Regulatory Due Diligence for the Sydney Desalination Plant, Australia

The problem

The New South Wales state government built the Sydney Desalination Plant in response to the worst drought in 100 years, when Sydney’s dam levels fell to 34 percent. The state government sought to privatize the asset after it was built, which was a first for the Australian water sector, and proposed a hybrid regulatory regime.

The Consortium of Hastings Funds Management Limited and The Ontario Teacher’s Pension Plan was one of the potential bidders. The Consortium was interested in buying the plant but was not familiar with the history of regulators in Australia and wanted to assess the potential financial impacts of the regulatory regime in place.

How we helped

We provided regulatory advice on the project’s commercial viability to the Consortium of Hastings Funds Management Limited and The Ontario Teacher’s Pension Plan. We helped them understand the culture of regulators in Australia and the legal framework underpinning the plant’s privatization. We analyzed the historical performance of regulators in the country and modeled potential revenue outcomes. We found that passing through energy cost to the private party was too high-risk in the context of the Australian energy market. Instead we recommended a long-term fixed-price contract, which the procuring entity adopted.

Impact

This risk transfer resulted in a more competitive bidding process, and our client was the successful bidder.