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M ELBOURNE WATER C ORPORATION 1998/1999 A NNUAL R EPORT MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 2

C ONTENTS

2 Chairman’s Report

4 Managing Director’s Overview

6 Business Performance Overview

10 Maximise Shareholder Value

18 Achieve Excellent Customer Service

22 Be a Leader in Environmental Management

28 Fulfil Our Community Obligations

34 Corporate Governance

38 Five Year Financial Summary

39 Financial Statements

33 Statement of Corporate Intent

The birds illustrated on the front cover are the Great-billed Heron and the White Egret. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 1

M ELBOURNE WATER C ORPORATION 1998/1999 A NNUAL R EPORT

Melbourne Water is a statutory corporation wholly owned by the Government of Victoria. The responsible Minister is the Hon. Patrick McNamara, Minister for Agriculture and Resources.

VISION

To be a leader in urban water cycle management

P URPOSE

Melbourne Water exists to add value for its customers and the community by operating a successful commercial business which supplies safe water, treats sewage and removes stormwater at an acceptable cost and in an environmentally sensitive manner.

VALUES

Melbourne Water’s values determine its behaviour as an organisation. The values are innovation, cooperation, respect, enthusiasm, integrity and pride. They are a guide to employees on how they should conduct their activities. Through embracing and abiding by the values, employees demonstrate to others the principles by which Melbourne Water conducts its business.

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C HAIRMAN’S REPORT

During the year Melbourne Water produced a solid financial result and completed several major projects for the long-term benefit of our customers and the community.

n 1998/99 net surplus after The complex and technically challenging North Western tax was $112.8 million Sewer project was completed on schedule and $28 million Icompared with $160.6 under budget after eight years of construction. The new million in the previous year. $225 million sewer has eliminated sewage spills into the The results reflect the full year Maribyrnong River and Moonee Ponds Creek in impact of the Victorian extremely wet weather, improving the water quality in Government’s pricing reforms, those waterways. which ultimately reduced the cost During the year the century old Epsom Road Main Sewer of water and sewerage services. was relined using a technique that diverted sewage flows Melbourne Water’s total revenue for the year was into the North Western Sewer while work proceeded $449.6 million. This included $305.4 million from the and therefore minimised disruption to the community provision of bulk water and sewerage services to the retail during the construction period. water companies, $93.5 million from drainage rates, Melbourne Water received an award in May 1999 from $19.1 million from developer contributions and $16.6 the Cooperative Research Centre Association for the million from the sale of non-core assets. The dividend to development of new technology to trace and control the Victorian Government was $106.2 million. pollutants in the Tarago Reservoir. During the year, Melbourne Water announced a A significant achievement was the completion of $120 million upgrade to the Western Treatment Plant. Melbourne Water’s long-term plan that makes full use of The effect of this upgrade will be to improve the long-term the synergies that can be achieved within the main health of Port Phillip Bay by reducing nitrogen loads. operating groups of water, sewerage, and waterways and The upgrade will also result in the availability of an drainage. The long-term plan, which was discussed with abundant supply of recycled water suitable for irrigation. the Victorian Government, the retail water companies and A further component of the project is the installation of the regulators, will focus on the urban water cycle. membrane lagoon covers that will improve air quality and energy efficiency and reduce greenhouse gas emissions. This approach will ensure that vital planning decisions take into account the interdependencies and the sensitivities The CSIRO completed a major research project for of Melbourne’s water supply, sewerage and waterways and Melbourne Water. The study examined the environmental drainage systems. It will also encourage an increased impact of treated effluent from the Eastern Treatment emphasis on the commercial and environmental benefits Plant discharged to Bass Strait. The CSIRO report included arising from the most appropriate use of Melbourne’s options for improving sewage treatment and for effluent water resources. recycling. Melbourne Water is working closely with the Environment Protection Authority to identify the most I want personally to record my appreciation of the efforts environmentally sound option for the future at the least cost of all Melbourne Water employees for delivering another to the community. year of excellent results. I also thank fellow Board members for their contributions during the year. Judith King retired In 1998/99 Melbourne Water received $3.5 million funding from the Board after nine years’ service and we wish her through the Commonwealth Government’s Natural Heritage well and thank her for all she has done during her time Trust to develop a series of wetlands in Melbourne’s with the Corporation. south-eastern growth corridor. The Corporation is also contributing to the project that will reduce the impact of stormwater and urban run-off into Port Phillip Bay.

Christopher Stewart Chairman

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When repairs were undertaken to the Epsom Road Main Sewer flows were diverted to the new North Western Sewer. This enabled the project to proceed while minimising disruption on busy Epsom Road. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 4

MANAGING DIRECTOR’S OVERVIEW

In 1998/99, Melbourne Water again met its key objectives of providing high quality water, sewerage and drainage services to the community.

elbourne Water The plan uses sophisticated technology to assess a range continued to of data including climate trends and indices and ground Mstrengthen and review and soil conditions to forecast water storage levels in the its emergency response coming months. procedures and contingency Melbourne Water and its river diversion customers worked planning in a year characterised cooperatively to manage the restrictions placed on people by an increased emphasis on licensed to divert water from the Yarra and Maribyrnong risk management. Rivers for their businesses. The objective was to maintain The incidents in Sydney and at Longford provided a firm healthy river flows and these required limits being placed reminder that we must continually reassess the way we on the volume of water diverted. do business to ensure the most robust checks and balances Western Water, whose service area includes the townships are in place. What these incidents taught us was that of Sunbury, Diggers Rest and Macedon, had also been complacency has no place in our business. affected by the drought with storage levels in its major Key focus areas in the Corporation’s review of its risk service reservoirs being extremely low. In March 1999, management procedures were the Year 2000 issue and crisis Melbourne Water signed an agreement with Western Water management. Melbourne Water’s Year 2000 project to supply up to 200 megalitres a year from the Greenvale included an exhaustive testing and remediation program Reservoir. The supply will provide Western Water with of all critical systems and equipment, and assessment of all long-term security of supply. critical and important suppliers. The Corporation is Year The dry weather also focused attention on the importance 2000 ready and confident that it will be business as usual of maximising the use of recycled water. Melbourne Water as we move to the new millennium. Melbourne Water’s reviewed its effluent recycling program to identify crisis management procedures were enhanced following opportunities for the increased use of this resource. discussions, workshops and briefings involving experts in The review found that following the completion of the the field and industry stakeholders. upgrade to the Western Treatment Plant, there would be Customer service was a high priority during the year and an abundant supply of high quality effluent in the Werribee significant progress was made towards finalising the Bulk area suitable for a range of agricultural and horticultural Services Agreements with the metropolitan retail water purposes. Further initiatives in effluent recycling companies. The revised agreements set out accountabilities included the calling for expressions of interest to develop for managing issues such as drinking water quality and a major recycling scheme for effluent from the Eastern trade waste. Treatment Plant. As part of its commitment to provide a reliable supply A number of programs were undertaken to increase the of high quality drinking water to its retail water customers, knowledge, skills, expertise and safety of Melbourne Water’s Melbourne Water completed $8 million of projects in employees. The majority of Melbourne Water workplaces outer urban areas. are now SafetyMAP-accredited by the Victorian WorkCover Authority, and the aim is to have them all accredited Projects undertaken included the covering of service during 1999/2000. reservoirs on the Mornington Peninsula, a new water filtration plant at Yarra Glen and three chlorination plants Our achievements during the year are a credit to the in the outer western suburbs. dedication and commitment of our employees. These results were possible only because our people tackled challenges Throughout the year, the Corporation was involved in a together, with resolve. I am confident that we are well placed number of major capital works projects. Positive to build on these achievements in the new millennium. relationships with local communities are important to the success of these projects and Melbourne Water continued to implement extensive community consultation programs. In another year of very low rainfall, Melbourne Water and the metropolitan retail water companies worked closely to Brian Bayley refine the industry’s drought response plan. Managing Director

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Melbourne Water’s Upper Yarra Reservoir storage fell as low as 42 per cent of capacity during the 1998/1999 summer. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 6

BUSINESS PERFORMANCE OVERVIEW

In 1998/99 Melbourne Water developed a new long-term plan. The planning document titled Catchment to Coast – Making the Connections in the Urban Water Cycle, sets out the strategic directions to enable Melbourne Water to continue to improve its performance in the key operational areas of water, sewerage and waterways and drainage.

The long-term plan recognises the synergies between the functions of Melbourne Water’s operational groups and the important role they have in the effective management of the urban water cycle. The strategic directions are outlined under four corporate objectives: Maximise Shareholder Value, Achieve Excellent Customer Service, Be a Leader in Environmental Management, and Fulfil Our Community Obligations.

The following section highlights Melbourne Water’s performance in 1998/99 in meeting these corporate objectives.

Maximise Shareholder Value > Progress continued to be made with the Government and the metropolitan retail water companies on significant long-term Operating Profitability industry issues such as tradeable entitlements. Represents operating profit before abnormal items & tax/operating revenue. > A continued focus on debt reduction resulted in Major reforms were introduced by the State to water and sewerage pricing for Melbourne on interest costs being reduced by $43 million. 1 January 1998. 700 > Efficiencies continued to be made and overall

operating costs have been reduced by more than 600 32 per cent since 1995/96. 500 > The international credit ratings agency, Standard and Poor’s, upgraded Melbourne Water’s 400 credit rating from AA to AA+. 300 > The Year 2000 project reached its final stage, with assets and equipment tested and the 200 Corporation Y2K ready. 100 > Revenue growth was strong, with higher than $M 1996/97 1997/98 1998/99 planned revenue in most areas of the business and Operating Revenue cash flow more than $13 million above expectation. Profit before Abnormal Items & Tax

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> An agreement was signed to supply Western Capital Expenditure Water with up to 200 megalitres a year from Capital expenditure for the year totalled $79.4 million Greenvale Reservoir. > Major infrastructure projects were completed to improve reliability and structural integrity of assets, including Yan Yean Reservoir, the North Western Sewer and the Hanna Street Main Drain. > Risk management procedures were reviewed, including Melbourne Water’s crisis response plan.

Achieve Excellent Customer Service > More than $8 million was spent on drinking water quality projects in outer urban areas. Waterways & Drainage $27.2M > A major works upgrade to improve water Sewerage $25.5M quality and security of supply began in the Water $18.5M Mornington Peninsula. Corporate $8.4M > Customer reporting to the metropolitan retail water companies was enhanced, including comprehensive monthly water quality data and weekly updates on water storage. > Partnering arrangements were established with City West Water and South East Water. > Work continued on making drainage and flood risk data available electronically to improve service to local councils, property owners and property developers. > A revised land development manual was released to provide more comprehensive information to the development industry. The manual was placed on the Melbourne Water Internet site. > Melbourne Water completed a $2.5 million drainage survey which provided information on flood risks that councils began adopting into planning schemes as special building overlays.

Be a Leader in Environmental Management > A $120 million upgrade to improve effluent quality at the Western Treatment Plant was announced by the Minister for Agriculture and Resources. > Funding from the Natural Heritage Trust was secured to help construct one of Australia’s largest wetland projects.

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> The CSIRO’s $1.3 million Effluent Debt The total book value borrowings amounted to Management Study was completed. The study $1,267.4 million ($1,281.8 million in 1997/98). The reduction reflects the $337.0 million debt assessed the environmental impact of effluent restructure and ongoing program of debt repayment. The gearing percentage at 30 June 1999 improved discharge into Bass Strait. to 45.9% compared to 47.1% at 30 June 1998 as a result of these initiatives. > The Western and Eastern Treatment Plants Gearing achieved a high level of environmental 60 compliance (100 per cent and 99.6 per cent ) 50 respectively for effluent discharge . > More than 442,000 trees, plants, shrubs and 40 other vegetation were planted to improve the

30 health of waterways, protect stream banks and create wetlands to treat stormwater run-off. 20 > Six fishways were constructed that will enable 10 large numbers of migratory native fish to access important feeding and breeding habitats. % As at 30 June 1998 As at 30 June 1999

Interest Cover Represents receipts and payments from operating Fulfil Our Community Obligations activities + interest expense > Community relations guidelines were 5.0 finalised for contractors to ensure strong links

4.0 with business and consultation with residents, community and environmental groups. 3.0 > An external reference group was formed to

2.0 establish an operating charter for waterways and drainage. 1.0 > Extensive community consultation was Times 1997/98 1998/99 undertaken for capital works projects and major environmental studies. > Public accountability was a high priority, with data on water quality, research projects and environmental compliance available on the Internet. > A consultative group helped shape the design and development of three wetlands constructed at the Woodlands Industrial Estate in Braeside. > A total of 4200 school students went on organised tours of the Eastern and Western Treatment Plants and another 600 people toured the plants on visitor open days. > Melbourne Water assumed accountability for Waterwatch, in which school and community groups monitor and learn about the health of waterways, and extended the program throughout the metropolitan area.

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Cardinia Reservoir has a total capacity of 270,000 megalitres. Information on Melbourne Water’s reservoirs, storage levels and water quality data was updated regularly on the Internet. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 10

MAXIMISE SHAREHOLDER VALUE

Melbourne Water consolidated its financial gains of recent years by continuing to reduce debt and operating costs and increase revenue. The Corporation also continued to seek opportunities to improve and streamline business performance.

A solid business performance The international credit ratings agency Standard and Poor’s Melbourne Water made further improvements to its upgraded the Corporation’s credit rating from AA to AA+. business in 1998/99 in a year of solid This followed a similar upgrade the previous year. Standard commercial performance. and Poor’s noted: “The rating change reflects a continued Interest costs fell $43 million during the year due to improvement in the company’s financial position.” the full-year impact of the Government’s debt restructure During the year, the Corporation delivered strong revenue of 1998 and the growth, with a buoyant Corporation’s continued property market leading to focus on repaying debt. opportunities to achieve This was reflected in the good returns for the sale Corporation’s gearing which of surplus property and a reached 45 per cent, down high level of activity in the from 72 per cent four years development industry ago. In the same period, increasing drainage revenue. interest costs were reduced Higher than planned bulk by 66 per cent. Cash from water sales were achieved operations for the year is due to the continuing now more than four times dry conditions. interest costs. Risk management was a A number of initiatives high priority during the contributed to efficiency year, and procedures were improvements in the year reviewed, including ended 30 June 1999, Melbourne Water’s crisis including streamlining response plan. of operations in sewerage, Plans were further water and commercial developed for the merging services. Operating costs of five control rooms, were reduced by 5.9 per centralising control of the cent during the year, and water, sewerage and since 1995/96, overall stormwater systems. operating costs have been reduced by more than An agreement was signed 32 per cent. to provide up to 200 megalitres of water a year Figures published by the to Western Water which Water Services Association serves communities of Australia in WSAA Facts Systems Controller Cal Stanton-Smith tracks water and north-west of Melbourne. (January 1999) compared sewage flows at the Brooklyn control room. Western Water will build a Melbourne Water’s $6.5 million, 10 kilometre pipeline between Sunbury and wholesale operating costs with those of five major water the Melbourne Water system. companies or authorities in other States in 1997/98. Melbourne Water had the lowest operating costs for Agreement was reached in principle with another customer, sewerage and the second lowest for water. Southern Rural Water, on water entitlements.

