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'Invest in water at home, not overseas'

By Matthew Warren

October 13, 2006 01:00am

The Australian

AUSTRALIA's mainland cities need up to $30 billion in new water investment to meet growing demand as domestic institutional investors pursue multi-billion-dollar water assets abroad.

A 20-year investment drought in new water supply in Australia has seen domestic banks and superannuation funds spend more than $7 billion in the past two weeks on privatised British water utilities.

The Federal Government has just closed submissions on a discussion paper about the potential role of the private sector in the supply of water and wastewater services. It has flagged community concern over privatisation of water as a major obstacle to its implementation.

Parliamentary Secretary Malcolm Turnbull said yesterday that the flight of investment needed to be halted by governments actively encouraging private sector investment to address the growing water shortage in Australia's mainland cities.

"Australia urgently needs to invest billions of dollars in water infrastructure, and we cannot and should not continue to rely on the public sector for this investment," he said.

"Millions of Australian dollars are going into water infrastructure at the moment but regrettably much, if not most, of it is heading overseas to invest in countries which welcome and encourage investment from the private sector."

Mr Turnbull said private businesses already serviced government-owned water utilities, ranging from building and managing some processing plants to managing the entire urban water network, as United Water does in Adelaide.

"Currently the private sector's role in water is minimal. It should be considerable," he said.

Earlier this month, Commonwealth Bank's Colonial First State division joined with Industry Funds Services and a Canadian partner to make a $5.5 billion offer for Britain's fourth-largest water business, Anglian Water.

This followed the Australian Hastings Funds Management's purchase from Macquarie Bank of Britain's second-largest water-only utility, South East Water, for $1.6 billion, freeing Macquarie to prepare its $17 billion bid for London's water supplier, Thames Water.

United Water managing director Graham Dooley said Australian urban water infrastructure had a capital deficit of between $20 billion and $30 billion.

"The issue is not one of the availability of water, the issue is the availability of capital and the wise investment of that capital in Australia," Mr Dooley said.

He said it was "absolutely self-evident" that water infrastructure was attractive to superannuation funds because it provided long-term and stable returns.

"I've had a constant stream of investment banks in Australia knocking on my door saying have you got equity positions in your projects available for sale," he said. "There is undoubtedly an appetite for investment in the businesses of water and that is evidenced by all the activity that has taken place over the last 10 years in the UK and US market."

The Water Services Association of Australia has reported no new investment in urban water supply in Australia for the past 20 years, except in Perth.

The NSW Government will introduce a new bill into parliament next week ending monopoly control over water infrastructure and allowing private investors to sell drinking, recycled and wastewater services.

The Water Industry Competition Bill will allow new players to avoid price regulation unless they are monopoly providers, making government owned utilities Sydney Water and Hunter Water suppliers of last resort.

Business Council of Australia director Maria Tarrant said the community needed assurances about water quality and wanted the development of consistent standards across the state-based water supply regimes. "The current structure of government ownership is a brake on private sector investment," she said.