1. PricewaterhouseCoopers 26 July 2007 Page 1 ACCC Regulatory Conference 2007 ACCC Regulatory Conference 2007 Water market regulation, infrastructure access and governance Thursday 26 July 2007 Craig Fenton Director Infrastructure, Government & Utilities 

2. PricewaterhouseCoopers 26 July 2007 Page 2 ACCC Regulatory Conference 2007 A brief history of the water sector … 2900BC, first recorded dam, on Nile River, built by Herodotus 2600BC, Indus Valley civilization constructs complex networks of brick-lined sewage drains (also had outdoor flush toilets) 1804 first municipal water filtration works (Paisley, Scotland) 1907 Murrumbidgee Irrigation Scheme commences 1947 Snowy Mountains Scheme commences 1982 first introduction of consumption-based charging for water in Australia (Hunter Water, Newcastle)

3. PricewaterhouseCoopers 26 July 2007 Page 3 ACCC Regulatory Conference 2007 Water, water, everywhere … In aggregate, Australia has abundant water supplies … 385,923 GL annual surface run-off … or 386 billion tonnes of water On a per capita basis, Australia is amongst the wettest nations in the world … in aggregate, we use only 6% of total surface flows … but vast majority of run-off is distant from major population centres – in far north Queensland, NT, WA and south west Tasmania Accessible water resources, near to population centres, are typically (close to being) over-stretched

4. PricewaterhouseCoopers 26 July 2007 Page 4 ACCC Regulatory Conference 2007 Some of the key issues facing the water sector … Balancing supply and demand Traditional supply augmentation focus, impact of drought/climate change, recycling (indirect potable recycling), demand management, desalination Environmental pressures Especially in rural sector where many systems over-allocated, increasing community expectations for environmental performance Health and water quality Reticulated potable water supply possibly the greatest ever health advance in human history; continuing risk of water quality ‘incidents’

5. PricewaterhouseCoopers 26 July 2007 Page 5 ACCC Regulatory Conference 2007 Some of the key issues facing the water sector … (continued) Paying for all of the above Rapidly increasing prices, massive capital financing requirements over next decade Institutional and governance arrangements Best institutional model to provide incentives for efficiency, promote competition where feasible, provide performance accountability/transparency for regulators Skills and labour force issues Publicly-owned utilities struggling to compete for skilled (professional engineers and managers) and unskilled labour

6. PricewaterhouseCoopers 26 July 2007 Page 6 ACCC Regulatory Conference 2007 Multiple dimensions of Government involvement … Governments are involved in the water sector as … Owners & financiers, businesses are almost universally publicly-owned Environmental managers, planning and management of water resources (extraction from rivers, groundwater etc) and regulation of environmental conduct (wastewater discharge etc) Price and service regulators, usually through independent regulatory agencies Water is constitutionally a State responsibility … … but significant Commonwealth involvement … COAG and the NWI, and more recent proposals for Commonwealth powers over MDB

7. PricewaterhouseCoopers 26 July 2007 Page 7 ACCC Regulatory Conference 2007 … arguably has led to a series of confused position positions Affects both State and Commonwealth policy and practice Australia’s water ‘problem’ one of relative scarcity and dysfunctional management frameworks Textbook case of (nearly) unlimited needs/wants, and constrained supply … at least in short-run, and within certain cost boundaries Solutions impeded by poor level of basic data … only now developing water ‘accounting’ framework

8. PricewaterhouseCoopers 26 July 2007 Page 8 ACCC Regulatory Conference 2007 Lessons from other markets Markets operate through and affect both demand and supply Price as reference point for determining merit order of options Powerful incentive, encourages individual behavioural changes Market interventions can have unanticipated and undesired consequences Poor outcomes where some options arbitrarily excluded from consideration, others given “most favoured nation” treatment Markets good servants, poor masters … … question is not whether water markets could ever be perfect, but whether they can be better than what we have now