New Victorian Premier Ben Carroll is under pressure to rule out any future privatisation of Melbourne Water after confidential cabinet documents revealed the government has been examining options to bring private investors into the state-owned utility for at least five years.
The Australian on Wednesday published the contents of cabinet documents showing former premier Jacinta Allan and senior ministers in 2024 approved a 12-month business case codenamed Project Nerva to investigate bringing private investors into Melbourne Water, the authority that owns almost $18bn in dams, pipelines, treatment plants and other water infrastructure.
The government initially examined a transaction comparable in scale to the Andrews government’s 50-year lease of the Port of Melbourne, which raised $9.7bn, before narrowing its focus to a deal worth about $3bn to $4bn.
Sources familiar with cabinet deliberations said Mr Carroll, then deputy premier, supported work on continuing the proposal as a member of the Budget and Finance Committee of Cabinet in 2025.
Independent economist Saul Eslake said he was not surprised Victoria was considering a form of privatisation for its water assets after Daniel Andrews sold or leased more than $20bn of assets and Jeff Kennett sold more than $25bn.
But Mr Eslake said the Victorian government was running out of options for privatisation and questioned whether privatising water assets was a sensible approach considering the international examples of where it has gone wrong.
He also questioned whether any transaction would amount to little more than a “cosmetic” exercise to make it appear the government was reducing debt – forecast to approach $200bn by the end of the decade – describing it instead as a form of “accounting trickery”.
“I think it would be very difficult for anyone to contemplate privatisation in the sense that you and I understand that term with Melbourne Water,” he said.
“Partly because the overseas experience is so awful, and in particular from the UK with Macquarie’s involvement in Thames Water. Any government that contemplated doing it would be almost literally inundated with bad news stories about how that hasn’t worked.
“Kennett and (his treasurer Alan) Stockdale didn’t do it – and you kind of think if they could have done it, they would have.”
The cabinet documents revealed that ministers considered a joint venture proposal similar to the VicRoads transaction in 2022 that netted the state $7.9bn.
“It might be possible to securitise those revenues in the same way they securitised the motor vehicle registration fees and got a lump-sum payment,” Mr Eslake said.
“There’s quid pro quo obviously – Melbourne Water wouldn’t be able to pay the same annual dividends to the government because it wouldn’t have access to that stream of revenue.
“But it’s sort of an accounting trick … If they sold the rights to that stream of revenue for, say, $10bn and used it to pay down debt – yes you would get an immediate reduction of debt, but the capacity to run future cash surpluses would be reduced.”
A Victorian government spokesperson said Mr Carroll “does not support privatising Melbourne Water” and attempted to place pressure on the Coalition to rule it out.
Victorian Greens leader Ellen Sandell said privatising water was “one of the worst ideas imaginable”.
“It’ll lead to higher bills and put our clean water, health and communities at risk,” she said.
“Privatising water has been a total disaster in the UK, which has led to raw sewerage pumped into rivers and beaches, tap water outages and skyrocketing bills.
“Labor has treated Victoria’s public assets like we’re having a garage sale.”
A spokesperson for the state Opposition didn’t comment on whether it would also explore the idea in government, instead focusing on the leaked cabinet documents.
“This leak highlights exactly how divided Labor’s cabinet is,” the spokesperson said.
“Labor don’t care about Victorians, only settling their own internal scores. It’s time for a fresh start.”
The cabinet documents stated that Project Nerva is premised upon the “state retaining ownership of vital water infrastructure” and considers options for “private sector investment, innovation and input for the delivery of wastewater treatment, transfer services and recycled water distribution”.
“There is an opportunity for private sector investment, innovation and input in Project Nerva that could provide operational and capital efficiencies, potentially fund part of the sector’s future infrastructure requirements, as well as upfront proceeds to the state to provide balance sheet relief,” said the submission, which was approved by Ms Allan and senior ministers.
It warned that bringing in private investors could reduce Melbourne Water’s lucrative commercial income streams, which had helped keep down household water bills, and said ministers should consider how “the state also benefits from the unregulated business opportunities”.
The documents leave little doubt Victoria’s worsening financial position was the driving factor. The cabinet submission noted net debt was forecast to reach $178bn by June 2027, saying the Covid-19 pandemic had “a significant impact on both the Victorian economy and, through the government’s actions to respond to and recover after the pandemic, on Victoria’s debt level and balance sheet”.
Read related topics:Daniel AndrewsVictoria Politics
Anthony GallowayVictorian political editor