Future Ownership of Water in Australia

Media Release

30 January 2007

Water is as essential for human life as the air we breathe.  Unfortunately its increasing scarcity and the escalating demand for it has made it also, according to Fortune magazine, "One of the world's greatest business opportunities.  It promises to be to the 21st century what oil was to the 20th."  But unlike oil it is basic to our existence, and unlike oil it cannot be replaced by any substitute resource.

In NSW the government of former Premier Carr put the groundwork in place for a futures market for water rights, not long before he took up his post with Macquarie Bank.

A media release by NSW State Water reads:

"A water index futures market would provide water reliant, or water exposed businesses with an opportunity to hedge their risks to future climatic factors, particularly water availability.

An ability to hedge future risks leads to better informed investment decisions and in turn stimulates economic activity, creating jobs and more certain profits for businesses," Mr Wright said.

The establishment of a futures market would enable financial service organisations to develop simple yet effective products for the rural community designed to reduce the impact of drought or flood."

Do you believe this?  "Financial service organisations" exist to make profit and they will profit by selling water to farmers.  Ultimately farmers are the only real market in rural Australia.  Do you notice that the press release doesn't mention environmental concerns, or any limitations on the activities of overseas "investors" or local speculators?

It comes as no surprise that consortiums led by Macquarie Bank acquired a US water utility for $860 million and have invested in a wholesale private equity vehicle in Europe targeting investments in infrastructure and related assets including, amongst other things, water and sewerage.

With that background, and with the announcement of the Federal Government's $10 billion water plan and in the lead up to the March State election, every voter should now demand answers from our political leaders about current and future ownership and control of water in this country.  We have had lots of hype, lots of "spin" and lots of handwringing by our politicians, but real answers are long overdue.

In the early 1990s, Australia began restructuring its water industry, farming out contracts to international companies such as Vivendi, Thames and Suez Lyonnaise des Eaux.

By 2000, about 50 significant water contracts had been awarded to the private sector.  By mid-2001, an estimated 25% of Australia's drinking water was provided by foreign multinationals.

Adelaide was the only Australian city, however, to hand the entire management and operation of its drinking water and waste water systems to a private company.

There are cases where service and access has improved under private management -- management, I emphasise, not ownership -- but the more common outcome worldwide, as demonstrated in countries from the UK to Bolivia, is that privatisation has led to rising costs, disconnections for poor people and companies pulling out of contracts when they can't make enough profit.

The Australian experience to date is far from promising.

For two months in 1998, more than three million residents of Sydney were forced to boil their contaminated drinking water to kill parasites.  The cause of the contamination was never established, but a government-commissioned probe raised questions about whether the operational practices of a private water company, which critics accused of cost cutting, had risked the safety of the water supply.

When United Water International gained control of water in Adelaide, it failed to provide many of the benefits that were extolled as centrepieces of the contract.  In June 2002 South Australian State Premier Mike Rann, who was in opposition when the water deal was signed, said "The public was not told the truth about the nature of the contract [by the government]".  Fifteen months after the South Australian Government signed the contract the city was engulfed in a powerful sewage smell, which became known as the "big pong".  A government funded investigation revealed that the pong  was caused by equipment failures and inadequate monitoring  that led to raw sewage being flushed directly into settling lagoons.

Our Prime Minister recently announced the appointment of Malcolm Turnbull as Environment and Water Minister.  Mr Turnbull's website omits to mention that he was chair and managing director of Goldman Sachs Australia from 1997 to 2001, and a partner of with Goldman Sachs and Co from 1998 to 2001; that company's water related activities have included, amongst other things, overseeing some of Thames Water's international business transactions.  Now, as head of the Environment and Water Resources portfolio, Mr Turnbull has begun the push for more private water infrastructure "investment" to help solve the nation's water shortages and fix ailing infrastructure.  Mr Turnbull's web site displays the full text of the Prime Minister's recent announcement of the Federal government $10 billion water plan, and it is interesting to note snippets like this:

"The Commonwealth will contribute roughly $3 billion to this phase of our plan, with irrigation companies expected to contribute about $750 million.  Fifty per cent of water savings will be retained by irrigators and 50 per cent held by the Commonwealth will go to emhancing water security and to sustaining river systems and wetlands."

