CHAIR (Mrs Petrusma) - Good afternoon gentlemen. I will call the committee members to order. We are near the end of two days. Thank you all. The time now being after 4 p.m., the scrutiny of the Tasmanian Water and Sewerage Corporation will now begin. The time scheduled for the scrutiny is up until 6 p.m.
I welcome the members to the committee, and can I ask the Chair to introduce yourself and the others, and their names and positions, for the benefit of Hansard, please.
Mr CHIPMAN - We will just do it one by one, individually, if you like, Chair.
CHAIR - It is just that the members need to know the Chair, then the chief owners representative, so we usually go by the Chair first.
Dr GUMLEY - Stephen Gumley, Chairman of TasWater.
Mr CHIPMAN - Doug Chipman, Chief Owners Representative.
Mr BREWSTER - Michael Brewster, CEO.
Mr PAGE - Dean Page, Chief Financial Officer.
CHAIR - Chairman, do you want to give us a brief opening statement please? It needs to be brief.
Mr CHIPMAN - Chair, I might make a few introductory comments, to situate the relationship between us?
CHAIR - Alright, we'll go the Chief Owners Representative first, and then we'll go to the Chairman.
Mr CHIPMAN - Thank you. In the first instance, we welcome the opportunity to meet with this committee to discuss the activities, performance, practices and economic management of TasWater Pty Ltd, a company incorporated under the federal Corporations Act 2001.
The formation of the corporation was directed by the Tasmanian Water and Sewerage Corporation Act 2012, and the ongoing interest in the corporation by the Tasmanian parliament is greatly appreciated. While the corporation is not a GBE, I have noticed in your advice, that in the absence of a responsible minister for business, questions can be put directly to the Chief Owners representative, and I am here in that capacity. I do feel obliged to point out that as the Chief Owners Representative, I have no responsibilities under the Corporations Act, Water and Sewerage Corporation Act, or the Water and Sewerage Industry Act.
However, the Chief Owners Representative position is established under the company's constitution, and his or her responsibilities include: signing the appointment letter for the board chairman; discussing matters regarding board performance with the board chairman or all directors as appropriate; convening and chairing the Owners Representative group meetings, and formally representing all owners of the corporation when appropriate circumstances such as this arise.
Key functions of Owners Representatives, individually and collectively, include: being the official liaison between the board and their respective owners; appointing the chairman and directors to the board; setting board member remuneration; and monitoring the performance of the board against the shareholders' letter of expectations and the corporate plan.
The Water and Sewerage Corporation Act prescribes the purpose of the shareholders' letter of expectations, and that is to communicate and give guidance in relation to the shareholders' high-level performance expectations and strategic priorities to the board.
In accordance with the Water and Sewerage Corporation Act, all decisions relating to the operation of the corporation are to be made by, or under the authority of, the board.
On that note I would like to hand over to the Chairman, Dr Stephen Gumley, AO, for his opening remarks. Thank you, Chair.
Dr GUMLEY - Thank you Chair, and thank you to the committee. I appreciate the opportunity to make a few remarks.
Last time I came before the Legislative Council committee, about this time last year, I had only been chairman for less than a month. Since then, I have had a lot more opportunity to see firsthand both the challenges that face TasWater, but also the depth of expertise within the organisation. It has been a pleasing experience. It has shown me the strength of the organisation is in its people and their adaptability to changing circumstances.
An example this year has seen several notable achievements. Last month we opened the new King Island water treatment plant, a multimillion-dollar project that now supplies water to both Grassy and Currie customers through a 26-kilometre-long pipeline, sourcing water from the Upper Grassy Dam.
With many major water infrastructure improvements like this complete or underway, we have increased our efforts to improve the performance of sewerage infrastructure around the state. The upgrade of the Blackmans Bay Sewage Treatment Plant is one example, completed this June. The $50 million project involved construction of new pump stations at Electrona and Margate, a 15 kilometre pipeline connecting them to the upgraded plant. The project allowed the old Electrona and Margate plants to be closed, ending discharge of treated effluent into North West Bay. That in itself is a major environmental achievement. It is also a significant milestone from Kingborough helping protect the environment and supporting the growth of the region through to at least 2040.
