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Budget blowout warning as Lucas ponders response to water rort

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Treasurer Rob Lucas has ruled out privatising SA Water amid warnings of a billion-dollar budget blowout after revelations the utility has been systematically overvalued for the past decade.

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InDaily yesterday revealed South Australians have likely paid more than a billion dollars too much for their water over the past decade, with an interim report by independent inquirer Lew Owens blaming “secretive, non-compliant, unreasonable and unfair” decisions taken by the former Labor Government about the asset’s value.

Lucas, who instigated the inquiry, today told InDaily the Marshall Government would await a final report in mid-2019 before deciding “what our policy response is going to be”.

However, he said the evidence detailed in the interim report suggests “the former Labor government had artificially inflated prices and were price gouging to some extent”.

“There will be a lot of angry people,” he declared.

“The Government will obviously have to consider it and do something about it.”

That’s likely to involve re-valuing SA Water, with various modelling scenarios in Owens’ report suggesting suggests the corporation’s regulated asset base has likely been overstated by at least $421 million – and as much as $1.071 billion.

That’s seen South Australians overcharged on their water bills by around 20 per cent per year since the revaluation, more than a decade ago.

The higher costs were locked in by a Price Determination made by then-Treasurer Jay Weatherill in 2013, against the advice of then-Essential Services Commissioner, the late Paul Kerin, who later quit in protest.

Weatherill did not respond to inquiries today.

His successor as Treasurer, Tom Koutsantonis, was today asked whether the former Labor Government had deliberately inflated SA Water asset prices, responding: “No.”

“Treasury give advice on what the Regulated Asset Base should be and we make a decision on that advice,” he said.

“This wasn’t the cabinet sitting around the table, saying ‘right, how much do we value SA Water?’”

Lucas intimated today it was unlikely the Government would leave the value of the regulated asset base as it currently stood, given “none of the discussions [in the interim report] talk about leaving it as it is, or increasing the value”.

“If you open an independent report and it gives you a range of options, all of which are to reduce the Regulated Asset Base – it’s more likely than not the Government is going to respond by reducing it by a particular amount,” he said.

The question would be by how much – and what it means for the corresponding hit to the state budget, which has been significantly bolstered by SA Water revenues in recent years.

However, Lucas again ruled out revisiting the privatisation option – despite the public monopoly overcharging consumers by around $130 million each year, according to an estimate by Business SA.

“No, we’ve ruled it out… there’s nothing to be gained by heading down that particular path,” Lucas said.

But SA’s Council of Social Service warned the proposed revaluation of SA Water’s asset base could punch a billion dollar hole in the state budget.

“While a reduction in water prices sounds good, it does threaten to blow a hole in the state budget [and] we’re really worried about what that means for vital services, like schools and hospitals,” said senior policy officer Jo De Silva.

“We’ve asked the Government to rule out a cut to services, and the Government has said they won’t rule out that cut – that makes us incredibly concerned.”

While SACOSS has long argued for cost of living relief in SA, De Silva said a revaluation of SA Water was “a double-edged sword for us”.

“We do understand people are struggling with cost of living issues, but when you’re struggling with cost of living you rely on those vital services that support you,” she said.

“There shouldn’t have to be a choice for people – if there’s going to be a reduction in water prices, the Government should rule out cuts for services.”

She said Owens was “doing a very sound job” and “we do support the investigation and the Government doing its due diligence”.

“What we’d like to see is the inquirer model a revenue neutral outcome for a revaluation of the regulated asset base,” she said.

“If people have been paying too much, we certainly wouldn’t support that – but what we’re saying is it shouldn’t come at a cost to vital services.”

Economist and former ESCOSA chair Richard Blandy yesterday suggested the consumer impost could be up to $1 billion per annum, but today revised that assessment, suggesting it was likely between $100-200 million over a decade.

“It’s really in the nature of a tax,” he said.

“They have to do something about it – they’ll have to cut spending somewhere else, in my opinion.”

Lucas said there was time to prepare a considered policy response, since the current price determination remained in place until 2020.

Koutsantonis said it was necessary to charge a “smoothing cost” to ensure all South Australians pay the same for water, regardless of their proximity to the source, but did not explain how or whether this related to the Government’s valuation of the RAB.

“If you want ‘postage stamp pricing’ throughout South Australia – that is, delivering water to regional, remote places that cost a lot more money to get the water to – you need to be able to charge people a smoothing cost across all the network, so everyone pays the same.

“If the Treasurer thinks the Regulated Asset Base is too large, next time he gets a dividend out of SA Water, refund it to consumers – pay it back to them.

“When (the report refers to) the Labor Government, it means hospitals, schools, roads and infrastructure that we spent it on.

“But … that RAB was decided on Treasury advice, the same advice that Rob Lucas receives.”

Lucas said the issue of postage stamp pricing was a “furphy”, because “we’ve always been strong supporters of postage stamping of prices”.

InDaily asked SA Water whether CEO Roch Cheroux believed SA Water’s regulated asset base had been correctly valued, and whether he would support any move to privatise the utility. 

In response, a spokesperson directed questions to the State Government, but said: “We will continue to provide factual inputs to the inquiry, to ensure it is fully informed as it works towards a final report later in the year.”

“We remain focused on delivering world-class water services for our customers,” they said.

-Additional reporting by Bension Siebert

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