Managing long-term water needs

Should the state’s key water utility be broken up like the old Western Power was?

This a question I’ve pondered many times, so I was interested to see that the Economic Regulation Authority has launched an inquiry on competition in the water and wastewater services sector.

And while you wouldn’t want to read too much into this, its worth noting that the ERA is chaired by Lyndon Rowe, the former head of Western Australia’s Chamber of Commerce and Industry, who has spent years standing for deregulation and the power of markets.

Mr Rowe now oversees the key instrumentality to make sure that privatised assets work effectively in the public interest.

The treasurer, Eric Ripper, sponsored the inquiry.

While Mr Ripper is a centrist Labor party stalwart, he was also the architect of the split up of the former Western Power into four new entities, in a bid to open the energy market to the benefits of competition.

Whether or not this inquiry finds similar opportunities in the water sector is yet to be determined, but I have to say I believe there is room to move on this front.

In many ways it is interesting that such an inquiry is under way.

Around the country, most knowledgeable commentators I have heard or read believe Western Australia’s water management – in terms of ensuring we have the resources we need – has led the nation.

Yes, we’ve had debates here about future water sources, but we’ve also had the luxury of time to have that discussion. In Queensland, New South Wales and Victoria, governments have been caught short and had to rush for quick fixes, amid all sorts of restrictions and mild panic.

But, in my view, that is all the more reason to continue to examine the way we do things.

By contrast, the national view has been that WA’s energy management has been a shambles, with a lot of blame thrown at the feet of the now-defunct monopoly.

There is a lot of catch-up being played out in this state and few of us will forget it was only two summers ago that blackouts shut Perth down and made us all realise how close we were to failing in this key sector.

Energy’s issues might have been urgent but the lessons are no less useful when it comes to water.

As a believer in free markets, I think the current Labor government has failed to go far enough with energy. It should privatise each of the energy utilities that resulted from the break-up, but that argument can be saved for another day.

They have, at least, attempted to create an environment where competition can grow and eventually flourish.

By separating, where they could, the network from the rest of the system, the government has created the single biggest safety net in terms of competition – quite the opposite of the federal government’s privatisation of Telstra, which left the country’s biggest telco in charge of the infrastructure its rivals needed.

Like roads, everyone in a market needs the ability to move their wares between buyer and seller. The fairer you can make that, the better.

Imagine what it would be like for other retailers if Woolworths owned the highways?

A similar issue is being played out in the Pilbara.

BHP Billiton Ltd and Rio Tinto Ltd know the value of the rail systems they have created to move their iron ore. They have no desire to share that with rivals such as Fortescue Metals Group Ltd.

That is not, by the way, an argument for changing the status quo up north – that’s for the courts to decide – it is simply an observation.

The electricity network is no different in the sense of its place in the market. It’s a conduit and it ought to be in a position to treat each customer on an equal commercial footing.

Of course, it is also important that it is watched carefully to make sure it doesn’t exhibit monopolistic tendencies. But that is what the ERA is for.

Gas, regrettably, is a different story. The former Alinta Ltd managed the network and sold gas, which for my mind is not ideal. The sale of the Dampier to Bunbury Natural Gas Pipeline also allowed Alinta, a big gas buyer, to become involved in the key distributor of gas to other big buyers.

Some of that has changed since Alinta disappeared, but it could have been handled better.

So when it comes to water, similar issues need to be looked at.

Water is a very precious commodity. In WA, it’s probably more important than energy in the hierarchy of needs.

In fact, if memory serves me correctly, water utilities came under state control about a century or so ago because private players failed the market in terms of meeting demand and safety. In water terms, that means some people were short of water and some became sick.

Safety and ensuring supply remain cornerstones of water today, but it’s nothing that couldn’t be managed with good regulation and incentives, because the private involvement in these areas has grown much more sophisticated in modern times.

Another change is the increasing breadth of water supplies.

We no longer just have a series of static dams, relying on the weather to meet our needs. There is an argument that all the privatisation in the world is hardly going to make dams more efficient.

But as we move more and more to ground water, desalination, wastewater recovery and household storage, there’s an argument that the supply side of the equation is becoming more flexible and the market may be a better place through which to find out how to push efficiency. To make this happen requires different owners.

CCIWA has made a submission to the ERA which does not suggest that the network be privatised, due to the monopolistic nature of its infrastructure.

I’d say that monopolies have to be robustly regulated but that doesn’t preclude this step. Nevertheless, it’s not the most pressing of matters.

The key points to this discussion are two-fold. Firstly, can the government reduce its footprint in a sector without reducing the community service provided and, secondly, by doing so, can it get a more efficient use of resources available?

While public sector boffins create the impression that they, like a benevolent dictator, can protect the community and shepherd us in the right direction, this model often comes undone despite the best of intentions.

Poor political leadership, public sector mismanagement or blinkered academic thinking may impact on any service provider, but such issues can be magnified significantly when all a community’s resources are with a monopoly.

We saw that with energy. Private energy people were warning of the issues years before they came, but the government-owned monopoly failed.

I’m sure the arguments, like the politics involved, were far more complicated than that, but I’d like to hope that we can approach the issue with water in a much more relaxed way, because we have a robust system and the benefit of recent experience.