Services Sydney Pty Ltd initially began discussions with Sydney Water to become a sewer miner but later decided to become a competitor with Sydney Water as a provider of sewage-collection services in Sydney. Rather than build its own sewerage network, it sought access to Sydney Water’s sewerage reticulation network to transport the sewage of its customers (to be) to connections with its own pipeline; a pipeline which would ultimately transport the sewage to its own treatment plant. It proposed to use the treated water for non-potable purposes such as agricultural, industrial and domestic uses as well as for environmental flows. Consequently, in 2004, Services Sydney applied to the NCC for a recommendation that the sewerage networks leading to the North Head, Bondi and Malabar Ocean Outfalls be ‘declared’ under the TPA Part IIIA. The NCC recommended to the then Premier, Mr Carr, that the services be declared, but the Premier did not publish the declaration within the 60-day time period and was deemed to have refused to declare the services (under TPA s 44 H (9)). Services Sydney successfully appealed that deemed refusal to the Australian Competition Tribunal (ACT), which declared the service for a 50-year period from December 2005.[34]
However, after declaration a dispute ensued over the access-pricing methodology to be used by Sydney Water and, on 6 November 2006, Services Sydney activated the arbitration mechanism when it notified the ACCC of the dispute. In July 2007, the ACCC released its final determination on the dispute. The ACCC largely found in favour of adopting Sydney Water’s ‘retail-minus’ proposal for calculating the cost of transportation of the sewage by Sydney Water. It also retained postage-stamp pricing[35] for all customers (ACCC Arbitration Report, July 2007).[36] Having lost the battle to prevent access[37] it was presumably a consolation to Sydney Water that the pricing decision was favourable to them.
Sydney Water’s resistance to granting access raises a number of questions, the key of which is, why? Was there good reason to resist the opening up of infrastructure to third parties or was it simply a case of protective self-interest?
There are several possible answers to this question. In its submissions against the NCC draft recommendations, Sydney Water argued that it supported appropriate market structures and competition reforms but believed that access should be considered in the ‘context of an overarching market framework for providing water and wastewater services’ rather than be driven by specific access proposals (NCC Draft Recommendations 2004: 3). Put another way, Sydney Water wished the issue to be approached holistically, so as to ensure that market structure and access arrangements supported Governmental policy and facilitated decisions relating to consumption and production (NCC Draft Recommendations 2004: 3). Sydney Water recognised its obligation to find ways of using existing potable water supplies more efficiently and of finding alternative sources that represented ‘least-cost’ outcomes for the community at the current level of service. It believed that those goals did not necessarily sit easily with private investment, which is more likely to be driven by profit-maximisation objectives.
Sydney Water was also concerned that no appropriate access-pricing arrangements had been resolved. Sydney Water acknowledged that, if a declaration were made (as it ultimately was), the then current integrated wastewater tariff would need to be ‘unbundled’ in order to determine a separate price for the use of the sewer networks. However, it believed that the then current integrated wastewater tariff, as determined by IPART, did not reflect the full cost of retail sewage-collection services. As a result, Sydney Water considered that it would not be economically viable for a third party to enter the dependent market without some form of subsidy.[38]
A further reason for Sydney Water’s resistance to third-party access may have lain in a concern that Australia and, in particular, New South Wales were entering unchartered territory by supporting the Services Sydney application. The Services Sydney plan was, and remains, quite novel and consequently means that it is difficult for Australia to call on the benefit of others’ experiences. Given that the resource over which the regime is to operate (water) is a very precious, life-sustaining one, the stakes seemed alarmingly high. In fact, to many they still do.
Yet other reasons for Sydney Water to oppose the application so fervently included:
the cost to Sydney Water of making the significant changes to facilitate the obtaining of access by a third party;
concerns about the provision of adequate consumer protections such as providers of last resort in the case of emergencies;
concerns about how third-party access would fit with obligations to maintain environmental standards, particularly as they relate to leaks and spills;
concerns about public safety and performance standards; and
the constraints that third-party access may impose on future reform of the water sector, such as the discouraging of new entrants into franchise markets because of concerns about the number and nature of contestants in the retail market (NCC Draft Recommendations 2004: 4).
Services Sydney’s application under this regime has proved very expensive and time-consuming. Three years after lodging its original application, it still has not actually gained access. Only in 2007 has it learnt of the methodology that will be used to calculate an access price.[39] However, it is on its way to establishing a competing sewerage service and gaining access to that new resource — sewage.