Sydney Water’s dirty secret

Currently the state of NSW both owns several monopolistic providers and also regulates them. Or in Sydney Water’s case chooses to regulate part of its activities and allows it to throw its monopolistic weight around in other parts of its operations. Quite a juggling act, huh? And if that wasn’t enough, if an individual contests a bill or queries a service then, you guessed it, NSW, through the Consumer, Trader & Tenancy Tribunal  provides the forum in which a citizen can seek redress. With so many balls in the air, is it any wonder the NSW government cannot focus on a singular objective such as maximising profit or consumer protection or reasonable regulation? It certainly cannot do all things well.

This self-evident bomb of complexities needs defusing and perhaps Sen. Arthur Sinodinos (Liberal NSW) is just the candidate for the job.

While he’s been confirmed as the Assistant Treasurer, his functions have not been publically revealed in full, but it’s a fair guess that he will continue with a focus on deregulation.

That said, I’d like to toss a project into his in-tray: improve the regulations under which state based monopolies operate by taking ownership of the relevant regulatory functions.

There are numerous benefits to the Commonwealth taking such ownership of such a functions, but two quickly bounce to mind: first, demonstrating his government’s solid commitment to ramping up productivity and second, as voiced earlier, to unbundle state governments’ intrinsic conflict of interest when it is both owner of a business, say a utility and simultaneously that business’s regulator.

Such work should nicely dove tail into the operations of his Coalition Deregulation Reform Taskforce, which on page 7 of its November 2012 discussion paper stated:

We recognise that a prosperous economy and equitable society depend on robust governance frameworks that correct market failures, appropriately minimise foreseeable risks to individuals and society as a whole, and provide stable and predictable rules under which individuals and businesses can plan and organise their activities.

Continuing with Sydney Water, let me show you what I mean by unregulated revenues.

A peek at recent financial statements reveals the following. Given the 2012-13 Annual Report is not yet publically available, let us assume that those revenue numbers will mirror those in 2011-12.

Alternatively, one could, instead, utilise the Dec 2012 Sydney Water published budget estimates as a guide to the June 2013 result, but given the authority’s lacklustre skills in forecasting – after all in 2011-12 it forecasted a Net Profit after Tax of $271 million and in the event, undershot its mark by a whopping 35%. The NPAT came in at $367 million, I think not.