Annual Report

Transcription

1 Annual Report

2 6 September 2012 The Hon Mark McArdle MP Minister for Energy and Water Supply PO Box City East QLD 4002 The Hon Tim Nicholls MP Treasurer and Minister for Trade Level 9, Executive Building 100 George St Brisbane Qld 4000 Dear Ministers Seqwater Annual Report I am pleased to present the Annual Report and financial statements for the Queensland Bulk Water Supply Authority (QBWSA), trading as Seqwater. I certify that this Annual Report complies with: the prescribed requirements of the Financial Accountability Act 2009 and the Financial and Performance Management Standard 2009, and This Annual Report provides information about the financial and non-financial performance of the Queensland Bulk Water Supply Authority (trading as Seqwater) for It has been prepared in accordance with the Financial Accountability Act 2009, the Financial and Performance Management Standard 2009 and the Annual Report Guidelines for Queensland government agencies. The report records the significant achievements against the strategies and activities detailed in the organisation s Strategic and Operational Plans. This report has been prepared for the Minister for Energy and Water Supply, to submit to Parliament. It has also been prepared to meet the needs of Seqwater s customers and stakeholders, which include the Commonwealth and local governments, industry and business associations and the community. This report is publicly available and can be viewed and downloaded from Seqwater s website at the detailed requirements set out in the Annual Report requirements for Queensland government agencies. A checklist outlining the annual reporting requirements can be accessed at annual-reports. Yours sincerely Phil Hennessy Chairman

3 contents Financial summary for Contact Queensland Bulk Water Authority, trading as Seqwater. ABN: Registered Office 240 Margaret Street, Brisbane QLD 4000 PO Box 16146, City East QLD 4002 T F E corpcommunications@seqwater.com.au W Seqwater Annual Report ISSN (Queensland Bulk Water Supply Authority) Report from the Chairman and the Chief Executive Officer 2 About Seqwater 6 Role and functions 6 Our values 6 Strategic and operational planning 7 Summary of major assets 8 Seqwater as part of the SEQ Water Grid 9 The year in review 10 Achieving our goals 10 Key Performance Indicator summary 11 Financial summary for Looking forward 21 Governance 22 Responsible ministers 22 Legislative and policy requirements 22 Related entities 22 Organisational structure 22 The Seqwater Board 24 Board role 26 Board committees 26 Board attendance 27 Board remuneration 27 Board performance evaluation 27 Organisational review 28 Compliance 28 Risk management 28 Internal audit 28 Workforce planning and retention 29 Industrial/Employee Relations Framework 30 Workplace Health and Safety 30 Conduct and ethics 31 Additional information 31 Financial Report 32 Glossary 98 The Queensland Government is committed to providing accessible services to Queenslanders from all culturally and linguistically diverse backgrounds. If you have difficulty in understanding the Annual Report, please contact us and we will arrange an interpreter to effectively communicate the report to you. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

4 Report from the Chairman and the Chief Executive Officer Phil Hennessy CHAIRMAN Peter Borrows CEO The financial year was one of consolidation and recovery. While our key focus remained the ongoing supply of safe and reliable bulk drinking water for our region and ensuring we continued to plan for the future, the year was marked by five key bodies of diverse and significant work. These included the successful Seqwater-WaterSecure merger into the new Seqwater, the ongoing recovery work undertaken following the January 2011 flood and implementation of recommendations of the Queensland Floods Commission of Inquiry. It also included working closely with the Queensland Competition Authority on identifying business and cost efficiencies and, importantly, the ongoing implementation of Seqwater s asset management and planning framework for both catchment and built assets. The announcement by the State Government in April 2012 to further rationalise government-owned water entities, will create one of Australia s largest and most diverse water authorities. Over , Seqwater will merge with bulk water transport authority LinkWater and functions of the South East Queensland Water Grid Manager and Queensland Water Commission, to form a single regional bulk water supply company. As in previous years and in different iterations, the new Seqwater strongly embraced the opportunities new assets, skills and ideas presented from driving innovation to identifying operational efficiencies and cost savings. The Seqwater-WaterSecure merger combined the traditional water sources of catchments and dams with desalination and purified recycled water into the same business for the first time in South East Queensland (SEQ). 2 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

5 Delivering South East Queensland s water supply On behalf of the SEQ Water Grid and working closely with SEQ Water Grid partners, including the region s distribution and water retailers, Seqwater produced almost 260,000 million litres of safe drinking water for distribution to residents and businesses across the region. This included more than 3,400 million litres of desalinated water and more than 5,600 million litres of purified recycled water to the region s key power stations. As part of our overall management of water quality and, to strengthen community confidence, we completed more than 300,000 water quality tests with the results again demonstrating the high quality of drinking water provided continued to exceed the Australian Drinking Water Guidelines (2011). Securing the region s future water supply A regionally significant infrastructure project reached completion with the finalisation of the Hinze Dam Stage 3 upgrade project, with the dam s recreational areas re-opened in December After three years of construction, Hinze Dam is now the region s third largest water storage behind Wivenhoe and Somerset dams and a critical asset in the water security of the region. The upgrade significantly increased the capacity of the dam and now provides flood mitigation benefits for more than 3000 additional homes below the dam wall. Our manufactured water assets have now been successfully operating for more than two years with the Western Corridor Recycled Water Scheme progressing to project closeout over the past year. The Gold Coast Desalination Plant is expected to reach final project closeout in late The new Wyaralong Dam, the first dam constructed in South East Queensland in 20 years, was handed over to Seqwater on 1 July 2011, six months ahead of schedule. Originally it was thought it would take between three and four years for Wyaralong Dam to fill, however the unprecedented rainfall of early 2011 saw the dam fill almost immediately after construction was completed and it remains close to capacity. Seqwater also moved forward on the planning and implementation of its Dam Safety Upgrade Program which saw upgrade works commence at Ewen Maddock Dam, the second largest dam supplying the Sunshine Coast. Construction on a new water treatment plant for Kilcoy and the surrounding community also got underway. Queensland Floods Commission of Inquiry Seqwater committed a significant amount of resources during the year to assist the work of the Commission of Inquiry. We have been diligent in implementing recommendations from both the interim and final reports, with the Commission adopting many of the recommendations made by Seqwater in its various submissions to the Inquiry. The majority of the recommendations as they relate to Seqwater have already been completed, with the remainder in progress. These undertakings have included finalising the establishment of a new Flood Operations Centre (FOC), which was already in the planning stages prior to the January 2011 floods, and successfully implementing a region-wide, automated public notification service for dam releases using the nationally recognised Australian Early Warning Network service. In addition, and over and above recommendations in the Commission s final report, Seqwater has significantly increased the number of flood engineers and flood officers available to operate the FOC during future flood events. Seqwater had always taken the view that the operation of Wivenhoe Dam during the January 2011 flood event and release strategies adopted by its engineers significantly mitigated the flood. Our view was supported by the independent expert retained by the Commission who concluded that, in light of the information available at the time and allowing for the limits of the strategies in the Wivenhoe manual, our flood engineers achieved close to the best possible flood mitigation result for the January event. In relation to flood management, over the wet season Seqwater successfully managed a number of flood events from Wivenhoe, Somerset, North Pine and Leslie Harrison dams. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

6 Report from the Chairman and the Chief Executive Officer Working in partnership with the community The watershed and immediate catchments surrounding and impacting on the region s drinking water supply dams account for about 1.4 million hectares. In contrast with other capital city water authorities in Australia, including Melbourne and Sydney, Seqwater owns very little land around its dams, managing around 65,000 hectares or less than 5 per cent of the total watershed and catchment area. As a result, Seqwater continues to proactively engage with both the broader SEQ community, as well as its catchment communities, to help manage the region s drinking water catchments from an environmental and water quality perspective. Working in partnership with SEQ Catchments, Healthy Waterways and a range of local catchment care groups, Seqwater delivered a range of riparian rehabilitation and re-vegetation projects across the region. The year also saw the signing of a landmark agreement with ENERGEX and SEQ Catchments for Seqwater to provide environmental offsets to ENERGEX s infrastructure program. The agreement will involve large scale planting of native trees in key drinking water catchments to improve raw water quality and enhance catchment biodiversity, including increasing koala habitat. Seqwater also maintained a range of Community Reference Groups to assist with its business planning, the development of catchment management plans and natural asset monitoring. Almost 19,000 school students and community groups undertook site and asset tours or presentations as part of the Water Grid Community Education Program delivered by Seqwater. A new interpretative centre at Hinze Dam as part of the dam upgrade project attracted almost 65,000 visitors alone, since its opening in December Seqwater recreation facilities again proved a major drawcard during the year, with more than two million local, interstate and international visitors to our campsites and dams. Managing financial performance Seqwater s financial performance has continued to achieve further efficiencies and consolidation in Our regional approach to bulk water management, including the integrated management of our catchment and built infrastructure, has continued to help deliver value for our owners and the broader community. Substantial work in supporting the Queensland Competition Authority s regulatory reviews was also undertaken with additional efficiencies and savings identified as part of the process. In addition, as part of an efficiency drive by the State Government, Seqwater also undertook an extensive efficiency review of both operating and capital costs with further savings identified. Building capacity and capability Developing the knowledge, skills and capacity of its workforce remains vital to the success of a modern water authority. Seqwater continued to invest in capacity building by partnering with Registered Training Organisations for the first time to deliver accredited courses in water industry operations. We also introduced the organisation s inaugural graduate and traineeship program to address future skills shortage and a maturing workforce. As an extension of our internal staff LIFE Awards, Seqwater launched the 25+ Club this financial period, recognising staff with over 25 years of service to Seqwater and its previous incarnations. A total of 53 staff have now been inducted into this Club, between them amassing an impressive 1645 years of industry experience. Safety again was a major workforce focus with the introduction of a Fit4Work program including random drug and alcohol testing for the first time. Since its launch in January 2012 more than 150 tests have been undertaken with no positive results. 4 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

7 Seqwater is now rated amongst the best of the Queensland water industry for injury management with the organisation s performance almost 60 per cent under the industry benchmark for monthly claim costs. The performance resulted in a significant reduction in WorkCover premiums for 2012 and its safety team have been nominated by WorkCover Queensland for an injury management award with the winners announced in October. As we look ahead to the next financial year and the further logical consolidation of the water industry, Seqwater looks forward to being part of a dynamic new era of water delivery in South East Queensland. We believe the organisation and its staff are well placed to make a significant and lasting contribution to the success of the new entity. Looking ahead Since its establishment in 2008 from 17 separate entities, Seqwater and its staff have consistently demonstrated a determined resilience to rise above the many challenges of delivering bulk water, catchment and recreation services across a diverse and vast region. The upcoming water industry reform will once again provide us with the opportunity to harness our collective skills and knowledge to ensure the continued supply and security of highquality water to residents, whilst delivering cost efficiencies and environmental benefits to the region. Seqwater s performance and achievements over the year have again been driven by the commitment, professionalism and enthusiasm of our staff. Our achievements would not have been realised without their contributions. Phil Hennessy Chairman Peter Borrows Chief Executive Officer We would like to thank our staff, as well as those in organisations we have collaborated with, for their dedication and efforts in helping the organisation achieve its vision of Water for Life, not only over the past year but since Seqwater was established. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

8 About seqwater Role and functions Seqwater aspires to create Water for LIFE, as caretaker of water, infrastructure and catchments throughout South East Queensland to sustain a high-quality bulk water supply for current and future generations. As an organisation we provide climate-resilient bulk water supply services, in accordance with regulated standards. We are responsible for ensuring South East Queensland s natural resources and infrastructure supply fit-for-purpose bulk water safely and sustainably. We work in partnership with government, industry and communities to maximise the many values of these resources. We take an integrated approach to water management in order to supply water to the community via the South East Queensland (SEQ) Water Grid. We also supply to smaller communities in the region that are not connected to the Grid and more than 1200 irrigator customers. Seqwater assets are located from the New South Wales border, to the base of the Toowoomba ranges and north to Gympie. We manage recreation facilities which currently provide more than 50 per cent of the green space for South East Queensland. More than 2 million people visited Seqwater managed recreation facilities over Additionally, Seqwater works collaboratively with other land owners across the region to influence water quality outcomes achieved from more than 1.4 million hectares of land which directly impact on Seqwater s drinking water and irrigation storages. Our vision Water for LIFE water and catchments sustaining current and future generations. Our values Our Water for LIFE values underpin all business activity to achieve our vision. L I F Leadership We are leading the way by working together and supporting each other to create opportunities and develop knowledge we can share with the industry. Integrity We are ethical and demonstrate integrity and respect for our workmates, industry colleagues and community. Future We are the custodians of South East Queensland s water supply assets and we manage our business with future generations in mind. E Excellence We are dedicated to achieving excellence through innovation, continuous improvement, quality, sustainability, safety and cost effectiveness. 6 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

9 Strategic and operational planning The Seqwater Strategic Plan to outlines our long-term direction, vision and goals and explains our organisation s strategy and targeted outcomes in more detail. Increasingly, the principles of business sustainability underpin our planning, implementation and reporting. A Seqwater operational plan is developed annually and outlines specific key initiatives and service delivery objectives through programs of work that maintain the long-term direction for the business, while responding to changes in our business environment. The plan aligns the delivery of these key initiatives and programs with budgets and performance targets. We report to our responsible ministers on performance against the operational plan on a quarterly basis, through the Queensland Treasury and the Department of Energy and Water Supply (DEWS). Our goals Goal 1 Regulators and customers have confidence and trust in the quality, security, efficiency and reliability of their water supply. Goal 2 Communities in our region gain the maximum sustainable value from their catchment and water cycle assets natural and built. Goal 3 Communities and businesses have confidence and trust in the readiness and resilience of people, processes and assets to cope with and respond to critical events. Goal 4 Seqwater staff and partners have the know-how and capability to efficiently and effectively deliver organisational outcomes. Our approach Our strategic plan recognises the current model of regional water supply in South East Queensland is substantially different from the past. This offers the distinct opportunity to balance the management of catchment-based and climate-resilient assets to provide a reliable water supply and deliver other benefits to the region. The Seqwater-WaterSecure merger has resulted in a shift from an initial focus on water supply security and efficiency to a whole-of-system management focus, which considers both whole-of-catchment management as well as water cycle management issues. Central to this new approach are business sustainability principles. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

10 Summary of major assets During , we were responsible for managing the following assets: 26 dams 46 operational water treatment plants, including 7 recreational water treatment plants 50 weirs 14 ground-water bore fields and aquifers The Western Corridor Recycled Water Scheme, including three advanced water treatment plants and more than 200 kilometres of largediameter underground pipeline The Gold Coast Desalination Plant Water Treatment Plants (WTP) 1 Algester WTP 2 Amity Point WTP 3 Atkinson Dam WTP* 4 Banksia Beach WTP 5 Beaudesert WTP 6 Boonah Kalbar WTP 7 Borumba Dam WTP* 8 Caboolture WTP 9 Canungra WTP 10 Capalaba WTP 11 Chandler WTP 12 Dayboro WTP 13 Dunwich WTP 14 East Bank (Mt Crosby) WTP 15 Enoggera WTP 16 Esk WTP 17 Ewen Maddock WTP 18 Forest Lake WTP 19 Hinze Dam WTP* 20 Image Flat WTP 21 Jimna WTP 22 Kenilworth WTP 23 Kilcoy WTP 24 Kilcoy (Lake Somerset) WTP 25 Kirkleagh WTP* 26 Kooralbyn WTP 27 Landers Shute WTP 28 Linville WTP 29 Lowood WTP 30 Maroon Dam WTP* 31 Molendinar WTP 32 Moogerah Dam WTP* 33 Mudgeeraba WTP 34 Noosa WTP 35 North Pine WTP 36 North Stradbroke Island WTP 37 Petrie WTP 38 Point Lookout WTP 39 Rathdowney WTP 40 Runcorn WTP 41 Somerset Dam (Township) WTP 42 South Maclean WTP 43 Sunnybank WTP 44 West Bank (Mt Crosby) WTP 45 Wivenhoe Dam WTP* 46 Woodford WTP Seqwater major assets 28 Atkinson Dam 16 3 Clarendon Dam Bill Gunn Dam Borumba Dam Cedar Pocket Dam Baroon Pocket Dam Somerset Dam Wivenhoe Dam Nambour 22 North Pine Dam Lake Manchester Dam Ipswich Cooloolabin Dam Wappa Dam Poona Dam Lake Macdonald Dam Noosa Ewen Maddock Dam Enoggera Dam 15 8 Gold Creek Dam Sidling Creek Dam Brisbane 1 Redcliffe Maroochydore Caloundra Bribie Island Leslie Harrison Dam N 13 2 North Stradbroke Island * Recreation Water Treatment Plant Wyaralong Dam Gold Coast 31 Moogerah Dam 32 Bromelton Weir Hinze Dam Little Nerang Dam Maroon Dam FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

11 Seqwater as part of the SEQ Water Grid Seqwater works collaboratively with partner water entities LinkWater and the SEQ Water Grid Manager as part of the SEQ Water Grid, which manages South East Queensland s water supplies through a connected network of drinking water pipelines and a coordinated supplychain management approach. The connected SEQ Water Grid assets allow water to be moved across the region to where it is needed most. Seqwater also has strong working relationships and agreed operating protocols with the three distribution retail companies Unity Water, Queensland Urban Utilities and Allconnex. State-owned bulk water authorities Seqwater is the single supplier of bulk drinking water to the SEQ Water Grid. It stores and treats water from dams, weirs and borefields; as well as water from the Gold Coast Desalination Plant and the Western Corridor Recycled Water Scheme. Seqwater is also responsible for managing the catchments which surround its water sources. LinkWater is the network controller for the potable bulk water transport network. Water is transported from treatment plants and storage reservoirs through bulk pipelines and into the distribution system. LinkWater monitors and operates the system from its centralised network control centre and also maintains bulk water infrastructure across the region. The SEQ Water Grid Manager owns the urban water entitlements in South East Queensland and is responsible for managing the SEQ Water Grid. It purchases services to store, treat, produce and transport bulk water from Seqwater, WaterSecure and LinkWater. It then sells treated water to council-owned retail distribution businesses and industry customers. Council-owned retail authorities Unitywater is the distribution and retail business for the Sunshine Coast and Morton Bay areas. The council-owned business sells and delivers drinking water to customers and collects, transport and treats wastewater and sewage. Queensland Urban Utilities is the distribution and retail business for Brisbane, Scenic Rim, Ipswich, Somerset and Lockyer Valley areas. The councilowned business sells and delivers drinking water to customers and collects, transport and treats wastewater and sewage. Allconnex Water is the distribution and retail business for the Gold Coast, Logan and Redland areas. The council-owned business sells and delivers drinking water to customers and collects, transport and treats wastewater and sewage. South East Queensland households and businesses The diagram above represents the SEQ Water Grid supply chain at 30 June QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

12 The year in review Seqwater s planning and operation this reporting period has focused on the appropriate management and integration of both its natural and built assets to maximise fit-for-purpose water supply for South East Queensland. Seqwater s planning and operation this reporting period has focused on the appropriate management and integration of both its natural and built assets to ensure fit-for-purpose water supply for South East Queensland. The Seqwater WaterSecure merger on 1 July 2011 presented a range of opportunities to enhance our ability to provide an efficient and reliable water supply from both traditional and modern water sources. This has permeated all areas of the business, from operations through to our community education programs. Significant resources and energy were also directed into repairing our assets damaged by the January 2011 flood with all priority work finalised by 31 July We accepted ownership of Wyaralong Dam this financial year, the first dam to be constructed in South East Queensland in more than 20 years. This asset will provide water security to accommodate future population growth and extreme weather events. The Hinze Dam Stage 3 Upgrade was completed in December 2011 and the project met all regulatory obligations including increasing drinking water and flood mitigation capacity and improving dam safety during flood events. The upgrade significantly increased the capacity to 310,000 megalitres, making Hinze Dam the region s third largest drinking water storage. To offset the loss of native vegetation areas resulting from the upgrade, Seqwater acquired land to create a wildlife corridor connecting Springbrook and Lamington National Parks, ensuring safe access to conservation zones for native animals. A number of asset delivery milestones were reached this year including practical completion of the Banksia Beach Water Treatment Plant and borefields in February The Luggage Point Alliance and Western Pipeline Alliance were also granted Final Completion for their section of the Western Corridor Recycled Water Scheme. As part of our Dam Safety Upgrade Program, various projects have either commenced or are in the planning phase. This upgrade program will continue to be rolled out over the coming financial year to ensure ongoing dam safety and compliance with legislation. The year also saw the development of our Natural Asset Management Plans in partnership with our catchment communities to ensure a more consistent approach to managing the land around our key drinking water and irrigator storages. We committed substantial resources to implementing recommendations from the Queensland Floods Commission of Inquiry s interim and final reports. The Commission adopted many of the recommendations proposed by Seqwater in its submissions to the Inquiry. Many actions required by Seqwater have already been completed, including the introduction of an early warning system that notifies subscribed community members of dam releases. This system was operated effectively during the wet season. Over this period Seqwater sent 14,000 s, 26,000 SMS and almost 2500 voice messages advising of gate releases and spilling dams. An interim review of the Wivenhoe, Somerset and North Pine dams manual of operations was also completed and approved by the Dam Safety Regulator ahead of the wet season. We will continue to dedicate staff and resources to ensure the full achievement of all relevant recommendations to best prepare the region for any future major flood events. Achieving our goals We have developed a comprehensive strategic plan that clearly articulates the direction we need to take our business to achieve its vision of Water for LIFE water and catchments sustaining current and future generations. This plan provides guidance for us to meet the following long-term future challenges: Water supply efficiency Whole-of-system management Business sustainability Collaboration amongst the regional water grid entities and the wider community Population growth Business integration. 10 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

