Mergers occur in the water industry and to some extent in local government, but it is rare to see reports on the impact of such events. There is only minimal assessment of the aftermath of such reform to assess if the impacts and efficiency gains promised, have in fact resulted.
A Sorry Saga
MidCoast Water was formed on 1 July 1997.
The NSW State Government during the 2000’s expressed a desire for reform of the way water and sewerage services were provided in non-metropolitan areas to be more efficient. Unfortunately Government has not been able to achieve any progress since that reform was proposed.
At MidCoast Water it was refreshing to allow water issues to be the sole discussion of board meetings and not lost in development control, roads, bridges, and rubbish.
A culture of achievement was developed at MidCoast Water. A substantial capital works program was undertaken to renew and modernise most of the reticulation systems, sewage and water treatment plants. Over 20 years MidCoast Water delivered $400million of capital improvements, which included water treatment plants to provide filtered water to all schemes and provide drought security to the largest scheme by an alternate groundwater source. This alternative supply saved the main water scheme from failure in 2019/20 drought which was the worst on record and three times longer in duration than anything previously recorded or anticipated.
The capital works program had a significant impact on water quality improvements including drinking water compliance and higher compliance with Environment Protection Authority (EPA) licence requirements.
These capital works yielded an increase in effluent reuse from zero use in 1997 to between 15 and 20 percent reused by 2017. Reuse of treated effluent, including improved treatment, had a significant reduction on nutrients released to the environment and greater drought security by providing an alternative supply for previously potable uses in the 2019/20 drought.
Due to MidCoast Water’s size it was possible to provide support for the smaller communities’ water and sewerage schemes within its control that would have otherwise struggled to improve quality of service individually.
These improvements in water quality and recycling came at a cost. Borrowing peaked at $250 million in 2012. MidCoast Water’s debt would be used as part of the justification for merging with MidCoast Council, as a general purpose Council could reduce management costs to assist with debt reduction. However, in 2012 a concerted drive to reduce debt by paying off borrowings through operational efficiencies commenced. This was already delivering substantial benefits, with outstanding borrowing at $180 million by 2016. It was demonstrated that MidCoast Water could effectively manage its debt.
MidCoast Water entered into a number of progressive Enterprise Agreements with staff and unions putting all staff on 38 hours per week, eventually removing all allowances except for on-call and encouraging recruitment of quality staff and retention of good existing staff.
In late 2015 and into early 2016, the NSW Government was running with ‘Stronger Councils’ espousing the benefits of Council amalgamations. The NSW Government was proposing regional amalgamations of Gloucester and Dungog. The NSW Government received a lot of criticism and was able to quickly devise another half-baked plan. They came up with a devised option to merge Gloucester, Greater Taree, and Great Lakes Councils, which would ultimately send water reforms in non-metropolitan NSW back to the post 1997 arrangement.
MidCoast Water’s General Manager compiled a basic paper describing the perceived financial benefits of the merger to ensure MidCoast Water’s future financial viability. Identified savings were about $2.4million per year out of a $80 million budget mainly based on ‘shared’ Corporate Services achieved by the removal of a lot of water service positions. However, no detail was provided to ensure these corporate tasks were actually achievable by the remaining staff. No analysis of the impact on water quality performance and disparity of cultural and productivity was undertaken. No consideration was given to the lever of cross subsidy that would be sought by the General-Purpose Council as a questionable contribution ‘shared’ operating costs or formal dividends.
In January 2017, the NSW Government proposed that MidCoast Water should be dissolved and its assets and functions transferred to MidCoast Council. However it took another three months to commence consultation with the community, and their responses were never publically released, so one can speculate the community may have not supported the decision.
On the 28 June 2017 the NSW Government announced that the dissolution would proceed on the 1 July 2017, ending the 6-month slow death of MidCoast Water.
MidCoast Water corporate staff and some technical staff voted with their feet and over 45 staff out of a peak of 210 had left the organisation by July 2018 with only one staff replacement. A lot of knowledge walked out the door and was slow to be replaced by existing MidCoast Council corporate staff, who knew very little about water and sewerage services.
NSW Health and EPA, would informally concur with MidCoast Water’s philosophy, critical generally of ‘mixed in’ water and sewerage services with general-purpose local government operations, and believed that water operators should be better rewarded to encourage greater skill in the industry. Both NSW Health and EPA regarded MidCoast Water as a high achiever. The only advantage the Water Services Section (MidCoast Water was named upon integration into MidCoast Council) had in place was the robust specific water quality systems that had been established prior to 2017.
Where the administration fees and ‘cross subsidy’ used by local government to minimise the impact of rate pegging in the general fund will end up is unknown. Where the quality of service for water and sewerage will end up is also unknown at this stage. But what is known is that an efficient and highly motivated organisation has lost a lot of experience, motivation and may take 10 years to rebuild.
So, was it worth saving a small amount of corporate costs? No. Any savings that were delivered are largely due to the delay in replacing staff, failure to deliver any meaningful asset renewal program, increased bureaucratic churn and lost productivity by doubling of individual’s personal leave as staff are demotivated and utilise their leave entitlements.
General-Purpose Councils and water utilities have significantly different needs and skills. All other states, except for NSW and regional Queensland, have water focused utilities managing water services. If water is a critical issue in our changing climate and health expectations, water utilities need a greater focus.
Take From Council Hands
The delivery of non-metropolitan water services in NSW has not changed in 50-70 years during which there has been a rapid growth in water and sewerage services, regulation, and technology. While technology and delivery in the water sector has changed rapidly, NSW regional water and sewerage management has remained entombed in an archaic local government system. It is time for a meaningful change in the regional water sector in NSW. Water utilities should be independent of general-purpose Councils and managed by local professional boards.
The NSW Government’s water and sewerage services reform agenda of the 2000’s has failed to progress and its’ failure is reinforced with the disillusionment of MidCoast Water into MidCoast Council. The opportunity MidCoast Water developed has been wasted.
The main beneficiaries of MidCoast Water being absorbed into MidCoast Council are the local government empire defenders. The disadvantaged are the customer, public health, and the environment.
The local government empire builders will be opposed to losing their mechanism for bypassing the rate pegging system regardless of level of service offered. As a result, it is not anticipated any change will occur for the provision of water and sewerage services which will continue in the disappointing ordinariness of the status quo.
More than a pity considering water is our most valuable asset.
A Former Friend of MidCoast Water.