Speech to CEDA
Triennial Assessment Launch
Monday 20 October 2014, Parliament House, Canberra
Thank you to the Committee for Economic Development of Australia and National Water Commission for inviting me to introduce the latest triennial assessment of the National Water Initiative.
It's great to be here, announcing the latest triennial assessment and talking to you about water reform, during National Water Week.
The National Water Reform assessment 2014 being delivered by the National Water Commission is the next chapter in the national experience of water reform since agreement by COAG on the National Water Initiative a decade ago.
The National Water Initiative sets out the basis on which water resources are shared to support resilient communities, healthy ecosystems and economic development.
Then Prime Minister John Howard introduced the National Water Initiative which has since delivered significant and tangible benefits for Australia.
Ten years on individual water users, communities and industries around the country can attest to the increasing benefits of efficient management of water resources, supporting resilient communities, healthy ecosystems and economic development.
A journey of this length allows us to reflect on our successes as well as identify areas for continued development.
The 2014 triennial report provides an independent assurance that the water reforms articulated in the National Water Initiative, along with other subsequent reforms are continuing to be pursued and upheld by governments across the country.
The report also examines changing water management challenges and proposes recommendations for the future of water reform priorities.
Just over a year in as the Parliamentary Secretary for the Environment with responsibility for water, I can confirm that our government from day one has been committed to upholding the water reform progress that has been achieved over the past decade. More importantly we are committed to progressing water reform over the next ten years.
The progress we have made in this space has very much been a partnership with the commonwealth, state and territory governments, and our Government is committed to working in continued partnership with the states and territories to provide ongoing national leadership on water reform.
The triennial assessment is an avenue for feedback to be provided to the government as to where water reform needs to be progressed into the future.
This report largely restates the importance of reforms already undertaken or embodied in the National Water Initiative. However, this review joins a number of other recent bodies of work in calling for further reform in the urban water sector.
The triennial assessment brings to the fore the key messages from many voices highlighting microeconomic reform and independent regulation as constituting the critical requirements for the urban water industry to grow, develop and address the substantial investment challenges of the future.
As most of you in this room would be aware, the Government has recently introduced a Bill into the Senate that will enact the decision to abolish the National Water Commission that was set out in this year's budget.
While this decision has had moments of controversy, this does not diminish our Government's commitment to ongoing water reform. In fact, this move will strengthen the independence of critical analysis of water reform and provide a renewed focus on the economic challenges facing the water industry.
As outlined in the Bill, the Productivity Commission will take on responsibility for undertaking future triennial assessments and has been funded in the budget to do so.
I am confident that this decision will provide the industry with the knowledge, expertise and skills required to develop in more detail the types of reform that have been identified through this triennial assessment.
By allocating the assessment and audit functions to the Productivity Commission, state and territory stakeholders will benefit from the Productivity Commission’s reputation for independence, the confidence in which it is held by the Australian public and governments, as well as its performance and benchmarking expertise.
The Productivity Commission has already demonstrated their capability in this space via their 2011 report into Australia's Urban Water Sector, which found that there is a “strong case for microeconomic reform in the urban water sector.”
Three years later there have been limited actions undertaken by states to address this, as recently identified in the Draft Competition Policy Paper released last month, which highlights a need for governments to deliver on water reform, specifically in regards to improved economic regulation in the urban water sector.
The call by the Harper Review in their draft report for a nationally coordinated approach to assessing and approving pricing determinations for water utilities is one that I will follow deliberations on closely.
We will need to await the findings of the final report, but if these recommendations carry through, there will be a substantial weight of evidence the National Water Commission, Productivity Commission and Harper Review highlighting the need for more effective regulation and reform within the urban water sector.
I am pleased that this NWC report identifies it as appropriate for the PC to revisit this work as a means of putting more detail to the NWCs call for an acceleration of urban water reform. This is a suggestion the government will carefully consider, along with the final recommendations of the Harper Review.