13 Four goals were identified that address our core business drivers and key performance indicators (KPIs) have been developed for each of these goals. We reviewed activity on a quarterly basis and measured it against these KPIs. Managed 42 Hazard Analysis and Critical Control Point (HACCP) plans and associated procedures to ensure the production of safe drinking water from our water treatment facilities for the South East Queensland community Key Performance Indicator Summary A summary of our performance against our goals follows. Goal 1 Water Supply, Quality and Security Regulators and customers have confidence and trust in the quality, security, efficiency and reliability of their water supply. Highlights Supplied more than 259,500 megalitres of treated drinking water to the SEQ Water Grid (including more than 3,400 megalitres of desalinated water) and more than 5,600 megalitres of purified recycled water to power stations Maintained compliance with the Australian Drinking Water Guidelines 2011 to provide safe drinking water to South East Queensland Completed more than 300,000 water quality tests to meet regulatory requirements and ensure community confidence Developed and implemented our Cyanobaterial Management Plan to manage the risk posed from cyanobacteria (blue-green algae) to recreational activities and to drinking water supplies Maintained compliance with the Recycled Water Management Plan for the Western Corridor Recycled Water Scheme, in order to maintain production of high quality water suitable for augmentation of drinking water supplies and other uses Managed 24 gated dam releases from Wivenhoe, Somerset, North Pine and Leslie Harrison dams during Developed Natural Asset Management Plans to be delivered in partnership with our catchment communities Initiated and developed business-wide engineering standards Completed full suite of risk assessments for our catchments including raw water quality management framework Structured maintenance programs completed and consistent across natural and built assets KPI Definition Measurement Annual Target Comments G1.1 Drinking water quality Extent of achievement of regulated water quality Number of material breaches at conventional water treatment and manufactured water plants of regulated water quality parameters [based on Australian Drinking Water Guidelines] 1 Compliance with Public Health Regulations for manufactured water 2 0 This target was met with all water treatment plants and the desalination plant achieving compliance with health and aesthetic parameters. G1.2 Recycled water quality Extent of achievement of regulated water quality 0 breaches This target was met with all purified recycled water complying with the required standards. 1 Based on the Grid Customer Confidence Report parameters. Includes Tugun desalination plant. 2 Refers to Bundamba, Luggage Point and Gibson Island Advanced Water Treatment Plants. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

14 The year in review KPI Definition Measurement Annual Target Comments G1.3 Water supply variable costs G1.4 Water supply fixed operating costs Variable costs per megalitre produced for each water supply source 3 Targets are the cumulative YTD result for the end of each quarter Variable costs are the direct costs of treating water. These costs include chemicals and energy. For manufactured water treatment plants the costs also include sludge and waste disposal Degree of accuracy with budget forecasts for total fixed operating expenses for each water supply source 3 Targets are the cumulative result for the end of each quarter and represent a YTD range of +/-10% The expenses include employee costs, water quality, monitoring and environmental expenses, repairs and maintenance and other operating expenses. Corporate overheads, interest and depreciation are not included in the fixed operating expenses $/ML Western Corridor Recycled Water Scheme $/ML Gold Coast Desalination Plant $/ML Catchment Sourced Drinking Water Variance analysis of total fixed operating expenses for Western Corridor Recycled Water Scheme ($000) Variance analysis of total fixed operating expenses for Gold Coast Desalination Plant ($000) Variance analysis of total fixed operating expenses for Catchment Sourced Drinking Water ($000) $502 This target was affected by production volumes being 60% less than budgeted volumes, impacting on energy costs. Due to these uncontrollable impacts this target is no longer a reliable indicator of performance. $678 This target was affected by production volumes being 62% less than budgeted volumes, impacting on chemical and energy costs. Due to these uncontrollable impacts this target is no longer a reliable indicator of performance. $64 This target was met when the uncontrollable impact of an increase in electricity prices is taken into account. Information regarding this price increase was not available at the time the budget was prepared. $22,000 - $26,900 $13,700 - $16,700 $67,400 - $82,400 This target was met with fixed operating costs 8% below budget, however this target is no longer a reliable indicator of performance given the uncontrollable impacts of decreased production volumes. This target was affected by lower than anticipated production volumes which affected costs. Due to these uncontrollable impacts this target is no longer a reliable indicator of performance. This target was met with operational expenditure within the budgeted range. 3 Quarterly updates will be considered as YTD interim reports. Compliance with this KPI will be measured over a 12 month period. 12 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

15 KPI Definition Measurement Annual Target Comments G1.5 Corporate overhead expenses Degree of accuracy with budget forecasts for total corporate overheads for each water source Variance analysis of corporate overheads allocated for Western Corridor Recycled Water Scheme Variance analysis of corporate overheads allocated for Gold Coast Desalination Plant Variance analysis of corporate overheads allocated for Catchment Sourced Drinking Water +/- 10% This target was met with allocated corporate overheads 9.6% below budget. This target was met with allocated corporate +/- 10% overheads 2% below budget at year end. This target was not met due in part to the full capitalisation of Hinze Dam extending beyond the forecast date of June 2011, +/- 10% This resulted in lower than budgeted depreciation and interest costs. A reduction in land tax costs also contributed to the variance. 4 This target was met noting there was one incident in the January quarter. This occurred at the Kilcoy Water Treatment Plant due to inadequate pump isolation procedures during maintenance activities. Investigation and remedial actions have since been carried out. G1.6 Water supply reliability Availability and reliability of our treatment assets Number of grid incidents declared by Seqwater that generates a supply failure 4 4 Excludes water quality incidents unless caused by asset failure, planned shutdowns and short duration supply failures that do not require downstream customers to source alternate supplies. Includes failures from chemical or parts unavailability and all other supply failures despite alternate water supply sources being available. Goal 2 Catchment and Water Cycle Sustainability Communities in our region gain the maximum sustainable value from their catchment and water cycle assets natural and built. Highlights Developed alternative operating scenarios and models for the Gold Coast Desalination Plant and Western Corridor Recycled Water Scheme (including decommissioning) to enhance water security and decrease costs Established first stage of economic framework for natural catchment investment Completed the connections process for new industrial customers to access water produced by the Western Corridor Recycled Water Scheme Accepted handover for operational control of Wyaralong and Hinze dams Completed all scheduled sub-regional planning for water treatment plants Completed full suite of Asset Management Plans for both natural and built assets Continued development and maturing of Asset Management Framework QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

16 The year in review Underwent the internationally recognised Aquamark process assessment sponsored by the Water Services Association of Australia (WSAA). Results demonstrated a 50 per cent improvement in the organisation s asset management processes since the last assessment in 2008 Hosted more than two million visitors across all recreation facilities Provided water education and site tour services to almost 19,000 people, including 27 international groups. The new Hinze Dam Interpretive Centre had approximately 35,000 visitors in the first two months of opening, with more than 65,000 visitors since November 2011 Continued provision of a community engagement program to support operations and infrastructure projects with more than 350 community contacts and meetings over the year, including the ongoing work of the Leslie Harrison Community Reference Group (CRG) and the Banksia Beach CRG Managed approximately 250 events at our recreation sites ranging from major charity events such as the Ride to Conquer Cancer, Oxfam Trailwalker and Kokoda Challenge, mountain biking events including the MTB QLD State Championships, birthday parties, weddings, cross-country running, endurance horse-riding, fishing competitions, rogaining, triathlons and water-ski racing Responded to more than 1,350 recreation enquiries through the recreation enquiry service Successfully managed new recreation facilities at Wyaralong Dam (Mt Joyce Recreation Park) which opened to the public in July 2011 and Hinze Dam, which re-opened in December 2011 As part of the Hinze Dam upgrade, acquired 264 hectares of land, creating a wildlife corridor that will ensure safe access to conservation zones for native animals Worked with Gold Coast City Council to use 50 hectares of land within the Numinbah Valley Conservation area for revegetation works, involving two-for-one replacement of five flora species of National Environmental Significance 2,000 trees and shrubs planted on 15 erosion remediation sites on both Seqwater land and private land in the Wivenhoe and Mid-Brisbane catchments 10,000 trees planted by Brisbane City Council 2 Million Trees Program on Seqwater land at Mt Crosby under a third draft agreement 1000 trees planted on two hectares of private land by Lake Baroon Catchment Care Group using Seqwater funding Flood Response Riparian Erosion Restoration also undertaken at around 20 sites in the Wivenhoe and mid-brisbane catchments on both Seqwater and private land Continued success in improving native vegetation and regeneration through our Weed Management Program, in particular: three hectares of smothering Broad Leaf Pepper trees were removed from North Pine Dam, resulting in visible native regeneration large numbers of Honey Locust were observed on the high water line around Wivenhoe Dam, following January 2011 floods. More than 2000 mature trees have since been treated, significantly reducing the available seed for future germination. the fight against Cabomba is ongoing with an integrated approach on the four infested dams involving five techniques. Research is ongoing into new methodology, in tandem with early detection and prevention programs to reduce the risk to both human safety and water quality. Continued success with lungfish and general fish recovery actions. Modifications to dam operations and ongoing maintenance, has reduced fish strandings substantially. Over the wet season, 12 fish rescues were conducted across gated dams with almost 95 per cent of all fish potentially impacted being rescued and returned to water unharmed. Planted approximately 165,000 trees, shrubs and seedlings as part of revegetation work, involving: Approximately 130,000 seedlings planted at Wyaralong Dam following construction of this new dam 20,000 trees planted under four new Nature Refuge Agreements with the Department of Energy and Water Supply (formerly DERM) and an Energex/Seqwater/ SEQ Catchments offset agreement Designed and implemented five research programs aligned with the strategic direction of the business, and reached the first year milestone of University of Queensland/Griffith University/Seqwater tri-party agreement Continued to support the Australian Water Recycling Centre of Excellence as host organisation 14 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

17 KPI Definition Measurement Annual Target Comments G2.1 Natural watershed and storage condition G2.2 Infrastructure condition and capability Natural watershed and storage condition and water quality assessed against an appropriate standard Assessment of treatment plant capability to achieve targeted performance Status of watershed condition and storage water quality 1 according to Seqwater Board approved scorecard *subject to unforeseen incidents % reduction in residual risks for high risk criteria across all WTPs. (includes conventional and manufactured WTPs) 10 watersheds and storages measured [by priority according to SEQ WGM Grid 12 ]. No decline in those indicators that are best practice managementbased 2 (e.g. land use). No decline in residual risk for catchmentbased water treatment plants. Establishment of baseline scorecard risk assessment for manufactured water assets and dam infrastructure, including targets for future years. The targets were met with data collection and compilation completed for 10 watersheds and storages. The targets were met. A thorough assessment has been undertaken on trending of the indicators for the eight watersheds and storages measured during These have shown no evidence of decline during This has established a strong baseline for subsequent reporting periods. The targets were met. During , the scorecard risk assessment process for catchmentbased conventional water treatment plants was completed for and periods. These demonstrated no increase in residual risk for those assets since the 2010 assessment. A baseline scorecard risk assessment has been completed for manufactured water assets and dam infrastructure including targets for future years. 1 All data for the storage indicators is collected and analysed annually while for the watershed indicators data are collected on 2-10 year timeframes with analyses based on annual updates, as available. Key to the analysis and generation of storage condition assessment scorecards is that for any indicator, only those sites with data for that indicator over at least six months contribute to the assessment of that indicator. 2 the Best Management Practice indicators that are being monitored are: Percent of grazing properties with property management plans; Percent of grazing properties with greater than 90% median long term ground cover; Percent of agricultural properties on 30% slope; Percent of woody and forestry vegetation areas under protection regime; Percent of sewered residential properties; relevant storage indicators. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

18 The year in review Goal 3 Critical Event Capability and Response Communities and businesses have confidence and trust in the readiness and resilience of people, processes and assets to cope with and respond to critical events. Highlights Developed and implemented early warning notification system to notify subscribed residents when flood releases are being made. Over this period Seqwater sent 14,000 s, 26,000 SMS and almost 2500 voice messages advising of gate releases and spilling dams. Managed and delivered a well-structured flood recovery program Committed significant resources to supporting the Queensland Floods Commission of Inquiry and implementing recommendations Established new Flood Operations Centre to manage rain events during the wet season The Luggage Point Alliance and Western Pipeline Alliance reached Final Completion as part of the Western Corridor Recycled Water Scheme Developed draft Readiness Plans for the Western Corridor Recycled Water Scheme and the Gold Coast Desalination Plant to ensure these assets are ready to operate when required Continued to enhance flood management and flood reporting through the revision of the Manual of Operations for Wivenhoe, Somerset and North Pine dams; the recruitment of additional flood engineers and flood officers; additional rain gauges in the catchment to enhance data collection; flood training and proactive management of risks to avoid escalation of incidents Establishment of a long-term study to optimise the flood operations of Wivenhoe, Somerset and North Pine dams Remediation works across five major sites and more than 40 minor sites A range of flood resilience projects for dams, weirs and watercourses Managed Wivenhoe Dam at a reduced Full Supply Level of 75 per cent for the wet season Implemented and used disaster recovery initiative Completed Business Continuity plans Received approval for the Emergency Response Plan KPI Definition Measurement Annual Target Comments G3.1 Critical event readiness State of readiness of systems, people and assets to respond to a range of critical events Availability and quality of the readiness plans and predictive models Initial report on analysis of recommendations from the Commission of Inquiry. Approved risk readiness plan for manufactured water assets. Review of current readiness status and predictive models. Recommendations on improvements and performance measures. This target was met. The majority of recommendations from the CoI have been implemented within prescribed timeframes, with the remainder in progress (further detail within this Annual Report). Final risk readiness plans for manufactured water assets are on track to be submitted by 30 September 2012 and Draft Plans were submitted by end March 2012 as per System Operating Plan (SOP) requirements. Completed implementation of a dual data centre model, coupled with a dual redundancy network to join all CBD locations, and a multi-linked network to remote and regional sites as part of ICT Disaster Recovery. Developed Business Continuity Policy, Manual and Plans. 16 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

19 KPI Definition Measurement Annual Target Comments G3.2 Operational resilience for critical events Assessment of the operational resilience model in response to non typical stress factors modelled (lead) and actual (lag) Outcomes of scenario testing of the resilience and review of response to real situations Initial report on analysis of recommendations from the Commission of Inquiry (Col). Stage 1 Resilience framework/model. Scenario testing plan and recommendations on performance measures. The majority of recommendations from the CoI have been implemented within prescribed timeframes, with the remainder in progress (further detail within this Annual Report). In the absence of the announcement of the bulk water industry restructure and the emphasis on rationalisation of resources, the resilience framework activities would have been continued in the June quarter and the annual target would have been met. Given this, the Resilience Framework target is no longer a reliable indicator of performance. Goal 4 Organisational Knowledge, Capability, Safety and Performance Seqwater staff and partners have the know-how and capability to efficiently and effectively deliver organisational outcomes. Highlights Introduced graduate and traineeship certification programs to address future skills shortage and maturing workforce Introduced the Walk in my shoes program to help increase skills base by giving staff the opportunity to work in different business areas for a day Hinze Dam Stage 3 Upgrade consultation program named winner of the Marketing & Communications category of the 2012 International Water Association Project Innovation Awards (PIA), Asia Pacific Regional Awards. Virtual tour suite of programs named Honour Awardee for the same category Fit 4 Work (drug and alcohol) initiative launched with 150 tests taken, recording no positive results Partnered with Registered Training Organisations to develop and deliver Certificates II, III and IV in Water Industry Operations to form an integrated development pathway for our operators Held the inaugural School Summer Safety Day at Wivenhoe Dam attended by more than 550 people in partnership with various organisations including Lifesaving Queensland, Hannah s Foundation, Commission for Children and local council Recorded improved stream line (organisational survey) results with best participation rate to date of 85.4 per cent. This ranks Seqwater above the industry and national average. Results also showed Seqwater s organisational climate to be above average, with 11 out of our 12 leadership indicators now above the Australian average while all 12 of our climate indicators are now above the Australian average, some significantly so Launched 25+ Club as part of LIFE values to recognise staff with 25 years or more service to Seqwater. 53 staff members were inducted into the club, with a combined 1645 years of experience between them Developed engineering team and capability for the newly established Technical Warranty and Development group Developed and delivered the Water s Edge Adaptive Leadership Development Program for over 80 leaders as part of professional development program Developed the new strategic plan for to to reflect new business opportunities arising from natural and built assets Celebrated Mt Crosby s East Bank Pumping Station 120 year anniversary Commenced work to support professional development towards staff gaining Registered Professional Engineers of Queensland (RPEQ) and Chartered Professional Engineers (CPEng) accreditation QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

20 The year in review Redeveloped and launched intranet The Spring as a more efficient and engaging communication tool for staff Monthly Operational Report launched and made available to all staff to ensure communication of business progress Developed records management framework in preparation for implementation of electronic document and records management system (edrms) Launch and implementation of the Seqwater diversity policy focusing on the recruitment of employees from indigenous backgrounds and/or those with disabilities KPI Definition Measurement Annual Target Comments G4.1 Organisational capability and safety Annual audit Framework option assessment. Assessment of Seqwater s status against a recognised capability framework and measures Extent to which staff are engaged and informed Employee Availability Implementation of framework pilot. This target was met. The Process Capability Assessment [PCA] pilots for the Organisational Development Group, Business Services and Technical Warranty and Development Group have been successfully completed. Stage 2 of the Aquamark Asset Management Framework (AMF) performance improvement project was completed. 95% This target was met with an average of 96.76% for the year. Retention Rate 90% This target was met with an average of 97.14% for the year. Extent to which staff are contributing to a safe and productive work environment Streamline results Streamline results about organisational direction and integration Streamline results about staff satisfaction with safety Increased usage of intranet Improvement against baseline. Baseline established for organisational direction and integration. Improvement against baseline for streamline survey. Improvement against baseline usage. This target was met with improved participation rates and results. Further information contained within this annual report. This target was met with a baseline measurement established for organisational direction with the inclusion of new questions relating to the clarity, confidence and understanding of staff about Seqwater s future direction and goals. This target was met with improved results in the safety indicator putting Seqwater significantly above the Australian average in the survey company s database. This target was met. Average page views per day have almost doubled from the baseline data since the intranet s launch. 18 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

21 KPI Definition Measurement Annual Target Comments G4.1 Organisational capability and safety LTIFR [Lost Time Injury Frequency Rates] 5 Extent to which staff are contributing to a safe and productive work environment Lost Time Injury [LTIs] Number of WHS hazards identified and recorded in Seqwater WHS information system All WHS incidents (Accidents and Near misses) are reported as per the Seqwater Accidents/ Incidents Notification Procedure requirements Percentage of worksite WHS inspections conducted as per the schedule 5 1 Continuing activities to establish LTIFR baseline for Seqwater based on new WSAA guidelines. This target was slightly exceeded with an annual result of 6, however it should be noted this rate decreased over the year with no LTIs in the March quarter. Seqwater s injury management is now rated amongst the best of the Queensland water industry with the organisation s performance almost 60 per cent under the industry benchmark for monthly claim costs. 0 Seqwater adopts a conservative view of safety and believes no injuries are acceptable. There were 5 LTIs in this financial period but it should be noted no LTIs were reported for the March quarter This target was met with 1009 hazards identified and recorded in the financial year. 95% This target was met with 97.6% of WHS incidents recorded as per procedure requirements. 85% This target was met with 94.6% inspections conducted as per the schedule. 1. The reported data for each quarter will have a one month lag. The data for each quarter will be based on the following months June August [September], September November [December], December February [March], March May [June]. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

