Review of pricing reform in the Australian water sector

review-of-pricing-reform-2011

Review of pricing reform in the Australian water sector examines Australia's history of water pricing reform, paying particular attention to the effectiveness and impact of changes introduced under the 2004 National Water Initiative.

This report, which makes nine recommendations on future water pricing reforms, is part of a suite of work undertaken by the Commission to support its Urban water in Australia: future directions report.

While some progress towards economic efficiency has been achieved, implementation of agreed pricing reforms has been patchy across states and territories, especially when it comes to independent economic regulation, consistent price-setting approaches and tariff structures.

Government interventions in water planning and investment decisions, whilst well-intentioned in the face of recent water scarcity, have confused accountability arrangements and blurred industry incentives to invest optimally.

The Commission therefore considers that government subsidisation of urban and rural water infrastructure investments has constituted a step backwards from the commitment to price water according to the true cost of the resource, capital assets and service delivery.

The right approach to water pricing will promote cost-effective services offering more customer choice, as well as encouraging innovation, efficient investment decisions and sustainable water use.

While it is appropriate that customers pay for the full costs of their water supply, recent and continuing price pressures highlight the need for water service providers to be given strong incentives to invest efficiently and deliver secure and high-quality water services at the lowest possible cost.

The Commission recommends that governments and regulators recommit to pricing policies that promote economic efficiency, broaden the coverage of fully-independent economic regulation, and encourage innovation in price and service offerings.

Three additional Waterlines reports published by the Commission examine externality pricing, efficient water resource pricing (administered scarcity pricing), and competition in the urban water sector.

Documents for download

Review of pricing reform in the Australian water sector (2.63MB)

This report is also available in sections:

Three additional Waterlines reports published by the Commission examine externality pricing, efficient water resource pricing, and competition in the urban water sector: