Risk Mitigation Strategies for Aquasure, Victorian Desalination Plant

This report discusses the risk mitigation strategies for the case study of Aquasure, Victorian Desalination Plant. It explores the methods that can help mitigate risks based on their suitability. The report also highlights the importance of proper structure and the risks associated with it, such as completion risk, execution risk, political risk, reputation risk, cost risk, market risk, and financial risk. It concludes that with the implementation of these strategies, the desalination plant can effectively mitigate the risks.

Running head: PROJECT FINANCE AND PROCUREMENT
CASE STUDY: AQUASURE, PROJECT FINANCE VICTORIAN
DESALINATION PLANT
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction...........................................................................................................................................2
Risk mitigation strategies for the case study..........................................................................................2
Conclusion.............................................................................................................................................6
References.............................................................................................................................................7

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Introduction
The aim of the report is to discuss about the ways risks can be mitigated in the case
study of study AQUASURE, Project Finance Victorian Desalination Plant. The report will
discuss about the methods that will be helpful for mitigation purpose based on their
suitability. Victoria State of Australia is facing drought from last few decades. This
conditions resulted in impacting the water reserves stored for the country. In order to
overcome this situation in the year of 2007 the state government has announced a strategy
named “Our Water Our Future” with the aim of developing a proper seawater for performing
reverse osmosis desalination plant for expand Melbourne’s water supply (Kurakaew,
Kokkaew and Suksuwan 2016). It becomes important to have the capacity to supply around
one third of the capitals water needs that is independent of rainfall sources. In the year 2009,
AquaSure Pty ltd was given the opportunity to handle and maintain the Victorian
Desalination Project for a period of 30 years and 1 month. Thus it is essential to overcome the
situation and implement a proper measure.
Risk mitigation strategies for the case study
Earlier in the Victoria state water supply was completely dependent on rainfall.
However from the last 12 years the state is experiencing prolonged drought leading to
Melbourne’s water storage low. In addition to this it became very difficult to manage the
needs of the increasing population. As a result it became important to construct the world’s
largest sweater reverse with the help of reverse osmosis desalination plant under the
supervision of public private partnership for providing sufficient water to the city. The aim of
implementing public private partnership is to facilitate the provision of facilities and services
in the area of infrastructure. The role of private operator is to design, finance and build
construction and maintaining them after getting developed. The world’s largest public private

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partnership project took place in 2009 and this was the most important one for Victoria (Heck
et al. 2016). The main reason of developing the project is to ensure proper water supply
towards the country’s population.
This becomes equally important to have a proper structure that will provide support
toward the project. The risks associated with the structuring of the project are many and are
needed to be mitigated on an urgent basis (Lash and Street 2016). The risks and parties
involved with this risks are discussed below with proper mitigation strategies.
 Completion risk: this is referred to as the risks that are likely to come along with the
completion of expertise. There are chances of employees hired with improper
expertise thus it can cause a great challenge while developing the project. Sometimes
delay in the project occurs due to bad weather, flood and unexpected storms. Apart
from this the delay in construction occurs when the construction engineers ran out of
supply and are not able to provide proper service payments on time. This can lead to
strike by other employees and also the work will get hampered. Workers strike are
major concern, once they find there working condition is not suitable they will call for
a strike and this is very obvious. In the case study the workers called for strike against
the manager and demanded to sack them. The work started after the company ensured
proper solution to the workers demand (Tan‐Kantor, Abbott and Jubb 2017). The
major parties involved in this are AquaSure and D &C contractor. While signing the
project with Victoria state government it was decided that Aquasure need to provide
proper finance support towards the project at each step including design, commission
and construction of the desalination plant. This helps in reducing the risks related to
finance. This was decided while signing of the contract that n completion of the
transmission line the AquaSure will hand over the infrastructure to government. Apart
from this project uses renewable energy resources at the O&M phase. In order to

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mitigate the problems faced the organisation implemented modular design that
included additional capacity and redundancy (Duff et al. 2017). The AquaSure
company decided to pay there worker above the industry norms and two managers
were sacked for spying on the workers. Moreover subcontracting O&M to Degremont
Thiess joint venture in order to ensure protection towards the company and this was
guided by different parent companies. The company also implemented force majeure
clause.
 Execution risk: there are several risks faced at the time of execution phase and needs
to be mitigated immediately. In order to avoid the risks faced at execution level the
parent companies are needed for providing proper guidance (McNeill et al. 2016).
Joint venture was developed between subcontracting O&M to Degremont-Thiess.
 Political risks: while developing a project there are always some political parties who
goes against the development pro cess and aims at stopping the construction. The
government of Bailleiu stated that the government of Brumby spent excessive money.
The money spent over the desalination plant was not that much needed. This
statement was made at the time of elections by the end of 2010 (Suzuki et al. 2016).
The parties involved in this was the state and Aquasure. However by the end, Bailleiu
government agreed and declared honoured for having the contract.
 Reputation risk: this becomes important for the state and Aquasure to have proper
strategies that will brighten up there reputation. This is the responsibility of to procure
land in order to perform desalination plant and infrastructure. This included gaining
all necessary approvals related to the land acquisition from the land owners. With
distress landowners and without the approval of public it becomes very difficult to
implement such a large project (Catrini et al. 2017). Criticism was faced by media and
national commission regarding the fact of developing such a large project. however in

