Treasurer Peter Gutwein’s Ministerial statement on TasWater

Madam Speaker, as announced by the Premier yesterday in the Premier’s Address, the Government has decided that the problems that we all know exist in Tasmania’s water and sewerage sector have been allowed to persist for too long.

The provision of clean water and effective sewerage is something that all Tasmanian communities rightfully expect to receive in the 21st century. Fixing the problems that exist across the state is a challenging issue, and one that the Hodgman Liberal Government is determined to tackle head on, because it is critical to tourism and our brand, and central to building the foundation for our economy to grow.

Before the 2008 reforms, collectively local government administered over 90 water supply schemes, and reticulated sewerage wastewater treatment services were provided by our councils. However, by the early 2000s, it became clear that this model was simply unsustainable.

There were too many small schemes servicing dispersed communities, and many councils were simply unable or unprepared to fund the cost of providing and maintaining modern infrastructure that met public health and environmental standards.

Madam Speaker, in 2006 a review of the industry was undertaken to examine the adequacy of Tasmania’s water and sewerage industry. The key findings of the review included:

  1. towns were on permanent boil water alerts, including key tourist towns;
  2. treatment plants had low levels of compliance with environmental standards;
  3. limited information on asset condition was available, and most service providers didn’t have strategic asset management plans;
  4. thousands of properties on the urban fringe were not connected to the sewerage network, who could reasonably expect to be; and
  5. up to $1 billion was needed over the following 10 years to bring services up to scratch.

Madam Speaker, that review made it clear that reform of the sector was needed urgently, to address the public health and environmental issues that had been identified. These findings led to the 2008 reforms, which were rightly supported by both sides of this House.

In 2008, the Parliament legislated to consolidate the delivery of water and sewerage across Tasmania, retaining local government ownership, whilst a more transparent approach to pricing was also established.

The purpose of the reforms was to enable the water and sewerage sector to operate on an appropriate commercial basis, with the balance sheet strength and expertise to deliver the outcomes that the community rightfully expected. The pooling of resources and staff should have enabled the sector to leverage its asset base, and achieve the much needed efficiencies of scale.

But sadly, the approach taken to date has not been successful.

Madam Speaker, this is no secret – it is on the public record. Report after report from the Tasmanian Economic Regulator and the Environment Protection Authority have laid bare just how little progress has been made.

Almost eight years after the initial reforms, there have been no significant inroads made in addressing the problems that gave rise to those reforms, and prices are still forecast to increase dramatically.

Despite the fact that in 2008 it was believed that up to $1 billion needed to be spent on fixing the problems, last December TasWater gave evidence to the Scrutiny Committee that, eight years later, only $700 million in capital upgrades had been delivered, while the size of the task has apparently grown – TasWater’s Chair Miles Hampden told the hearing that “The simple fact is much of our infrastructure has been deteriorating faster than we have been fixing it”.

TasWater we accept has had a difficult task. Underinvestment in infrastructure, in some cases for decades, has led to a situation where eight years on from when the reforms were put in place real progress has been difficult to point to.

In its 2016 State of the Industry report, the Economic Regulator noted that:

  1. improvements to the supplies of small towns across Tasmania, there were still 26 towns operating with restrictions on the safe use of their drinking water;
  2. only 72% of Tasmania’s drinking water supply systems achieved  bacteriological compliance;
  3. TasWater hadn’t yet fully implemented its monitoring program and 10 drinking water systems were not adequately monitored in 2014-15;
  4. infrastructure wasn’t adequately coping with demand, with continued instances of raw sewage being released to the environment through sewer breaks and overflows;
  5. overflows were at 7 times the national average; and
  6. despite significant investment, compliance with regulatory discharge limits had actually declined over the preceding five years.

In the Economic Regulator’s own words, “these outcomes resulted from prolonged underinvestment in sewerage networks and treatment facilities across the State as well as unsatisfactory operating practices and inadequate maintenance.”

The EPA has previously said that inadequate investment was a key reason for the lack of progress, and that its patience could only be stretched so far when dividends are being paid to owners rather than invested in infrastructure and operations.

In its most recent Annual Report, the EPA stated that “compliance with discharge to waters limits has gradually decreased since the hand-over of the sewerage infrastructure from local councils to the regional corporations … and then TasWater.

Madam Speaker, the issues are there in the reports of the Regulator and the EPA for all to see.

Since coming to Government, I have repeatedly made my concerns known to TasWater and its owners. We have always said we would work with TasWater, but that the owners needed to deliver on their responsibilities and that we wouldn’t be handing over a blank cheque.

Since 2014, I have made it clear in meetings with the business and the Owners’ Representatives that the Government’s position is that this was first and foremost, the responsibility of TasWater and its owners to fix.

