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Consideration and Noting - TasWater Annual Report 2014-15

Mrs Armitage (Launceston) - Mr Deputy President, I also thank the member for Apsley for bringing this forward. It is always interesting to discuss TasWater and their report. I attended their briefing yesterday, which I found quite enlightening. Mike Brewster was very good, as were the other people there. They were quite willing to answer questions and quite enlightening with some of the answers I received.

I start by congratulating TasWater for delivering an after-tax profit of $33.2 million this financial year, an increase of $5 million from the previous year. I also congratulate Taswater in putting so much time and money into its zero harm policy to keep its workers safe from injury. That is a very worthwhile project.

TasWater is still in its infancy and it has been dealt a very complex situation to try to sort out before it is able to move forward. It will take time for the results to be seen but as long as the TasWater Board listens and learns from its 900 or so experienced staff, the way forward will be educated and informed.

Although there may be many things for TasWater to celebrate I am particularly concerned with issues that are being brought to my attention by some Tasmanian consultants and contractors which suggests all is not well within TasWater. While they may not be specifically mentioned in the annual report they have a direct effect on the performance of TasWater as an organisation. I am advised that some decisions are being made about the running of TasWater that do not benefit the local economy, decisions that are not warming the local community to TasWater. I am also told this morning that for an entity that was originally based in Launceston it has now become Hobart-centric; not wishing to be parochial here but when it started it was supposed to be Launceston-based.

I have been receiving constituent feedback regarding TasWater and how it interacts with some Tasmanian contractors and consultants, and may I say it is not all good. If not acted upon, the issues I am about to mention will have more effect on future TasWater annual reports than purely the financials do.

According to one consultant, TasWater rarely uses local contractors and it awards most of its tenders to companies from the mainland. This was interesting because I did have that discussion yesterday with TasWater as well. For one project, a New Zealand company won the tender even though it had no local knowledge of the current situation and had limited knowledge about the specifics of the job. Is it good for TasWater to be contracting our local work out to another country when we have contractors who are just as experienced if not more so living within the state? Contractors who know the local area. Contractors who are experienced in the types of systems used in the state. Contractors who, unless given work by larger companies, could find themselves having to close down or relocate in order to keep their businesses going. Surely a small difference in tender price is more than made up for by employment in our state.

One Tasmanian contractor, who tells me they were tired of being overlooked for contracts, teamed up with a mainland company so it had a chance of winning contracts. The contractor fills in all the required tender paperwork and emails it to the mainland company. The mainland company then copies and pastes the information onto one of its letterheads, adds a large percentage to the tender quote and submits it to TasWater. For any contracts that it wins the mainland company uses the Tasmanian contractor to carry out all the work. The Tasmanian contractor then makes its money by doing the job. The mainland company makes its money by sending in a few documents and overseeing the project that TasWater - and that is the Tasmanian public - according to this contractor is paying much more than it needed to to get the job done.

I discussed this with TasWater at a briefing yesterday and in fairness they are willing to speak with any contractors concerned and to do an independent audit of any situations that are identified. I thought that was very good. Mike Brewster said, 'Tell them to come to me. I will actually look at it and discuss it and certainly do an audit'.

Sitting suspended from 1 p.m. to 2.30 p.m.

Resumed from above.

[2.45 p.m.]

Mrs Armitage - Mr President, as mentioned before the break, at the TasWater briefing in Launceston yesterday I discussed these issues with Mike Brewster. It was pleasing that they are willing to speak with any contractors or consultants concerned, and will do an independent audit if necessary.

At the briefing, TasWater advised that 79 per cent of contracts go to Tasmanian-based companies, which includes mainland companies which in Taswater's words have made a commitment to Tasmania with offices and staff here. The question is, how much of that money stays in the state? What percentage of the 79 per cent of contracts are to wholly owned Tasmanian companies? Following the briefing, I also spoke with two large wholly owned Tasmanian contracting firms, who admit they receive a large proportion of work from TasWater and have no difficulty receiving tenders, or being awarded tenders.

