The notion of privatising Australia’s state-owned water utilities has been a contested talking point for decades. Following the sale of ten United Kingdom water authorities in the 1980s, many of Australia’s large metropolitan utilities were corporatiszed shortly afterwards in the 1990s. Meanwhile, State Governments such as the Kennett Government in Victoria began to engage in privatisations of the energy sector. Since then, the prospect of a similar move with water utilities has remained within the realms of plausibility.
With both State and Federal Governments facing large deficits and shortfalls in infrastructure investment, the significant proceeds netted from the sale of state-owned water utilities could go a long way towards funding additional investment for the water and wastewater sectors and beyond. In a 2013 paper, for example, Infrastructure Australia identified Australia’s water utilities could yield (subject to suitability) a potential $A37.5 billion if they were opened to private sector investment, a 68 per cent return compared to current paid dividends of $A12.1 billion.
But would the full privatisation of Australia’s water utilities increase the levels of investment in water and wastewater infrastructure? Additionally, does privatisation increase the level of investment in no-dig and trenchless rehabilitation and installation works?
Paying the water bill
For Australian Water Association (AWA) CEO Jonathan McKeown, increased investment in water assets is welcomed from both the private and public sector, with no current official policy towards full asset privatisation.
“There’s no direct preference between private or public investment as long as the assets themselves are being properly augmented and updated,” Mr McKeown told Trenchless Australasia,. “Aand that’s one of the top issues that the industry has addressed and identified in the last three or four AWA State of the Water Surveys that we do every year.”
With privatisation of water assets currently off the agenda of all State Governments, Mr McKeown said the AWA’s stance is to make sure the industry “is best prepared for such a move if it does come further down the track”.
However, Mr McKeown is wary of the politicisation of state-owned water infrastructure, especially if politics comes in the way of asset renewal and replacement programs.
“If you have ageing infrastructure that’s not augmented or upgraded and it’s postponed for another election cycle, the risk becomes incrementally larger,” he said.
For Mr McKeown, an encouragement of private sector investment into the water infrastructure industry, combined with regulatory reforms, could see suitable safety nets in place for both consumers and investments with the added benefit of water infrastructure no longer used as a political football.
“If the investment was to be made by the private sector in water assets, it would need to have security of tenure, a guaranteed and reasonable amount of return and no price gouging or heavy margins,” said Mr McKeown, singling out Australia’s superannuation funds as good candidates for the long term, low margin returns on offer from private investment in water utilities.
Super saviours
The scenario of superannuation funds buying up water utilities is a compelling one. In 2014, Global Water Intelligence Publisher Christopher Gasson discussed the notion of Australian superannuation funds replacing the significant amounts of government debt in the capital structure of water utilities in a bid to free up capital for other projects.
“The public is much less concerned by superannuation funds than private equity,” said Mr Gasson.
“The difference is that super funds are considered to be socially useful, whereas private equity smacks of parasitic capitalism (despite the fact that super funds are the main investors in private equity).”
Noting that Australia could be at a “major turning point” in terms of private investment in the water sector, Mr Gasson said the country’s water industry stood to benefit from private investment (or for increased levels of private sector participation in operations), with Australian consumers less likely to be slapped with steep price rises following privatisation due to far fewer utility subsidies compared to other nations.
“Australia is unique in being one of the few countries where water utilities pay money to their municipal parents, rather than vice versa,” concluded Mr Gasson.
“It will provide a transparency to the benefits of private sector participation that has not existed before. I suspect that we will see growing interest from super funds in the opportunities available.”
What about trenchless?
For the effects of private sector investment on a water industry’s ecosystem of trenchless and no-dig stakeholders, the UK serves as the most appropriate litmus test.
In the mid-2000s, trenchless industry consultant Dr John Heavens gave a presentation on the effects of privatisation on the UK’s rehabilitation sector at a No-Dig Down Under Conference in Brisbane. According to Dr Heavens, in the 15 years following the privatisation of the UK’s water industry, water companies and contractors had succeeded in renovating or replacing 76,000 km of water mains and 6,000 km of sewers, with a number of new lining technologies developed and commercially proven.
However, the effects of the UK’s particular form of privatisation on the rehabilitation sector was not entirely positive, warned Dr Heavens.
“Perhaps the most striking illustration of the change in the industry was the dramatic change in the role of the Water Research Centre (WrC),” he said.
“Before privatisation, the WrC was recognised as a leading source of practical information on pipeline rehabilitation and pioneered a wide range of new techniques. Following privatisation, however, the removal of joint funding for WrC from the water companies necessitated the restructuring of WrC as a contract research organisation and now most of the work it carries out is often confidential.”
Additionally, the priority of the European Commission on improving water quality saw a marked shift in UK investment between water and wastewater assets, with funding siphoned away from sewers and wastewater infrastructure in favour of water mains, continued Dr Heavens.
“In the past, the criteria that traditionally triggered sewer rehabilitations was based on the apparent condition of the sewer as assessed by CCTV. The new policy, however, was to delay rehabilitation of such sewers. This change, from condition-based to performance-based criteria, led to a dramatic reduction in the renewal of sewers.”
The UK model
With Australia already enjoying a high standard of water quality and not subject to the purview of a regional politico-economic union, it is debatable if some of the more unfortunate fates that befell the UK trenchless industry would occur here following utility privatisation.
Having recently wrapped up the Ozwater’15 conference in Adelaide, Jonathan McKeown sees many benefits that could be gained if Australia adopted key aspects of the UK model, such as refocusing the utilities towards clear service goals under the regime of a large non-political regulatory body, similar to the UK’s OFWAT, which provides regulation, oversight and transparency.
“As discussed at the Water Regulators Forum at Ozwater, we want a system to make it much more transparent so that both the public and private sector is aware of what’s coming up and the requirements that need augmentation, with this information not part of a smaller closed circuit environment,” said Mr McKeown.
“The UK regulator encourages innovation through transparency, so utilities really have to address how and what they’re planning is going to be in the interest of the customers and to reveal the whole plan, and this enforces a level of transparency that they didn’t have previously.”
Also in attendance at Ozwater was OFWAT Executive Chairman Cathryn Ross, who revealed in her keynote presentation that the privatisation of the UK water industry saw up to å£125 billion in private sector investment, with better and more stable infrastructure and improved standards of service. Ms Ross also participated in the Water Regulators Forum alongside Australian water utility CEOs.
Keeping above water
Looking ahead, Mr McKeown sees increased private sector participation in Australia’s water industry as inevitable, whether it comes in the form of privatisation, direct investment in assets, or increased outsourcing of operations and services.
“Whatever policies are decided, I think there are opportunities to recycle capital assets and to take water assets off the balance sheet so State Governments can use the proceeds of those sales much more effectively in other areas of the economy, whether it’s education or health services,” concluded Mr McKeown.
How such a shift in investment would affect the trenchless industry remains unclear for now. One thing is certain, however: demand for Trenchless Technology will remain. In its Australian Infrastructure Audit, published in May 2015, Infrastructure Australia remarked: “underinvestment in maintenance of some water assets, and ageing infrastructure, will require an increased focus on maintenance and renewal.”