The New Sewage Marketplace

Since 1999 a private organisation called Services Sydney has petitioned the NSW Government with a proposal to provide an alternative sewage service in Sydney. This would involve treating a large proportion of Sydney’s sewage and then piping it west where it would be used in agriculture and to supplement environmental river flows. Services Sydney would make its money by offering customers an alternative sewage service, selling the reclaimed water and participating in water trading markets.

During the 1990s, the Commonwealth Government established means for private organisations to seek access to publicly owned infrastructure under reasonable terms and conditions. We have seen some results of this in the form of private participation in telecommunications and electricity supply. However, little use has so-far been made of these provisions in areas of water supply and management.

Services Sydney’s proposal originally met with considerable resistance from the NSW Government who argued that critical public interests were at stake. While this may be a reasonable argument, I think its fairly self evident that protection of future dividends from the two state-owned water utilities - Sydney Water and Hunter Water - must also have been an important consideration. Services Sydney eventually took their case to the Australian Competition Tribunal. The Tribunal ruled last year that the NSW Government had no case to withhold access to state-owned water infrastructure.

As a result, the Water Industry Competition Bill was introduced to the NSW Parliament this week. This bill provides a means of third-party access to certain components of Sydney Water and Hunter Water infrastructure.

Participating private organisations will not be subject to price regulation, except where they are monopoly providers. Monopoly providers will have their prices set by the Independent Pricing and Regulatory Tribunal, as it currently does for Sydney Water and Hunter Water. The NSW Government has indicated that “Sydney Water and Hunter Water will become ‘suppliers of last resort’; ready to step in to provide essential water and sewerage services if business fails”.

NSW Minister for Water Utilities David Campbell has said that the bill "will open the floodgates for private industry recycling projects while providing safeguards for consumers". This week The Australian reported John van der Merwe, from Services Sydney, observing that the legislation recognised the fact Sydney’s three largest ocean outfalls (North Head, Bondi and Malabar) are now open for competition.

In the meantime, Sydney Water seems to have gazumped some of Services Sydney’s ambitions with recent plans for expanded agricultural use of recycled water in Western Sydney and river-flow supplementation in the Hawkesbury-Nepean River. So if nothing else, Services Sydney’s efforts appear to have already had a positive effect in expanding the recycling of treated effluents in Sydney.

However, the effluents from Sydney’s three major ocean outfalls remain largely unutilised, so further opportunities involving huge volumes of recyclable water still exist. The ball now seems firmly in the court of interested private organisations and it will be most interesting to see how the next set plays out.

Where will it go from here? Will we see rapid beneficial expansion of water recycling in Sydney and the Hunter? How will increased competition affect efficiency? Will services improve for customers? What about the impact on water prices? Will we see the type of disputes that we have witnessed between companies like Telstra and Optus? What do you reckon?