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Print StoryBoth claims were denied by the company, Australian Water Services, a consortium of the French utility Suez and Australian real estate and finance company, Lend Lease Corporation. Australian Water told a government inquiry that it had always met the stringent water standards demanded in its contract. The company maintained that no evidence existed that its filtration plant had failed.
High levels of two microscopic protozoans, Cryptosporidium and Giardia, were found in the water at several Sydney locations and in its key filtration plant, sparking three separate boil-water alerts. Few, if any, residents became ill from drinking the water, but the incidents highlighted tensions that can occur when the interests of private companies clash with the public interest.
During the crisis, the private company and the government water agency, Sydney Water Corporation, blamed each other for the contamination problems, and communications broke down.
The water company operated at the "limits of the parameters" of its contract, increasing the likelihood of organisms passing through the plant, Peter McClellan, the lawyer hired by the government to conduct the independent inquiry, said in a 1999 speech. Sydney Water, the public utility which awarded the company a lucrative 25-year contract, sought to downplay the contamination problem by not revealing the extent of the health hazards, McClellan's inquiry showed.
Further, during the inquiry into the crisis, both the company and Sydney Water tried to prevent the release of contractual information, claiming it was "commercial-in-confidence," McClellan said in his speech.
McClellan noted in his inquiry report that the contract had "elaborate provisions to preserve the secrecy of certain information" and urged the government to consider releasing financial details contained in the contract.
"When the subject matter is the provision of an essential public service, it is difficult to see how the public interest can do other than require the release of relevant information," he added in his speech.
Sydney Water spokesman Colin Judge told ICIJ the organization was "deliberately fullsome in the information it provided the inquiry and its staff." There were, however, at the time some commercial-in-confidence issues relating to the contract, he said.
A spokeswoman for Australian Water Services said the company's policy was to refer media inquiries to Sydney Water. Judge told ICIJ the private water company generally did not talk to the media. "That sort of comment comes from us or the minister," he said.
The organisms involved in the crisis reproduce inside the stomachs of people and animals and spread through feces into the water system, with some species causing nausea, vomiting, diarrhea and stomach cramps. For people with immune systems weakened by cancer, transplants or AIDS, infections can cause serious illness or death.
The largest reported Cryptosporidium outbreak — in the U.S. city of Milwaukee in 1993 — was apparently caused by runoff from cattle fields contaminating a water system and sickened more than 400,000 people, leading to the deaths of 100 people.
In the Sydney case, the inquiry concluded that some parasites had passed through the Prospect plant, built and operated by Australian Water Services. The private company, however, insisted its filters provided effective removal of microbial contamination and argued that the high readings found in the distribution system were not reliable. It disputed suggestions that the plant was the source of the contamination.
McClellan's inquiry produced 850 pages of reports on the protozoan contamination, but its conclusions were not definitive.
McClellan found that parasites were possibly present at the plant or passed through it and were released into the drinking supply during "operational difficulties." While the plant operated within the legal bounds of Australian Water's contract, the inquiry found that at the time of the first contamination it used the lowest possible chemical doses to remove contaminants from the water, used filter runs of up to 70 hours to conserve energy, and reused filter-cleansing water in a way that might have allowed parasites to pass through the plant and into the city's drinking supplies.
Australian Water argued at the inquiry that none of these operational events could have resulted in the parasite levels found in drinking water unless implausibly high Cryptosporidium and Giardia were in the raw water entering the plant. It disputed the readings obtained by Sydney Water, saying its own tests showed low levels in treated water.
Competing interests
The private water plant "was geared to operate as cheaply as possible. Finance was the driver, not productivity," said Christopher Sheil, a historian at the University of New South Wales, who wrote a book about the crisis.
Australian Water won the contract to build and operate Prospect in 1992 as part of a government privatization program. During the privatization talks, officials expressed doubts about Australian Water's ability to operate the plant because it proposed using a single sand filter — as opposed to the dual filters other consortia bidding for the contract had proposed.
The consortium's managing director, Pierre Alla, guaranteed that the company's filters would be replaced at no extra cost if they did not meet performance standards. His guarantee, coupled with a bid that was A$40 million lower than competitor Vivendi's, won Australian Water the contract.
"The process of selection was concerned more with obtaining the lowest price rather than ensuring the highest quality technology," McClellan later concluded.
The plant opened in 1996. It supplied 85 percent of the city's drinking water. It wasn't until two years later that possible problems with the plant's operation surfaced.