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Melbourne Water was involved in research, improvement, and community awareness projects to protect and improve water quality in the Yarra River. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 12

YEAR 2000 PROJECT

During the year, the major element of the risk management program was the Year 2000 project. The Corporation is year 2000 ready and confident that its customers will be supplied with water, sewerage and drainage services as usual during the transition to the new millennium.

Melbourne Water’s business is highly automated and the Melbourne Water is continuing to work closely with its Corporation has spent more than $4 million preparing for key retail customers – City West Water, South East Water the year 2000 date change. and Yarra Valley Water – on industry preparedness for the year 2000. The Year 2000 project assessed, tested and, where necessary, rectified critical systems and equipment in all areas of the Melbourne Water provides monthly reports to the Victorian business, including the SCADA computer system that links, Government’s Department of Treasury and Finance Year controls and monitors water and sewage flows, control 2000 Risk Management Unit and the accuracy of a report equipment, telemetry and instrumentation, voice and data on the Corporation’s year 2000 preparedness has been communications, building support systems and business confirmed by PriceWaterhouseCoopers. computer systems. Contingency plans were identified during the year and are The project included a detailed analysis of the Corporation’s in place. These cover supplies such as electricity, chemicals supply chain, and all critical and important suppliers were and fuel and back-up facilities. Teams of specialist assessed for year 2000 readiness. The project team included employees will test and monitor systems and equipment technical specialists from within the organisation and and manage communications during the transition to the external consultants. new millennium. Treatment facilities have back-up power supplies and all systems can be operated manually.

Year 2000 Systems Compliance

Critical business Description of critical Completion system name business function date

SCADA System control and data acquisition system June 1999

SODS Sewer access permit system May 1999

LDD Land development database February 1999

Plan Room MW asset records database May 1999

Hydsys TS Flood prevention package June 1999

GIS Geographical information system for May 1999 asset location

DSCM Drainage scheme creation and maintenance May 1999

FACS Financial management software package May 1999

Chris Payroll software package April 1999

AMS Asset management database May 1999

Custima South East Water drainage certificate interface June 1999

Gentrack City West Water drainage certificate interface June 1999

Yarra Valley Online Yarra Valley Water drainage certificate interface April 1999

PABX Telephone exchanges June 1999

MOCS Melbourne one call system July 1999

Water headworks Reservoir outlets and controls March 1999

Water transfer Pipeline valves and controls March 1999

Water treatment Disinfection facilities for water supply March 1999

Sewerage transfer Pump station and pipeline controls June 1999

Sewerage treatment Treatment controls June 1999 In preparation for the year 2000, treatment plant facilities have back-up power supplies and all systems Flood warning Flood monitoring instrumentation June 1999 can be operated manually.

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Operator David Blanch at the Eastern Treatment Plant’s air purification system, which has been upgraded as part of a $27 million improvement program at the plant. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 14

RESEARCH, TECHNOLOGY AND INNOVATION

Sound commercial principles combined with research, technology and innovation provide a firm foundation for capital works projects.

Research builds knowledge base In 1998/99 $80 million was allocated to capital works Melbourne Water commissions research projects to deliver projects. The challenge in managing a large capital budget increased efficiency and productivity, reduce exposure to is to complete projects on schedule and under budget while environmental and public health risks, enhance the minimising disruption to the community. organisation’s strategic knowledge and obtain information The century old Epsom Road Main Sewer is located under which can provide an input to future regulation. one of Melbourne’s busiest roads servicing the western The value placed on particular projects is based on their cost, suburbs and a number of popular public venues such as the risk, urgency, potential savings and importance to Flemington Racecourse. More than two kilometres of the old government, customers and the community. Melbourne Water brick sewer was relined in 12 months during a $4.4 million spent more than $2 million on research projects in 1998/99. project that came in well under budget. Major excavation and traffic disruption was avoided by using innovative Melbourne Water maintained strong links with the water technology which allowed sewage flows to be diverted to industry at international and national levels. Included in the North Western Sewer during the construction period. its affiliations are the American Water Works Association A giant ‘plug’ was inserted into the Epsom Road Sewer to and its research foundation, the Water Environment hold back the sewage and force it to flow backwards into Federation, the International Association on Water Quality, the North Western Sewer. the International Water Services Association and the Australian Water and Wastewater Association. World first technology In Box Hill, a challenge arose when one of Melbourne The Corporation believes that pooling resources and expertise Water’s main drains was identified as needing repair in organisations such as the Cooperative Research Centres following a survey of the drainage system. The Box Hill enables research to be undertaken that maximises the benefit South Main Drain is about 70 years old and several houses of funds committed. are near or directly on the drainage easement. Excavation For example, Melbourne Water is a sponsor of the $3 million was not possible and a solution had to be found that would Water Quality Study being conducted by the Cooperative minimise the risk of structural damage to the houses. Research Centre for Water Quality and Treatment, in which A world first technological solution was adopted, in which 600 Melbourne families are being monitored to gain a further an hydraulically operated winding machine travelled down insight into any discernible differences in the health of people the drain, lining it with PVC. drinking filtered and unfiltered water. The methodology for Providing flood protection the study, which is expected to be completed by the end of Among other major capital works projects completed by 1999, has been adopted in a similar pilot study in California. Melbourne Water were flood protection and drainage projects The Corporation’s involvement with the Cooperative at Mt Eliza, Elsternwick Park, St Kilda Road and Mentone. Research Centre for Catchment Hydrology in a research The four-stage, $10 million project in Mentone was one of project on catchment management at the Tarago Reservoir the largest flood mitigation works undertaken by Melbourne received a technology transfer award. The award, presented Water, providing protection for 470 properties. It was by the Cooperative Research Centre Association, recognised completed in December 1998 after four years of works. the importance of working cooperatively with landowners International expertise in lagoon technology within the supply catchments to protect water quality in the Membrane covers, an integral part of the environmental West Gippsland reservoir. improvement program at Western Treatment Plant, were Melbourne Water strives to increase its knowledge base commissioned during the year. Before the program was and in 1998/99 participated in domestic and international finalised overseas visits were made to ensure the organisation conferences on issues including pathogens, wastewater was fully aware of the latest lagoon technology. technologies and stormwater treatment. Upgrading Yan Yean Integrating technology and innovation in capital works In 1998/99, Melbourne Water began a $5 million project to Melbourne Water has an extensive capital works program bring Melbourne’s oldest water storage, Yan Yean Reservoir, that is prioritised after consideration of such factors as public up to the latest engineering standards. An historic health, legislative requirements, customer obligations, valvehouse was dismantled stone by stone to make way for growth, operational efficiencies, asset condition and risk. the upgrade. The valvehouse will been reconstructed.

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Analytical chemist Rebecca Anthrell assesses the quality of the effluent from the Western Treatment Plant. The independent laboratory, AWT, monitors the performance of the plant to ensure it achieves Environment Protection Authority licence compliance. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 16

MAJOR CONTRIBUTION BY MELBOURNE WATER EMPLOYEES

The Corporation achieved a major improvement in its occupational health and safety performance.

Safety record achievement An Employee Representative Committee was established. In 1998/99 the lost time injury frequency rate fell from It met for the first time in September 1998 and meets 5.0 to 1.8 and the lost time injury ratio reduced from monthly to provide a forum for the views of all employees. 6 to 2. All major worksites were SafetyMAP accredited by The committee is involved in reviewing and commenting the Victorian WorkCover Authority. on human resources policies, improving participation processes and identifying opportunities for Linking remuneration to performance Melbourne Water made further progress in 1998/99 in productivity improvements. linking remuneration to the performance of the business Employee development and the achievement of corporate goals. People employed Melbourne Water undertook many training programs to under the Corporation’s Enterprise Agreement received a improve the knowledge and skills of its employees. 2 per cent pay increase Professional development from 1 July 1999. and training courses are This recognised the contained in career achievement of corporate development or work targets for 1998/99 in the improvement plans for all areas of commercial Melbourne Water performance, risk employees. A key initiative management, occupational was aligning the health and safety and organisation’s water supply environmental and public operator training program health compliance. More to the National Vocational than half the Corporation’s Certificate in Water employees have now signed Resource Management. individual employment This gives national agreements, a significant recognition of the increase over the organisation’s skill based previous year. training program.

Sharing knowledge and Employee profile involving employees At 30 June 1999, Five employee forums were Melbourne Water had held during the year in 493 employees – 404 which guest speakers (82 per cent) were men and presented case studies based 89 (18 per cent) were on Melbourne Water’s women. A year earlier values. More than 85 per there were 562 employees – cent of employees took part 467 (83 per cent) men and

in the forums that also gave Planning managers Gordon McFarlane and Gerard Thurbon. 95 (17 per cent) women. employees the opportunity Forums were organised during the year to enable employees Equal opportunity to contribute to Melbourne to share knowledge and contribute towards the Corporation’s Melbourne Water is an Water’s long-term plan and long-term plan. equal opportunity employer. to share knowledge Discrimination, victimisation, and harassment of any kind throughout the business. Regular employee briefings were are unacceptable. During the year, Equal Employment provided on business performance, issues and initiatives at Opportunity management practices were further developed all worksites during the year and a new monthly and implemented. information bulletin was published.

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Some 50 aerators pump oxygen into the sewage lagoon at Western Treatment Plant. Melbourne Water engineers visited treatment plants in North America and South Africa to study the latest in lagoon technology prior to finalising an environmental improvement program for the plant. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 18

ACHIEVE EXCELLENT CUSTOMER SERVICE

Melbourne Water has a diverse range of customers including the metropolitan retail water companies, local councils, the property development industry and river diversion permit holders.

Focusing on customer relations responsibilities for the management of drinking water As with most businesses, Melbourne Water aims to foster quality and trade waste, and was based on achieving positive relations with its customers. The Corporation’s key commercial success while meeting customer expectations customers for wholesale water and sewerage services are and regulatory obligations through a cooperative approach. the metropolitan retail water companies – City West Water, It is the first time since the retail water companies were South East Water and Yarra Valley Water. established in 1995 that the agreements have been formally Melbourne Water provides services to drainage rate reviewed, and they provide opportunities to further enhance customers throughout greater Melbourne and to the relationships with these customers in future. property development industry and local councils. It also Workshops were organised during the year with City West includes among its customers diverters such as market Water and South East Water at which partnering principles gardeners, farmers, vineyards were established and and businesses who are working relationships further licensed to take water direct developed. Workshops were from the Yarra and also held with South East Maribyrnong Rivers. Water to establish least-cost Businesses that use recycled community solutions for effluent from the Eastern providing sewerage services Treatment Plant are in urban growth and Melbourne Water customers. redevelopment areas. Community benefits from High quality drinking water industry cooperation During the past year, In 1998/99 a number of Melbourne Water completed initiatives were undertaken $8 million of projects as to improve customer service part of its commitment to by better understanding and further improve the quality meeting customer needs. of water supplied to retail Melbourne Water continued water company customers, to improve the quality of primarily in outer-urban and information it provides to semi-rural areas. These works the metropolitan retail water included six new disinfection companies. Comprehensive plants – three for City West monthly reports were Water customers, two for published which included South East Water customers detailed information on water and one for Yarra Valley Several major projects improved the quality of drinking water quality as well as weekly supplied to retail customers. Water customers. A further information on water storage 11 plants were upgraded. levels. The retail water companies also received briefings Diesel back-up generators were also installed at on Melbourne Water’s involvement in research and disinfection plants to ensure reliable operation through development projects. electricity failures. Work also began on covering or Melbourne Water and the retail water companies worked replacing open reservoirs to improve drinking water quality towards finalising the review of Bulk Services Agreements. for South East Water customers. This work is part of The review focused on stronger performance-based Melbourne Water’s water supply strategy which aims to contractual obligations, and providing a clearer, more maximise water quality through a closed distribution robust planning framework for the timely delivery of service system downstream of protected catchments. improvements. The review further developed

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Covering open reservoirs, such as this one at Tyabb on the Mornington Peninsula, is part of Melbourne Water’s commitment to improve water quality supplied to retail water company customers. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 20

A new water filtration plant was opened at Yarra Glen stormwater quality and flood protection at new to upgrade the quality of drinking water for Yarra Valley sub-divisions. It includes updated guidelines, design Water customers. This follows the installation of two drawings and a section on environmental requirements. similar plants at Healesville. Cooperation key to drought management Working with councils on responsible urban development Water stored in greater Melbourne’s major reservoirs fell as Melbourne Water worked closely with local councils to low as 57 per cent of capacity during the summer of ensure that information – the result of a $2.5 million 1998/99 for the second consecutive year. Melbourne Water drainage survey – was incorporated as special building provided a weekly update on its water storages and worked overlays (SBO) in local government planning schemes with the retail customers to review the water industry across Melbourne. The survey maps the path of overland drought response plan. water flows that would occur in a storm exceeding the The continuing dry weather had an impact on river flows design capacity of the underground drainage system. and this affected business and industry that have permits At 30 June 1999, four councils – Port Phillip, Moonee to divert water from the rivers. Melbourne Water issues Valley, Wyndham and Brimbank – had formally adopted permits for people who divert water from the Yarra and SBO amendments based on the survey. The City of Hume Maribyrnong Rivers. There are 44 permits on the had completed public exhibition of an SBO amendment Maribyrnong, mostly held by market gardeners, who faced but had not yet voted to adopt it. Four more – Hobsons restrictions of 70 per cent in 1998/99 to maintain Bay, Maribyrnong, Nillumbik and Maroondah – had SBO environmental flows and protect the river environment. amendments on exhibition. Melbourne Water worked closely with its diversion customers to assist them through this difficult period. Property information statements issued by City West Water, South East Water and Yarra Valley Water now Restrictions were necessary but much less severe on the incorporate the data. As a result, developers and property Yarra and its tributaries where a total of 1330 companies owners are much better informed on flood risks when they and individual landowners are licensed diverters. They use make investment and development decisions. the water for farms, vineyards and other businesses. The Corporation worked with the development industry The Yarra catchment diverters and Melbourne Water and local councils to revise its land development manual. cooperated closely on managing the restrictions as part of a The manual focuses on a partnering approach with industry drought response plan, which was finalised about a month and specifies objectives and required outcomes on before it was due to be implemented.

