A Governance Guide to the Victorian Water Industry

A Governance Guide to
the Victorian Water
Published by the Victorian Government
Melbourne, February 2011
© The State of Victoria 2011
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Copyright Act 1968.
Authorised by the Victorian Government, 8 Nicholson Street, East Melbourne
ISBN 978-1-74287-002-1 (online)
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About the Guide
About the Guide
Purpose of the Guide
Content of the Guide
Scope of the Guide
The Melbourne Licensees
Part 1: Water Industry Structure
Victorian water businesses
How water businesses are structured
Minister for Water
Department of Sustainability and Environment
The Office of Water
Other key reporting relationships
Water Industry Associations
The national approach to water
Part 2: Areas of Regulation
Central Regulation
The Regulators
Other regulatory instruments
Key reporting requirements
Corporate Plan
Annual Reporting
Continuous disclosure
Business cases
Specific areas of regulation
Safe Drinking Water
The Regulator
Policy and Guidance notes
Regular reporting to the Department of Health
Incident-specific reporting requirements
Water Prices & Service Standards
Essential Services Commission
Other government guidance/direction
Reporting requirements
Environmental Protection
Environment Protection Authority
Reporting requirements
Dispute resolution scheme
Energy and Water Ombudsman
Part 3: Directors’ Duties
Private vs. Public sector Directors’ Duties
The Public Administration Act 2004 (Vic)
Directors’ Code of Conduct
Directors’ Duties under the Water Act 1989 (Vic)
Targeted training for water directors
Appointment & Remuneration
Appendix 1
Further references
Purpose of the Guide
As one of Victoria’s essential services, water is subject to careful management and regulation.
This Guide provides an overview of the governance framework surrounding the water industry and an
introduction to the legislation, ministers, government departments and regulators that play a role in the
management of Victorian water.
Although not an alternative to reading and understanding the relevant legislation, this Guide provides a
framework for navigating through the regulatory system and a useful induction tool for newcomers to the
Content of the Guide
In Part 1, the Guide provides an overview of the Victorian water industry, including its structure and
It covers:
• Victorian water businesses
• key ministers
• state government departments and regulators
• the role played by the Commonwealth government.
Part 2 takes a closer look at how water businesses are regulated in the areas of:
• strategy and finance
• pricing & service standards
• safe drinking water
• environmental protection
• customer dispute resolution
For each area, the Guide introduces the role of the various departments and agencies, the key legislation
and gives an overview of the reporting requirements.
In Part 3, the Guide focuses on the directors of water businesses, covering:
• appointment and remuneration
• key legislation
• directors’ duties
Finally, the Guide provides a list of further reading and links to more detailed information.
Scope of the Guide
Complementary publications
There are a number of publications written about public sector governance including:
• Governance Guidelines for Department of Sustainability & Environment (DSE) Portfolio Statutory
Authority Board Members (published by the DSE)
• Good practice guide on governance for Victorian public sector entities (published by the State Services
This Guide is not designed as a replacement for any existing publications but rather fills the need for a
governance guide written specifically for the water industry.
Which water businesses does the Guide cover?
There are 19 state-owned water businesses in Victoria, however this Guide primarily covers those 16 that
are governed by the Water Act 1989 (Vic). Specifically they are:
Barwon Water
Central Highlands Water
Coliban Water
East Gippsland Water
Gippsland Water
Goulburn-Murray Water
Goulburn Valley Water
Grampians Wimmera Mallee Water
Lower Murray Water
Melbourne Water
North East Water
Southern Rural Water
South Gippsland Water
Wannon Water
Westernport Water
Western Water
The Melbourne Licensees
There are three water businesses that are not covered by this Guide.
They are Yarra Valley Water, City West Water and South East Water, collectively known as the
(“Licensees”). They supply retail water and sewerage services to the Melbourne metropolitan area.
What are the key differences?
The Licensees are established under the Corporations Act 2001 (Cth) whereas the remaining water
businesses are established under the Water Act 1989 (Vic).
In addition to this, the Licensees’ key reporting relationship is to the Treasurer whereas the remaining water
businesses report primarily to the Minister for Water.
Despite these differences, other key aspects of the governance framework covering drinking water quality,
environment protection, price regulation and customer protection are the same.
Why does the Guide not cover the Licensees?
The Guide does not specifically cover the governance framework of the Licensees as the government is
currently taking steps to bring them under the same framework as the rest of the water businesses.
This Guide provides introductory information only. It is not to be taken as professional advice and should not
be used as a replacement for formal legal advice where it is required.
Part 1: Water Industry Structure
In Australia, water is managed on a state-by-state basis. Although there is a national approach to some
issues, each state retains ownership of its own water industry.
Victorian water businesses
In Victoria, water is managed by 19 state owned businesses that report to the Victorian government. Each
supplies water and/or sewerage services to customers within its service area. A complete list is set out in
Appendix 1.
