Impediments to Private Investment
At a conference dedicated to water in mining in Brisbane in late 2006, Malcolm Turnbull, then Parliamentary Secretary to the Prime Minister with responsibility for Water, lamented the fact that private investment in bulk water infrastructure and water recycling projects in Australia was comparatively low in comparison with other countries (particularly Europe).
With the issue of access to water rapidly becoming one of the most prolifically debated topics on both national and state agendas, one of the most divisive of all of the issues currently being mooted is the use of recycled water, and the commercial future for what was previously a discarded waste product.
In the past, disputes over third party access arrangements involving infrastructure managed by an existing water utility have been dealt with by the relevant provisions of the Trade Practices Act. In the Services Sydney Pty Ltd case this was a detailed, costly and time consuming process.
In 2006, Sydney moved a step closer towards retail competition in its water market, following the introduction of the Water Industry Competition Act 2006. That Act is designed to encourage water recycling and improved water security by allowing for private sector investment in the water and wastewater industries. It establishes a framework for private sector players to access water and wastewater infrastructure while, as far as possible, giving them powers, protection and restrictions similar to those enjoyed by public authorities.
The new legislative regime also gives the Independent Pricing and Regulatory Tribunal (IPART) a significant role in regulating access.
However, to date, the access scheme has not resulted in the significant introduction of investment capital from the private sector which was originally envisaged for a number of reasons.
New entrants attempting to gain third party access to existing urban infrastructure face problems obtaining accurate information about the value and condition of water supply and sewerage assets, which are generally located beneath the surface.
Another practical impediment is the high cost of establishing infrastructure and transmitting water and wastewater services which means that there is often only one supply network in each location, a natural monopoly. This represents an obvious constraint to the creation of competitive water markets, and highlights the difficulties in maintaining a successful interface between the public and private sectors.
Australia’s last under-regulated utility?
Lessons could be learned from the successful reforms to the energy sector, where one of the key factors was the establishment of a national access framework specific to that sector. A national access code specific to water could be established to expand on the approach already taken by IPART so as to manage, and encourage, private sector involvement in the water sector across all jurisdictions.
An access code with a transparent dispute resolution system would provide all parties with increased certainty over investment risks and operation of the water supply and/or sewerage system, and minimise the potential for long and costly legal disputes.
At the heart of a move towards a national access code is the need to minimise the complexities inherent in the existing state and territory regulations and agencies responsible for the various components of water and wastewater supply systems.
Moves towards further regulation will usually always arise as a consequence of, rather than as a fore-runner to heightened commercial competition. However, in the case of what is truly one of the last under-regulated utilities in Australia, it may be an essential component for delivering efficient water security outcomes into the future.
But more than that, it is a further step towards maturing a market for trading in water and setting a price signal as the best way to conserve and appreciate a limited resource.
Just as there is an inescapable correlation between water scarcity and climate change, there is also a correlation between developing trading systems for water and carbon. The introduction of a carbon signal will herald higher energy costs. The consequence of providing greater water security will also inevitably result in higher water prices.
However, by encouraging the private sector to promote market-based solutions with pricing that reflects the finite nature of water resources, then significant gains can be made not only in terms of directing water to its best and highest value use, but also in terms of encouraging greater demand management.
By Andrew Bruton.
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