Australia's urban water sector needs major changes to meet the challenges of providing services that minimise costs and maximise benefits to the community, according to a draft report released by the Productivity Commission.


The draft report - Australia's Urban Water Sector - reports that Government responses to the recent water shortages have resulted in large costs to water consumers and the community generally. Nationally, water restrictions are estimated to have cost in excess of $1 billion per annum from the lost value of consumption alone, and some large supply augmentations could cost the community up to 5 billion dollars or more over the next decade or two.


Presiding Commission, Dr Wendy Craik said 'There is a strong case for reforming the sector. There are some fundamental weaknesses, with conflicting objectives, unclear roles and responsibilities, and deficient governance arrangements, across policy making, regulatory and service delivery institutions.'


The Commission affirmed that it is the role of State and Territory Governments to create the incentives and frameworks for institutions undertaking policy making, regulatory and service delivery functions to operate efficiently. Its proposed reform package includes: clarifying the overarching objectives for policy in the sector; ensuring that supply augmentation, pricing and regulation are aligned with it and assigned to the appropriate organisation; putting in place best practice governance arrangements for institutions; and monitoring the performance of utilities and reviewing progress on implementing reform.


The report acknowledges that the circumstances of urban regions vary and there is not a 'one-size-fits-all' solution with respect to industry structure. The Commission has identified a number of different options for structural reforms that could be beneficial in large cities and smaller regional urban areas.


Dr Craik said 'The reform package would provide benefits to the community. Water consumers would get more choice about price, reliability and security of supply while holding water utilities responsible and accountable for delivering their services efficiently. It's also timely to undertake reform, with security of supply unlikely to be an issue in most jurisdictions in the near future.'


The Commission is seeking public feedback on its draft proposals through submissions and attendance at its public hearings in May/June. The final report will be delivered to the Government at the end of August 2011.


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