DELIVERING WATER FOR LIFE

Transcription

1 DELIVERING WATER FOR LIFE Annual report

2 26 September 2017 The Honourable Mark Bailey MP The Honourable Curtis Pitt MP Minister for Main Road, Road Safety and Ports Treasurer Minister for Energy, Biofuels and Water Supply Minister for Trade and Investment 1 William Street 1 William Street BRISBANE QLD 4000 BRISBANE QLD 4000 Dear Ministers I am pleased to present the Annual Report and financial statements for the Queensland Bulk Water Supply Authority, trading as Seqwater. The report details the non-financial and financial performance of Seqwater from 1 July 2016 to 30 June I certify that this Annual Report complies with: the prescribed requirements of the Financial Accountability Act 2009 and the Financial Performance Management Standard 2009, and the detailed requirements contained in the Annual report requirements for Queensland Government agencies. A checklist outlining the annual reporting requirements with page references is included in this report. Yours sincerely Mr Dan Hunt Chairman 1 Seqwater Annual Report

3 About this report This annual report records our achievements in delivering a safe, secure and cost-effective water supply to the people of South East Queensland in Our performance is measured against the objectives and targets in our Strategic Plan, Operational Plan and the Statement of Obligations set by the responsible Ministers. The report also describes our financial position for the year. Our report theme, Delivering water for life, describes the essential role we play in providing this precious resource every day, no matter the weather, now and into the future. This report is a key accountability document and the principal way in which we report on our activities to Parliament and the South East Queensland community. The report has been produced in accordance with the standards detailed in the following Queensland legislation and Government guidelines: Financial Accountability Act 2009 Financial Performance Management Standard 2009 South East Queensland Water (Restructuring) Act 2007 Annual report requirements for Queensland Government agencies requirements for the reporting period. Translation and interpreting assistance Seqwater is committed to providing accessible services to Queenslanders from all culturally and linguistically diverse backgrounds. If you have difficulty understanding this annual report please contact us and we will arrange an interpreter to share the report with you. Your feedback is welcome We invite your feedback on our report. Please contact our Corporate and Community Relations team, telephone , fax , communications@seqwater.com.au or complete our survey at seqwater.com.au Seqwater Annual Report ISSN: Queensland Bulk Water Supply Authority The report is available on our website. A printed copy of the report is available on request. On the cover Brooke, a Senior Engineer at Seqwater, is pictured with his daughter, Jazmyn, at Wyaralong Dam, north-west of Beaudesert. Wyaralong Dam is the newest dam in the South East Queensland Water Grid, built in Acknowledging the first Australians We respectfully acknowledge the Traditional Owners past, present and emerging of the lands and waters on which we operate. Our employees live and work in the region, so we know how important it is to do our job with a focus on safety, quality, reliability and value-for-money because we depend on it too. Seqwater Annual Report

4 Table of contents Who we are... 4 What we do... 5 Water production... 6 Our strategic direction... 7 Foreword from our Chairman and CEO South East Queensland Water Grid Highlights of our year Key performance indicators Service delivery People and culture Stakeholders, customers and communities Systems and processes Corporate governance Our organisational structure Economic and financial performance Financial report Checklist Glossary Seqwater Annual Report

5 Who we are Seqwater is the Queensland Government statutory authority responsible for providing a safe, secure and cost-effective bulk drinking water supply for 3.1 million people across South East Queensland. With our water service provider partners Unitywater, Queensland Urban Utilities, and the water operations of the Redland, Logan and City of Gold Coast councils we provide safe drinking water to communities as part of an integrated water supply system, from the catchments to the bay. We also provide irrigation water to around 1,200 rural customers in seven water supply schemes, as well as essential flood mitigation services. Our operations extend from Gympie to the New South Wales border, and west to the base of the Toowoomba ranges. This makes us one of Australia s largest water businesses, with a geographically spread and diverse asset base. On behalf of our communities, we manage and maintain more than $11 billion of water supply assets, including dams, weirs, conventional water treatment plants, reservoirs, pumps and pipelines, as well as climate resilient water sources, such as the Gold Coast Desalination Plant and the Western Corridor Recycled Water Scheme. During , almost 2.7 million people visited our recreation areas. We are one of the few bulk water providers in Australia with open catchments, allowing the community to enjoy recreational activities on many of the dams and lakes that supply our drinking water. We also manage parts of the drinking water catchments, the primary source of the region s water. We strive to balance the ongoing health of the catchments and quality of the region s drinking water supply while providing access to recreation and operating alongside farming and urban areas. Seqwater was formed on 1 January 2013 through a merger of three State-owned water businesses, the SEQ Water Grid Manager, LinkWater and the former Seqwater, in accordance with the South East Queensland Water (Restructuring) Act 2007 as amended by the South East Queensland Water (Restructuring) and Other Legislation Amendment Regulation (No.1) At the same time, Seqwater assumed some responsibilities undertaken by the former Queensland Water Commission, including long-term urban water planning. On 24 March 2017, we published version 2 of our Water Security Program our 30-year plan for South East Queensland s drinking water supply. The South East Queensland Water Grid is our connected network of water catchments, storage dams, treatment plants, reservoirs and pipelines. The grid means we can move water around the region when we need to. Seqwater Annual Report

6 What we do We re proud to deliver Water for life. At Seqwater, it s our job to deliver safe, secure and cost-effective water and catchment services to our customers and communities across South East Queensland. While we cannot supply all of the region s water supply without local rainfall, the Water Grid can help move some water to drier parts of the region. We have a high reliance on surface water (water stored in dams, weirs and off stream storages, sourced from catchments). In , we operated 26 dams, 51 weirs and two borefields to supply water for drinking, irrigation, drought response and recreation. By storing water, our dams also help to mitigate floods. Our source water is treated at 37 water treatment plants to make it safe and pleasant to drink. We then use 22 bulk water pump stations, more than 600 kilometres of bi-directional pipelines and 18 bulk water reservoirs to move and store water before distribution to our water service provider partners, who pipe the water to homes and businesses. About 53,000 people living in smaller communities are supplied by off-grid water treatment plants. We also supply untreated water to rural irrigator customers. This water is used to support a wide variety of agriculture, such as orchards, vegetable and fodder crops, dairying and grazing. We continue to work in partnership with land holders and communities to improve catchment health and thus source water quality. We must balance the needs of the community to live, work and recreate in our water source catchments while protecting the quality of the region s bulk drinking water supply. 5 Seqwater Annual Report

7 Water production Volume IRRIGATION produced 306,915 ML produced 1,562 ML supplied 1 32,442 ML Cost The production and transport costs of water increased this year, in part due to an increase in chemical and energy use during ex-tropical Cyclone Debbie and changes in the operation of the Water Grid. The variable cost of water from base load water treatment plants in was $85/ML. See page 18. Variable cost of production, for baseload treatment plants ($/ML) 1 untreated water to around 1,200 irrigators and commercial raw water users Seqwater Annual Report

8 Our strategic direction Our vision Healthy communities, prosperous region. Our purpose Partnering to deliver safe, secure and cost-effective water and catchment services to our customers and communities. Partnering working collaboratively with customers, communities, governments and industry. Safe, secure and cost-effective always meeting regulated standards cost-effectively to provide the required services to households, businesses and communities. Water services effectively managing our catchments and infrastructure to source, store and supply water that is fit for purpose. Catchment services providing water source improvement, flood mitigation, recreation and land management services. Our values We work safe We work together We continually improve We deliver We each make a difference. Our role in the water sector We are part of South East Queensland s regional water supply network, which includes council-owned water entities, local governments and private sector agencies. Our role is to source, store and supply treated water from catchments and alternative sources, ensuring a high quality and reliable water supply for our customers. We work with our industry partners to achieve the best whole-of-system solutions and provide industry leadership in our region. The Queensland Government has set performance standards for our business through a Statement of Obligations. This provides a comprehensive framework for performance, requiring us to: focus on core business (safe, secure, resilient and reliable water supplies) be an effective and efficient business communicate, consult and collaborate achieve long-term business sustainability be innovative support government objectives and directions. Our contribution to regional prosperity Water is fundamental to regional prosperity. Water fuels the economy and enhances the lives and livelihoods of the people living and working in the region. We work with our customers, communities, governments and industry to understand their needs and to assist us in meeting those needs. The affordability of water is a key issue for our customers. We continue to reduce our costs by: maximising the productivity of our existing water supply infrastructure taking a whole-of-water-cycle approach working with our industry partners to meet customer needs in the most cost-effective way. We support the ongoing growth and prosperity of our region by planning for the future. We develop long-term water supply plans that seek to meet community expectations and needs in the most efficient way possible. 7 Seqwater Annual Report

9 Critical issues for regional water supply The issues most critical to our long-term business performance include: Affordable water for our customers Attraction and retention of a skilled and committed workforce A customer-focused workforce that understands and meets customer expectations Planning and operating water supply assets in a variable climate and during extreme weather events Collaborative whole-of-water-cycle management Partnering to improve catchment health Influencing the long-term regional planning agenda. Seqwater in 2021 Our customers are at the heart of everything we do. We are trusted and respected by customers, communities, government and industry. Our skilled and committed workforce is driving improvement. Seqwater is recognised as a high performing business and a great place to work. We are continuing to work proactively with our partners to deliver safe, secure and more cost-effective water and catchment services, and we have shaped our long-term water future. We are an industry leader in water source management, storage, treatment and supply. Water is valued customers understand and value the water we provide and we understand our customers expectations and are delivering the services they require. We are at the table as a trusted advisor to inform regional planning and regulatory decisions. Our smart, competitive business is contributing to a healthier, more prosperous South East Queensland. Seqwater Annual Report

10 Foreword from our Chairman and CEO Water for life is our promise to the people of South East Queensland. As an essential service utility, Seqwater recognises the vital role we play by delivering best value services to our communities now and into the future. In , we continued to deliver our core services and invest in projects to drive greater efficiency, increased reliability and resilience and, importantly, meet stakeholder, customer and community expectations. We supported the safety of our people and the communities we serve through our safety management system, initiatives such as our Life Saving Controls, and the Play it safe public education campaign. Our Safe for life promise is at the heart of everything we do. We supplied more than 300,000 million litres of bulk drinking water to more than three million South East Queenslanders as well as industry and business, to underpin the economy of our region. At all times, our supply met the Australian Drinking Water Guidelines for public health. Our financial performance has improved considerably since our formation in 2013, driven by a range of initiatives to lower costs and reduce the impact of forecast bulk water price rises. Over the life of the current bulk water price path we have delivered consistent year on year operating savings, including $24 million in the financial year, by consolidating operational efficiencies. Over the last 10 years of the bulk water price path to 2028, these savings are expected to total almost $822 million. The future water supply needs of our communities continued to be a focus, with the ongoing development of the region s 30-year water supply plan. In March 2017, we published the second Water Security Program, which includes a detailed drought response plan, and incorporated the views and values of our communities. The program highlighted that our investment in water infrastructure during the Millennium Drought means that in the absence of a sharp increase in consumption or a severe drought, it is likely no new water sources will be required until about Our drought response plan included a drought readiness phase, to better prepare our communities, industries and businesses for the prospect of drought. It also explains how we would seek to use the Water Grid to reduce and delay the impact of water restrictions in the event of a drought, which would in turn delay the need for expensive contingency infrastructure. Unlike the period before the Millennium Drought, the region now has a plan to manage drought impacts and effectively respond. The problem with droughts is that it is hard to define when they start and their duration is something that is only defined by drought breaking rains. Extended dry periods are often followed by intense rainfall that may cause floods, so our planning will adapt to whatever climatic conditions Mother Nature throws at us. We will use our assets to the best of their ability and drive value. Both the and the wet seasons resulted in low inflows to some of the region s water storages, particularly in the north and west of the region. The Water Grid proved its worth by allowing drinking water to be moved from Brisbane to the Sunshine Coast to supplement supply, delaying the need for water restrictions or building new infrastructure. While we cannot supply all of the Sunshine Coast s water supply without local rainfall, the Water Grid can help move some water to drier parts when required. The northern part of our region - Sunshine Coast and surrounds - was identified in the Water Security Program as the first region to need new water sources, with or without a drought. This new water source may need to be brought forward if the region continues to experience low inflows, and the upcoming wet season does not deliver enough rainfall. 9 Seqwater Annual Report

11 We re already planning a range of projects in to increase water supply security for the Sunshine Coast. We continued to invest in the Water Grid by planning and delivering dam upgrades, water treatment plant projects and pipeline programs. These projects generate jobs and help support local communities. Water infrastructure assets are long-life assets, and our investment will benefit generations to come. The Gold Coast Desalination Plant directly supplied about 170,000 residents on the southern end of the coast while we undertook critical maintenance on our Molendinar Water Treatment Plant. Expected population increases mean we may have to use the desalination plant to meet peak demand on the Gold Coast by In partnership with Unitywater, Seqwater committed to a new water supply scheme for Petrie in Brisbane s north, which will see a further 100,000 people connected to the Water Grid (and the water supply security it provides) by the end of Our Dam Improvement Program prioritised upgrades to make sure the region s dams continue to operate safely into the future. Over the next five years, we will upgrade more of our Water Grid drinking water storages, including Lake Macdonald and Ewen Maddock dams on the Sunshine Coast, and Sideling Creek Dam in Brisbane s north. We also started a major study looking at ways to improve the flood mitigation capability of Wivenhoe and Somerset dams, while at the same time planning upgrades to maintain the safety of both dams and balancing water security considerations. The health and resilience of the region s drinking water catchments remains a concern and we stepped up our planning and investment in catchment improvement projects, partnering with all levels of government, industry and non-government organisations to optimise catchment outcomes and build capacity in catchment management. Our catchment investment is set to increase significantly over the next decade to better protect our source water. The refurbishment of the Somerset Hydro-Electric Plant, which has been out of service since 2008, progressed and the plant is expected to come online producing green energy for the State s electricity grid ahead of the summer. Somerset Dam will remain one of the region s major drinking water storages with the added benefit of being able to produce green energy. Seqwater is made up of passionate, skilled and committed people. Building our team s capability and particularly nurturing a strong safety culture at all levels in the business remains a priority. Our Next Generation program supported trainees and graduates in Our multi-skilling initiative enabled employees to combine catchment and ranger skillsets with dam and water treatment plant operations capability, providing us with a greater pool of talent to draw on, particularly in our smaller regional operations. This year we welcomed two new Board members, Marina Vit and John Dempsey. Our thanks go to all of our Board members for their valued contribution to our organisation. We would also like to acknowledge the support of our water service provider partners and the thousands of stakeholders, customers and community members who worked with us this year. Finally, we must thank our dedicated and hardworking employees. Our performance and success this year is the result of their combined efforts. As we look ahead, we will continue to invest in learning and development opportunities for our people as well as technology and business process improvements. Our aim is to continue to drive greater efficiency and effectiveness, and ultimately deliver even more value to our communities. We are committed to Water for life. Dan Hunt Chairman Jim Pruss Chief Executive Officer Seqwater Annual Report

