Warnings that TasWater takeover backtracks on reform

Legislation fails to protect long-term interest of consumers, says Miles Hampton

THE State Government’s legislation to take over TasWater fails in its fundamental duty to protect the long-term interests of consumers.

The Productivity Commission’s draft report on National Water Reform, released on September 15, is an indictment of the legislation and contains warnings against the kind of powers Treasurer Peter Gutwein intends to assume. Most telling is the principal recommendation that uses the Tasmanian legislation as an example of government backtracking that will undermine progress and reform.

Should a takeover occur as proposed, Tasmania is on its way to becoming a national example of short-sightedness, having rejected the principles of best practice agreed to by all Australian governments and, in the process, losing its way on water and sewerage reform.

Under this scenario, we will eventually ask ourselves why we did not listen to the warnings.

Tasmanians expect and deserve better.

The Productivity Commission characterises the State Government legislation as “backtracking” on reform, a clear indicator the legislation takes Tasmania in the wrong direction. Its primary recommendation is that governments should not backtrack on water reform. All Australian governments should fully embed National Water Initiative principles in water management decisionmaking and maintain progress on reform.

The commission reports that most jurisdictions have made good progress in meeting the objectives of the National Water Initiative. However, there have been some instances of jurisdictions acting in ways that could be characterised as backtracking on reform. For example, it comments that the Tasmanian Government plans to cease price regulation of Tasmania’s main urban water utility and specify reduced rates of price increases in coming years.

The State Government proposal will be neither cheaper nor fairer in the long term. The legislation is designed to unwind two of the most significant reforms of the National Water Initiative.

The Productivity Commission says there have been many reforms in the water services sector and two of the most significant have been the move to costreflective pricing and the separation of service delivery from the broader role of government.

But it warns the potential for interference remains, as indicated by the Tasmanian Government’s introduction of legislation in July 2017 to greatly restrict the role of the economic regulator and limit the rate of price increases to address its concerns about affordability.

The commission says political intervention in independent economic regulatory determinations, whether motivated by shareholder-return considerations or political

dynamics, is deferring costreflective pricing and efficient price signalling. The report says this behaviour is a barrier to efficiency and innovation sought through corporatisation.

The report goes on to say economic regulation also supports the separation of service delivery and government policy-making by ensuring that pricing processes are transparent and undertaken in accordance with the long-term interests of consumers, rather than being driven by, for example, a short-term desire to extract dividends or simply keep prices low for consumers.

The Productivity Commission finds that corporatisation has delivered more efficient water services and a stronger commercial focus in service providers that has benefited water users.

It says local ownership and management of distribution services and, to a lesser degree, the establishment of government-owned corporations has improved productivity, accountability, long-term planning and responsiveness.

The commission says there is a need to separate the roles of owner, policy maker, regulator and price setter, and those which sit with the utility service provider. Independent economic regulation encourages efficiency by applying scrutiny to utilities’ operational and investment decisions, and so requiring consistent, high-quality business planning. It increases the transparency of decisionmaking and reduces the risk of political interference in pricesetting processes.

The commission says regulation provides a further check on political interference by reinforcing the principle that government obligations and directions should be made formally and transparently.

It also points to evidence that governments have intervened in specific investment decisions, when these should ordinarily be determined through clear planning processes following arm’s-length vetting by the economic regulator. Miles Hampton is a Tasmanian business leader and company director. He has been chairman of TasWater since its inception on July 1, 2013.