9.1 The Board’s Strategic Directions 2016-2020 May 2016
Tabled paper 1883
Tabled Papers for 12th Assembly 2012 - 2016; Tabled Papers; ParliamentNT
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4.4.3 Capital expenditure deficiencies The Board has received advice that improved scrutiny over the capital expenditure (capex) projects process could lead to a more efficient capex spend. A key outcome sought by the Board is the application of increased rigour around approval processes to assess and validate/scope options evaluated. In turn: Improving the quality of asset performance data should enable Power and Water to make better asset management decisions (especially replacement versus refurbishment). Reduced capex work volumes through better asset management could result in immediate cash flow savings and capex cost reductions in the medium to long term. Improving procurement processes, establishing project controls and streamlining contractor management should also reduce costs. Establishing and operating a more disciplined and gated end-to-end capital delivery process should reduce capex costs. Greater certainty that actual incurred costs (project and recurrent) align with planned and budgeted expenditure also has a role to play. Power and Water has a number of examples of major capex projects where actual costs have exceeded budget, and there is likelihood that the levels of forecast expenditure are under-estimated on what actually will be incurred. Until financial management and expenditure controls are improved it is unlikely that the Corporation can realise further savings on its capex budgets. The Board accepts that it must address the poor track record of major project implementation, and the likely failure to get value for money from the dollars invested. 4.4.4 Wider consequences of a poorly performing Power and Water Failure to act and remediate Power and Water's finances brings with it the substantial risk that one or more of the following consequences result: Electricity and water prices are higher than necessary. Power and Water's impact on the budget (and taxpayers) is higher than necessary and continues to increase, through lack of dividends revenue to the budget, high and increasing community service obligation subsidies and the need for additional equity injections by Northern Territory Government. The Northern Territory Government's credit rating is negatively impacted by the Corporation's poor finances. Power and Water's over-reliance on borrowing causes Territory public debt levels to increase. Power and Water currently accounts for in excess of 20% of the Northern Territory non-financial public sector's total debt of just over $5 billion. As long as Power and Water's finances remain sub-investment grade, this is likely to reduce the Northern Territory Government's credit rating. Together, these provide a clear rationale for change. THE BOARD'S STRATEGIC DIRECTIONS 2016-2020 22