Water sensitive developments, such as this one at Berwick Springs, help protect against flooding and improve the quality of stormwater run-off. The development won an excellence award from the Urban Development Institute of Australia.

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Domaine Chandon’s Bernie Wood in front of the Yarra Valley winery’s dam. The winery diverts water from the Yarra River only during winter. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 22

BE A LEADER IN ENVIRONMENTAL MANAGEMENT

Melbourne Water treats most of the city’s sewage and industrial waste. The priority of the Corporation is to ensure that resources are allocated to minimise the environmental impact of these activities.

The Western Treatment Plant at Werribee processes more The upgrade at Western Treatment Plant will improve than half the city’s raw sewage and industrial waste: effluent quality, and this, together with the construction about 500 megalitres a day. The Eastern Treatment Plant of a reuse channel and a 10 megalitre pond, will help the at Carrum processes about 350 megalitres a day. development of effluent recycling schemes near the Werribee plant. The Western Treatment Plant is recognised internationally for its innovative design and for being planned with an After two years of detailed analysis, the CSIRO released its eye to the future. That reputation was maintained with a report on the Effluent Management Study in April 1999. major upgrade, the most significant in the plant’s 100-year The study, which assessed the impact of effluent disposal in history, announced by the Minister for Agriculture and Bass Strait, provides the scientific basis for future options Resources in April 1999. being developed by Melbourne Water and the Environment Protection Authority. Under the $120 million upgrade, the plant’s lagoon system, which relies partly What the CSIRO study found on natural treatment The $1.3 million CSIRO processes, is being Effluent Management Study complemented by the latest into effluent disposal from activated sludge technology the Eastern Treatment Plant used successfully at the found that the current outfall Eastern Treatment Plant. has some environmental impact on the local ecosystem The activated sludge system around the discharge point, and other facilities due to be but poses negligible threat to introduced to each lagoon will human health. It also found increase nitrogen removal at that some sewage treatment the Western Treatment Plant improvements, particularly from 55 per cent to 70 per increased removal of cent, to improve the long-term ammonia, could reduce the health of Port Phillip Bay. impact on and near the shore. Part of the first pond of each The Carrum plant, which of the plant’s three modern treats 42 per cent of lagoon systems has been fitted Melbourne’s sewage, with state-of-the-art membrane discharges treated effluent covers to eliminate odour into Bass Strait at Boags and trap about 20,000 cubic Rocks, near Cape Schanck, metres of methane gas a day. south of Melbourne, via a Capturing the methane gas Anthony Wallace of Connell Wagner inspecting pipes to 56 kilometre pipeline. more than halves greenhouse be used in the construction of the effluent recycling channel The discharge point is near gas emissions from the plant. at the Western Treatment Plant. the Gunnamatta surf beach. One of the modern lagoons has The study, commissioned by Melbourne Water, a power generation facility, and the 1.3 megawatts of recommended that treatment improvements and increased electricity produced there is more than enough to power recycling of the treated effluent would provide an that lagoon’s aerators. Power generation facilities are appropriate balanced response between cost, sustainability planned for the other modern lagoons. The lagoons will and environmental improvement. It found that there were continue to allow time for naturally occurring bacteria and substantial difficulties in achieving total recycling, sunlight to provide natural disinfection. particularly in the short to medium term.

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The Western Treatment Plant’s modern lagoons meet Port Phillip Bay. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 24

However, it suggested that a concerted program of effluent Businesses already recycling Eastern Treatment Plant recycling could reduce effluent discharge significantly over effluent include vineyards, flower growers, market time. It also said that indirect potable recycling – where gardeners, nurseries, council recreation reserves, golf effluent is treated to drinking water quality and returned courses, an orchard, a hydroponic tomato grower and a to one of the major reservoirs – should be considered in school. These businesses, most of which take effluent future rather than building new dams. directly from the plant’s effluent outfall, are able to gain high quality recycled water The Effluent Management for significantly less than Study examined 14 methods the 72 cents a kilolitre for for reducing the volume tap water. of water discharged, ranging from less than one per cent A more efficient Eastern for industrial or ‘grey water’ Treatment Plant recycling to almost 95 per Melbourne Water has put in cent for potable recycling. place a total of $27 million Costs per kilolitre of reducing of initiatives to further the flow ranged from 10 cents modernise the Eastern to almost $10. Treatment Plant and improve its environmental and The study found that business performance. extending the pipeline into deeper water would allow the A new pumping system Boags Rocks ecosystem to being installed in the plant’s recover, but may not reduce primary treatment area will ecological effects further remove collected grit more afield or the risk of algal efficiently from sedimentation blooms in the area. tanks. The grit and screening system will be upgraded to The CSIRO analysed samples prevent grit and floating of abalone, parrot fish, and material, such as plastic and sea squirts (cunjevoi) just cotton buds and other similar offshore from the discharge waste, entering the secondary point for a range of (or biological) treatment area. contaminants and found that The project will result in the Boags Rocks outfall poses further operating efficiencies. no threat to seafood or people consuming seafood harvested Consistent with Environment in the vicinity. Protection Authority Recycled water is used by requirements, air quality The results were consistent Peninsula Country Golf Club and several other improved with the covering with the results of a routine golf courses on the Mornington Peninsula. of various sludge channels monitoring program carried and installation of a new air out by Melbourne Water and the findings of a Monash extraction system at the plant. This system will reduce University study on the health effects of ocean outfalls, overall odour emissions from the plant and allow greater conducted for the Effluent Management Study. The Monash flexibility in the operation of the plant’s sludge researchers found that surfers in the outfall area appear to management areas. be at no additional risk of contracting disease compared with other beaches studied. A new process control system, which is being installed, and other planned automation works, provide operating Melbourne Water is working closely with the Environment efficiencies by enabling the plant to be monitored and Protection Authority to develop an appropriate strategic operated from a single control room. response for the future management of effluent disposal from the Eastern Treatment Plant. Melbourne Water also plans to upgrade various plant facilities over the next three years to more efficiently use A component of the research project was an examination the sludge gas (methane) produced and to make the plant of the potential for using recycled effluent from the more energy efficient overall and further reduce greenhouse Eastern Treatment Plant. The report set the direction for gas emissions. initiatives including the establishment of a significant effluent recycling scheme near the Eastern Treatment Plant at Carrum.

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The CSIRO studied the environmental impact of effluent discharge to Bass Strait from the outfall at Boags Rocks, near Cape Schanck. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 26

Nature’s filters create healthy waterways Heritage Trust. Construction of the first of the ten wetlands Melbourne Water’s revegetation program aims to improve began in June 1999 at Hampton Park. the long-term health of waterways. In 1998/99, a total of During the year, Melbourne Water won an excellence 442,000 trees, shrubs, grasses and other plants were planted award from the Urban Development Institute of Australia to create wetlands to treat stormwater run-off, guard against for the Corporation’s role in the development of the erosion, restore corridors for wildlife, and create a sense Berwick Springs housing estate, in which a floodplain was of involvement among landowners and community groups. transformed into an environmental wetland, with more Work on several wetlands projects continued during the than 5000 trees planted and a lake constructed. year, including the project at the Woodlands Industrial Protecting our aquatic wildlife Estate, in Braeside. A consultative group including Melbourne’s waterways are home to dozens of fish representatives of seven local conservation groups helped species and other wildlife, including platypus. The presence Melbourne Water shape this project, which consists of of a diverse aquatic ecosystem is a sign of clean and three wetlands. healthy waterways. The wetlands will help treat stormwater that flows into Melbourne Water has built fish ladders or fishways to Mordialloc Creek and Port Phillip Bay, but are also seen as protect endangered species of native fish by opening up a valuable community resource, with areas for passive waterways. Over the years, obstructions such as weirs have recreation and an environment for local wildlife. stopped some species of migratory fish reaching their In a further effort to reduce the impact of stormwater natural feeding and breeding grounds. pollutants on Port Phillip Bay a $7.5 million wetlands In 1998/99, Melbourne Water constructed six fishways, project was announced at a forum, attended by at Darebin Creek, Bunyip River and the Maribyrnong 110 stakeholders from the water and development River. Monitoring is showing that large numbers of industries, including Members of Parliament, government migratory native fish, including tupong and galaxiids, departments, environmental organisations, local government are taking advantage of the fishways and moving upstream. and research institutions. At least seven native migratory fish species will use the The project, known as the Catchment of the Future, fishways to access important feeding and breeding habitats. involves the construction and monitoring of 10 separate The fishways, in addition to improvements in feeding wetlands over the next three years and is jointly funded by areas for fish and platypus, were built as part of a series Melbourne Water and the Federal Government’s Natural of 23 projects costing $3.3 million.

A major activity in 1998/99 was the revegetation along the banks of many of Melbourne’s waterways. Melbourne Water spends $12 million a year on improving the water quality in greater Melbourne’s waterways.

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Melbourne’s wetlands and waterways are home to a diverse range of fish species and wildlife. Black swans for example, breed at the Edithvale-Seaford wetlands. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 28

FULFIL OUR COMMUNITY OBLIGATIONS

Melbourne Water works hard to maintain and safeguard the natural advantage of its water supply system: the protected catchments. Bushfires, erosion and run-off, as well as unauthorised public entry into the catchments, are some of the risks that have to be managed.

Safeguarding the protected catchments During the year, Melbourne Water stepped up surveillance Melbourne Water depends on its protected catchments, of the catchments. Since January 1998, 12 people have which cover more than 130,000 hectares of pristine forest, been prosecuted for breaching bylaws and regulations, to deliver high quality water to its retail customers. and a further six cases are pending. Safeguarding these catchments is an essential element of the The system of closed catchments provides the best Corporation’s management of the water supply system. protection against contamination of the water supply by The main threat to the catchments that the Corporation has cryptosporidium, giardia and other parasites. Any risk is to manage is fire. Not only do bushfires leave behind soot further reduced by disinfection and by the long period – and ash in the catchments, up to five years – for which making it more difficult to water is stored in reservoirs disinfect the water, they can before use. also destroy mature mountain Testing of Melbourne’s ash trees that cover about half source waters for the catchment areas. cryptosporidium and giardia Afterwards, young seedlings began in 1993 and take their place, soaking up continued through 1998/99 far more water than the in a program reported to mature trees. As a result, less the Department of Human water flows into streams and, Services. Only extremely low eventually, reservoirs. levels of parasites have ever Firefighters are on call over been detected. the summer period at all Melbourne Water pays times to try to ensure that particular attention to the any fires that occur do not roads in the catchments to take hold. ensure appropriate drainage Only three fires were recorded is constructed and in what was a mild and maintained to minimise humid summer of 1998/99. erosion and sediment flowing All were near the Upper Yarra into the water. catchment, and were caused The Corporation is by lightning, arson and by continuing to develop its high winds bringing down understanding of the impact power lines. The latter, at of erosion and run-off, McMahons Creek, was the as well as bushfires and most severe and burned two changes to vegetation, on its hectares of bushland. water supply catchments The water supply catchments through several research are closed to the public to programs run in conjunction minimise the risk of human- with the Cooperative borne disease entering the An important feature of Melbourne’s Water supply Research Centre for water supply system and to catchments is the massive stands of Alpine and Catchment Hydrology. guard against interference and Mountain Ash. These trees must be protected from vandalism to assets. the threat of bushfires.

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Maroondah, one of Melbourne’s water supply catchments. These catchments cover 130,000 hectares of natural wilderness. They are closed to the public to protect drinking water quality. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 30

COMMUNITY CONSULTATION INTEGRATED INTO THE BUSINESS

Community consultation is an integral part of Melbourne Water’s business, particularly in the planning of capital works projects. All technical project managers receive training to ensure community consultation needs are assessed right at the start of the planning process.

During 1998/99, community relations guidelines for The $2.4 million project was funded by the Shire of contractors were finalised, further integrating community Mornington Peninsula and Melbourne Water. consultation into the business. Community consultation was also important in a Melbourne Water designs and implements projects to $4 million flood protection project in Elwood, helping the minimise their impact on the community and ensure that community cope with year-long works. residents, community groups and other organisations have Consultation can also help shape the scope of major their say. projects. An example of this occurred during the Effluent During the year, an external reference group helped produce Management Study which involved consultation with the an operating charter which Australian Conservation outlines Melbourne Water’s Foundation, Surfriders goals and responsibilities for Foundation, Environment waterways and drainage. Victoria, Friends of the People from environmental Earth, the River Basin groups, local government, Management Society, research organisations and the the local community and development industry were government agencies. invited to join the group to Surfriding organisations ensure the charter was suggested that the study relevant to external audiences should include research into and met the expectations of a the health of surfers who range of stakeholders. use Gunnamatta Beach, In six of the year’s main near the Boags Rocks outfall. projects – for Epsom Road A research project was and the North Western Sewer, undertaken by Monash Ballar Creek, Elsternwick University’s Department Park and St Kilda Road of Epidemiology and drainage and flood mitigation Preventive Medicine, which works, and Yan Yean assessed the health impacts Reservoir – Melbourne Water of beaches near outfalls letterboxed almost 30,000 around the world and households and mailed more found that Gunnamatta than 3100 other households. Beach is clean and safe In addition, doorknocking for swimming. and newspaper advertisements Community liaison were used to advise residents One of the many tours conducted of Melbourne Water’s assets and projects during the year. This group inspects committees were formed at of potential disruption, and in the site of a wetlands project in the Hallam Valley. the Eastern and Western several cases, community Treatment Plants to provide consultation committees were established. advice on the impact of plant operations and assist in the On the Mornington Peninsula, Melbourne Water worked development of environmental improvement plans. with the local council and the community on works to prevent erosion and land slippage along Ballar Creek.

