Efficiency, Technology, and Productivity in Australian Urban Water Utilities *

By Worthington, Andrew C. | Current Politics and Economics of South, Southeastern, and Central Asia, January 1, 2017 | Go to article overview

Efficiency, Technology, and Productivity in Australian Urban Water Utilities *


Worthington, Andrew C., Current Politics and Economics of South, Southeastern, and Central Asia


(ProQuest: ... denotes formulae omitted.)

Introduction

Over the last three decades, the Australian urban water utility sector has moved progressively towards a greater appreciation of performance through the reform process, very often at the instigation of national bodies appointed by the Commonwealth or cooperative arrangements between the Commonwealth and the States. In the early 1980s, urban water utilities first began to implement a user-pays water tariff for residential customers while by the early 1990s, the first Australian urban water authorities were being corporatized. Subsequent national-level sources of reform include the Industry Commission (1992) inquiry into water resources, the Council of Australian Governments (COAG) (1994) setting of a strategic framework for the efficient and sustainable reform of the water industry, the COAG (1995) implementation of the National Competition Policy (NCP) and its incentivization of jurisdictions effectively implanting water reforms within the earlier strategic framework.

These reforms also include the COAG (2004) National Water Initiative (NWI) and the establishment of the National Water Commission (NWC) to assist and assess progress on the NWI reforms and COAG (2008) in enhancing the national water reform framework concerning the security of supply of urban water (Productivity Commission (2011, xviii). Most recently, it includes the Productivity Commission (2011) being tasked with examining the case for microeconomic reform in the urban water sector and to identify pathways to achieve improved resources allocation and efficiency and a report prepared by the author for the NWC (Worthington 2011) on efficiency and productivity measurement in urban water utilities from which this chapter derives.

Undoubtedly, urban water utility reform per se and the anticipation of reform has affected the efficiency and productivity of the sector. One suggestion is that the productivity of the sector has significantly improved through expansion of the productivity frontier, suggesting fewer (or the same) resources are now needed to produce the same (or more) outputs. Problematically, this may not be the case. In a world without inefficiency, productivity growth, as measured by productivity indices (an index of output divided by an index of total input usage), is synonymous with technical progress (or shifts in the technology boundary). However, in a world in which inefficiency exists, productivity is no longer technical change unless there is either no technical inefficiency or unless technical inefficiency does not change over time. If these conditions do not hold, then productivity is the net effect of changes in efficiency (or movements relative to the existing frontier) and shifts in the production frontier (or technical change).

This distinction is important from a policy viewpoint, as changes in productivity growth due to inefficiency suggest different policies to those concerning technical change. For example, in an industry characterized by a high level of inefficiency, it may be a waste to promote efforts aimed at innovation, while a lack of innovation in an efficient industry may result in stagnation. In any case, there is remarkably little quantitative knowledge of the productivity of the Australian urban water utility sector, even less about the spread of productivity levels across the sector, and virtually nothing about whether suggestions of productivity improvements are the result of an increase in efficiency, an increase in technology, or both.

Accordingly, the purpose of this chapter is to assess the recent productivity growth of Australian urban water utilities taking into account changes in both efficiency and technology. While not the only study to examine efficiency and/or productivity in Australian urban water utilities (Coelli and Walding, 2006; Byrnes et al. 2010) it is the only one to focus exclusively on productivity, efficiency and technological change at a utilitylevel using readily available panel data. …

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