In May 2015, following a meeting on these issues, I wrote to Mayor Tony Foster, as the then Chief Owners Representative, saying that the Government would not intervene – providing TasWater and its owners delivered on the environmental and public health outcomes that were needed. I also expressed the Government’s concerns that unnecessary financial constraints were being placed on TasWater to maintain the returns to its owners at a pre-determined level.

In July last year, following my speech to the LGAT conference where once again I raised these issues, I wrote to Mayor David Downie, who succeeded Tony Foster as Chief Owners’ Representative, reiterating the State Government’s position that local government should be prepared to do more.

Madam Speaker, I could not have made it clearer to TasWater’s owners over the last 2 years that with ownership comes responsibility, and that – first and foremost – funding TasWater’s infrastructure investment is the responsibility of the councils who own the business.

However, the reality is that the Tasmanian community have not been receiving their end of the bargain struck in 2008, in the form of improved public health and environmental outcomes.

Madam Speaker, last year it was refreshing to see that Miles Hampton recognised the need to do more and he and his board acted unilaterally to reduce returns to their owners and increase the level of investment being undertaken.

However given Councils’ expectation of continuing returns, it is clear that over time TasWater has been forced to adopt a very conservative investment strategy, and this has been a major constraint on TasWater’s ability to deliver its infrastructure program. As noted by the Economic Regulator, TasWater’s borrowings, as a proportion of owners’ equity, are far below the level of comparable mainland providers.

It is obvious that TasWater could fund significantly more in capital investment to fix its ailing infrastructure, if it hadn’t adopted such a conservative approach to its level of borrowings.

Madam Speaker, at the time of the 2008 reforms ownership was left with Tasmania’s councils. At that time, it was made clear to all stakeholders that while the financial returns would flow back to councils, those councils would be expected to deliver the necessary public health and better environmental outcomes for the State Government and the Tasmanian community. That was the dividend the State was meant to receive.

Madam Speaker, TasWater’s owners recently appeared in Government Business Scrutiny Hearings at the end of last year saying that they faced an impossible challenge, and as I have previously said TasWater’s Chair gave evidence that the infrastructure is deteriorating faster than TasWater is fixing it.

The State Government has heard these concerns and, while noting that Local Government have significant balance sheet strength, collectively as the owners of TasWater we understand that they believe they are unable to do more. However more must be done.

Madam Speaker, only a few days ago, I received an email from a couple who live in North East Tasmania, and who also own a  second property that they are trying to sell. The situation they described to me can only be described as third world.

They have no option other than to drive a car full of plastic containers to the local sportsground to collect water from the communal water tank, to collect the water that they will drink for the week. Throughout winter, they paint a very distressing picture of Tasmanians struggling with numb fingers and trying not to slip over in the mud surrounding the tank while they fill their water bottles. That is not the Tasmania we want nor is it the Tasmania we will accept.

In relation to the property they are trying to sell, which is in another town subject to a Do Not Consume alert due to lead contamination, they now have to pay to have water trucked in, and the uncertainty over the town’s future water supply is making it difficult to sell their property.

In the 21st century, in a prosperous Western democracy, these outcomes are unacceptable, and we should all view them as unacceptable and we have formed the view that – quite frankly –this situation is untenable.

These issues affect us all as a State and as a community – not just those Tasmanians who have to tolerate dirty water and failing sewerage systems, or the tourism, agriculture or aquaculture operators whose livelihoods are affected, but also the broader community. Other industries and other jobs rely on the economic activity generated by these sectors.

The State Government does consider that we have reached a “crisis point”, and as the Premier outlined yesterday we are no longer prepared to stand by and let this situation continue. As members are aware I recently convened a meeting with TasWater’s owner councils to examine the options going forward.

We were quickly able to establish that neither the status quo nor continued price hikes were acceptable, that federal funding was unlikely, and it was clear that Councils were unwilling to reduce their returns from the business.

Madam Speaker, that left us with only one option –intervention by the State Government. At that meeting I advised the owners that the Government was actively considering taking control of Tasmania’s water and sewerage infrastructure, to leverage the strength of the State’s finances and other resources, to provide the quality and level of service that all Tasmanians deserve.

Madam Speaker, as announced by the Premier yesterday, we have made our decision, that we must, as a State Government, assume responsibility for delivering this critical infrastructure.

We will be introducing a suite of legislation in the Spring Session of Parliament that will transfer all of TasWater’s assets, rights, obligations and liabilities, including employees under their current terms and conditions, to a newly created government business, which will commence operations by 1 July next year.

The legislation will establish a new GBE under the Government Business Enterprises Act together with portfolio legislation, which will transfer full responsibility for Tasmania’s water and sewerage to the new entity.

The GBE act will be amended to enable the new Government Business to be subject to Ministerial directions to ensure that the needs of the community are met.

