The Mystique of Water Pricing and Accounting

Abstract

This article considers the pricing and accounting conventions of government‐controlled water entities in the state of Victoria, Australia. These conventions are guided by principles of cost‐reflective pricing, public sector accountability and comparability of private and public sector performance. We observe how Victorian water entity prices and their reported performance are shaped by government accounting policy discretion, and the result of various compromises between economic and political considerations. By bringing these issues to light, we hope to keep political decision‐making about water infrastructure and water pricing in check.

Water Pricing in Australia: Unbundled Politics, Accounting, and Water Pricing

“…13 However, there is much ground to be made up, and Pawsey and Crase ( 2013 ) estimate that prices would need to increase by about 300 % to achieve upper-bound pricing.…”

“…The experience also highlights the diffi culty of "staying the distance" when it comes to pursuing the effi ciency goals with which the principle of cost recovery pricing is often associated. More specifically, the experience in Australia shows that even minor differences in regulation or interpretation of accounting standards can be used to pursue a range of noneconomic objectives while seemingly remaining within a national framework based on full-cost recovery (see, e.g., Pawsey and Crase 2013 ).…”

Politics, socio-economics and water allocations: a note on the limits of Integrated Water Resources Management

“…This commitment has recently been ratified by all states and the federal government with a re-confirmation of the usefulness of the NWI as a reform blueprint. But commitments do not always match practice and water pricing is bedevilled by subtle nuances that result in water users facing different charges regardless of cost (Pawsey & Crase 2013). Water use can thus be inefficient, regardless of whether decisions are made in the interests of 'integration'.…”

“…1 In a recent analysis of the impacts of this practice, Pawsey and Crase (2013) estimated that water prices in the largest publicly owned irrigation district in Victoria (Goulburn-Murray Water) would need to increase by about 300% to truly reflect the costs related to capital 'donated' by government decisions.…”

“…A cursory review of the results of pricing determinations suggests that the impact of the Commission has been to limit price rises, albeit within a framework that embodies significant elements of political intervention disguised as accounting and administrative choices (see Pawsey & Crase 2013). Given the decision by the minister to purposely rule out low-cost water access from existing sources, it is not at all clear how this latest episode will result in better or low-cost outcomes for Melbourne's water users.…”