Urban Water, Markets and the Hilmer Reform Process
This report was produced for the Urban Water Research Association of Australia, a now discontinued research program.
Report no. UWRAA 89
This Report investigates the scope for reform of the urban water industry in Australia. It does this by having regard to the current situation in Australia, by considering the way in which water is managed in France, the US and the UK, and by analysis of the theoretical and practical arguments for market based reform. The discussion focuses initially on the use of the capital market for control of the firm (privatisation, franchising and corporatisation) and finds that the last is the most preferred. It then looks at the markets for inputs and finds that contracting out should be used as extensively as possible and that the water input should be managed by government in a way consistent with other non-renewable resources. Finally the Report finds little scope for competition in the product market and suggests that tight regulatory control is the most preferred alternative.
The Report then moves on to assess the way in which microeconomic reform along the lines suggested by the Hilmer Report will change the sector. It finds that the major challenges of Hilmer will come from his anti-monopoly position, from the preference to split up organisations, and from the provision of open access to essential facilities such as water networks. The first two of these do not seem appropriate to the industry but will involve the industry in considerable debate if it is to maintain the technically superior integrated monopoly networks which currently exist. The third will require major reforms and rebalancing of prices.