An additional entity, the Northern Victoria Irrigation Renewal Project (NVIRP) has been created to deliver a
$2 billion irrigation upgrade to the Goulburn Murray irrigation system. Irrigation modernisation will improve
water delivery management and irrigation services and recover much of the water now being lost.
Catchment Management Authorities
In addition to these businesses, there are 10 Catchment Management Authorities (CMAs) established under
the Catchment and Land Protection Act 1994 (Vic). The CMAs are responsible for coordinated catchment
management in their region.
In addition, the CMAs (together with Melbourne Water) effectively undertake the role of ‘caretaker of river
health’ for their region. They have responsibility for a range of functions that focus on the maintenance and
improvement of river health and the minimisation of flood risks and costs whilst preserving natural features
of the floodplain.
CMAs are provided with regional waterway, floodplain, drainage and environmental water reserve
management powers under the Water Act 1989 (Vic). Their responsibilities are also articulated in
Statements of Obligations issued by the Minister for Water.
How water businesses are structured
Although owned by the government, water businesses act as stand-alone entities and are responsible for
their own management and performance.
Each water business has a Chairperson and a Board of directors. The Board has a range of responsibilities
• steering the entity
• setting objectives and performance targets
• ensuring compliance with legislation and government policy
Each Board appoints a Managing Director who is responsible for the day-to-day management of the water
business under delegation from the Board.
Each Managing Director sits on the Board and is the primary link between the Board and the water business
staff – communicating Board priorities and policies to the staff and presenting reports, submissions and
budgets to the Board.
Minister for Water
Under the state’s laws, the Board of each water business reports to the Minister for Water via the
Department of Sustainability and Environment. In turn, the Minister is responsible for reporting to Parliament
on the performance of each water business.
The relationship between the Minister and water businesses is established by the Water Act 1989 (Vic)
under which the Minister has the power to:
• regulate aspects of water management
• request regular reports and information
• make policy
• issue Ministerial Directions
• set standards and obligations
In addition to complying with the legislative provisions, water businesses need to ensure that they maintain
a good relationship with the Minister, keeping him well-informed of all critical issues.
Department of Sustainability and Environment
To assist with the management of the water industry, the Minister is supported by the Office of Water within
the Department of Sustainability and Environment. The Office of Water supports the Minister in a number of
ways including:
• providing advice on policy, performance and compliance
• as a liaison between the Minister and each business
• reviewing annual reports, corporate plans and other key documents
• implementing government policies
The DSE is headed by the Secretary who plays an important role in the liaison between the Minister and
the Office of Water.
The Office of Water
The Minister communicates with the Office of Water through the DSE Secretary and the General Manager.
The Office of Water is divided into a number of divisions that operate as follows:
Figure 1: The Office of Water Management Structure
Sustainable Water, Environment & Innovation Division
The Sustainable Water, Environment and Innovation Division is responsible for the management of the
policy and investment framework to achieve the Government’s target of a significant improvement in the
health of Victoria’s rivers, floodplains and estuaries.
The Division is also responsible for the establishment of the Government’s Environmental Water Reserve,
river health investment, strategic communication and engagement, water resource assessment and
research, environmental water reserve management, recycling and environmental flows.
Water Entitlements and Strategies Division
The Water Entitlements and Strategies Division is responsible for water resource policy issues including
improving the water allocation framework, consumption and entitlements, licensing and agreements,
building the Water Register and Irrigation programs.
Policy Division
The Policy Division develops comprehensive water policy for Victoria, and contributes to the development of
national policy. It has operational responsibilities including industry and market analysis, trading, pricing and
industry regulation.
Water Industry Division
The Water Industry Division is responsible for developing and managing appropriate operational and
governance frameworks, institutional protocols and funding mechanisms to guide and support the
implementation of policies, strategies and programs by the water industry.
The Division undertakes industry development, industry regulation, industry performance oversight, water
corporation governance, stakeholder engagement, program implementation and monitoring.
The Intergovernmental group is responsible for co-ordinating the conduct of the water sector
intergovernmental policy and program obligations assigned to the Minister and Secretary under the MurrayDarling Basin Agreement, Council of Australian Governments (CoAG)’s National Water Initiative & MurrayDarling Basin Intergovernmental Agreements and the Snowy Water Agreement.
Other key reporting relationships
As well as reporting directly to the Minister for Water, each water business has a responsibility to report to
the following entities:
Government entity
Area of regulation
(Department of Treasury and Finance)
Financial management
Secretary to the Department of Health
Safe drinking water
Essential Services Commission
Pricing & Performance
Environment Protection Agency
Environmental protection
Energy and Water Ombudsman (Victoria)
Dispute resolution scheme
Part 2 of the Guide will look at each of these in further detail.
Water Industry Associations
There are a number of independent state and national industry associations that represent the interests of
water businesses.
Victorian Water Industry Association (Vic Water)
VicWater is the peak industry association for water businesses in Victoria.
