Council committed “serious” maladministration in SA energy deal

The Ombudsman has found a South Australian council committed “one of the most serious examples of maladministration” he has seen when it signed a controversial deal with a major power company, with the council now under threat of being wound up.

Jul 30, 2018, updated Jul 31, 2018
The opal fields at Coober Pedy. Photo: AAP/Dave Hunt

The opal fields at Coober Pedy. Photo: AAP/Dave Hunt

Ombudsman Wayne Lines said today that he had investigated the decision of the Coober Pedy Council to enter into a $198 million power purchase agreement with Energy Generation Pty Ltd without a competitive tender process.

The deal, outlined extensively in a series of exclusive reports by InDaily, had been referred to him by the Independent Commissioner Against Corruption.

In his report, released today, he found that the council had committed maladministration in signing up to the deal, including 25 significant errors, which amounted to “the substantial mismanagement of public resources”.

He said he had invited the local government minister to consider whether the council should be replaced by an administrator, under the provisions of the Local Government Act.

“This remains one of the most serious examples of maladministration in public administration that I have observed since the relevant provisions of the ICAC Act were enacted,” he found.

As InDaily has reported, the council says it regrets its decision to sign up to the deal – which replaced Coober Pedy’s diesel power generation with a hybrid-renewable system – arguing that it was under pressure at a January 2016 council meeting to approve the deal or it would lose Federal Government renewable energy funding for the project and face other legal consequences.

Lines says in the report released today that he is concerned that “the elected body appears unwilling to accept ownership and responsibility for the decision to execute the agreement”.

“In my view, each of the elected members remaining on the council who participated in that decision should now consider their position,” he said.

Lines found the Department of State Development and the Energy Minister at the time, Tom Koutsantonis, did not commit maladministration.

However, he chastened the department for failing to demonstrate in briefings to Koutsantonis that the agreement executed by the council was “fairly and reasonably priced when considered against comparable projects”.

He said it would have been “prudent” for Koutsantonis to have requested further information from the department about how it was satisfied that the costs of the agreement were “fair and reasonable, and that should have informed Mr Koutsantonis’ decision to execute the documents”.

The energy deal – which received support from the Federal Government through its renewable energy agency – has been criticised within Coober Pedy and by the council because it was not subject to a tender process and, according to a council consultant, will cost $85 million more than it should.

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Lines said the council’s failures were many, and included:

  • Failure to consider and heed legal advice concerning the project.
  • Failure to observe the terms of established prudential management and procurement policies.
  • Failure to meaningfully consider advice received from a consultant.
  • Failure of the council’s senior administration to ensure that the elected body considered and decided upon matters of strategic importance.
  • Failure of the council’s governing body to exercise meaningful oversight over the activities of the council’s senior administration in respect of the project.
  • Failure of the council’s governing body to give meaningful consideration to the terms and consequences of the agreement.

“In my view, the practices of the council … resulted in the substantial mismanagement of public resources because they caused the council to commit to expend in excess of $100 million in circumstances where the council did not observe established procurement and prudential processes and did not satisfactorily demonstrate that the transaction presented value for money,” the report says.

The background to the controversial energy deal, worth an estimated $192 million, has been detailed extensively in several reports by InDaily.

Coober Pedy council essentially acts as the energy retailer for the town, with the South Australian taxpayer exposed via subsidies the State Government provides to the council to ensure electricity prices are kept on par with those in the city.

EDL, which ran the town’s old diesel generation, has upgraded the infrastructure to include a greater mix of renewables and battery storage. After the system was switched on in July last year, EDL argues it passed several significant milestones, including running entirely off renewable energy for more than 24 hours.

The council, though, has remained unhappy with the scope of the deal and its cost.

Despite approving the project, the council repeatedly raised concerns with EDL and the State Government about the potential cost to the community and the lack of a transparent tender process.

A consultant, engineer Graham Davies from Resonant Solutions, who ran as an SA Best candidate for the state seat of Waite, advised the council that the deal would cost $85 million more than it should and lacked probity.

Council members later said they felt pressure at the January meeting to approve the deal or they might lose the $18 million grant to the project from the Federal Government’s renewable energy agency, ARENA. Members have also contended they felt pressured by the then-Labor Government to approve the deal – a claim refuted by Labor.

In the report released today, the Ombudsman said he believed that “some criticisms notwithstanding, I am ultimately satisfied that the department undertook reasonable endeavours to satisfy itself that subsidising the project represented value for money to the State”.

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