Just seven penguins were observed on Warrnambool's Middle Island last season with massive swells earlier this year wreaking havoc on the population.
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It follows last season's record low numbers when just eight penguins were observed - although at the time it was thought the colony was probably about 70 to 100 birds.
This year, estimates point to an increase in the size of the actual colony but a new report found there had actually not been much of an observable recovery since a spate of dog and fox attacks.
In 2000, there were about 800 penguins on the island, and 16 years ago the Maremma dogs were introduced to help protect them after attacks decimated the colony.
The numbers of penguins have struggled to recover in recent years with the most recent attack in July 2019 wiping out half the male breeders after penguins arrived early when the Maremma dogs weren't on the island to protect them.
Six penguin counts were conducted during the 2020-21 season and penguins were observed at just four of those.
There was also no evidence of breeding, the report found, although there were two eggs that had been abandoned.
Heavy swells and high winds also led to bird deaths - one wildlife care organisation reporting 30 incapacitated penguins coming into their care, although not all of them were from the Middle Island colony.
"Despite being caused naturally, the effects of these deaths will be quite pronounced in this small colony of penguins," the report says.
Coronavirus restrictions put a stop to most Maremma tours which was expected to drive the program into the red by $25,000. But a Go Fund Me exceeded expectations and raised $36,000.
City councillors labelled it a tough and challenging year for the world-renowned project.
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There are also changes with the project moving to a "conservation management model" with Cr Richard Ziegeler now sitting on the committee.
Cr Vick Jellie said it was a fabulous project and it would be good to have a committee to advise council.
Cr Debbie Arnott said it was a real feel-good project. "We all have a special place in our hearts for the dogs," she said.
"Even though our tourism season was down, we actually had an increase in the penguin and mutton bird population."
Cr Ziegeler said it was heartening the way the whole project had gone from strength-to-strength.
"Although the numbers are still low, those penguins, they have increased from last season," he said.
However, Cr Ziegeler said foxes continued to be a problem, especially those coming from the "wasteland" along Viaduct Road.
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