“God this looks like Gillman 2”

A deal designed in offices in the city and negotiated largely between several layers of government and corporate executives looks set to bring down a tiny local council. David Washington asks whether an Ombudsman’s investigation into serious maladministration has left some of the biggest questions unanswered.

Aug 01, 2018, updated Aug 01, 2018
Coober Pedy

Coober Pedy

Get your head around this, if you can:

Ombudsman Wayne Lines, in a report handed down this week, accepts the State Government’s view that it undertook reasonable measures to ensure the value of subsidising a $198 million electricity deal signed by the Coober Pedy Council with its support and that of the Federal Government. However, he has castigated the council – which says it regrets signing the deal and fears the costs it will impose on the community – for failing to subject the deal to proper procurement processes.

The then Energy Minister, Tom Koutsantonis, according to one account, told the council he “didn’t give a toss” whether they signed the deal. And yet, his department was highly supportive of the plan and dismissive of concerns raised the council and its consultant.

The Minister, despite apparently giving zero tosses, signed off on an agreement which will have South Australian taxpayers underwriting the deal for two decades with the support of the Labor Cabinet, the basis of which we can’t know in full because of secrecy provisions.


InDaily has been following this very odd saga for several years, and it’s always been full of contradictions and ambiguities.

The Ombudsman’s report into the matter, released this week, just adds to the bizarre nature of the case.

To summarise briefly the core facts:

  • Coober Pedy council essentially acts as the energy retailer for the “off grid” Outback 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.
  • Power company EDL, which ran the town’s old diesel generation, gained Federal Government renewable energy agency funding – and solid State Government support – to upgrade the infrastructure to include a greater mix of renewables and battery storage under the 20-year power purchase agreement with the council.
  • The council, despite concerns about the cost of the arrangement and the fact it didn’t go to open tender, signed off on the deal in 2016, and has since expressed regret that it did so, embarking on a series of disputes with various players in the saga.
  • The new hybrid system was switched on last year, with EDL claiming it has hit several key performance measures.

There is no question the Coober Pedy Council has behaved in an incompetent fashion for many years. In some cases, it has been worse than that. The Ombudsman wasn’t convinced by evidence from a range of councillors about what they knew and when.

But it’s hard to avoid the conclusion from his report into the council’s deal with EDL that the other parties involved in this deal should have paid more heed to the council’s dysfunction, its lack of record-keeping, its general sense of being overwhelmed and uninformed.

Because, at the end of it all, the council won’t have to pick up the pieces from this $198 million deal if it goes wrong – that will be the task of the taxpayers of South Australia.

In more than 200 pages, Lines demonstrates several things: among them, that the council at the time was chaotic and its administrative support scatter-brained and dysfunctional; that it was deeply worried about the EDL proposal from the start; and that the State Government, at least at the level of the bureaucracy, was very supportive of the idea and, in the end, a senior Minister, with apparent Cabinet support, agreed to underwrite it via a Deed of Grant and a Letter of Comfort.

Koutsantonis refused the Ombudsman’s requests to access the documents. The Ombudsman, for reasons that aren’t clear, decided not to interview Koutsantonis as part of his investigation.

The report details how the relationship between the council and the Government descended into suspicion on the Coober Pedy side, and intolerance on the Government’s.

The state bureaucracy disagreed with concerns raised by the council’s consultant engineer, Graham Davies. A senior energy bureaucrat throughout the saga, Nick Smith, was disdainful of Davies’ analysis in his interviews with the Ombudsman.

And yet, at the end of it all, the council – claiming it was under severe pressure – signed up to a 20-year deal about which it had clearly documented concerns, much to the anger of many in the town. The Ombudsman doesn’t believe the Government applied undue pressure on the council. Some in the town assert the council knew exactly what it was doing.

You can read the full report here, but you’ll have trouble following it, particularly when the council appoints an interim CEO by the name of Tony Renshaw – one of many administrators who passed through Coober Pedy’s civic offices. At this point, it becomes a bizarrely confusing set of steps forward, back and sideways, with missing records of meetings; misread statements from lawyers and misunderstandings about motivations; all culminating in a bare quorum of councillors agreeing in principle to sign off on a multi-million-dollar million deal about which it had had misgivings for some time.

Renshaw seems to be all over the shop, asserting the deal is value for money, emphasising his role in trying to progress negotiations, but then also declaring at one point: “God this looks like Gillman 2”. (The Ombudsman says of Renshaw: “Although cooperative with my investigation, Mr Renshaw did not present as an altogether convincing witness”).

As presented in the Ombudsman’s report, the question of whether the deal is a reasonable one or not essentially comes down to a contest between Davies (who stood for the SA Best party at the recent state election) and Smith: the consultant engineer is convinced the deal would have cost $85 million cheaper if it had gone to open tender, while the public servant insists that the department had done its due diligence and it did represent “value for money” (with the caveat that this measure doesn’t always mean cheaper).