22 The year in review KPI Definition Measurement Annual Target Comments G4.1 Organisational capability and safety Extent to which staff are contributing to a safe and productive work environment Seqwater staff attend statutory WHS training as necessary. Statutory training is WH&S training specifically identified and required by legislation; e.g. Confined Spaces 100% This target was met noting the following results from the end of year training audit: staff who had not completed training in the September, December and March quarters completed the required statutory training by the end of the June quarter and, pending completion of that training, those staff members did not undertake duties for which relevant training had not been completed; Extent to which staff are skilled Extent to which sustainability is embedded in the business Learning and Development needs are identified in MAP and implemented as per a negotiated training schedule Number of completed actions in plans supporting business sustainability for the 12 month period of the Operational Plan only one staff member had not completed the annual statutory WH&S training due to being on sick leave at the scheduled training time (and as noted above there are no operational or safety exposures resulting from this). 85% This target was on track to be met however due to restrictions placed on travel and expenditure some programs that required interstate travel were cancelled in the last quarter. The overall result achieved was 75%, noting this would have been 95% except for these cancellations. Due to these uncontrollable impacts, this KPI target is no longer a reliable indicator of performance. 100% This target was on track to be met with business sustainability projects generally on schedule however the scope of a number of initiatives has been reduced due to pending industry restructure and restrictions on recruitment and contract resource acquisition. Due to these uncontrollable impacts, this KPI target is no longer a reliable indicator of performance. 20 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

23 KPI Definition Measurement Annual Target Comments G4.2 Financial performance Return on Assets (EBIT/Total Assets) Return on Assets (EBIT/Total Assets) 4% This target has been met and exceeded with an annual return on assets of 4.09%. Net Margin (EBIT/Total Revenue) Net Margin (EBIT/Total Revenue) 39% This target has been met. G4.3 Budget achievement for fixed costs Degree of accuracy with budget forecasts + / - % variance analysis + / - 10 % This target was substantially met with fixed costs slightly under budget by 12% at the end of the financial year. This is due mainly to reprioritised projects which were originally included in the budget for immediate expenditure. G4.4 Business efficiency Development of measure for business efficiency and productivity Measure and targets defined for implementation in Measure and targets defined This target has been met and an Economic Value KPI with corresponding measures and targets has been developed and included in the Strategic Plan to Financial summary for Looking forward Total revenue $690.8 million Net loss (before tax) $64.5 million Net loss (after tax) $46.9 million Key financial ratios Return on assets (before tax) -0.99% Return on assets (after tax) -0.72% Interest coverage 0.81 times Debt/total assets 77% The State Government announced in June 2012 that Seqwater will merge with Linkwater and parts of the SEQ Water Grid Manager in a restructure of the water industry in South East Queensland. This single organisation will provide a streamlined approach to managing bulk water supply and catchments across the region. We look forward to meeting the opportunities and challenges the new entity will bring. Seqwater will work with its partner organisations to ensure a successful transition while continuing to provide a climateresilient water supply, safely and sustainably for South East Queensland. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

24 GOVERNANCE GOVERNANCE Seqwater is a statutory authority and was created under the South East Queensland Water (Restructuring) Act Legislative and policy requirements We have complied with all legislative and policy requirements in the preparation and publication of this annual report. These include the: Financial Accountability Act 2009 Financial and Performance Management Standard 2009 Public Sector Ethics Act 1994 Responsible ministers The Queensland Government has appointed two ministers to act as responsible for our organisation. The Hon. Tim Nicholls MP Treasurer and Minister for Trade The Hon. Mark McArdle MP Minister for Energy and Water Supply In line with these ministerial responsibilities we have corresponding relationships with Queensland Treasury and the Department of Energy and Water Supply. These relationships cover reporting, oversight and the regulation of our catchment, storage and water treatment and manufactured water business activities. We also have regulatory relationships with Queensland Health, Office of the Water Supply Regulator, Office of the Dam Safety Regulator and relevant departments in regards to the delivery of major water projects. South East Queensland Water (Restructuring) Act 2007 State Water Authorities Governance Framework Public Interest Disclosure Act 2010 Related entities In June 2012, Seqwater applied to the Australian Securities and Investments Commission for voluntary deregistration of its nonoperating subsidiary South East Queensland Water Corporation Pty Ltd. ASIC will complete formalities for deregistration early in the next financial year. Organisational structure Our leadership structure for is outlined below. Board Chief Executive Officer Executive General Manager Water Delivery Executive General Manager Asset Delivery Executive General Manager Technical Warranty and Development Executive General Manager Business Services Executive General Manager Organisational Development Each Executive General Manager leads a distinct business group: Water Delivery The Water Delivery group is responsible for managing and operating all dams, water treatment plant assets, infrastructure maintenance delivery, land and water quality, monitoring and catchment support services such as recreation. 22 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

25 Asset Delivery The Asset Delivery group is responsible for delivery of asset management services for the catchment-based asset portfolio. This includes asset policy, asset strategy, portfolio planning (both natural and built), infrastructure asset planning, the Capital Works Program, and managing delivery of the Annual Asset Investment Plan. Business Services The Business Services group is responsible for finance and procurement, information technology, compliance and governance services, risk management, economic regulation and pricing, legal services, records management and property and facilities management. Organisational Development The Organisational Development group is responsible for organisational and culture change, strategic relations and communications, employee relations, enterprise bargaining, organisational design, leadership development and team building functions, learning and development, business process improvement and workplace health and safety. Technical Warranty and Development Technical Warranty and Development is responsible for managing the integration of drought-resilient manufactured water assets and processes into Seqwater and ensuring that the infrastructure is in a constant state of readiness to respond to the needs of the region. The group is also responsible for delivering research, science and technology outcomes for improved catchment and water cycle management. Executive Leadership Team The following executives comprised the Executive Leadership Team (ELT) for : Peter Borrows, Chief Executive Officer Peter is our first Chief Executive Officer and prior to this was the Chief Executive Officer of SEQWater Corporation. Peter has held other senior roles including head of the engineering departments at Brisbane and Ipswich city councils. Jim Pruss, Executive General Manager, Water Delivery Jim has previously led both the former Operations and Sustainable Water and Asset Delivery groups within our organisation.he was formerly with the Redland Shire Council where he was General Manager Water and Waste. Alex Fisher, Executive General Manager, Asset Delivery Alex brings extensive knowledge and leadership experience across several industry areas including water, construction and engineering services. She previously worked as the Executive Director, Government Development Projects within the Department of Infrastructure and Planning. Bill Andrew, Executive General Manager, Organisational Development Bill has more than 20 years experience in organisational and cultural change and strategic planning. Prior to joining Seqwater, Bill was General Manager Organisational Development for CS Energy, and before that, General Manager Organisational Development for CSIRO (Division of Sustainable Ecosystems). Bill has also worked with a range of public and private sector companies throughout Australia and New Zealand in a consulting capacity, including BHP Billiton, Brisbane City Council, Bougainville Copper, ANZ Bank, Taronga North and CSIRO. Sam Romano, Executive General Manager Business Services Sam was previously WaterSecure s Acting Chief Executive Officer, and prior to that Chief Financial Officer. Having more than 20 years experience in the finance and accounting sector, Sam has worked in large private and public organisations. Cedric Robillot, Executive General Manager Technical Warranty and Development Cedric has extensive experience in water research, intellectual property and technology. He was previously WaterSecure s Chief Technical Officer and Acting Chief Operating Officer. Prior to joining WaterSecure, he worked for 10 years in the biomedical field, co-founding a biotechnology company where he provided technology leadership in the development of new diagnostic platforms and managed the intellectual property portfolio. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

26 GOVERNANCE Phil Hennessy Leeanne Kay Bond Leith Boully Thomas Fenwick The Seqwater Board Our board for comprised a Chairman and six board members appointed by the responsible ministers. The Board is committed to providing effective governance and strategic direction to ensure our long-term success. In line with the provisions of the South East Queensland Water (Restructuring) Act 2007 Board members are appointed for a period of three years. Board members are also directors of Seqwater s three subsidiary entities South East Queensland Water Corporation Pty Ltd, South East Queensland (Gold Coast) Desalination Company Pty Ltd and Western Corridor Recycled Water Pty Ltd. In June 2012, Seqwater applied to the Australian Securities and Investments Commission for voluntary deregistration of its non-operating subsidiary South East Queensland Water Corporation Pty Ltd. ASIC will complete formalities for deregistration early in the next financial year. Seqwater is also the sole member of the not-for-profit company, Australian Water Recycling Centre of Excellence Limited, and four Seqwater board members Leith Boully, Leeanne Bond, David McDougall and Scott Standen serve as directors of that entity. Phil Hennessy BBus (Accountancy), FCA Phil was appointed as Chairman of the Board of Seqwater on 1 October His professional expertise is focused on corporate reconstruction, where he has experience across a wide range of market sectors and has undertaken numerous restructuring related assignments and viability reviews for lenders, creditors and other stakeholders. He has been involved in many of Queensland s largest and high-profile insolvencies. Phil is a Director of South East Queensland Water Corporation Pty Ltd, South East Queensland (Gold Coast) Desalination Company Pty Ltd and Western Corridor Recycled Water Pty Ltd. He is the Queensland Chairman of KPMG. Phil is Chair of the Mater Hospital Foundation, Director of Starlight Children s Foundation and Chair of the Premier of Queensland Export Awards Judging Panel. He is also a Member of the Infrastructure Australia Advisory Council and a Member of the Senate of the University of Queensland. Leeanne Kay Bond GAICD, BE (Chem), MBA, FIE Aust., RPEQ Appointed as a Member of the Board on 4 February 2008, Leeanne is a chemical engineer with experience in business management, projects, design and proposals for a number of international engineering and project management organisations on projects across the hydrocarbons, minerals processing, infrastructure, water and power industry sectors. She consults to industry through her company Breakthrough Energy Pty Ltd. Leeanne is currently a Director of South East Queensland Water Corporation Pty Ltd, South East Queensland (Gold Coast) Desalination Company Pty Ltd, Western Corridor Recycled Water Pty Ltd, Australian Water Recycling Centre of Excellence Ltd, Liquefied Natural Gas Ltd and Coffey International Limited. She is also a director of the not-for-profit Gem and Jewellery Institute of Australasia Limited. Leanne has previously served as a Director of Tarong Energy Corporation Limited, as Chairperson of the Brisbane Water Advisory Board for the Brisbane City Council, Deputy Chairperson of the Board of Professional Engineers in Queensland and President of Engineers Australia (Queensland Division). Leith Boully BRuSci, Dip.Bus.Stud, FAICD, FAIM, FIAMA Appointed as a Member of the Board on 1 October 2009, Leith has 20 years experience at local, state and national levels in natural resource management, particularly water. Leith is a Director of South East Queensland Water Corporation Pty Ltd, South East Queensland (Gold Coast) Desalination Company Pty Ltd and Western Corridor Recycled Water Pty Ltd. She is Chair of the Australian Water Recycling Centre of Excellence Ltd, Wide Bay Water Corporation, Healthy Waterways Ltd, the Great Barrier Reef Marine Park Authority s Catchment and Coastal Development Reef Advisory Committee, Brisbane Riverprize National Panel, Glennie School Council and Boully Pastoral Co Pty Ltd. 24 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

27 Ian Fraser David McDougall Scott Standen She is also a Board Member of Infrastructure Queensland, Murrumbidgee Irrigation Limited and Queensland State Rural Leasehold Land Ministerial Advisory Council. Leith is an Adjunct Professor, School of Agriculture and Food Sciences, University of Queensland and was a founding member of the Wentworth Group of Concerned Scientists. Thomas David Fenwick BE (Hons), FIE Aust. Appointed as a Member of the Board on 4 February 2008, Thomas is a Director of South East Queensland Water Corporation Pty Ltd, South East Queensland (Gold Coast) Desalination Company Pty Ltd and Western Corridor Recycled Water Pty Ltd. He was a Director of the former company, Queensland Water Infrastructure Pty Ltd and was a Member of the Dispute Resolution Board for the Gateway Motorway Upgrade. He is also Managing Director of a private company. Thomas is a former Director-General of the Queensland Department of Natural Resources, and the Department of Primary Industries. Among his past appointments he has been a Commissioner for Queensland on the Murray Darling Basin Commission. Ian Harley Fraser BComm., FCA, FAICD Appointed as a Member of the Board on 4 February 2008, Ian has over 40 years business experience, particularly as a senior audit and corporate advisory partner of KPMG. He retired on 30 June 2004 after 27 years as a partner. Ian is a Director of South East Queensland Water Corporation Pty Ltd, South East Queensland (Gold Coast) Desalination Company Pty Ltd, Western Corridor Recycled Water Pty Ltd and Wilson HTM Investment Group Ltd. Ian is a member of the Queensland Institute of Medical Research Finance and Audit Committee and Investment Committee. David McDougall BEcon, MBA, Affiliate ICAA David was appointed as a Member of the Board on 1 July 2011, following the Seqwater-WaterSecure merger. David has more than 30 years experience in project and structured finance, mergers and acquisitions, valuations, capital raising and providing strategic advice to governments and corporations. David retired as a partner of KPMG in David s work as a Partner of KPMG and a Director of a major Australian investment bank has assisted in skilling him in the areas of domestic and international corporate finance, strategy and organisational structuring. With a Masters of Business Administration, David has experience across a range of industries including natural resources, transport, utilities, telecommunications, property, tourism and leisure. David s significant experience in the natural resources sector includes work for SA Water, CS Energy, Tarong Energy, and Singapore Power. He is a Director of South East Queensland Water Corporation Pty Ltd, South East Queensland (Gold Coast) Desalination Company Pty Ltd, Western Corridor Recycled Water Pty Ltd and Australian Water Recycling Centre of Excellence Ltd. David is also a Director of the not-for-profit Teen Challenge Care (Qld) Inc. Scott Standen LLB, LLM, MBA Scott was appointed as a Member of the Board on 1 July 2011, following the Seqwater-WaterSecure merger. Scott is a corporate lawyer of over 20 years experience. Scott is a Director of South East Queensland Water Corporation Pty Ltd, South East Queensland (Gold Coast) Desalination Company Pty Ltd, Western Corridor Recycled Water Pty Ltd and Australian Water Recycling Centre of Excellence Ltd. He is a director of GRT Lawyers, a specialist corporate legal practice in the resources and technology industries. He practises exclusively in corporate law, including capital markets, mergers and acquisitions and corporate governance. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

28 GOVERNANCE Board role The Board is responsible for the way we perform our functions and exercise our powers under the South East Queensland Water (Restructuring) Act The Board s role includes: setting the strategy and direction for our organisation, as well providing the governance framework for the organisation through the endorsement of financial, administrative and operational policies ensuring we perform our functions and exercise our powers in a proper, effective and efficient way ensuring strategic and operational planning objectives are, as far as practicable, achieved being accountable to the responsible ministers for our performance reviewing the annual performance of the Chief Executive Officer. Board committees To assist in fulfilling its duties the Board has two committees the Audit Committee and the Major Projects Taskforce. Each committee has a formal charter that sets out committee roles, responsibilities and authority. Minutes of all meetings are provided at Board meetings. Audit Committee The Audit Committee assists the Board to: assess and contribute to the audit planning processes, taking into account the financial and operational environment in which it operates and its performance management framework assess, oversee and enhance our corporate governance, including our systems of internal control As at 30 June 2012 the Committee members were: Mr Ian Fraser, Audit Committee Chairman Mr Phil Hennessy Mr Tom Fenwick Ms Leith Boully Mr Scott Standen All Board members receive Committee papers and are invited to attend Committee meetings. The Audit Committee has observed the terms of its charter and operates in alignment with the Queensland Treasury s Audit Committee Guidelines. Major Projects Taskforce The Major Projects Taskforce provides strategic advice to the Board regarding the implementation of our major projects, work programs and strategies. In doing this, the Taskforce: reviews and recommends to the Board the rationale and principles for the prioritisation of the Annual Asset Investment Plan and Capital Works Program monitors the progress of and identifies risks (and risk mitigation strategies) to the successful implementation of our major projects reviews and recommends to the Board the rationale and principles for the work programs and strategies being undertaken pursuant to the Strategic Plan. As at 30 June 2012, the Major Projects Taskforce committee members were: Mr Tom Fenwick, Chairman Ms Leeanne Bond Ms Leith Boully Mr David McDougall review our financial statements and oversee the external audit of these statements evaluate the quality and facilitate the practical discharge of the internal audit function particularly in the areas of planning, monitoring and reporting oversee the actioning of external audit recommendations oversee and appraise our financial and operational reporting processes. 26 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

29 Board attendance Our board met on 18 occasions throughout the year. The number of meetings attended by each Board member, along with meeting and attendance details of the Audit Committee and the Major Projects Taskforce, is outlined in the following table. Board and Committee Meetings Board Member Board meetings Audit Committee meetings Major Projects Taskforce meetings Held Attended Held Attended Held Attended P Hennessy not member L Bond not member 4 4 I Fraser not member T Fenwick L Boully D McDougall not member 4 3 S Standen not member Board remuneration Board members are paid for their participation on our Board, Committees and Taskforces. Board members are not remunerated for their role as directors of Seqwater s subsidiaries or for their role as directors of the Australian Water Recycling Centre of Excellence Ltd. Remuneration is as nominated by our responsible ministers and outlined in the following table. Role Per annum Chairman of the Board $100,000 Board members $45,000 Audit Committee Chair $7,623 Audit Committee members $4,356 Taskforce Chair $5,445 Taskforce members $4,356 We also make employers contributions to Board members nominated superannuation funds and reimburse travel expenses for Board member travel to and from meetings. For Board members located outside Brisbane, overnight accommodation is arranged, when required, for meeting attendance. Further details about the remuneration for each Board member can be found within the notes to the financial statements. Board performance evaluation In late 2011, the Board commissioned Directors Australia Pty Ltd to conduct an independent and objective Board performance evaluation. The evaluation included a survey of Board members, review of Board governance documentation and interviews with Board members and executive management. The results of the evaluation were positive and confirmed that: the Board is performing well; and there is a sound governance framework in place which is overseen by a Board comprised of a diverse set of professionals who collectively bring a broad level of skills, experience and networks to the Board and wider organisation. The report made several recommendations for improvement of various governance documents and these recommendations have either been completed or are in the process of being completed. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

30 GOVERNANCE Organisational review From 1 July 2011, following a decision made by the then Queensland Government, Seqwater and WaterSecure merged. This merger created a single source bulk water provider for South East Queensland and a substantial amount of work has continued post-merger on integrating systems, including the updating of policies and procedures to reflect the expanded business. Compliance Our dedicated compliance function is responsible for rolling out a Compliance Program that observes, and implements, the Australian Standard AS Compliance Programs. During , our Compliance Program built on the completion of the identification and assessment of compliance obligations across all of our functions. The program, a key Governance Framework component, continued to review the adequacy of our compliance systems and controls, monitor and report on those controls and review the effectiveness of the overall Compliance Program. The compliance function is part of the Business Services group and reports regularly to senior management, the Chief Executive Officer, the Audit Committee and the Board. In , we have undertaken a range of compliance activities including: a program refresh and health check to ensure the program continues to develop in adherence with the Australian Standard providing assistance and regular updates of new and changing compliance obligations reviewing, providing assistance and reporting on key compliance risks across the business. During , our focus will be on the full integration of compliance into our business process to ensure operational areas have a strong awareness of our compliance obligations and that current and developing systems, processes and controls align with compliance requirements. Risk management Risk management continues to be an important part of Seqwater s governance and has seen us evolve and improve our enterprise risk management framework. The framework ensures risks are appropriately identified, assessed, mitigated and monitored and aligns with the business s policies and structures. Risk management is used to ensure that we understand our strategic, corporate and operational risks, having regard to short and long-term goals and to ensure these risks are consistently managed. Risks are captured and grouped into the following categories: Strategic risks are identified as part of the strategic planning process and are focused on the strategic values and goals. These risks tend to be long-term in nature and impact on the future direction of Seqwater Corporate risks are focused on risks that impact the whole of the business, are financial and non-financial in nature and impact the whole of Seqwater s operating environment Group and Team risks are focused on each specific operating environment, are operational in nature and do not directly impact on other groups operating objectives Site risks are specific to dams and water treatment plants taking into account health and safety, water quality and water quantity Project risks are short-term in nature; these risks are specially focused on project delivery risks. This whole of business approach allows Seqwater to consider all risks that can materially impact all facets of our operations. Each group applies the enterprise risk management framework when carrying out risk assessments at corporate and operational levels. The underlying principle of the framework is that prime responsibility for controlling and mitigating risks on a day-to-day basis lies with the relevant management of each operational area. Under this approach, line managers play a key role in identifying and assessing the risks associated with their business, including the development and monitoring of mitigating controls. This ensures that all staff play an important role in the identification and reporting of risks, promoting an active risk management culture. Internal audit Seqwater s internal audit function is designed to add value and improve the organisation s operations by providing independent and objective assurance and advice for continuous improvement. It assists the organisation in meeting its objectives through a systematic and disciplined approach to evaluating and improving the effectiveness of risk management, control and governance processes. 28 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