12 South East Queensland Water Grid Legend Northern Pipeline Interconnector Western Corridor Recycled Water Scheme Southern Regional Water Pipeline Eastern Pipeline Interconnector Network Integration Pipeline Other bulk water pipelines connecting the SEQ Water Grid Local Government boundary Reservoirs Water Treatment Plants (WTP) - connected to grid Water Treatment Plants (WTP) - off grid Water Treatment Plants (WTP) - other Western Corridor Recycled Water Scheme Desalination plant Water Treatment Plants (WTP) 1 Amity Point WTP 2 Atkinson Dam WTP 3 Banksia Beach WTP 4 Beaudesert WTP 5 Boonah Kalbar WTP 6 Borumba Dam WTP 7 Canungra WTP 8 Capalaba WTP 9 Dayboro WTP 10 Dunwich WTP 11 East Bank (Mount Crosby) WTP 12 Enoggera WTP 13 Esk WTP 14 Ewen Maddock WTP 15 Hinze Dam WTP 16 Image Flat WTP 17 Jimna WTP 18 Kenilworth WTP 19 Kilcoy WTP 20 Kirkleagh WTP 21 Kooralbyn WTP 22 Landers Shute WTP 23 Linville WTP 24 Lowood WTP 25 Maroon Dam WTP 26 Molendinar WTP 27 Esk WTP 28 Mudgeeraba WTP 29 Noosa WTP 30 North Pine WTP 31 North Stradbroke WTP 32 Petrie WTP 33 Point Lookout WTP 34 Rathdowney WTP 35 Somerset Dam (Township) WTP 36 West Bank (Mount Crosby) WTP 37 Wivenhoe Dam WTP Western Corrdior Recyled Water Scheme 38 Bundamba Advanced Water Treatment Plant (AWTP) 39 Gibson Island AWTP 40 Luggage Point AWTP Desalination Plant 41 Gold Coast Desalination Plant Reservoirs 42 Alexandra Hills Reservoirs 43 Aspley Reservoir 44 Camerons Hill Reservoir 45 Ferntree Reservoir 46 Green Hill Reservoirs 47 Heinemann Road Reservoirs 48 Kimberley Park Reservoirs 49 Kuraby Reservoir 50 Molendinar Reservoir 51 Mt Cotton Reservoir 52 Narangba Reservoirs 53 North Beaudesert Reservoirs 54 North Pine Reservoirs 55 Robina Reservoir 56 Sparkes Hill Reservoirs 57 Stapylton Reservoir 58 Wellers Hill Reservoirs 11 Seqwater Annual Report

13 Seqwater Annual Report

14 Highlights of our year Improving our dams Our rolling program of dam upgrades continued, to improve safety and make sure these life-long assets perform well while supplying drinking and irrigation water. See page 19. Releasing version 2 of the Water Security Program We developed a detailed drought response plan and incorporated the views and values of our communities in version 2 of the Water Security Program, our 30-year water supply plan. See page 19. Building a strong safety culture Our Safe for life promise is at the heart of everything we do. We supported the safety of our people and the communities we serve. See page Seqwater Annual Report

15 Responding to ex-tropical Cyclone Debbie Heavy rainfall across the southern parts of our region produced the largest flow in the Nerang River valley in the past 50 years. Our employees worked in difficult conditions to maintain water supply across the region during the event and in the weeks following. See page 22. Improving our financial performance On the back of consistent financial performance over recent years, we achieved a position where no new borrowings were required in and we expect to start reducing our debt levels for the first time over the next five years. See pages Seqwater Annual Report

16 Key performance indicators Our achievements against the key performance indicators outlined in our Operational Plan Performance summary Strategic outcome area KPI Result Skilled and committed workforce Voluntary permanent workforce turnover Achieved Employee survey improvements Lost time injury 1 frequency rate (LTIFR) Achieved Achieved Safety lead indicator score Achieved Knowledgeable and engaged Community awareness Achieved communities Community water knowledge Achieved Trusted and respected partner Partner engagement Achieved Optimised water and catchment Zones compliant with the Australian Drinking Water Guidelines 2 Achieved services Compliance with bulk water agreements (no of breaches) 3 Achieved Statutory notifications for environmental harm Achieved Scheduled maintenance tasks delivered on time Not achieved Sustainable financial performance Variable cost of water from base load WTPs ($/ML) Not achieved Completion of enterprise risk treatment plans Achieved Completion of internal audit actions Not achieved EBITDA margin Achieved Operational expenditure to budget Not achieved Infrastructure capital expenditure to budget Achieved Infrastructure capital project efficiencies Not achieved 15 Seqwater Annual Report

17 Performance breakdown For each key performance indicator, the annual result against target is shown, together with brief commentary on any variances and page references for more detailed analysis of performance. Skilled and committed workforce KPI Actual Target Result Voluntary permanent workforce turnover 7% 10 Achieved Employee survey improvements 36% >35% Achieved Lost time injury 1 frequency rate (LTIFR) Achieved Safety lead indicator score 99% >95% Achieved 1 A lost time injury is defined as an occurrence that resulted in a fatality, permanent disability or time lost from work of one day/shift or more (Workplace Injury and Disease Recording Standard - Australian Standard ). Lost time injury frequency rates are the number of lost-time injuries within a given accounting period relative to the total number of hours worked in the same accounting period: Number of lost time injuries x 1,000,000 divided by total hours worked. A significant injury is defined as an injury resulting in five or more days lost time. Commentary Seqwater achieved the voluntary permanent workforce turnover target of 10%, with an end of financial year rolling turnover rate of 7%. This is an improvement from June 2016, when the turnover rate was more than 11%. See page 23. Seqwater achieved its safety lead indicator score for the year. This is a composite metric reflecting the completion of work health and safety (WHS) inspections, leader safety walks, WHS compliance training and corrective action close out rates. See page 24. Four employees sustained lost time injuries this year, with two of our employees off work for five days or more. All four injured employees are back at work carrying out normal or suitable duties. Although the LTIFR target for the year was achieved, we believe that any workplace injury is unacceptable and will continue to strive to improve upon this performance. Knowledgeable and engaged communities KPI Actual Target Result Community awareness 29% 29% Achieved Community water knowledge 2% Establish baseline Achieved Commentary Unprompted community awareness of Seqwater peaked at 29% in April 2017, which coincided with the end of the Play it safe public education campaign. Unprompted recall of water safety advertising peaked at 35% in April The community s water knowledge was tested by measuring unprompted awareness of the South East Queensland Water Grid. This was at 2% in April Awareness of the grid increased to 28% when respondents were prompted with a list. This presents an opportunity to use the Water Grid as a unifying concept in future community engagement. See page 25. Seqwater Annual Report

18 Trusted and respected partner KPI Measure Target Result Partner engagement 82% 75% Achieved Commentary An independent study of 30 key stakeholders and customers was completed in June and July This KPI is derived from a composite score and the rating reflects improved relationships with State Government and select water service providers as well as robust scores for program awareness and overall reputation. Optimised water and catchment services KPI Target Performance Result Zones compliant with the Australian Drinking 100% 100% Achieved Water Guidelines 2 Compliance with bulk water agreements [no of 0 0 Achieved breaches] 3 Statutory notifications for environmental harm 0 0 Achieved Scheduled maintenance tasks delivered on time 93% 95% Not achieved 2 For water quality criteria, number of zones compliant with the Australian Drinking Water Guidelines 2011 guideline values based on the 95th percentile for health parameters, 98th percentile for microbiological parameters and arithmetic mean for aesthetic parameters [with impacts downstream] over a rolling 12 month period. Compliance with these criteria is calculated quarterly. 3 For supply in accordance with section 7 of Bulk Water Agreement with Queensland Urban Utilities, Unitywater, Logan City Council, Gold Coast City Council and Redland City Council. Commentary There were no breaches of bulk water agreements during All zones were compliant with the Australian Drinking Water Guidelines, and we did not make any statutory notifications for environmental harm. Implementing system improvements that will realise efficiencies and improved performance in the long-term impacted our performance in delivery of scheduled maintenance tasks on time. This included the implementation of a new collaborative maintenance agreement and the roll out of mobile technology to support field staff with work order processing. See page Seqwater Annual Report

19 Sustainable financial performance KPI Actual Target Result Variable cost of water from base load $85 $75 Not achieved WTPs ($/ML) Completion of enterprise risk 100% 100% Achieved treatment plans Completion of internal audit actions 86% 100% Not achieved EBITDA margin 72% 72% Achieved Operational expenditure to budget 103% % Not achieved Infrastructure capital expenditure to $5.5M $0-$5M Achieved budget Infrastructure capital project efficiencies $0.66M >$2.5M Not achieved Commentary Chemical and energy costs increased significantly above budget during , in part due to an increase in chemical and energy use during ex-tropical Cyclone Debbie and changes in operation of the Water Grid. Increased demand, coupled with lower than projected inflows to major water storages over the year, resulted in total water storage levels dropping in the middle of the year. Seqwater adopted a higher energy mode of operation for the Water Grid to reduce the likelihood of hitting drought triggers, which also impacted operational costs. Enterprise risk treatment plans were completed and any delays or timeframe impacts were escalated in a timely manner. Five internal audit recommendations scheduled for completion during were not completed at the end of the financial year, and will be addressed in None of the outstanding audit recommendations were rated as business critical risks. See page 36. Operating expenditure was above budget for the year, partly due to increased demand. Actual water production of 308,477 ML was more than 6% above forecast demand of 290,421 ML. Full year actual expenditure of $236.3 million was $7 million above the budget of $229.2 million. The increase in operating expenditure was predominantly the result of higher than budgeted employee expenses and variable expenditure, partially offset by savings in fixed expenses. Total infrastructure capital expenditure for was $98.6 million, which was $5.5 million above the budget of $93.1 million. This reflects a high proportion of projects with early planning and work under contract at the start of the year. Projects were delivered efficiently and without expected slippage due to adverse weather conditions. Infrastructure capital project efficiencies for were below the target of $2.5 million. While the capital efficiency target was not achieved, a range of projects were delivered below the approved project budget, resulting in other savings of more than $5.7 million. See pages Seqwater Annual Report

20 KEY UNDERTAKINGS Service delivery Optimised water and catchment services Water Security Program On 24 March 2017, we launched our revised drought plan, developed as a part of version 2 of the Water Security Program. The drought plan includes a drought readiness phase, triggered when the combined volume of Water Grid supply dams reaches 70%. This phase will better prepare the community for the possibility of drought and encourage people to use water efficiently when dry conditions persist. Our modelling and analysis shows apart from a severe drought or a significant change in supply or demand, the Water Grid can supply the region with enough water until about After that, South East Queensland will need new water sources to meet growing demand, with the regional population expected to reach 5.1 million by The first new water source will be required in the region s north. New water source options have been identified but no decisions have been made. No single option on its own is likely to meet the region s needs; rather a combination of options will be required. We have also planned for the future of our 16 off-grid communities, with planning underway to connect Beaudesert to the grid. The Water Security Program is adaptive. It shows ways we can respond to changing influences and sets triggers for implementing options or reviewing and changing responses. While responses are planned in advance, investment decisions will be based on conditions at the time and depend on the options previously implemented. We will continue to invest in pipeline, pump station and treatment plant augmentations to improve service delivery and the reliability and resilience of our water supply system. Dam improvement program Somerset Dam In late 2016, a concrete parapet wall was built in the breezeway gaps along the 300 metre long wall at Somerset Dam to improve safety during extreme flood events. The new parapet wall helps to reduce the risk of water overtopping the dam wall through the breezeway gaps. This engineering solution is designed to improve dam safety during an extreme flood event and is similar to what is already in place at Wivenhoe Dam. In 2017, we undertook further geotechnical investigations at Somerset Dam and started preliminary design to identify the preferred upgrade option. At this stage, construction is expected to start by The preferred Somerset Dam upgrade option will impact and influence the final decision on the Wivenhoe Dam upgrade. Wivenhoe Dam augmentation study Planning for the Wivenhoe Dam upgrade is in the early stages. It will be at least two years before a decision is made on the preferred upgrade option. In planning the upgrade, we need to consider the safety and integrity of the dam structure, the security of our drinking water supply, and the potential for further flood mitigation. The benefits and costs of about 50 different options will be explored, including consideration of options to increase the height of the dam wall to improve flood capacity and flood mitigation downstream. Wappa Dam The upgrade at Wappa Dam was completed in It involved modifications to the embankment and auxiliary spillway, and the installation of new filter drains. Next steps Upgrades to Cooloolabin Dam and Sideling Creek Dam will commence in Detailed planning for upgrades at Leslie Harrison Dam and Lake Macdonald Dam is in progress. 19 Seqwater Annual Report

