Home' Future Building Australian Infrastructure Review : Volume 5 Number 1 Contents futurebuilding 55
Volume 5 Number 1
Dr Peter Boxall AO
Now, if you compare this market with electricity,
you'll know that there have been signi cant reforms
in the electricity market over the last couple of
decades, and while water is not the same industry, it
is nevertheless a good starting point.
In electricity, there was a disaggregation in the
vertically integrated monopolies, so that competitive
services in generation and retail could be separated
from the natural monopoly of the grid system. There's
also the issue of providing access, and we've had the
development of a single wholesale electricity market in
eastern Australia, and a national regulatory framework.
These reforms have been a success; there have
been new entrants and there's been greater customer
choice, and this provides a very strong basis from
which to go forward.
Urban water is not the same. Like electricity,
there is a capacity for upstream and downstream
competition, with the monopoly transportation
network in the middle.
We need to be mindful of a couple of key
differences. Water is very costly to transport; although,
in some cases there is natural interconnectivity, such
as in the Murray-Darling Basin.
In terms of urban water, however, it's not really
possible to transport water from Melbourne to Sydney
in the event of a shortage in Sydney.
Also, unlike electricity, water can be stored. Of
course, in the future, with the development of battery
technology, it will probably be possible to store
electricity, but the key difference is that water can be
stored, and the urban water market includes several
products -- not just the supply of potable water and
recycled water, but also wastewater services and
sewage -- whereas with electricity, there's basically
The other thing is that water is regulated
more for health and environmental impacts than
electricity, and this is a key issue that needs to be
taken into account.
Currently in New South Wales urban water, we
have incumbent monopolies: Sydney Water, Hunter
Water and also the Central Coast councils, Wyong
and Gosford, all of which we regulate.
Most of these are vertically integrated, apart
from Sydney Water, where the Sydney Catchment
Authority (SCA) runs the bulk water and Sydney
Water purchases it. Nevertheless, it's a highly
integrated system of incumbent monopolies that are
The importance of competition
There has been quite a lot of work on competitive
procurement, such as in operating and
management contracts, and Build Own Operate
Transfer (BOOT) contracts.
But competitive procurement is one thing, and
competition in the market -- where you have outsiders
coming in and running the business -- is another
thing. That's what I'd like to examine: the possibility
of getting the regulatory system to the point where it
opens up to competition.
We have had a little bit of competitive
procurement in New South Wales in terms of the
desalination plant; recycled water, where we've
had some alternative supplies of water; and there
have also been a number of decentralised schemes
relatively at the margin, which I'll talk about later.
We also have independent price regulation, which is
one of our roles.
There has been progress made in New South
Wales with the Water Industry Competition Act
(WICA), which came into effect in 2006. The Act
is a licensing regime to allow new utilities to enter
the market, and it also provides for new regimes to
negotiate access to infrastructure.
The impact has been positive, but it's been pretty
modest. As yet, we've had no third-party access
seekers. We've mainly had small private utilities in
new development areas, such as the fringe areas of
Sydney and Newcastle, in the Hunter, and also in
some in ll projects where you have a new apartment
complex -- for example, in the inner city -- and they
want to have their own recycled water system.
There has been very little action, so if you have this
legislation, which is meant to promote competition
and entrants into the industry, and eight years later
not a lot has happened, then there clearly is a case for
review to discuss what else might be done.
In terms of third-party access, it has, in a sense,
been declared -- but it's rather limited, with water
treatment plants, for instance, not included.
But Sydney Water has come to the party and has
put out a draft access agreement, which they have put
to us for approval, and we've gone back to them with
a number of comments. It's been put on hold, not
because there's a real problem with it, but because
the government is reviewing WICA, which I'll get to.
Nevertheless, Sydney Water has taken the initiative
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