Australian’s Urban Water Sector

Abstract

The Productivity Commission’s inquiry report — Australia’s Urban Water Sector — was released in October 2011. 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 maximize net benefits to the community; ensure that procurement, pricing and regulatory frameworks are aligned with the overarching objective and assigned to the appropriate organization; put in place best practice arrangements for policy making, regulatory agencies, and water utilities; and put in place performance monitoring of utilities and monitor progress on reform.

Keywords: urban water, drinking water, waste water, water utilities, COAG, national water initiative, water reform framework, water security, water policy, water catchments, water resource planning, water supply services, water management practices

JEL Classification: Q, R