Inflation
This week’s 6.1% inflation outcome for the year to June might have been lower than expected, but it should still be terrifying for the investors in Emu Swamp Dam. That includes ratepayers, given that our Council is a major investor.
The tenders for Emu Swamp Dam closed in August 2021 (for the pipeline) and September 2021 (for the dam) giving us the latest cost of construction of at least $210 million. So let’s have a look at what inflation might mean for investors.
Inflation is expected to top out at 7.75% by the end of the year. On a $210 million estimate, that could mean an additional $16,275,000 to account for increased costs of materials, labour and freight.
For Council specifically, its 15% share of the additional amount would be $2,441,250, boosting Council’s $3.5 million capital payment to almost $6 million.
Remember the example of Waimea Dam in New Zealand? In February 2022 Cherie Sivignon of Stuff reported that the latest estimate of $185 million for Waimea Dam was more than double the original 2017 forecast cost of $75.9 million. Most of the blame was put at the feet of inflation, with Waimea Water Ltd chief executive Mike Scott saying:
Global demand and inflation of mechanical materials and components have contributed to the cost increase, as is the slow and unreliable international supply chain.
And this is only for 2022. The proponent, Granite Belt Water Limited, hasn’t purchased the land in the dam footprint, hasn’t obtained the necessary water allocations and hasn’t obtained the necessary planning approvals. So construction is unlikely to start until late 2023 at the earliest. That’s if it starts at all: Federal funding is far from certain.
So you can certainly add another year of inflation in 2023 – Treasury expects inflation to settle to an annual pace of 5.5% in June 2023 and then sink to half that, or 2.75% by June 2024. Split the difference at 4% for 2023 and you have another $9 million to be picked up by investors. All this before you have even “turned a sod” as Mayor Pennisi says.
So the cost of Emu Swamp Dam must be inflating faster than a balloon at a kid’s party. And the only thing that might be deflating in the Southern Downs is the reputation of Mayor Pennisi and those other Councillors who have been backing this project at the expense of ratepayers.