21 Upgrades to the Water Grid Central region In , we installed larger chemical storage tanks and upgraded the centrifuge at the Mount Crosby East Bank Water Treatment Plant as part of an ongoing project to increase the plant s resilience following the 2011 and 2013 flood events. In the latter half of 2017, we will begin detailed design for three projects a filter refurbishment at the Mount Crosby East Bank Water Treatment Plant, a sludge handling upgrade at the adjacent Mount Crosby West Bank plant and reliability improvements at the Lowood Water Treatment Plant. Other projects in the pipeline for Mount Crosby include a chemical system and filter upgrade for West Bank and flood resilience works at the East Bank Pump Station. Northern region Our two-year program of upgrades continued at the Landers Shute Water Treatment Plant at Maleny, with a 100 tonne silo installed as part of lime storage and dosing improvements. The upgrades are part of a long-term plan to prepare for population growth on the Sunshine Coast and provide greater capacity to respond to poor raw water quality events resulting from heavy rainfall. The North Pine Water Treatment Plant filter refurbishment and ph correction project was completed in , with work to upgrade the plant s sludge handling facility underway. The Ashgrove to Enoggera pipeline upgrade was completed, with the installation of new pipelines allowing us to retire one of the oldest pipelines in the Water Grid, providing a more secure water supply to more than 50,000 customers in north-west Brisbane. Southern region More than 20 Gold Coast suburbs were supplied with water from the Gold Coast Desalination Plant from August 2016 while the Molendinar Water Treatment Plant was shut down for essential maintenance to improve the raw water intake to the plant. Work on the new Canungra Water Treatment Plant is nearing completion. The original plant, built in 1970, was last upgraded in The new plant will support projected growth in the region, with almost four times the production capacity of the original plant. Improving catchment health We are active custodians of the catchments and waterways, continually seeking practical ways to maintain and improve source water quality, reduce water quality risks and, where feasible, provide flood mitigation benefits. We also set an example for desired land management within water supply catchments. In , we continued to support the Resilient Rivers Initiative, with the development of action plans for the Mid Brisbane, Lockyer and Logan catchments and drafting of action plans for the Lower Brisbane and Redland catchments. For those catchments with completed action plans, we worked with initiative partners to develop a Catchment Investment Program. Funds were identified for projects to be delivered in the coming financial year. We conducted a willingness to pay survey to gauge community views on investment in natural assets. The survey showed that 80% of the community valued natural assets and supported spending money now to maintain and improve catchment condition in the future. Our catchment investment program continued regionally. Highlights included the Sapling Pocket rehabilitation project in conjunction with the Commonwealth Government and Ipswich City Council and expanding our partnership program to deliver catchment improvements to four natural resource management groups, including Pine River Catchment Association, Maroochy Landcare Group, Mary River Catchment Coordinating Committee, and Healthy Land and Water. We maintained vegetation offset and rehabilitation sites, provided under relevant legislation, including the State Government Supported Community Infrastructure Koala Conservation Policy, Environment Protection and Biodiversity Conservation Act 1999 (Cth) and Coordinator General Approvals. Seqwater Annual Report

22 We expanded three management systems (Environment, Safety and Quality) across dam and catchment assets. This activity culminated in the certification of the systems in place at the Hinze Dam and Catchment against the international and national standards ISO14001, AS4801 and ISO9001. It was the first time certification of systems has been granted, covering all activities from catchment to tap. This included the taps at Hinze Dam and surrounding recreation areas, and bulk water supply distribution points on the Gold Coast. The Hinze Dam trap and haul fishway was upgraded to improve upstream migration of native fish species past the Hinze Dam wall, and decrease the risk of declared pest fish species entering the lake. Partnering with water service providers We continued to lead the South East Queensland Water Service Providers Partnership, comprising the region s water retailers and council-owned water businesses. We worked with Unitywater on the Petrie Water Supply Project which will connect almost 100,000 Moreton Bay residents to the Water Grid and enable the decommissioning of the ageing Petrie Water Treatment Plant. To address regional growth in the Logan and Beaudesert areas, we conducted a future water supply options assessment, including options to connect the area to the Water Grid or build a new water treatment plant. The preferred option will likely be a combination of improved system storage, a pipeline connecting the region to the grid and a treatment plant to use water from Wyaralong Dam. The timing of these improvements will be carefully planned to ensure standards of service are maintained at the most efficient costs. A business case is scheduled for completion in late In , Phase 2A of the project investigated how different disinfection regimes impact the formation of disinfection by-products and undertook high level analysis of possible improvements to secondary disinfection in the southern part of the Unitywater service area and in Logan City. In , Phase 2B will investigate factors affecting the effectiveness of chloramination, undertake modelling of disinfection performance, and cost of regional infrastructure improvement options to support the development of an Interim South East Queensland Secondary Disinfection Improvement Plan. The Metrological Assurance Framework outlines the management of Seqwater billing meters throughout the asset lifecycle, for the purpose of maintaining an acceptable level of confidence in metering performance. This means we can be assured our meters are calibrated correctly and have greater confidence in the amount of water delivered to our retailers. In , we completed an engineering standard governing billing meters, in consultation with our water supply provider partners, and assessment of the billing meter fleet for conformance with the standard. The meter to bill process was reviewed and some refinements identified to reduce the chance of errors. Future work will develop billing meter improvement programs to feed into the capital program. Delivering maintenance differently Seqwater s collaborative maintenance contract began on 1 October 2016, with Wood Group partnering with us to maintain the South East Queensland Water Grid and water supply assets. The innovative partnership has resulted in the formation of an integrated maintenance team, which leverages expertise and capabilities across the two businesses. The Regional Secondary Disinfection Optimisation project further progressed towards establishing best value options to optimise the existing secondary disinfection regime in South East Queensland. The final deliverable of the project is an agreed South East Queensland Regional Secondary Disinfection Improvement Plan. 21 Seqwater Annual Report

23 Managing emergencies and floods As part of our annual emergency preparations, we: reviewed our emergency management manual conducted the bulk water authority emergency response plan biennial review submitted our Annual Preparedness Report for Wivenhoe, Somerset and North Pine dams maintained our comprehensive training program for members of the Flood Operations Team, Emergency Management Team and incident controllers conducted a full water supply system emergency simulation on 8 September Concluding the independent review In December 2016, we updated the Minister for Energy, Biofuels and Water Supply on the implementation of recommendations arising from the Inspector-General of Emergency Management s review of dam warnings and communications, released in November The implementation plan was finalised and ongoing actions were transferred to relevant emergency management and community engagement plans for and resourced accordingly. Ex-Tropical Cyclone Debbie Ex-Tropical Cyclone Debbie brought heavy rainfall across parts of our region in late March 2017, producing the largest flow in the Nerang River valley in the past 50 years. Hinze Dam, which was upgraded in 2011, reduced flows downstream by 80% and mitigated flooding for several thousand homes across the vast floodplain of the Nerang River, including Surfers Paradise, Bundall, Carrara and canal estates to the south. Our employees worked in difficult conditions to maintain water supply across the region during the event and in the weeks following, despite several impacted water treatment plants, asset damage and interruptions to power supply. Seqwater Annual Report

24 KEY UNDERTAKINGS People and culture Skilled and committed workforce We are committed to the people who deliver water for life and worked to improve our organisational culture, provide career pathways and build an inclusive and diverse workforce. To enable career paths and continuing professional development, we completed an engineering competency framework. We will now link position descriptions to the framework and develop performance plans to provide clear career pathways for our engineers. Our Next Generation workforce program ensuring we have the right people with the right skills well into the future underwent further enhancement in Applications for traineeships were advertised on 26 May 2017, with new trainees expected to commence in the first quarter of The next graduate intake is scheduled for early On 1 July 2016, we brought in-house our water quality monitoring and sampling programs. This change achieved financial savings as well as other benefits, such as the sampling team reporting biosecurity issues, and skillset sharing across the organisation. We intended to deliver a decision making framework project to streamline our decision making, however we replaced this project with a higher order program to review our organisational vision and values. In , we will engage our employees to consider the vision and values that will take our business forward. We will also develop our leadership strategy, leadership capability framework and leadership development plan. We aim to provide an inclusive and supportive workplace where people from all backgrounds thrive. During the year, our Board established a People and Culture Committee to ensure inclusion and diversity principles form part of decision making in recruitment, selection and organisational design at Seqwater. The Board approved the Inclusion and Diversity Policy and participants in the Champions of Change program completed training in inclusion and diversity, domestic violence and mental health promotion. To further this work, in a rotating diversity officer position will be created, we will seek to recruit an Indigenous trainee and work will begin on Seqwater s Reconciliation Action Plan. We will also audit our current diversity and inclusion performance and establish a baseline from which we can measure our progress towards building a more diverse and inclusive workforce. The Seqwater Enterprise Agreement was certified by the Fair Work Commission on 1 December 2016, with the agreement taking effect on 8 December Employees engaged under the agreement will receive salary increases of 3% per annum over the life of the agreement. Workforce planning and performance We are focused on driving value for customers by minimising operational costs, including labour costs. Over the past two years, we have reviewed the ways in which we engage people to ensure they are efficient and effective. This approach has resulted in an increase in employee numbers and a decrease in total workforce expenses. In conjunction with the budget cycle, Seqwater undertook a comprehensive workforce planning process, taking a whole of workforce approach, developing a plan to enhance attraction and retention (particularly of critical positions) and enhancing knowledge retention in the workforce. As at 30 June 2017, we employed 722 full-time equivalent employees. Our permanent separation rate was 7.73%. Our Diversity and Inclusion Committee, established from volunteers across the business in , hosted activities to highlight diversity, including a diversity lunch and learn session for employees, and International Women s Day and Harmony Day celebrations. 23 Seqwater Annual Report

25 Safety leadership Significant progress was made on a Safe for life strategy to build our safety culture. We delivered a Safe for life training program to more than 500 employees, with participants reporting a deeper personal connection to safety and wellbeing. Enhancing safety communication and leadership and, in particular, increasing leader-led safety conversations will be a priority in We refined our Work Health and Safety Management System. This included improving the excavation and trenching procedure and initiating reviews of the Permit Access Safety System (PASS) and energy tag and lockout procedures. In October 2016, we launched our Life Saving Controls, a quick reference guide to controlling 10 critical safety hazards associated with our operations. Each of our life saving controls is supported by detailed procedures. The Life Saving Controls are an important tool to help our employees and contractors follow the correct procedures to control critical hazards. We undertook audits across the asset portfolio to identify areas where safety standards required improvements and prioritised opportunities to improve site safety. As a result, more than 100 business cases for renewal and refurbishment, minor works and emergent works projects, with safety-related asset improvement drivers were approved and submitted for delivery. Looking after our employees is also part of our safety approach. Seqwater s award-winning wellness program Be Healthy, Be Wealthy uses a holistic and risk-based wellbeing approach through the implementation of a Corporate Health and Wellbeing Plan. Key initiatives included: Fruit was regularly delivered to eight hub sites to promote healthy snacking 145 employees participated in annual health and wellbeing assessments to identify and manage health risks for chronic disease 230 employees participated in a skin check program. Melanomas and other skin cancers detected enabled earlier treatment 300 employees received free flu vaccinations, maximising workforce protection against influenza 503 random alcohol breath tests were conducted to check employees were fit for work 250 employees participated in the 10,000 steps challenge, and there was high engagement in other physical activity initiatives held throughout the year. In May 2017, we received the Sport for Life Award at the Queensland Corporate Games in recognition of the highest number of participants and the effort and commitment of the organisation s contribution to fitness, health, company spirit and morale. An independent Employee Assistance Program provided confidential counselling, a manager support hotline, on site critical incident support and workplace support services to our employees. Seqwater Annual Report

26 KEY UNDERTAKINGS Stakeholders, customers and communities Trusted and respected brand Knowledgable and engaged communities Building community understanding of water supply Engaging South East Queenslanders in caring for drinking water catchments, learning more about their water supply, and getting involved in planning for the future is an important part of Seqwater s role. We partnered with Healthy Waterways and Catchments to bring the award-winning Up the Creek and Down the Drain education program to students at Kobble Creek, near North Pine Dam. The program uses a storythread teaching method to educate Year 4 to 6 students about local waterway environments. Taught over two school terms, with the highlight being a visit to a local waterway, students increased their knowledge by taking on the role of waterway investigators. Classes from Mount Samson State School and Samford State School participated in the inaugural Seqwater program. A number of our dams reached milestone anniversaries in 2016, so we hosted two community events to celebrate the importance of water supply. Thousands gathered on 23 July 2016 to celebrate the 40th anniversary of Hinze Dam. On 28 August 2016, we teamed up with the National Parks and Wildlife Service, local history groups and about 500 community members for an opera at Enoggera Reservoir, commemorating 150 years of water supply in Brisbane. These events provided a unique opportunity to educate the community about their water supply. Our participation in the Royal Queensland Show (Ekka), with our augmented reality sandpit, allowed visitors to have a hands-on experience in how catchments work, and garnered media attention. To extend the reach of our education program, we partnered with the State Library of Queensland to allow the community to have free access to the sandpit and other water education materials through the Digital Futures exhibition. Engaging local communities Seqwater s annual Play it safe public safety education campaign was launched in November 2016 at the newly opened Billies Bay and Hays Landing recreation area at Lake Wivenhoe. The campaign increased public awareness of key safety behaviours at the region s dams, lakes and parks. As well as promoting visitor safety, the campaign helped to increase community awareness of Seqwater s role. We engaged local communities in projects being undertaken across the region, including: Lake Samsonvale quantitative microbial risk assessment, which was part of our investigation into the feasibility of increasing recreation on the lake Ashgrove to Enoggera pipeline replacement, which occurred in residential streets Dam Improvement Program projects at Somerset, Wappa and Lake Macdonald dams construction of the new Canungra Water Treatment Plant removal of unauthorised soil dumped on the shores of Leslie Harrison Dam water treatment plant upgrades at Mount Crosby and Landers Shute fire management program for the planned burn season. To reduce graffiti and vandalism at one of our largest bulk water storage reservoirs, we worked with a local school and street artists to add a splash of colour to the Green Hill Reservoirs and create a safer, more beautiful space for the community to enjoy. In , we aim to build community understanding of the water cycle by extending the reach of our educational experiences and digital exhibits to enable people of all ages to learn about catchments, the Water Grid, water supply and consumption, and water planning. 25 Seqwater Annual Report