The events of July 29, 1998, highlighted the competing interests involved in privatizing water. Information was kept from the public. Relations between Australian Water Services and its overseer, the corporatized public utility, Sydney Water Corporation, became acrimonious, with the utility at one point threatening to shut down or take over the Prospect plant. A Sydney Water official recalled "there was a lot of pressure that might have caused a lot of animosity" with Australian Water at the time of the crisis, but said that goodwill had increased in more recent times.
Because of positive parasite readings in several eastern city locations, Sydney Water issued a limited boil-water alert on July 28. The next day, after further low-level positive results were recorded, Sydney Water executives continued to monitor the situation, expecting that levels of contamination would fall. This changed significantly at 5:30 p.m. when a reading from a tank at the Prospect filtration plant became available. The high reading was disconcerting because the plant supplied most of Sydney's water and it appeared that the area downstream of the Prospect plant could be contaminated.
Meetings were held in the operations room of Sydney Water's headquarters where executives tried to work out the source of the contamination. High readings were also found at a reservoir and across numerous suburbs, adding to the confusion. Additional tests were ordered.
Despite the potential for illness and even death from such high parasite levels, health authorities were not informed of the Prospect contamination until after 9:30 p.m. — which McClellan noted in his report was a clear breach of the memorandum of understanding between Sydney Water and the New South Wales Health department.
Sydney Water's chairman, David Hill, arrived at the utility's headquarters shortly after 10 p.m. and found "not a situation that I would say, in management terms, is under control," according to the government report. In the boardroom, the report noted, media officers and others were in a "high state of excitement." It was "bedlam," Hill told the inquiry. Hill examined a draft press release and thought the language was "alarmist" and demanded assurances it not be issued. He then went to the operations room.
A witness told the McClellan inquiry that Hill appeared to question whether a boil-water alert was necessary. Another witness said Hill harangued the staff in the operations room, a version that Hill more or less confirmed. "I said," Hill told the inquiry, "this will do irreparable damage to the company for a number of years...if it ever recovers."
Later that night, Hill discovered that New South Wales health officials had issued a press release ordering a Sydney-wide boil-water alert, and that it had made the late TV news bulletins. He phoned the media officer responsible and angrily ordered her to retract the "bloody thing," according to McClellan's report.
He then instructed Sydney Water executives to phone media organizations to try to kill the story. He set about rewriting the press release. Prospect was not mentioned in Hill's account, and the alert was limited to a dam that had high parasite readings, dramatically reducing the number of residents to be warned.
In Hill's release, reference to Cryptosporidium was deleted; warnings about severe diarrhea referred instead to stomach upset.
The next day, July 30, the government took control, issued a city-wide alert and ordered an inquiry into the contamination and management of the issue.
McClellan's inquiry found there was a lack of communication between Australian Water Services and Sydney Water about the plant's operation and the quality of the water entering the plant during the crisis.
"Great effort was invested in seeking to prove that the other was the cause of the problem," he said in his 1999 speech to the Royal Australian Planning Institute. Australian Water operated the filtration plant, and Sydney Water was responsible for other parts of the system, including the catchments and distribution network. Attempts to blame one another for the problems "undoubtedly delayed progress towards effective identification of the likely problem and the remedial measures to deal with it," he said.
McClellan was unable to reach a conclusion about whether Australian Water Services was ultimately to blame for the contamination. Because of mistakes made by Sydney Water's testing laboratory, uncertainty persists about the actual levels of parasites, their source and the effectiveness at the time of the Prospect plant.
Still, McClellan recommended that Prospect's backwash — water used to clean the filters — be treated before being mixed with other water, to provide an additional barrier against Cryptosporidium and Giardia.
The bottom line was that, "after costing a 25-year contract valued at A$270 million, and after fully operating for only 10 months, the plant proved itself to be, at best, a sadly under-designed investment," Sheil wrote in his book.
Both the managing director and the chairman of Sydney Water resigned after McClellan's report — a damning indictment of Sydney Water's attempts at damage control — was handed down.
In a conference address after his report, McClellan referred to the tension between private companies and their profit motives and the overriding requirement to meet a public need. "[The] public need will generally require the provision of the highest reasonable quality of service. This may be inconsistent with the profit motive and other commercial considerations, which properly direct the actions of the private corporation.
"The inevitable question is whether some essential government services should remain within the ownership and control of government with direct Ministerial responsibility. If ownership is to devolve in whole or in part to the private sector, significant issues remain to be addressed."
After the incident, Australian Water agreed to one of McClellan's recommendations and spent A$18.7 million building a filtration plant to treat the backwash, a Sydney Water spokeswoman told ICIJ.
But the company will get all that back and more. Under an agreement for the new plant, the government pays Australian Water A$3.4 million each year for the remainder of its contract. With the contract running another 19 years, Australian Water will receive at least A$64.6 million, in addition to its original contract.
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