An Introduction to
The Independent Review of Pricing Arrangements

             RIVER MURRAY WATER

1 July 2002

Background

River Murray Water is one of the largest water businesses in Australia. It was established in its current form in 1998, and inherited a responsibility for the management of the River Murray System that has its origins in the River Murray Waters Agreement of 1915. It now operates four major storages (with a capacity of 9,352 gigalitres) and a large number of other river control structures and salinity mitigation works over a river length of 2,500 kilometres. The replacement value of these assets exceeds $1,500 million.

A key feature is its administration of the water entitlements to States under the present Murray-Darling Basin Agreement, and the maintenance of continuing confidence in the water accounting and other systems that support it. River Murray Water relies for its outcomes upon continuing cooperation between Governments, who share its costs of operation.

The CoAG Water Reform Principles that gave rise to River Murray Water required:

  • separation between service delivery functions and those of resource management and policy setting, and
  • the Commission to establish service-based charges that would ensure the long term sustainability of the asset base for which it was responsible.
Between 1994 and 1998 the Commission, that is to say its constituent Governments, examined a number of models to achieve the CoAG objectives. These ranged from a separated independent business corporation reporting to the Murray-Darling Basin Ministerial Council through to an internal business unit guided by a representative committee reporting to the Commission. In the event, it opted for the latter because this model:

  • was able to be established within the terms of the existing Murray-Darling Basin Agreement,
  • retained the function of the Commission as the executive arm of the Ministerial Council,
  • enabled the implementation of sound business principles to achieve sustainable management of the asset base for which the Commission is responsible, and
  • provided States with their shares of water under the Agreement in a sustainable way.

Progress to date

River Murray Water has operated in this mode since 1998. Within the limits of the existing Agreement it has established its corporate identity and achieved:

  • a revised cost-sharing arrangement based on the principles of a two-part service- based tariff which is a reasonable surrogate for full cost recovery pricing, and
  • recognition by the National Competition Council (NCC) that the achievements have, in the circumstances, satisfied the relevant CoAG principles.
However, NCC has specified that a further essential achievement is transparent, expert and independent price regulation reporting to the Ministerial Council. It recognised that this step would require amendments to the Agreement both in relation to powers to price as distinct from cost sharing between Governments and powers to recognise depreciation or to introduce a renewals annuity.

Independent Pricing Arrangements

In 2001 the Ministerial Council authorised an independent review of the pricing principles applied by River Murray Water.

An independent review team comprising Dr John Langford and Mr Chris Scriven was engaged and requested to report back to the Ministerial Council after review and consultation with Government Agencies.

The Review Team's report was received by the Ministerial Council in April 2002. It endorsed, in principle, the findings of the report. It also requested the Commission provide it with advice in November 2002 on the means of implementing the report's recommendations.

Publication

The Commission, whilst it is formulating this advice, has authorised the public availability of the review report which is attached.

David Dole, General Manager, River Murray Water 1 July 2002

To view the full document link to this address

Last updated on: 7/ 1/ 2005