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The Allconnex Water Debacle: Lessons in Devising Better Governance Mechanisms for Government Business Enterprises

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The Allconnex Water Debacle: Lessons in Devising Better Governance Mechanisms for Government Business Enterprises Bond University Research Repository The Allconnex Water debacle: Lessons in devising better governance mechanisms for government business enterprises Baumfield, Victoria Published in: Bond Law Review Licence: CC BY-NC-ND Link to output in Bond University research repository. Recommended citation(APA): Baumfield, V. (2012). The Allconnex Water debacle: Lessons in devising better governance mechanisms for government business enterprises. Bond Law Review, 24(2), 1-63. https://blr.scholasticahq.com/article/5594 General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. For more information, or if you believe that this document breaches copyright, please contact the Bond University research repository coordinator. Download date: 30 Sep 2021 Bond Law Review Volume 24 | Issue 2 Article 1 2012 The Allconnex Water Debacle: Lessons in Devising Better Governance Mechanisms for Government Business Enterprises Victoria S. Baumfield Bond University, [email protected] Follow this and additional works at: http://epublications.bond.edu.au/blr This Article is brought to you by the Faculty of Law at ePublications@bond. It has been accepted for inclusion in Bond Law Review by an authorized administrator of ePublications@bond. For more information, please contact Bond University's Repository Coordinator. The Allconnex Water Debacle: Lessons in Devising Better Governance Mechanisms for Government Business Enterprises Abstract This article examines problems that occurred as a result of the Queensland government’s restructuring of the State’s water industry from 2006 onwards. It focuses on the experience on the Gold Coast, where the forced transfer of water retail and wastewater services from the Gold Coast City Council (‘GCCC’) to a regional water retailer, the Southern SEQ Distributor-Retailer Authority, trading as Allconnex. Water (‘Allconnex’), was quickly followed by a large increase in the price of water, causing an extensive public outcry. Ultimately, the Queensland government was forced to grant city councils the option of resuming control over water from the new regional distributor-retailers. The GCCC voted to withdraw from Allconnex on 26 July 2011 and Allconnex ceased to exist on 1 July 2012. Keywords Allconnex, Queensland Water Commission, Queensland water, Queensland water governance, Queensland water distribution, Queensland water governance This article is available in Bond Law Review: http://epublications.bond.edu.au/blr/vol24/iss2/1 THE ALLCONNEX WATER DEBACLE: LESSONS IN DEVISING BETTER GOVERNANCE MECHANISMS FOR GOVERNMENT BUSINESS ENTERPRISES VICTORIA SCHNURE BAUMFIELD* IINTRODUCTION This article examines problems that occurred as a result of the Queensland government’s restructuring of the State’s water industry from 2006 onwards. It focuses on the experience on the Gold Coast, where the forced transfer of water retail and wastewater services from the Gold Coast City Council (‘GCCC’) to a regional water retailer, the Southern SEQ Distributor-Retailer Authority, trading as Allconnex Water (‘Allconnex’), was quickly followed by a large increase in the price of water, causing an extensive public outcry. Ultimately, the Queensland government was forced to grant city councils the option of resuming control over water from the new regional distributor-retailers. The GCCC voted to withdraw from Allconnex on 26 July 2011 and Allconnex ceased to exist on 1 July 2012.1 The failure of this newly-created government business enterprise (‘GBE’) after a mere two years was undesirable for a number of reasons.2 The break-up costs alone were * Senior Teaching Fellow, Bond University Faculty of Law, Gold Coast, Queensland, Australia. BA 1994, University of Pennsylvania; JD 1997, Columbia University. Member, New York Bar. The author wishes to thank Laurence Boulle, John Farrar, Patrick Keyzer, Kylie Fletcher-Johnson and the two anonymous referees for their useful comments and suggestions. This article is dedicated to the author’s daughter, Alexandra. If it were not for Alexandra’s birth in January 2011, the author would never have been home to watch this debacle play out over four months on the late afternoon Gold Coast News, and the spark that resulted in this article never would have been lit. 1 Regarding the GCCC vote see, eg, Daniel Hurst, 'Two Strikes and Allconnex Out', The Brisbane Times (online), 8 August 2011 <http://www.brisbanetimes.com.au/queensland/ two-strikes-and-allconnex-out-water-retailer-dumped-20110808-1iivz.htm>; see also Anna Bligh, 'Premier Says Enough Is Enough - Water Blame Game Ends' (Ministerial Media Statement, 7 April 2011). Regarding Allconnex’s cession see South-East Queensland Water (Distribution and Retail Restructuring) and Other Legislation Amendment Act 2012 (Qld) s 23 (new ch 3A pt 2 to South-East Queensland Water (Distribution and Retail Restructuring Act 2009 (Qld)). 