One of the things that TasWater is doing at the moment is considering growth. There is growth going on in the state and our capital plan is reflective of that growth. If we are going to get the infrastructure correct we have got to be looking at 10, 20 and 30 years. That is what we are doing in our capital plan.
In April we saw the formation of the capital delivery office to deliver the $1.8 billion, 10-year capital plan. Following an alliance model the CDO is a joint venture between TasWater, UGL Limited and CBP Contractors. The CDO provides a vehicle to build the skills necessary for a sustainable water and sewerage sector into the future. That means retaining skills and knowledge within the state. Without this outcome the CDO will not be considered a success. The aim of the CDO is to ensure that Tasmanians are appropriately trained in project development and execution, so we have an ongoing capability in this space.
In June we saw a $380 000 upgrade at Dunalley sewage treatment plant. That upgrade reduces the risk of effluent escaping into waterways and impacting on the nearby oyster leases. It is part of the broader plan to minimise risk to sensitive growing areas and help support the oyster industry.
Our financial year 2018-19 capital spend closed at $131 million, which was 9.8 per cent below target. This under-expenditure can largely be attributed to two key areas. The first was the speed of our transition to the capital delivery office. While we were ready to go to market with two key large projects, Lake Mikany and Hendersons Dam, we determined the best approach would be to award the contracts under the new CDO terms and conditions. That was to avoid confusion to industry. If you have several sets of terms and conditions running simultaneously very quickly your contractor and community can get themselves a bit confused. We settled on a standardised approach and there was a month or two delay caused by that.
CHAIR - Chair, we have to ask you to wrap up your comments very soon, please.
Dr GUMLEY - The second area that directly affected the level of our expenditure was the number of projects ready for delivery at the beginning of 2018-19. There is a backlog, there is a large capital project and many are still requiring the business case before you commit the final dollars. The under-expenditure in the forecast will be made up in the final year of the current price and services plan.
Perhaps we could leave it there. I would be delighted to answer questions as required.
Mr O'BYRNE - Thank you for coming. This is your first presentation to the House of Assembly committee and we welcome that. We welcome Doug as a representative of the owners. Great to see you here. It is disappointing that there is no representative given this is a lower House committee from the state Government. I assume the minister you directly report to is the Treasurer, Peter Gutwein? It is disappointing that he has not shown any interest in this important hearing and the questions that we will ask and he has not decided to attend. Very disappointed that the state Government has not seen fit to support you in this hearing.
CHAIR - I want to remind all committee members that TasWater has a different ownership model to the other state Government businesses we have scrutinised over these past two days. TasWater is predominantly owned by local government. The Crown is a minority shareholder and currently owns only 1 per cent of TasWater shares, which will increase to a maximum of 10 per cent by 2022-23. TasWater's shareholders' letters of expectations requires the chief owners' representative, Chairman and the CEO to comply with a request to appear at a GBE scrutiny committee hearing, which is what happened last year in the Legislative Council.
As Mr Chipman has indicated before the chief owners' representative is here today alongside the Chairman and CEO of TasWater. Questions can be directed to the chief owners' representative and the Chairman. For TasWater the chief owners' representative performs the role that the portfolio minister has for the other government businesses that we have scrutinised over the past day and a half.
Mr O'BYRNE - Thanks for that clarification. We still make the point we are disappointed the Treasurer has chosen not to attend this hearing to support what is one of the key asset owners in the state.
I am glad that the agreement was finalised last year following a period of great uncertainty, with the state Government launching an attack on TasWater ownership and a hostile takeover. While I think that two-year period was a waste of time, the agreement was brought with much fanfare about what it would achieve. We understand that the funding that has been provided by the state Government would assist in the price freeze for one year and price capping for the following years as part of the agreement.
The other commitment or promise that the Government made in the agreement was that there would be a major change to the capital works program, new works would come on the books and works would come forward.
Could you outline, since the change of ownership and since the Government has taken an interest and given it capital, what has changed with the 10-year plan? Which new projects have come on the books? Which projects have been brought forward?
Dr GUMLEY - The total Government commitment is of the order of $200 million over 10 years. With the debt to equity balance we have the ability to do in the order of $400 million in extra projects. We have taken extra projects onto the books and we have spent a lot of the last six months prioritising which ones we do first. Now the CDO is up and running, we are structuring and planning those projects for the capital expenditure to occur, starting in 2020.