VicWater plays an important role in the Victorian water industry in:
• influencing government policy
• providing forums for industry discussions on priority issues
• disseminating news and information on current issues to stakeholders
• identifying training needs
• producing performance reports and industry guides
• providing training for water corporation directors
Australian Water Association (AWA)
AWA provides leadership in the water sector through collaboration, advocacy and professional
AWA provides a link to the international water industry, providing both local and global networks, developing
strong relationships and leading discussions.
Water Standards Association of Australia (WSAA)
WSAA was formed in 1995 to provide a forum for debate on issues of importance to the urban water
industry and to be a focal point for communicating the industry’s views.
WSAA promotes knowledge sharing, networking and cooperation amongst members. It identifies emerging
issues and develops industry-wide responses and acts as the voice of the urban water industry, speaking to
government, the broader water sector and the Australian community.
The national approach to water
For some issues, the states have agreed to take a national approach to water management. The regulation
of the Murray-Darling Basin, which crosses a number of state borders, is a good example.
This national approach was formalised in 2004 when the state governments, the local government
authorities and the Commonwealth government signed an inter-governmental agreement through the
Council of Australian governments (CoAG) that created a national forum for dealing with water issues
through the establishment of the National Water Initiative.
The National Water Initiative (NWI) is described as, ‘Australia’s enduring blueprint for water reform’ and
represents a shared commitment by governments to increase the efficiency of Australia’s water use, leading
to greater water productivity and greater certainty for investment for rural and urban communities and the
Under the NWI, governments have made commitments to:
• prepare water plans with provision for the environment
• deal with over-allocated or stressed water systems
• introduce registers of water rights and standards for water accounting
• expand the trade in water
• improve pricing for water storage and delivery
• meet and manage urban water demands.
The overall objective of the National Water Initiative is to achieve a nationally compatible market, regulatory
and planning based system of managing surface and groundwater resources for rural and urban use that
optimises economic, social and environmental outcomes.
The National Water Commission (NWC) is responsible for the administration of the National Water
Initiative. Established under the National Water Commission Act 2004 (Cth), the NWC advises CoAG and
the Australian Government on national water issues and the progress of the National Water Initiative.
The NWC is an independent statutory authority within the federal Environment, Water, Heritage and the Arts
portfolio and reports directly to the Commonwealth’s Minister for Climate Change and Water.
Australian Consumer and Competition Commission (ACCC)
The ACCC promotes competition and fair trade and its primary responsibility is to ensure that individuals
and businesses comply with the Commonwealth competition, fair trading and consumer protection laws.
It also regulates national infrastructure services. The Water Act 2007 (Cth) was enacted to enable the
Australian government to better manage the Murray Darling Basin water resources. Under this legislation,
the ACCC is responsible for:
• providing advice to the Minister for Climate Change and Water on water market rules and water charge
• monitoring compliance with and enforcing the water market rules and water charge rules; and
• providing advice to the Murray-Darling Basin Authority on water trading rules for inclusion in the Basin
Murray-Darling Basin Authority
The Murray-Darling Basin Authority is responsible for the integrated management of the Murray-Darling
Basin and reports to the federal Minister for Climate Change and Water.
Key functions of the authority include:
• preparing the Basin Plan for adoption by the Minister for Climate Change and Water, including setting
sustainable limits on water that can be taken from surface and groundwater systems across the Basin
• advising the Minister on the accreditation of state water resource plans
• developing a water rights information service which facilitates water trading across the Murray-Darling
• measuring and monitoring water resources in the Basin
• gathering information and undertaking research
• engaging the community in the management of the Basin’s resources.
Part 2: Areas of Regulation
Central Regulation
The Regulators
As discussed in Part 1, the Minister for Water is ultimately responsible for the performance of each water
business. To ensure that ministerial responsibilities are met, the Minister plays a central role in regulating
Victoria’s water businesses including:
• setting the strategic direction of each water business
• ensuring that the provisions of the Water Act are met
• reviewing annual reports, corporate plans and business cases
Financial reporting
The Treasurer plays a key role in the regulation of the financial operation of water businesses.
The Treasurer and the Department of Treasury and Finance are responsible for setting financial reporting
guidelines and reviewing annual reports, corporate plans and business cases alongside the Minister for
In practice, the Treasurer works very closely with the Minister in this role so financial regulation has been
included as part of this ‘central regulation’ section.
The Water Act 1989 (Vic)
The Water Act 1989 (Vic) is the central legislation for the Victorian water industry.
Its objects include:
• promoting the orderly, equitable and efficient use of water resources
• making sure that water resources are conserved and properly managed for sustainable use for the
benefit of all Victorians
• to maximise community involvement in the making and implementation of arrangements relating to the
use, conservation or management of water resources.
The framework of the Act includes:
• providing the framework for the allocation and management of the State’s water resources
• the functions, rights and obligations of the majority of the state’s water businesses.
Sustainability management principles
Section 93 of the Water Act 1989 (Vic), added in 2006, requires water businesses to have regard to
sustainable management principles in the exercise of their powers and performance of their functions.
These sustainable management principles incorporate internationally recognised environmental concepts
and include the need to ensure that water resources are conserved and properly managed for sustainable
use and for the benefit of present and future generations.
