Water Journal : Water Journal February 2015
FEBRUARY 2015 water 45 Feature article However, governments at all levels face considerable fiscal constraints, which impact on their capacity to invest in the required public infrastructure. This led the Federal Government to initiate an inquiry by the Productivity Commission to examine ways to encourage private financing and funding for major infrastructure projects. On the private sector side, funding available for unlisted infrastructure debt and equity in Australia has jumped to $320 billion from an estimated $250 billion in just two years. Jim Miller told the IPA conference last September: “There should be no doubt that there is not a shortage of capital, even for large-scale programs, both in terms of privatisation and other projects coming through.” Like many things, not all infrastructure is created equal. The aim of governments and the private sector is to invest in infrastructure that will increase productivity, increase production and/or improve standards of living. And then it has to be delivered well. The scorecard is mediocre in this regard. In its Public Infrastructure Inquiry, the Productivity Commission was asked to examine issues relating to the high cost and the long lead times associated with public infrastructure projects in Australia. In its submission to this enquiry, Infrastructure Australia estimated the wastage incurred in the delivery of both public and private infrastructure, at $30b per annum on a total spend of around $215b4. This was attributed mainly to project governance and management issues. It further noted that failures in planning could result in sub-optimal prioritisation of infrastructure separate to the losses incurred in delivery. Over the past few years much analysis has been undertaken and papers written on every aspect of infrastructure planning, funding and delivery: benchmarking; value for money; procurement models; project governance requirements; debt financing options; alternative financing models; infrastructure strategies for every mode of infrastructure; balance sheet impacts; land value growth and so on. Ultimately it is up to governments to set the governance and institutional arrangements that will deliver efficient infrastructure with clarity of objective, integrated planning, robust and transparent analysis and business cases. It is also up to governments to ensure procurement processes and alternative financing models maximise the involvement of users in decision-making and the private sector in provision and operation where there is demonstrable benefit to the community. This will be an evolving space. whAt might this meAn for wAter infrAstructure? While most recent infrastructure commentary and attention has been on other sectors, the water industry has not escaped scrutiny. It is not exempt from a mixed scorecard on its delivery of infrastructure by the Productivity Commission, or its operational efficiency by the National Water Commission. There is continuing opportunity to both deliver and operate infrastructure and utilities better. To the credit of the industry, it remains a focus of most executives and their boards and shareholders. Last April, the National Water Commission released its 8th annual national performance report for urban water utilities5 (the Urban NPR). The high-level findings are that, overall, urban water utilities have improved their service levels, particularly in the areas of security of supply, service reliability, customer responsiveness and water quality. However, there has been a corresponding increase in residential water bills of on average 6.5% per annum, despite an industry-wide focus on efficiency in operations. This has led to policy concern at affordability and initiated a renewed focus on efficiency including benchmarking, increased private sector involvement, increased competition and, for some, divestment of assets. The Productivity Commission review of urban water in 2011 identified the potential for both market and government failures in the delivery of urban water services and made a strong recommendation for universal reforms. It advocated the need for clarity of policy and the role of government, reduction of duplication and cost in regulation, including the phasing out of price regulation, policy bans on various supply options which introduce inefficiency (something AWA has been advocating for many years), corporatisation of utilities and appointment of an independent skills-based board. The Productivity Commission further proposed a number of structural reform options that included vertically and horizontally separating water and wastewater services to introduce competition. This provides interesting opportunities for different private sector involvement in traditionally government-provided services. As institutional, governance and regulatory arrangements vary significantly across the country, the reform recommendations will resonate differently in different regions. Without the implementation of the recommendations by COAG and the expertise of independent bodies like the National Water Commission, progress will be voluntary and sporadic. In addition, there remain political and community sensitivities around privatisation of water utilities and their assets. Attention will continue to be focused on the urban water sector due to the relative attractiveness of urban water assets to long-term investors. Service demand is relatively reliable to predict, with growth linked to population growth and not exposed to the vagaries of global markets. In addition, the scale of parts of the sector is attractive. The total urban water sector asset base is somewhere in the vicinity of $140 billion6 and the industry invests $10–$15 billion annually in capital expenditure. All of this makes a strong case for governments, urban water utility boards and private sector proponents to continue to evaluate how best to provide water services and infrastructure for the next decades, and how private investment and operation might maximise the total benefit to the community. The focus is firmly on conceiving, delivering and operating the right water infrastructure for the future – providing reliable, high-quality water services for a growing number of people at a price we can afford. wJ the Author Lucia Cade (email: email@example.com. au) is a company director and consultant, specialising in strategy and business growth across the infrastructure sector. Lucia is a past Director and President of AWA and is currently Chair on Western Water in Victoria. financing infrastructure 4 Caravel Group, A Review of Project Governance Effectiveness in Australia, prepared for Infrastructure Australia March 2013. 5 National Performance Report 2012–13: Urban Water Utilities. Published April 2014. National Water Commission. 6 Written down replacement cost of assets as defined by WSAA.
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