In light of the challenges that still face the industry in setting a robust framework for the future, strong and independent oversight of ongoing reform is crucial and the Productivity Commission is well placed to monitor and assess the ongoing progress of water reform, identify gaps in reform and help to drive future progress.
There has also been increased activity by the urban water sector pondering these matters themselves. The Australian Water Association National Water Policy Summit held last week is a good example of how the industry can provide ideas, information and impetus to governments in continuing the reform agenda, and I understand that the need for ongoing microeconomic reform and independent regulation was a key theme of the summit.
This builds on the work of the Water Services Association of Australia, for whom I recently released the Improving Economic Regulation of Urban Water report.
I am looking forward to the opportunities that governments and industries have to work together to build on the work that has been undertaken in this area to identify the economic reforms that need to be undertaken by the states to build on what the National Water Initiative principles have achieved to date.
However, with the work of the Productivity Commission, National Water Commission, Harper Review of competition policy and water industry bodies all pointing in similar directions it is clear that the future in urban water reform must be about action rather than reports.
All of these reviews argue that to secure required levels of future investment in urban water infrastructure, especially private investment, we need strong independence in regulation, especially price setting regulation.
In line with key policy, our government is also committed to infrastructure investment that boosts the productivity and efficiency of the economy as a whole and to that aim we are keen to pursue and incentivise asset recycling initiatives with the states and territories, where appropriate.
According to the latest National Water Commission National Performance Report, the written-down replacement cost of fixed urban water assets was in the order of $156 billion. We believe that there may be scope to recycle some billions of dollars of these assets to fund critical and more effective infrastructure. A recent example of successful asset recycling was the sale of Sydney Water’s desalination plant by the NSW government in 2012.
However, this potential can only be optimised with the right regulatory settings that give confidence to current and future investors.
This and related work on reducing red tape and the regulatory burden will, I hope, increase the capacity for flexible and innovative approaches to the provision of urban water supply.
The challenges to meet future urban water demands are real. On top of ageing existing infrastructure in many cities we face predictions of population growth of 21.5 million over the next 50 years, with additional water demand of 600 billion litres annually by 2026.
The states, who rightly are responsible for urban water infrastructure, should not sit idly by and ignore the findings of multiple expert reports.
Once any further work is completed by the PC next year, as well as findings from the Harper competition policy review, I intend to meet with state ministers to discuss reforms and actions, including the possibility for national cooperation and coordination in the economic regulation of urban water utilities.
Clearly this next frontier for water reform requires expertise in economic specialisation and I look forward to the Productivity Commission leading the charge with industry to provide strong and rigorous oversight of the sector, building on the decade of work by the National Water Commission.
The NWC has made a valuable contribution to water reform since its establishment in 2004, playing an important role in water resource policy and management nationally, as well as undertaking research and disseminating knowledge and adoption of standards; thus building on the agreement reached on the National Water Initiative a decade ago.
Given both the substantial progress already made in water reform and an increasing focus towards the economic aspects of water reform, the Government has decided there is no longer a need for a standalone entity to monitor implementation of national water reform.
Rather we have sought to bolster the potential for success by embedding the already well established NWI principles more firmly in the Government’s economic reform and competition policy agenda.
Our Government will ensure that assessment and audit functions under the National Water Initiative will continue to be independent and effective going forward, building on the decade of work under the National Water Commission.
The current and past Commissioners of the National Water Commission can rightly be proud of the work that has been achieved under their watch as we begin to move onto the next stage of reform, in the knowledge that we have a sound base in the National Water Initiative principles that have been developed into such a strong framework for the industry.
The triennial assessment report will be an important information source for Government, industry and the wider community on how, as a nation, we are progressing the wise management of our water resources under an agreed policy framework.
Our Government will carefully consider the information presented in the assessment report and work through its recommendations with state and territory governments. We will not backtrack on water reform and we will ensure progress on water reform continues to be reported on transparently, expertly and independently.
I thank the Commissioners and the staff at the National Water Commission for their work on the Commissions final triennial assessment, which builds on a decade of work supporting the prudent management of this most precious natural resource.
It gives me great pleasure to release this review here today.