Water is a vital commodity; essential to life, agriculture and industry. It is in demand, as our population grows, yet in most places its supply is diminishing. At the same time, we recognise that much of our water has been over exploited and that we need to allocate a greater share to the environment to ensure the health of our rivers and wetlands.
This reality of growing demand and diminishing supply from existing sources means that investment to augment existing supplies of water and in using water more efficiently and productively will be needed.
The water industry is dominated by governments at every level. Governments do not simply regulate and protect our water resources they also own the water companies that deliver water and sewerage services. Government-owned water companies are substantial contributors to the revenues of most state and territory governments.
The private sector has a great deal to offer the water sector. There is a significant amount of private capital available for infrastructure investment and there is also considerable expertise in both water science and technology as well as management in the private sector. This is not to diminish the resources of the government-owned water companies; but is there anything special about water which decrees that the private sector should have only a limited role?
Our water challenge is a formidable one and all stakeholders will need to be involved to ensure that Australia's water resources are secure and used sustainably.
The objective of this discussion paper is to explore the role of private sector in supplying safe and efficient water and wastewater services in Australia, and to gain your views on whether greater participation from the private sector is warranted and if so, how it might be encouraged.
The discussion paper reflects the issues found in the literature on this topic (see the reference list for further reading) and reports the outcomes of discussions with private and public sector stakeholders in the water and wastewater services industries. The paper is not a detailed technical analysis of the issues, or a policy paper. The aim of the discussion paper is to gain broader views from the public and specialists involved in the water sector to help inform policy development.
The paper begins with an overview of the challenges ahead for providing safe and reliable water and wastewater services in urban and rural Australia. It gives a summary of the growth in demand for water services and the challenges posed by issues, such as climate change and the need to deliver water for environmental flows.
The paper notes that water is primarily the responsibility of state and territory governments and that there are a variety of government-owned companies and agencies used to deliver water and wastewater services in urban and rural sectors. The paper also examines the challenges faced by water providers to maintain water infrastructure in a condition so that:
• there is enough water for our needs in the future
• leakage and wastage is minimised
• service delivery is maintained to a high standard
• water quality is not compromised, and
• there are appropriate financing and management skills available to meet the challenges of the future.
In this context, the paper seeks your views on: What are likely to be the most important issues that urban and rural water utilities will need to address to meet future demands?
The paper then asks for your views on: To what extent should the private sector play a greater role in urban and rural water and wastewater services?
To set the context for these questions, the paper provides an overview of other sectors in the economy that have benefited from increased private sector involvement, such as in electricity and gas. It presents an overview of the characteristics of the rural and urban water markets to give a sense of where the opportunities for private investors are to make a commercial return. The paper also provides a summary of the experience of private sector participation in Australia's urban and rural water markets.
This is followed by a discussion on the options available for the private sector in the water industry. The options canvassed range from outsourcing, which is commonly used by large urban water utilities, through to public private partnerships (PPPs) and third party access arrangements. A case study of United Water in South Australia and ActewAGL in the Australian Capital Territory is provided to illustrate public private partnerships in an urban setting and a case study of Services Sydney Pty Ltd to demonstrate issues associated with third party access. Following this discussion your views are sought on: What are the pros and cons of using outsourcing, PPPs or third party access arrangements to involve the private sector in water and wastewater services?
Examples of the experience with private sector involvement in other parts of the world, and in particular in the UK and France are provided to give a broader view of the benefits and costs. In France, for example, notwithstanding its long tradition of government-owned industries, there has been extensive and long-term private sector involvement at all levels of service provision. Your views are sought on: What aspects of the examples provided are the most relevant to the Australian situation?
The next two sections of the paper deal with the potential downside and barriers to private sector participation. Significant for governments is the potential for community concerns about the protection of important features of the water industry such as the ability to manage precious water resources in an integrated and sustainable, manner. The community might also be concerned about the implications for the provision of essential water and wastewater services in the event that a private sector participant failed in the management of this service. Against each of these concerns, your views are sought on: In what ways might private sector involvement impact on each of these concerns?
Then there are the commercial barriers to participation. The paper summarises the current approaches to water pricing and the methods used for charging access to existing infrastructure via third party access arrangements. Is the price of water too low to enable a commercial operator to make an adequate return? It seeks your views on: How significant are pricing barriers to private sector involvement in water and wastewater services? Can anything be done to reduce them?
Since risk allocation and risk management are important to ensuring that water and wastewater systems are well managed and can provide public benefits from private sector participation, the paper gives an overview of these issues and asks for your views on: How can risks best be allocated between public and private sector participants in water and wastewater services and is this a significant barrier to private sector involvement in the water sector?
Your views are also sought on whether there are: Other significant barriers to private sector involvement in water and wastewater services and what could be done to reduce them?
Finally, the paper outlines two possible initiatives to help facilitate and manage private sector involvement. First, the development of a national code for third party access as a means of reducing the time and cost involved in negotiating access arrangements. Second, the development of a set of national guidelines for contracting with the private sector - to assist in risk allocation and in the development of PPPs. Following a short explanation of each of these concepts, your views are sought on: How would a national code for third party access or national guidelines for contracting with the private sector assist private sector involvement?
Your feedback to the discussion paper will inform the Australian Government on approaches to encourage and to manage private sector involvement in supply of water and wastewater services in urban and rural Australia.