NATIONAL WATER COMMISSION 2009 BIENNIAL ASSESSMENT OF THE NATIONAL WATER INITIATIVE
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NATIONAL WATER COMMISSION 2009
BIENNIAL ASSESSMENT OF THE
NATIONAL WATER INITIATIVE
20 February 2009
Contact: Andre Kaspura
Policy Analyst, International & National Policy, Engineers Australia
11 National Circuit Barton ACT 2600
Tel: 02 6270 6581 Fax: 02 6273 4200
Email: akaspura@engineersaustralia.org.au
www.engineersaustralia.org.auNWC 2009 Biennial Assessment of the NWI
1. Introduction
Engineers Australia is the peak body for engineering practitioners in Australia, representing all
disciplines and branches of engineering. Membership is now approximately 86,000 Australia wide
and Engineers Australia is the largest and most diverse professional engineering association in
Australia. All Engineers Australia members are bound by a common commitment to promote
engineering and to facilitate its practice for the common good.
Engineers Australia has had in place sustainable development principles to guide members in the
conduct of their engineering practice for over 20 years. Sustainable development is an integral
component of Engineers Australia’s code of ethics which are agreed by all members. Engineers
Australia has also formally endorsed a Sustainability Charter and a comprehensive policy on
Australia’s energy future and climate change.
There is no doubt that without the National Water Initiative (NWI) there would be much less
progress on water reform in Australia. At best, however, the NWI is only a partial success.
Australian water reform began in 1994 and many of the unresolved issues from that agreement
were rolled into the NWI. Some of these matters have still not been dealt with as envisaged by
these agreements. Progress on most issues has been slow and characterized by a focus on
process rather than outcomes, completion of some elements and avoidance of others, particularly
those dealing with central issues such as commercial management practices and returning over-
allocated systems to sustainable extraction levels. The most successful aspect of the NWI has
been the establishment of the National Water Commission and the progress this organisation has
facilitated. The Commission has discharged its role quietly and diplomatically.
2. Water Entitlements and Planning
In principle, Engineers Australia supports water trading and the legislative and regulatory changes
that need to be made for effective water trading to become a reality. Considerable progress has
been made on some of these matters, but not on others. Water planning has clearly improved and
significant resources have been allocated in all jurisdictions. Engineers Australia is never-the-less
disappointed with the current situation. A succession of Commission assessments suggest that
progress has been slow and uneven. As recently as April 2008, a Commission Report on water
planning in Australia noted that “no jurisdiction can yet claim to have a fully effective water
planning system.”1
Water planning processes appear to be excessively geared to jurisdictional interests resulting in
considerable differences between jurisdictions and sometimes within jurisdictions. Although the
lessons cited in the Commission’s Report provide valuable insights for the development of
compatible water planning processes, it also serves to highlight the lack of progress made towards
that objective. For example, in a context where climate change already is impacting water
availability, the Report observes that the most common approach to forecasting future inflow
patterns is to assume continuation of past patterns. This approach calls into question the relevance
of the plans produced.
1
Mark Hamstead, Claudia Baldwin and Vanessa O’Keefe, Water Allocation Planning in Australia—Current Practices and
Lessons Learned, National Water Commission Waterlines, April 2008, pvi
ENGINEERS AUSTRALIA 20 February 2009 Page 1NWC 2009 Biennial Assessment of the NWI
Engineers Australia believes an invigorated approach to water planning is required. One possibility
is to propose a common water planning model to be adopted by all jurisdictions. A common model
could include the best practices now in use by States and Territories and a recommended
approach where no current practice is adequate.
3. Water Trading
The objective of water trading is to reallocate available water to its highest value use. While
research shows that water trading has made an important difference to the capacity of some
irrigation farmers to adapt to changing circumstances2, these benefits need to be kept in
perspective3:
• Although the volume and value of water traded has increased over time, the proportion of
tradeable water volumes in 2007-08 was still quite small (5.7% in NSW; 5.3% in Victoria;
3.8% in Tasmania and 2% or less elsewhere) and has been unduly restricted by the 4% out
of basin limit.
• It is not clear from available statistics what proportion of entitlements traded was actively
used water entitlements rather than “sleeper” entitlements.