31 An Internal Audit Charter has been developed to define objectives and set out the purpose of the internal audit function including authority, responsibilities and objectives. The charter is approved by the Board and the Audit Committee and has been prepared in accordance with the requirements of the Financial Accountability Act The scope of work under the Internal Audit Charter includes ensuring risks are appropriately identified and managed and that resources are acquired economically, used efficiently and adequately protected. Responsibilities of the internal audit function include developing and implementing a flexible annual audit plan using appropriate risk-based methodology. The scope of work is aligned with the organisation s strategic plan and takes into consideration Queensland Treasury s Audit Committee Guidelines. Internal audit is an advisory function, having an independent status within Seqwater. Internal audit derives its independence from the Audit Committee to which it has unrestricted access. Review and examination of internal audit outcomes are undertaken to identify opportunities for improvement and to be kept informed of future requirements. The size and frequency of the audits depend on factors such as effectiveness of controls and organisational risks. Activities conducted during include audits completed on Information Technology, Business Continuity Plans, Compliance, Fraud and Procurement. Workforce planning and retention This financial year has continued to represent a period of both change and consolidation. Following the Seqwater- WaterSecure merger, and the Queensland Floods Commission of Inquiry final report, our key workforce planning and retention objective has been integrating the businesses and providing clarity and support to staff, while ensuring critical skills are maintained to meet the organisation s operational and legislative requirements. Ongoing recruitment activity saw us finish the year with full time equivalent employees. This was within workforce planning objectives and budget, which allowed for a maximum Full Time Equivalent (FTE) of Workforce Profile Permanent retention rate 89% Permanent separation rate 12.4% In 2010, we established and implemented the Workforce Plan, which was designed to match our workforce to our organisation s current and future business needs. In further work will be conducted on improving the Workforce Plan as it is a crucial risk mitigation strategy. Our biggest immediate workforce planning challenge is with retirement age employees within the Water Delivery group. With over 40 per cent of the group s workforce aged 50 years or over, there are significant knowledge retention risks associated with the impending retirement of staff in the group. We have been investigating methods to retain the skills and knowledge held by older, experienced workers and to ensure that Seqwater s employees can manage their transition to retirement. Phased retirement options are a useful workforce planning and retention initiative, enabling managers to retain matureage employees who have significant talent, knowledge, skills and experience and who may otherwise decide to leave the workplace. It also provides these employees with the capacity to better balance work and other life challenges. It is anticipated that the phased retirement initiative will be implemented in the latter half of In line with our Strategic Plan and to address a potential skill shortage as identified through workforce planning, the Seqwater Graduate and Trainee Programs were launched in January The programs were established to deliver our organisational goal of attracting and developing skilled and committed people to our business. The Trainee Program was implemented in the Water Delivery group with the specific purpose of establishing a pool of skilled operational staff that are job ready to back fill positions where a retirement or resignation occurs. As part of the program the trainees complete a Certificate II level qualification relevant to operations. The Graduate Program was specifically limited to engineering graduates, as workforce planning indicated that the business would experience a shortage in this critical skill area in coming years. Seqwater will be monitoring the programs and the development of the trainees and graduates throughout 2012 to assess the success and value of the programs. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

32 GOVERNANCE A succession planning process has been developed to identify and prepare capable employees to undertake critical roles as they become available through implementing a number of strategies to capture and transfer knowledge. By creating a supply of suitable employees to fill identified key positions, we are addressing the impact of staff turnover including retirements and providing existing staff with career opportunities and professional development, a key factor in staff retention. Efficient and effective achievement of Seqwater s purpose and goals depends on the capabilities of our employees. The development of business-critical behaviours, attitudes and capabilities is therefore essential for organisational performance and requires a systematic approach to the identification of learning and development needs and the provision of appropriate opportunities to address these needs. For these reasons, Seqwater has designed a learning framework to facilitate the optimisation of its people capability. The framework will identify the learning and development needs and enabling requirements for each role to inform the establishment of employee development plans. Implementation of the framework has commenced and will continue in Leadership development has also been a priority in with Seqwater providing a structured Leadership Development Program for over 80 leaders. This adaptive leadership program blended transactional and transformational learning to provide leaders with improved knowledge and leadership skills through opportunities for reflection and learning from experiences. The program focused on the core concepts of purpose, systems, authority, accountability, role, change, coaching and feedback. In addition, we have established a development pathway that includes a wide variety of on-the-job learning opportunities complemented by formal qualifications such as Certificates II, III and IV and a Diploma in Water Industry Operations. This pathway and associated learning programs will up-skill our current operations staff and equip them with the skills required to effectively and efficiently operate our assets. As well as supporting the development of our staff, we are committed to improving the culture and quality of the work environment. We demonstrate this commitment through our annual organisational improvement process and staff survey called stream line. Established in 2010, the stream line process represents an important opportunity for our staff to have their say about improving the way we work in Seqwater. In our 2012 survey, we achieved a survey response rate of 85.4 percent our highest response rate to date. We are proud that Seqwater has scored above the Australian average in the external survey company s database on all 12 of the work climate indicators and on 11 of the 12 leadership indicators. Seqwater is committed to continuous improvement and as a result, our leaders and teams are responding to their survey feedback by developing and implementing plans for further improvement. Industrial/Employee Relations Framework We strive to have an open, consultative approach with staff, particularly when implementing any workplace changes. This includes resolving all issues through appropriate consultative mechanisms. A Joint Consultative Committee meets regularly, which includes union and management representation. We consult with staff, principal unions, Queensland Treasury, the Department of Energy and Water Supply, the Public Service Commission and other SEQ Water Grid participants on key employee and industrial relations matters. The current Seqwater Enterprise Bargaining Agreement expired as at 30 June The State Government Departments Certified Agreement 2009 which covers former WaterSecure staff is due to expire on 31 July As at 30 June 2012 we are working on finalising the replacement agreements for all affected staff. Workplace Health and Safety We are committed to establishing and maintaining a safe working environment. All our policies place priority on the safety and welfare of our staff. These policies include Occupational Health and Safety, Risk Management and Rehabilitation. Our Be Healthy, Be Wealthy program continued during , with workplace health checks, a flu vaccination program, skin checks, and various health and wellbeing awareness programs. Comparison across the 2009 to 2012 data showed substantial improvements in a range of areas including weight loss in individuals, improvements in cholesterol, blood pressure, physical activity and nutrition. In addition the Fit4Work program was launched in 2011 with the provision of training on fatigue and stress management and alcohol and other drugs, the rollout of a voluntary alcohol and other drugs self-testing program, mandatory random alcohol and other drugs testing and corporate safety Fit4Work procedures. Fit4Work is about coming to work in a physically, mentally and emotionally fit state through managing the workplace health and safety issues of stress and fatigue and alcohol and other drugs. 30 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

33 To date, 150 staff, contractors and visitors across 22 sites have been randomly tested for alcohol and other drugs with no positive test results returned. Seqwater has been nominated by WorkCover for a Q-Comp Return to Work Award for rehabilitation and return-to-work performance. Our final return-to-work rate for workplace injuries is 100 per cent and we are committed and proactive in the rehabilitation of our injured staff with an average of 4.5 days for a first return-to-work for lost time injuries, compared to the water industry average of 23 days. Workplace Health and Safety Committees representing all work areas continue to operate and provide valuable feedback on occupational health and safety issues for staff. Details of performance against key indicators are provided monthly to the Board including lost time injury frequency rates, medical treatment injuries, minor injuries, and near miss incidents. Reporting also includes the proactive workplace health and safety programs being undertaken within our organisation. In August 2011 a safety management system accreditation audit was conducted for Margaret St. The areas assessed during the audit were found to be generally effective and Margaret St was granted Safety Management System certification to AS/NZ Ongoing surveillance audits will be periodically conducted to verify continuous effectiveness of the management system. Safety has now been incorporated into Seqwater s procurement processes through a robust tender evaluation process. In partnership with Seqwater s Workplace Health and Safety team, tenderers workplace health and safety performance is reviewed and evaluated in order to ensure that contractors will be compliant with legislative and Seqwater requirements. The new Maintenance and Minor Works Panel now have the Permit to Work included in the contract performance review and this will be monitored through the Supplier Portal once it comes online. We have reviewed our Permit To Work process, a documented permit system used to control high risk works being undertaken on Seqwater sites. This system assigns specific responsibilities to people undertaking these type of activities to ensure that they are suitably supervised and that tasks are performed by competent workers, as well as alert others to the fact that such work is being performed. Seqwater will implement an improved system of works control called Site Access and Works Control (SAWCS) in the coming months, a system which has been in development for about the last 18 months and will result in considerably better safety outcomes due to its simplicity and rigour. Conduct and ethics We have adopted a Code of Conduct that affirms the organisation s commitment to high standards of integrity, professionalism and accountability. The Code is based on the Public Sector Ethics Act 1994 principles contained in clause 4(2) which are: integrity and impartiality promoting the public good commitment to the system of governance accountability and transparency. The Code of Conduct guides the standards of behaviour expected of all staff as well as contractors and consultants engaged by our organisation. All employees, contractors and consultants have access to the Code of Conduct, which is available on our intranet and at all established work sites. All employees and consultants engaged for three months or more are required to attend a half-day induction session. During the induction, time is allocated for discussion and understanding of the Code of Conduct. All employees, contractors and consultants are required to answer a questionnaire and complete an Acknowledgement Form to confirm they have read and understand the Code of Conduct. The Code of Conduct is supported by our four Water for LIFE organisational values: Leadership, Integrity, Future, Excellence. An initiative to support the integration of these values within the organisation has been the establishment of an award scheme, which recognises staff who demonstrate the values in an outstanding way as part of their work. All staff are invited to nominate individual staff members or a whole team for the annual Water For LIFE Values Award to recognise and reward outstanding commitment to the Seqwater Water for LIFE values. To reinforce the importance of safety in the workplace, Seqwater will incorporate the Safe for LIFE values awards into the LIFE value awards. Additional information Information on our Carer s Charter, Recordkeeping, Consultancies and Overseas Travel can be accessed online at QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

34 FINANCIAL report FINANCIAL REPORT for the year ended 30 June 2012 Contents General Information...33 Abbreviations...34 Statement of Comprehensive Income...35 Statement of Financial Position...36 Statement of Changes in Equity Statement of Cash Flows...38 Index to notes to the financial statements...40 Certificate of Queensland Bulk Water Supply Authority for the year ended 30 June Independent audit report to the Board of Queensland Bulk Water Supply Authority FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

35 General Information This financial report covers the Queensland Bulk Water Supply Authority (trading as Seqwater). The Queensland Bulk Water Supply Authority is a Statutory Body under the Financial Accountability Act 2009, the Statutory Bodies Financial Arrangements Act 1982 and has been established under the South East Queensland Water (Restructuring) Act The Queensland Bulk Water Supply Authority expires at the end of 99 years from when it was established on 16 November The State is the successor in law at the expiry date of the Queensland Bulk Water Supply Authority. The Queensland Bulk Water Supply Authority is controlled by the State of Queensland which is the ultimate parent. The head office and principal place of business of the Queensland Bulk Water Supply Authority is: 240 Margaret Street, Brisbane QLD, 4000 A description of the nature of the Queensland Bulk Water Supply Authority s operations and its principal activities is included in the notes to the financial statements. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

36 Abbreviations AASB AASBs ABF APG ATO AWRCoE BCC CAPM CGU CSO DBF DTA DTL EGM GCDP GSCs GST LinkWater NTER PRW QCA QTC QWC QWI RAB SEQ SEQWater SEQDC SVS WACC WaterSecure WCRW WCRWS WGM WTP Australian Accounting Standards Board Australian Accounting Standards Accumulation Benefit Fund Accounting Policy Guidelines Australian Taxation Office Australian Water Recycling Centre of Excellence Limited Brisbane City Council Capital Asset Pricing Model Cash Generating Unit Community Service Obligation Defined Benefit Fund Deferred Tax Asset Deferred Tax Liability Executive General Manager Gold Coast Desalination Plant Grid Service Charges Goods and Services Tax Queensland Bulk Water Transport Authority National Tax Equivalent Regime Purified Recycled Water Queensland Competition Authority Queensland Treasury Corporation Queensland Water Commission Queensland Water Infrastructure Pty Ltd Regulatory Asset Base South East Queensland South East Queensland Water Corporation Pty Limited South East Queensland (Gold Coast) Desalination Company Pty Ltd State Valuation Services Weighted Average Cost of Capital Queensland Manufactured Water Authority Western Corridor Recycled Water Pty Ltd Western Corridor Recycled Water Scheme South East Queensland Water Grid Manager Water Treatment Plant 34 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

37 Statement of Comprehensive Income for the year ended 30 June 2012 Notes $000 $000 Income from continuing operations Water services 6 671, ,202 Grants and contributions 7 13,349 1,726 Other revenue 8 5,654 5,037 Total income from continuing operations 690, ,965 Expenses from continuing operations Employee expenses 9 61,927 51,077 Supplies and services ,778 88,365 Depreciation and amortisation ,670 43,004 Revaluation decrement 12 42,170 - Finance/borrowing costs , ,656 Other expenses 14 15,144 15,408 Total expenses from continuing operations 755, ,510 Operating result from continuing operations before income tax (64,508) 14,455 Income tax credit / (expense) 15 17,569 (3,881) Operating result from continuing operations (46,939) 10,574 Other comprehensive income Increase in asset revaluation surplus 2,892 - Total comprehensive (loss) / income (44,047) 10,574 The accompanying notes form part of these statements. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

38 Statement of Financial Position as at 30 June 2012 Notes $000 $000 Current assets Cash and cash equivalents ,641 69,563 Trade and other receivables 19 77,195 39,552 Inventories 20 3,907 2,317 Other 21 9,964 12,587 Total current assets 213, ,019 Non current assets Property, plant and equipment 16,40 6,136,881 2,840,862 Intangible assets 17 40,690 8,157 Deferred tax assets ,634 13,513 Total non current assets 6,317,205 2,862,532 Total assets 6,530,912 2,986,551 Current liabilities Trade and other payables 26 54,820 30,120 Employee benefits 25 6,008 5,311 Interest bearing liabilities 24 80,415 29,864 Other 27 35,726 24,215 Total current liabilities 176,969 89,510 Non current liabilities Trade and other payables Employee benefits 25 8,595 7,530 Interest bearing liabilities 24 4,957,492 2,113,065 Deferred tax liabilities 22,40 308, ,331 Other ,204 - Total non current liabilities 5,648,825 2,344,742 Total liabilities 5,825,794 2,434,252 Net assets 705, ,299 Equity Contributed equity , ,582 Asset revaluation surplus , ,647 Accumulated losses 40 (105,183) (57,930) Total equity 705, ,299 The accompanying notes form part of these statements. 36 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

39 Statement of Changes in Equity for the year ended 30 June 2012 Notes Accumulated losses Asset revaluation surplus Contributed equity Total $000 $000 $000 $000 Balance as at 1 July 2010 (68,504) 274, , ,873 Operating result from continuing operations 10, ,574 Total other comprehensive income: - (decrease) in asset revaluation surplus - (11,832) - (11,832) Transactions with owners as owners - contributed equity , ,684 Balance as at 30 June 2011 (57,930) 262, , ,299 Balance as at 1 July 2011 (57,930) 262, , ,299 Operating result from continuing operations (46,939) - - (46,939) Transfer revaluation surplus as a result of disposal of non current asset 28 (314) - - (314) Total other comprehensive income: - increase in asset revaluation surplus 28-2,578-2,578 Transfer revaluation surplus as a result of disposal of non current asset Transactions with owners as owners - contributed equity 3(p), , ,180 Balance as at 30 June 2012 (105,183) 265, , ,118 The accompanying notes form part of these statements. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

40 Statement of Cash Flows for the year ended 30 June Notes $000 $000 Cash flows from operating activities Inflows: Receipts from water services 653, ,024 CSO received 1,034 1,783 Interest received 3,059 2,605 Other revenue 5,219 5,070 GST collected 91,663 37,065 Outflows: Payments to suppliers and employees (216,466) (138,244) Finance and borrowing costs (293,021) (149,185) QWC & QCA levies (7,805) (7,978) GST paid (88,612) (36,830) Other (2,811) (1,955) Net cash provided by (used in) operating activities 23(b) 145,411 79,355 Cash flows from investing activities Inflows: Proceeds from sale of plant and equipment Receipts from Council for assets acquisition adjustment Outflows: Payments for acquisition of WaterSecure 3(p) (2,539,692) - Payments to QWI for Wyaralong Dam 3(a) (373,427) - Payments for property, plant and equipment (34,917) (129,789) Payments for intangibles (653) (659) Net cash provided by (used in) investing activities (2,948,029) (129,036) Cash flows from financing activities Inflows: Borrowings 26, ,108 Contributed equity 3(p),36-123,684 Loan drawdown for acquisition of WaterSecure 2,555,500 - Loan drawdown for payment to QWI for Wyaralong Dam and Councils 3(a) 373,427 2,433 Outflows: Borrowing redemptions (100,000) (223,684) Net cash provided by (used in) financing activities 2,855,696 18,541 Net increase (decrease) in cash and cash equivalents 53,078 (31,140) Cash and cash equivalents at the beginning of the financial 69, ,703 Cash year and cash equivalents at the end of the financial year 122,641 69,563 25(a) The accompanying notes form part of these statements. 38 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

41 Statement of Cash Flows for the year ended 30 June Notes $000 $000 Cash flows from operating activities Inflows: Receipts from water services 653, ,024 CSO received 1,034 1,783 Interest received 3,059 2,605 Other revenue 5,219 5,070 GST collected 91,663 37,065 Outflows: Payments to suppliers and employees (216,466) (138,244) Finance and borrowing costs (293,021) (149,185) QWC & QCA levies (7,805) (7,978) GST paid (88,612) (36,830) Other (2,811) (1,955) Net cash provided by (used in) operating activities 23(b) 145,411 79,355 Cash flows from investing activities Inflows: Proceeds from sale of plant and equipment Receipts from Council for assets acquisition adjustment Outflows: Payments for acquisition of WaterSecure 3(p) (2,539,692) - Payments to QWI for Wyaralong Dam 3(a) (373,427) - Payments for property, plant and equipment (34,917) (129,789) Payments for intangibles (653) (659) Net cash provided by (used in) investing activities (2,948,029) (129,036) Cash flows from financing activities Inflows: Borrowings 26, ,108 Contributed equity 3(p),36-123,684 Loan drawdown for acquisition of WaterSecure 2,555,500 - Loan drawdown for payment to QWI for Wyaralong Dam and Councils 3(a) 373,427 2,433 Outflows: Borrowing redemptions (100,000) (223,684) Net cash provided by (used in) financing activities 2,855,696 18,541 Net increase (decrease) in cash and cash equivalents 53,078 (31,140) Cash and cash equivalents at the beginning of the financial 69, ,703 Cash year and cash equivalents at the end of the financial year 122,641 69,563 25(a) The accompanying notes form part of these statements. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

42 Index to notes to the financial statements 1. Reporting entity Basis of preparation Significant accounting policies Determination of fair values Financial risk management Water services Grants and other contributions Other revenue Employee expenses Supplies and services Depreciation and amortisation Revaluation decrement Finance/borrowing costs Other expenses Income tax Property, plant and equipment Intangible assets Impairment testing for cash generating unit Trade and other receivables Inventories Other current assets Tax assets and liabilities Cash and cash equivalents Interest bearing liabilities Employee benefits Trade and other payables Other liabilities Asset revaluation surplus by class Financial Instruments Operating leases Capital and other commitments Contingencies Segment reporting Controlled entities Key management personnel and remuneration Related parties Auditor s remuneration Economic dependency Subsequent events Prior period adjustments FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

43 1. Reporting entity The Queensland Bulk Water Supply Authority (the Entity ) is a Queensland Statutory Body under the South East Queensland Water (Restructuring Act) 2007 with a limited life of 99 years from establishment. The address of the Entity s registered office is 240 Margaret Street, Brisbane QLD. As set out in the South East Queensland Water (Restructuring) Act 2007 the Entity must carry out its functions as a commercial enterprise. The Entity meets the definition of a for profit entity for the purposes of the accounting standards. The financial statements include the value of all revenues, expenses, assets, liabilities and equity of the Entity and the entities that it controls, where these are material. Australian Water Recycling Centre of Excellence Limited (AWRCoE) transferred to the Entity on 1 July This subsidiary is a not for profit public company, limited by guarantee, that was incorporated for the purpose of establishing and operating a centre of excellence in water recycling (initially funded through a Commonwealth Government grant). Transactions of AWRCoE were not considered material and therefore not included in the financial statements. The Entity is primarily involved in the supply of water services and carrying out water activities. Refer to Note 34 for controlled entities. 2. Basis of preparation (a) Statement of compliance The financial statements are general purpose financial statements which have been prepared in accordance with: applicable Australian Accounting Standards (AASBs) (including Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB); the Financial and Performance Management Standard 2009; Queensland Treasury s Financial Reporting Requirements for Queensland Government Agencies to the extent relevant; and other authoritative pronouncements. The financial statements were authorised for issue by the Board on 27 August (b) Going concern The financial statements have been prepared on a going concern basis. The preparation of the financial statements on a going concern basis is appropriate on the basis that there is a reasonable expectation that the Entity will be able to pay its debts as and when they fall due for at least the next twelve months from the date of signing these financial statements for the following reasons: the Queensland Government remains committed to providing ongoing support to the Entity. This commitment was recently reaffirmed in a letter from the Hon. Tim Nicholls MP, Treasurer and Minister for Trade, issued to the Entity dated 17 August The Treasurer reaffirmed that the Government remains strongly committed to ensuring that Seqwater remains solvent and able to deliver essential services in a sustainable and cost effective manner. The Government s support includes facilitating access to funding facilities at QTC supported by a Queensland Government guarantee under the Statutory Bodies Financial Arrangements Act 1982 (refer to Note 38); as at 30 June 2012, the Entity has access to a redraw facility from QTC amounting to $530 million (refer to Note 24) and a working capital facility from QTC amounting to $60 million (refer to Note 23(d)) of which $0 has been drawn at 30 June 2012, and has a cash balance of $123 million at 30 June 2012 (refer to Note 23(a)); the Entity has a contract with the WGM for the supply of water services into the water grid. The contract provides for the payment of water services provided to the grid as determined by the QCA in its role as the Price Regulator (refer Note 36); in a letter dated 9 August 2012, the Hon. Mark McArdle MP, Minister for Energy and Water Supply, approved the Grid Service Charges (GSCs) to be paid to the Entity for the provision of declared water services; and 10 QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