CHAIR - Just for the benefit of the Chair, at any time if you want further information, you can pass to the other members who are sitting at the table with you today.
Mr O'BYRNE - Which projects have been brought forward and which projects are new, post the agreement?
Mr BREWSTER - We are reprofiling our capital program. We did not immediately bring projects forward. We made it clear that in the first year we had to work our way through what we already had on the books. Then it was a key determinant of the capital delivery office because we could see that our program would be growing to over $200 million in the next few years. If you are moving to $200 million, you have to do that properly. We knew we did not have the capability to do that, so right now we are planning for that. We are well advanced on the $1.8 billion program.
Bryn Estyn is now underway. That is a circa $160 million project -
Mr O'BYRNE - That is not a new project though, is it?
Mr BREWSTER - We are targeting building our expenditure up. We are targeting $180 million next year. That is without Macquarie Point, the Launceston combined system, Freycinet, for which we are currently doing studies. We have absorbed a lot of additional studies that will lead to that extra program. That money will be spent but it will be spent in a way that ensures we do not fall behind our interest cover ratio.
Mr O'BYRNE - So, at this stage, no projects have been brought forward based on that answer. You listed a number of projects that you're in planning for, but they are not funded under your forward capital program, are they?
Mr BREWSTER - The Government is committed to funding Macquarie Point, the Government is committed to funding the Launceston combined system. That will be circa $80 million for the Launceston combined system. The Government commitment to Macquarie Point is in the order of $100 million. They have made public announcements about that. They are on the books and we are currently working on them.
Mr O'BYRNE - Effectively the $200 million is to fund the loss of revenue from the freeze year and to cap price rises at 3.5 per cent per year. Under different scenarios, you would have an opportunity to make a presentation for a greater increase should you choose to fund capital?
Mr BREWSTER - Yes.
Mr O'BYRNE - That is correct. When the Government made the commitment that new projects will be funded by the commitment from state government, the projects will be brought forward. At the moment, that has not materialised. A number of projects have been identified that will need extra funding from the state Government.
Mr BREWSTER - What I said earlier was, we have looked at the $1.8 billion, I think it was, $1.76 billion we actually committed to. Then right through the process we were very clear that there would not be massive change in the early years because we had the plan for those projects. We would build a long-term capital program and capability to deliver the $1.76 billion and we would use any excess capacity we had from the Government to fund any additional projects.
That has always been the case. The reality is if we do better than that which is our hope that we are able to bring our projects in lower than the forecast capital expenditure, then that will enable us to tackle things like some of the underground infrastructure that we had planned to do in the second 10-year phase.
Dr WOODRUFF - Thank you, all for appearing. It is good to have the opportunity to speak with you about what TasWater is doing.
I want to reiterate what Mr O'Byrne said. Despite the fact that the Government only has 1 per cent ownership at the moment, the intention is to expand to 10 per cent. Let's face it; this is the same Treasurer who was out on the front foot bullying TasWater only a few years ago for a complete take over so it is fascinating that he is not here to look at the major assets and the responsibilities that TasWater has.
It is a huge body of work that you undertake for Tasmanians. I want to recognise the complexity of the asset that you took over. Having being on the Huon Valley Council at the time of the original three separate water owner corporations being established, I've been a small part of that of that history. There is a lot of work to be done. I acknowledge the complexity and the hard work of people who work for TasWater. My experience is that there is really good due diligence and good effort put into the organisation.
Having said that, we are here to talk about the mistakes that happen, unfortunately, and not to spend the time just talking about the good work. I acknowledge on behalf of the Greens we recognise that that is happening.
On 11 August the Macquarie Point sewerage spill occurred and 6 million litres of raw sewerage flowed into the Derwent River, all of it wholly totally untreated. That was the second major spill that has happened this year from that TasWater treatment plant. Previously 10 million litres of unchlorinated water went into the river in January.
It was reported in the media at the time that the untreated sewerage flowed into the river from 12 noon until 8 p.m. We wrote to the Director of the EPA after the incident. Mr Ford responded to our questions. He said, amongst other things that a failure of the uninterruptable power supply meant no telemetry or SCADA alarms were received by TasWater. He said that following that failure a backup alarm secondary system was apparently activated and the contractor that monitors that system notified TasWater's operational control centre.