27 Recreation Almost 2.7 million people visited Seqwater s lakes and surrounding catchments in Lake Wivenhoe was our most visited lake, followed by Hinze Dam, Lake Samsonvale (North Pine) and Lake Somerset. Since our major review of recreation facilities in , we have delivered projects to increase community enjoyment of our lakes and surrounding catchments while continuing to protect the quality of our region s water supply. This year, we continued to work closely with the Department of National Parks, Sport and Racing, Department of Health and local councils to deliver better community recreation facilities, including upgrades to boat ramps and paddle craft launch points, swimming areas and multi-use trails. During , we: opened a recreation area at Billies Bay and Hays Landing, Lake Wivenhoe enabled public access to more than 7km of multi-use trails at Lake Samsonvale completed the Stage 1 upgrade of the boat ramp at Borumba Dam announced the findings of an Australian-first quantitative microbial risk assessment at Lake Samsonvale, which will pave the way for recreation changes at Lake Samsonvale and Lake Kurwongbah during reduced red tape and removed the need for boating permits on Lake Somerset and Lake Wivenhoe. In , we will progress recreation changes at Lake Kurwongbah and Lake Samsonvale, working with existing clubs to support our plan to increase public access by introducing designated zones on Lake Kurwongbah for rowing, paddling and club skiing to allow these activities to share the lake, seven days a week. Presently, these activities are restricted on certain days. We will also install a new launch point for paddle craft and wash down facility at Mick Hanfling Park, and improve the existing watercraft wash down and signage in response to public feedback. At Lake Samsonvale, we are working with stakeholders to assess suitable locations around the lake for a public paddle craft launch point. Timing is dependent on the outcomes of the assessment and securing the necessary funding for implementation. We have also given planning consent to Rowing Queensland to progress the proposed development of Queensland s premier rowing hub on Wyaralong Dam. In , Seqwater partnered with Surf Life Saving Queensland (SLSQ) to complete an Aquatic Public Safety Risk Assessment across our designated swimming areas. As a result, we have rolled out a number of safety initiatives at our lakes, including: improved swimming area enclosures which offer a continuous float barrier separating swimmers from vessels changes to the size and location of some swimming areas the removal and consolidation of redundant or excessive signage a new style of safety signage at boat ramps and swimming areas based on the National Aquatic and Recreational Safety Signage Style Manual, and the introduction of emergency location markers that can be used in an emergency to relay a specific location to emergency services. This work will continue in Seqwater Annual Report

28 Understanding blue-green algae Cyanobacteria (commonly referred to as blue-green algae) are naturally occurring organisms that sometimes pose significant risks to human health and our lifestyle by producing toxins and odorous compounds. Seqwater partnered with researchers to better understand the toxins produced by blue-green algal blooms, which often lead to closures of our recreation lakes in the interests of public safety. Launched in December 2016, Seqwater s Cyanobacterial Management Plan and Alert Level Framework for Cyanobacteria and Recreation Procedure provides an overarching framework and uniform process for managing bluegreen algae risks to recreational users at our water storage lakes. Our new approach was developed based on a four and a half year investigation of the effectiveness of the previous management approach, monitoring 65 different sites in South East Queensland. The investigation found that cell counts of the most common potentially toxin producing species of cyanobacteria in our inland lakes was a poor proxy indicator for toxin production. Our blue-green algae alert levels describe an established cyanobacterial population, and the toxin concentration levels in the lake that pose health risks for people who swim, ski, boat and fish at Seqwater lakes. These alert levels can be found on the Seqwater website, and let people know what activities are restricted due to a blue-green algal bloom. Since the new management plan was implemented, no lakes have been closed to recreation as toxin levels did not reach high or extreme levels. Cultural heritage engagement A strategic engagement program commenced with cultural heritage organisations across South East Queensland. The engagement program aims to protect and preserve the indigenous and non-indigenous cultural heritage values across areas owned and operated by Seqwater. Active engagement with traditional owner organisations is in progress to investigate and establish working initiatives to protect and manage country and educate the community on the importance of cultural heritage protection. Our new Australian-first program analyses the amount of toxins which have dissolved in the water and uses toxin concentration, rather than cell counts, as the primary indicator for health risks. Our monitoring program picks up algal blooms and restricts water-based activities when algae toxin levels indicate a health risk. 27 Seqwater Annual Report

29 Paddlers at Enoggera Dam, October 2016 Seqwater Annual Report

30 KEY UNDERTAKINGS Systems and processes Skilled and committed workforce Sustainable financial performance System certification In May 2017, Seqwater engaged external auditors to assess our operational and corporate processes across the business for compliance with four international and national standards. Auditors visited 18 assets, including 10 Water Grid connected water treatment plants, two off grid water treatment plants, four supply system assets, Head Office and the Hinze Dam and catchment. Some significant improvements acknowledged through the audit process included the amount of work put into the new environment and cultural heritage risk dashboard tool being implemented across the business, Life Saving Controls development and increased awareness of our controlled information now accessible through the redeveloped intranet for approved policies, processes and work instructions. Overall the findings of the external audit verify the evolving maturity and improvement of management systems at Seqwater. Supporting the new maintenance model Our Information Communication and Technology (ICT) team led a whole-of-business project to support Seqwater s new collaborative maintenance model by improving manual, inconsistent and inefficient processes and making better use of existing maintenance system technology. The project was completed in May 2017, with the roll out of mobile technology to support field employees with work order processing. The mobility suite was successfully implemented across all regions, resulting in more connected users. New timesheet functionality was also introduced to support the collaborative maintenance model and resulted in a substantial increase in the number of employees accessing our corporate information system to lodge timesheets. We continue to identify opportunities for future improvement. Improving business intelligence We enhanced our business intelligence capability, improving our ability to turn raw data into useful information so we make better, informed decisions. An interim Business Intelligence Strategy was delivered in to progress projects, while a longer term strategy is in development. The following objectives were achieved: improved governance and compliance guidelines around service provision a future-proofed data modelling architecture that is easily adaptable to new or modified applications increased team capabilities around data presentation design. A number of reports and dashboards were delivered throughout the year in the areas of operations, risk, water quality and finance, making work processes more efficient, and enabling business units to analyse their own data and then communicate information to the rest of the organisation. In we plan to rapidly expand the number of data sets available to generate reports and dashboards, while providing more options for people to create their own reports. Deliver monitoring and control systems improvements Our control systems are the software, programs and tools we use to manage and monitor the bulk water supply network. Two projects to improve our control systems were managed in We continued the roll out of our central active directory domain to other sites, to enable new users to be set up from one central location, improving efficiency and reducing costs. We implemented Wide Area Network (WAN) technology to improve the availability and scalability of infrastructure and to support the new collaborative maintenance model. 29 Seqwater Annual Report

31 Cyber security Seqwater has made many significant improvements to manage known and emerging cyber security risks in recent years and conducted a number of improvement projects in In our first three years of operation, we secured corporate and business IT systems. In , we embarked on a longer term project to improve the design and performance of our water infrastructure operational systems. We completed and adopted a new Seqwater Cyber Security Strategy. The strategy includes a range of improvements to be delivered over an 18-month period, including several that were completed within We have engaged specialists to help implement immediate improvements and to inform our future work program. Intranet renewal This year Seqwater renewed its intranet in a successful collaboration between multiple teams. An improved intranet platform replaced the previously unsupported software. Named Waternet by employee vote, the system helps employees to quickly and easily connect with peers and better understand the complex operations of Seqwater, saving time and improving productivity. Waternet integrates with our controlled document system to make it easier to find critical policies, procedures and work instructions and a new and improved people directory makes finding the right person easier an important time saving and connectivity function when employees are spread across South East Queensland. To continue to embed cyber security within the culture of the organisation, mandatory online training was introduced for all employees and user education campaigns have helped to raise awareness of cyber security throughout the workforce. The Queensland Audit Office audited a number of entities responsible for critical water infrastructure, including Seqwater, between August 2016 and May The report confirmed that, across the industry as a whole, improvements were required to strengthen defences against cyber security threats. Seqwater is actively addressing the issues identified in the report. Seqwater Annual Report

32 Corporate governance We have a framework of rules, relationships, policies, systems and processes in place to effectively and responsibly manage our organisation and provide confidence to our customers, communities and stakeholders. With proper oversight and accountability, we create value through sound investment and innovation, and our accountability and control systems help us to manage risk. Our Board The Seqwater 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 is to: set strategy and direction, and provide the governance framework for the organisation through the endorsement of financial, administrative and operational policies ensure we perform our functions and exercise our powers in a proper, effective and efficient way ensure strategic and operational planning objectives are achieved be accountable to the responsible Ministers for our performance review the annual performance of the Chief Executive Officer and the Company Secretary. Mr Dan Hunt (Chair), Mr Michael Arnett, Mr Shane McGrath and Ms Samantha Pidgeon continued as Board members. During the period, Mr Arnett s appointment was extended until 30 September Ms Marina Vit was appointed as a Board member on 1 October Mr John Dempsey was appointed as a Board member on 23 December Fourteen Board meetings were held during the period. The Chief Executive Officer and executives performance is measured against key performance indicators in line with the State Government Policy for Government Owned Corporation Chief and Senior Executive Employment Agreement. Mr Dan Hunt (Chairman from October 2015) Dan has a wealth of experience in public administration, change management and stakeholder engagement. Dan had a 38-year career with the Queensland Government, finishing in July Between 2006 and 2015, Dan was the Director- General of three Government Departments over nine years - Mines and Energy, Natural Resources and Mines, and Energy and Water Supply. Before that, he worked for many years in senior leadership positions at Queensland Transport. Dan is a member of the Australian Institute of Company Directors. During the period he was a director of the Australian Water Recycling Centre of Excellence Limited. Mr Michael Arnett Michael has extensive board and management experience in natural resources and professional services organisations, with significant experience in the corporate, commercial, mining and natural resources, banking, finance and securities sectors. Michael has been a board member of Unitywater and is a former partner of international law firm Norton Rose, predominantly consulting in the mining, resources and oil, and gas areas. Michael is a board member of Archipelago Metals Limited, NRW Holdings Limited, Queensland Energy Resources Limited and Tamarind Classic Resources Private Limited. Mr John Dempsey John has a strong track record of board experience, including 13 years as a director of Energex, with five years as Chairman. He is a former accountant, tax agent, chartered secretary and Cairns City Councillor. John previously chaired the board of the Allconnex water business and was a director of the Multiple Sclerosis Society of Queensland. Mr Shane McGrath Shane is a civil engineer with more than 30 years experience in the water industry. He has extensive experience in senior leadership roles for asset creation and management of water supply infrastructure, including major dams, both in Australia and overseas. Shane is a director of SGM Consulting, an executive member of the Australian National Committee on Large Dams, a member of the Dam Safety Committee of the International Commission on Large Dams, a Fellow of the Institution of Engineers and a Chartered Professional Engineer. 31 Seqwater Annual Report

33 Ms Samantha Pidgeon Samantha is a teacher and education leader with 20 years experience working in schools and education policy, and with expertise in organisational culture and values, staff development and strategic planning. Currently the Vice- President of the Queensland Teachers Union, Samantha is a member of the union s executive and the Audit Committee and is responsible for a broad portfolio. Sam is also a director and chairs the Product, Pricing and Finance Committee at private health insurer TUH. Samantha was previously a member of the governing body of the Queensland Studies Authority (now the Queensland Curriculum and Assessment Authority) and the Professional Standards Committee of the Queensland College of Teachers. Ms Marina Vit Marina has more than 20 years of senior executive management experience which has seen her take on roles such as Chief Executive Officer and General Manager in dynamic not-for-profit, commercial and government organisations. Marina is a well-connected and talented executive who has a track record of getting the job done, from restructuring companies through to setting the strategic policy platform for successful government. A fully qualified company director, Marina has served on and advised a number of boards. Board meeting attendance 1 July 2016 to 30 June 2017 Board Member Ordinary Board Meetings Special Board Meetings 1 Audit and Risk Management Committee Meetings Investment and Procurement Committee Meetings People and Culture Committee Meetings A B A B A B A B A B Mr Dan Hunt Mr Michael Arnett Mr Shane McGrath Ms Samantha Pidgeon Ms Marina Vit Mr John Dempsey A = Number of meetings attended B = Number of meetings held / eligible for Notes: 1 During this period, four special Board meetings were conducted to consider emergent issues Seqwater Annual Report