And then there’s the Minister at the time, Tom Koutsantonis, who wasn’t informed by his office of what would seem to be a crucial letter from the then Coober Pedy mayor, Michelle Provatidis, detailing Davies’ concerns about the project. (Koutsantonis also refused Lines permission to access Cabinet documents, which means the Ombudsman couldn’t reach a conclusion on a crucial point – but more on that later.)

Consultant engineer Graham Davies, who would later become an SA Best candidate, warned the council the EDL deal would cost too much and expose it to risks. Photo: Tony Lewis/InDaily

We do know that at a meeting a month before the council signed off on the deal in January 2016, Koutsantonis apparently declared he didn’t care whether they signed the deal or not (he told Lines he relied on his department’s advice in his decision to underwrite the project).

His department seemed to have other ideas. They certainly seemed to “give a toss”, as did the Federal Government’s renewable energy agency ARENA and EDL, which at one point wrote to Premier Jay Weatherill asking him to intervene to get the project up and running due to concerns about the council delaying its decision.

And you too should give a toss. Because if the deal goes sour, in terms of escalating costs or grid defection, as the likes of Graham Davies certainly believe it will, then you will likely pay for it.

So many questions remain, but it looks like the council will carry the can, with the Ombudsman essentially inviting the Local Government Minister Stephan Knoll to consider dismissing the council and replacing it with an administrator. The Minister at the time and the department were not found to have committed maladministration.

The nub of the council’s concerns is summed up in the report by Coober Pedy councillor Justin Freytag, who was elected to the council after the deal had been done and has since been doggedly pursuing concerns about the deal and the role of the State Government.

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The Ombudsman quotes him as saying:

[T]he State Government had no moral right to foist this massive contract in the manner in which it did on a small country council whose elected members are ordinary people who consider running for council akin to joining Rotary or the Lions club and whose only concern was to make the town a better place. It would be truly sad if these people were opened to the ridicule and hatred of a small remote town by the findings of your report and the highly paid faceless professionals and bureaucrats from “down south” slip into the night unscathed.

The Ombudsman, however, took a different view:

I do not consider that the evidence supplied to my investigation supports the conclusions Cr Freytag would have me make. While I am not insensitive to the personal and professional circumstances of the individual councillors named in this report, I consider that the criticisms expressed of these individuals by my investigation are necessary and appropriate in the circumstances.

Lines made no adverse finding against Koutsantonis but, because the former minister refused to give him access to Cabinet records of its decision on the matter, he has been required to make a number of crucial suppositions.

Koutsantonis told Lines that he relied on the department’s advice on the value of the power purchase agreement and that it was unlikely to increase the state’s exposure under its energy subsidy scheme for remote communities.

The then minister took the deal to Cabinet, who apparently agreed to him signing off on a “Letter of Comfort” to the council on the deal.

Lines then makes the following intriguing observations:

I accept, on the strength of Mr Koutsantonis’ evidence and based on the contemporaneous documents, that Cabinet approved Mr Koutsantonis to enter into a Letter of Comfort in respect of the project.

Owing to the operation of section 21(1) of the Ombudsman Act, I am wholly unable to determine what information informed Cabinet’s decision or what the terms of Cabinet’s approval were.

This presents enormous difficulties in assessing the appropriateness of Mr Koutsantonis’ decision to execute the Letter of Comfort because I do not know, for example, whether Mr Koutsantonis’ decision to do so was made in the knowledge that Cabinet had assessed the value of the State subsidising the project in the absence of a market procurement process.

I also do not know if Cabinet’s approval was qualified in any way or allowed for any residual discretion by Mr Koutsantonis as to whether to underwrite the project.

In fact, I do not even know if the Cabinet approval was given on a consideration of the EDL project at all, although it is reasonable to infer that it was.

Inferences… assumptions … on a $198 million deal?

Given that Lines’ report is also critical of the detail provided to the minister by the department – including Koutsantonis’s evidence that he was never informed about Provatidis’s concerns (a matter which “troubled” the Ombudsman) – an observer could be forgiven for questioning the very foundations of this decision on the Government’s part.

But objective evidence about of what Cabinet knew – or didn’t know – won’t be made public for many years, due to the official secrecy of its documents.

Koutsantonis refused the Ombudsman’s requests to access the documents. The Ombudsman, for reasons that aren’t clear, decided not to interview Koutsantonis as part of his investigation.

Which leads to, in my view, the most concerning unanswered question in the whole affair.

As Lines says: “If Mr Koutsantonis had been made aware that the project had not been exposed to competitive tension and that Cabinet had not been informed of this information then I do not consider he could reasonably have executed the Letter of Comfort on the information that was before him.”

Without that letter, it’s by no means certain that the deal would have gone ahead.

David Washington is Editor of InDaily.

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