As stated by the Premier yesterday, this legislation will also explicitly rule out a privatisation of the business. In order to deliver the policy objectives that the community expects, it is important that the business remain directly accountable to the Government.

Establishing the new entity as a State Government GBE will allow us to accelerate the infrastructure program to address the public health and environmental compliance concerns more swiftly.

We intend to bring all the resources of the State Government to the table. A project team is being established, led by Treasury and supported by key agencies, charged with leveraging the expertise within Government and our own government business, such as Hydro and Tasmanian Irrigation, to finalise a Whole of State implementation plan to deliver the outcomes that the Government wants.

TasWater has a strong financial position and plenty of balance sheet capacity. By utilising the strength of the State’s financial position and a lower cost of funds, the business will be able to materially increase its investment levels. This will enable us upon taking control of Taswater on 1 July next year to bring forward and complete the remainder of Taswater’s 10 year $1.5 billion investment program over a 5 year period to ensure that Tasmania’s Water and Sewerage services are fixed faster.

Madam Speaker, we recognise that this will be a challenging task for the new business, but the Government is confident it will operate much more effectively in Government hands with a clear direction set at the outset, and closer scrutiny. We do not expect that the proposed program will require support from the State Government’s balance sheet however we will use our strong financial position to support the business should that be required.

We understand that local government has held concerns regarding the loss of their returns, and that some councils would be adversely impacted if this happened. We recognise that this income stream is important to many councils in providing services to their communities, and without it those councils would be forced to consider increasing rates.

Madam Speaker, as announced by the Premier yesterday, the Government will guarantee returns to local government at the same level proposed by Taswater last year. That means that Local Government will in the current and next financial years receive returns of $30 million a year and then for the seven years beginning on the 1st of July 2018 be paid $20 million a year. After this period local government and their communities will continue to receive 50 per cent of the total returns from the business in perpetuity. Individual Councils will continue to receive their relative share on the same basis as currently occurs.

Madam Speaker, this means that until 2024-25 local government will receive not one dollar less than what they had previously expected to receive, and then after that they will receive one half of the total value of returns annually without the responsibility of ownership – effectively a risk-free return from the corporation in perpetuity. Legislation will enshrine this funding mechanism ensuring that councils have certainty and security going forward. As a result of the financial compensation we are providing, we firmly believe councils will have no justification for increasing rates into the future as a result of the Government assuming ownership of Taswater.

Madam Speaker, we think this is a very fair outcome, perhaps even a generous outcome, given the work that lies ahead.

Madam Speaker, we also recognise that it is important that the price impact on customers is carefully controlled.

For this reason, under State Government ownership TasWater will be subject to the same price investigation and pricing order process as the MAIB, which is undertaken by the Tasmanian Economic Regulator.

This has proven to be a successful model which allows for an open and transparent investigation to be undertaken, with plenty of opportunity for consultation, by an expert body independent of government. The advantage, however, is that it also allows the Government to be the ultimate decision maker when it comes to price levels, as Price Orders will be made by the Treasurer after receiving advice from the Regulator.

These decisions will be made in a transparent way ensuring that the community is fully aware of the price that is recommended by the Regulator and the Government’s final decision.

Madam Speaker, however this Government recognises that water and sewerage bills have increased significantly since the reforms, and that further increases as proposed by Taswater’s owners of 5% per annum over the next 6 years would create unacceptable cost of living pressures for Tasmanians.

We will therefore legislate to extend the current Price Determination by 12 months extending the current period until the 30th of June 2019.

From the 1st of July 2018 the price increase will be set at 2.75 per cent for customers on the target tariff. In future years the Government will target annual price increases of between 2.75 per cent and 3.5 per cent.

The Regulator will also remain responsible for setting customer service standards, monitoring the pricing and performance of Tasmania’s water and sewerage industry and its other functions outside price regulation.

All non-economic regulation including environmental, public health, dam safety and water regulation will be retained.

In closing Madam Speaker, we believe that this is the best plan to get the job done. It is fair on all parties. Councils will be no worse off, customers will pay less, there will be no need for rate increases, and by utilising the strong financial position and infrastructure expertise of the State Government, water and sewerage assets can be brought up to standard quicker. We want to fix this challenge as quickly as we can and subject to councils’ agreement as the current owners of TasWater, and prior to the passage of our legislation through the Parliament, it is our intention that work begin immediately on the planning and scoping of the future infrastructure program.

It is hoped that the local government owners will put the interests of Tasmanians first and agree that this work can commence as soon as possible.

Madam Speaker, I have outlined how the Government intends to fix a serious problem that is important to us all. I hope that members of this house will be supportive of fixing the challenge that is Tasmania’s water and sewerage services.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s