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Muja go-ahead seen as new risk

The Barnett Government will complete the bungled renewal of the Muja AB power station, saying the decision is in the best interests of taxpayers.

The decision comes after a damning report by consultants KPMG, which highlights failures in governance, risk analysis, engineering and diligence.

The project involved a Verve joint venture with Geelong engineers Kempe to refurbish four 45-year-old generators at the power station in Collie.

Units 3 and 4 were returned to service but units 1 and 2 were delayed and costs blew out after undetected corrosion caused an explosion in July last year.

With the project apparently in crisis amid reports in _The West Australian _and Opposition attacks, the Government ordered Verve to halt work on 1 and 2 in June pending a review.

Energy Minister Mike Nahan yesterday released the KPMG report and a technical report by Parsons Brinckerhoff and announced the Government would complete work on 1 and 2 at a further cost of $46 million.

So far $290 million has been spent on a project estimated originally to cost $150 million of entirely private financing.

KPMG said the corrosion, which meant $60 million in repairs and another $60 million in costs from deadline overruns, probably should have been foreseen. It also found:

·Kempe was a poor project partner with limited experience and financial capacity;

·Verve took disproportionate risk and unilaterally guaranteed all critical financing, third-party supply and electricity off-take contracts;

·No comprehensive business case was prepared before the original investment decision.

Dr Nahan said Verve still believed it could recoup all capital and operating costs of the project within 15 years.

But KPMG predicts just $52 million would be generated over 10 years, assuming all spending so far - the $290 million - is written off.

Verve believes KPMG did not take into account some revenue from completing the project, including defraying fixed costs from its Muja CD station over the two entities, an end to the carbon tax and Verve's added flexibility to manage its generating assets to match market demand.

Even so, it is understood Verve's analysis shows the net value would be just $2 million over 15 years. Opposition Leader Mark McGowan said KPMG revealed a financial disaster and a litany of mistakes.