Mr Ford from the EPA also said that for reasons yet to be established, the operational control centre did not respond immediately. Probably Mr Brewster, could you please tell me what was the exact time that Tas Water's operational control centre was notified by the contractor to say that the power had failed at the plant? How long did it take Tas Water to response subsequent to that notification?
Mr BREWSTER - I haven't got the time in front of me but I think the notification was fairly quick. We are certainly not denying the notification from Golden Electronics was fairly rapid.
Dr WOODRUFF - Could you be precise about that?
Mr BREWSTER - I would have to take it on notice to get the exact time.
Dr WOODRUFF - Could you take it on notice, please?
Mr BREWSTER - I am more than happy to. We aren't going to hide anything. The reality of that situation was that the alarm was notified. The alarm went off. Golden Electronics called our operational control centre. When we lost the uninterruptable power supply, we effectively lost all control. The operational control centre, which has limited visibility, looked at the SCADA screen, which is where you would go to see what is happening. In that event, SCADA held up the old data. When they looked at the screen, what they saw was nothing
Dr WOODRUFF - Screen freeze or something?
Mr BREWSTER - Yes, that is exactly what happened. Because of the loss of comms, the screen froze. In effect, they were trying to say, 'What is going on, is there an issue? Is it arguable, or should they have sent someone out immediately to investigate?' Yes, I think so, but I was not there in the middle of it. They were trying to work out what is going on.
Dr WOODRUFF - Sorry, who is 'they'?
Mr BREWSTER - Our operators in Devonport.
Dr WOODRUFF - The operators who are operating that plant?
Mr BREWSTER - No. I should be really clear. Sorry about that, Dr Woodruff.
When there is an alarm like that, it goes to our operational control centre in Devonport. They assess the situation and determine whether to call out one of our people in Hobart, given it was a weekend, from recollection, and to determine whether action is required at that point.
Dr WOODRUFF - How long did it take for TasWater to send the person out to do that?
Mr BREWSTER - From recollection, it was seven or eight hours to take it out. The next shift operator came on and said, 'Still getting calls. We need to dig a bit deeper'. It was quite a complex analysis to get to the bottom of it. When they did, they said, 'No, hang on a minute, we should send someone out'. So, they sent someone out seven or eight hours later. That is the reality of the situation.
Dr WOODRUFF - Someone physically went to the plant to do something to stop the untreated sewerage?
Mr BREWSTER - Correct. They went to the plant to investigate what was going on because they could not determine what the root cause was. As soon as they got there, the uninterruptable power supply had switched itself off, which is very unusual. We have undertaken multiple investigations into the interruptible power supply. We have sent it back to the manufacturer. The manufacturer cannot tell us why that unit went into standby mode.
I am not offering this as an excuse but our plants were all designed as stand-alone plants. This is the big challenge we have. This is part of the issue. We are upgrading them all, trying to get all of the controls into a central location.
CHAIR - I remind members that the questions need to go first of all through the Chair or the Chief Owner's Representative, who then can pass on to the CEO. As in other GBEs, that is the correct format.
Mrs RYLAH - The infrastructure organisation in its delivery must be very mindful of safety. Can you tell me what is TasWater doing to improve safety?
Dr GUMLEY - It has been a good year for safety performance and improvements. Mike, you have some data.
Mr BREWSTER - We take our safety performance seriously. Over the last five years, our safety performance has improved. We reduced our results by about 90 per cent. When we started our lost time injury frequency rate was over 20; now we are not down to 1.2 per cent. Our total recordable injury frequency rate has also significantly improved.
We are not satisfied with that because we still get incidents, we still have risks. We still have a long way to go. We have a focus on zero harm in our organisation. Our people have come on the journey. We are very focused now on mental health as well, so not only on the physical injuries. We are putting a lot of time into mental health support for people and a lot of time into soft tissue injuries, because most of our issues and injuries are actually soft tissue injuries, with an aging workforce. That is a key matter for us.
We are really keen to see improved results and to continue to focus on high risk events. That is where things can go really well. We have put a lot of focus into the overall performance of the business will continue to do that and support other organisations.
Dr GUMLEY - It would fair to say we are also putting a lot of effort into the safety of our contractors. It is not only the TasWater staff we have an obligation to. We have safe work systems for all the contractors on our sites.