34 Board Committees The Board formed three standing Committees that meet at least quarterly: Audit and Risk Committee: John Dempsey (Chair appointed January 2017), Dan Hunt, Samantha Pidgeon (Committee member until January 2017), Michael Arnett (appointed January 2017). Investment and Procurement Committee: Michael Arnett (Chair), Shane McGrath, Dan Hunt (appointed January 2017). People and Culture Committee (inaugurated in October 2016): Samantha Pidgeon (Chair), Dan Hunt, Michael Arnett (Committee member until January 2017), Marina Vit (appointed January 2017). All Board members are entitled to attend committee meetings. The Board may form other committees, however during the period it requested any other matter be considered at a wholeof-board level. Audit and Risk Committee The Audit and Risk Committee provided independent assurance and assistance to the Board on governance, risk and compliance frameworks and our external accountability responsibilities as prescribed in the Financial Accountability Act 2009 and accounting policy standards. Our internal audit function regularly reviewed and tested the effectiveness of the system and reported to the Audit and Risk Committee. The Committee s duties and responsibilities are outlined in its Charter, and encompass oversight of compliance with all mandatory requirements of our corporate governance, including: financial statements risk management internal audit external audit The Committee observed the terms of its Charter and followed Queensland Treasury s Audit Committee Guidelines. The Board continued its engagement of Ms Jenny Parker as a consultant in respect of audit and risk matters. Ms Parker attended the Audit and Risk Committee meetings in that capacity. During , the Committee considered amendments to and compliance with the requirements of the Committee s Charter and oversaw: the Enterprise Risk Management Framework fraud and corruption control activities, including progress against the Fraud and Corruption Control Plan and recommendation to the Board of the Fraud and Corruption Control Plan the Delegations and Authorisation Manual and recommendation to the Board of amendments to same the annual budget process and financial reporting the internal audit function and considered associated reporting, including progress against the Internal Audit Plan and recommendation to the Board for approval of the Internal Audit Plan the external audit function and consideration of associated reporting the subsidiary s financial reporting Queensland Treasury Corporation s management of Seqwater s debt pool the review and update of relevant governance policies including: Code of Conduct Gifts and Benefits Policy Non-current Assets Accounting Policy Treasury Policy. The Committee also considered our insurance program renewal and reviewed the Committee s performance during the previous period and associated reporting to the Board. compliance reporting to the Board. 33 Seqwater Annual Report

35 Investment and Procurement Committee The Investment and Procurement Committee reviewed capital and operational investment and procurement decisions. The Committee ensured we met strategic, corporate and technical aspects of asset delivery and operational performance objectives, while managing the associated business risks and ensuring risk management systems were in place. The Committee s role, functions and duties are outlined in its Charter. The Committee: assesses and oversees implementation of a high quality asset investment plan consistent with the strategic plan oversees the development and implementation of asset delivery and non-infrastructure capital programs and maintenance program operations, in line with the strategic plan ensures strategic procurement objectives are developed and implemented through an annual strategy ensures compliance with the Queensland Procurement Policy oversees the establishment and monitoring of appropriate operations and service delivery targets for any long standing contracts. The Committee observed the terms of its Charter. During , the Committee: contributed to the update and finalisation of the 2017 Asset Portfolio Master Plan, which presents an integrated and optimised suite of infrastructure improvements needed to meet service requirements and manage risk over the next 20 years oversaw the infrastructure improvement program, including consideration of the dam safety upgrade program, and recommended Board approval of same oversaw the delivery of the infrastructure and non-infrastructure investment program, with a focus on efficient and effective outcomes oversaw the development of the infrastructure and non-infrastructure investment program and recommended Board approval of same considered major capital investment and maintenance program business cases and critical supply contracts, including monitoring and control systems, electricity purchasing, asset upgrades, disposal of assets, and recommended approval by the Board used its delegated authority to consider the approval of contracts up to a value of $10 million associated with Board approved projects oversaw the performance of the collaborative maintenance model in relation to Seqwater s infrastructure assets reviewed the Committee s performance during the previous period and associated reporting to the Board. People and Culture Committee The People and Culture Committee reviewed decisions and recommendations relating to Seqwater s people and culture initiatives, policies and programs. The Committee s role, functions and duties are outlined in its Charter. The Committee: assists in discharging the Board s responsibilities as they relate to Seqwater s enterprise bargaining commitments, internal controls and relevant external regulations and codes of conduct monitors the development of key strategies aimed at improving the organisation s culture, executive development, succession and talent management practices monitors Seqwater s direction to ensure it applies contemporary practices and approaches to ensure the efficient and effective delivery of strategic and operational human resource functions monitors Seqwater s direction on diversity and inclusion practices endorses the Employee Value Proposition (EVP) ensures Seqwater has appropriate employee wellbeing strategies reviews and monitors other strategic initiatives associated with people and culture Seqwater Annual Report

36 provides a line of communication between the Board and executive management on relevant matters complies with all relevant aspects of the Seqwater Compliance Guide, with particular reference to the values and obligations set out in the Seqwater Code of Conduct. The Committee observed the terms of its Charter. During , the Committee: oversaw the annual Chief Executive Officer and Senior Executives Performance and Remuneration review processes recommended Board approval of the proposed Organisational Key Performance Indicator targets recommended Board approval of the revised Inclusion and Diversity Policy recommended Board approval of the revised People Policy Statement oversaw management s Inclusion and Diversity Committee and Champions program oversaw the planning for the annual employee survey and review of outcomes oversaw management s Leadership Development Program. Related entities Seqwater was the host organisation for the Australian Water Recycling Centre of Excellence Ltd (AWRCE), a national research organisation dedicated to enhancing the efficiency, expansion and acceptance of water recycling in Australia. The Centre was a company limited by guarantee, with Seqwater its sole member and funded by the Commonwealth Government as part of the National Urban Water and Desalination Plan. Following the completion of the funding arrangement with the Commonwealth Government, the AWRCE ceased business effective 31 December The AWRCE was deregistered by ASIC in July Governance As a Government-owned statutory authority, we have Board approved governance arrangements, which reflect the governance requirements in relevant legislation and government guidelines. We provided quarterly and annual performance reports to our responsible Ministers and worked cooperatively with their relevant departments, Queensland Treasury and the Department of Energy, Biofuels and Water Supply. We also have a regulatory relationship with Queensland Health (under the Water Fluoridation Act 2008 and Public Health Act 2005). From time to time, the delivery of major water projects may require us to report, communicate or engage with other government departments. We continued to work collaboratively with government departments to ensure appropriate application of government policies and directives to our operations. Risk Seqwater s Enterprise Risk Management Framework, approved by the Board and overseen by the Audit and Risk Committee, establishes our process of assessing, rating and managing risks and opportunities within the organisation s appetite. The framework aligns with AS/NZS ISO 31000:2009 Risk Management Principles and Guidelines and meets the requirements of the Financial Accountability Act 2009 and the Financial and Performance Management Standard We recognise the importance of organisational culture in the success of an enterprise-wide risk management approach and continued to embed aligned risk-based decision making across all our processes. Our goal in was to actively manage and better understand Seqwater s risk profile and appetite. To do this, the following actions were taken: All Board and executive leadership team meeting papers and proposals included an assessment of the risks to our business to articulate our risk profile and inform our risk appetite. 35 Seqwater Annual Report

37 Regular reviews of our risk, opportunities, controls and initiatives were conducted throughout the year and reported quarterly to the Audit and Risk Committee. Risk assessments and information was integrated into strategic and operational planning, project management, capital and asset planning, incident and emergency response, and business continuity. Improvements were made to the management of enterprise and operational risk information in a central system, enabling ease of reporting, analysis and visibility of incidents, audits and risks. Functional areas such as Environment, Water Quality and Safety matured tools to gather information to improve our risk understanding and assist in a consistent method of management that aligns with our risk appetite. In-depth reviews were conducted on significant, emerging and changing risks to our strategic and operational objectives, including information security, public safety and the safety of our employees and contractors. Training and education programs were rolled out to increase staff awareness of fraud-related issues, including cyber security, physical access security, delegations and conflicts of interest. Work began, and continues, to improve tools to align the management of project delivery risks to our risk appetite. Insurance We have a Board approved commercial insurance program. As part of the annual insurance renewal process, we consulted with key stakeholders and reviewed the program s structure, including consideration of our Enterprise Risk Register and any emerging risks. This approach ensured our program aligned with our key risks, and assures us that our insurance program is suitable. Accountability We are committed to high standards of integrity, professionalism and accountability. Our Code of Conduct and values describe the way in which we expect our employees to deliver Water for life. Our Securities Trading and Investments Policy and Procedure and Executive and Senior Management Trading/Investment Policy were in place to guard against potential conflicts due to trading and investments by our officers and management. Our Fraud and Corruption Control Framework helps us discharge our responsibility to prevent, detect and respond to fraud properly, and was overseen by Seqwater s Fraud Control Officer. A Fraud and Corruption Control Policy and procedure to assist with making responsibilities clear. Internal audit Seqwater s internal audit function operates under a Board approved Internal Audit Charter and is overseen by the Board and the Audit and Risk Committee. The internal audit function operates independently, objectively and effectively to drive continuous improvement. We aligned with Queensland Treasury s Audit Committee Guidelines, the Financial Accountability Act 2009, the Financial Performance Management Standard 2009 and the relevant aspects of the Government Owned Corporations Governance Framework. Internal audits provided independent, objective assurance and helped deliver on our purpose by systematically reviewing, evaluating and recommending improvements to our risk management and governance processes, and internal control systems. Core audit activities were conducted by an independent, specialist external service provider. The status of audit recommendations was reviewed quarterly and reported to the Board, the Audit and Risk Committee, the Chief Executive Officer and the Executive Leadership Team. Seqwater Annual Report

38 Information systems and recordkeeping This year we improved compliance and cultural aspects of records management within Seqwater. We commenced implementation of a three-year records management strategy and upgraded the records management system to improve the user experience and focus on records excellence. Open data Information about consultancies and overseas travel will be available online in lieu of inclusion in the annual report. This information will be available on the Queensland Government Open Data website ( Changes were made to the security of records held within the system to allow appropriate access controls and migration of multiple record data sets into one single data set. A Records Management Steering Committee was formed in March Chaired by Company Secretary Sally Frazer and including Chief Executive Officer Jim Pruss, the committee has been integral to raising the bar of records management in the organisation will see continuous improvement in both compliance and cultural aspects of records management in line with the adopted strategy. Other projects scheduled to commence or be completed include content listing of archived holdings, improvement in the management of correspondence, identification and compliance with vital records and an improved training program. Corporate entertainment Our corporate entertainment spend was $ (including GST) in This was Seqwater s contribution to an auction prize at the 2016 WaterAid ball. The auction prize was lunch with the Seqwater CEO, and the CEOs of two other water retailers, and each organisation contributed towards the cost of the lunch. The auction was a fundraiser for WaterAid, a charitable organisation that improves access to safe water, sanitation and hygiene in some of the world s poorest countries. 37 Seqwater Annual Report

39 Our organisational structure Responsible Ministers Board Board charter Audit and Risk Committee (ARC) ARC Charter People and Culture Committee (PCC) PCC Charter Investment and Procurement Committee (IPC) IPC Charter Executive Leadership Team Inclusion and Diversity Committee Terms of Reference CEO Jim Pruss Investment Review Group Capital Investment Governance Charter Water Supply Strategy and Policy Ross Muir (Acting) Policy, Strategy, Research and Innovation Regulatory and Investment Governance Water Supply Planning Asset Portfolio Development and Delivery Dan Spiller Asset Capability and Sustainability Asset Planning Engineering and Technical Support Information Communication and Technology Program Delivery Operations Liam Tobin Northern, Central and Southern Operations Water Quality, Environment and Process Engineering Asset Maintenance Services Water Source Services Contracts and Reporting General Counsel and Company Secretary Sally Frazer Board Administration Fraud and Corruption Control Governance and Compliance Internal Audit Legal and Insurance Right to Information Strategy, People and Safety Nikki Poteri-Collie Corporate and Community Relations Corporate Strategy and Risk People and Culture Workplace Health and Safety Corporate Finance Donna Gregory Commercial Services External Audit Finance Property, Fleet and Facilities Business Systems Steering Committee (BSSC) BSSC Charter Work Health and Safety Steering Committee (WHSSC) WHSSC Constitution Workforce Planning Committee Workforce Planning Committee Charter Seqwater Annual Report

40 Executive Leadership Team Executives provide leadership and direction to our staff and ensure we meet our strategic priorities and legislative responsibilities. As at 30 June 2017, the Executive Leadership Team comprised: Mr Jim Pruss Chief Executive Officer Jim has 30 years experience in the water industry and before becoming Seqwater s CEO, held the position of General Manager, Water Supply Strategy and Policy. Prior to this, Jim was executive general manager of the Water Delivery (Operations) and Sustainable Water and Asset Delivery (Planning and Asset Delivery) groups within Seqwater. Jim s experience includes time as General Manager, Water and Waste for Redland Shire Council and 15 years in various technical and specialist, supervisory and management roles at Sydney Water. Jim is Chair of the Senior Executive Advisory Committee (SEAC) to Healthy Land and Water Corporation and is also a member of the Australian Rivers Institute Advisory Board. Ms Sally Frazer General Counsel and Company Secretary Sally has been a lawyer for more than 30 years, with more than 20 years experience in the water industry. She has worked in both the private and public sector with a focus on natural resources law, compliance and governance, insurance, risk and secretariat functions, and held alliance board positions for water infrastructure development projects including the Toowoomba Pipeline construction project. Sally was also the Company Secretary for the Australian Water Recycling Centre of Excellence Ltd. Ms Donna Gregory Chief Financial Officer Donna has more than 20 years experience at a senior level in both the local and state government sectors. A Fellow of CPA Australia, Donna has extensive experience in financial management, asset management, system implementation and continuous improvement. Donna joined Seqwater in 2008 and has held a number of both managerial and executive roles across the business. Before joining Seqwater, Donna worked in a variety of managerial and leadership roles within the Queensland Rail and Moreton Bay Regional Council. Mr Ross Muir, Acting General Manager Water Supply Strategy and Policy Ross has more than 25 years experience in the water sector, specialising in commercial and regulatory aspects of water supply. Before joining Seqwater, Ross was a consultant for more than 10 years advising private sector and Government clients in the Australian water sector on price regulation, infrastructure investments, institutional reform and water policy. Ross was also Commercial Manager at SunWater, where his responsibilities included customer service, billing, commercial investments, property, water trading and pricing. 39 Seqwater Annual Report