Business objectives for water corporations
Section 94 of the Act states that each water corporation, in performing its functions, exercising its powers
and carrying out its duties has the objective that the water corporation must act as efficiently as possible
consistent with commercial practice.
Balancing the obligations of the sustainable management principles and the business objectives of a water
corporation is a key task for each water corporation and its Board.
The Water Industry Act 1994 (Vic)
The Water Industry Act 1994 (Vic) was introduced to establish the framework under which the three
Melbourne water retailers are regulated. It provides the framework for regulating water process and service
standards and establishes the Essential Services Commission as the water industry price regulator.
It also allows the Minister to issue Statements of Obligations to each water business.
Financial Management Act 1994 (Vic)
The Financial Management Act 1994 (Vic) aims to:
• improve financial administration of the public sector
• make better provision for the accountability of the public sector
• provide for annual reporting to the Parliament by departments and public sector bodies
The Act also allows the Treasurer to issue financial reporting guidelines to public sector bodies including
water businesses.
Other regulatory instruments
Statement of Obligations
Section 4I of the Water Industry Act 1994 (Vic) states that the Minister for Water (after consultation with the
Treasurer and the ESC) has the right to issue a Statement of Obligations to a water business.
Each water business has a Statement of Obligations (SOO) that specifies a number of requirements for
water businesses to follow. SOOs are based on a combination of water legislation requirements and
government policy.
Ministerial directions
A Ministerial direction is written instruction from the Minister to a Board of directors of a water business,
requesting it to take specified actions.
Under s 307 (1) of the Water Act 1989 (Vic), the Minister, after consulting with the Treasurer, may give a
written direction to water businesses addressing the performance of any of its functions.
Directions may be given to a group of water businesses or to an individual water business.
In practice, Ministerial directions are rare and there are certain disclosure requirements that accompany a
Ministerial direction. Where a direction is given, the Minister must:
• give a water business 14 days’ notice of the direction
• publish the direction in the Government Gazette; and
• publish the direction in the DSE Annual Report
Key reporting requirements
As part of their regular reporting cycle, water businesses are required to submit a number of key documents
for review by the Minister and the Treasurer.
Annual reporting
An annual report must be submitted for each financial year and audited by the Auditor-General before being
tabled in Parliament.
Corporate plans
Each water business must submit an annual corporate plan that provides a statement of corporate intent,
expected activities and a financial forecast for the following five years.
To ensure that the Minister and Treasurer are kept up to date with the activities of each water business,
quarterly and half-yearly ‘progress’ reports are also required.
Water Plan
Water Plans are required every five years and include details about the proposed revenue requirements,
tariff and pricing structures.
Water Plans are managed by the Essential Services Commission and covered in more detail in that chapter.
Corporate Plan
Part 13 of the Water Act 1989 (Vic) sets out the annual requirement for Corporate Plans which must be
submitted on or before a date specified by the Minister, usually 30 April.
Contents of the Corporate Plan
Corporate Plans are prepared annually and have a five year planning horizon. They contain a statement of
corporate intent detailing:
• business objectives and main undertakings
• the nature and scope of activities
• performance targets
• details of major initiatives and capital projects
• financial forecasts
Any further content guidelines may be issued jointly by the Minister and the Treasurer.
The review process
In reviewing a business’s Corporate Plan, the Minister for Water will examine its alignment with the water
policy objectives of Government. The Treasurer will look at the plan’s potential for financial risk and its
implications for the State’s overall financial position.
After the Corporate Plan is submitted for approval, the Minister for Water has two months to provide
comments, after which it is deemed to be approved. If the Minister does have comments these will be
provided in writing to the relevant water business.
Quarterly performance reports
Each quarter, water businesses must provide ‘updates’ to the Minister and Treasurer on how their corporate
plans are being implemented. On receipt of these reports, they are reviewed by each of the relevant
As part of these reviews, the Minister and Treasurer will review how a business is progressing with its strategic
direction and proposed activities against its most recent Corporate Plan.
Annual Reporting
Annual Reports are required under s 45 of the Financial Management Act 1994 (Vic).
The Minister for Finance may issue Standing Directions setting out requirements for annual reports. The
Minister for Water may also issue Ministerial Directions as to the contents of the Annual Report under s 51
of the Financial Management Act 1994 (Vic).
Annual Reports must be audited by the Auditor-General and tabled in Parliament by the Minister for Water
by a set date each year.
Continuous disclosure
The Minster and the Treasurer must be notified in quarterly performance reports if a board of directors
believes that they are not going to achieve an objective of its corporate plan. The board must also submit
their reasons.
Reporting requirements are designed to ensure a regular flow of information between a water business and
relevant government departments. Water businesses must ensure that they provide regular updates about
any major changes or problems that a water business is facing.
Business cases
Water businesses are required to submit business case proposals for capital investment proposals over a
specified value. Threshold values have been set at $10, $20 or $50 million depending on the size of the
water business.