44 2. Basis of preparation (continued) forecasts have been prepared for the Entity based on the current Grid Service Charge methodology (refer to Note 18). The forecasts support the Board s expectation that the Entity will be able to pay its debts as and when they fall due for at least the next twelve months from the date of signing these financial statements. If for any reason the Entity is unable to continue as a going concern, it would impact on the Entity s ability to realise assets at their recognised values and to extinguish liabilities in the normal course of business at the amounts stated in the financial statements. (c) Basis of measurement The financial statements have been prepared on an accrual basis and are based on historical costs except for the following: financial instruments at fair value through profit or loss are measured at fair value; and land, buildings and infrastructure assets are measured at fair value. The methods used to measure fair values are discussed further in Note 4. (d) Presentation currency and comparatives The financial statements are presented in Australian dollars, which is the Entity s functional currency. Amounts included in the financial statements have been rounded to the nearest $1,000 unless disclosure of the full amount is specifically required. Comparative information has been restated where necessary to be consistent with disclosures in the current reporting period: the comparative information is related to Seqwater s activities only. The current reporting period includes new transactions as a consequence of the transfer of WaterSecure and Wyaralong Dam on 1 July 2011 (refer Note 3(a), 3(p)); and financial statement opening balances and comparative figures have been restated to adjust for the following (refer Note 40): o a prior period allocation of a previous valuation between classes of land and buildings; and o to reflect the write down of infrastructure assets as at their transfer dates. (e) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following: (i) Acquisitions pursuant to the South East Queensland Water (Restructuring) Regulation 2011 made under the South East Queensland Water (Restructuring) Act 2007 (Qld) On 1 July 2011, all matters relating to WaterSecure and its subsidiaries transferred to the Entity at their carrying values recorded in the financial report as at 30 June 2011 (refer to Note 3(p) and 16). The Entity also acquired Wyaralong Dam from QWI on 1 July 2011, which included the assets, liabilities, exclusions, instruments and any legal proceedings associated with Wyaralong Dam construction (refer to Note 3(a) and 16). 42 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

45 2. Basis of preparation (continued) (ii) Impairment The Entity assesses impairment at each reporting date by evaluating conditions specific to the Entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key assumptions (refer to Note 3(h) and Note 18). (iii) Income tax and utilisation of tax losses The Entity is subject to the NTER. During the year ended 30 June 2012, $0 of tax losses were utilised (2011: $0) with tax losses carried forward at 30 June 2012 amounting to $43,386,269 (2011: $33,635,244). A DTA of $13,015,881 (refer to Note 22) has been recognised in relation to these carry forward tax losses as it is considered probable that future taxable profits will be generated against which the tax losses could be utilised. A DTA of $112,104,534 for the carried forward tax losses transferred from WaterSecure has not been recognised because the probability requirement in AASB 112 Income Taxes could not be satisfied (refer to Note 22 (c)). (iv) Fair value Fair values have been determined for measurement and/or disclosure purposes (refer Note 4) and where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. Land, buildings and infrastructure are measured at fair value in accordance with AASB 116 Property, Plant and Equipment and Queensland Treasury s Non-Current Asset Policies for the Queensland Public Sector. Where the Board considers that there are indicators that period-end carrying values materially differ to their fair values, valuations are more frequent than the prescribed policy (refer Note 16). (v) Provision for impairment of receivables A provision for impairment of receivables has been made at year end (refer to Note 19). (vi) Interest bearing liabilities Loans have been provided to the Entity under the South East Queensland Water (Restructuring) Act These are perpetual interest-only loans that will expire at the end of the Entity s existence. The interest payable is recognised as a current liability and the principal amounts are recognised as non current liabilities. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

46 3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. (a) Asset acquisition The acquisition of Wyaralong Dam from QWI has been determined by the Entity to be acquisitions of assets and liabilities to be dealt with in accordance with AASB 116 Property, Plant and Equipment. This standard requires that for assets acquired, the Entity must recognise items of property, plant and equipment at cost. In circumstances where a group of assets is acquired, the cost of individual assets is determined by allocating the cost of the group of acquired assets between the identified assets in the group based on their relative fair values at the acquisition date. The transfer of liabilities is being accounted for in accordance with AASB 139 Financial Instruments: Recognition and Measurement. Assets and liabilities transferred from QWI on 1 July 2011 $000 Assets Property, plant and equipment 373,427 Liabilities QTC Loans 373,427 (b) (c) Financial instruments Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus any attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are recognised if the Entity becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Entity s contractual rights to the cash flows from the financial assets expire or if the Entity transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the Entity s obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash on hand, deposits held on call with banks, other shortterm highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are reported as part of short-term borrowings in current liabilities in the balance sheet. The QTC Redraw Facility is treated in accordance with AASB 139 Financial Instruments: Recognition and Measurement, Application Guidance AG 62 (Debt restructure) (refer to Note 24). Financial instruments are classified and measured as follows: Cash and cash equivalents - held at fair value through profit or loss; Receivables - held at amortised cost; Payables - held at amortised cost; and Borrowings - held at amortised cost. The Entity does not enter transactions for speculative purposes, nor for hedging. Apart from cash and cash equivalents, the Entity holds no financial assets classified at fair value through profit or loss. Receivables Receivables are recognised initially at fair value, usually based on the transaction cost or face value. Subsequent measurement is at amortised cost using the effective interest method, less an allowance for any impairment of receivables. Short term receivables with no stated interest rate are measured at the original invoice amount where the effect of discounting is immaterial. An allowance for impairment of receivables is established when there is objective evidence that the Entity will not be able to collect all amounts due. The amount of the allowance is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. Bad debts are written off as incurred FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

47 3. Significant accounting policies (continued) (d) Inventories Inventories are measured at the lower of cost and net realisable value. Cost is assigned on a weighted average basis and includes expenditure incurred in acquiring the inventories and bringing them to their existing condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. (e) Property, plant and equipment (i) Recognition and measurement Each class of property, plant and equipment is initially recognised at cost. Assets acquired in exchange for other non-monetary assets or assets acquired at a nominal consideration are initially recognised at cost. On initial recognition, all costs incurred in purchasing or constructing the asset and getting it ready for use are capitalised to the value of the asset. The cost of self constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use and the costs of dismantling and removing the items and restoring the site on which they are located. Land, buildings and infrastructure are measured at fair value in accordance with AASB 116 Property, Plant and Equipment and Queensland Treasury s Non-Current Asset Policies for the Queensland Public Sector. Plant and equipment is measured at cost. Separately identified components of assets are measured on the same basis as the assets to which they relate. Items of property, plant and equipment with a cost or other value equal to or in excess of the following thresholds are recognised for financial reporting purposes in the year of acquisition: Land $1 Building $10,000 Infrastructure $10,000 Plant and Equipment $5,000 Items with lesser value are expensed in the year of acquisition. Land improvements are to be included in the class Building or Infrastructure based on their proximity to the asset to which they relate. The Entity operates on a commercial basis, with the primary objective being the generation of cash inflows. Where there is no market price for the asset, fair value is either the depreciated replacement cost or the net present value of the cash flows from the asset. If the asset does not generate cash inflows independent from the assets or group of assets then the fair value will be either the sum of the depreciated replacement cost of the group of assets or the net present value of the cash flows from the group of assets. Where an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which the asset belongs is revalued. Net revaluation increments in respect of each non-current asset are recognised in other comprehensive income and asset revaluation surplus, except to the extent that it reverses a previous decrement recognised as an expense for that asset in profit or loss. In this instance the reversal portion of the increment is recognised as revenue in profit or loss. Net revaluation decrements in respect of each asset are recognised as an expense in profit or loss, except to the extent that it reverses a previous increment for that asset and a positive balance exists in the asset revaluation surplus for that asset. In this instance, the reversal portion of the decrement is recognised in other comprehensive income and asset revaluation surplus. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

48 3. Significant accounting policies (continued) (ii) Subsequent costs Costs incurred subsequent to the initial asset purchase are capitalised when the expenditure improves the condition of the asset beyond its originally assessed standard of performance or capacity. Outlays that do not meet the criteria for recognition as an asset are expensed in the financial year. (iii) Depreciation Land is not depreciated as it has an unlimited useful life. Property, plant and equipment is depreciated on a straight-line basis so as to allocate the net cost or revalued amount of each asset, less its estimated residual value, progressively over its estimated useful life. Where assets have separately identifiable components that are subject to regular replacement, these components are assigned useful lives distinct from the asset to which they relate and are depreciated accordingly. Any expenditure that increases the originally assessed capacity or service potential of an asset is capitalised and the new depreciable amount is depreciated over the remaining useful life of the asset. Major spares purchased specifically for particular assets are capitalised and depreciated on the same basis as the asset to which they relate. The estimated useful lives applied for the current and comparative periods are as follows: Class of Fixed Asset Depreciation Rate Useful Life Buildings 1.25% - 2.5% years Infrastructure Dams and weirs 0.667% - 10% years Water treatment plants 1% - 20% years Pipelines and others 1% % years Plant and equipment Motor vehicles and boats 10% % 3-10 years Recreation facilities 1.67% % 3-60 years Other equipment 10% % 3-10 years Depreciation methods, useful lives and residual values are reviewed at each reporting date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in profit or loss. 46 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

49 3. Significant accounting policies (continued) (f) Intangible assets (i) Recognition of intangible assets Intangible assets that are acquired by the Entity are initially measured at cost. Items of intangible assets with a cost or other value equal to or in excess of the following thresholds are recognised for financial reporting purposes in the year of acquisition: (ii) Land easement $1 Software purchased $100,000 Other intangible $100,000 Items with a lesser value are expensed in the year of acquisition. Where there is an active and liquid market, intangible assets are carried at a revalued amount, otherwise they are carried at cost after initial recognition. If revalued, the same rules apply as to those for property, plant and equipment. Intangible assets have not been revalued. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in the profit or loss. Intangible assets are subject to amortisation and impairment testing. Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives applied for the current and comparative periods are as follows: Class of Intangible Asset Amortisation Rate Useful Life Land easements 0.667% % years Software purchased 20% 5 years Other intangible 2.5% 40 years (g) Leased assets A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased assets, and operating leases under which the lessor effectively retains all such risks and benefits. Where a non-current asset is acquired by means of a finance lease, the asset is recognised at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding liability is established at the same amount. Lease payments are allocated between the principal component and the interest expense. The fair value of the asset is depreciated over the term of the lease. Operating lease payments are charged to profit or loss in the period in which they are incurred. Restoration obligations under leases are provided for over the life of the lease. Plant and equipment subject to a finance lease is amortised on a straight line basis over the shorter of the lease term and their useful lives unless it is reasonably certain that the Entity will obtain ownership by the end of the lease term. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

50 3. Significant accounting policies (continued) (f) Intangible assets (i) Recognition of intangible assets Intangible assets that are acquired by the Entity are initially measured at cost. Items of intangible assets with a cost or other value equal to or in excess of the following thresholds are recognised for financial reporting purposes in the year of acquisition: (ii) Land easement $1 Software purchased $100,000 Other intangible $100,000 Items with a lesser value are expensed in the year of acquisition. Where there is an active and liquid market, intangible assets are carried at a revalued amount, otherwise they are carried at cost after initial recognition. If revalued, the same rules apply as to those for property, plant and equipment. Intangible assets have not been revalued. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in the profit or loss. Intangible assets are subject to amortisation and impairment testing. Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives applied for the current and comparative periods are as follows: Class of Intangible Asset Amortisation Rate Useful Life Land easements 0.667% % years Software purchased 20% 5 years Other intangible 2.5% 40 years (g) Leased assets A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased assets, and operating leases under which the lessor effectively retains all such risks and benefits. Where a non-current asset is acquired by means of a finance lease, the asset is recognised at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding liability is established at the same amount. Lease payments are allocated between the principal component and the interest expense. The fair value of the asset is depreciated over the term of the lease. Operating lease payments are charged to profit or loss in the period in which they are incurred. Restoration obligations under leases are provided for over the life of the lease. Plant and equipment subject to a finance lease is amortised on a straight line basis over the shorter of the lease term and their useful lives unless it is reasonably certain that the Entity will obtain ownership by the end of the lease term. 48 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

51 3. Significant accounting policies (continued) (h) Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss. (ii) Non-financial assets The carrying amounts of the Entity s non-financial assets, other than inventories and DTA are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit ). An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss unless the asset is carried at a revalued amount. When the asset is measured at a revalued amount, the impairment loss is offset against the asset revaluation surplus of the relevant asset to the extent available. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (i) Assets under construction Assets under construction (work in progress) are carried at cost and not depreciated until they reach service delivery. Interest costs on borrowings specifically financing assets under construction are capitalised. (j) Payables Trade creditors are recognised upon receipt of the goods or services ordered and are measured at the agreed purchase/contract price, gross of applicable trade and other discounts. Amounts owing are unsecured and are generally settled on 30 day terms. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

52 3. Significant accounting policies (continued) (k) Employee benefits Employer superannuation contributions, annual leave and long service leave are regarded as employee benefits. Payroll tax and workers compensation insurance are a consequence of employing employees and are not counted in an employee s total remuneration package. They are not employee benefits and are recognised separately as employee related expenses. (i) Wages, salaries, annual leave and sick leave Liabilities for short-term employee benefits for wages, salaries and annual leave represent present obligations resulting from employees services provided to the reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Entity expects to pay as at the reporting date, including applicable related on-costs. For those entitlements not expected to be paid within 12 months, the liabilities are classified as non-current liabilities and recognised at their present value, calculated using yields on fixed rate Commonwealth Government Bonds of similar maturity. Non-vesting sick leave is recognised as an expense as it is taken. (ii) Long service leave The long service leave provision represents the present value of the estimated future cash outflows to be made resulting from employees services provided to balance date. The current provision is calculated using the simplified approach whereby a net factor of 0.95 is applied to the long service leave amount of the employees with 3 or more years of service in order to estimate the present value. This approach is an approximation process to recognise the probable liability that will eventuate for staff that have achieved the 7 years of service. (iii) Superannuation schemes QSuper The Entity currently contributes to the QSuper defined benefit and accumulation superannuation funds. Where there is a surplus or deficit in financial position of a defined benefit superannuation fund, the employer sponsors, to the extent permissible under the trust deed of the superannuation fund, can recognise an asset for the surplus or must recognise a liability for the deficit. However, as responsibility for the funding of the QSuper defined benefit superannuation fund is assumed at a whole-of-government level, no asset or liability is required to be recognised by the Entity. Local Government Superannuation Scheme (LG Super) The Entity contributes to LG Super (incorporating City Super) for employees under both defined benefit scheme and accumulation superannuation scheme. The Entity has no liability to or interest in LG Super other than the payment of the statutory contribution. Any amount by which either scheme is over or under funded would only affect future benefits and is not an asset or liability of the Entity. Accordingly, there is no recognition in the financial statements of any over-or-under funding of LG Super (refer to Note 25). (iv) Key management personnel and remuneration Key management personnel and remuneration disclosures are made in accordance with section 5 of the Financial Reporting Requirement for Queensland Government Agencies issued by Queensland Treasury. Refer to note 35 for the disclosures on key management personnel and remuneration. 50 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

53 3. Significant accounting policies (continued) (l) Revenue Revenue is measured at fair value of the consideration or contribution received or receivable. All revenue is stated net of the amount of GST. (i) Water services There is a contract with the WGM that provides Grid Service Charges revenue to the Entity up to 30 June 2020 (refer to Note 2(b) and 36). Revenue from the WGM is accrued monthly based on the Market Rules and the Entity s Water Grid Services contract. It includes the capital charge, fixed and variable operating costs incurred for the month and other specific allowable costs identified in the contract. The charges for rural irrigation water are calculated based on two part tariff charges. Part A relates to fixed costs based on water allocation volume and applied quarterly in advance and Part B represents the charge for water used based on meter readings for the previous quarter. These charges are accrued on a monthly basis. (ii) Government grants and subsidies Government grants and subsidies are recognised initially as deferred income when there is reasonable assurance that they will be received and that the Entity will comply with the conditions associated with the grant. Grants and subsidies that compensate the Entity for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised. The Entity receives CSO payments from the Queensland Government. The Rural Water payment is for the provision of rural irrigation water to rural irrigators. The Water Planning Development payment is for activities to ensure compliance with regulatory and policy areas of resource management. The CSO payments are recognised on a monthly accrual basis. (iii) Services Revenue for a service is recognised upon the delivery of the service to the customers. (iv) Finance income Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. (m) Finance/borrowing costs Finance/borrowing costs comprise: interest expense on bank overdrafts, short-term and long-term borrowings; unwinding of the discount on provisions; amortisation of discounts or premiums relating to borrowings; and ancillary administration charges. Finance/borrowing costs are recognised in profit or loss using the effective interest method and are expensed in the period in which they arise. Finance/borrowing costs that are not settled in the period in which they arise are added to the carrying amount of the borrowing. Finance/borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

54 3. Significant accounting policies (continued) (n) Income tax The Entity has been a participant in the NTER from the date of establishment. As a result an equivalent or notional income tax liability is payable to Queensland Treasury for payment into the consolidated fund. Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (o) Goods and services tax Revenue, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the ATO. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Cash flows are included in the Statement of Cash Flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. 52 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

55 3. Significant accounting policies (continued) (p) Contributed equity On 1 July 2011, all matters relating to WaterSecure and its subsidiaries transferred to the Entity at their carrying values recorded in the financial report as at 30 June 2011 (refer to Note 2e(i)), which included the following: Assets and liabilities of WaterSecure, South East Queensland (Gold Coast) Desalination Company Pty Ltd (SEQDC) and Western Corridor Recycled Water Pty Ltd (WCRW) (refer to Note 22(c)); Instruments that applied to WaterSecure, SEQDC and WCRW; Employees of WaterSecure; Shares held by WaterSecure in SEQDC and WCRW and WaterSecure s interest in the AWRCoE; and Any pending legal proceedings by or against WaterSecure, SEQDC and WCRW. Assets and liabilities transferred from WaterSecure on 1 July 2011 $000 Total assets 3,367,428 Total liabilities 3,170,248 Net assets 197,180 (q) The increase in net assets of $197,180 million has been accounted for as an increase in contributed equity as disclosed in the Statement of Changes in Equity. The Entity has applied the accounting treatment of Interpretation 1038 Contribution by Owners Made to Wholly-Owned Public Sector Entities to the equity proceeds received (refer to Note 36). New and revised accounting standards The Entity did not change any of its accounting policies during Australian accounting standard changes applicable for the first time for have had minimal effect on the Entity s financial statements, as explained below. AASB Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] became effective from reporting periods beginning on and after 1 January Given the Entity s existing financial instruments, there was only a minor impact on the Entity s financial instruments note (note 29), in relation to disclosures about credit risk. That note no longer needs to disclose amounts that best represent the maximum exposure to credit risk where the carrying amount of the instruments already reflects this. As this was the case with all the Entity s receivables as at 30 June 2012 (and as at 30 June 2011), receivables are not included in the credit risk disclosure in this year s financial statements. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

