Australia Looks to Private Sector to Revive Utilities

The Australian government is looking for ways to promote private capital and expertise to drive efficiency

A report by Australia's Competition Policy Review has concluded that "urban water pricing fails to reflect its cost of provision, and this is discouraging private sector participation in providing urban water." The government is now looking for recommendations to improve the investment climate.

According to the report, domestic water prices in Australia are not commercially viable. Despite the fact that drinking water tariffs in Australia's major cities averaged US$3.32/m3 last year - one of the highest in the world - the report contends that they do not recover the costs of provision, and that substantial subsidies remain. At the same time, the report admits that burying all overheads within volumetric tariffs would further hike up the cost of water to the customer, and such a strategy "would impose a considerable economic shock on individuals and businesses, whose capacityto change water-use behaviour in the short term is limited."

For a private sector operator to make a profit from tariffs alone, while also lowering the cost to the customer, would require an entirely different financing model. Both the government and the Water Services Association of Australia (WSAA) have endorsed the findings of the review, with the WSAA emphasising the recommendation "that all governments (Federal, state and local) should progress implementation of the principles of the National Water Initiative and focus on strengthening economic regulation in urban water."

Among other things, the National Water Initiative recommends a national pricing regulator and a uniform pricing approach. However, politics remain a hurdle to the aim of the report to increase private sector investment. Privately owned water assets remain few and far between, and private water utilities are limited to ‘purple pipe' micro-utilities such as Flow Systems Ltd. in New South Wales and Water Utilities Group in South Australia. Private ownership of water assets remains a politically divisive issue, even when it threatens to affect bulk water suppliers such as SunWater in Queensland.

One market veteran told GWI that "prior to the recent Queensland state election, a number of investors had approached me having already identified how to pool their resources (several billion A$) to purchase some of the SunWater assets that would have been available had the Liberal National Party retained government and proceeded with its platform of asset sales." Nonetheless, in New South Wales the conservative Liberal National Party managed a comfortable win on 28 March, and government asset sales could now be on the agenda in the state.

Source: Global Water Intelligence

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