• Market arrangements involve inordinate delays with most jurisdictions taking excessive
time to approve essentially very simple transactions. Outstanding issues (remaining areas
of incompatibility in registers; arbitrary restrictions on inter-basin trade; slow transfer
approvals and community concerns) have been apparent for several years.
• Little progress on returning over-allocated streams to sustainable extraction levels has
been achieved, particularly in the Murray-Darling system.
Although considerable progress has occurred on many of the “mechanical” matters necessary for
water trading, progress on key policy matters (the out of basin limit, dealing with sleepers and
dealing with over-allocated systems) appears to have stalled, suggesting unwillingness on the part
of the States and Territories to fully embrace the objective of water trading.
4. Best Practice Water Pricing
The NWI aimed to implement water pricing and associated institutional reforms that ensures
efficient and economical management of water and water markets, including efficient and
sustainable use of water resources, water infrastructure assets and government resources
allocated to water management. Metropolitan water utilities were to achieve “upper bound” or
commercially viable pricing by end 2008 and rural and regional water utilities were to aim for “lower
bound” pricing (upper bound less provision for the opportunity cost of capital) and where possible
to aim for “upper bound” pricing. Unlike the metropolitan objective, no firm date was agreed for
achieving rural and regional pricing objectives.
Delays in data availability inevitably complicate comment, but with this caveat in mind the
Productivity Commission’s assessment of the financial performance of Government Trading
2
Rural Industries Research and Development Corporation, National Water Commission and Murray-Darling Basin
Commission, The Economic and Social Impacts of Water Trading, September 2007
3
National Water Commission, Australian Water Market Report 2007-08, p125, www.nwc.gov.au
ENGINEERS AUSTRALIA 20 February 2009 Page 2NWC 2009 Biennial Assessment of the NWI Enterprises4 provides useful insights. This Report considered 24 government water trading enterprises (10 urban and 14 rural and regional) covering all capital cities except Darwin and rural and regional areas of Tasmania and Victoria, as well as the bulk water suppliers to NSW and Queensland rural and regional water utilities. All urban water utilities covered costs by solid margins and reported positive returns on capital assets in 2006-07. These results are consistent with achieving “lower bound” pricing. However, only 5 of the 10 urban water utilities reported returns on assets exceeding the “risk free rate of return” (5.8%; the return on 10 year Commonwealth Government bonds) which was the requirement to achieve “upper bound” pricing. Although these figures are for 2006-07, the extent of the under-shoot in performance is sufficiently large to require more than a single year to overcome. Sydney, Hobart, Adelaide and the Yarra Valley component of Melbourne are supplied by water utilities not yet operating commercially. While clearly considerable progress has been achieved by urban utilities, price setting institutional arrangement are unlikely to lead to the achievement of the NWI objective in the near future. No timetable was set in the NWI for rural and regional water pricing objectives. The cost of this oversight is clear from the Productivity Commission report. Only 8 of the 14 water utilities in this group recovered their costs with the other 6 making losses. None of this group had returns on assets which exceeded the risk free rate of return. Two utilities (Sunwater and Hunter Water) had returns on assets over 4% and could be close to “lower bound” pricing. Taking into account the National Water Commission’s position on the NWI provisions for urban water reform and the emphasis given to rural water management in the NWI, this outcome is disappointing. Besides achieving economic efficiency in water usage, one of the objectives of water pricing is to assist efficient and sustainable water infrastructure management. The latter has not received as much attention as efficient water usage and Engineers Australia believes that there is a clear link between failure to adopt commercial pricing and management practices and neglect of water infrastructure provision. Figure 1 (attached) compares trends in “real” engineering construction on different classes of economic infrastructure normalised by population size5. The trends are expressed in index number form (with 1988-89 as the base year) to facilitate comparison. These data are particularly useful because they exclude expenditure on maintaining existing infrastructure and the inflated land values which complicate analysis of published data by water utilities. In 1988-89, real Australian engineering construction on water infrastructure was $880.8 million (2005-06 prices), or 7.4% of real engineering construction on economic infrastructure. This share generally trended downwards and by 2006-07 it was 5.2%. As large investments in desalination plants materialized as on the ground developments, engineering construction on water infrastructure more than doubled in the following year to $4,056.9 million or 11.9% of economic infrastructure. 4 Productivity Commission, Financial Performance of Government Trading Enterprises, 2004-05 to 2006-07, July 2008, www.pc.gov.au 5 See the series of papers analysing Engineering Construction on Economic Infrastructure for each State and Territories available from www.engineersaustralia.org.au ENGINEERS AUSTRALIA 20 February 2009 Page 3
NWC 2009 Biennial Assessment of the NWI
In 1988-89, real engineering construction on sewerage infrastructure was $889.7 million (2005-06
prices), or 7.4% of economic infrastructure. Investment in new sewerage infrastructure also fell as
a share of economic infrastructure. Like new investment in water infrastructure there was a large
increase in engineering construction on sewerage infrastructure in the year ending 2007-08 (62%),
but despite this, this category of activity lost ground to 6.7% of economic infrastructure.