56 3. Significant accounting policies (continued) As the Entity held no collateral or other credit enhancements in respect of these financial instruments, and did not renegotiate the terms of any financial assets, during the reporting periods presented in these financial statements, there were no other changes required to the Entity s financial instruments note arising from the amendments to AASB 7 Financial Instruments: Disclosures. AASB 1054 Australian Additional Disclosures became effective from reporting periods beginning on or after 1 July 2011, given the Entity s previous disclosure practices, AASB 1054 had minimal impact on the Entity. AASB Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project [AASB 1, AASB 5, AASB 101, AASB 107, AASB 108, AASB 121, AASB 128, AASB 132 & AASB 134 and Interpretation 2, 112 & 113] also became effective from reporting period beginning on or after 1 July The only potential implication for the Entity from this amending standard was the deletion from AASB 101 Presentation of Financial Statements of the requirement for disclosure of commitments. However, Treasury Department s Financial Reporting Requirements require continuation of commitments disclosures, so this deletion from AASB 101 has no impact on the Entity s commitments note (Note 31). The Entity is not permitted to early adopt a new or amended accounting standard ahead of the specified commencement date unless approval is obtained from the Treasury Department. Consequently, the Entity has not applied any Australian accounting standards and interpretations that have been issued but are not yet effective. The Entity applies standards and interpretations in accordance with their respective commencement dates. At the date of authorisation of the financial report, the expected impacts of new or amended Australian accounting standards with future commencement dates are as set out below. AASB Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income [AASB 1,5,7,101,112,120,121,132,133,134,1039 & 1049) applies as from reporting periods beginning on or after 1 July The only impact for the Entity will be that, in the Statement of Comprehensive Income, items within the Other Comprehensive Income section will need to be presented in different sub-sections, according to whether or not they are subsequently re-classifiable to the operating result. Whether subsequent re-classification is possible depends on the requirements of criteria in the accounting standard/interpretation that relates to the item concerned. AASB 13 Fair Value Measurement applies from reporting periods beginning on or after 1 January AASB 13 sets out a new definition of fair value, as well as new principles to be applied when determining the fair value of assets and liabilities. The new requirements will apply to all of the Entity s assets and liabilities (excluding leases) that are measured and/or disclosed at fair value or another measurement based on fair value. The potential impacts of AASB 13 relate to the fair value measurement methodologies used, and financial statement disclosures made in respect of, such assets and liabilities. The Entity has commenced reviewing its fair value methodologies (including instructions to valuers, data used and assumptions made) for all items of property, plant and equipment measured at fair value to determine whether those methodologies comply with AASB 13. To the extent that the methodologies don t comply, changes will be necessary. While the Entity is yet to complete this review, no significant changes are anticipated, based on the fair value methodologies presently used. Therefore, at this stage, no consequential material impacts are expected for the Entity s property, plant and equipment as from AASB 13 will require an increased amount of information to be disclosed in relation to fair value measurements for both assets and liabilities. To the extent that any fair value measurement for an asset or liability uses data that is not observable outside the Entity, the amount of information to be disclosed will be relatively greater. 54 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

57 3. Significant accounting policies (continued) AASB 9 Financial Instruments (December 2010) and AASB Amendments to Australian Accounting standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and interpretation 2,5,10,12,19 & 127] become effective from reporting period beginning on or after 1 January The main impacts of these standards on the Entity are that they will change the requirement for the classification, measurement and disclosures associated with financial assets. Under the new requirements, financial assets will be more simply classified according to whether they are measured at amortised cost or fair value. Pursuant to AASB 9, financial assets can only be measured at amortised cost if two conditions are met. One of these conditions is that the asset must be held within a business model whose objective is to hold assets in order to collect contractual cash flows. The other condition is that the contractual terms of the assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principle amount outstanding. The Entity has commenced reviewing the measurement of its financial assets against the new AASB 9 classification and measurement requirement. However, as the classification of financial assets at the date of initial application of AASB 9 will depend on the facts and circumstances existing at that date, the Entity s conclusions will not be confirmed until closer to that time. At this stage, and assuming no change in the types of transactions the Entity enters into, it is not expected that any of the Entity s financial assets will be meet the criteria in AASB 9 to be measured at amortised cost. Therefore, as from the financial statements, all of the Entity s financial assets are expected to be required to be measured at fair value, and classified accordingly (instead of the measurement classifications presently used in note 3(b) and 29). The same classification will be used for net gains/losses recognised in the Statement of Comprehensive Income in respect of those financial assets. In the case of the Entity s current receivables, as they are short-term in nature, the carrying amount is expected to be a reasonable approximation of fair value. A revised version of AASB 119 Employee Benefits applies from reporting periods beginning on or after 1 January The revised AASB 119 is generally to be applied retrospectively. Given the Entity s circumstances, the only implications for the Entity are that the revised standard clarifies the concept of termination benefits, and the recognition criteria for liabilities for termination benefits will be different. If termination benefits meet the timeframe criterion for short-term employee benefits, they will be measured according to the AASB 119 requirements for short-term employee benefits. Otherwise, termination benefits will need to be measured according to the AASB 119 requirements for other long-term employee benefits. Under the revised standard, the recognition and measurement of employer obligations for other long-term employee benefits will need to be accounted for according to most of the requirements for defined benefit plans. The revised AASB 119 includes changed criteria for accounting for employee benefits as short term employee benefits, requirements for the measurement of employer liabilities/assets arising from defined benefit plans, and the measurement and presentation of changes in such liabilities/assets. Given the Entity s circumstances, those changes to AASB 119 have no material impact on the Entity. All other Australian accounting standards and interpretations with future commencement dates are either not applicable to the Entity s activities, or have no material impact on the Entity. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

58 4. Determination of fair values A number of the Entity s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (a) Property, plant and equipment The fair value of land, buildings and infrastructure is measured as follows: where there is an active and liquid market for assets similar in type and condition, the fair value of an asset is its price in that market; and where there is no market price for the assets, fair value is either the depreciated replacement cost or the net present value of the cash flows from the asset. (b) Trade and other receivables and payables The fair value of trade and other receivables and payables approximates their nominal value less estimated credit adjustments. (c) Prepayments The fair value of prepayments is represented by the book value as the period of time to consumption is short and there are no rates involved in the calculation. (d) Borrowings The fair value of borrowings, which is determined for disclosure purposes, is determined by reference to published price quotations in an active market and reflects the value of the debt if the Entity repaid it in full at balance date. As it is the intention of the Entity to hold its borrowings for their full term, no adjustment provision is made in these accounts. 56 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

59 5. Financial risk management Overview The Entity s activities expose it to a variety of financial risks including credit risk, liquidity risk, and interest rate risk. Exposure to financial risks is managed in accordance with the Entity s approved policies on financial risk management. These policies focus on managing the volatility of financial markets and seek to minimise potential adverse effects on the financial performance of the Entity. The Entity measures risk exposure using a variety of methods as follows: Risk Exposure Credit risk Liquidity risk Interest rate risk Measurement Method Ageing analysis Maturity analysis Sensitivity analysis Credit risk Credit risk exposure refers to the situation where the Entity may incur a financial loss as a result of another party to a financial instrument failing to discharge their obligations. The Entity has a substantial concentration of credit risk to a single debtor, being the WGM. The Entity is exposed to credit risk through its investments with the QTC and deposits held with banks. The QTC Cash Fund is an asset management portfolio that invests with a wide variety of high credit rating counterparts. Deposits are capital guaranteed. Other investments are held with highly rated and regulated financial institutions and whilst not capital guaranteed the likelihood of a credit failure is considered remote. Liquidity risk Liquidity risk refers to the situation where the Entity may encounter difficulty in meeting obligations associated with financial liabilities. The Entity is exposed to liquidity risk through its trading in the normal course of business and borrowings from the QTC for asset acquisitions and capital works. The Entity manages its exposure to liquidity risk by maintaining sufficient cash deposits and undrawn facilities, both short and long term, to cater for unexpected volatility in cash flows. Market risk The Entity does not trade in foreign currency and is not materially exposed to commodity price ranges. The Entity is exposed to interest rate risk through its borrowings from QTC and cash deposited in interest bearing accounts. The Entity manages its portfolio by setting, monitoring and adjusting the terms and duration of its loan portfolio as allowed under its commercial financing contract with QTC. Interest rate risk The Entity is exposed to interest rate risk through its borrowings and investment with QTC and cash deposited in interest bearing accounts. The risk in borrowing is effectively managed through QTC s capacity to issue securities with variable terms allowing an appropriate duration for debt of the Entity. Interest rate risk in other areas is mitigated. The Entity relies on QTC s management of its debt portfolios and on interest rate immunisation provided by the QWC in its calculation of the WACC that sets the Entity s earning rate. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

60 5. Financial risk management (continued) Capital management The Entity must give the responsible Ministers an estimate of its net profit for the year, and a recommendation on the amount of annual return to be paid. The recommendation is to be provided to Ministers between 1 and 15 May prior to the end of the financial year. Before the end of the financial year, the responsible Ministers must either approve the recommendation or direct the Entity to pay another amount (though not more than the estimated net profit previously advised) as decided under section 53 of the South East Queensland Water (Restructuring) Act The return must be paid within 6 months after the end of the financial year. Annual return payable in 2012 is $0 (2011: $0) Note $000 $000 Total borrowings 24 5,039,351 2,144,768 Total assets (excluding cash and cash equivalents) 6,408,271 2,916,988 Gearing ratio 79% 74% 58 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

61 6. Water services $000 $000 Water services - WGM 669, ,184 Water sales - Irrigators 2,451 2,018 Total 671, , Grants and other contributions CSO 1,368 1,396 Government grant 11,382 - Other grants Total 13,349 1, Other revenue Investment revenue 3,059 2,605 Consulting revenue Lease revenue 1, Other Total 5,654 5, Employee expenses Wages and salaries 45,088 37,708 Annual leave expenses 4,171 3,583 Long service leave expenses 1, Employer superannuation contribution 5,625 4,687 Workers' compensation premium Payroll tax 2,723 2,175 Other employee related expenses 2,591 1,922 Total 61,927 51,077 The number of employees including both full time employees and part time employees measured on a full time equivalent basis as at 30 June are: Number of employees QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

62 Note $000 $ Supplies and services Labour hire expenses 8,044 4,371 Consultancies and contractors 18,631 11,904 Operation contractors 44,304 - Energy 13,633 9,036 Information technology and communications 5,973 4,100 Repairs and maintenance 23,026 24,746 Supplies and consumables 38,794 33,474 Other expenses 1, Total 153,778 88, Depreciation and amortisation Buildings Infrastructure 144,305 38,476 Plant and equipment 4,022 2,492 Intangibles 1,863 1,273 Total 150,670 43, Revaluation decrement Land 39,323 - Buildings 2,847 - Infrastructure - - Total 16 42, FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

63 $000 $ Finance/borrowing costs Interest paid or payable to QTC 315, ,300 Competitive neutrality fee 15,879 18,885 Other financial costs Total 331, , Other expenses Insurance 5,294 2,394 Internal audit fees External audit fees QWC & QCA levies 7,805 7,978 Rates and taxes 1,161 3,004 Other 360 1,743 Total 15,144 15, Income tax The difference between income tax expense provided in the financial statements and the prima facie income tax expense is reconciled as follows: (Loss) / profit before income tax (64,508) 14,455 Prima facie income tax thereon at 30% (19,353) 4,337 Less: Tax impact of transferred council provision for employee benefits recognised Income tax underprovided in prior year - 1,254 Other Add: Recognition of tax base on fixed assets Depreciation difference on transferred council assets 1,262 1,077 Non deductible expenses 7 28 Total income tax (credit) / expense (17,569) 3,881 QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

64 16. Property, plant and equipment 2012 Land Buildings Infrastructure Plant and equipment Dams and weirs Water treatment plants Pipelines and other Work in progress Note $000 $000 $000 $000 $000 $000 $000 $000 Cost Balance at 1 July ,090 20,091 1,590, ,567 69,510 17, ,799 3,360,766 Asset classes reclassification (3,155) (8,548) 369 7, (3,155) Acquisitions WaterSecure 3(p) 17, ,719,144 1,118,229 2, ,302 3,256,409 Acquisitions 45, , , ,908 Disposal (103) (469) (1,055) - (1,627) Transfer between classes 4,606 3, , , (827,263) - Revaluation increments - 12, ,243 Revaluation decrements (41,837) (2,992) (44,829) Balance at 30 June ,949 23,950 2,350,126 2,793,757 1,188,135 31,398 59,400 6,988,715 Depreciation and impairment losses Balance at 1 July (2,482) (391,850) (116,331) (2,870) (6,371) - (519,904) Asset classes reclassification (127) (333) - (221) - - Acquisitions WaterSecure 3(p) (131,169) (46,028) (683) - (177,880) Disposal Revaluation - (5,902) (5,902) Depreciation for the year - (480) (20,770) (103,756) (19,779) (4,022) - (148,807) Balance at 30 June (8,120) (412,747) (351,589) (68,677) (10,701) - (851,834) Carrying amount at 30 June ,949 15,830 1,937,379 2,442,168 1,119,458 20,697 59,400 6,136,881 Total 62 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

65 16. Property, plant and equipment (continued) 2011 Land Buildings Dams and weirs Infrastructure Water treatment plants Pipelines and other Plant and equipment Work in progress $000 $000 $000 $000 $000 $000 $000 $000 Cost Balance at 1 July ,150 19,983 1,589, ,638 69,480 14, ,366 3,242,119 Asset classes reclassification (254) Acquisitions as per transfer notices (741) (741) Acquisitions , , ,563 Disposal (1,175) - (1,175) Transfer between classes (60) , ,640 (19,913) - Balance at 30 June ,090 20,091 1,590, ,567 69,510 17, ,799 3,360,766 Depreciation and impairment losses Balance as at 1 July (1,719) (376,603) (94,291) (1,678) (4,497) - (478,788) Asset classes reclassification (8) Disposal Depreciation for the year - (763) (15,252) (22,032) (1,192) (2,492) - (41,731) Balance at 30 June (2,482) (391,850) (116,331) (2,870) (6,371) - (519,904) Carrying amount at 30 June ,090 17,609 1,198, ,236 66,640 11, ,799 2,840,862 Total QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

66 16. Property, plant and equipment (continued) Land, buildings and infrastructure are measured at fair value in accordance with AASB 116 Property, Plant and Equipment and Queensland Treasury s Non-Current Asset Policies for the Queensland Public Sector. Plant and equipment and work in progress are measured at cost. The Board has adopted the following policies in respect of the measurement of fair value: Frequency of Class Method of measurement of fair value measurement * Land Independent valuation market value 5 years Buildings Independent valuation market value / depreciation replacement cost 5 years Dams and weirs Board adopted valuation income approach 5 years Water treatment plants Depreciation replacement cost 5 years Infrastructure Pipelines and other Depreciation replacement cost 5 years *Valuations are more frequent where the Board considers that there are indicators that period-end carrying values materially differ to their fair values. Land Land was valued by an independent valuer, State Valuation Services, at 1 October 2011 with an effective date of 30 June The independent valuations were performed using the fair value principle by reference to observable prices in an active market as well as recent market transactions on an arm s length basis. The carrying values of land were revalued as at the effective dates of those valuations to reflect the fair values determined by the independent valuers. Additions since the time of the independent valuations have been recorded at cost. Land with a total value of $62,703,628 (as valued by State Valuation Services) representing reserve land or land subject to a Deed of Grant in Trust, is not included in the carrying value of land. That land is retained by the Crown, however, the economic benefit of the land accrues to the Entity and the land is administered by the Entity on behalf of the Department of Natural Resources and Mines. A prior period allocation of a previous valuation between the classes of land and buildings has restated financial statement opening balances and comparative figures (refer Note 40). Buildings Office buildings and rental properties were valued by an independent valuer, State Valuation Services with an effective date of 30 June The independent valuations were performed using the fair value principles: where an active liquid market is available for an asset, that market price represents the best evidence of an assets fair value; and where an active liquid market for the asset does not exist, the best indication of its fair value is its depreciated replacement cost. Additions since the time of the independent valuations have been recorded at cost. A prior period allocation of a previous valuation between the classes of land and buildings has restated financial statement opening balances and comparative figures (refer Note 40). 64 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

67 16. Property, plant and equipment (continued) Infrastructure assets (a) Dams and weirs An income based approach to fair value was undertaken as at 30 June An income approach assumes the amount for which assets could be exchanged between knowledgeable and willing parties in an arm s length transaction. The same assumptions that have been applied to determining the recoverable amount for impairment testing (refer to Note 18) are used for the income based approach, apart from the following assumptions which are considered to be more appropriate in the context of the income approach: the WACC has been increased by 0.80% to take into account an independent third party s (arm s length purchase) approach to the Gamma component of the WACC calculation; cash flows have been adjusted to reflect potential synergies that an independent third party may derive from the acquisition of the Entity s assets; and future capital expenditure and related revenues have been included in the cash flows (in accordance with Accounting Standards these are excluded for the purpose of determining the recoverable amount for impairment testing). The income based valuation results in a value of the Entity as a whole. After deducting other non current assets, the remaining value has been apportioned to individual infrastructure assets (Dams and Weirs) on the basis of their carrying values as at 30 June Additions since the time of valuation have been recorded at cost. (b) Water treatment plants Water treatment plants were valued by an independent valuer, Cardno Limited, as at 1 July 2008 using a depreciated replacement cost approach consistent with the requirements of Australian Accounting Standards. The carrying values of water treatment plants were revalued as at the effective date of those valuations to reflect the fair values determined by the independent valuer. Additions since the time of the independent valuation have been recorded at cost. A write down of water treatment plants - infrastructure assets as at their transfer dates has restated financial statement opening balances and comparative figures (refer Note 40). (c) Pipelines and other infrastructure Pipelines and other infrastructure were valued by an independent valuer, Cardno Limited, as at 1 July 2008 using a depreciated replacement cost approach consistent with the requirements of Australian Accounting Standards. The carrying values of pipelines and other infrastructure were revalued as at the effective date of those valuations to reflect the fair values determined by the independent valuer. Additions since the time of the independent valuation have been recorded at cost. Plant and equipment All plant and equipment is measured at cost less accumulated depreciation in accordance with Queensland Treasury s Non-Current Asset Policies for the Queensland Public Sector. Work in progress Work in progress is measured at cost. Borrowing costs of $11,058,107 have been capitalised during the year (2011: $23,047,839). QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

68 17. Intangible assets 2012 Software purchased Other intangibles Software work in progress Total Land easements $000 $000 $000 $000 $000 Cost Balance at 1 July ,942 5,002-10,944 Transfer in - WaterSecure 29, ,317 Acquisitions ,093 1,093 Disposal - (1,030) - - (1,030) Transfers between classes 3,173 1,075 - (1,093) 3,155 Balance at 30 June ,630 6,847 5,002-44,479 Amortisation Balance as at 1 July (2,193) (594) - (2,787) Transfer in - WaterSecure - (140) - - (140) Disposal - 1, ,001 Amortisation for the year (356) (1,328) (179) - (1,863) Balance at 30 June 2012 (356) (2,660) (773) - (3,789) Carrying amount at 30 June ,274 4,187 4,229-40, FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

69 17. Intangible (continued) 2011 Software purchased Other intangibles Software work in progress Total Land easements $000 $000 $000 $000 $000 Cost Balance at 1 July ,435 5,558-10,993 Acquisitions Disposal - (152) (556) - (708) Transfers between classes (659) - Balance at 30 June ,942 5,002-10,944 Amortisation Balance as at 1 July (1,248) (971) - (2,219) Disposal Amortisation for the year - (1,094) (179) - (1,273) Balance at 30 June (2,193) (594) - (2,787) Carrying amount at 30 June ,749 4,408-8,157 QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

70 18. Impairment testing for cash generating unit The carrying amount of assets, including intangibles (refer Notes 16 and 17), allocated to the CGU are set out below: Note Carrying amount Recoverable Entity of assets amount Surplus $000 $000 $000 CGU 16,17 6,177,571 Less remaining deferred government grant 27 (384,586) Impairment Assessment 5,792,985 6,567, ,856 The Board has adopted the following methodologies and assumptions for impairment testing: the Entity assumes that all revenues from the WGM will be paid in accordance with the Grid Contract Document; the Entity has a single CGU for the purposes of impairment testing because it receives the majority of its revenue from one customer the WGM; the recoverable amount of the CGU was estimated based on the value in use and was determined with the assistance of independent experts; the recoverable amount has been adjusted by the remaining amount of deferred government grant income (refer Note 27). AASB 136 Impairment, implies that the assumptions used in determining the recoverable amount are consistent with determining the carrying amount in relation to the calculation of impairment ( like for like basis). The government grant was received for the purpose of reducing the cost of constructing WCRW s assets; the discount rate has been calculated by an independent expert using the WACC and CAPM framework. The Board has adopted a target gearing level of 70% consistent with advice from an independent expert with the assumption that surplus cash will be applied to debt repayment in the first instance and dividends thereafter, in accordance with the Board adopted Cash Management Policy; the WACC provided by the QCA on non-drought assets assumes interest rate immunisation. This impacts both the earning rate and the impairment rate on non-drought assets because of reduced risk. This continues for the life of the model; the model makes provision each year for receipt of a return on working capital in line with normal regulatory practice as part of the revenues received by the Entity; cash flows are projected utilising the building blocks methodology recommended by the QCA, the Price Regulator, for both drought related and non-drought related assets and applied to the RAB. The prices used to determine revenues are based on a rate of return that is set by the QCA. Cash inflows are nominal cash flows incorporating inflation of 2.5% per annum; cash inflows incorporate net revenue generated from regulated revenue as well as other revenue sources including hydro electric power generating revenue. These other revenue sources relate directly to the CGU based on management s best estimate of future cash flow having regard to historical performance and contractual cash flows as well as expectations about possible variations in the amount and timing of those future cash flows; cash flow forecasts are estimated for a period of 40 years using the building block approach, and then extrapolated in perpetuity utilising the Gordon s Growth Model; the pricing mechanism is based on the RAB which assumes a remaining useful life for depreciation purposes of 60 years for the initial tranche of assets and specific depreciation periods relating to drought assets, all transferred assets from local governments and state entities and ongoing capital expenditure post 1 July 2008; and expenditure necessary to maintain or sustain the performance of the assets has been taken into account when estimating the net future cash flows as it is deemed maintenance in nature. The values assigned to the key assumptions represent the Entity s assessment of future trends in the water industry and are based on both external sources and internal sources (historical data). 68 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

