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Melbourne's inhabitants have periodically found it difficult to rid the city effectively of their body wastes. Methods of disposal considered acceptable for a modestly sized town were regularly overwhelmed during periods of rapid population growth. As buildings multiplied, seepage from poorly constructed or overflowing cesspits polluted the central city area, creating a significant risk to public health and leading to the introduction of pan collection through most of the metropolis. Under cover of darkness, nightsoil men used the network of back lanes to empty the pans.

When the massive manure heaps in the city became increasingly offensive, and effective disposal became more difficult as Melbourne's suburbs expanded rapidly outwards in the 1880s, public-health experts recommended that a waterborne sewerage system was the best method of disposing of body wastes, but the fragmentation of municipal government made it difficult to achieve any agreement on how such a system could be financed or built. By 1891 the threat to public health from typhoid was sufficient to break the deadlock and the Melbourne and Metropolitan Board of Works was created to sewer Melbourne and take over the running of its water supply.

Construction of the sewerage system began just as the 1890s depression intensified. Despite problems in raising the necessary finance, the first house connection was made in 1897. A separate system was constructed that collected household waste water, but not drainage from rainfall on streets, house roofs or other impervious surfaces. Two main sewers, to the north and south of the Yarra River, drained sewage by gravity to a pumping station in Spotswood. Steam engines then pumped it up into a large channel, which conducted it to a sewage farm at Werribee, where it was used to irrigate paddocks on which sheep and cattle grazed. Wool and meat produced for sale offset the costs of treatment. Most of inner Melbourne was quickly connected, and the urban environment smelt far sweeter as a result.

During the interwar years the expanding sewerage network kept pace with residential construction activity. After World War II, however, rapid expansion combined with serious constraints on borrowing for public works meant that many new suburbs were reliant on pan service. Melbourne's population doubled between 1947 and 1971 to reach 2.4 million. New household technologies such as washing machines and dishwashers created more dirty water, as did houses with more toilets. Where septic tanks were used as substitutes for sewers, their contents gradually polluted surrounding areas and seeped into watercourses. E. coli counts reached levels dangerous to health on bayside beaches.

During the 1970s the backlog was largely overcome. The pumping station at Spotswood had already been superseded by a larger facility at Brooklyn in 1964. Capacity at the sewage farm was expanded progressively through the development of new methods of treatment, such as grass filtration and lagooning, before treated water was discharged into Port Phillip Bay. The South East Purification Plant at Carrum opened in 1975 to chemically treat sewage from Melbourne's eastern and southern suburbs before discharging it into Bass Strait. Federal government money made available for urban infrastructure allowed new sewer mains to extend through outer suburbia, and from the early 1970s new building allotments had to be sewered before construction could begin. From 1984 dual-flush toilets became compulsory and significantly reduced water use in toilets.

Debate continues on ways to minimise sewage flows, particularly on the recycling of grey water. There are also continuing concerns about the environmental effects of discharging partially treated sewage into Bass Strait and the bay.

Tony Dingle