Another problem facing Tasmanian contractors is the permanence of contracts they have won from TasWater. In some circumstances, TasWater will assign a smaller project to a local contractor, and give that contractor the go-ahead to proceed with the project, only to then change its mind at the last moment as it has decided to go down a different path for the project. This leaves the contractor high and dry as it has not accepted any other work during that time in order to focus on the TasWater project. The contractor then has to find work for that period, as well as change any staffing arrangements that have been made in order to fulfil the original TasWater project.

The flipside of this issue is when a local contractor puts in a tender for the smaller jobs and does not hear anything from TasWater for three to four months. The contractor then assumes the job has been won by someone else, as so much time has passed, only to be contacted by TasWater at the last minute to say that it has won the tender and needs to start work within the month. This then requires the contractor to re-evaluate any and all jobs that it is doing in order to fit the TasWater job into its schedule. Not a very good process by TasWater.

In this situation, there does appear to be a lack of communication back to tenderers. I am told TasWater is often in breach of its contract, as it does not pay in accord with the tender. The tender winner should receive, and are entitled to, late payment benefits. I am advised contractors are often too afraid to claim this. One consultant said many TasWater business cases do not include contingency plans. At the first sign of the unexpected happening, decisions are made on the spur of the moment, often resulting in the budget for a project being blown out. This is another area where liaising with local, knowledgeable businesses may save TasWater money in the long run. People with local knowledge are often able to plan for any contingency that may occur.

I am also advised that, under Ben Lomond Water, they could forecast their company's workload a long way ahead as the management of that entity had a work plan well into the future. Each project was thought out, well planned, and the tasks were decided with help from a local knowledgeable contractor.

I am told that since TasWater commenced, communication is almost non-existent between local contractors, consultants, and TasWater, and as mentioned, it has become Hobart-centric. Some contractors who have been frustrated at not being to talk to TasWater management approached a local owner representative group and their local council for assistance. Unfortunately, neither of those groups assisted. Perhaps the TasWater Board needs to engage with local consultants and contractors on a regular basis. We must see our local contractors as worthy partners, with important local knowledge and experience. How much value should we put on things such as these? According to one of TasWater's key strategies - Invest in our people's capability, and build a values-based culture - it is very important. TasWater could also learn from the issues Tas Irrigation went through when it decided to start using mainland contractors for its projects. Tas Irrigation is now back using local contractors for its work as it has learned the benefits of using local knowledgeable people.

I therefore ask the question: who is held accountable for TasWater issues? Is it the 29 owner councils who should be stepping in and asking the hard questions? Or is it the skill-based TasWater Board? Hopefully, TasWater's Strategic Asset Management Plan will do what it aims to do. Amongst other things - and I quote from page 2 of the stakeholder newsletter of October 2015:

Provide the justification and evidence for decisions we make on what assets we need to create, renew or dispose of, to meet customer and regulator needs.

This would make the organisation answerable, have greater transparency, and be able to be held accountable for the decisions it makes.

Let's speak for a moment about sewerage. During storm events in Launceston we have raw sewage enter the Tamar River. It is accepted that Launceston has over 9 200 homes with joint sewer and water pipes, and with the additional floodwater, the wastewater treatment plant cannot cope. This is unacceptable in a civilised community in the second half of the second decade of the twenty-first century. There needs to be additional investment into consolidating the inefficient and aged wastewater treatment plants in Launceston to a new purpose-built tertiary treatment plant. However, the Economic Regulator has refused price increases proposed by TasWater because TasWater cannot deliver its current level of capital works yet claims more needs to be done to bring the water and sewerage infrastructure up to standard.

TasWater chief, Mike Brewster in the Mercury article of 25 June 2015 states:

While TasWater has got the go-ahead to spend in excess of $300 million over the next three years on infrastructure development, the challenge will be to find the required capital to bring our ageing and non-performing infrastructure up to acceptable standards over the longer term.

He continues:

The Economic Regulator's revised methodology will mean that some large developments, like the Launceston sewerage improvement project, may have to be postponed or delayed further.

