AUSTRALIA'S URBAN WATER SECTOR

Key points

 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 per 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, 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.