41 Mrs Nikki Poteri-Collie, General Manager Strategy, People and Safety Nikki joined Seqwater in October A senior strategy, planning and finance executive, Nikki has more than 25 years experience building the strategic and financial success of large private sector businesses across the infrastructure construction and services industries. Nikki has been involved in the water industry throughout her career which began with the Queensland Water Resources Commission. Since then she has worked in private sector organisations in the water, electrical and telecommunication industries across Australia, most recently as General Manager Strategy and Development at Thiess Services Pty Ltd. Mr Daniel Spiller, General Manager Asset Portfolio Development and Delivery Mr Liam Tobin, General Manager, Operations Liam has more than 30 years experience in the resources, manufacturing and oil industries. Most recently, Liam was the Director Business Development at Queensland Energy Resources (QER) and before this he worked as Refinery Manager at Caltex s Lytton Refinery and Plant Manager at the Boyne Aluminium Smelter. These roles required a strong focus on safety leadership, operational excellence and operating in a competitive environment. In addition to his industry involvement, Liam held the position of Associate Dean of Engineering at Central Queensland University, where he was responsible for environmental and maintenance management, as well as process engineering research and education programs. Daniel has extensive experience in infrastructure planning, delivering complex projects, as well as a strong understanding of the region s integrated water assets. He was previously Seqwater s Manager, Water Supply and System Planning. His background includes time as Director of Operations for the SEQ Water Grid Manager and a period as Acting Chief Executive of the Queensland Water Commission. Seqwater Annual Report

42 Economic and financial performance We strive to operate at optimal efficiency, ensuring value for money for our customers and communities. We endeavour to improve our financial performance to make water more affordable. Where does our money come from? ($880 million) Most of our revenue (97%) comes from the sale of bulk water to council-owned water businesses, power stations and others. Our income increased by 7.9% ($63.1 million) compared to the total revenue earnings in Grants and other Other revenue contributions 2% 1% Income Water sales 97% Where was the money allocated? ($1.029 billion) Employee expenses 9% Total expenditure in was $1.029 billion compared to $1.093 billion in Seqwater s payment of interest costs to service its debt continues to account for more than half of Seqwater s total expenditure. Supplies and services 14% The next largest expense is depreciation and amortisation at 25% of expenses. The remaining funds represent our dedicated workforce costs and operating expenditure, as well as maintenance of the $11 billion in water supply assets to ensure the ongoing operation and delivery of affordable bulk water drinking water to our communities. Expenses Depreciation 25% Finance and borrowing costs 52% 41 Seqwater Annual Report

43 What do we own ($11.4 billion) and what do we owe ($9.9 billion)? Our current assets of $260 million principally represent liquid assets for day to day operating requirements, including receivables relating to the sale of water. Non-current assets are separated into core long term property, plant and equipment assets fundamental to the business, such as land, dams, water treatment plants ($11 billion) and intangible assets such as software licences ($151 million). Our current liabilities are what we owe to creditors ($48 million), employee benefits ($13.6 million), our lender Queensland Treasury Corporation ($42 million) and others ($11 million) that are payable in the next 12 month period. Non-current liabilities are long-term borrowings ($9.4 billion) from the Queensland Treasury Corporation on our extensive asset infrastructure. Net deferred tax liabilities ($70 million) are a result of temporary differences between our accounting and tax carrying values, and estimated taxes payable for the current year. Total current assets $260 M Total equity $1,494 M Non current liabilities $9,778 M Current liabilities $114 M Non current assets $11,126 M Financial summary () () Total revenue 880, ,347 Total expenses 1,029,246 1,093,077 Earnings Before Interest and Tax (EBIT) 389, ,084 Net result (loss) before tax (148,952) (274,730) Income taxation credit adjustment 43,439 79,137 Increase/(decrease) in asset valuation surplus 0 (473,822) Total comprehensive income (105,513) (669,415) Key financial ratios Return on assets before tax (%) (1.3) (2.38) Return on assets after tax (%) (0.9) (1.7) Interest coverage (times) Debt to total assets EBIT margin on revenue Government approved Seqwater s application for no payment of dividends or tax equivalents for due to the net loss before tax. The key financial ratios for continue to reflect the high gearing of Seqwater. Seqwater Annual Report

44 Financial report Statement of Comprehensive Income 45 Statement of Financial Position 46 Statement of Changes in Equity 47 Statement of Cash Flows 48 Section 1 About the Entity and this financial report A1 Basis of financial statement preparation 50 A1-1 Reporting entity 50 A1-2 Statement of compliance 50 A1-3 Going concern 50 A1-4 Critical accounting estimates and judgements 51 A1-5 Basis of measurement 51 A1-6 Goods and services tax 52 A1-7 Presentation 52 A1-8 Authorisation of financial statements for issue 52 A2 Objectives of Seqwater 53 A3 Controlled entities 53 Section 2 - Notes about our financial performance B1 Revenue 54 B1-1 Water sales 54 B1-2 Government grants and other contributions 54 B1-3 Other revenue 55 B2 Other gains - net 55 B3 Employee benefit expenses 56 B4 Supplies and services 57 B5 Finance/borrowing costs 57 B6 Other expenses 58 B7 Income tax equivalents 58 Section 3 - Notes about our financial position C1 Cash and cash equivalents 59 C2 Trade and other receivables 59 C3 Non current assets held for sale 61 C4 Property, plant and equipment and related depreciation expense 62 C4-1 Recognition thresholds 62 C4-2 Acquisition of assets 62 C4-3 Measurement using historical cost 62 C4-4 Measurement using fair value 63 C4-5 Depreciation 64 C4-6 Impairment 65 C4-7 Property, plant and equipment balances and reconciliations of carrying amount 66 C4-8 Valuation of property, plant and equipment including key estimates and judgements 68 C5 Intangible assets 71 C5-1 Recognition of intangible assets 71 C5-2 Amortisation 71 C5-3 Intangible assets balances and reconciliations and carrying amount 72 C6 Trade and other payables 74 C7 Employee benefits 74 C8 Interest bearing liabilities Seqwater Annual Report

45 C8-1 Funding facilities 76 C8-2 Credit standby arrangement 76 C9 Tax assets and liabilities 77 C9-1 Recognised deferred tax assets and liabilities 77 C9-2 Movement in temporary differences during the year 78 C9-3 Tax losses 78 C9-4 Current and non-current deferred tax 78 C10 Other liabilities 79 C11 Asset revaluation surplus by asset class 79 Section 4 - Notes about risk and other accounting uncertainties D1 Fair value measurement 80 D1-1 Accounting policies and basis for fair value measurement 80 D1-2 Categorisation of fair values 81 D1-3 Level 3 significant valuation inputs and relationship to fair value 81 D1-4 Fair value disclosures for financial assets and liabilities measured at amortised cost 82 D1-5 Impairment testing for cash generating unit 83 D2 Financial risk disclosures 83 D2-1 Categorisation of financial instruments 83 D2-2 Financial risk management 84 D2-3 Capital Management 87 D3 Contingencies 87 D4 Capital commitments 88 D5 Leases 89 D5-1 Finance leases 89 D5-2 Operating leases 89 D6 Future impact of accounting standards not yet effective 90 Section 5 - Other Information E1 Key management personnel (KMP) disclosures 92 E1-1 Details of Ministerial KMP and remuneration policies 92 E1-2 Details of non-ministerial KMP and remuneration policies 92 E2 Related party transactions 98 E3 First year application of new accounting standards or change in accounting policy 99 Management certificate for the year ended 30 June Independent audit report to the Board of Queensland Bulk Water Supply Authority 101 Seqwater Annual Report

46 Queensland Bulk Water Supply Authority Statement of Comprehensive Income for the year ended 30 June 2017 fnc.ome from continuing operations Notes 2017 Water sales BH 855,004 Grants and other contributions ,020 Other revenue ,171 Total revenue 880, ,856 14,283 11, ,506 Other gains - net Total income from continuing operations 880, ,347 Expenses from continuing operations Employee expenses 83 90,347 Supplies and services ,356 Depreciation and amortisation C4-7,C ,948 Revaluation decrement C4-7 Finance/borrowing costs ,936 Other expenses 86 7,659 Total expenses from continuing operations 1,029,246 Operating result from continuing operations before income tax (148,952) Income tax credit 87 43,439 Operating result from continuing operations (105,513) 83, , ,396 40, ,814 9,546 1,093,077 (274,730) 79,137 {195,593) Other comprehensive income Item that will not be reclassified subsequently to operating result: lncrease/(decrease) in asset revaluation surplus net of tax Total other comprehensive income Total comprehensive income (105,513) (473,822) {473,822) {669,415) The accompanying notes form part of these financial statements. 45 Seqwater Annual Report

47 Queensland Bulk Water Supply Authority Statement of Financial Position as at 30 June 2017 Current assets Notes 2017 Cash and cash equivalents C1 168,556 Trade and other receivables C2 76,202 Inventories 7,587 Other current asset 3, ,912 Non-current assets classified as held for sale C3 4,282 Total current assets 260, , ,526 8,582 3, ,343 4, ,627 Non-current assets Property, plant and equipment C4-7 10,974,691 Intangible assets C ,261 Total non-current assets 11,125,952 Total assets 11,386,146 11,117, ,356 11,267,000 11,538,627 Current liabilities Trade and other payables C6 47,682 Employee benefits C7 13,610 Interest bearing liabilities C8 41,755 Other current liabilities C10 11,445 Total current liabilities 114,492 45,623 14,976 35,904 11, ,978 Non-current liabilities Trade and other payables C6 Employee benefits C Interest bearing liabilities C8 9,384,583 Deferred tax liabilities C9-1 70,432 Other non-current liabilities C10 316,293 Total non-current liabilities 9,777,515 Total liabilities 9,892,007 Net assets 1,494, ,759 9,384, , ,675 9,830,997 9,938,975 1,599,652 Equity Contributed equity (715,888) Asset revaluation surplus C11 2,428,821 Accumulated surplus (218,794) Total equity 1,494,139 (715,888) 2,428,821 (113,281) 1,599,652 The accompanying notes form part of these financial statements. Seqwater Annual Report

48 Queensland Bulk Water Supply Authority Statement of Changes in Equity for the year ended 30 June 2017 Accumulated Asset surplus/ revaluation Contributed (deficit) surplus equity Total Balance as at 1 July ,841 2,908,114 (715,888) 2,269,067 Operating result from continuing operations (195,593) (195,583) Total other comprehensive income: Decrease in asset revaluation surplus (473,822) (473,822) Transfer revaluation surplus as a result of disposal of non current asset 5,471 (5,471) Transactions with owners as owners - contributed equity Balance as at 30 June 2016 (113,281) 2,428,821 (715,888) 1,599,652 Balance as at 1 July 2016 (113,281) 2,428,821 (715,888) 1,599,652 Operating result from continuing operations (105,513) (105,513) Total other comprehensive income: Decrease in asset revaluation surplus Transfer revaluation surplus as a result of disposal of non current asset Transactions with owners as owners - contributed equity Balance as at 30 June 2017 (218,794) 2A28,821 (715,888) 1,494,139 The accompanying notes form part of th,ese financial statements. 47 Seqwater Annual Report

49 Queensland Bulk Water Supply Authority Statement of Cash Flows for the year ended 30 June 2017 Notes 2017 Cash flows from operating activities Inflows: Receipts from water services 900,167 Grants received 2,572 Interest received 2,312 Other revenue 7,803 GST collected 26,295 Outflows: Payments to suppliers and employees (227,718) Finance and borrowing costs (533,076) GST paid (26,467) Other (2,086) Net cash provided by operating activities CF ,802 Cash flows from investing activities Inflows: Proceeds from sale of plant and equipment 642 Outflows: Payments for property, plant and equipment (107,378) Payments for intangibles (7,819) Net cash used in investing activities (114,555) Cash flows from financing activities Inflows: Proceeds from borrowings Net cash provided by financing activities Net increase in cash and cash equivalents 35,247 Cash and cash equivalents at the beginning of the financial year 133,309 Cash and cash equivalents at the end of the financial year C1 168, ,685 2,467 2,493 7,183 24,662 (225, 150) (551,551) (24,423) (1,653) 17,713 2,184 (83,129) (4,902) (85,847) 114, ,364 46,230 87, ,309 The accompanying notes form part of these financial statements. Seqwater Annual Report

50 Queensland Bulk Water Supply Authority Statement of Cash Flows for the year ended 30 June 2017 Notes to the Statement of Cash Flow CF - 1 Reconciliation of operating result to net cash provided by operating activities 2017 Operating deficit (105,513) Non-cash items included in operating result: Depreciation 249,778 Amortisation of intangible assets 4,170 Losses/(gains) on sale of property, plant and equipment (155) Income tax credit (43,439) Revaluation decrement Doubtful debts expenses (13) Change in assets and liabilities: (lncrease)/decrease in trade and other receivables 45,508 (lncrease)/decrease in inventories 996 (lncrease)/decrease in GST input tax credits receivable (163) (lncrease)/decrease in prepayment 358 lncrease/(decrease) in trade and other payables 3,800 lncrease/(decrease) in provisions and employee benefits 81 lncrease/(decrease) in unearned revenue {11,448) lncrease/(decrease) in interest payable 5,851 Increase/( decrease) in GST payable (9) Net cash provided by operating activities 149, (195,593) 268,179 4,217 1,001 (79, 137) 40, (10,517) (1,512) 207 (525) 997 1,397 (11,816) , Seqwater Annual Report