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Skye Tweedly and Ashley Munro, from Manorvale Primary School, Werribee, examine sediment from the Werribee River as part of the community-based program, Waterwatch. MW AR1999 TextV3 for PDF 5/11/99 4:09 PM Page 32

Testing the water During the year, Melbourne Water sponsored a two-part Melbourne Waterwatch is a community based program documentary special on the Yarra River, which was that helps school and community groups monitor and learn screened on Channel Nine. The documentary, hosted by about the health of their local waterways. Jennifer Keyte, traced the river’s history and how it shaped Using water quality monitoring kits, groups test and the development of Melbourne. More than 300,000 people record information about waterways, including pH, watched the first part, which went to air in prime time temperature, turbidity, flow rate, nutrients, during May 1999. Other media highlights included a and pollution. Groups also observe the waterway’s program on Melbourne Water’s protected catchments on the visual environment. ABC’s Quantum and extensive coverage of the arrival of hundreds of Siberian wader birds at the Western Treatment More than 100 groups are involved in regular monitoring. Plant’s Lake Borrie. The information they collect is placed on a Waterwatch database and is analysed and reported annually at local, Research carried out during the year found that the vast state and federal levels. majority of people in and around Melbourne believe they have very good drinking water, and three of every four During National Water Week in October 1998, people surveyed showed awareness that water is a finite more than 60 groups were involved in the annual ‘Snapshot’ resource in Melbourne. Separate qualitative research found event. This simultaneous sampling exercise provides a that Melburnians are proud of the quality of their water snapshot of waterway water quality throughout the and mention it spontaneously as one of the advantages of Port Phillip catchment. living in Melbourne. Melbourne Waterwatch is part of the national Waterwatch Another research project found that most people were Australia network. The program is supported through reasonably satisfied with the waterways they visit, with the the Federal Government’s Natural Heritage Trust and by best features considered to be clean, well maintained 26 local sponsors, including 22 councils. waterways, and the worst feature was litter. Data collected under the program complements that Open days held at Eastern and Western Treatment Plants collected from about 60 sites on the main rivers and creeks attracted a total of 600 visitors. More than 4200 school by Melbourne Water. students went on tours of the plants during the rest of the Community awareness year, and 1330 secondary and tertiary students toured the Public accountability to the community complements the Sugarloaf Reservoir and Winneke Water Treatment Plant. Corporation’s extensive community consultation programs. The tours help inform and educate people about water and sewage treatment. A wide range of material, including water quality data, public health and environment reports, other research There were two major public information campaigns in reports and studies, strategy documents and a wide range 1998/99 – one on water conservation and the other on of educational resources are available on the Corporation’s the harm to native animals caused by litter washed Internet site, www.melbwater.com.au. into waterways.

Lake Borrie wetlands at the Western Treatment Plant. A consultative committee provided advice to Melbourne Water on wildlife at the wetlands.

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Consultative arrangements > Moonee Ponds Creek – Cleanup Project In 1998/99, Melbourne Water consulted with and > Municipal Association of Victoria received advice from the following groups regarding the > Operating Charter Reference Committee Corporation’s activities: > Patterson Lakes Advisory Committee > Association of Consulting Surveyors > Port Phillip and Western Port Catchment and > Association of Land Development Engineers Land Protection Board > Australian Industry Group > Real Estate Institute of Victoria > Australian Institute of Building Surveyors > Royal Australian Institute of Architects > Building Designers > Royal Australian Association of Victoria Planning Institute > Carrum Lowlands Wetlands > Ruffey Lake Park Management Group Advisory Committee > City West Water > South East Water > Cooperative Research Centre > South Eastern for Catchment Hydrology Outfall Community > Cooperative Research Centre Consultative Committee for Freshwater Ecology > St Georges Road > Cooperative Research Centre Liaison Group Real-Time Flood Forecast > State Emergency Project Review Committee Prevention Committee > Dandenong Catchment > State Flood Implementation Committee Policy Committee > Department of Infrastructure > Stormwater Committee > Eastern Freeway Extension > Stormwater Management Springvale Road to Ringwood Working Group Community Liaison Group > Trade Waste Acceptance > Eastern Treatment Plant Advisory Committee Local Consultative Committee > Truganina LandCare Group > Effluent Management Study > Urban Development Agencies Group Institute of Australia > Effluent Management Study A reference group involving local government > Urban Development Reference Group representatives was established to develop an operating Industry Association > Effluent Management Study charter for waterways and drainage > Urban Development Surfriders Group Industry Association/Association of Land Development > Emerald Water Quality Improvement Committee Engineers Industry Liaison Committee > Hoddles Creek Streamflow Management Plan > Victorian Flood Warning Consultative Committee Advisory Group > Victorian Outdoor Range Zoo Committee > Housing Industry Association > Water Industry Dams Working Group > Insurance Council of Australia > Water Services Association of Australia > Kananook Creek Association > Werribee Catchment Implementation Committee > Keilor Diverters Advisory Group > Western Port Catchment Implementation Committee > Koo-Wee-Rup – Longwarry Drainage and Flood > Western Treatment Plant Community Liaison Committee Mitigation Advisory Committee > Western Treatment Plant Wildlife > Lilydale Lake Consultative Committee Consultative Committee > Lower Plenty River Coordinating Committee > Yallock Drainage and River Improvement Rates > Maribyrnong Catchment Implementation Committee Advisory Committee > Maribyrnong River Diverters Consultative Committee > Yarra Catchment Implementation Committee > Master Builders Association > Yarra River Diverters Consultative Committee > Merri Creek Management Committee > Yarra Valley Water

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CORPORATE GOVERNANCE

The Board is committed to high standards of corporate governance in carrying out its responsibilities for strategy and policy.

he Board of Directors is responsible for The performance of the Managing Director is reviewed by governance of the Corporation and determines its the Board on a regular basis. strategies and policies. The Board operates under the T Directors have the right to seek independent professional provisions of the Melbourne Water Corporation Act 1992. advice in connection with their duties and responsibilities. As well as overseeing strategic planning and risk The Melbourne Water Corporation Act 1992 provides for management, the Board reviews remuneration and declarations of pecuniary interest by directors. succession planning. Board meetings are held monthly, excluding January. A number of committees help ensure the Board carries out Regular written reports from management and its functions effectively. The Board has a Charter pursuant presentations on corporate and business activities are to which it operates and this defines the role of the Board provided to directors. Board members also participate in and the responsibilities of management. site visits and receive corporate publications. The Board of Directors Statutory reports are comprises a non-executive provided to the Chairman, three Government as shareholder. non-executive directors, These reports cover key and the Managing Director. financial information and The roles of Chairman and the performance of the Managing Director are Corporation against key separated by legislation. performance indicators Directors, other than the established in the Managing Director, are Corporate Business Plan. appointed by the Minister Board of Directors for Agriculture and Resources for a period not Christopher Stewart exceeding three years. Chairman Board members are eligible Christopher Stewart for re-appointment, joined Melbourne Water but may not hold office for Corporation as Chairman consecutive periods on 1 January 1995. exceeding nine years. Board of Directors L-R: Anthony A Browne, Baard Solnordal, Roy V Gilbert, Mr Stewart is Chairman In appointing directors, Christopher Stewart, Brian Bayley of the Bank of Melbourne the Minister is required to and a Director of Gandel ensure as far as possible that Management Limited, Milton Corporation Limited, directors have qualifications and experience relevant to the Permanent Trustee Company Limited and Westpac Banking operations of the Corporation. The conditions of Corporation. Mr Stewart is Chairman of the Families in appointment are established by the Minister. Distress Foundation and a Board Member and Trustee of The performance of Board members is reviewed by the the Financial Markets Foundation for Children. Chairman on an ongoing basis. The Board monitors the Anthony A Browne BA LLB (Hons) performance of management and the succession Director planning process. Tony Browne is a Senior Partner with Arthur Robinson Pursuant to the Melbourne Water Corporation Act 1992, and Hedderwicks solicitors, and joined the Board on the Managing Director is appointed by the Board, 22 March 1995. He has extensive experience in corporate following consultation with the Minister, for a period not and financial law and is a member of the Research and exceeding five years and is eligible for re-appointment. Ethics Committee of Epworth Hospital.

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Roy V Gilbert BA (Hons) PhD Remuneration and other terms of employment are reviewed Director annually. Reviews cover employee performance as well as market and policy factors, as appropriate. Roy Gilbert is a consultant and adviser on strategic planning. He has worked on strategic planning and The Committee comprised C Stewart and J King until infrastructure projects for the World Bank, December and since then has comprised C Stewart, the Inter-American Development Bank and the United A Browne and R Gilbert. It meets at least twice each year. Nations Industrial Development Organisation. He was The Managing Director attends by invitation. Reports are previously Permanent Head of the Victorian Ministry provided to the Board after each Committee meeting. of Housing and Chairman of the Victorian Housing Further details about directors’ and executive remuneration Commission and has held other federal and state are set out in Notes 22 and 23 of the Financial Statements. government positions. Dr Gilbert was appointed to the Policies and internal control Board of Melbourne Water on 22 March 1995. The Board has overall responsibility for the Corporation’s Baard Solnordal BEc & Bus. Admin. FCA internal control framework. A Code of Conduct sets out Director the standards of behaviour expected of all employees. The Code is reviewed and reissued to all employees Baard Solnordal was appointed to the Board on 22 March regularly. All new employees receive the Code on joining 1995. He is a former Senior Partner with Ernst and Young, Melbourne Water. Corporate policies are reviewed regularly chartered accountants, and is a commercial accountant with and are available on the Intranet (the Corporation’s wide experience as a company director, financial adviser information network). Major new policies and amendments and auditor. to existing policies are approved by the Board and are then Brian Bayley communicated to employees. Managing Director Risk management Brian Bayley was appointed Managing Director of The Board has overall responsibility for the Corporation’s Melbourne Water on 28 July 1998. He was formerly head risk management. Melbourne Water’s risk management of the Corporation’s Water Group. Mr Bayley has extensive policy establishes procedures used to manage risk in a water industry experience in a broad range of senior consistent and cost effective manner. Risk management is management positions. incorporated into existing management systems by

Board Committees applying elements of a generic management system in designated risk focus areas. The risk management policy Audit Committee and framework are in accordance with Melbourne Water’s The Audit Committee’s primary objective is to assist the goal to continually improve the business and conform to Board in fulfilling its responsibilities on financial reporting, the Risk Management Standard AS/NZS 4360:1999. accounting and operational control practices, and compliance with relevant laws. The Committee’s Terms Melbourne Water has developed an automated system of Reference include facilitating communication between called Risk Audit Procedure, which is aimed at the Board, internal and external auditors, and management. controlling, monitoring and reporting major risks for each risk focus area. A set of management questions addressing The Audit Committee comprises B Solnordal major risks are asked on a regular basis and the outcomes (Chairman) and A Browne. The Terms of Reference set out and action plans are provided to the Audit Committee requirements for the Committee’s composition. every six months. The Managing Director, the Manager Finance and Corporate Services and representatives from PricewaterhouseCoopers, Year 2000 Melbourne Water’s internal auditor, attend Audit Melbourne Water spent more than $4 million preparing Committee meetings by invitation. Representatives from for the year 2000 date change. the Auditor-General’s Office also regularly attend meetings. The Year 2000 project assessed, tested and, where The Committee’s Terms of Reference provide members necessary, rectified critical systems and equipment in all with unlimited access to auditors and senior management. areas of the business. Members can seek independent advice if necessary. The project included a detailed analysis of the Corporation’s The Audit Committee meets four times a year and may supply chain, and all critical and important suppliers were meet more frequently if required. Reports are provided to assessed for year 2000 readiness. The project team included the Board after each Committee meeting. technical specialists from within the organisation and Remuneration Committee external consultants. Contingency plans were identified The Remuneration Committee makes recommendations to during the year and are in place. the Board on remuneration arrangements and terms of employment for executives and other employees.

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Melbourne Water provides monthly reports to the Victorian Occupational Health and Safety Government’s Department of Treasury and Finance Year Melbourne Water’s Executive Occupational Health and 2000 Risk Management Unit and the accuracy of a report Safety (OH&S) Committee comprises the Managing on the Corporation’s year 2000 preparedness has been Director as Chairman, senior management and employee confirmed by PriceWaterhouseCoopers. representatives. The Committee meets monthly and is responsible for the development, implementation and Asset risk auditing of an effective OH&S management system. Regular reports on the operation and condition of the water, The Board is provided with monthly reports on OH&S sewer and drainage asset networks are presented to the performance and initiatives. Board. Physical assets are classified into risk categories and inspected regularly. Research An approval and management process has been established Operational risk to ensure research is cost effective and targeted at managing Regular operating reports are provided to the Board by each business risks and improving productivity. The process of the groups within Melbourne Water. The reports include encompasses the identification of business needs, financial performance against budget and financial and non-financial aspects, project analysis, risk assessment, project review, post performance indicators. Information is also completion audit and intellectual property provided on significant events and implications. An annual report is incidents and their impact on Managing provided to the Board. the Corporation. Human Director Science & The groups also report Resources Technology Particulars, functions Se on any health and oup werage and powers r Gr Gr ate ou environmental W p Melbourne Water compliance matters. Corporate Commercial is a statutory Secretariat Services corporation Financial risk W ater roup constituted under The Corporation’s ways & Drainage G the Melbourne Water business exposes it to Corporate & Community Information Corporation Act 1992. financial risk. This Technology Relations Pricing & It derives its operational includes interest rate risk, Strategy powers from The Melbourne and credit risk, liquidity risk and Metropolitan Board of Works Act 1958 operational risk associated with treasury activities. (MMBW Act), and other legislation. Melbourne Water’s The Corporation has a comprehensive framework for principal decision-making powers affecting members of the managing financial risk. It includes a Financial Risk public are derived from these two Acts. They should be Management Policy approved by the Board annually. referred to when detailed information is sought. A Financial Risk Management Committee has been Melbourne Water is empowered to make by-laws under established. The Committee is chaired by the Managing the MMBW Act in relation to its functions. Two current Director and includes senior executives and an external by-laws exist relating to Water Supply Protection adviser. The Corporation’s treasury takes an active approach (1997 No 1) and Waterways and Drainage Protection to managing financial risk through procedures outlined (1998 No 2) respectively. in the policy.