Regardless of value, water businesses may also be required to submit a business case where a project is of
particular interest to the Minister or Treasurer.
The Department of Treasury & Finance publishes a comprehensive guide to business case requirements
called Investment Lifecycle Guidelines: business cases which is available on the DTF website.
Business case review
Business cases need to be reviewed and approved by both the Treasurer and the Minister for Water. The
Treasurer will be concerned with the financial viability of capital investment proposals and the Minister for
Water will be looking at the overall strategic direction of the proposal and alignment with the government’s
water policy.
Specific areas of regulation
In addition to the business-wide reporting set out above, some of the key areas that are regulated by the
Minister for Water are discussed in more detail below.
Terrorism Risk Management
In 2002, following terrorist attacks in the US and Bali, the Commonwealth and state governments in
Australia agreed to review their existing legislation and counter-terrorism measures.
Terrorism (Community Protection) Act 2003 (Vic)
Following this review, the Victorian government passed the Terrorism (Community Protection) Act 2003
(Vic) introducing important new powers and obligations to ensure that there is an adequate framework to
prevent and respond to a terrorist act.
On 24 July 2007, it was declared that Part 6 of the Act applied to the essential services of water and
sewerage. Therefore, water businesses now have a number of provisions to comply with under the
Risk management plans
Part 6 of the Act states that each water business must create a risk management plan that aims to prevent
and manage any terrorist attacks. The plan can be part of a larger risk management plan.
The plans must be audited each year, updated if necessary and made available to the Minister for Water
upon request.
Training exercises
Each water business must develop and participate in a training exercise at least once a year to test the
operation of the risk management plan. As required by the legislation, the training exercises will be
supervised by:
• a senior manager from the Office of Water (on behalf of the Minister) and
• the Counter Terrorism Coordinating Unit (on behalf of the Police Commissioner)
Dam safety reporting
Under its Statement of Obligations, a water business must comply with a number of dam safety
requirements. Having regard to the Australian National Committee on Large Dams (ANCOLD) guidelines
these requirements include:
• developing dam safety monitoring programs
• conducting necessary dam safety works
• implementing risk reduction measures
In addition, a water business must submit an annual report to the Secretary of the DSE by 30 June that
• a prioritised list of dam safety works
• a summary of the risk profile for its dams
As a tool for benchmarking and promoting continual improvement of dam safety, the DSE now produces an
annual statewide dam safety report that is shared with each water business.
Blue-green algae reporting
Blue-green algae are a common seasonal occurrence in Victoria and a natural component of most
waterways. Significant numbers of blue-green algae can result from low water levels and high temperatures
and can be very toxic.
The DSE is responsible for the statewide management of blue-green algae outbreaks and produces a
monthly blue-green algae update which is published as part of its monthly water report.
Water businesses must monitor blue-green algae levels and comply with the DSE’s reporting framework as
explained in the annual blue-green algae circular.
Safe Drinking Water
Where blue-green algae blooms affect the state’s drinking water, additional reports may be required by the
Department of Health under the Safe Drinking Water Act 2004 (Vic).
Groundwater management
Groundwater is a complex resource. The unseen nature of groundwater makes it difficult to quantify and
careful monitoring and management is necessary to prevent over-extraction. The Crown co-ordinates and
delegates authority to government departments and water corporations to develop and manage the
groundwater resource in an integrated and planned manner.
In Victoria, groundwater is managed by the Minister, the DSE and the rural water authorities – Southern
Rural Water, Grampians Wimmera Mallee Water and Goulburn-Murray Water.
These rural water corporations play a major role in groundwater management. In addition to undertaking
research, investigations and groundwater monitoring, they also issue licences for bore construction and
groundwater extraction.
Groundwater licences
Under s 51 of the Water Act 1989 (Vic), the Minister is responsible for issuing licences for the use of
groundwater. However, under an instrument of delegation, the Minister has delegated this power to the
three rural water authorities who are responsible for issuing groundwater licences and administering the
relevant Water Act provisions.
Figure 2: Administration of groundwater licences
The Minister and the DSE (the Groundwater and Licensing Branch) continue to provide Ministerial
Guidelines and informal advice to the rural water authorities on the management of groundwater licences.
Bulk entitlements
Bulk entitlements determine how much water an entity can take from a particular source and under what
conditions and are covered by Part 4 of the Water Act 1989 (Vic).
Under sections 43 and 47 of the Act, bulk allocations of water are made under Bulk Entitlement Conversion
Orders. These Orders set out a number of conditions about the use, management and supply of the
allocated water including:
• providing for the supply of water to irrigation licence holders
• ensuring minimum flows in specified waterways
Orders include comprehensive reporting requirements setting out what needs to be reported directly to the
Minister and what needs to be reported in a water business’s annual report.
Safe Drinking Water
The Regulator
The provision of safe drinking water in Victoria is regulated by the Safe Drinking Water Regulatory Section,
which sits within the Public Health Branch of the Department of
Health (DoH).
