BMI View: While we continue to believe there are strong fundamentals for water infrastructure - water shortages and droughts are still a concern - a lack of projects opportunities and unexpectedly high levels of rainfall in recent quarters are hampering growth in the sector.
The government has decided to initiate the dismantling of the National Water Commission from the end of 2014. It has, moreover, admitted there is no current long term plan for a future replacement. We see this as a negative development for the water sector as a whole and for private sector involvement, as no long term plan or oversight from an specific authority leaves the country even more vulnerable to water shortages in our view, moreover the lack of a coherent, well regulated plan is liable to make potential investors more wary and we would emphasise the potential risks from an uncertain environment.
Meanwhile, the Water Act is being reviewed. This is the first such event since 2008, and is occurring in order to assess whether the Act's objectives are being effectively enforced, and ensure they are being implemented with as small a regulatory burden imposed on the water industry, water utilities and farmers as possible. 'The review will look at opportunities for simplifying the regulatory burden on both industry and water managers, consistent with our overall focus on cutting red tape.'
The September 13 election of the Liberal National Party has improved our outlook for water infrastructure projects as fiscal loosening and greater coordination over spending decisions between state and federal governments becomes more likely. However, recent corruption allegations against Australian infrastructure firm Australian Water holdings have dampened the outlook for the sector.
This is important as over the longer term scientists from the National Oceanic and Atmospheric Administration have predicted that Southern Australia will see a 40% decline in annual rainfall, leaving Perth and nearby...