Executive Committee L-R: Grant Wilson General Manager Water, Joe Arnephy Manager Finance and Corporate Services, Christine Gibbs Manager Corporate and Community Relations, Brian Bayley Managing Director, Malcolm Haynes Manager Human Resources, David Lynch General Manager Sewerage, Ross Young General Manager Waterways and Drainage, Peter Scott Manager Science and Technology, Howard Rose Manager Pricing and Strategy

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Under an agreement with the relevant Minister, effective Categories of documents as of 30 November 1995, the Minister delegated his Melbourne Water uses a computerised file management functions and powers as a Floodplain Management system for management of correspondence and documents. Authority under the Water Act 1989 to Melbourne Water. The Corporation also uses other on-line computer systems Melbourne Water, as an agent of the Minister, provides to manage financial, human resource and other operational floodplain management services over the Melbourne Water activities and plans relating to its water supply, waterways drainage area. and drainage and sewerage functions. Historical archives on Melbourne Water’s activities are available at the Laverton The Minister has also delegated to Melbourne Water Research Rooms of the Public Records Office. powers of management under the Water Act relating to licensed private water diversions from waterways. Access to documents People wanting access to Melbourne Water documents Freedom of information under the Freedom of Information Act 1982 should write to: The designated persons for the purpose of the Act are: Freedom of Information Officer Principal Officer Melbourne Water Corporation Brian Bayley PO Box 4342 Managing Director Melbourne Vic 3001 Melbourne Water Corporation Each application must clearly identify the documents Authorised Officer sought and be accompanied by a $20 application fee. Jane Denton General enquiries on Freedom of Information can be Freedom of Information Officer made by telephoning the Freedom of Information Officer Melbourne Water Corporation on telephone 9235 7100 between 8am and 5pm, During 1998/99, Melbourne Water received 14 requests Monday to Friday. for access to documents under the Freedom of Information Use of consultants Act 1982. The total cost of engaging consultants in 1998/99 The requests were processed as follows. was $4.6 million for both operating and capital activities. Access in full 5 Four of the consultancies undertaken were more than Access in part 1 $100,000, including Year 2000 project work of Access refused 2 $2.5 million. Documents not located 2 Transferred to another agency – Applicant did not proceed 2 Not finalised 2 Of the 14 applications, nine related to personal property developments and three to WorkCover or personal employment matters. One application concerning dioxins was received on behalf of Greenpeace. A briefing was given and a report released. The final application, from a Member of Parliament, related to changed procedures within Melbourne Water concerning the setting of fees for licensing of Melbourne Water land. Details of the reasons for the changes to the procedures were released. These details are published in accordance with Part 11 of the Freedom of Information Act 1982. Information on Melbourne Water’s consultative arrangements required under Section 7 of the Act is set out on page 33. Information on the Corporation’s publications, also required under Section 7, is set out on the inside back cover.

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F IVE YEAR FINANCIAL SUMMARY

Profit and Loss Statement for year ended 30 June 1999 1998 1997 1996 1995 $M $M $M $M $M Operating revenue 449.6 567.0 679.8 686.6 959.8 Operating profit before abnormal items 166.9 242.5 267.8 208.5 225.7 and income tax Abnormal items before income tax 0.0 0.0 4.4 62.0 37.5 Operating profit before income tax 166.9 242.5 263.4 146.5 188.2 Income tax attributable to operating profit 54.1 81.9 97.0 24.6 57.7 Operating profit after income tax 112.8 160.6 166.4 121.9 130.5 Dividend provided for or paid 106.2 141.1 141.3 80.0 28.8

Balance Sheet as at 30 June 1999 1998 1997 1996 1995 $M $M $M $M $M Current assets 27.6 37.4 46.1 48.2 43.7 Non current assets 2728.1 2684.0 2668.1 2682.4 2654.3 Total assets 2755.6 2721.4 2714.2 2730.6 2698.0

Current liabilities 326.2 308.2 454.6 607.0 588.2 Non current liabilities 1363.1 1355.4 1564.9 1690.1 1718.0 Total liabilities 1689.3 1663.6 2019.5 2297.1 2306.2 Net assets 1066.3 1057.8 694.7 433.5 391.8 Total equity 1066.3 1057.8 694.7 433.5 391.8

The following issues should be considered when reviewing the five year financial summary: • The disaggregation of the retail functions occurred on 1 January 1995. • Major reforms were introduced by the State to water and sewerage pricing for Melbourne on 1 January 1998.

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607 Bourke Street Melbourne PO Box 4342 Melbourne Victoria 3001 Telephone 03 9235 7100 Facsimile 03 9235 7200 ISSN 1324-7905 www.melbwater.com.au MW AR1999 Fin for PDF 5/11/99 2:37 PM Page 39

FINANCIAL STATEMENTS

CONTENTS

40 Director’s Report

43 Profit and Loss Statement for year ended 30 June 1999

44 Balance Sheet at 30 June 1999

45 Statement of Cash Flows for year ended 30 June 1999

46 Notes to the Accounts

64 Statement by Directors and Manager – Finance and Corporate Services

65 Auditor-General’s Report

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DIRECTORS’ REPORT

Directors The directors of Melbourne Water Corporation in office at the date of this Report are: C J Stewart (Chairman) B R Bayley (Managing Director) A A Browne R V Gilbert B Solnordal Particulars of the directors’ qualifications, experience and special responsibilities are set out on pages 34 and 35 of this Annual Report.

Directors’ Meetings During the financial period the Corporation held 11 meetings of directors. Attendance at meetings of the Board and its committees were:

Principal Audit Remuneration Board Committee Committee Attended Maximum Attended Maximum Attended Maximum Possible Possible Possible C J Stewart 11 11 – – 2 2 J M King* 6 6 2 2 2 2 A A Browne 10 11 4 4 – – R V Gilbert 11 11 – – – – B R Bayley 9 10 3 4 2 2 B Solnordal 10 11 4 4 – –

Note: B R Bayley was appointed as Managing Director on 28 July 1998. * J M King retired with effect 31 December 1998.

Principal Activities The principal activities of the Corporation during the course of the financial year were to provide water and sewerage services on a wholesale basis to three retail companies: Yarra Valley Water Ltd, South East Water Ltd and City West Water Ltd. The Corporation also manages the main drainage network and waterways, providing flood protection and waterways quality improvement services for the greater Melbourne area.

Operating Results and Dividend The net profit for the Corporation after providing for income tax amounted to $112.8 million. Following negotiations with the Department of Treasury and Finance, a dividend of $106.2 million has been proposed for the period. Of this amount $56.5 million was paid as an interim dividend during 1998/99.

Review of Operations The directors’ review of the operations of the Corporation during the financial period ended 30 June 1999 and the results of those operations are set out in the Managing Director’s Overview on page 4 of this Annual Report.

State of Affairs There were no significant changes in the state of affairs of the Corporation during the financial period ended 30 June 1999 not otherwise disclosed in this Report or the Financial Statements.

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DIRECTORS’ REPORT

Environmental Regulation The Corporation is subject to significant environmental regulation in respect of management of its sewage treatment plants and the maintenance of environmental flow requirements in the Yarra River. More detailed information is included in the environment and public health report issued annually.

Sewage Treatment Plants During the year, the Corporation achieved 99.6% compliance at Eastern Treatment Plant (ETP) and 100% compliance at Western Treatment Plant with parameters set in their respective EPA discharge licences. At ETP, three fortnightly analyses returned mercury levels that exceeded Melbourne Water’s discharge licence. Extensive investigations were carried out and there were no further breaches. The general requirements of these licences were also met during the year to the satisfaction of the EPA.

Ramsar Site at Western Treatment Plant The management of the Western Treatment Plant was broadly carried out within the parameters of the wise use test from the Ramsar International Convention aimed at protecting internationally significant wetlands. A draft management plan was developed during the year to guide the ongoing management of these Ramsar values.

Dandenong Treatment Plant The disused Dandenong Treatment Plant is subject to a Pollution Abatement Notice issued by the EPA. During the year the requirements of the Notice were met. A provision has been made for remediation at this site. The provision is reviewed annually based on data collected from the site’s ongoing monitoring program.

Environmental Flow Requirements The statutory requirement to achieve a minimum flow in the Yarra River of 245ML/d at Warrandyte was met during the year.

Events Subsequent to Balance Date Since the end of the financial year the directors are not aware of any matter or circumstance not otherwise dealt with in the Report or Financial Statements that, in the opinion of the directors has significantly affected or may significantly affect the operations of the Corporation, the results of those operations, or the state of affairs of the Corporation in subsequent future years.

Statutory Information – Report of Operations The following statutory information is provided elsewhere within the Annual Report: Page Objectives, functions, powers and duties 6, 36 Principal activities 40 Directors, Audit Committee and Remuneration Committee members 34-35 Names of senior office holders and brief description of each office 36 Organisational structure 36 Workforce data 16 Freedom of information 37 Summary of financial results with previous four year comparatives 38 Summary of significant changes in financial position 6-8 Operational performance 6-8 Major changes affecting achievement of objectives – Use of consultants 37 Availability of information 72

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DIRECTORS’ REPORT

Directors’ Benefit No director has received or become entitled to receive a benefit (other than a benefit included in Notes 22 and 28 to the Financial Statements) because of a contract that the director, a firm of which the director is a member, or an entity in which the director has a substantial financial interest, has made (during the period ended 30 June 1999 or at any other time) with: a. the Corporation; or b. an entity that the Corporation controlled, or a body corporate that was related to the Corporation, when the contract was made or when the director received, or became entitled to receive, the benefit.

Directors’ and Officers’ Liability Insurance During the financial year the Corporation paid insurance premiums in respect of directors’ and officers’ liability insurance. The policies do not specify the premium for individual directors and officers. The directors’ and officers’ liability insurance provides cover against all costs and expenses involved in defending legal actions and any resulting payments arising from a liability to persons (other than the Corporation) incurred in their position as director or officer unless the conduct involves a wilful breach of duty or an improper use of information or position to gain advantage.

Interest in Contracts No contracts involving directors’ interests were entered into since the end of the previous financial year or existed at the end of the financial year other than the transactions detailed in Note 28 to the Financial Statements.

C J Stewart Chairman

B R Bayley Managing Director

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PROFIT AND LOSS STATEMENT

For Year Ended 30 June 1999 Note 1999 1998 $000 $000 Operating revenue 2 449,580 567,011 Operating profit before income tax 3 166,915 242,494 Income tax attributable to operating profit 4 54,090 81,875 Operating profit after income tax 112,825 160,619 Retained profits at the beginning of the financial year 453,739 434,269 Total available for appropriation 566,564 594,888 Dividend provided for or paid 5 106,175 141,149 Retained profits at the end of the financial year 460,389 453,739

The accompanying notes form part of the Financial Accounts.

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BALANCE SHEET

At 30 June 1999 Note 1999 1998 $000 $000

Current Assets Cash 6 2,961 409 Receivables 7 15,867 21,794 Investments 8 – 5,003 Stores and livestock 9 7,496 9,536 Other 10 1,237 638 Total Current Assets 27,561 37,380

Non Current Assets Property, plant and equipment 11 2,715,441 2,672,615 Other 12 12,626 11,369 Total Non Current Assets 2,728,067 2,683,984 Total Assets 2,755,628 2,721,364

Current Liabilities Accounts payable 13 72,212 71,793 Borrowings 14 196,511 156,800 Provisions 15 57,508 79,554 Total Current Liabilities 326,231 308,147

Non Current Liabilities Accounts payable 16 1,311 1,529 Borrowings 17 1,070,872 1,125,000 Provisions 18 290,913 228,913 Total Non Current Liabilities 1,363,096 1,355,442 Total Liabilities 1,689,327 1,663,589 Net Assets 1,066,301 1,057,775

Equity Contributed capital 19 601,085 600,285 Asset revaluation reserve 20 4,827 3,751 Retained profits 460,389 453,739 Total Equity 1,066,301 1,057,775

The accompanying notes form part of the Financial Accounts.

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STATEMENTS OF CASH F LOWS

For Year ended 30 June 1999 Note 1999 1998 $000 $000

Cash Flows from Operating Activities Receipts from customers 437,017 550,796 Payments to suppliers and employees (137,944)(160,517) Income Tax Equivalent Paid (3,926) (44,838) Interest received 167 118 Interest and other costs of finance paid (78,291)(95,151) Net cash provided by operating activities 27 217,023 250,408

Cash Flows from Investing Activities Payment for property, plant, equipment and works in progress (76,429)(77,255) Proceeds from sale of property, plant and equipment 16,101 18,629 Net cash used in investing activities (60,328)(58,626)

Cash Flows from Financing Activities Proceeds from borrowings 360,000 627,250 Repayment of borrowings (397,697)(686,424) Dividend paid (121,449)(137,815) Net cash used in financing activities (159,146)(196,989)

Net (decrease) in cash held (2,451)(5,207) Cash at the beginning of the financial year 5,412 10,619 Cash at end of the financial year 2,961 5,412

Reconciliation of Cash For the purposes of the statements of cash flows, cash represents cash on hand, at the bank and on short term deposit. Cash at bank and on hand 6 2,961 409 Deposits 8 – 5,003 2,961 5,412

The accompanying notes form part of the Financial Accounts.

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NOTES TO THE ACCOUNTS

1. Summary of Significant Accounting Policies

1.1 General These general purpose financial statements are prepared in accordance with the Financial Management Act 1994, Australian Accounting Standards, Urgent Issues Group Consensus Views and relevant statutory and other requirements. The financial statements have been prepared on the basis of historical cost and do not take into account changing money values or current valuations of non-current assets, except where stated. Unless otherwise stated, amounts in the financial statements have been rounded to the nearest thousand dollars.

1.2 Change in Accounting Treatment

Finance Lease The Corporation has recognised an agreement to lease a water treatment plant at Yan Yean as a finance lease in accordance with AAS17 ‘Accounting for Leases’. The financial impact of this treatment is the addition of a leased asset of $23.3 million and a corresponding liability measured at the present value of the minimum lease payments (refer to Note 11).

