Saturday 21 December 2019

Tell us about Basslink before approving Marinus

THERE’S an eerie feeling of deja vu about Project Marinus, the second electricity interconnector proposed for Bass Strait.

Both major political parties at the federal level announced support for the project before the May election. The recently released business case contains media releases from Prime Minister Morrison and then opposition leader Shorten. One can’t help but feel the business case is really a search for reasons for doing something that has already been decided.

It was the same story 20 years ago. Both the Bacon government and the previous Rundle government supported Basslink. In early 2000, Hydro Tasmania signed a preliminary agreement for the construction of Basslink which was built by Basslink Pty Ltd (BPL). At this early stage it was not an irrevocable commitment, but Hydro proceeded as if it was.

Finalising the deal, or reaching financial closure as the wonks call it, took another three years, during which the cost of the project almost doubled. The eventual cost, when transmission began in ]2006, was $874 million. The initial estimate was $450 million. The current cost estimate for Marinus is $3.5 billion. There is yet to be an infrastructure project constructed anywhere for less than the initial estimate. The nature of infrastructure means there’s no turning back once it has been decided to proceed. Moral hazard is rife with infrastructure projects. Taxpayers and consumers pick up the tab. Even though the preliminary agreement allowed Hydro to withdraw before the final cost of the link and ensuing facility fees payable by Hydro for use of the cable was determined, Hydro proceeded as if it were a done deal and chose instead to lock in or hedge interest rates which paradoxically stopped it from walking away when the deal got too expensive. To walk away would have meant owning up to losses of $150 million. Instead Hydro continued, hoping the losses would reverse. They haven’t.

The extra fees paid by Hydro in 2019 because it had locked in interest rates was an estimated $39 million. The previous year the estimated amount was $59 million. Hydro is coy about discussing Basslink fees. As it is about its dispute with BPL. Hydro won’t say what’s in dispute, but BPL’s financials say $30.85 million is owing by Hydro. Not to mention the $100 million claim by the State of Tasmania against BPL. Both Hydro and BPL deny money is owing. BPL doesn’t regard the disputed figures as commercial in confidence. The Government does and is using the dispute to silence discussion about Basslink.

The lack of transparency is the big worry. Why a clear explanation of the costs and benefits of the Basslink cable is not a focus of a business case for a second interconnector is bewildering. Tasmanians need to understand the annual fees paid for Basslink and the amount of inter-regional revenue received each year from Basslink. Hydro pays fees in return for the right to receive all the inter-regional revenue from Basslink. The net Basslink liability has hardly changed in eight years despite fees paid of at least $100 million a year.

Hydro will always argue the benefits of Basslink extend beyond the direct costs and revenue. Basslink enables Hydro to avoid overflowing dams by better managing run-of-river operations for instance and provides insurance for the state in case of drought. But if Marinus proceeds, these supplementary reasons disappear. What will happen to Basslink if Hydro fails to renew the 25-year deal after 2031? What if Hydro renews and is then free of the debilitating hedge fee currently payable? The Marinus business case ignored what may happen to Basslink after 2031.

Lurking in the shadows is the real reason for Marinus’s tick of approval without knowing the full cost or who’s going to pay. And that is the possibility of one or more of the major industrials, Bell Bay Aluminium, Temco, Nyrstar and Norske Skog, shutting up shop, leaving lots of electricity looking for a new customer. What this may mean is never discussed because the figures are commercial in confidence. All the talk about Battery of the Nation and an era of new generators masks the reality that it is electricity generated by the existing grid that is likely to need assistance to reach mainland markets.

TasNetworks has debt of $2 billion which increases by $40 million each year. Its cash flow is under pressure due to recent price determinations of the regulator. Not having customers to replace the major industrials would cause problems. Not surprisingly it has embraced its new role at the front of the Marinus peloton. It is proceeding as if Marinus was a done deal.

The notion that Marinus will become Tasmania’s economic saviour relies on disclosing only part of the story. That should be a cause for unease. Let’s not forget that Basslink was also meant to be our economic saviour. How has that turned out? Will we ever know?

(As published in The Mercury 20th December 2019)


  1. Good article John. Do Tasmanian's care about being swindled and robbed by their corrupt politicians? It has become so common we now almost expect it!! Tasmanian's will once again be left to pay for another dud deal courtesy of our politicians.

    This pretty well spells the end of Pumped Hydro and a second Bass Strait cable. The electrity market is collapsing/disintegrating.