2 In this article the term ‘government business enterprise’ refers to all State-owned entities with a separate legal personality that engage primarily in commercial functions, including both public authorities and government owned corporations (‘GOCs’). See 1 (2012) 24.2 BOND LAW REVIEW estimated to be in the tens of millions of dollars or higher – a huge waste of the public’s money. The nearly $30 million cost of combining the three old water businesses became money down the drain, and all of the going-forward benefits of consolidation (eg, economies of scale) were similarly lost. 3 Looking beyond the financial costs, the poor handling of this episode no doubt weakened trust in government officials to adequately safeguard the public interest, likely leading to knock-on effects including increased scepticism, cynicism and disengagement by the public towards future government initiatives. So it behoves policymakers and their advisers to study this episode to avoid repeating it. This article aims to contribute towards that effort by examining what happened and what went wrong. As part of that examination, this article maps out the relevant laws and regulatory structures that applied to Allconnex and examines the role they may have played in Allconnex’s demise, either by what they affirmatively required, or by what they failed to require. In particular, this article seeks to understand what factors contributed to the inability of Allconnex’s stakeholders to devise a solution short of its destruction. It does so by examining Allconnex’s corporate governance and pricing regimes. Deficiencies in both regimes are identified. In each case, the article suggests steps governments can take to avoid similar problems in the future, including changes to existing laws and regulations. This analysis is especially relevant since the other two distributor-retailers created along with Allconnex continue to exist. More generally, this article illustrates the dangers of ignoring the extent to which GBEs are expected to act (or at least appear to act) in the public interest.4 Drawing from public trust theory, this article suggests ways that GBEs can be made more responsive to public concerns and, ultimately, accountable to the public for their conduct. ‘Definition of Terms’ in Berna Collier and Sally Pitkin (eds), Corporatisation and Privatisation in Australia (CCH Australia Ltd, 1999) xv, citing Administrative Review Council, The Contracting Out of Government Services, Issues Paper, AGPS, Canberra, February 1997, ‘Glossary’. 3 See Robert MacDonald, ‘Gold Coast City Council May Pay Dearly for Divorcing Allconnex as Water Retailer’, The Courier-Mail (online), 15 August 2011 <http://www.couriermail. com.au/news/opinion/gold-coast-city-council-may-pay-dearly- for-divorcing-allconnex-as-water-retailer/story-e6frerdf-1226114738247>. 4 The author takes no position on whether Allconnex’s management, including its board members, actually failed to take account of or act in the public interest. What is important is the public’s perception of what Allconnex was doing, accurate or not. The public’s perception was that Allconnex did not respect the needs and concerns of its monopoly customers. This led to the public outcry, which led to Allconnex’s ultimate demise. 2 THE ALLCONNEX WATER DEBACLE The remainder of this article is structured as follows. Section II provides background information that is relevant to understanding what occurred. Specifically, Section II.A provides a summary of Queensland’s water reforms, while Section II.B describes Allconnex’s legal status and the laws and contracts that governed its conduct. Section III discusses models of corporate governance and accountability in the public sector context, providing a schema for understanding Sections IV and V, which analyse the public and private sector governance and accountability regimes applicable to Allconnex. Starting with the public sector framework, Section IV examines the extent to which Allconnex’s conduct was restrained by administrative law remedies and other public sector-specific mechanisms, including the Ombudsman, freedom of information, and independent audit requirements. Section V, in contrast, examines the extent to which standard corporate law accountability mechanisms, such as apply to private sector businesses, applied to Allconnex. Section V.A examines Allconnex’s board structure and composition and the significance thereof from a corporate governance
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