Differences are good; understanding them helps us develop. So here, in a few words, I look at why – and how – the UK and Australian approaches to Asset Management differ, by considering how they started – with water.
NOTE: If you have early experience of these approaches please add your ideas in the comments section .
In the UK, asset management started with the privatisation of the water industry in 1989. The rationale for privatisation was to increase the quality of the service and the route to this was seen to be by directed capital expenditure. Ofwat, the regulator, set water prices high to enable the necessary investment and capital spending was the focus of Ofwat regulation. Water companies’ asset management plans set out the rationale for their capital spending, new and renewal, to meet the needs of the regulator. Thus their focus on spending capital to improve service.
In Australia, asset management also started with the water industry, but the impetus was very different. A long term modelling exercise for the water industry in 1983 made it clear that the cost of maintaining current water services would have to rise steeply, as assets aged and needed renewal. The same modelling was then extended to all other infrastructure holdings in the State making it clear that the combined renewal demands of all agencies would, within 15 years, completely overwhelm the state’s funding ability. So, in 1987 the SA Parliament set up an Asset Management sub-committee and the Government created an Asset Management taskforce to consider ways of reducing the renewal costs to a manageable level by a combination of changes to planning, management, maintenance and financial policies and practices.
Thus, whereas the focus of asset management in the UK with the water industry (and later other industries),was how to fundcapital renewal, the focus of asset management in South Australia, and then across Australia generally, was in how to avoid having to fund so much capital renewal.
The difference between the two approaches became clear in 1995 when the South Australian Government, in an endeavour to create international export markets for its water industry skills and services, offered a 15-year management contract to an international company that could expand the state’s water industry exports and at the same time reduce management costs. The Government made it clear that it was well satisfied with its current level of service and just wished to reduce cost, not increase standards. However when the UK water industry companies (and the French) were asked to demonstrate their asset management abilities, none could offer any evidence of actions taken to manage and reduce costs and, indeed, seemed somewhat perplexed by the question and focused only on what they had done by way of capital expenditure to raise services. During pre contract negotiations they consistently re-iterated their claims for capital enhancement and resisted discussion of cost reduction.
These two different approaches to asset management have continued. They both have strengths – and weaknesses. The Australian approach needs more attention to evaluating and prioritising capital projects (the main focus of Talking Infrastructure). The UK approach needs more attention to management cost reduction through better planning, maintenance and financial practices.