The Secretary to DoH has a number of powers and responsibilities including:
• protecting public health in relation to the supply of drinking water
• ensuring compliance with the drinking water legislation
• reporting on the performance of water businesses including producing an annual report on drinking water
quality for Parliament
With a view to protecting and improving the drinking water in Victoria, safe drinking water legislation came
into effect in July 2004.
Safe Drinking Water Act 2003 (Vic)
The Safe Drinking Water Act 2003 (Vic) provides a comprehensive, state-wide regulatory framework that
covers drinking water supplied by the state-owned water businesses around Victoria. It also covers drinking
water supplies at alpine resorts and supplies managed by Parks Victoria.
The Act requires water businesses to:
• develop and implement an integrated risk management structure
• comply with standards for drinking water
• communicate effectively with stakeholders
• publicly disclose relevant water quality information
Risk management
Addressing past concerns about risk management, Part 2 of the Act requires water businesses to have
integrated risk management frameworks for drinking water. Risk management plans are regularly audited by
the DoH and the results published in annual safe drinking water reports.
Safe Drinking Water Regulations 2005
The Safe Drinking Water Regulations 2005 set out the required contents of risk management plans and also
give more detail on required water quality standards.
Policy and Guidance notes
In addition to the core legislation, each water business must comply with any safe drinking water policy
decisions or guidance that is issued by the Safe Drinking Water Regulatory section.
Policy and guidance material is made available to industry through the department’s drinking water website:
To support water businesses in their application of safe drinking water legislation, the DoH produces
Guidance notes that are distributed in a number of ways:
• a hard copy delivered to Managing Directors of water businesses
• emailed via a regular stakeholder newsletter
• published on the DoH website
Regular reporting to the Department of Health
1. Water quality testing results
Water businesses must submit monthly water quality reports to the DoH (Regulation 13 of the Safe Drinking
Water Regulations 2005)
Required contents: These reports must detail how the water businesses performed against the water
quality standards detailed in Schedule 2 of the Regulations.
Delivery: Information is submitted electronically and stored in a central DoH-administered database.
2. Annual Drinking Water Quality Reports
Each water business must produce and supply to the Secretary to the Department of Health an annual
report, under s 26 of the Safe Drinking Water Act 2003 (Vic), on issues relating to quality of drinking water
and regulated water.
Required contents: Regulation 15 of the Safe Drinking Water Regulations 2005 sets out the required
contents of the annual report. Annual Guidance Notes are also issued by the Secretary to DoH.
Delivery of report: The report must be submitted to the Secretary to DoH by 31 October each year.
Incident-specific reporting requirements
Water quality problems
Water businesses must notify the Secretary to the DoH where there is any known or suspected
contamination of drinking water (s 22) and if there are any breaches of water quality standards (s 18).
What happens if there is a breach in drinking water standards?
The Secretary to the DoH can:
enter into undertakings with water suppliers to achieve specified requirements
provide directions to a water business if they believe that the drinking water may pose a public risk
request information from water businesses
Practical example:
In the 2007–08 reporting period, 11 water businesses were audited. Two water
storage managers were found to be non-compliant because of the lack of integration
between their risk management plans and the plans of the water suppliers with which
they interact.
Figure 3: Safe Drinking Water regulatory framework
Water Prices & Service Standards
Essential Services Commission
The Essential Services Commission is the independent economic regulator of the water industry and is
responsible for regulating the prices and service standards of water businesses in Victoria.
In relation to the water industry, the Commission gets its regulatory power from three sources:
• Essential Services Commission Act 2001 (Vic)
• Part 1A of the Water Industry Act 1994 (Vic)
• Water Industry Regulatory Order 2003
The Water Industry Regulatory Order 2003 is made by the Governor in Council under
s 4D(1)(a) of the Water Act 1989 (Vic).
The purpose of this Order is to provide a framework for economic regulation by the Essential Services
Commission for services provided by the regulated water industry.
Other government guidance/direction
The Commission publishes price reviews, performance reports, codes of conduct and other directives that
are adopted by water businesses:
Customer service codes: The Commission publishes approved customer service codes for urban and
rural water businesses and each must comply with the applicable code including the creation of a
customer service charter.
Decisions & Determinations: The Commission publishes decisions and determinations outlining the
prices that businesses can charge for water services.
Performance reports: The Commission reports publicly the performance of Victoria’s water businesses
providing urban services with the aim of stimulating competition by comparison and to inform customers
about the service levels they receive. The reports focus on key issues of quality, reliability and the
affordability of water and sewerage services.
Tariff Approvals: Each year the Commission approves tariffs for each business consistent with the
adjustment process set out in the price determination.
Reporting requirements
Water Plan
As part of complying with its Statement of Obligations each water business must submit a Water Plan to the
Commission before the start of each set pricing regulatory period. The current regulatory period is 2008–
Objective: The key objective of a water plan is to outline the service standards that a water business
intends to deliver and to detail the revenue required to meet these standards.
Consultation process: A water business must consult extensively with a range of stakeholders during
the preparation of its water plan including its customers. A draft water plan must be made available to the
public, the Minister for Water, the Treasurer, the ESC, the EPA and the Department of Health.