71 18. Impairment testing for cash generating unit (continued) Inherent uncertainty The above estimates are particularly sensitive to changes in the prices set by the Price Regulator on water assets. The bulk of the Entity s revenues are determined annually by the Price Regulator under the provisions of the Market Rules. The current methodology includes provision to: retain the treatment of capital returns via a WACC rate for non-drought assets and a cost of debt return for drought assets; set a maximum allowable revenue for operating expenditure, including overheads, non-variable water treatment costs and allowable costs; recover budgeted variable operating costs on a $ per ML basis, reflecting plant production costs for chemicals and electricity; and include capital expenditure into the RAB. Budget forecasts have been used as the basis for the modelling of cash flows for impairment testing purposes as they are the most reasonable assumptions available at this time. In a letter dated 9 August 2012, the Hon. Mark McArdle MP, Minister for Energy and Water Supply, approved the Grid Service Charges (GSCs) to be paid to the Entity for the provision of declared water services. In a letter dated 17 July 2012, the Hon. Mark McArdle MP, Minister for Energy and Water Supply, confirmed that the QCA will not be required to investigate the GSCs for , this will be a matter for the Government, with support from the Interdepartmental Committee who will provide advice on a longterm economic regulatory model for the SEQ water sector. There is inherent uncertainty with what form the pricing mechanism may take post 30 June $000 $ Trade and other receivables Current Trade debtors 18, Less: Provision for impairment (79) (49) 18, Other receivables - WGM 57,343 38,420 Other receivables - other 1, ,476 38,812 Total 77,195 39,552 QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

72 20. Inventories $000 $000 Chemicals 1,196 1,185 Renewable energy certificates 1,430 - Other 1,281 1,132 Total 3,907 2, Other current assets Deposit paid 7,972 11,166 Prepayments 1,992 1,421 Total 9,964 12, Tax assets and liabilities (a) Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: 2012 Assets Liabilities Net $000 $000 $000 Property, plant and equipment - (308,238) (308,238) Borrowings - (453) (453) Provision for employee benefits 3,358-3,358 Superannuation 5-5 Tax losses 13,016-13,016 Government grant 122, ,924 Accrued expenses Other items 27 (161) (134) Total tax assets (liabilities) 139,634 (308,852) (169,218) 2011 Assets Liabilities Net $000 $000 $000 Property, plant and equipment - (222,765) (222,765) Borrowings - (566) (566) Provision for employee benefits 2,690-2,690 Superannuation 5-5 Tax losses 10,091-10,091 Government grant Accrued expenses Other items Total tax assets (liabilities) 13,513 (223,331) (209,818) 70 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

73 22. Tax assets and liabilities (continued) (b) Movement in temporary differences during the year 2011 Recognised in profit or loss Acquired in equity 2012 $000 $000 $000 $000 Property, plant and equipment (222,765) 10,224 (95,697) (308,238) Borrowings (566) (453) Provision for employee benefits 2, ,358 Superannuation Tax losses 10,091 2,925-13,016 Government grant 293 3, , Accrued expenses 368 (86) Other items 66 (115) (85) (134) Total (209,818) 17,570 23, , Recognised in profit or loss Acquired in equity 2011 $000 $000 $000 $000 Property, plant and equipment (206,194) (4,739) (11,832) (222,765) Borrowings (678) (566) Provision for employee benefits 2, ,690 Superannuation Tax losses 9, ,091 Government grant 320 (27) Accrued expenses Other items 87 (21) - 66 Total (194,105) (3,881) (11,832) (209,818) (c) Tax losses A DTA is recognised for unused tax losses to the extent that it is probable that future taxable profits will be available against which they can be utilised. DTA are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The Board has decided not to recognise a DTA for the tax losses transferred to the Entity from WaterSecure on 1 July 2011 on the basis it is not probable that the related tax benefit will be realised. The resulting entry is an adjustment to the opening balances for the acquisition of WaterSecure, the DTA is reduced by $112,104,534 and the contributed equity is also reduced by $112,104,534. On 28 September 2011 the NTER granted approval to the Entity to utilise the transferred NTER losses from WaterSecure. Utilisation of the WaterSecure tax losses to offset future taxable income is subject to the relevant loss limitation factors. As at 30 June 2012, the balance of these tax losses carried forward is $373,681,897. Should the probability requirement in AASB 112 Income Taxes be satisfied in future reporting periods, a DTA will be recognised and bought to account. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

74 23. Cash and cash equivalents $000 $000 (a) Cash and cash equivalents Cash on hand 3 3 Bank balances 66, Short term deposits with QTC 55,688 69,014 Cash and cash equivalents in the Statement of Cash Flows 122,641 69,563 (b) Reconciliation of cash flows from operating activities Cash flows from operating activities Profit /(Loss) for the year (46,939) 10,574 Adjustments for: Depreciation 148,807 41,731 Amortisation of intangible assets 1,863 1,273 Loss on sale of property, plant and equipment 336 1,644 Income tax expense / (credit) (17,569) 3,881 Revaluation decrement 42,170 - Doubtful debts expenses 31 9 Change in assets and liabilities Change in trade and other receivables (23,983) (8,149) Change in inventories (1,590) 56 Change in GST input tax credits receivable 450 (183) Change in repayment (571) (373) Change in trade and other payables 9,991 4,760 Change in provisions and employee benefits 1,764 2,003 Change in unearned revenue (11,233) 23,963 Change in interest payable 39,283 (2,252) Change in GST payable 2, Net cash from operating activities 145,411 79,355 (c) Funding facilities Drawn 2,955, ,541 Unused 11,955 5,080 Total Facility 2,967, ,621 The State Borrowing Program funding application is submitted annually by the Entity and is approved by the Queensland Government. The majority of this funding is for the acquisitions of WaterSecure and Wyaralong Dam. The funding facility is maintained by QTC. (d) Credit standby arrangement Drawn - - Unused 60,000 60,000 Total Facility 60,000 60, FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

75 24. Interest bearing liabilities $000 $000 Current QTC - Loans interest payable 80,726 30,193 QTC - Redraw facility fees QTC - Market valuation at acquisition (377) (376) Total 80,415 29,864 Non current QTC - Loans 5,488,377 2,544,327 QTC - Redraw Facility (529,752) (429,752) QTC - Market valuation at acquisition (1,133) (1,510) Total 4,957,492 2,113,065 The amount in the Redraw Facility offsets the Entity s debt balance and is available for use by the Entity at short notice (refer to Note 3(b)). No assets have been pledged as security for any liabilities. All borrowings are in Australian dollar denominated amounts and carried at amortised cost, interest being expensed as it accrues, except for assets under construction. The amount of $11,058,107 (2011: $23,047,839) has been capitalised during current year. There have been no defaults or breaches of the loan agreement during the year. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

76 24. Interest bearing liabilities (continued) Balances of outstanding loans were as follows: Carrying amount Fair Value $000 $000 QTC Water Infrastructure Debt Pool 198, ,122 QTC CSP Pre 1 July 08 Debt Pool 538, ,265 QTC CSP Post 1 July 08 Debt Pool 615, ,555 QTC EMA Debt Pool 46,525 52,162 QTC Hinze Dam debt Pool 453, ,124 QTC BCC Aquifer Debt Pool 54,662 61,449 QTC Caboolture Aquifer Debt Pool 43,969 48,890 QTC Cedar Grove / Bromelton Debt Pool 73,360 83,636 QTC Esk Pipeline Off-Stream Storage Debt Pool 6,635 7,511 QTC Coominya Pipeline Off-Stream Storage Debt Pool 6,708 7,592 QTC Enoggera WTP Upgrade Debt Pool 11,995 13,445 QTC Fluoridation Stage 2 Debt Pool 13,654 15,136 QTC Wyaralong Dam WTP Debt Pool 10,602 11,682 QTC PRW Infrastructure Assets Debt Pool 1,617,642 1,817,430 QTC PRW Loan Debt Pool 375, ,443 QTC DESAL Tugun Infrastructure Assets Debt Pool 592, ,993 QTC Wyaralong Dam Debt Pool 331, ,204 QTC Wyaralong Dam Access Road Debt Pool 47,386 52,544 Total 5,039,351 5,716,183 Note Loans interest payable 80,726 Loans principal 5,488,377 Redraw Facility (529,752) Total 5 5,039,351 The Weighted Average Borrowing Rate for QTC borrowings as at 30 June 2012 is 6.8%. Interest payments are made quarterly in arrears at rates ranging from 6.02% to 8.55%. The fair value of the borrowings as at 30 June 2012 was determined by QTC to be $5,716,183,340 (2011: $2,261,369,215). The fair value is the amount owing on the debt if it were to be paid out at 30 June The fair value is calculated using discounted cash flow analysis and the effective interest rate (refer to Note 29(e)). No fair value adjustment was made to the carrying amount of the borrowings during the year (2011: $0). Management has no intention to repay the debt earlier than the existing term. 74 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

77 25. Employee benefits $000 $000 Current Salaries and wages accrued 1,990 1,946 Liability for long service leave Liability for annual leave 3,687 3,043 Total 6,008 5,311 Non current Liability for long service leave 6,849 5,890 Liability for annual leave 1,746 1,640 Total 8,595 7,530 Refer to Note 9 for details of the amount of superannuation contribution paid by the Entity to the superannuation funds in respect of this year for the benefit of the employees. Local government superannuation scheme LG Super The Entity contributes to LG Super (incorporating City Super) for its employees. LG Super is a Multiemployer Plan as defined in the Australian Accounting Standard AASB 119 Employee Benefits. The Queensland Local Government Superannuation Board, the trustee of LG Super, advised that LG Super was a complying superannuation scheme for the purpose of the Commonwealth Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). LG Super has two elements referred to as the DBF and the ABF. The ABF is a defined contribution scheme as defined in AASB 119. The Entity has no liability to or interest in the ABF other than the payment of the statutory contributions as required by the SIS Regulations. The DBF is a defined benefit plan as defined in AASB 119. The Entity is not able to account for the DBF as a defined benefit plan in accordance with AASB 119 because LG Super is unable to account to the Entity for its proportionate share of the defined benefits obligation plan assets and costs. Any amount by which either fund is over or under funded would only affect future benefits and contributions to the DBF, and is not an asset or liability of the Entity. Accordingly there is no recognition in the financial statements of any over or under funding of LG Super. The audited general purpose financial report of LG Super as at 30 June 2011 (the most recent available) which was not subject to any audit qualification, indicates that the assets of LG Super are sufficient to meet the vested benefits. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

78 25. Employee benefits (continued) Local government superannuation scheme LG Super (continued) The trustee of LG Super provided the Funding and Solvency Certificate for the LG Super (incorporating City Super), as prepared by the independent actuary appointed by the Queensland Local Government Superannuation Board. The Certificate confirmed that at 1 July 2011 LG Super was solvent as described in the SIS Regulations 9.06 and 9.15 at the effective date of the certificate, which means the Minimum Requisite Benefits, were covered by the net realisable value of the LG Super s assets. The Benefit Certificate covers the period from 1 July 2011 to 30 June City defined benefit fund (LG Super sub-fund) $000 $000 (a) Reconciliation of the present value of the defined benefit obligation Present value of defined benefits obligations at beginning of the year 1,718 1,602 Current service cost Interest cost Contributions by plan participants Actuarial losses Benefits paid - - Taxes and premiums paid (15) (26) Present value of defined benefit obligations at end of the year 2,065 1,718 (b) Reconciliation of the fair value of plan assets Fair value of plan assets at beginning of the year 1,659 1,361 Expected return on plan assets Actuarial gains/(losses) (35) 54 Employer contributions Contributions by plan participants Benefits paid - - Taxes and premiums paid (15) (26) Fair value of plan assets at end of the year 1,817 1,659 (c) Reconciliation of the assets and liabilities Defined benefit obligation (includes contributions tax provision) 2,065 1,718 Fair value of plan assets (1,817) (1,659) Net superannuation liability FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

79 25. Employee benefits (continued) (d) Expense recognised $000 $000 Service cost Interest cost Expected return on assets (109) (95) Actuarial losses/(gains) 260 (48) Superannuation expense/(income) 269 (24) (e) Plan assets The percentage invested in each asset class at the reporting date: Australian equity 24% 33% International equity 24% 23% Fixed income 12% 11% Property 15% 16% Alternatives/Other 25% 12% Cash 0% 5% (f) Fair value of plan assets The fair value of plan assets excludes amounts relating to any of the Entity s own financial instruments or any property occupied by, or other assets used by the Entity. (g) Expected rate of return on plan assets The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each asset class and allowing for the correlations of the investment returns between asset classes. The returns used for each class are net of investment tax and investment fees. An allowance for asset-based administration expenses has also been deducted from the expected return. (h) Actual return on plan assets Actual return on plan assets (i) Principal actuarial assumptions at the reporting date Discount rate 3.5% 4.9% Expected rate of return on plan assets 7.0% 6.8% Expected salary increase rate 4.0% 4.0% (j) Historical Information Present value of defined benefit obligation 2,065 1,718 Fair value of plan assets 1,817 1,659 Deficit in plan Experience adjustments (gains)/losses plan assets 35 (54) Experience adjustments (gains)/losses plan liabilities 84 (22) Other adjustments losses on change in assumptions (k) Expected contributions Expected employer contributions for are $37,000. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

80 26. Trade and other payables $000 $000 Current Trade and other payables 50,751 29,103 GST receivable (1,604) (2,054) GST payable 5,673 3,071 4,069 1,017 Total 54,820 30,120 Non current Other payables Total Other liabilities Current Unearned revenue - WGM 23,891 23,920 Unearned revenue government grant 11,382 - Unearned revenue - other Security deposits - 21 Other payables Total 35,726 24,215 Non current Unearned revenue government grant 373,204 - Total 373, FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

81 28. Asset revaluation surplus by class 2012 Land Building Infrastructure Total $000 $000 $000 $000 Balance at 1 July ,116 1, , ,647 Transfer between classes - (1,528) 1,528 - Revaluation increments - 6, Reversal of prior year revaluation increments (2,514) - - (2,514) Asset revaluation on disposal Deferred tax liabilities 754 (1,859) - (1,105) Balance at 30 June ,356 4, , , Land Building Infrastructure Total $000 $000 $000 $000 Balance at 1 July ,116 1, , ,479 Transfer between classes Revaluation increments Asset revaluation on disposal Deferred tax liabilities - - (11,832) (11,832) Balance at 30 June ,116 1, , ,647 QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

82 29. Financial Instruments (a) Categorisation of financial instruments The Entity has the following categories of financial assets and financial liabilities: Category Note $000 $000 Financial assets Cash and cash equivalents ,641 69,563 Receivables 19 77,195 39,552 Total 199, ,115 Financial liabilities Payables 26 55,502 30,936 Other financial liabilities QTC 24 5,039,351 2,144,768 borrowing Total 5,094,853 2,175,704 (b) Credit risk exposure The maximum exposure to credit risk at balance date in relation to each class of recognised financial asset is the gross carrying amount of those assets inclusive of any provisions for impairment. The following table represents the Entity s maximum exposure to credit risk based on contractual amounts net of any allowances: Maximum exposure to credit risk Category Financial liabilities Guarantee 32(c) Total Financial Assets The carrying amount of receivables represents the maximum exposure to credit risk. As such, receivables are not included in the above disclosure. No collateral is held as security and no credit enhancements relate to financial assets held by the Entity. No financial assets and financial liabilities have been offset in the Statement of Financial Position. The method of calculating any provisional impairment for risk is based on past experience. The recognised impairment provision for receivables is $79,100 for the current year (2011: $48,566). No financial assets have had their terms renegotiated so as to prevent them from being past due or impaired, and are stated at the carrying amount as indicated. Ageing past due, but not impaired, as well as impaired financial assets are disclosed in the following tables: Gross Impairment Gross Impairment Receivables $000 $000 $000 $000 Not past due 76,821-39,240 - Past due days Past due days More than 90 days 237 (79) 180 (49) Total 77,274 (79) 39,601 (49) 80 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

83 29. Financial instruments (continued) (c) Liquidity risk The Entity is exposed to liquidity risk in respect of its payables and borrowings from QTC. The following tables set out the liquidity risk of financial liabilities held by the Entity. It represents the contractual maturity of financial liabilities, calculated based on cash flows relating to the repayment of the principal amount outstanding at balance date Payable in Total Financial liabilities <1 year 1-5 years >5 years $000 $000 $000 $000 QTC borrowings - loans 342,259 1,369,982 5,180,932 6,893,173 Trade and other payables 54, ,502 Total 397,080 1,370,620 5,180,975 6,948, Payable in Total Financial liabilities <1 year 1-5 years >5 years $000 $000 $000 $000 QTC borrowings - loans 133, ,421 2,300,093 2,967,146 Trade and other payables 30, ,936 Total 163, ,161 2,300,169 2,998,082 (d) Market risk The Entity does not trade in foreign currency and is not materially exposed to commodity price ranges. The Entity is exposed to interest rate risk through borrowings and investment with QTC and cash deposited in interest bearing accounts. Sensitivity analysis The following sensitivity analysis depicts the outcome to profit and loss if interest rates change by +/- 1% from the year-end rates applicable to the Entity s financial assets and liabilities. The calculations assume that the rate would be held constant over the next financial year, with the change occurring at the beginning of that year. This is mainly attributable to the Entity s exposure to variable interest rates on its borrowings from QTC % + 1% Net carrying amounts Profit Equity Profit Equity $000 $000 $000 $000 $000 Cash and cash equivalents 122,641 (1,226) (1,226) 1,226 1,226 QTC borrowings - loans 5,039,351 2,950 2,950 (2,740) (2,740) Overall effect on profit and equity 1,724 1,724 (1,514) (1,514) % + 1% Net carrying amounts Profit Equity Profit Equity $000 $000 $000 $000 $000 Cash and cash equivalents 69,563 (696) (696) QTC borrowings - loans 2,144,768 1,635 1,635 (1,635) (1,635) Overall effect on profit and equity (939) (939) QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

84 29. Financial instruments (continued) (e) Fair value The recognised fair values of financial assets and liabilities are classified according to the following fair value hierarchy that reflects the significance of the inputs used in making these measurements: Level 1 - fair values that reflect unadjusted quoted prices in active markets for identical assets/liabilities; Level 2 - fair values that are based on inputs that are directly or indirectly observable for the assets/ liabilities (other than unadjusted quoted prices); and Level 3 - fair values that are derived from data not observable in a market. According to the above hierarchy, the fair values of each class of asset/liabilities recognised at fair value are as follows: Class Classification according to fair value hierarchy 2012 Total Level 1 Level 2 Level 3 carrying amount $000 $000 $000 $000 Financial assets Cash and cash equivalents 122, ,641 Receivables 77, ,195 Total 199, ,836 Financial liabilities Payables 55, ,502 QTC borrowings 5,716, ,716,183 Total 5,771, ,771,685 The carrying amounts of all financial assets and financial liabilities, except the borrowings from the QTC are representative of their fair value. The fair value of the QTC borrowings, calculated using discounted cash flow analysis and the effective interest rate, is disclosed below (refer to Note 24): 2012 Notes Carrying amount Fair value $000 $000 QTC borrowings - loans 5,039,351 5,716,183 QTC borrowings - working capital facility - - Total 5,039,351 5,716, Carrying amount Fair value $000 $000 QTC borrowings - loans 2,144,768 2,261,369 QTC borrowings - working capital facility - - Total 2,144,768 2,261, FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

85 30. Operating leases (a) Leases as lessee $000 $000 Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years 1,838 1,183 More than five years 1,622 3,602 Total 4,324 5,075 The Entity leases a number of office accommodations under operating leases. Lease payments are generally fixed, but with inflation escalation clauses on which contingent rentals are determined. (b) Leases as lessor Non-cancellable operating lease rentals are receivable as follows: Less than one year Between one and five years 1,602 1,881 More than five years 1,055 1,137 Total 3,362 3,937 The Entity leases out its rental properties, office space, grazing land and recreation facilities. The rent for rental properties that is paid to the Entity is adjusted to market rent at regular intervals. Other lease payments are generally fixed, but with inflation escalation clauses on which contingent rentals are determined. 31. Capital and other commitments Contracted but not yet provided for and payable: Within one year 104,676 52,640 One year and no later than five years 23,503 38,133 More than five years - - Total 128,179 90,773 QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

