Privatising Australia's water

"It would be political dynamite to have companies making big profits through water rationalisation when Australia is prone to droughts," he says. "Water privatisation is a big, thorny political issue, but that doesn’t mean it won’t happen. I just think it will be very considered."

Australian Governments are studying the British model of privatisation closely.

In Adelaide, every time you turn on the tap, the cash registers are ringing in Paris, London and Houston, Texas. United Water owns Adelaide’s water supply, a joint venture between three water multinationals based in France, Britain and the US. In fact, just three companies now control 75 per cent of the world water business. The move is widely seen as a precursor to privatisation with United Water a front-runner to buy the business. United Water is a joint venture between Veolia Water (47 per cent), Thames Water (47.5 per cent) and Halliburton KBR (5 per cent).

In December 1997, three publicly owned Queensland water pipelines (Eungella, Collinsville and Blackwater) that supply coalmines and other industrial customers in central Queensland were offered for sale. Four Australian and overseas consortia were short-listed to buy the pipelines. The then Treasurer, Joan Sheldon, set up an inter-departmental working party to manage the sales with the water assets valued between $12-15 billion.

The Queensland Commission of Audit, a body set up by the Borbidge Government in 1997, recommended an end to public ownership of water assets. The Government appointed Deutsche Morgan Grenfell to advise it on the sale of the pipelines. An announcement was expected in August 1998, but was not released for public scrutiny.

Ernst & Young say water is not a commodity that lends itself as easily as, for example, electricity or gas to privatisation. The distinguishing factor is that water has a quality about it. To retain the quality and keep prices from escalating, you need some form of regulation. Those powers need to be much greater than for electricity and gas.

There is not a lot of growth in the basic consumer retail market because people cannot be encouraged to use more, but many opportunities for growth in industries such as beverages, hospitals, mines, nurseries, pulp and paper, and in co-generation plants.

All these industries need water and if you can tap into that, there is lots of potential for somebody to make lots of money.

Before water privatisation can be fully achieved, bulk water entitlements as well as quality and price must be examined. Heavy consumers of water are given a ceiling on their consumption entitlement. If they do not use it all, they can sell the balance to consumers that need water above a given ceiling. Such a system is supposed to promote more efficient use of limited water resources. It is a form of competition based on tradeable water rights. Chile has had this system for over 40 years.

All sides of the water-privatisation debate agree that the value in water assets lies in the fact they have a captive customer base. There is a good wholesale market in supplying water for the private sector for a profit, and in terms of retail there is also a captive audience.

Some corporate advisers envisage the time when a company, for example, an energy utility, will bid for water assets so that it can provide a one-stop-shop for gas, electricity and water on one meter. Such utilities companies will be interested in water as a means to diversify their portfolios and gain unlimited profits.

Customer retailing is a big factor that will generate the interest of the multinationals. This has already occurred in Britain. The first merger of a power company and a water company was in 1995. As utility companies from one industry seek to enter the markets in another, the exploitation of synergy across related industries is a key business strategy.