Mr O'BYRNE - Just one question following on from that last line of questioning. With the capital investment from the state Government there was a view that local projects could be brought forward and there'd be extra projects. You clarified in your previous answer there's a lot of work being done on that. There are some extra projects that are unfunded that the Government will need to stump up for and maybe a reprofiling of the workplan. What do you have in place to ensure that the work can be delivered in that time frame? One of the pressures from the Government was to say - and I think you are on the record saying - that you can't do 20 years of work in 10. What's the plan then to ensure that local contractors and local workers will get access to that under this program, which is pretty thin really when you are concerned about the amount of money coming from government that's on the table at the moment.
Dr GUMLEY - We've done some workforce planning for what I call the contractor workforces but as our own people because with all these infrastructure projects the critical issue is supply side where there are in fact enough trained people to do all the work that's required. To a certain extent also we have to do work smoothing, because there is no point having too many peaks and troughs. The most efficient way of delivering a capital program is to get a balance year to year so people always have work to go on to, but not too much and not too little. The workforce planning we've done indicates it is around 500 people a year for the next 10 years are going to be required full-time on the infrastructure projects and as we start building up the mix of capital projects we want to be sure we don't overload or underload that base.
Mr O'BYRNE - Thank you. In terms of the interrelation with state Government, when they came into office in 2014 they announced a headworks holiday policy. I understand you elected to implement that policy voluntarily. I'm interested in the financial impact on the business of that policy. What was the cost to TasWater of the headworks holiday policy in the last financial year 2018-19 and what has been the cost of the policy since it's been put in place?
Dr GUMLEY - I don't have that data. Do you have that, Dean?
Mr PAGE - No, I think we would have to take it on notice. I would only be speculating. That was many years ago now, I think 2014-15, so to give you the data for the intervening four years we'd need to collate that.
Mr O'BYRNE - Are you able to take that on notice?
Dr GUMLEY - Yes.
Dr WOODRUFF - Despite TasWater being notified it sounds like almost immediately or within a short period after 12 noon about the Macquarie Point sewerage spill, you didn't send anybody out to check exactly what was going on for seven or eight hours. Meanwhile raw sewage was being pumped directly into the river. Why was that?
Mr BREWSTER - I think it is exactly as I said earlier. The operators in the control centre at Devonport looked at SCADA and at the data they had. SCADA said everything was working because it had frozen, so that's the fundamental answer to that question. Since then obviously there are learnings to come from that. We were very public about our mistakes when this was made public. Clearly that's not acceptable from our perspective in terms of our ability to ensure these things don't happen. We've upgraded, put in dual UPS systems, we've taken further alarms back into the operational control centre, we've increased the training for the operational control centre people and we are changing the SCADA system out.
Dr WOODRUFF - Okay. The other thing that happened was that TasWater didn't give any notification to the Hobart community except by a media release the next morning, whereas it's clear that you knew some time after 12 noon or eight hours later. Is that right? Between 12 p.m. and 8 p.m. someone was down there knowing that that was the case but people went swimming the next morning without any advance alert. They could have been on ABC news bulletins every hour from 2 a.m. in the morning or earlier.
Mr BREWSTER - As soon as I received a personal phone call we were already on to the media.
Dr WOODRUFF - What time was that?
Mr BREWSTER - It would have been within 15 minutes of them discovering that there was an issue that I had a phone call at home. I remember getting that phone call. I phoned our media people and asked where they were at.
Dr WOODRUFF - That would have been in the night?
Mr BREWSTER - It would have been about 8.15 p.m.
Dr WOODRUFF - Okay, so then you notified the Mercury or the ABC?
Mr BREWSTER - I am happy to check all the data and the time lines but we would have put a media release out as soon as we could to let people know. I don't think there would be too many people swimming at midnight in the Derwent, to be frank.
Dr WOODRUFF - The point is that people did go swimming and kayaking the next morning.
Mr BREWSTER - We got our message out as soon as we possibly could but I am happy to take that on notice and confirm when our media release went out.
Dr WOODRUFF - I am wondering whether it is an opportunity to change or look at your communications policy. Although that might have happened, given the scale and the physical amount of the untreated sewage that was going into the water, it is a popular area and these are the sorts of things that possibly should be looked at. Hopefully it would never happen again.
