Water price rises driven by State Government reforms

23 / Jul / 2010 | News

THE Queensland Treasurer’s claim that Councils throughout South East Queensland (SEQ) are setting the water prices for the three new water companies is as misleading as it is wrong, according to SEQ Mayors.

The Council of Mayors (SEQ) puts the blame for water price increases fairly and squarely at the feet of the Queensland Government because:
• There has been a 20 to 25% increase in State bulk water charges;
• The State Government’s 40% subsidy on new water infrastructure was scrapped; and
• The ongoing and cumulative costs of implementing a new water reform model.

It was the State Government that legislated the transfer of water distribution and sewerage services from SEQ Councils to three Council-owned water companies – with independent boards.

From 1 July 2010, water prices were set by three water companies established under State Legislation that are also subject to price monitoring by the Queensland Competition Authority.

Council of Mayors (SEQ) Chairman Councillor Campbell Newman said this was not the water distribution model championed by SEQ Councils – it was a compromise model that had to happen because half way through a major and overly complicated water reform process, the State Government realised it didn’t know too much about running a water business.

Cr Newman said Council-owned water entities were doing everything they could to minimise price rises, but faced some huge challenges as a direct result of State Government policy decisions.

“The cost on water bills for families and businesses in SEQ is because the State Government pursued an un-necessary and painful water supply and distribution process, changed its mind half way through the process – and then went for a compromise model,” Cr Newman said.

“Then there are the price hikes in the State Government price for bulk water, the costs now absorbed by water utilities because the State Government scrapped the 40% capital subsidy program.”

OTHER IMPORTANT POINTS:

State bulk water prices will treble from $628 per mega litre to $2074 per mega litre between 2008 and 2013 in Brisbane. This includes another State Government rise of 22% next year;
• The withdrawal of the State Government’s 40% capital subsidy for new sewerage and water infrastructure will add further $80 million a year to capital costs from 2011;
• While SEQ Councils have made every effort to mitigate adverse impacts, the State Government’s reform model also carries significant transitional costs; and
• New water entities will struggle to achieve efficiencies from economies of scale because the State Government insisted on three years of job guarantees (on top of the three years of job guarantees workers received post-council amalgamation in 2008).

And now Queensland Treasury also wants the water businesses moving to an investment grade rating within three to four years, which will provide an additional challenge for the three water companies.

The prices set by the new entities will be reported to the Queensland Competition Authority which will assume full price review functions from 2013. The Queensland Competition Authority is yet to release its pricing principles, making the task for the new water entities in their first year even more difficult.

The boards appointed to manage SEQ ratepayers’ water companies are committed to delivering efficient and effective water businesses at the lowest possible cost.