined, but the process to apply it has not been finalised,’’ he said.

“Another important factor will be the requirement for developers to negotiate with traditional owners on native title.

“This will involve at least a coordinating function for government, but it is not clear which agency will be responsible.”

Despite the problems outlined by the auditor general, KAI and sandalwood producer TFS Corporation were selected last December as preferred proponents to develop a further 5,000ha or irrigated land in the Ord. 

The auditor general said there were good employment outcomes during the construction phase; 200 Aboriginal people worked on the irrigation project, providing 21 per cent of all labour, with similar figures for the Commonwealth program, and more than 100 Aboriginal people got formal qualifications and training during this time.

"KAI has also employed people during development and farming of Goomig but this has been limited by the slower than anticipated progress," Mr Murphy said.

He said there were a number of lessons the government could learn from the project and apply to the future development of the Ord and other similar projects.

“Key indicators and measures of success were not put in place for the Ord-East Kimberley development plan and this needs to be rectified to track the outcomes of this and any future investment,” the auditor general said.

 

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