Contact MHC

QSI Online - a wealth of insight

MHC Annual Water Market Study reveals the services market will become more competitive

Sarah Clarke, Paul Harris — September 2011

Emerging Issue: The Australian water sector is an attractive market for a range of service providers – the major water transmission, distribution and retail businesses are expected to spend around $38 billion between 2010/11 and 2014/15. For transmission and distribution mains, pumping stations and treatment plants, and for domestic connections and metering, the water industry sources a wide range of design, engineering, construction, and operations and maintenance services from the external market. Figure 1 shows the breakdown of materials, design, engineering, construction, and operations and maintenance over the next five years for a number of key Australian water businesses.

Figure 1: Breakdown of Australian water industry expenditure, 2010/11 to 2014/15 total ($ million)*

However, Marchment Hill’s Annual Water Market Study has revealed the outlook for service providers in this sector is less optimistic than at face value – the aggregate industry capital expenditure is expected to decline (CAGR -5% nominal) for the period 2010/11 to 2014/15 (refer Figure 2), which could result in greater competition in the design, engineering and construction services markets. The decrease in spend is partially due to increased rainfall levels in many parts of Australia, reducing security of supply imperatives, and the completion of major desalination plant, recycled plant and pipeline projects in the next 12 months.

Figure 2: Forecasted Capital and Operating Expenditure across major transmission, distribution and retail water businesses in Australia*

While operating expenditure is expected to grow steadily (CAGR +1% nominal) for the period 2010/11 to 2014/15, there are limited opportunities in the market for operations and maintenance contracting, as a high proportion of this market is committed for extended periods through long-term alliances or partnership arrangements.

But the outlook for service providers is not all doom and gloom – long-term developments in water industry structure, regulation, and a shift towards ‘smart’ networks have the potential to increase demand for more specialised or niche services with the prospect of better margins. There may also be opportunities for service providers to assume a more active role in traditionally non-contracted functions such as asset management, be that through increased data collection, increased inspection-based recommendations, or assistance in the asset planning itself.

Is the water services market in Australia becoming more competitive? Which parts of Australia will be impacted most? Will greater impacts be felt in capital services than operation and maintenance services? What will service providers need to do to manage this emerging issue?

Marchment Hill’s Annual Water Market Study provides a quantitative and qualitative overview of the opportunities available to service providers in the Australian water industry. It covers major Australian bulk transmission, distribution, and retail businesses in all states and territories. A key value-add is the inclusion of commentary on industry trends and their drivers, derived from the collective experience of Marchment Hill’s consulting practitioners.

If you would like more information about the market study, contact Sarah Clarke or Paul Harris.

To purchase a copy of the Annual Water Market Study, click here.

----------
* Based on data for Sydney Water, Hunter Water, Melbourne Water, South East Water, City West Water, Yarra Valley Water, Barwon Water, Water Corporation, Allconnex Water, Unity Water, Queensland Urban Utilities, SA Water and Power Water Corporation.

Get in touch with the authors — Sarah Clarke , Paul Harris »

You might also be interested in:

« Back to QSI Online