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order to mitigate the risk ,state helped by providing financial support and was
involved in sharing the risk of refinancing and risk related to funding costs in order to
have a proper knowledge about the construction. With the help of proper and
enhanced public relations and effective politicization the state successfully managed
to mitigate this risk.
 Cost risks: the cost risk is one of the major factor as it becomes important to
implement a project while sticking by the budget list prepared at the planning stage.
However with the change in market price it becomes difficult to manage the rising
energy cost and managing the other resources becomes equally difficult (Porter et al.
2015). Due to several factors the construction gets delayed and this factors adds up to
extra money at the time of completion. The parties involved in managing the costs are
the state and Leighton Holdings.
 Market risks: there are risks related to change in market or fall in the market. This
can lead the project to face financial crisis thus it becomes important to mitigate this
risk. Market values changes every day, thus it needs a proper strategy that will help to
overcome each situation. These includes every parties especially AquaSure (Regan,
Love and Smith 2016). However in order to mitigate this risks government share
refinancing losses with Aquasure for gaining proper knowledge about the possible
loss that can affect the construction plant.
 Financial risk: funding is the major need while implementing a project and this
needs to be done properly without managing proper funds it becomes very difficult to
implement a project. This project was the world’s largest project and thus required
huge funding. The main parties involved are sponsors. In order to overcome this
problem, Macquerie targeted the potential investors who were in relationship with last
few transactions (Blesing and Pelekani 2015). They also tracked the global corporate

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in order to build a proper infrastructure finance network so that they can access all the
financial markets. In addition to this state provided financial support for developing
this project. Suez Environment, Macquarie Capital Group provided a large amount of
equity component that is around A$800 million whereas Itochu Corp. put up around
A$100 million. Apart from this there is a chances of having an interest risk, debt
servicing risk and risks related to limited recourse. However in order to overcome this
problems state guaranteed debts for this projects. Consortium was able to secure
around A$1.925 billion (Reinhardt and Guérin-Schneider 2015). This led the
syndicate to bring total number of institutions involved from 12 to more than 30.
Conclusion
Thus from the above report it can be concluded that the desalination plant was able to
mitigate all the risks properly. The plant developed started functioning by the end of 2011.
After the development of desalination plant it will supply around 150 gigalitres (GL) of water
to Geelong, Melbourne with the help of other connections in a year. The project included
construction of 150 GL desalination plant. The plant includes tunnel that helps in supplying
plant with seawater and discharging highly concentrated seawater back to the sea. On the
other hand 85 km pipeline aims at transporting the treated water towards the Melbourne
Water Network with an 88km high voltage alternating current was developed through the
transmission line underground. The construction of this plant successfully helped in
supplying water to differed parts of the state based on their need. Thus with the
implementation of this mitigation strategies the plant can mitigate the problems easily.

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References
Blesing, J.E. and Pelekani, C., 2015. Seawater desalination-a sustainable solution to world
water shortage Adelaide Desalination Plant. In 3rd ASEAN Australian Engineering Congress
(AAEC 2015): Australian Engineering Congress on Innovative Technologies for Sustainable
Development and Renewable Energy (p. 17). Engineers Australia.
Catrini, P., Cipollina, A., Micale, G., Piacentino, A. and Tamburini, A., 2017. Exergy
analysis and thermoeconomic cost accounting of a Combined Heat and Power steam cycle
integrated with a Multi Effect Distillation-Thermal Vapour Compression desalination
plant. Energy Conversion and Management, 149, pp.950-965.
Duff, J., LaBate, V. and Slugg, A.M., 2017. Prospects and Pitfalls of Desalination
Development: Insights From Three States. Ocean & Coastal LJ, 22, p.130.
Heck, N., Paytan, A., Potts, D.C. and Haddad, B., 2016. Predictors of local support for a
seawater desalination plant in a small coastal community. Environmental Science &
Policy, 66, pp.101-111.
Kurakaew, N., Kokkaew, N. and Suksuwan, N., 2016. The Analysis of Value-for-Money
(VfM) for Public Private Partnership Infrastructure: A Public Sector Comparator
Approach. WMS Journal of Management, 5(1), pp.26-39.
Lash, M.T. and Street, W.N., 2016. Realistic risk-mitigating recommendations via inverse
classification. arXiv preprint arXiv:1611.04199.
McNeill, I.M., Dunlop, P.D., Skinner, T.C. and Morrison, D.L., 2016. Predicting Risk‐
Mitigating Behaviors From Indecisiveness and Trait Anxiety: Two Cognitive Pathways to
Task Avoidance. Journal of personality, 84(1), pp.36-45.

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Porter, M.G., Downie, D., Scarborough, H., Sahin, O. and Stewart, R.A., 2015. Drought and
Desalination: Melbourne water supply and development choices in the twenty-first
century. Desalination and Water Treatment, 55(9), pp.2278-2295.
Regan, M., Love, P. and Smith, J., 2016. Whole life costing of infrastructure investment:
Economic and social infrastructure projects in Australia.
Reinhardt, W. and Guérin-Schneider, L., 2015. Governance and Regulation of the Urban
Water Sector: Quoi de Neuf?. In Understanding and Managing Urban Water in
Transition (pp. 423-446). Springer, Dordrecht.
Suzuki, T., Tanaka, R., Tahara, M., Isamu, Y., Niinae, M., Lin, L., Wang, J., Luh, J. and
Coronell, O., 2016. Relationship between performance deterioration of a polyamide reverse
osmosis membrane used in a seawater desalination plant and changes in its physicochemical
properties. Water research, 100, pp.326-336.
Tan‐Kantor, A., Abbott, M. and Jubb, C., 2017. Accounting Choice and Theory in Crisis: The
Case of the Victorian Desalination Plant. Australian Accounting Review, 27(3), pp.273-284.