Home' Future Building: The Australian Infrastructure Review : July 2011 Contents futurebuilding 87
Volume 2 Number 1
The challenges facing regional water equality
According to the report, it is this poor financial
performance on the part of a number of utilities
that underpins their inability to meet minimum
quality and pricing standards, as they are simply
unable to invest enough to increase the efficiency
and effectiveness of their infrastructure.
The report estimates the sector’s annual capital
expenditure requirements to be in the order of
$790 million in 2008–09, or around four per cent
of the total sector-wide asset replacement value of
Actual capital expenditure in 2008–09 was
around 3.4 per cent of total replacement value,
suggesting that while local utilities are, on average,
spending enough to cover replacement costs and
growth, they are not investing enough to increase
the efficiency and effectiveness of their water or
State Government subsidies delivered through
the CTAS, while assisting to contain this shortfall
in recent years, have been unable to plug the gap
and, as a result, a growing infrastructure investment
shortfall has arisen.
IPA’s report has estimated this investment
shortfall to be in the order of $150 million per
annum (in real dollars).
A comparison of investment levels across the
regional water sector with the state’s metropolitan
utilities further illustrates the extent of this
investment gap. Even when discounting the Sydney
Desalination Plant, the paper finds that regional
utilities are, on average, spending about half the
amount being spent by Sydney and Hunter Water
(see Figure 2).
The report also compares capital expenditure
levels of utilities in other states and territories (see
Figure 3 on the following page).
Moreover, the report finds that annual capital
expenditure of around four per cent of total
asset replacement value is only adequate if asset
replacement is in a long-run steady state. In
practice, assets such as water distribution pipes
are likely to have been originally constructed in
waves corresponding to population growth spurts
as well as increasing access to reticulated water
between the 1950s and 1970s. Given their low
profitability, the capacity of utilities to undertake
sizeable capital works programmes in order to
cover these ‘lumpy’ costs is, according to the
report, simply not there.
Outsourcing would enable local councils to
reverse this growing shortfall, whilst at the same
time enabling the State Government to reduce the
reliance on its CTAS. Longer term, this will allow
scarce State Government funds to be re-allocated
to other infrastructure sectors facing chronic
under-investment, such as local roads and rail.
The report finds that a handful of councils
have already taken proactive steps in respect to
outsourcing, including Bega Valley Shire Council.
Due to an influx of sea-changers combined
with holiday makers descending on towns in the
summer holidays, the capacity of Bega Valley
Shire Council to provide sewerage services was
being severely stretched.
Under an alliance agreement with Tenix, Bega
Council has been able to significantly upgrade its
existing wastewater systems, whilst at the same
time increasing efficiencies and reducing costs.
This included upgrading five existing wastewater
treatment plants, as well as building five new
plants to service smaller villages.
The alliance has also enabled Bega Council
to reduce its capital and operational expenditure
through the introduction of innovative Membrane
Bio Reactor (MBR) technology.
Rather than relying on a traditional gravity
sewerage system, the deal introduced a pressure
sewerage system that has meant the council is
able to reduce its pump stations from 25 to one,
Figure 2 – State regional water sector and metropolitan comparison –
annual capital expenditure (as a percentage of total fixed asset value)
(Source: Castalia analysis, 2011)
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