Wednesday, April 22, 2009

Back of envelope calculations - is the purchase of Toorale Station a waste of money?

A note on the role of back of envelope calculations before I go on.

The term is used to refer to rough calculations intended to test something. I use them all the time because they quickly establish rough benchmarks or can be used to quick test an idea.

Tonight's SBS news carried a story - I cannot give a link - of Bourke locals complaining about the cost and lack of value of the purchase by the NSW and Commonwealth Governments of Tooralee Station. Australian environment mister Wong responded by simply referring to the volume of water released to the Darling River. She did not equate this in any way to the costs.

In End of Historic Toorale Station, I did some very rough back of envelope calculations on this purchase. I suggested that this might be an annual cost of $7.44 million, falling to $7.14 million after three years. Note that this is the continuing cost for ever expressed in 2008 dollars.

I did not try to argue whether this was value for money. My point was that this cost had to be related to the real value of the water released. No one has ever calculated this.

At a personal level, I was also concerned about the impact on the local community. I was also concerned at the failure to pay any form of economic compensation. If Australia as a whole is to get benefits, then those who pay the price should be compensated. If the benefits do not exceed that price, then the project is of doubtful value.

Without going into detailed discussions, Bourke is one of the poorest communities in Australia. It is also one where the Indigenous community represents a growing proportion of the population. The costs to this community are high.

If this action, the purchase of Toorale Station, is worthwhile, then I expect Environment Minister Wong and her NSW colleagues to show why beyond mere generalities.

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