Asset Revaluation Reserve The Corporation has raised an Asset Revaluation Reserve for Crown land revaluations. Prior year revaluations relating to 1996/97 and 1997/98 financial years have been transferred from Contributed Capital (refer to Notes 19 and 20).

1.3 Income Tax Under Section 88(1) of the State Owned Enterprises Act 1992, Melbourne Water became subject to the Victorian Income Tax Equivalent System from 1 July 1993. The tax equivalent rules are based on the Income Tax Assessment Act 1936 (as amended). The essential difference between the State Equivalent Rules and the Commonwealth legislation is that the tax liability is to be paid to the State Government and not the Commonwealth Government. Melbourne Water has adopted the liability method of Tax Effect Accounting in accordance with the requirements of Australian Accounting Standard AAS3 ‘Accounting for Income Tax (Tax Effect Accounting)’.

1.4 Valuation of Non Current Assets Water Supply, Sewerage, Drainage and Other Fixed Assets are recorded at historical cost. Those assets acquired from external sources are valued either at values shown in the balance sheet of the acquired entity or at an estimated cost. Crown land is valued using the ‘market value adjacent site’ method. The initial valuation was supplied by the Office of the Valuer General and subsequently indexed (refer to Note 11). Transfers to and from other Victorian State Government entities are adjusted against contributed capital in accordance with formal approval by the Minister of Finance. Crown land revaluations are adjusted against Asset Revaluation Reserve.

1.5 Recoverable Amount of Non Current Assets To ensure compliance with the provisions of Australian Accounting Standard AAS10 ‘Accounting for the Revaluation of Non Current Assets’ Melbourne Water undertook an internal analysis of asset values in June 1999. Expected net cash flows at major asset grouping level were discounted to their present value to calculate the recoverable amount as prescribed in AAS10. As the recoverable amount for each major asset group was in excess of the written down carrying value, a write down of ‘in service’ assets was not required.

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NOTES TO THE ACCOUNTS

1.6 Depreciation Non Current Assets are depreciated on a straight line basis over the estimated useful lives of the assets to the entity. Depreciation commences in the month subsequent to the date where service can be obtained. The estimated useful lives are as follows: IT Equipment 3 – 5 years Leasehold Improvements 5 – 25 years Buildings 30 – 80 years Other Plant & Equipment 5 – 50 years Infrastructure Assets 50 – 100 years The useful lives of the assets are reviewed annually.

1.7 Receivables and Revenue Recognition

Trade Debtors Drainage rate debtors – revenue is recognised on a monthly basis, derived from the total expected rates to be collected for the year. Rates are levied quarterly based on property valuations as at 30 June 1990. Settlement varies between 21 and 35 days (depending upon the billing cycle of the retail company). To secure the debtor, a lien is held over the property. Water usage charges and sewage disposal charges – the charges comprise a variable metered component and a fixed fee. The metered usage revenue is recognised when the service has been used with settlement at 7 days. The fixed fee is recognised on a monthly basis with settlement at 14 days. Collateral is not obtained for this class of debtor.

Other Receivables and Revenue Interest received/receivable – income receivable is accrued in accordance with the terms and conditions of the underlying financial instrument or other contract. Developer charges and contributions – assets acquired at no cost to the Corporation are recognised as revenue upon completion of the works and their acceptance by the Corporation. Cash contributions are recognised when received. Proceeds from sale of non current assets – property sales are recognised on signing of an unconditional contract of sale. Debtors are provided with commercial terms. Other receivables are recognised at their carrying amount. Collateral is not normally obtained for other receivables.

Bad and Doubtful Debts A provision for doubtful debts is based on a review of all amounts outstanding at balance date. Bad debts are written off in the period in which they are identified.

1.8 Accounts Payable Creditors and accruals – represent liabilities for goods/services and accrued interest on borrowings which are unpaid at 30 June 1999. The accrued interest on borrowings are unsecured and the Trade Creditors are usually paid within 30 days from the receipt of invoices. Advances – represent security deposits and other advances paid by developers/land owners for the construction of drainage works. The amounts are unsecured and refunded to the developer at the completion of the project.

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NOTES TO THE ACCOUNTS

1.9 Borrowings All borrowings are required to be transacted through the Treasury Corporation of Victoria whose liabilities are guaranteed by the Government of Victoria. Since the debt restructure on 1 January 1998, all borrowings are carried at their principal amount. Interest is accrued based on the applicable interest rate for each loan.

1.10 Derivative Financial Instruments As at 30 June 1999, Melbourne Water had no derivative positions and there were no additional positions in place to hedge future transactions.

1.11 Employee Entitlements

Wages, Salaries and Annual Leave Liabilities for wages, salaries and annual leave are recognised and measured as the amount unpaid at the reporting date at current pay rates in respect of employees’ services up to that date. The liability for Annual Leave has been oncosted in accordance with the Australian Accounting Standard AAS30 ‘Accounting for Employee Entitlements’.

Sick Leave Sick leave payments are made in accordance with relevant awards, determinations and Corporation policy. No provision is made in the financial statements for outstanding sick leave entitlements as these are not vested benefits.

Long Service Leave A liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to reporting date. As prescribed by AAS30, expected future payments are discounted using interest rates attaching, as at reporting date, to Australian Government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows. The current component of the liability is calculated based on the assumption that 10% of the total liability is taken within 12 months.

Superannuation The superannuation fund position in respect of defined benefit superannuation is recognised and measured as the difference between employees’ vested benefits at the reporting date and the net market value of the superannuation funds’ assets at that date, after allowing for the impact of the 15% tax on contributions. Refer to Note 26 for further details on the superannuation fund.

WorkCover Melbourne Water is registered as a self-insurer for workers compensation and is liable to the workers or workers’ dependants to pay compensation under the Accident Compensation Act 1985. Based upon actuarial assessment, a provision of $3.9 million ($4.2 million in 1997/98) is made for outstanding claims incurred and not settled and for claims incurred but not reported. Other claims incurred and settled during the period are charged to the Profit and Loss Statement.

Workers Compensation Melbourne Water continues to be liable for workers compensation claims incurred prior to the introduction of WorkCare (now WorkCover). Based upon actuarial assessment, a provision of $0.2 million is made for all outstanding workers compensation claims at 30 June 1999.

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NOTES TO THE ACCOUNTS

1.12 Stores and Livestock Stores consist mainly of materials and supplies for asset construction, systems operation and general administration and are valued at cost. Livestock includes cattle, sheep and horses held in connection with the operation of Werribee Agriculture. They are revalued at market value annually.

1.13 Year 2000 Expenditure Costs relating to preparation for year 2000 readiness are charged as expenses when incurred. Refer Note 3.

1.14 Provision for Property Decommissioning Melbourne Water is required by the Occupational Health and Safety Act and the Occupiers Liability Act to exercise ‘duty of care’ for the safety of employees, contractors and members of the public entering its workplaces, including any surplus sites held for disposal. In line with the Corporation’s risk management strategy and commercial practice, Melbourne Water conducts regular reviews of its surplus sites and provides for any necessary decommissioning costs that may be incurred prior to disposal. This is in line with the guidelines adopted by the Environment Protection Authority. During 1998/99, an additional $10.8 million has been provided for.

1.15 Comparative Figures Where applicable, comparative figures have been adjusted to conform with changes in the presentation in the current year.

2. Operating Revenue 1999 1998 $000 $000

Sales Revenue Bulk water and sewerage charges 305,420 422,388 Drainage rates 93,481 91,707 398,901 514,095

Other Revenue Developer charges and contributions 19,062 17,045 Proceeds from sale of non-current assets 16,587 16,378 Miscellaneous 15,030 19,493 50,679 52,916 Total operating revenue 449,580 567,011

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NOTES TO THE ACCOUNTS

3. Operating Profit 1999 1998 $000 $000 Operating profit before abnormal items and income tax is arrived at after crediting and charging the following specific items:

Credits Interest received/receivable 166 117 Profit on sale of – non current assets 10,525 10,436 Revaluation of livestock – Cattle 834 1,226 – Sheep (271) 84

Charges Total interest paid/payable 78,288 121,034 Net bad and doubtful debts – other receivables (38) 54 Loss on sale of non current assets 975 1,048 Rental expenses relating to operating leases 1,364 1,408 Depreciation – buildings 778 858 – plant and equipment at cost 56,408 54,407 – plant and equipment under finance lease 1,109 – Labour and associated charges 33,812 39,644 Operations 37,646 42,274 Repairs and maintenance 19,767 17,826 Year 2000 expenditure 2,467 768 Property decommissioning 10,813 5,000 Taxes and charges 12,015 12,458 Administration 21,199 20,658

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NOTES TO THE ACCOUNTS

4. Income Tax 1999 1998 $000 $000 The aggregate amount of income tax expense attributable to the financial year is reconciled to the prima facie tax payable on the operating profit as follows: Operating profit before income tax 166,915 242,494 Prima facie income tax calculated at 36% 60,089 87,298 Adjustment for the tax effect of permanent differences: Non deductible expenses 965 976 Net exempt income (6,811)(6,118) Research and development concession (153)(286) Income tax adjusted for permanent differences 54,090 81,870 Adjustment for under provision in previous year – 5 Income tax attributable to operating profit 54,090 81,875

Income tax attributable to operating profit comprises: Current taxation provision 2,319 16,477 Deferred income tax provision 53,074 53,813 Future income tax benefit (1,303) 11,590 (Under) provision in previous year – (5) 54,090 81,875

5. Dividends Interim dividend paid during the year 56,500 76,200 Proposed final dividend paid/payable 49,675 64,949 Total dividend proposed for the period 106,175 141,149

6. Current Assets – Cash Cash at bank and on hand 2,961 409

7. Current Assets – Receivables Trade debtors 9,940 11,649 9,940 11,649 Other receivables 5,951 10,218 Less: Provision for doubtful debts 24 73 5,927 10,145 Total current assets – receivables 15,867 21,794

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NOTES TO THE ACCOUNTS

8. Current Assets – Investments 1999 1998 $000 $000 Deposits – 5,003 Total current assets – investments – 5,003

9. Current Assets – Stores and Livestock Stock in stores – valued at cost 1,779 1,745 Livestock – stated at market value 5,717 7,791 Total current assets – stores and livestock 7,496 9,536

10. Current Assets – Other Prepayments 895 421 Deferred expenses 342 217 Total current assets – other 1,237 638

11. Non Current Assets – Property, Plant and Equipment

Land and Buildings Crown land at valuation * 18,555 16,679 Freehold land and buildings at cost 27,413 34,396 Less: Accumulated depreciation – buildings 11,090 16,227 Total land and buildings 34,878 34,848

Plant and Equipment Plant and equipment at cost 3,292,502 3,163,703 Less: Accumulated depreciation 720,821 671,234 2,571,681 2,492,469 Plant and equipment under finance lease # 23,280 – Less: Accumulated amortisation 1,109 – 22,171 – Total plant and equipment 2,593,852 2,492,469

Capital Works in Progress 86,711 145,298 Total non current assets – property, plant and equipment 2,715,441 2,672,615

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NOTES TO THE ACCOUNTS

11. Non Current Assets – Property, Plant and Equipment continued

* Crown Land The Corporation controls 19,849 hectares of Crown land. The valuation was obtained from the Office of the Valuer General at 30 June 1993 (using the ‘market value adjacent site’ method) and was indexed using the ‘all lands’ index to a 30 June 1999 valuation. An additional 75 hectares of Crown land has been recognised in the financial records of Melbourne Water in 1998/99. The increase in non current assets has been adjusted against contributed capital. Refer to Notes 1.4 and 19.

# Finance Lease In 1998/99, the Corporation brought to account as an asset a water treatment plant at Yan Yean which is subject to a 25-year finance lease arrangement with Yan Yean Water Pty Ltd. A corresponding lease liability was also raised. Refer to Notes 1.2, 14, 17 and 24.

State Digital Map Base The Corporation has an interest in the State digital map base controlled by Geographic Data Victoria. The value of Melbourne Water’s interest in the State digital map base is not considered material in the context of the Corporation’s accounts and it is not included as an asset. In 1998/99 Melbourne Water received $1,541 ($23,538 in 1997/98) in royalties from this interest.

12. Non Current Assets – Other 1999 1998 $000 $000 Other receivables – 180 Deferred expenses 254 121 Future income tax benefit 12,372 11,068 Total non current assets – other 12,626 11,369

13. Current Liabilities – Accounts Payable Trade creditors 20,359 21,019 Interest payable 22,517 22,499 Accruals 29,060 27,835 Advances 276 440 Total current liabilities – accounts payable 72,212 71,793

14. Current Liabilities – Borrowings Lease liabilities (refer to note 24) 1,211 – Borrowings 195,300 156,800 Total current liabilities – borrowings 196,511 156,800

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NOTES TO THE ACCOUNTS

15. Current Liabilities – Provisions 1999 1998 $000 $000 Employee entitlements 4,008 10,270 Dividend 49,675 64,949 Income tax – 1,526 Insurance claims 264 478 Property Decommissioning 1,313 200 Other provisions 2,248 2,131 Total current liabilities – provisions 57,508 79,554

16. Non Current Liabilities – Accounts Payable Trade creditors 1,302 1,521 Advances 9 8 Total non current liabilities – accounts payable 1,311 1,529

17. Non Current Liabilities – Borrowings Lease liabilities (refer to note 24) 20,872 – Borrowings 1,050,000 1,125,000 Total non current liabilities – borrowings 1,070,872 1,125,000

18. Non Current Liabilities – Provisions Employee entitlements 11,021 11,723 Deferred income tax 260,541 207,466 Property Decommissioning 19,351 9,724 Total non current liabilities – provisions 290,913 228,913

19. Contributed Capital Opening balance 600,285 260,032 Adjustment to Crown land # 800 2,896 Capital restructure * – 337,357 Closing balance 601,085 600,285

# Refer to Notes 1.2, 1.4 and 11 for explanation of adjustments to Crown land. * On 1 January 1998, debt with a book value of $337M was transferred from the Corporation to the State, being part of the major reforms introduced by the State to water and sewerage pricing for Melbourne effective from that date.

