Question Time

Water Pricing

The Hon. J.M.A. LENSINK (14:22): I seek leave to make a brief explanation before asking the Minister for Water and the River Murray a question about SA Water.

Leave granted.

The Hon. J.M.A. LENSINK: In light of the former commissioner of ESCOSA, Professor Dick Blandy, calling for an independent evaluation of the regulated asset base of SA Water, the minister's good friend and retired treasurer, Mr Kevin Foley, appeared on the Ian Henschke show on Tuesday 28 April, when he referred to Professor Blandy in a range of ways and made a number of comments which do not bear repeating.

Then, when Ian Henschke put to him, 'Okay, well, what about his call then to have an independent valuation on the asset of SA Water so that it is transparent? He said all he wants is transparency,' Mr Foley then went on to say, 'No, I don't agree with this. Get the Auditor-General's Report. The Auditor-General of the state audits SA Water, SA … annual report …'

There was a clear implication being that the Auditor-General audits the RAB. I examined the 2013 Auditor-General's Report which refers to this matter and, in fact, the 2014 report refers to the previous year where this matter was looked at and it said, quoting page 1962:

…last year SA Water investigated with the assistance of DTF—

that being the Department of Treasury and Finance—

and an accounting firm, whether the establishment of the RAB was an indication that the asset values adopted for financial reporting were impaired (ie overvalued).

The final sentence in that section was:

SA Water concluded, on the basis of the 2012-13 investigation, that the assets do not need to be subjected to further investigation of impairment, since the financial statement values are likely to be materially within the range of market values.

There is commentary in there about the difference between a RAB asset and what would commonly be understood as a book asset. My questions for the minister are:

1. Does he consider SA Water investigating its own RAB to be independent?

2. What comments does he have in relation to the former treasurer's statement as follows:

If the Auditor-General thought that SA Water was somehow mysteriously increasing the asset value of SA Water that would actually be an ICAC issue…you'd have all of them in the bloody dock in ICAC and they'd be in jail…it doesn't happen and Dick knows that, I just can't understand why Dick is falsely—

this is Professor Blandy—

…misrepresenting what he knows to be the facts.

The Hon. I.K. HUNTER (Minister for Sustainability, Environment and Conservation, Minister for Water and the River Murray, Minister for Climate Change) (14:25): I thank the honourable member for her most important question and pass on my heartiest congratulations on her good news, and a lovely photograph today. Unfortunately for her, that hasn't helped her in terms of any understanding about regulation of water prices in South Australia, so I can take some considerable time, perhaps, to refresh her memory in relation to this and I can come back to those other questions she asked about suggesting I might like to proffer some views about opinions that have been put around on the wireless.

Unlike privately owned utilities, there are frameworks and pricing regimes put in place by the government preventing the generation of excessive profits and distributions by SA Water. This government introduced economic regulation of SA Water by the Essential Services Commission for this exact reason. We have introduced transparency and accountability to prevent the earning of monopoly profits and excessive returns. ESCOSA now sets a cap on the amount of revenue that can be earned by SA Water.

SA Water's first determination undertaken by ESCOSA was announced in May 2013 and covers the three-year period of 2013-14 and 2015-16. Based on this determination, the government was able to announce a decrease in water prices of 6.4 per cent in 2013-14 and, as promised for 2014-15, water and sewerage prices increases have been limited to inflation in line with the determination of the independent regulator.

Delivering those lower prices means contributions to government were estimated to be reduced by about $80 million over the three-year regulatory period, and over the period of 2014-15 to 2017-18, the government is forecast to receive $630 million in dividends and $284 million in tax equivalent payments, I am advised.

Over this time, the government will make two very significant forms of return on this income. Community service obligation payments back to SA Water are $515 million, which lower the water and sewerage prices and provide for community services, in particular ensuring that regional customers do not pay more than metropolitan customers.

These are the figures that I would say some ill-advised commentators on the wireless have been avoiding. When we have inveterate popularity, publicity-seeking honourable members in this place going on to the radio and talking about water prices, they forget to tell people how much is put back in a transparent way through CSOs from Treasury. So, $515 million will lower the water and sewerage prices and provide for community service, in particular ensuring that regional customers do not pay more than metropolitan customers.

I say again, and I've said it before, the people who go on the radio and make these outrageous claims fail to tell the listeners that, in fact, what they are arguing for is massive increases in water prices for country customers. That is what they fail to advise people when they go on the wireless to talk about these issues. Of course, water and sewerage concession payments of $177 million will benefit low income water and sewerage service customers.

After taking into account community service obligation payments and water and sewerage concessions, a total of $222 million is forecast to be available for general government services during the period 2014-15 to 2017-18. General government services pay for nurses, teachers and doctors.

The Hon. J.M.A. Lensink: It's a hidden tax.

The Hon. I.K. HUNTER: It's not a hidden tax, the Hon. Michelle Lensink, because it's done through a transfer from Treasury. It's not done through payments through SA Water internally—it's not done like that—it's done by a transfer back from Treasury as CSOs, and it is transparent. On an annual basis, this means we are providing $43 million back in water and sewerage concessions during 2014-15 and $126 million in community service obligation payments. After taking these items into account, the expected return to government this financial year is, I'm advised, just over $26 million which, again, will go back into delivering services to South Australians.

Not including the $43 million the government spends on concessions, the net contribution to government in 2014-15 is $69.96 million. It is interesting that, as a comparison in today's dollar terms, the Liberals, when they were last in government, received a net contribution of $170 million in their last term of government. Compare that with what we are getting in 2014-15: $69.96 million, or rounded up to $70 million, and the Liberals, in their last year in government, took $170 million.

The Hon. R.L. Brokenshire interjecting:

The Hon. I.K. HUNTER: That's, for those challenged opposite and behind me, about $100 million more. This government recognises the impact of cost of living pressures and so supports those South Australians who are doing it tough and provides concessions of 30 per cent for 2014, with a minimum of $185 and a maximum of $295 to those who meet the eligibility criteria. The state government has also committed to introducing a single concession payment to simplify family budgeting by providing all concession payments for one year in one single payment.

I am at a loss to understand how some dry economist can go on radio and say that the regulator asset base (RAB) is somehow overvalued when the replacement cost of assets is $14 billion or above and when the RAB is significantly less than that.

The Hon. J.M.A. Lensink: A separate issue and you know it.

The Hon. I.K. HUNTER: The Hon. Ms Lensink says, 'That's a separate issue.' Don't worry about the real cost of replacement of assets. If you had to come and replace those assets at $14 billion plus, don't worry about that; artificially change the RAB so that you can buy and manipulate the cost. Well, that's not what this government does. We involve ourselves in a transparent process which is independently regulated by ESCOSA, and that's what we will continue with.