By Lynne Blundell

12 October 2011 ­ The Productivity Commission report on Australia’s urban water sector, released today (Wednesday), recommends a range of reforms, including improved performance of institutions, more transparent and consistent regulations and competitive procurement of supply and pricing.

The report follows a year-long inquiry established to consider the case for further reform in the sector.

Parliamentary Secretary for Sustainability and Urban Water Don Farrell said the benefit of these reforms are expected to flow to consumers and communities.

As Australian cities continue to grow and rainfall patterns are more uncertain, long term water security is a high priority that cannot be achieved by relying on rainfall alone, Senator Farrell said.

“Inflows into dams and reservoirs fell significantly during the drought. Governments responded with water efficient technologies and new projects to ensure rainfall-independent water supplies,” he said in a media release on Wednesday.

“The Australian Government is committed to working closely with the states and territories on water reform and this report will help to map out a plan for future water management priorities.

“Securing safe and affordable urban water supplies is an ongoing and long-term objective for us all.”

Key findings
The key points in the report include the following:

In recent times, the urban water sector has faced drought, growing populations and ageing assets.

Governments have largely responded with prolonged and severe water restrictions and investments in desalination capacity.

The costs to consumers and the community have been large:

  • Water restrictions are likely to have cost in excess of a billion dollars a  year (nationally) from the lost value of consumption alone.
  • Inefficient supply augmentation in Melbourne and Perth, for example, could cost consumers and communities up to $4.2 billion over 20 years
  • Large government grants for infrastructure may have led to perverse outcomes.

Conflicting objectives and unclear roles and responsibilities of governments, water utilities and regulators have led to inefficient allocation of water resources, misdirected investment, undue reliance on water restrictions and costly water conservation programs.

Therefore, the largest gains are likely to come initially from establishing clear objectives, improving the performance of institutions with respect to roles and responsibilities, governance, regulation, competitive procurement of supply, and pricing, rather than trying to create a competitive market as in the electricity sector.

To implement the recommended universal reforms, governments should: clarify that the overarching objective for policy in the sector is the efficient provision of water, wastewater and stormwater services so as to maximise net benefits to the community

  • ensure that procurement, pricing and regulatory frameworks are aligned with the overarching objective and assigned to the appropriate organisation
  • put in place best practice arrangements for policy making, regulatory agencies, and water utilities
  • put in place performance monitoring of utilities and monitor progress on reform.

The circumstances of each jurisdiction and region differ and there is not a “one size fits all” solution to industry structure. In addition to recommended universal reforms, the Commission has set out:

  • four structural options for large metropolitan urban water systems
  • three options for small stand-alone regional systems.

There is a role for COAG (the Council of Australian Governments), but each government can proceed independently to implement the key reforms.

Implementation of the reform package, with commitment by governments, will provide consumers with greater reliability of supply, greater choice of services at lower cost than otherwise and reduce the likelihood of costly and inconvenient restrictions.

The report found that there had been too great a focus on water restrictions, water use efficiency and conservation.

“The extensive use of water restrictions has been costly to consumers and the distributional consequences are likely to have been regressive with respect to income, even though restrictions have been tolerated by the community.”

It recommended that governments should ensure that environmental and health regulators are more transparent and accountable in their decision making and that state and territory governments should draw up charters for urban water utilities incorporating best practice governance arrangements and governments’ requirements for the performance of utilities.

Senator Farrell said he was pleased to see so many individuals, businesses and organisations from all over Australia participated in the inquiry, with 167 submissions being received.

See the whole report