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NOTES TO THE ACCOUNTS

20. Asset Revaluation Reserve 1999 1998 $000 $000 Opening balance 3,751 422 Adjustment to Crown land * 1,076 3,329 Closing balance 4,827 3,751

* Refer to Note 1.2 for explanation of adjustments to Crown land.

21. Auditors’ Remuneration Amounts received, or due and receivable, by the auditor for auditing the accounts of the Corporation. 88 87

22. Directors’ Remuneration Income received or due and receivable by directors 517 499 The number of directors of the Corporation included in these figures are shown below in their relevant income bands: Remuneration between Number Number $10,000 – $19,999 1 – $30,000 – $39,999 3 4 $60,000 – $69,999 1 1 $250,000 – $259,999 – 1 $280,000 – $289,999 1 –

23. Executives’ Remuneration Income received or due and receivable by executive officers whose income is more than $100,000. 4,351 3,830 The number of executive officers whose income is more than $100,000 are shown below in their relevant income bands: Remuneration between Number Number $100,000 – $109,999 8 6 $110,000 – $119,999 7 7 $120,000 – $129,999 5 3 $130,000 – $139,999 1 1 $140,000 – $149,999 2 6 $150,000 – $159,999 5 2 $160,000 – $169,999 1 3 $170,000 – $179,999 2 – $180,000 – $189,999 2 – $200,000 – $209,999 – 1

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NOTES TO THE ACCOUNTS

24. Commitments 1999 1998 $000 $000

Capital Commitments Total capital expenditure contracted for the construction of water, sewerage and drainage infrastructure at balance date but not provided for in the accounts. Not later than one year 22,596 21,175 Later than one year but not later than 2 years 487 1,092 Total capital commitments 23,083 22,267

Lease Commitments Total lease expenditure contracted for at balance date but not provided for in the accounts. Not later than one year 2,036 2,250 Later than one year but not later than 2 years 1,352 2,357 Later than 2 years but not later than 5 years 511 1,405 Later than 5 years 29 131 Total lease commitments 3,928 6,143

Finance Lease Commitments* Commitments in relation to finance lease are payable as follows Not later than one year 3,309 3,377 Later than one year but not later than 2 years 3,204 3,309 Later than two years but not later than 5 years 10,237 9,919 Later than 5 years 19,288 22,810 Minimum lease payments 36,038 39,415 Less: Future finance charges 13,955 16,164 Total finance lease liability 22,083 23,251

Representing lease liabilities: Current (Note 14) 1,211 – Non current (Note 17) 20,872 – 22,083 –

Other Operating Commitments# Total operating expenditure (excluding lease) contracted for at balance date but not provided for in the accounts. Not later than one year 13,167 14,726 Later than one year but not later than 2 years 7,192 11,454 Later than 2 years but not later than 5 years 5,971 11,565 Later than 5 years 150 25 Total other commitments 26,480 37,770

* Refer to Notes 11, 14 and 17. # The comparative figures have been adjusted for finance lease details previously included.

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NOTES TO THE ACCOUNTS

25. Contingent Liabilities 1999 1998 $000 $000 Details and estimates of maximum amounts of contingent liabilities for which no provision is included in the accounts, are as follows:

Outstanding Claims Claims or possible claims against the Corporation arising out of various matters connected with the Corporation’s business dealings. 610 801

26. Employee Entitlements

Aggregate employee entitlements liability Accrued wages and salaries (part of Note 13) – 829 Provision for employee entitlements current (Note 15) 4,008 10,270 Provision for employee entitlements non current (Note 18) 11,021 11,723 Total employee entitlements liability 15,029 22,822

The aggregate employee entitlement liability includes amounts for annual leave, shift leave, long service leave, salaries and wages, WorkCover and superannuation. All employees of the Corporation are entitled to superannuation benefits upon retirement, disability or death through membership of the following funds:

Defined Benefits Fund Equipsuper Fund provides lump sum benefits based on length of service and final superannuable salary for employees engaged up until 31 December 1993. Employees contribute at rates between 0% to 7.5% of their salary. The Corporation contributed to the Water Industry Superannuation Fund based upon an actuarial assessment rate of 13% of members’ salaries until the Fund was merged with Equipsuper Fund on 1 April 1999. Contribution is being made to the Equipsuper Fund at a revised actuarial assessment rate of 11% of members’ salaries. Actuarial assessment of the fund is made at yearly intervals. The last such assessment was made as at 30 June 1999 by William M Mercer Pty Ltd. 1999 1998 $000 $000 Net market value of assets held by the fund 60,408 52,963 Present value of employees’ accrued benefits 53,970 45,200 Excess of net market value of assets over employees’ accrued benefits to meet future benefit payments 6,438 7,763 Vested benefits 57,594 56,500

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NOTES TO THE ACCOUNTS

26. Employee Entitlements continued The superannuation fund position ($2.8 million surplus for 1998/99) is measured as the difference between the Equipsuper Fund assets and the employees’ vested benefits, after allowing for the impact of the 15% tax on contributions. 1999 1998 $000 $000 Net market value of assets held by the fund 60,408 52,963 Vested benefits 57,594 56,500 2,814 (3,537) Impact of contributions tax – 624 Excess/(Deficit) of net market value of assets over employees vested benefits 2,814 (4,161)

Accumulation Funds Employees engaged from 1 January 1994 are entitled to benefits under accumulation funds. The majority of these employees are covered by LASPLAN. Employees have the opportunity to contribute to the funds at a self-nominated rate or amount. The minimum employer contribution to the funds are pursuant to the Superannuation Guarantee Charge, which was 7.0% in 1998/99.

Employer Contributions 1999 1998 $000 $000 Employer contributions to the funds 7,699 10,751

The contributions in 1998/99 include additional contributions of $1.3 million ($1.8 million in 1997/98) to ensure that the funding level of the schemes did not deteriorate as a result of redundancies as well as cash injections of $3.5 million as part of a program to return the fund to a position where it is fully funded.

Loans There were no loans by the superannuation funds to Melbourne Water during 1998/99.

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NOTES TO THE ACCOUNTS

27. Reconciliation of Net Cash provided by Operating Activities to Operating Profit after Tax 1999 1998 $000 $000 Operating profit after income tax 112,825 160,619 Depreciation 58,295 55,265 Adjustment to finance charges – 952 Provision for doubtful debts (49)(211) Profit on sale of assets (10,525)(10,830) Loss on sale of assets 975 929 Value of works taken over from developers (1,545)(1,780) Changes in assets and liabilities: Decrease in trade debtors 1,709 2,015 Decrease in other receivables 4,023 1 Decrease/(increase) in stores and livestock 2,040 (527) (Increase) in prepayments (474)(171) (Increase) in deferred expenses (133)(192) (Increase)/decrease in future income tax benefit (1,304) 12,539 (Decrease) in trade creditors (3,962)(13,013) (Decrease)/increase in interest creditors (3) 22,614 Increase in deferred revenue 4 45 Increase/(decrease) in other provisions 3,679 (2,345) (Decrease) in provision for income tax (1,607)(28,366) Increase in provision for deferred income tax 53,075 52,864 Net cash provided by operating activities 217,023 250,408

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NOTES TO THE ACCOUNTS

28. Related Parties Disclosure

Responsible persons Persons who held office as a director of Melbourne Water Corporation at any time during the year ended 30 June 1999 are as follows: B R Bayley, A A Browne, R V Gilbert, J M King, B Solnordal and C J Stewart. J M King retired from the Corporation with effect 31 December 1998. B R Bayley was appointed as Managing Director of Melbourne Water Corporation from 28 July 1998. Prior to this he was Chief Executive Officer of Melbourne Water Corporation from 1 February 1998. The responsible Minister during the year ended 30 June 1999 was the Hon P McNamara, Minister for Agriculture and Resources.

Remuneration of responsible persons Information on the remuneration of directors is disclosed in Note 22.

Loans to responsible persons There were no loans to responsible persons at 30 June 1999.

Other transactions of responsible persons and their related parties A director, A A Browne, is a partner in the firm Arthur Robinson & Hedderwicks, solicitors, which has provided legal services to Melbourne Water during the reporting period on normal commercial terms and conditions. A former director, J M King, ceased to be a director of MITS Ltd in March 1998. MITS provides technology services to Melbourne Water. The aggregate amount spent on these services is as follows: 1999 1998 $000 $000 Legal and professional fees 347 497 Technology services – 4,564

29. Economic Dependency The normal trading activities of the Corporation depend to a significant extent on the sale of bulk water and sewerage services to Yarra Valley Water Ltd, South East Water Ltd and City West Water Ltd. In addition, the Corporation depends on Yarra Valley Water Ltd, South East Water Ltd and City West Water Ltd for the provision of billing and collection services with respect to drainage rates.

30. Events occurring after Balance Date No material events occurred after balance date.

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NOTES TO THE ACCOUNTS

31. Financial Instruments

31.1 Interest rate exposure The Corporation’s interest rate and the effective weighted average annual interest rate for each class of financial asset and liability is set out below.

Weighted avg. Floating Fixed interest rate maturing Non interest annual effective interest rate 1 year or less 1 to 5 years over 5 years bearing Total 30 June 1999 interest rate % $000 $000 $000 $000 $000 $000

Financial Assets Cash 4.85 2,961 – – – – 2,961 Trade debtors – – – – 9,940 9,940 Other receivables – – – – 5,927 5,927 Total financial assets 2,961 – – – 15,867 18,828

Financial Liabilities Creditors and accruals – – – – 73,238 73,238 Lease liabilities – – – – 22,083 22,083 Advances – – – – 285 285 Borrowings* 5.99 125,000 145,300 400,000 575,000 – 1,245,300 Total financial liabilities 125,000 145,300 400,000 575,000 95,606 1,340,906 Net financial assets (liabilities)(122,039)(145,300)(400,000)(575,000)(79,739)(1,322,078)

Weighted avg. Floating Fixed interest rate maturing Non interest annual effective interest rate 1 year or less 1 to 5 years over 5 years bearing Total 30 June 1998 interest rate % $000 $000 $000 $000 $000 $000

Financial Assets Cash 4.84 409 – – – – 409 Trade Debtors – – – – 11,649 11,649 Other receivables – – – – 10,325 10,325 Deposits 5.07 – 5,003 – – – 5,003 Total financial assets 409 5,003 – – 21,974 27,386

Financial Liabilities Creditors and accruals – – – – 72,874 72,874 Advances – – – – 448 448 Borrowings 6.05 125,000 106,800 400,000 650,000 – 1,281,800 Total financial liabilities 125,000 106,800 400,000 650,000 73,322 1,355,122 Net financial assets (liabilities)(124,591)(101,797)(400,000)(650,000)(51,348)(1,327,736)

* Of the total amount of borrowings at floating interest rate, $50 million will mature within 12 months and the remaining $75 million will mature in 1 to 3 years.

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NOTES TO THE ACCOUNTS

31. Financial Instruments continued

31.2 Market value The book values and net market values of financial assets and liabilities at balance date are as follows. 1999 1998 Book Net market Book Net market value value* value value* $000 $000 $000 $000

On Balance Sheet

Financial Assets Cash 2,961 2,961 409 409 Trade debtors 9,940 9,940 11,649 11,649 Other receivables 5,927 5,927 10,325 10,325 Deposits – – 5,003 5,003 Total financial assets 18,828 18,828 27,386 27,386

Financial Liabilities Trade creditors and accruals 73,238 73,238 72,874 72,874 Lease liabilities 22,083 22,083 – – Advances 285 285 448 448 Borrowings 1,245,300 1,259,942 1,281,800 1,306,812 Total financial liabilities 1,340,906 1,355,548 1,355,122 1,380,134

*Net market values are capital amounts. The differences between book values and net market values relate principally to interest rate movements. Melbourne Water had no derivative positions as at 30 June 1999.

Net market values of financial instruments are determined on the following basis: On Balance Sheet Cash, deposit investments, short term borrowings, cash equivalents and non interest bearing financial assets and liabilities (trade debtors and trade creditors) are valued at cost. Other borrowings are estimated based on the present value of expected future cash flows discounted at current market interest rates quoted for securities issued by Treasury Corporation of Victoria (TCV). Investments in securities, other financial assets and liabilities are estimates based on present value of expected future cash flows discounted at current market interest rates for assets and liabilities of similar risk and maturity structure.

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NOTES TO THE ACCOUNTS

31.3 Credit Risk The carrying amounts of financial assets included in the balance sheet represent the Corporation’s exposure to credit risk in relation to those assets, net of any provisions for doubtful debts. Melbourne Water controls risk through credit ratings, limits and monitoring procedures consistent with Board approved policy. Collateral or other security is not required to support financial instruments. All financial risk management instruments are transacted with the Treasury Corporation of Victoria (TCV), whose liabilities are guaranteed by the Government of Victoria. Melbourne Water potentially has a concentration of credit risk with TCV as the central borrowing authority of Victoria. The risk is considered minimal. Melbourne Water does not have any significant trade credit exposure to an individual counter party as at 30 June 1999.

31.4 Financing Arrangements The capacity to borrow funds and manage the associated risks is subject to the provisions of the Borrowing and Investment Powers Act (1987). In accordance with this Act, the Victorian Treasurer issues annual approvals permitting new borrowings and the refinancing of all loan maturities for that year. All funding is sourced from the Treasury Corporation of Victoria.

32 Transactions with Other Victorian Government Entities Material transactions undertaken with other State Government controlled entities in the ordinary course of business 1999 1998 $000 $000

Intra Revenue 398,901 514,095 Expenses 6,125 5,970

Inter Liabilities 1,558,535 1,573,768 Revenue 112 37 Expenses 245,843 351,973

Intra denotes entities within the same portfolio as Melbourne Water. Inter denotes entities outside the portfolio.

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STATEMENT BY DIRECTORS AND MANAGER – FINANCE AND CORPORATE SERVICES

In the opinion of the directors of Melbourne Water Corporation: a. the accompanying financial statements are drawn up so as to present fairly the financial transactions of the Corporation for the year ended 30 June 1999 and the financial position of the Corporation as at that date; and b. at the date of this statement there are reasonable grounds to believe that the Corporation will be able to pay its debts as and when they fall due. We certify that the financial statements have been prepared in accordance with the requirements of the Financial Management Act 1994 and applicable accounting standards. We are not aware, at the date of this statement, of any circumstance which would render any particulars in the financial statements to be misleading or inaccurate. Dated at Melbourne on this 20th day of August 1999. On behalf of the Board:

C J Stewart Chairman

B R Bayley Managing Director

J G Arnephy Manager Finance and Corporate Services

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AUDITOR-GENERAL’S REPORT

To the Members of Parliament of Victoria, the responsible Ministers and the Members of the Board of the Melbourne Water Corporation.