86 32. Contingencies (a) Litigation in progress A claim has been made against the Entity by a sub-contractor for damage to the amount of $9 million by reason of the wrongful repudiation of the sub-contractor s Sub Alliance Agreement. This amount has not changed since 30 June The Entity believes it has a valid defence to the claim and as such, the claim has not been recognised. (b) Insurance claims The Entity s insurance claim in response to the January 2011 South East Queensland flood is in progress. The Entity is pursuing insurance for costs incurred to date and estimates for the restoration of asset damage due to the flood. The actual amount to be received from the underwriters is dependent on their review of the submitted claim and the ongoing completion of engineering assessments. Four insurance claims totalling $21.77 million plus prolongation costs for the Gold Coast Desalination Plant in respect of rectification work yet to be finalised. Out of the total claims, $15.18 million has been received. Insurance claims totalling $24.84 million have been submitted in respect of WCRWS-Gibson Island. The claims are in relation to professional indemnity and material damages. $5 million has been received. Insurance claims have also been submitted for the WCRWS-Eastern Pipeline for $8.5 million in relation to professional indemnity. No assets have been recognised in the financial statements for the above insurance claims. (c) Financial Guarantees A guarantee was provided in 2010 to Stanwell Corporation Limited, in respect of the operation and maintenance agreement of the Wivenhoe Hydro Plant. The amount guaranteed was $200,000. No defaults have occurred and the Entity does not expect that the guarantee will be called upon. The guarantee is not recognised on the Statement of Financial Position as the probability of default is remote. As financial guarantee contracts are measured in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets, the Entity has disclosed the details of the guarantee in this note, in addition to Note 29 (b) Financial Instruments for full transparency purposes. (d) Commission of Inquiry The Queensland Floods Commission of Inquiry delivered its Final Report on 16 March 2012 and the Entity is implementing relevant recommendations from the Commission s Interim Report and Final Report. Certain parties have publicly stated that they are investigating the possibility of making claims in respect of the January 2011 flood against parties which include the Entity. 84 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

87 33. Segment reporting The Entity operates in the water supply industry in the south east area of Queensland. 34. Controlled entities Parent and ultimate controlling party Country of establishment /incorporation Ownership interest Date ceased operation Entity Queensland Bulk Water Supply Authority Australia - Subsidiary Western Corridor Recycled Water Pty Ltd Australia 100% 31 May 2010 South East Queensland (Gold Coast) Desalination Company Pty Ltd Australia 100% 31 May 2010 South East Queensland Water Corporation Pty Limited Australia 100% 1 July 2008 Australian Water Recycling Centre of Excellence Limited Australia 100% n/a South East Queensland Water Corporation Pty Limited was deregistered on 15 August The Queensland Bulk Water Supply Authority is controlled by the Queensland Government which is the ultimate parent (refer to Note 36). 35. Key management personnel and remuneration The following details for key management personnel include those positions that had authority and responsibility for planning, directing and controlling the activities of the Entity during Further information on these positions can be found in the body of the Annual Report under the section relating to Governance. (a) Board Members and remuneration Board members fees include fees paid for membership of the Audit Committee and a Task Force. The Board members who were paid, or were due to be paid directly or indirectly from the Entity were: Salary and Fees Superannuation Contribution Salary and Fees Superannuation Contribution $ $ $ $ Phil Hennessy 69,571 44,177 67,487 46,261 Tom Fenwick 58, ,801 4,932 Leeanne Bond 57,698 1,158 53,712 4,834 Leith Boully 53,667-58,546 - Ian Fraser 52,623 4,736 52,623 4,736 David McDougall* - 49, Scott Standen* 45,079 4, Total 337, , ,169 60,763 * Appointed 01 July QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

88 35. Key management personnel and remuneration (continued) (b) Key executive management personnel and remuneration Position Peter Borrows - Chief Executive Officer (CEO) Jim Pruss - EGM - Water Delivery Alex Fisher - EGM - Asset Delivery Sam Romano - EGM - Business Services Bill Andrew - EGM - Organisation Development Cedric Robillot EGM Technical Warranty and Development Responsibilities The CEO is responsible for the efficient, effective and economic administration of the Entity. The EGM for Water Delivery is responsible for the management and operation of all dams and water treatment plant assets, infrastructure maintenance, land and water quality, water quality monitoring, as well as catchment support services such as recreation. The EGM for Asset Delivery is responsible for asset strategy and planning (both natural and built), infrastructure asset planning, the capital works program, managing major projects as well as research and development. The EGM for Business Services is responsible for finance and procurement, information technology, compliance and regulatory services, risk management, economic regulations and pricing, legal services, property and facilities management. The EGM for Organisation Development is responsible for organisational and culture change, strategic relations and communications, employee relations, enterprise bargaining, organisational design, leadership development and team building functions as well as workplace health and safety. The EGM of Technical Warranty and Development is responsible for the integration of operational and asset management activities across broad geographical locations and the transition of the contractual and operational relations with the WCRWS and GCDP operators. This EGM is also responsible for delivering research, science and technology outcomes for improved catchment and water cycle management. Date appointed to position (Date resigned form position) Appointed 16 November 2007 Appointed 16 November 2007 Appointed 01 February 2010 Appointed 01 July 2011 Appointed 25 May 2009 Appointed 01 July 2011 Remuneration policy for the Entity s key executive management is set by the Responsible Ministers as provided for under the State Water Authorities - Governance Arrangements for Chief and Senior Executives. The remuneration and other terms of employment for the key executive management personnel are specified in employment contracts. The contracts provide for the provision of performance related cash bonuses and other benefits including car parking. For , remuneration of key executive management personnel was increased in accordance with State Water Authorities - Governance Arrangements for Chief and Senior Executives. 86 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

89 35. Key management personnel and remuneration (continued) (b) Key executive management personnel and remuneration (continued) Remuneration packages for key executive management personnel comprise the following components: short term employee benefits which include: o Base - consisting of base salary, allowances and leave entitlements paid and provided for the entire year or for the part of the year during which the employee occupied the specified position. Amounts disclosed equal the amount expensed in the Statement of Comprehensive Income; and o Non-monetary benefits - consisting of provision of car parking with fringe benefits tax applicable to the benefit. long term employee benefits include long service leave accrued; post employee benefits included superannuation contributions; redundancy payments are not provided for within individual contracts of employment. Contracts of employment provide only for notice periods or payment in lieu of notice on termination, regardless of the reason for termination. Total fixed remuneration is calculated on a total cost basis and includes the base and non-monetary benefits, long term employee benefits, post employment benefits, redundancy payments and performance payments. This disclosure and calculation methodology is required under Queensland Treasury s Financial Reporting Requirements for Queensland Government Agencies Section 5 Addendum - Executive Remuneration Disclosure. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

90 35. Key management personnel and remuneration (continued) (b) Key executive management personnel and remuneration (continued) 1 July June 2012 Short term employee benefits Non- Monetary benefits Long term employee benefits Post employment benefits Termination benefits Total Remuneration Base Position $ $ $ $ $ $ P Borrows - CEO 394,576 3,283 14,294 43, ,356 J Pruss - EGM 293,098 3,283 9,064 46, ,510 A Fisher - EGM 254,821 3,283 6,948 34, ,646 S Romano - EGM 278,863-6,644 23, ,424 B Andrew - EGM 235,500 3,283 7,181 32, ,849 C Robillot - EGM 223,776 2,467 5,690 29, ,953 Total Remuneration 1,680,634 15,599 49, ,684-1,955,738 1 July June 2011 Short term Employee benefits Non- Monetary benefits Long term employee benefits Post employment benefits Termination benefits Total Remuneration Base Position $ $ $ $ $ $ P Borrows - CEO 440, ,185 37, ,732 J Pruss - EGM 302,150 3,056 8,600 30, ,620 A Fisher - EGM 219,665 3,056 5,766 28, ,030 H Moore - EGM 182,454 3,056 (2,534) 23, , ,310 B Andrew - EGM 250,568 3,056 6,223 30, ,255 Total Remuneration 1,395,789 12,746 34, , ,946 1,777, FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

91 35. Key management personnel and remuneration (continued) (c) Performance payments Performance bonuses may be paid or payable annually depending upon satisfaction of key performance criteria. Performance payments of key executive management are capped at 15% of total fixed remuneration. The amounts payable are tied to the achievement of pre-determined Entity and individual performance targets as approved by the Board. The calculation of the cash performance bonuses is as per the Entity s Remuneration Policy. The payment of the performance bonuses for the and financial year is set out below: Position Basis for Payment P Borrows - CEO The cash performance bonus is yet to be determined (2011:12.75%). J Pruss - EGM The cash performance bonus is yet to be determined (2011:12.00%). A Fisher EGM The cash performance bonus is yet to be determined (2011:11.25%). S Romano EGM The cash performance bonus is yet to be determined (2011:n/a). C Robillot - EGM The cash performance bonus is yet to be determined (2011:n/a). B Andrew - EGM The cash performance bonus is yet to be determined (2011:11.25%). The aggregate performance bonuses paid to all key executive management personnel for are $178,810. The cash performance bonuses for the year are yet to be determined by the Board. (d) Loans to key management personnel None of the key management personnel have personal loans with the Entity outstanding as at 30 June (e) Other key management personnel transactions None of the key management personnel have conducted personal transactions with the Entity during the year. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

92 35. Key management personnel and remuneration (continued) (f) Board members transactions During the year, all Board Members were directors of Entity s subsidiaries, SEQWater, WCRW and SEQDC (refer to Note 34). During the year, Leith Boully, Leeanne Bond, David McDougall and Scott Standen were Directors of AWRCoE. This is a not for profit public company, limited by Guarantee, that was incorporated for the purpose of establishing and operating a Centre of Excellence in Water Recycling. The Entity is the sole member of this company. During the year, Tom Fenwick was a Director of QWI and the Entity participated in the Wyaralong interagency working group with QWI and others following the 1 July 2011 transfer of the Wyaralong Dam assets to the Entity (via the South East Queensland Water (Restructuring) Regulation 2011) (refer to Note 3(a) and 36). Phil Hennessy is a Member of the Senate of the University of Queensland and Leith Boully is an Adjunct Professor at the University of Queensland. During the year, the Entity was party to research arrangements with the University of Queensland. Phil Hennessy is Queensland Chairman of KPMG. David McDougall was a partner of KPMG until 30 June During the year, KPMG provided internal audit and advisory services to the Entity. Mr Hennessy and Mr McDougall had no involvement in the provision of these services. Leith Boully is Chair of Healthy Waterways Ltd. During the year, the Entity provided funding to Healthy Waterways Ltd pursuant to a Network Deed. 36. Related parties The Entity is controlled by the Queensland Government and as a result there are significant number of interactions with other entities controlled by the same parent (refer to Note 34). The Entity procures services from a number of Queensland Government departments on normal commercial terms. QTC, a Queensland Government owned corporation, provided loan debt funding to the Entity under normal commercial terms and conditions (refer to Note 24). The Entity received $197,180,000 contributed equity from the Queensland Government during (2011: $123,684,000) (refer to Note 3(p) and the Statement of Changes in Equity). The following entities have the same controlling entity as the Queensland Bulk Water Supply Authority and therefore are considered to be related parties. Transactions with these entities during the year are: WGM - total revenue received $669,381,867 (2011:$350,184,057), receivable of $57,343,074 (2011: $38,420,227) and unearned revenue of $23,890,517 (2011:$23,919,576); LinkWater - reimbursement of electricity costs and payment in accordance with the Gold Coast Desalination Project Alliance Agreement; QWI - Wyaralong inter-agency working group following the 1 July 2011 transfer of the Wyaralong Dam assets to the Entity (via the South East Queensland Water (Restructuring) Regulation 2011) (refer to Note 3(a) and 35); QWC determination of revenue (refer Note 18 inherent uncertainty), total levy paid $6,513,082 (2011: $7,366,667); QCA Price Regulator, total levy paid $1,292,000 (2011: $611,001); SVS independent valuer for land and buildings valuation $256,900 (2011:$0); and Department of Employment, Economic Development and Innovation (DEEDI) - land transfer formalities to finalise prior asset transfers (via Project Direction) and management of acquisition of land and easements along pipeline corridor $5,981,233 (2011:$0). The Entity provides administrative and support services, at no cost, to AWRCoE pursuant to a Service Level Agreement. All other amounts are set out in the respective notes to the financial statements. 90 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

93 $000 $ Auditor s remuneration Audit services Auditors of the Entity: Queensland Audit Office - Audit and review of financial reports Total There are no non-audit services included in this amount. 38. Economic dependency The Queensland Government remains strongly committed to ensuring that the Entity remains solvent and able to deliver essential services in a sustainable and cost effective manner. This commitment was recently reaffirmed in a letter from the Hon. Tim Nicholls MP, Treasurer and Minister for Trade, issued to the Entity dated 17 August The Government s support includes facilitating access to funding facilities at QTC supported by a Queensland Government guarantee under the Statutory Bodies Financial Arrangements Act 1982 (refer to Note 2 (b)). QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

94 39. Subsequent events Restructure of the South East Queensland Bulk water businesses On 26 June 2012, the Hon. Mark McArdle MP, Minister for Energy and Water Supply announced the Government s intention to undertake further structural consolidation of the SEQ bulk water industry, including the merger of the three SEQ bulk water entities, as well as the abolition of the QWC. The Government s intention is to facilitate the structural reforms through amendments to the South East Queensland Water (Restructuring) Act 2007 and other legislation, expected to be introduced into Parliament in late Specifically, the businesses of Seqwater, LinkWater and the WGM are expected to be aggregated into a single bulk water business. Whilst a program to commence the merger process has been initiated, the Government has yet to make some key decisions on the future institutional structure, including the financing arrangements. Furthermore, the legislation to facilitate the reforms is yet to be finalised and introduced into Parliament. The merged entity will continue to make use of the existing assets of the businesses, and continue to supply bulk water to current customers. The Entity has been advised by Government to continue on a business as usual basis. The Queensland Government s commitment to providing ongoing support to the Entity was recently reaffirmed in a letter dated 17 August 2012 from the Hon. Tim Nicholls MP, Treasurer and Minister for Trade. The Treasurer confirmed that the Government remains strongly committed to ensuring Seqwater remains solvent and able to deliver essential services in a sustainable and cost effective manner. The Government s support includes facilitating access to funding facilities at QTC supported by a Queensland Government guarantee under the Statutory Bodies Financial Arrangements Act Despite the fact that the Entity is to be merged with other SEQ bulk water entities, the infrastructure assets of the business are still to be deployed in the same way to generate revenue. It is anticipated that all assets and liabilities of the Entity will be included in the single bulk water business at the values at which they are held by the Entity. With the support provided by the Queensland Government, the Board has prepared these financial statements on a going concern basis (refer to Note 2(b)). Leith Boully, a member of the Board of the Entity, was appointed as a Board member of the interim company, the South East Queensland Bulk Water Corporation Limited on 31 July Operating Arrangements for Western Corridor Recycled Water Scheme (WCRWS) and the Gold Coast Desalination Plant (GCDP) In a letter dated 27 June 2012, the Hon. Mark McArdle MP, Minister for Energy and Water Supply requested the Entity as the owner-operator of the Gold Coast Desalination Plant (GCDP) and the Western Corridor Recycled Water Scheme (WCRWS) to review, within a 9-week period, all options to make the plants more cost-effective and improve the return on the assets over their life. 92 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

95 40. Prior period adjustments Financial statement opening balances and comparative figures have been restated to adjust for a prior period allocation of a previous valuation between the classes of land and buildings. The restatement of the classification at 1 July 2010 resulted in an increase in land of $12,640,246, a decrease in buildings of $17,010,781 and a decrease in accumulated depreciation of $1,271,531. Each affected financial statement line item for the prior year has also been restated (refer to Note 16). As at 30 June 2010 As at 1 July 2010 restated Adjustments $000 $000 $000 Land 507, ,150 12,640 Building 36,994 19,983 (17,011) Accumulated depreciation - Building (2,991) (1,719) 1,272 Financial statement opening balances and comparative figures have been restated to reflect the write down of infrastructure assets as at their transfer dates. The prior period adjustment is due to management s assessment of the values transferred for infrastructure assets not being fit for purpose at the time of transfer. The restatement at 1 July 2010 resulted in an increase in accumulated depreciation of $54,557,015. Each affected financial statement line item for the prior year has also been restated (refer to Note 16). As at 30 June 2010 As at 1 July 2010 restated Adjustments $000 $000 $000 Infrastructure - WTPs 679, ,638 - Accumulated depreciation Infrastructure (WTPs) (39,734) (94,291) (54,557) The net impact on the Statement of Financial Position for the above adjustments resulted in a decrease in property, plant and equipment of $57,656,019, an increase in deferred tax liability of $556,274 and a decrease in retained earnings of $58,212,293. As at 30 June 2010 As at 1 July 2010 restated Adjustments $000 $000 $000 Property, plant and equipment 2,820,987 2,763,331 (57,656) Deferred tax liability 206, , Retained earnings (10,292) (68,504) (58,212) 2011 comparative information has been restated throughout the financial statements. QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

96 94 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

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98 96 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

99 QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

100 GOVERNANCE GLOSSARY Advanced water treatment plant An advanced water treatment plant (AWTP) is a plant where water from a wastewater treatment plant that would otherwise be discharged into a river is purified through a multi-barrier process so that it complies with the approved Recycled Water Management Plan and the Australian Guidelines for Water Recycling. There are three AWTPs in the Western Corridor Recycled Water Scheme, located at Bundamba, Luggage Point and Gibson Island. Australian Drinking Water Guidelines 2011 Developed by the National Health and Medical Research Council in collaboration with the Natural Resource Management Ministerial Council. The Australian Drinking Water Guidelines 2011 incorporates the Framework for the Management of Drinking Water Quality and provides the Australian community and the water supply industry with guidance on what constitutes good quality drinking water. Australian Guidelines for Water Recycling The Australian Guidelines for Water Recycling are based on the framework developed for the Australian Drinking Water Guidelines (see above) with adaptations to manage risks to human health and the environment. It outlines not only the technical issues of purified recycled water supply but also aspects such as corporate commitment, communication, training and relationships with other stakeholders and with consumers with which Seqwater must comply. Bulk water Water supplied from dam, desalination and purified sources by a Grid Service Provider to the SEQ Water Grid Manager for sale to Grid Customers. Desalination Desalination is the process of creating drinking water from seawater. The Gold Coast Desalination Plant uses reverse osmosis to desalinate seawater. Full supply level The maximum normal operating level of a reservoir behind a dam. Grid Instructions Directions issued by the SEQ Water Grid Manager to optimise SEQ Water Grid operating performance and water supply security. January 2011 Flood The January 2011 Flood refers to the flooding which occurred across Queensland between December 2010 and January LinkWater The Queensland Government statutory authority responsible for the management, operation and maintenance of the drinkable bulk water pipelines and related infrastructure throughout South East Queensland. Purified recycled water Wastewater that has been purified to a standard that is ready for consumption under the Australian Drinking Water Guidelines Queensland Floods Commission of Inquiry The Queensland Floods Commission of Inquiry refers to the Commission of Inquiry established by the Queensland Government to enquire into the December 2010 and January 2011 flood events. Raw water Water that has not yet been treated by a Grid Service Provider. 98 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

101 Reverse osmosis Reverse osmosis, the fourth barrier in the seven-barrier water treatment system and the second step in the advanced water treatment process, involves forcing filtered water through a specially engineered membrane at high pressure to remove impurities such as dissolved salts, viruses, pesticides and most organic compounds. SEQ South East Queensland SEQ Water Grid The SEQ Water Grid is a network of treatment facilities and connected pipelines that move water across the region to where it is needed most. SEQ Water Grid Manager The SEQ Water Grid Manager owns the urban water entitlements in South East Queensland and purchases services to store, treat, produce and transport bulk water from Seqwater and LinkWater. It then sells treated water to council-owned retail distribution businesses and industry customers. Treated water Water that has undergone a cleansing process to a standard that is ready for consumption under the Australian Drinking Water Guidelines WaterSecure Queensland Manufactured Water Authority, supplying a new source of water to South East Queensland through its desalination plant and water recycling scheme. On 1 July 2011, WaterSecure and Seqwater merged to comprise one bulk water supply authority, responsible for managing catchment-based and climate-resilient water supply assets. Whole-of-Grid Refers to the collaboration of the organisations with unique functions that complement each other in operating the SEQ Water Grid. Sustainability Charter The Sustainability Charter outlines our organisation s commitment to sustainability through: 1. working within the restorative capacity of our environment 2. nurturing confidence in the strength of our communities 3. contributing to the long-term prosperity of our regions. The full Sustainability Charter can be viewed online at QUEENSLAND BULK WATER SUPPLY AUTHORITY TRADING AS SEQWATER ANNUAL REPORT

102 NOTES 100 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

103

104 This Annual Report is printed on environmentally friendly stock.