Victoria's Ombudsman has strongly criticised the state's environmental regulator over its management of contaminated soil from the West Gate Tunnel construction, saying the agency was "under pressure to 'fix' the problem", and "potentially compromised" its ability to act independently.

In her report tabled in parliament this morning, Ombudsman Deborah Glass found the Environment Protection Authority  helped create "bespoke" environmental regulations for the project.

Work on the tunnel stopped in 2019 after the discovery of toxic PFAS chemicals, leading to massive cost blow outs and a dispute between the project partners over who would pick up the bill for disposal of the soil.

Ms Glass said in her report there was "little doubt the EPA was under pressure to 'fix' the problem to get the project back on track".

She found that the EPA ultimately "did its job according to the science", but failed to communicate adequately, and "escalated the fear and anxiety in the community".

In December last year the Victorian government announced a peace deal, which saw taxpayers contribute an extra $1.9 billion to the project, while Transurban added $2.2 billion and CPB John Holland agreed to give up all of its profit margin and make significant losses.

Ms Glass found the EPA was initially keen to find safe ways to reuse the contaminated soil but that was dependent on further testing, which the builders said was not possible.

"The Consortium responsible for delivering the project said it could not access bores on private property or under roads and that once the tunnel boring machines were started they could not be stopped," the Ombudsman found.

One option discussed by "inter-agency representatives" in 2019 was setting "new contamination thresholds for PFAS so that the spoil could be sold as clean fill materials."

The EPA rejected that proposal as being out-of-step with the rest of the country.

It meant a new landfill site was required to take on the large volume of contaminated soil.

In 2020, the John Holland Consortium said it had offers from three landfill sites to take the contaminated soil — they were at Bulla, Bacchus Marsh and Ravenhall.

The builder said it couldn't proceed with the tunnel project "until each landfill operator obtained EPA approvals".

The former executive director of the EPA spoke to the Ombudsman about the pressures the organisation faced over approvals for the three landfill sites.

"I thought it was an outrageous situation driven by the contractual arrangement, rather than an environmental arrangement," they said.

New regulations were eventually drafted by a working group which included representatives from the Victorian Department of Environment, Land, Water and Planning, the West Gate Tunnel Project and the Major Transport Infrastructure Authority.

The new regulations allowed for the sites to gain EPA approval with an environmental management plan without requiring a licence or works approval.

The regulations also removed the right to appeal a decision to the Victorian Civil and Administrative Tribunal. 

The EPA eventually approved all three landfill sites.

EPA forced to revoke approvals after legal challenges

After community groups challenged the legal basis for the EPA's approval of the environmental management plans for the landfill sites, the Ombudsman found the regulator sought legal advice.

That advice found the EPA didn't have enough documentation to approve the plans, with it particularly lacking "detailed designs and an environmental auditor report".

It found the EPA did not have the power to grant a conditional approval, as it had done.

The EPA's executive director told the Ombudsman that "this is a unique challenge to new regulations".

She said as soon as the EPA became aware of the error, it wrote to the landfill operators explaining it had made a mistake in its approval and they would need to resubmit environmental management plans.

Ms Glass found the EPA was "intimately involved in the development" of the new regulations, despite the organisation's executive director saying the opposite on 3AW radio in 2020.

She found these new regulations were created "to solve a contractual issue between the Victorian Government and the John Holland Consortium."

While Ms Glass said the new regulations "may not have reduced the environmental protections when compared to pre-existing permission tools" she said it appeared the EPA had been pressured to help draft the regulations by the government working group "at the behest of a private contractor".

Ms Glass also criticised the EPA for being influenced by other government agencies.

"Being influenced by other agencies potentially compromised the EPA's ability to act independently and to decline approvals once the proposals were put to them," she said.

EPA says it got the science right

Ms Glass said since March this year, testing on excavated soil from the project showed PFAS levels "well below the danger level" which was in line with what the EPA had forecast in its scientific assessment.

She found "the EPA did its job according to science".

"It assessed the danger was likely to be low, but adopted a cautious approach." 

The organisation's chief executive stood by its handling of the approval process.

"I don't accept claims that we compromised the substance of the decision because of the significance of the project," they said.

"In fact our role was to make sure of the science of PFAS, the protection of environment, human health through the decision."

Consulting community 'was a waste of time', watchdog said

The Ombudsman found the EPA failed to communicate properly with communities affected by the potential landfill sites.

She found there was significant community concern about potential environmental and health consequences of PFAS being dumped in landfill and that there was a community perception that "Melbourne's west was unfairly being used as a 'dumping ground' for waste".

But the Ombudsman found the EPA had no meaningful interaction with community groups while the new regulations were being drafted.

One Bacchus Marsh resident told the Ombudsman: "I could not sleep for weeks with worry that the soil was going to be so close not only to my children but to all of Bacchus Marsh."

The Ombudsman found many community groups found out about the proposed landfill sites from the media rather than the EPA and many groups told her investigation that they had lost trust in the agency.

"The EPA has created a reputation as a deceitful and treacherous organisation that will readily put short-term political and commercial interest ahead of its statutory duties," the Moorabool Environment Group said.

The Ombudsman said her investigation was told by the EPA that consultation with the community was a "waste of time" because of the "level of anger in the community".

"In effect, the EPA thought there was no point in consulting because it knew what the community thought," she found.

Following the release of the report, the EPA said it had accepted all of the Ombudsman's recommendations.

The agency's CEO Lee Miezis said in a statement that the EPA accepted that it should have done more to consult with local communities.

"We acknowledge that shortcomings in our engagement approach have caused distress. For that we are sorry," Mr Miezis said.

"Our approval was based on a rigorous and comprehensive assessment of the risks to human health and the environment, informed by leading science and best practice environmental protection standards.

"EPA prides itself on its independence, balancing environmental and social considerations in protecting Victorians from the harmful effects of pollution and waste."