Mr TUCKER - Water mains breaks, bursts and leaks have been an issue that doesn't appear to have been addressed. What is TasWater doing to reduce this issue?
Dr GUMLEY - In any infrastructure network there will always be some bursts. Accidents do happen but there has been a gradual improvement. Mike, you have the data.
Mr BREWSTER - Yes. Last year we recorded about 36 breaks per 100 kilometres. The year before we recorded around 48. This year, if we continue at the rate we are, we will probably be around 24, so there is a pretty significant reduction. That is interesting because it has not been a matter of just throwing a lot of capital at it. One of the decisions we made is we that have to get smarter about how we reduce the number of breaks so we put a lot more focus on identifying weak spots in the network and doing preventative maintenance on those. We have increased our preventative maintenance activity, so our percentages three years ago of completed preventative would have been in the 40s and they are now in the 70s. We think we can do a lot better because the next stage for us is pressure management. That is the real nirvana for us. If we can get in and start managing our pressures better, and there is some complexity in that, we would hope to see those numbers further reduced.
Mr TUCKER - Could you explain a little more about the pressure management, go into that a bit further for us?
Mr BREWSTER - One of the issues we have is that our pumps don't have variable speed control on them in many cases so we don't have the ability to turn them down. The systems were obviously designed many years ago. The average age of our pipe network in many cases is 40 to 50 years. If you don't manage your pressure then you are going to increase the number of bursts. What we are looking at is modelling our networks. In the last few weeks we approved some funds to start putting in systems where we can track the pressure, monitor for leakage in the networks and start putting in even more infrastructure in the right location to reduce the pressure. We have to reduce it in a way that we don't impact the pressure that our customers receive. It is not a quick fix but it is the next level that a mature business would undertake.
Mr O'BYRNE - Chair, the events over the last week for the South-East Irrigation Scheme has caused great concern to not only that community but those who have a strong interest in agriculture and the jobs that are connected to that. This was a major surprise to a number of the users of that irrigation scheme. We have had Tas Irrigation in here prior to your meeting. When did it become apparent that there were going to be supply issues and when did you notify Tas Irrigation of that?
Dr GUMLEY - Michael, you have the detail.
Mr BREWSTER - Andrew, the CEO of Tas Irrigation, and I met in mid to late October. We were looking at what the future held at that point in time. We discussed that there could be challenges and I advised that at that stage we would work with them as closely as we could. We are going to keep working through the system. I cannot be certain that we can actually meet your demand going forward, but we will do everything we can, and Andrew and I kept in touch.
Mr O'BYRNE - That was in mid-October, when you first had that conversation?
Mr BREWSTER -Sure.
Mr O'BYRNE - That was leading in. When did you actually have the conversation that the water, as per the agreements that Tas Irrigation have with those irrigators, could not be fulfilled and that restrictions be put in place?
Mr BREWSTER - Andrew Kneebone and I did not have that discussion. Andrew, as you probably know, has the contract with the irrigators. Obviously he has a close relationship with them. If he is under the pump, I do not expect him to be telling me every minute what he is trying to do. We were focused on how do we get more water to them, and below us the two parties have been working together operationally, virtually daily, to try to manage the water situation right through that period.
Mr O'BYRNE - As the Government is one of your owners, did you notify the Government of this conversation, of this challenge with getting water to the South-East Irrigation Scheme?
Mr BREWSTER - No.
Dr WOODRUFF - Possibly back to Mr Brewster. Mr Brewster said that the SCADA screen froze, and there was no information coming, which is why it took a long time to work that out. It was quite quickly notified and recognised there was a problem. Can you explain how a SCADA screen could stay frozen for seven or eight hours and it not become apparent there was a problem? As I understand, those screens should be changing constantly. If a person is looking at the screen and doing their job, those numbers would be changing in real time, all the time. That is the point. I really do not understand. It raises worrying questions. Is anyone looking at the screens and really interpreting what is going on, or are they just waiting for alarms?
Mr BREWSTER - First of all, in that case, yes, it is difficult to explain why people would not be going back in. It is part of our investigation: why didn't people go back in and ask, why hasn't that changed?
Dr WOODRUFF - So, you have done that investigation?
Mr BREWSTER - Yes, we have. We have had two independent investigations after that event. We had an investigation into what happened with the ele