These are major issues for TasWater, but equally for all Tasmanians. It is simply not good enough from an organisation that has promised so much, but is yet to deliver on many of these promises. TasWater's vision is to be a trusted and respected provider of essential services that is making a positive difference to Tasmania. TasWater states its vision is assisted by its five values and behaviours: honest and straightforward; getting it right; long-term thinking; working together; and taking ownership:

By living our values and behaviours, we can achieve our vision to provide better services for Tasmania.

I refer to the company's strategic objectives on page 5 of the annual report. The obvious question to me is, are they doing what they say they will do? Do they provide products and services that deliver positive outcomes for Tasmania? Do they build fit-for-purpose consistent systems that enable 'best for business' outcomes or, as their website says, 'Operate its activities in accordance with good commercial practice.' The key strategies to support the strategic objectives:

(1) deliver an experience that meets customer expectations.

I think we have all had the letters from the gentleman at Queenstown. I am not sure he would agree with that one - from a house that burnt down - and telling us that it was going to cost him, I think, $240 per quarter for a block that was valued at $5 000. I did speak with TasWater about this gentleman's case, as he had said he had written to them as well. They pointed out to me that he could apply to them for an exemption for a period of time, and also he could apply to have the status of the block changed to a vacant block, which I believe is of considerably less value than it was previously with the house, even though the house burnt down. Hopefully he might be able to get some satisfaction there.

(2) invest in our people's capability and build a values-based culture;

(3) build systems that drive better service at a lower cost;

(4) keep price increases to a minimum, and

(5) provide safe drinking water and improved environmental outcomes.

I am not sure about the environmental outcomes, particularly in the area of Launceston with the raw sewage going into the Tamar River.

The Tasmanian Council of Social Service, the peak body for the Tasmanian community services sector, has stated in their draft water and sewerage price determination paper of February 2015:

TasCOSS recognises that the water and sewerage reform process continues and that this determination is made in the context of a transition to a fully reformed industry that is compliant with all of its regulatory obligations and has stable pricing and service standards.

In the meantime, we are concerned that rising water and sewerage costs continue to contribute to cost-of-living pressures on low-income and disadvantaged households. Water and sewerage services are essential for most Tasmanian households and, as essential services, must be affordable.

TasCOSS has previously expressed concern about the structure of water tariffs in Tasmania. The relatively high proportion of fixed to variable costs makes it difficult for households to save money by reducing their water usage. It distorts the price signal to consumers and works against the promotion of water conservation. This structure appears to be designed primarily to ensure TasWater a stable and predictable revenue.

I am sure most of us here when we receive our TasWater bill would note the charges are considerable, our water is much less. As they say, it really does not work in favour of water conservation. It is a very small proportion of the bill we receive from TasWater.

An annual report is a great time for an organisation to review its successes and victories over the past year, as it should do. On paper, TasWater should be commended for taking control of a complex situation and attempting to process all the problems it was dealt. One would think the answer to many of these problems and issues would be found in local knowledge, gained by individuals and companies which have been working in the local sewerage and water industry for many years, a resource which should be utilised and supported wherever possible.

This brings me to my final point. I am further advised some consultants have been told by TasWater staff many of the newer employees and project managers on fixed-term contracts are brought over from the mainland from within companies that many of the executive team used to work for. Apparently this has upset many of the long-term employees as they feel their experience and loyalty has been completely disregarded. I am advised adding to this frustration is that often the long-term employee is then asked to bring the new employee up to scratch on the issues.

In closing, what concerns me is that on paper an organisation can look wholly successful as it is making money, making improvements and creating jobs. Meanwhile, no attention is being placed on the internal goings on of that organisation at the grassroots level, or on the effect that organisation is having on local businesses. As much, if not more, focus and energy needs to be placed on the opinions and beliefs of the remainder of those 916 FTEs as well as the hundreds of people working for local contractors and consultants, or else future annual reports may not look, on paper, so healthy.

I note the annual report of TasWater.

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