Doesn't that say the government (ie we taxpayers) will be contributing 80% of the funding and irrigation companies 20%, but that the profit of the exercise will be split equally between the government and the irrigators.  Would Mr Turnbull, with his background in investment banking, invest his own money on that basis? I suspect he would as an irrigator, but not as a government?  What is going on?

What it comes down to is that we seem to be heading ultimately towards complete privatisation of water in Australia simply on the assumption that private is better than public.  There has been no public debate about the pros and cons of proceeding in that direction, and the process seems to be happening by stealth more than by our governments being frank about what they are doing, why they are doing it and exactly how it is in the long-term best interests of all Australians.  We need to ask them now and we need honest answers.  Here is a start:

• Why should not all negotiations and contracts between governments and water companies be made public?  Why do we need elaborate provisions to keep information in and about the contracts secret when the subject matter is the provision at our cost of an essential public service?  Why should the public not have access to the terms and financial details of these contracts so that we know what we are paying for?
• Who owns the water companies?  What is the real percentage of foreign ownership? How much tax do they pay in Australia? How much of their profit goes out of Australia?
• How much do the companies make under their original contracts?  How much do they end up being funded by taxpayers when improvements need to be made to existing taxpayer owned infrastructure?
• Who pays for government investigations, and damages for breaches of contract, if things go pear shaped?
• Of the $10 billion allocated to the Federal Government's water plan how much of it will be given to or benefit foreign owned agribusiness?  Or even Australian private interests?
• Mr Howard makes reference to metering bores in the Murray Darling basin.  This suggests that the Federal Government wants total control of all water in that area rather than just the water taken from the rivers.  What exactly is the long-term plan?
• What guarantees are in place to ensure that water is affordable and available to citizens?
• Will recycled water and its infrastructure have been privatised by the time it becomes necessary to use it as our primary source of drinking water?  

Similar issues arise at State level.  Our NSW farmers have had various water management initiatives imposed on them over a number of years, but in 2000 the Carr State Government introduced the Water Management Act.  The most significant change made by that Act was that one no longer had to be the owner or occupier of the land to hold a water access licence.  Theoretically, they can be held by anyone, including a passive investor with no interest in land.

The alleged objective of access licence dealings is to maximise the social and economic benefits of water to the community while being consistent with the maintenance of productivity of land in the long term.  But who is the community? Who really benefits? Is a transfer of water rights to financial institutions and speculators something that is going to maximise the social and economic benefits to a community?  Does gambling in water prices by water traders achieve this?  Do the regulators care if allowing water to move from lower to higher values is less socially or environmentally desirable?

And through all this, are we going to have the benefit of strong leadership from our State Government?  The current indications suggest not:  the section of Mr Iemma's much touted State Plan dealing with "Securing our supply of water and energy" spruiks a specific target of increasing water recycling both in Sydney and regional centres, but when confronted with Queensland Premier Peter Beattie's lead in moving to recycled drinking water, the Premier's Water Utilities Minister David Campbell said this week "It's not in our strategy", and he went on to say that it would be up to local councils in regional towns to decide whether to introduce recycled drinking water for their communities.

The real question raised by the water debate is whether some services that are central to human existence shouldn't remain within the ownership and control of all of us, rather than be privatised.  If we citizens already own the infrastructure, surely government ownership with direct Ministerial responsibility and effective management --by the private sector, if that is more efficient -- will provide us with a reliable supply of water more cheaply than handing it over to the free market profiteers.  Before ownership is permitted to devolve to the private sector, whether in whole or in part, we need full disclosure by governments, we need much more information and we need to be satisfied that all significant social and other issues have been addressed.