Final submission: Once the consultation is complete, a water business must deliver its final water plan
to the ESC. The current 2008–2013 water plans were delivered to the ESC in October 2007 and
commenced on 1 July 2008.
Environmental Protection
Environment Protection Authority
The Environment Protection Authority’s purpose is to care for and protect the environment. Within the water
industry, the EPA plays an important role in the regulation of the discharge of wastewater.
The EPA is an independent statutory authority with an independent Chairman. There is also an Advisory
Board which is appointed by the Governor-in-Council and comprises three members with scientific,
community and business expertise. This Board provides an overview of the administration and policies of
the Authority, without direct management responsibility or a regulatory role.
It also provides advice to the Chairman and the Minister for Environment and Climate Change on EPA
administration, functions, policies, strategic direction, corporate planning and on national and international
trends in environment protection.
The Environment Protection Act 1970 (Vic) was introduced to provide a legal framework for the protection of
the environment and established the EPA.
Each water business must have a licence with the EPA to cover the discharge of wastewater into the
Corporate licences
Under its new ‘corporate licence’ program, each water business will have a single licence with the EPA to
cover all of its wastewater facilities. Previously, a separate licence was required for each wastewater facility.
The corporate licence sets out a number of requirements covering:
• a joint, public commitment by the EPA and the water business to increase sustainability of the water
• performance requirements for the water business to meet
Reporting requirements
Under the licence provisions, water businesses must regularly sample and monitor wastewater and alert the
EPA after specified incidents or non-compliance.
A corporate licence also includes a requirement to submit an Annual Performance Statement to the EPA.
Water Plan
A water business must send a copy of its draft Water Plan (as discussed more fully above) to the EPA
during the consultation period.
Dispute resolution scheme
Energy and Water Ombudsman
The Energy and Water Ombudsman (Victoria) is an industry-based external dispute resolution scheme that
deals with conflicts between water businesses and their customers. EWOV is independent from the
government and does not report to the Minister.
Under section 122ZG of the Water Act 1989 (Vic) each water business must participate
in EWOV.
Under the Customer Service Codes issued by the Essential Services Commission, a water business must
have a complaint escalation process that provides its customers with information about referral to EWOV.
Figure 4: Requirement to participate in EWOV’s dispute resolution scheme
Ombudsman Victoria
The Ombudsman is a constitutional independent officer of the Victorian Parliament and seeks to ensure the
highest possible standards of public sector service delivery to all Victorians.
He/she enquires into or investigates administrative actions taken by a Government department or public
statutory body or by any member of staff of a municipal council.
Part 3: Directors’ Duties
Directors of water businesses are subject to a number of statutory and common law duties.
Private vs. Public sector Directors’ Duties
There are some important differences between public and private sector directors’ duties.
Public sector directors must comply with the statutory directors’ duties from the following sources:
• the Public Administration Act 2004 (Vic)
• Directors’ Code of Conduct
• Common law directors’ duties
In addition to these, directors of water businesses must also comply with requirements as set out in the
Water Act 1989 (Vic).
Private sector directors, on the other hand, are subject to the directors’ duties set out in the Corporations
Act 2001 (Cth) and like public sector directors are also subject to common law directors’ duties.
Figure 5: The source of water directors’ duties compared with the source of private sector directors’
The Public Administration Act 2004 (Vic)
The Public Administration Act 2004 (Vic) sets out the expected standards of behaviour across the public
service and applies to directors of water businesses.
The Act is administered by the State Services Authority which aims to foster the development of an
efficient, integrated and responsive public sector. Its key functions include:
• promoting high standards of integrity and conduct in the public sector
• promoting high standards of governance, accountability and performance for public entities.
Section 7 of the Act sets out the values that have been identified to ensure good governance across the
Victorian public sector. They are:
Human Rights
In applying these principles, water industry directors must:
• ensure any statement of corporate values is consistent with these public sector values
• model the values and ensure staff are informed of them
Requirements for public sector directors
Section 79 of the Act states that a director of a public entity must at all times in the exercise of the functions
of his or her office act:
(a) honestly; and
(b) in good faith in the best interests of the public entity; and
(c) with integrity; and
(d) in a financially responsible manner; and
(e) with a reasonable degree of care, diligence and skill; and
(f) in compliance with the Act or subordinate instrument or other document under which the public entity is
Section 79 also states that a director of a public entity must not improperly use his or her position or any
information acquired by him or her by reason of his or her position,to:
• gain an advantage for himself or herself or another person; or
• cause detriment to the public entity.
