Water decision making: Are politicians performing?

| January 9, 2020

Australia’s record on delivering good public policy outcomes in water is laudable. But increasingly, in the face of climate change, we need to improve that performance.

A recent article examines four case studies to ask whether the role of politicians in Australian water decision making remains fit for purpose. This blog highlights some of its key points. The bottom line is that substantial governance reforms are required.

Effective Urban Water Infrastructure Investment

The first case study examines large-scale, climate-resilient, supply augmentation decisions in major Australian cities during the Millennium drought.

The new plants added 25% to urban water supply capacity. Governments at the time were keen to be seen responding to an issue, rather than undertaking a careful analysis of the problem. This is not surprising, as politicians generally seek to stay in power, rather than necessarily seeking to optimize economic outcomes.

The Sydney, Melbourne and Adelaide desalination plants and Brisbane’s large-scale Western Corridor Recycled Water Project built nearly a decade ago are examples of poor project specification and decision making.

The more recent Ord River irrigation expansion project and the new Broken Hill water pipeline underscore that the issue is ongoing. Too many major water infrastructure decisions have delivered questionable value to the Australian public.

In each case the risk assessment appears to have been dominated by unacknowledged political risk. Many of these investments should not have been undertaken, at least not at the scale selected.

Delivering the Murray-Darling Basin Plan

Issues around how irrigation water is allocated and reallocated in the Murray-Darling Basin (MDB), and the associated compliance and enforcement have always been intensely political.

Much of this involvement goes to the sharing of water between agriculture and the environment in individual states. This is the subject of the second case study.

After the passage of the national 2007 Water Act, a MDB Plan was put in place in 2012, and by 2014 a new environmental watering strategy and water trading rules were being implemented. These were major reforms, with important implications for both irrigators and the environment.

But rather than taking actions to support the Plan, politicians and governments at both national and state levels continued to challenge key aspects of the reforms.

In 2015, the Commonwealth placed a limit on the MDB market-based buybacks. These cost-effective tenders were replaced by very expensive on-farm purchases.

Originally, the on-farm purchases were seen as the price of getting the basin-wide water rebalancing project supported in the community, as the purchases effectively subsidized private on-farm infrastructure investment. But they, and other non-market approaches, came to dominate.

An independent panel review, set up inter alia to review compliance with the Basin Plan, suggested we should be ‘less sanguine’ about a number of states meeting their commitments.

The MDBA July 2019 report card on implementation suggests that implementing the water resource plans – a critical part of the Basin Plan – continues to be very slow, with only one of 33 in place at the end of June 2019, the planned time for completion.

The core issue is not the Basin Plan per se but the commitment of political leaders to achieve the outcomes embedded in the plan. To date that commitment has been wholly inadequate.

Water to remote indigenous communities

The third case study examines the poor level of water services available in many small indigenous communities in much of remote and very remote Australia.

Greater capital investment by governments in the most recent decade, by both national and state governments, has started to address this investment backlog and greater monitoring of performance, has commenced.

But the question is why federal and state political leaders have not sought expeditiously to put water quality and availability on the same footing as the rest of the community.

Currently, the pace of upgrading water and sewerage service to remote communities is slow, and not commensurate with the stated public priority accorded to ‘overcoming indigenous disadvantage’.

Implementation of such a program would require a greater commitment by state water service providers, state governments, the national government, and communities (directly in relation to maintenance in particular and indirectly in relation to good hygiene practices).

More than anything, it requires ongoing genuine political leadership.

Water-related disaster management

Our fourth case study examines why governments generally have provide generous assistance after a natural disaster, but allocate inadequate financial support to improve community resilience before the event.

Australia regularly faces major storms and flood events. The national government and states and territory governments have both spent heavily on flood disaster recovery efforts, but the same cannot be said of government investment in flood mitigation.

A similar comment could be made about bushfires. Governments spend only 3% of what they spend on post-disaster relief on disaster mitigation, despite strong evidence that greater government effort and involvement in mitigation would reduce the overall cost to the community.

Why are governments so reluctant to spend on disaster mitigation programs, or put in place regulations that reduce future risk?

Part of this antipathy reflects an ongoing struggle to have the impacts of climate change adequately factored into the national policy debate, to the point that key mitigation work has been left unfunded.

But this provides only a partial explanation. State, territory and local governments are responsible for most land use planning and approvals, where there is an ongoing tension between developers (who create risk by seeking to develop on the floodplain) and the public sector, insurance companies, households and businesses (who must manage the risk after the initial development is approved).

Political decision-making is being driven by a wish to be seen to be acting in the face of a disaster. This event/response approach is followed even although it is well established that spending more on mitigation before the disaster will more than pay for itself after the disaster.

The need for reform

The poor-value-for-money decisions identified above suggest we should be should be deeply concerned about our water infrastructure decision making processes.

The question for the Australian community is whether it should accept these political processes any longer. Are the governance arrangements in place to decide on what should be built adequate?

The first point to note is that agreed processes are rarely followed. For example, there has been at best only partial adherence to the National Water Initiative principles by state governments, although they are all signatories. Improving outcomes appears to require mandated rules.

For example:

1 – A benefit–cost ratio greater than 1, using independent analysis. Any non-project benefits should be subject to transparent and detailed independent analysis.

2 – Full compliance with the National Water Initiative and the 2007 Water Act, judged by independent oversight. This should cover evidence of statutory water planning covering the project, water pricing consistent with full cost recovery, and clear evidence of environmental sustainability.

3 – The national government should be required to be endorse the business case containing the above before it makes any financial contribution.

A further question is whether governments should entrust water infrastructure decisions to independent decision makers, including the competition policy regulator and the regulated service providers. Elsewhere in the economy, more independent decision-makers are common.

For example, the Reserve Bank of Australia effectively makes decisions on monetary policy; the Australian Competition and Consumer Commission (at the national level) and independent state competition policy regulators make many decisions independent of the government in relation to many private and state-owned businesses.

When these decisions are left to politicians, history suggests that the interest of the public is often ignored.

Finally, if governments announce commitments or pledges to construct or underwrite new infrastructure during election campaigns, these promises should be fully tested after the election.

Currently, election announcements have a status that means the public service should simply implement them as best it can, resulting in projects of dubious value being built.

This job should be entrusted to both the water service provider and regulator. This approach challenges the view that winning elections confers authority on incoming governments to undertake economically or financially dubious projects that society can ill afford.