Update LWU Inquiry LGSA Leaders Forum 11/04/08 What is the

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					Update – LWU Inquiry, LGSA Leaders Forum 11/04/08


What is the Inquiry about?


 Identify the most effective institutional, regulatory and governance arrangements
  for the provision of water supply and sewerage services in regional NSW.
 Cost-effective, financially viable, and sustainable, optimise whole-of-community
  outcomes, and achieve integrated water cycle management.
 Perceived drivers: water availability under climate change and drought,
  demographic change, skills shortage, infrastructure challenges (backlogs and
  supply augmentation).


Where is the Inquiry at?


 The Inquiry Panel is currently conduction public hearings throughout NSW.
 Submissions are due by 30 April.


What has Local Government (LGSA) achieved so far?


 Inclusion into terms of reference:
   o Whole-of-community outcomes
   o Integrated water cycle management
   o Individual councils remain financially sustainable
 Options paper to assist councils in making submissions.
 Reference group with Local Government experts.
 Extension of period in which to make submissions.


What do councils think?


 Many different views:
   o County councils embracing a system of “bigger county councils”.
   o Groups of councils develop models for regional alliances.
   o Many councils strongly advocate the status quo for their local water utility.
   o Common is that councils do not want to lose their water and sewerage
      operations and assets.
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Submissions!


 34 submissions on DWE website:
    o 15 councils and one council group representing 6 councils (Lower Macquarie
        LWU Alliance)
    o 4 county councils
    o Country Water
    o 13 other stakeholders (mainly industry and environmental groups, and two
        citizens).


 Councils’ views:
    o Council owned water utilities with varying degrees of regional cooperation (up
        to regional mandatory alliance).
    o Assets, operational control and pricing remain with councils.
    o Councils best placed to do integrated water cycle management and provide
        one-stop-shop for community.
    o Removal would have significant negative impacts on council operations and
        regional economies.


 County Councils:
    o Generally, county council model based on catchments.


Public hearings!


 Nowra outcome: Shoalhaven and Eurobodalla advocated status quo.
 Dubbo:
    o Lower Macquarie LWU Alliance including Dubbo, Warren, Wellington,
        Narromine, Bogan, and Cobar1
    o Lesson from Dubbo: Alliance model must address the question which
        functions, if any, are transferred to alliance, how the alliance will perform them,
        and how the alliance is accountable.

1
  Alliance includes resource and skills sharing, peer review of performance, (potentially) water
resource sharing arrangements; councils retain asset ownership, operational control, and setting of
prices; no functions yet assigned to alliance, councils did not want a county council because of their
bad experience with electricity and the fact that only councils can provide IWCM, integration with other
council functions (capturing economies of scope), and be a “one stop shop” for their communities.
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What are LGSA’ issues?



 Consultative and transparent process; provision of ample opportunity for Local
  Government to respond.

 Providing research and submissions to support councils and identify gaps and
  emphasise Local Government’s perspective with the Inquiry.

 Ensure important issues are addressed including:

   o Integration with other general purpose functions to utilise economies of scope
      and achieve whole-of-community outcomes (balancing water and sewerage
      functions, land use planning, economic development, environmental
      management etc.) – only Local Government can do that.

   o Integrated water cycle management (water supply, sewerage, and
      stormwater, vertically integrated provider, i.e. supply (headworks), treatment,
      distribution, and retail – no vertical disaggregation like in SEQ.

   o Financial sustainability of councils if water and sewerage is removed
      including impacts on local economies and local employment.

   o Local ownership and control of water supply and sewerage provision are
      critical in ensuring optimal outcomes for local communities; no privatisation of
      water supply and sewerage operations/infrastructure.




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Notes on possible questions/issues!


Re: State takeover:
 Minister has publicly said that the inquiry was neither a grab for councils' assets
    nor for dividends for the State Government.
 Ian Armstrong and Col Gellatly say at the public hearings that when they took on
    the Inquiry Panel job there was no preconceived notion from the Minister’s side.


Re: Privatisation:
 LGSA opposes privatisation.
 Two conceivable ways:
    (1) Privatisation of vertically integrated local/regional monopoly providers.2
    (2) Privatisation of contestable elements (where there could be a proper
        competitive market) of disaggregated model (SEQ); i.e. retail and perhaps
        supply/treatment.


 Weaknesses:
 To (1) Privatisation of vertically integrated local/regional monopoly providers
    o Problem: no competition.
    o Main purpose of privatisation cannot be achieved, i.e. less regulatory and
        governance cost due to market self regulation and efficiency and innovation
        gains through competitive market mechanisms.
    o Incentive to make short term gains and avoid making long term investments
        as there is no competitor who could do better.


 To (2) Privatisation of contestable elements in disaggregated model3
    o E.g. disaggregation of supply, treatment, distribution, and retail.
    o Productivity Commission acknowledges that a competitive urban water market
        does not exist anywhere in the world.
    o Disaggregation is contrary to the objective of integrated water cycle
        management.


2
 e.g. sale of Victoria’s SOEs
3
 Due to local circumstances supply might have monopoly characteristics; however there are several
supply options that might compete (e.g. dams, recycling, desalination). Water normally cannot be
easily transported and distributed widely (however, construction of water grids to move water to
wherever it is needed in densely populated areas is being considered, e.g. SEQ); it depends on local
water resources.
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   o However, there is scope for competition in decentralised systems; third party
      access already exists but is struggling because of high cost (e.g. recycled
      water schemes), potentially high regulatory cost due to health and
      environmental relevance of water.


 Generally, who should make decisions (supply augmentation infrastructure) that
  impact on water availability and security and achieved social, environmental and
  economic objectives: government and its water utilities or the market?


Re: water pricing
 Pricing needs to ensure cost recovery and adequate investment decision in supply
  augmentation.
 Question: Elements of scarcity-based pricing to send signals for investment to
  ensure desired long term availability/security of water supply and direct water
  towards use that is highest valued by community?
 Question: Scarcity-based pricing to replace prescriptive water restrictions?
 Question: Involvement of politicians or independent bodies in price determinations
  (degree of administered pricing).
 IPART determination practically not feasible for 100 or so LWUs; feasible only for
  10 to 20 LWUs.




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