UrbanWater, Markets and the Hilmer Reform Process

ReportNo WSAA 89

February 1995

SYNOPSIS

ThisReport investigates the scope for reform of the urban water industry inAustralia. 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 basedreform. The discussion focuses initially on the use of the capital market forcontrol of the firm (privatisation, franchising and corporatisation) and findsthat the last is the most preferred. It then looks at the markets for inputsand finds that contracting out should be used as extensively as possible andthat the water input should be managed by government in a way consistent withother non-renewable resources. Finally the Report finds little scope forcompetition in the product market and suggests that tight regulatory control isthe most preferred alternative.

TheReport then moves on to assess the way in which microeconomic reform along thelines suggested by the Hilmer Report will change the sector. It finds that themajor challenges of Hilmer will come from his anti-monopoly position, from thepreference to split up organisations, and from the provision of open access toessential facilities such as water networks. The first two of these do not seemappropriate to the industry but will involve the industry in considerabledebate if it is to maintain the technically superior integrated monopoly networkswhich currently exist. The third will require major reforms and rebalancing ofprices.

Copiesof the Report are available from WSAA, price $A30. Orders may be placed throughthe Bookshop at www.wsaa.asn.au or by email to info@wsaa.asn.au.