Requirements for Boards of public entities
Section 81 of the Act sets out behavioural standards for Boards of public entities and states that a board
must ensure that:
• they act consistently with the functions and objectives of the entity
• they keep Ministers abreast of risk management procedures and risks to effective operation of the entity
• they respond to requests for information from the Minister
• there is a code of conduct in place for directors
• there is a procedure in place to deal with conflicts of interest
• there are procedures in place for proper conduct of board meetings
• there is an adequate gifts policy for directors in place
• there are procedures in place for monitoring directors’ performance
Accountability provisions
Section 85 of the Act states that a board of a public entity is accountable to the responsible Minister and that
the Minister responsible for a public entity is responsible to the Parliament in respect of:
• the exercise by the public entity of its functions
• the exercise by the Minister of his or her powers in relation to the public entity including:
– the power to appoint directors or remove them from office, or
– the power to recommend the appointment or removal from office of directors;
– the power to give directions to the public entity or request information from it;
– the power to control or affect its operations;
– the power to initiate a review of the public entity’s management systems, structures or processes.
Directors’ Code of Conduct
In addition to public sector values, the Public Sector Standards Commissioner, a senior member of the
State Services Authority, has issued a Directors’ Code of Conduct that is binding on all public sector
The Code states that directors must:
• act with honesty and integrity
• act in good faith in the best interests of the public entity
• act fairly and impartially
• use information appropriately
• use their positions appropriately
• act in a financially responsible manner
• exercise due care, diligence and skill
• comply with the establishing legislation
• demonstrate leadership and stewardship.
Assistance with interpreting the Code
To assist directors in their interpretation of the Code, the State Services Authority (SSA) publishes
guidance notes which further explains each duty and provides some practical examples.
The SSA also produces more detailed guides to public sector governance including:
• Welcome to the Board
• The Good Practice Guide on governance for Victorian public sector entities
Directors’ Duties under the Water Act 1989 (Vic)
Part 6 of the Water Act 1989 (Vic) sets out some specific requirements for water directors.
Use of information
Section 108 states that a director of a water business must not make improper use of information to create
pecuniary advantage or with intent to damage the water business.
Pecuniary interests
Section 109 onwards sets out some rules that apply to directors who have a pecuniary interest in any matter
in which the water business is concerned. Provisions cover:
• Disclosure of pecuniary interests
• Definition of pecuniary interests
• Voting rights
• Offences relating to pecuniary interests
Targeted training for water directors
Training for directors of water businesses is co-ordinated by the Victorian Water Industry Association
(VicWater) and provides directors with a two-day training and networking program. Held in conjunction with
the Office of Water, training gives new directors the opportunity to:
• Gain a good understanding of water governance framework
• Gain a deeper understanding of directors’ duties
• Have the opportunity to work through real life practical examples
• Network with other directors and senior DSE staff
Appointment & Remuneration
Appointment process
Under s 97 of the Water Act 1989 (Vic) the Minister for Water is responsible for appointing board members
for each of the water businesses. In the case of Melbourne Water, this responsibility is shared with the
The recruitment is co-ordinated by the Office of Water with the assistance of senior representatives from the
DTF and the water industry.
All appointments must be endorsed by Cabinet under government guidelines.
Directors’ remuneration
Under s 98 of the Act, Directors’ remuneration is set by the Minister for Water and for the Melbourne Water
Corporation this function is shared with the Treasurer.
Protocols for public sector executive remuneration are established by government and managed by the
Government Sector Executive Remuneration Panel (GSERP) which is supported by the State Services
As statutory authorities, water businesses are required to report on their remuneration practices to GSERP.
Reporting requirements
Under the Statement of Obligations, a water business must annually review and report to the Minister of
Water and the Treasurer on the performance of the Board of the water business.
Appendix 1
Victoria’s 19 state-owned water businesses
Melbourne Water
Gippsland Water
Lower Murray
Grampians Wimmera
Mallee Water
South East Water
East Gippsland
North East Water
Wannon Water
Yarra Valley Water
South Gippsland
Barwon Water
City West Water
Westernport Water
Coliban Water
Central Highlands
Goulburn Valley
Western Water
Southern Rural Water
Further references
1. Welcome to the Board: your introduction to the good practice guide on governance for Victorian
public sector entities, State Services Authority.
2. The good practice guide on governance for Victorian public sector entities,
State Services Authority.
3. Directors Code of Conduct and guidance notes, State Services Authority
4. Governance Guidelines for DSE Portfolio Statutory Authority Board Members, Department of
Sustainability and Environment.
5. Legal Compliance and Information Manual Victorian Water Industry,
VicWater, May 2008.
Sources of legal requirements
Source of legal requirement
Blue-green algae annual circular
Reporting requirements for blue-green algae
Environment Protection Act 1970
Corporate licensing provisions
Financial Management Act 1994
Requirements for the Annual Report
Investment Lifecycle Guidelines
Business case requirements
Public Administration Act 2004
Governs the standards of public sector employees
including water business directors
Safe Drinking Water Act
Sets requirement for providing safe drinking water
Safe Drinking Water Regulations 2003
Sets standards for drinking water quality
Statement of Obligations
Additional requirements that each water business
must meet
Water Act 1989
The main framework for the water industry
Water Industry Act 1994
Provides for the operation of 3 metropolitan
Water Industry Regulatory Order (WIRO)
Gives regulatory powers to the ESC
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