51 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 SECTION 1 ABOUT me EHTrTY AND THIS FINANCiAl.REPORT A1 Basis of financial statement preparation A1 ~ 1 Reporting entity The Queensland Bulk Water Supply Authority (the Entity) is a Statutory Body under the Financial Accountability Act 2009, the Statutory Bodies Financial A"angements Act 1982 and has been established under the South East Queensland Water (Restructuring) Act The Entity expires at the end of 99 years from when it was established on 16 November The State of Queensland is the successor in law at the expiry date. The Entity is controlled by the State of Queensland which is the ultimate parent. The head office and principal place of business of the Entity is LevelS, 117 Brisbane Street, Ipswich QLD The financial statements include the value of all revenues, expenses, assets, liabilities and equity of the Entity and the entity that it controls, where this entity is material. A1-2 Statement of compliance The financial statements are general purpose financial statements which have been prepared in accordance with: Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB); the Financial and Performance Management Standard 2009; Queensland Treasury's Minimum Reporting Requirements for reporting periods beginning on or after 1 July 2016; and other authoritative pronouncements. A1-3 Going concern The financial statements have been prepared on a going concern basis. The Board considers the going concern basis to be appropriate as there is a reasonable expectation that the Entity will be able to pay its debts as and when they fall due. Further, the Entity will remain a going concern for at least twelve months from the date of signing these financial statements for the following reasons: The Board relies on the Queensland Government's commitment to ensuring the solvency and ongoing viability of the Entity. This commitment was affirmed in a letter from the Han. Curtis Pitt MP, Treasurer, Minister for Trade and Investment and the Hon. Mark Bailey MP, Minister for Main Roads, Road Safety and Ports and Minister for Energy, Biofuels and Water Supply issued to the Entity on 31 May This letter is effective from 30 June 2017 to 31 August 2018; The Government's support for the Entity will include facilitating the provision of funding facilities through Queensland Treasury Corporation (QTC) to ensure the availability of funds to meet: o o o the working capital and capital works requirement of the Entity; the financial commitments of the Entity under bulk supply agreements with its customers; and the financial commitments and obligations incurred by the Entity as a result of the pricing structure, including any variations to funding requirements arising from the bulk water price path. Seqwater Annual Report

52 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 A1 Basis of financial statement preparatjon (continued) A1-3 Going concern (continued) The Government's commitment is provided on the basis that any funding made available to the Entity is consistent with arrangements agreed under the Entity's Operational and Strategic Plans, or as otherwise approved by the responsible Ministers under the South East Queensland Water (Restructuring) Act 2007 or other applicable legislation (notably, the Statutory Bodies Financial Arrangements Act 1982); The Government has provided certainty in regard to prices over the medium term. This is shown by the Government's previous decision to set prices until 30 June 2018 and further evidenced by the work currently in progress to investigate bulk water prices to apply from 1 July Both of these actions support the expectation that the Entity will be able to pay its debts as and when they fall due; and As at 30 June 2017, the Entity has an approved working capital facility from QTC amounting to $200 million (refer to Note CB-2) of which none has been drawn at 30 June 2017, and has a cash balance of $169 million at 30 June 2017 (refer to Note C1 ). A1-4 Critical accounting 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 amounts recognised in the financial statements are found in the following notes: Fair value 01 Fair value measurement C4 Valuation of property, plant and equipment including key estimates and judgements Income tax and utilisation of tax losses C9 Tax assets and liabilities A 1-5 Basis of measurement Historical cost is used as the measurement basis in the financial report except for the following : Land, building and infrastructure assets which are measured at fair value; and Provisions expected to be settled 12 or more months after reporting date which are measured at their present value. 51 Seqwater Annual Report

53 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 A1 Basis of financial statement preparation (continued) A1-6 Goods and services tax {GST) Revenue, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (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 Staitement of Financial Position. 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. A1-7 Presentation II './,- ntl \ The financial statements are presented in Australian dollars. Amounts included in the financial statements have been rounded to the nearest $1,000 or, where that amount is $500 or less, to zero, unless disclosure of the full amount is specifically required.... v fl p<j,.i I 'I S Comparative information reflects the audited financial statements except where restated for identified prior period errors. r c 1 Assets and liabilities are classified as either 'current' or 'non-current' in the Statement of Financial Position and associated notes. Assets are classified as 'current' where their carrying amount is expected to be realised within 1.2 months after the reporting date, Liabilities are classified as 'current' when they are due to be settled within 12 months after the reporting date, or the Entity does not have an unconditional right to defer settlement to beyond 12 months after the reporting date. All other assets and liabilities are classified as non-current. A1-8 Authorisation of financial statements for issue The financial statements were authorised for issue by the Board on 28 August Seqwater Annual Report

54 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 A2 Objectives of Seqwater The Entity is primarily involved in the supply of water services and carrying out water activities. 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. A3 Controlled entities Australian Water Recycling Centre of Excellence Ltd (AWRCoE) was the only subsidiary controlled by the Entity during the financial year. AWRCoE was a not for profit public company, incorporated under the Corporations Act 2001 and was a company limited by guarantee. The Entity was the sole member of AWRCoE, provided guarantee to the value of $100, and had acted in a custodian arrangement since 1 July AWRCoE ceased trading at 31 December 2016 and deregistered on 5 July All assets have been realised and liabilities settled prior to deregistration, and a basis consistent with the going concern basis has been used. As the transactions of AWRCoE were not considered material, it was not consolidated with the Entity's financial statements. Parent and ultimate controlling party Entity Queensland Bulk Water Supply Authority Subsidiary Australian Water Recycling Centre of Excellence Limited (deregistered) Country of establishment /incorporation Australia Australia Ownership interest % 100% Summary financial information about AWRCoE is as follows: Total income Total expenses Total comprehensive income 1 July Dec (563) 1 July June ,251 (4,178) Total current assets Total current liabilities Net assets 31 Dec June , The Entity provided in kind contributions (rent and corporate services) to AWRCoE of $5,327 (2016: $105,560). 53 Seqwater Annual Report

55 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 SECTION 2 NOTES ABOUT OUR FINANCIAL PERFORMANCE 8 1 Revenue Revenue is measured at fair value of the consideration or contribution received or receivable. The Entity recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Entity and specific criteria have been met for each of the Entity's activities as described below Water sales The Entity receives water sales revenue direct from the South East Queensland local water retailers, local government councils, power stations and other industrial and rural customers. The charges for rural irrigation water are calculated based on two part tariff charges. Part A relates to ftxed costs based on water allocation volume and is applied quarterly in advance and Part B represents the charge for water used based on meter readings for the previous quarter. Water sales revenue is accrued on a monthly basis. Water sales- water grid Water sales - irrigation Total ,880 3, , ,794 3, , Government grants and other contributions Government grants and contributions 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 contributions that compensate the Entity for expenses incurred are recognised in profit and loss on a systematic basis in the same periods in which the expenses are recognised. In 2010, the Entity received $408 million capital grants from the Commonwealth department for the construction of Western Corridor Recycled Water assets. The $408 million was recognised initially as deferred income and is recognised in profit and loss ($11 million) on a systematic basis over the useful life of the asset (refer to Note C1 0). The Entity receives Community Service Obligation (CSO) payments from the Queensland Government in two parts. The rural water payment is for the provision of rural irrigation water to rural irrigators. The water planning development payment is for the activities to ensure compliance with regulatory and policy areas of resource management cso 2,447 2,111 Government grant ,172 Total 14,020 14,283 Seqwater Annual Report

56 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Revenue (continued) 81-3 Other revenue 2017 Interest 2,474 Insurance claims 5,917 Other 2,780 Total 11, ,533 6,123 2,711 11, Other gains- net 2017 Gains on disposal -net 155 Other (56) Total Seqwater Annual Report

57 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Employee benefit expenses Employee benefits 2017 Wages and salaries 65,894 Annual leave expenses 6,647 Long service leave expenses 2,864 Employer superannuation contribution 7,917 Employee related expenses Workers' compensation premium 221 Payroll tax 3,895 Other employee related expenses 2,909 Total 90, ,797 6,311 1,667 7, ,502 2,032 83,102 ~r1 I 'I h 1 -ntr Employee benefits are expensed as the related service is provided. Employer superannuation contributions, annual leave and long service leave are regarded as employee benefits. 11 I L I. ; 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. t..~ 1 r 1,..t._. I r ~ The Entity currently contributes to QSuper for employees under both defined benefit and accumulation superannuation schemes. QSuper is a superannuation scheme for Queensland Government employees, the contribution rates are determined by the Treasurer on the advice of the State Actuary. Cot1tributions are expensed in the period in which they are paid or payable. The Entity's obligation is limited to its contribution to QSuper. The QSuper scheme has defined benefit and defined contribution categories. The liability for defined benefits is held on a whole-of-government basis and reported in those financial statements pursuant to AASB 1049 Whole of Government and General Government Sector Financial Reporting. The Entity contributes to LGIAsuper for employees under both defined benefit scheme and accumulation superannuation scheme. Contributions are expensed in the period in which they are paid or payable. The Entity has no liability to or interest in LGIAsuper 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 at this time. Accordrngly, there is no recognition in the financial statements of any over-or-under funding of LGIAsuper. 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 2016* Permanent employees Fixed term employees Total "The 2016 comparative has been restated to be consistent with disclosure in the current reporting period Key management personnel and remuneration disclosures are detailed in Note E1 Seqwater Annual Report

58 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Supplies and services 2017 Labour hire 3,569 Consultancies and contractors* 13,804 Operational contracts 16,475 Energy 25,728 Information technology and communications 9,293 Repairs and maintenance - dams and weirs 2,702 Repairs and maintenance- water treatment plants 4,389 Repairs and maintenance - pipelines and other 15,544 Chemicals and treatment 20,506 Legal 7,201 Supplies and consumables 13,582 Bulk water service purchase payment 3,799 Other expenses 1,764 Total 138, ,446 16,832 16,194 20,674 8,416 2,924 6,601 13,196 18,868 7,948 15,481 3,795 1, ,704 Includes specialists for engineering, project management, environmental and asset management, accounting and economic advice. 85 Finance/borrowing costs Interest paid or payable to QTC Other financial costs Total , , , ,814 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 the 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. No borrowing costs are capitalised into qualifying assets. 57 Seqwater Annual Report

59 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Ott)er expenses 2017 Insurance 4,122 External audit fees* 385 Rates and taxes 2,267 Losses on disposal- net Other 885 Total 7, , ,129 1, ,546 Total audit fees quoted by the Queensland Audit Office relating to the financial statements are $325k (2016: $325k). The additional $60k incurred in was related to the 2016 fair value assessment. There are no non-audit services included in this amount 87 Income tax equivalents The difference between income tax expense provided in the financial statements and the prima facie income tax expense is reconciled as follows: Loss before income tax Prima facie income tax thereon at 30% (2016: 30%) Less: Tax impact of transferred council provision for employee benefits recognised Recognition of tax losses Add: Tax impact of revaluations on disposals Recognition of under/over tax provision Recognition of temporary differences Depreciation difference on transferred council assets Non deductible expenses Total income tax credit 2017 (148J952) (44,685) (31) 9 1,262 6 (43,439) "(274,7301 (82,419) 455 1,560 1,262 5 i79,137l The Entity has been a participant in the ATO National Tax Equivalent Regime (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/(credit) 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. Seqwater Annual Report

60 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 SECTION 3 NOTES ABOUT OUR FINANCIAL POSITION C1 Cash and cash equivalents Cash at bank Short term deposits Total ,180 96, , ,294 94, ,309 Cash and cash equivalents comprise cash on hand, deposits held on call with banks, other short-term 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 Statement of Financial Position. C2 Trade and other receivables Trade debtors- retail Trade debtors - other Less: Provision for impairment , ,505 7,007 7,063 (151) {171 } 72, ,397 GST receivable GST payable Total 3,538 3,376 (238) {247} ,129 76, ,526 l Receivables are recognised at the amounts due at the time of sale or service delivery i.e. the agreed purchase/contract price. Settlement of those amounts is required within 30 days from invoice date. 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. 59 Seqwater Annual Report

61 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C2 Trade and other receivables {continued) tl The collectability of receivables is assessed periodically with provision being made where receivables are impaired. The method of calculating any provisional impairment for risk is based on past experience. All known bad debts were written-off as at 30 June. 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. Individually impaired rect:jivabta pos tlor ( 2017 Carrying Gross Impairment amount Receivables Past due days Past due days More than 90 days 269 {1 51 } 118 Total overdue 352 {151) 201 Gross Impairment {171 } {171} Carrying amount Movement trtnllowance for impairment for mpa1rcd re,.ervauies Balance at 1 July Decrease/(increase) in allowance recognised in operating Amount written-off during the year in respect of bad debts Total overdue 2017 (171) 13 7 (151) 2016 (181) (14) 24 (171) Seqwater Annual Report

62 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C3 Non - current assets held for sale Non-current assets held for sale consist of those assets that management has determined are available for immediate sale in their present condition, for which their sale is highly probable within the next twelve months. Under AASB 5 Non-current Assets Held for Sale and DisconUnued Operations, when an asset is classified as held for sale, its value is measured at the lower of the asset's carrying amount and fair value less costs to sell. Any restatement of the asset's value to fair value less costs of disposal is a nonrecurring valuation. Such assets are no longer amortised or depreciated upon being classified as held for sale Land 3,980 3,982 Building Total 4,282 4,284 Due to being operationally efficient and reducing the annual maintenance costs on the under-utilised land assets, management has approved to sell 21 parcels of freehold land that are surplus to the Entity's operational needs and suitable for disposal. Following the completion of the Entity's property portfolio review, management has decided to sell two houses including ancillary improvements at Maroon Dam. Negotiations have commenced with one of the Queensland Government departments who provided a formal offer in June 2016, no decision has been reached. For the assets described above, the valuations reflect fair value less costs of disposal, as that was lower than the carrying amount at the time of meeting the "held for sale" criteria. Given the nature of the properties and limited market demand, the above assets may take longer than 12 months to sell. 61 Seqwater Annual Report