Figure 1 combines the trends in water and sewerage infrastructure to simplify comparison to other
classes of infrastructure. In the 15 years to 2003-04, Figure 1 shows that water and sewerage
engineering construction in most years did not keep up with population growth (index less than
100). Some may argue that this reflects a shift to better infrastructure use and more economical
use of water. To some extent this did occur, but Australia’s water and sewerage infrastructure in
the late 1980’s was far from adequate and the long period of low activity led to further aging of
already old infrastructure in many locations and an accumulation of needed activities that were
either deferred or simply not considered.
From 2003-04, activity increased above population growth, but remained low compared to new
construction in other infrastructure classes. The rapid increase between 2006-07 and 2007-08 is
mainly due to large investments in water desalination in several jurisdictions. Underlying the
national trend illustrated in Figure 1 were widely different jurisdictional trends:
• NSW; trend was very similar to the national trend
• Victoria was below the national trend for the entire period examined
• Queensland was above the national trend since 1993-94 and recent large investments in
water infrastructure have widened the gap
• SA; except for the period 1996-97 to 1998-99, was below the national trend
• WA; was above the national trend except for isolated years
• Tasmania from 1992-93 to 2002-03 was below the national trend, until 2006-07 was similar
to national trend but did not share in the upsurge of activity that occurred in 2007-08
• NT was below the national trend to 1997-98; since 2000 has largely been above the
national trend
• ACT; largely below the national trend except for isolated years.
5. Water for the Environment
The essential requirements to achieve this NWI objective are that over-allocated systems should
be returned to sustainable water extraction levels and that ground and surface water resources be
managed together. The 1994 National Competition agreement provided for substantial progress on
addressing over-allocated river systems to be made by 1998. The NWI found it necessary to
extend the timetable for this commitment to 2005 and added substantial progress on adjusting all
over-allocated systems by 2010. Engineers Australia notes that progress on these commitments
has been slow even in the context of revised timetables. Engineers Australia is concerned that
previously recognised over-allocated systems have been addressed by re-defining over-allocation.
If the view of parties to the agreement was that the timetable agreed was too stringent then a
preferable course would be to renegotiate it.
While States and Territories have established institutions with responsibilities relating to
environmental water flows, there appear to be fundamental flaws in these arrangements relating to
ENGINEERS AUSTRALIA 20 February 2009 Page 4NWC 2009 Biennial Assessment of the NWI
the authority of these agencies, the relationship between them and other water agencies and a
general preoccupation on the part of State and Territory authorities with protecting the rights of
water extraction.
The most obvious and important example of an over-allocated system, the Murray-Darling Basin,
now faces severe difficulties. Recent Commonwealth policies are moving in the right direction but
the pace of progress is slow at best.
6. Water Resource Accounting
Engineers Australia agrees that progress under this NWI objective has been particularly strong.
However, Engineers Australia is concerned at the possibility of delay to the broad timetable
articulated in the first biennial assessment. At this stage, National Measurement Institute pattern
approval standards planned for publication in March 2008 are still not available. Similarly, State
metering implementation plans are still being developed.