Audit Scope The accompanying financial report of the Melbourne Water Corporation (trading as Melbourne Water) for the financial year ended 30 June 1999, comprising Balance Sheet, Profit and Loss Statement, Statement of Cash Flows and notes to the financial statements, has been audited. The Members of the Board are responsible for the preparation and presentation of the financial report and the information it contains. An independent audit of the financial report has been carried out in order to express an opinion on it to the Members of Parliament of Victoria, the responsible Ministers and the Members of the Board as required by the Audit Act 1994. The audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance as to whether the financial report is free of material misstatement. The audit procedures included an examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial report is presented fairly in accordance with Australian Accounting Standards and other mandatory professional reporting requirements and complies with the requirements of the Financial Management Act 1994, so as to present a view which is consistent with my understanding of the Melbourne Water Corporation’s financial position, the results of its operations and its cash flows. The audit does not provide any assurances that the Melbourne Water Corporation’s systems, or any other systems that the Corporation relies on in the conduct of its activities such as those of suppliers and service providers are year 2000 compliant, or whether plans and associated actions are adequate to address the year 2000 issue. The year 2000 issue has been addressed only in the context of existing audit responsibilities under Australian Auditing Standards to express an opinion on the financial report. The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion In my opinion, the financial report presents fairly the financial position of the Melbourne Water Corporation as at 30 June 1999 and the results of its operations and its cash flows for the year ended on that date in accordance with Australian Accounting Standards and other mandatory professional reporting requirements and complies with the requirements of the Financial Management Act 1994. Melbourne 20/8/1999

K.G. Hamilton Acting Auditor-General

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STATEMENT OF CORPORATE INTENT 1 JULY 1999 TO 30 JUNE 2002

1. Introduction Melbourne Water Corporation is a statutory corporation wholly owned by the Victorian Government. The major functions are to: > provide water and sewerage wholesale services to three retail water companies in Melbourne, viz Yarra Valley Water Ltd, South East Water Ltd and City West Water Ltd; and > provide major drainage services, manage designated waterways and undertake the operational functions of floodplain management (by Deed of Delegation from the Minister) in the greater Melbourne area.

2. Vision

To be leaders in urban water cycle management Melbourne Water’s vision is to be leaders in urban water cycle management. The vision reflects that there are potential gains for the organisation, the environment and the community in recognising the interdependencies between the products in managing the urban water cycle. It provides Melbourne Water with the opportunity to achieve greater synergies between the provision of safe drinking water, the management of stormwater and the treatment and disposal of sewage – the urban water cycle. A key ingredient in delivering value for the community and our common shareholder, the State Government of Victoria, is a cooperative relationship with Melbourne Water’s retail water companies.

3. Purpose The Purpose statement reflects the reasons why Melbourne Water exists. The statement was revised as a result of the development of the vision. Melbourne Water exists to add value for its customers and the community by operating a successful commercial business which supplies safe water, removes sewage and stormwater at an acceptable cost and in an environmentally sensitive manner.

4. Strategic Objectives Melbourne Water has identified key strategic objectives that drive the Corporation’s vision: > Achieve excellent customer service; > Maximise shareholder value; > Be a leader in environmental management; and > Fulfil our community obligations.

4.1 Shareholder Value Key strategies are: > Achieve ongoing operating efficiencies > Deliver efficiency through improved capital management practices and processes > Innovate and apply new technologies to improve the business > Capture new business opportunities > Play an active part in the water reform process > Manage risk consistent with customers’ expectations and maximising shareholder value > Develop a structure and culture which motivates and attracts skilled employees

4.2 Customer Service Key strategies are: > Establish a customer service culture > Establish strategic alliances with customers > Achieve least cost community solution for service provision

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STATEMENT OF CORPORATE INTENT 1 JULY 1999 TO 30 JUNE 2002

4.3 Environmental Management Key strategies are: > Work with the development industry, the EPA and other stakeholders to improve the health of Melbourne’s waterways and bays > Develop an industry approach to demand management > Conserve energy and reduce greenhouse gas emissions > Educate the community and effectively communicate the actions being taken to protect and improve the environment

4.4 Community Obligations Key strategies are: > With the retail water companies and Department of Human Services, maintain confidence in the safety of Melbourne’s water supply > Continue to undertake research on Melbourne’s water supply to determine whether there are any health effects from unfiltered water > Inform the community of actions taken to improve stormwater and effluent quality and to safeguard Melbourne’s water quality > Enhance relationships with community groups and local communities

5. Commercial Arrangements

5.1 Scale of the Business Melbourne Water has > total fixed assets of approximately $2.7 billion. > an annual operating revenue of approximately $398.2 million is derived mainly from bulk water and sewerage services to the retail water companies and from drainage services to the community; > approximately 483 gigalitres per annum of potable water is supplied to the retail water companies; > approximately 330 gigalitres per annum of sewage is collected from the retail water companies for treatment and disposal; > regional drainage services are provided within the greater Melbourne area covering approximately 7,806 square kilometres. (Municipalities are responsible for local drainage systems).

5.2 Business Activities Melbourne Water will undertake the following principal business activities: > management and operation of the bulk water, sewerage and drainage systems of Melbourne, > enhancement of water quality in waterways and flood protection, > maintenance of assets in good structural and hydraulic condition, > management of infrastructure augmentation for improved service delivery, compliance with regulatory standards, urban growth and asset replacement, and > undertaking of technology innovation through research and development to improve productivity and manage business risks.

5.3 Basis of Charges Melbourne Water charges for its services to > ensure revenue adequacy to cover operations and maintenance costs, finance costs, capital investment, dividend, tax payments and debt retirement, and > earn an appropriate commercial return on new investment having regard to the risk of the business.

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STATEMENT OF CORPORATE INTENT 1 JULY 1999 TO 30 JUNE 2002

The charges for bulk water and sewerage services are set by Government and are structured so that: > the total economic cost of service delivery is recovered, and > approximately half of the costs are recovered through fixed charges and the remainder through variable charges based on the volume of water delivered and sewage treated. Drainage charges are based on the rateable value of properties.

5.4 Capital Investment Melbourne Water has made provision for significant capital investment to: > meet the expected growth in demand from population increases, > meet environmental standards, > improve drinking water quality, > improve water quality in Melbourne’s waterways, > maintain assets in serviceable condition, and > improve flood protection. The planned allocation of capital investment for 1999/00 is: Growth 2.5% Compliance/Quality 48.6% Structural Condition 13.4% Business Systems 12.4% Flood Protection 17.8% Other 5.3%

5.5 Dividend The dividend to be paid to Government will be in accordance with the amount determined by the Victorian Treasurer after consultation with the Corporation’s Board of Directors.

6. Statutory Requirements

6.1 Environmental/Health Regulations Melbourne Water is committed to meeting statutory and other requirements. In particular, Melbourne Water is committed to: > compliance with EPA discharge licences issued for the Eastern and Western Sewage Treatment Plants and other related agreements or understandings, > achieving drinking water quality standards specified in the bulk water supply contracts between Melbourne Water and the retail water companies, > undertaking improvement works in areas identified in contracts with the retail water companies to improve drinking water quality, and > compliance with the Victorian Occupational Health and Safety Act 1985 and regulations.

6.2 Performance Reporting The operational and financial position of the Corporation will be reported to the Government as owner at the end of each financial year. Melbourne Water will demonstrate its commitment to environmental and public health performance by annual public reporting on its regulatory and internal procedures and policies and performance against established benchmarks.

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STATEMENT OF CORPORATE INTENT 1 JULY 1999 TO 30 JUNE 2002

6.3 Business Targets

Customer Service 1998/99 1999/00 2000/01 2001/02 Indicator Forecast Plan Plan Plan % of all water samples at wholesale/retail 99 99 99 99 interfaces with 0 faecal coliforms present Monthly customer service reports to all N/A 12 12 12 key customers (Water) % land development offers processed 95.0 97.5 97.5 97.5 within 60 days % of town planning applications processed 95.0 95.0 95.0 95.0 within 28 days % of other authority works and stormwater 95.0 95.0 95.0 95.0 connections applications processed within 28 days % of the retail water companies supply points 99 99 99 99 complying with pressure requirements (Water) % of incidents affecting the retail water 100 100 100 100 companies which are reported to the retail water companies within 30 minutes of detection (Water)

Shareholder Value 1998/99 1999/00 2000/01 2001/02 Indicator Forecast Plan Plan Plan % Reduction in Opex 7.7 4.8 1.4 1.5 Annual risk assessment completed for 100 100 100 100 all assets (%) Length of high risk sewers (km) 3.8 0.9 0 0 Lost Time Injury Frequency Rate 2 nil nil nil Workcover Claims 5 nil nil nil Positions with Succession Plan (%) 100 100 100 100 Average number of sick days per employee 3.9 3.0 3.0 3.0

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STATEMENT OF CORPORATE INTENT 1 JULY 1999 TO 30 JUNE 2002

6.3 Business Targets Continued

Environmental Management 1998/99 1999/00 2000/01 2001/02 Indicator Forecast Plan Plan Plan % of water quality alert levels reported to EPA 100 100 100 100 EPA Licence Compliance (%) ETP 100 100 100 100 WTP 100 100 100 100 Air – Odour complaints attributable to 0 0 0 0 MWC assets Number sewage spills within defined standard 2 5 4 4 of service conditions (1:5 rainfall event) No. of sewer spills due to system failure 0 0 0 0 % reduction in energy consumption 10 10 10 10

Community 1998/99 1999/00 2000/01 2001/02 Indicator Forecast Plan Plan Plan % of volume of water supplied from disinfection 99 99 99 99 plants that has been effectively disinfected % of disinfection plants achieving target 92 92 92 92 reliability of >99.5%

7. Business Policies

7.1 Human Resources As a sound business practice and in recognition that employees are a valuable resource, Melbourne Water will give priority to the following initiatives: > training that enables all individuals to fulfil their job requirements, > market based remuneration system to reward and recognise superior performance, > development of a teams based way of working across the Corporation, > career and skill development planning for all employees, > succession planning for management positions and key technical positions, and > achieving the target of an injury free workplace.

7.2 Code of Conduct Melbourne Water has adopted a Code of Conduct which outlines the standards expected of all employees. The Code covers ethics, responsibility to stakeholders, standards of behaviour, conflict of interest, confidential information, public statements, equal opportunity and occupational health and safety.

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STATEMENT OF CORPORATE INTENT 1 JULY 1999 TO 30 JUNE 2002

7.3 Public Health Melbourne Water will ensure that public health is safeguarded through the: > reliable supply of safe drinking water primarily using water harvested from protected water supply catchments, > collection and treatment of sewage and disposal and storage of by-products in accordance with EPA requirements, and > contribution to improvement of waterway water quality and minimisation of the impacts of stormwater on receiving waters.

7.4 Environmental Practices Melbourne Water will work to improve its environmental management capabilities and ensure that its environmental management systems generally conform with guidelines adopted by the water industry in Australia. Research and development programs will be conducted to enable the practical application of innovative low cost solutions in the delivery of environmental programs.

7.5 Community Responsibility Melbourne Water is committed to the community. In particular, Melbourne Water will: > participate in public debate on undertakings which impact on the environment or the standard of services that are to be provided, > endeavour to understand the concerns and needs of local communities where Melbourne Water’s operations potentially have impact, and > continue to undertake community education and liaison programs on the water supply and sewerage systems, the impact of stormwater on the waterways of Melbourne and Port Phillip Bay and other major issues relevant to the community.

7.6 Risk Management Melbourne Water will incorporate a risk management approach in conducting its business activities with the objective of understanding the nature of the risks involved and managing these in a cost effective way. Melbourne Water has adopted a risk management framework based on AS/NZS 4360:1995. The framework enables informed management decision making and the efficient allocation of resources to resolve issues.

7.7 Accounting Policies The financial statements will be prepared in accordance with the Financial Management Act 1994, Australian Accounting Standards, Urgent Issues Group Consensus Views and relevant statutory and other requirements. Where appropriate, the disclosure requirements of Corporations Law will also be observed on a voluntary basis.

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KEEPING THE COMMUNITY I NFORMED

Melbourne Water produces a range of publications, brochures and fact sheets. Melbourne Water’s Internet site is updated regularly with information. Contact (03) 9235 7100 or go to www.melbwater.com.au.

Multimedia School education materials Melbourne Water has an interactive CD-ROM titled > Drains to the Bay Primary Schools kit The Bay. It is an ecological management game where > Platypus information kit participants must protect the ecology of the Bay against threats and leave it healthier than when they started. > Port Phillip Bay Environmental Study Primary School kit Publications released during 1998/99 > 1997/98 Annual Report > Port Phillip Bay Environmental Study Secondary School kit > 1997/98 Annual Environment and Public Health Report > Rain and Drain Chemistry 1996, > Western Treatment Plant, A Vision for the Future VCE Chemistry kit > Western Treatment Plant Bird Checklist Melbourne Water tours > Catchment to Coast, Making the Connections in the Earth Encounters runs educational tours for primary, Urban Water Cycle secondary and tertiary groups at Eastern Treatment Plant in Carrum and Western Treatment Plant in Werribee. > The Source Issue 1 and 2 For further details and tour charges please phone > Mainstream Vol 11 and 12 (03) 9574 8444. Educational tours of Winneke Water > Year 2000 will be Business as Usual Treatment Plant are provided by Eco-Adventure Tours. For further details and tour charges phone (03) 5962 5115 > Effluent Management Study Newsletter No. 5 or fax (03) 5962 5150. > Environmental Impact Assessment and Review of Effluent Disposal Options for Eastern Treatment Plant – CSIRO The Findings

© Copyright 1999 Melbourne Water Corporation All rights reserved. No part of this document may be reproduced, stored in a retrieval system, photocopied or otherwise dealt with without the prior written permission of Melbourne Water Corporation.

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