7. Urban Water Reform
Like the Commission, Engineers Australia believes that the NWI did not adequately provide for
urban water reform. The elements included in the NWI (water efficiency labeling, dealing with
system leakages, reconsideration of water restrictions, new guidelines for recycled water and
water sensitive urban design and reviews of institutional models) are worthwhile initiatives but do
not address the substantive issues and even here the responses have been uneven.
Water labeling legislation has been passed in all jurisdictions, but the approach used only
addresses consumer information and does not consider minimum efficiency standards. Engineers
Australia believes that mandating minimum water efficiency standards (at least 4 stars in the
present 6 stars system) is essential.
Most water utilities have programs which aim to reduce system water leakages. However, as
observed by Engineers Australia in its Infrastructure Report Cards6 (1999, 2001 and 2005), while
investment in these programs has increased, it has generally been insufficient to stem system
deterioration due to aging of both potable water and waste water assets.
Engineers Australia welcomes the progress achieved on new national guidelines for water
recycling. Unfortunately, similar progress in educating and informing the general public about the
value and utility of recycled water has not been possible. The approach used by water utilities to
the greater use of recycled water has been characterized by “take it or leave it” approaches and
“marketing” the merits of particular applications of recycled water instead of consulting with the
community about all potential uses to identify uses the community sees as now acceptable and so
progressively adding to community understanding and acceptance of recycled water. As Figure 2
shows, there has been limited progress in increasing the amount the amount of waste water
recycled in nearly all centres (the exception is Melbourne where City West, South East and Yarra
Valley should be aggregated).
6
Engineers Australia, Australian Infrastructure Report Cards, www.engineersaustralia.org.au
ENGINEERS AUSTRALIA 20 February 2009 Page 5NWC 2009 Biennial Assessment of the NWI Integrated water cycle planning, although referred to in many water strategy documents, does not yet appear to be the operational paradigm for water planning and management and is typically restricted to “icon” new developments. The lack of progress made on recycling waste water and the neglect of storm water reuse reflect the persistence of the one pass paradigm in many urban water utilities. There is also a reluctance to fully accept that there is a range of applications for urban water and not all of these require potable water. The reluctance of jurisdictions to use water pricing as a demand management tool continues to be an issue. The defacto main tool of urban water policy appears to be long term water restrictions. Mandatory water restrictions have been in place in most urban areas for several years. Water utilities have conducted on-going campaigns to ensure restrictions are observed and to inculcate the view that restrictions are a legitimate long term way to “share” scarce water supplies. Water restrictions are a valid option to ration water in a crisis situation, but are not a substitute for active commercial management of water supplies and infrastructure and active efforts to adopt the innovative options covered by total water cycle management. Most urban water utilities are effective monopolies in the geographic areas in which they operate and government policies appear to reinforce this situation. Despite an attempt to develop a third party access regime in Sydney to treat to tertiary level waste water now discharged into the ocean after minimal treatment for use as recycled water, institutional and other policies have prevented the proposal proceeding. Successful private sector participation has occurred in the form of private-public partnerships for specific infrastructure assets but the monopoly position of water utilities has been protected and has assisted the on-going predominance of entrenched views. 8. The National Water Commission The NWI provided for the establishment of the National Water Commission to assist in the effective implementation of the agreement between the States, Territories and the Commonwealth Government. Engineers Australia strongly supports the role and the activities undertaken by the Commission. The projects funded under the Commission’s programs and the Reports commissioned on a wide range of topics relevant to the NWI have been vital contributions to advancing progress. ENGINEERS AUSTRALIA 20 February 2009 Page 6
NWC 2009 Biennial Assessment of the NWI
FIGURE 1: REAL ENGINEERING CONSTRUCTION ON DIFFERENT
CLASSES OF ECONOMIC INFRASTRUCTURE IN AUSTRALIA
600
ROADS
BRIDGES, HARBOURS & RAILWAYS
500 ELECTRICITY
WATER & SEWERAGE
TELECOMMUNICATIONS
INDEX (1988-89=100)
400
300
200
100
0
1988- 1989- 1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007-
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08NWC 2009 Biennial Assessment of the NWI
FIGURE 2: CAPITAL CITY WATER RECYCLING
35
2001
PROPORTION OF EFFLUENT RECYCLED (%)
2004
30 2007
25
20
15
10
5
0
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