63 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C4 Property, plant and equipment and related depreciation expense C4 1 Recognition thresholds Items of property, plant and equipment with a cost or other value equal to or in excess of the following thresholds are recogn ised for financial reporting purposes in the year of acquisition: Land $1 Building Infrastructure Plant and Equipment $10,000 $10,000 $5,000 Items with a lesser value are expensed in the year of acquisition. Land improvements are to be included in either the class building or the class infrastructure based on their proximity to the asset to which they relate. The Entity has a comprehensive annual maintenance program for its building and infrastructure assets. Expenditure is only capitalised if it increases the service potential or useful life of the existing asset Maintenance expenditure that merely restores original service potential (arising from ordinary wear and tear) is expensed. C4-2 Acquisition of assets 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. 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. C4-3 Measurement using historical cost Plant and equipment is measured at historical cost in accordance with the Non-Current Assets Policies for the Queensland Public Sector. The carrying amount for plant and equipment is not materially different from their fair value. Separately Identified components of assets are measured on the same basis as the assets to which they relate. Seqwater Annual Report

64 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June C4 Property, plant and equipment and related depreciation expense (continued) C4-4 Measurement using fair value Land, buildings and infrastructure are measured at fair value in accordance with AASB 116 Propert"' Plant and Equipment, AASB 13 Fair Value Measurement and Queensland Treasury's Non-Current Asset Policies for the Queensland Public Sector. These assets are reported at their revalued amounts, being the fair value at the date of valuation, less any subsequent accumulated depreciation and impairment losses where applicable. 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 current replacement cost or the net present value of the cash flows from the asset. If the asset does not generate cash inflows independent from a group of assets then the fair value will be either the sum of the current replacement cost of the group of assets or the fair value of the group of assets using an income approach. 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. The Entity has an established control framework with respect to the measurement of fair values. This includes a valuation team that oversees all significant fair value measurements, including Level 3 fair values, and reports directly to the Chief Financial Officer (CFO). Discussions of valuation processes and results are held between the CFO and the Audit and Risk Committee at least once a year in line with the Entity's annual reporting dates. The fair values reported by the Entity are based on appropriate valuation techniques that maximise the use of available and relevant observable inputs and minimise the use of unobservable inputs (refer to Note 01). Revaluation increments in respect of each individual non-current asset are credited to ~he asset revaluation surplus, except to the extent that it reverses a previous decrement recognised as an expense for that individual asset in profit or loss. In th is instance the reversal portion of the increment is recognised as revenue in profit or loss. 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 tlhat 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. On revaluation: for assets revalued using a cost valuation approach (e.g, current replacement cost)- accumulated depreciation is adjusted to equal the difference between the gross amount and carrying amount, after taking into account accumulated impairment losses. This is generally referred to as the 'gross method'; and for assets revalued using a market or income-based valuation approach - accumulated depreciation and accumulated impairment losses are eliminated against the gross amount of the asset prior to restating for the revaluation. This is generally referred to as the 'net method'. 63 Seqwater Annual Report

65 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C4 Property, plant and equipment and related depreciation expense (continued) C4-5 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. Assets under construction (work-in-progress) are not depreciated until they reach service delivery capacity. Service delivery capacity relates to when construction is complete and the asset is first put to use or installed ready for use in accordance with its intended application. These assets are then reclassified to the relevant classes within property, plant and equipment. 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 Buildings Useful Life 5-40 years Infrastructure Dams and weirs Water treatment plants Pipelines and others years years years Plant and equipment Motor vehicles and boats Recreation facilities Other equipment 3-15 years 3-60 years 3-15 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. Seqwater Annual Report

66 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C4 Property, plant and equipment and related depreciation expense (continued) C4-6 Impairment The carrying amounts of the Entity's non-current physical assets are reviewed at each reporting date to determine whether there is any indication of impairment. If an indicator of possible impairment exists, the Entity determines the asset's recoverable amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a post-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 foss 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 to the carrying amount of the 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 foss had been recognised. When an asset is revalued using either the market or income valuation approach, any accumulated impairment losses at that date are eliminated against the gross amount of the asset prior to restating for the revaluation. 65 Seqwater Annual Report

67 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C4 Property, plant and equipment and related depreciation expense {continued) C4 7 Property, plant and equipment - balances and reconciliation of carrying amount 2017 Land Buildings Infrastructure Plant and Work in Total Water equipment progress Dams and treatment Pipelines and weirs plants other Gross or fair value Less: Accumulated depreciation Carrying amount at 30 June , ,771 11,255 3,334,534 2,977,079 4,013,958 44,138 82,795 10,993,530 (1 ~,8_39 ) - (18,839) 11,255 3,334,534J -2,~71,!)79- - ~.0_1~,9_ ~,2_99 82,'795 10,97 4,691 Seqwater Annual Report Represented by movements in carrying amount: Carrying amount at 1 July 2016 Acquisitions Transfer between classes Revaluation increments I (decrements} in equity Revaluation increments I (decrements) reversed in operating results Disposal Depreciation for the year Carrying amount at 30 June 2017 Carrying amount under cost model at 30 June , , ,126 11,573 3,368,794 3,050, ,944 46,705 4,074,321 19,751 22,711 4,614 3,575 61, ,729 (80,151) 11,117, ,184 (359) - (359) (494) (44,204) (119,724) (80,114) (5,242) - (249,778) 11,255 3,334,534 2,977,079 4,013,958 25,299 82,795 10,974,691 9,917 1,724,041 2,000,123 3,444,262 25,299 82,795 7,785,563

68 67 Seqwater Annual Report C4 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 Property, plant and equipment and related depreciation expense (continued) C~7 Property, plant and equipment- balances and reconciliation of carrying amount (continued} Gross or fair value Less: accumulated depreciation Carrying amount at 30 June Land Buildings Infrastructure Water Dams and treatment weirs plants 528,930 11, ,930 11,573 3,368,794 3,050, ,368,794 3,050,098 Pipelines and other 4,074,321 4,074,321 Plant and equipment Work in progress Total 48,304 61,217 11,143,237 (25,593) - (25,593) 22,711 61,217 11,117,644 Represented by movements in carrying amount: Balance at 1 July 2015 Acquisitions Transfer between classes Asset reclassified as held for sale Revaluation increments I (decrements) in equity Revaluation increments I (decrements) reversed in operating results Disposal Depreciation for the year Carrying amount at 30 June ,003 14,443 2,521 - (282) (3,982) (302) 30,246 (1,844) (36,382) 504 (3,476) (390) {556} 528,930 11,573~ 3,610,176 3,382, ,279 57, (203,941) (254,505) 592 (5,229) - - {46,312 } (130!437} 3,368,794 3,050,098 4,399,987-7,207 - (247,958) - - {84,915} 4,074,321 22,034 62,255 12,031,425 3,618 75,590 81,729 3,682 (76,628) - - (4,284) - - (678,002) - - (40,515) (664) - (4,530) (5,959} - {268, 179} 22,711 61,217 11,117,644 Carrying amount under cost model at 30 June ,341 10,233 1,735,217 2,027,180 3,491,675 22,711 61,217 7,846,574

69 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C4 Property, plant and equipment and related depreciation expense (continued) C4-.8 Valuation of property, plant and equipment including key estimates and judgements The Board has adopted the following policies in respect of the measurement of fair value: Class Method of measurement of fair value Frequency of measurement * Land Professional valuation - market value 5 i ears Professional valuation - market value I current replacement Buildings cost 5 years Infrastructure Board adopted valuation - income approach 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. LJnr Land was valued by an internal professional valuer during December 2015 and June 2016 with an effective date of 30 June The 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. A random sample of 5% of the valuation results were assessed by an external valuation professional, Herron Todd White, to certify appropriate methodology and practice had been adhered to. Additions since the time of the independent valuations have been recorded at cost. Land with a total value of $26,123,745 (2016: $26,123,745) representing reserve land 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 (held in their Statement of Financial Position). Comprehensive revaluation by a professional valuer is undertaken every 5 years. tr n Office buildings and rental properties were valued by an internal professional valuer and external valuation professionals, Australis Asset Advisory Group, with an effective date of 30 June The 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 "current replacement cost". Addit.ions since the time of the independent valuations have been recorded at cost. Comprehensive revaluation and condition assessment by a professional valuer are undertaken every 5 years. Seqwater Annual Report

70 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C4 Property, plant and equipment and related depreciation expense (continued) C4-8 Valuation of property, plant and equipment including key estimates and judgements {continued) An income based approach to fair value (adopting market participant principles as required by accounting standard AASB13 Fair Value Measurement) was undertaken as at 30 June The income approach converts multiple future cash flow amounts to a single current (i.e. discounted) amount. When the income approach is used, the fair value measurement reflects current market expectations about those future amounts. The following key estimates and judgements have been applied in adopting the income based approach for valuation: a demand forecast for physical sale projections and ongoing levels of service requirements that is considered 'most likely' given current trends; estimated future cash flows, based on management's estimate, have been projected over 30 years and discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset; the Weighted Average Cost of Capital (WACC) discount rate of 6.0% (2016: 5.8%) has been used to discount cash flows and has been developed from a market participant perspective; cash flows have been adjusted to reflect potential synergies that a market participant may derive from the acquisition of the Entity's assets; future capital expenditure and related revenues relating to restructuring or improving asset performance have been included in the cash flows, including forecast expenditure on water supply augmentation from the financial year 2028 as set out in the specifically, the South East Queensland's Water Security Program (Version 2); fixed and variable operational expenditure derived from the Board approved Budget, extrapolated post financial year 2022 based! on forecast production; and the projected regulatory asset base value (at a multiple of 1) has been used to compute the terminal value of the valuation. The following pricing scenarios and weightings have been applied in the computed valuation of infrastructure assets. This approach is consistent with prior year's methodology of assigning likelihood weightings to pricing scenarios post 2028 when the current price path period concludes. In the context of pricing scenarios, the current intention is to continue the bulk water price path which incorporates the repayment of Water Grid Manager Debt Pool by financial year Post this date the t o 11 owmg pncmg scenanos an d we1g hf lllqswi u b e appue r d. Pricing Scenario assumptions scenario 1 QCA bulk water price path (including FY2019 reset) to FY2028, then annual CPI increases (2.5% pa) 40% 50% QCA bulk water price path (including FY2019 reset) to 2 FY2028, then glide path at 1.25% pa until full maximum 0% 40% allowable revenue (MAR) reversion price path reached 3 QCA bulk water price path (including FY2019 reset ) to FY2028, then full MAR reversion from FY % 10% QCA bulk water price path (including FY2019 reset) to 4 FY2028. then a linear regression to MAR at next bulk 50% 0% augmentation completion date. 69 Seqwater Annual Report

71 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C4 Property, plant and equipment and related depreciation expense (conti nued) C4-8 Valuation of property, plant and equipment including key estimates and judgements (continued) The current methodology, and Management estimates used as part of the income approach fair value calculation, contain inherent uncertainty derived from: pricing regulation post 2028 and the weighted pricing scenarios; impacts of unforeseen droughts and floods to management estimates; impacts of unforseen future population and consumption projections; the level of service obligations of a market participant in relation to expected capital augmentation outlays; and the restricted freedom of utilisation of the infrastructure asset base. Management have used the most reasonable assumptions and estimates available at this time, as the basis for the fair value modelling. The income based valuation calculates the value of the Entity as a whole. From this value other noncurrent assets (land, buildings, plant and equipment, work in progress and intangible assets) are deducted, and the remaining value is apportioned to individual infrastructure assets on the basis of their depreciated replacement cost or cost. Information about the valuation of property, plant and equipment 1s provided in Note 01 ~I"... I It I t I D II t i s ~ l < t!!. I, I I I g There is significant uncertainty regarding pricing beyond The Entity will continue to review and refine its assumptions regarding pricing each year, and will make changes as appropriate, and as the likely outcome(s) become clearer. In assessing the scenarios, and the application of the weightings, the Entity considered: the likely expectations from Government in a hypothetical sale of the assets, particularly avoidance of price shock/volatility for consumers and providing certainty to a purchaser regarding the ability to earn an adequate return on investment; domestic and international precedents in regard to the sale of public assets; and the application of a regulated pricing framework. With the above considerations in mind, Management has determined it appropriate to introduce a refinement to the prior year scenario 2, the 'glide reversion to maximum allowable revenue'. Based on industry examination and research, evidence exists whereby historic public asset sales have resulted in ongoing price regulation of the sold assets with MAR being the common pricing basis. In acknowledgement of this, Management believe that a pricing return to MAR is more likely than the other scenarios, and that such a reversion will take the form of a smooth linear transition to MAR using the next bulk augmentation completion date as its basis. For this reason, Management has introduced scenario 4 in the 2017 asset valuation weightings. Seqwater Annual Report

72 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 CS Intangible assets C5-1 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: Land easement Software purchased Other intangible $1 $100,000 $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. It has been determined that there is not an active market for any of the Entity's intangible assets. As such, the assets are recognised and carried at cost less accumulated amortisation and accumulated impairment losses where applicable. 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. CS-2 Amortisation Amortisation is recognised in the 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 Land easements Software purchased Other intangible Useful Life years 5 years 40 years C5-3 rmpalrment All intangible assets are assessed for indicators of impairment on an annual basis. If an indicator of possible impairment exists, the Entity determines the asset's recoverable amount. Any amount by which the asset's carrying amount exceeds the recoverable amount is recorded as an impairment loss. Recoverable amount is determined as the higher of the asset's fair value less costs to sell and current replacement cost. 71 Seqwater Annual Report

73 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C5 Intangible assets (continued) C5-4 Intangible assets - balances and reconciliation of carrying amount 2017 Software Other Software work in Land easements purchased intangibles progress Total Gross Less: accumulated amortisation Carrying amount at 30 June ,467 (8,682} 138,785 13,298 (6,551 ) 6,747 5,002 (1,622) 3,380 2,349-2, ,116 (16~1355 } 151, ~~ Represented by movements in carrying amount: Balance at 1 July 2016 Acquisitions Transfers between classes Disposal Amortisation for the year Carrying amount at 30 June ,672 1,003 (1,890) 138,785 4,156 4,785 (93) (2,101L 6,747 3,559 1,969 5,165 (4,785) 149,356 6,168 (93) {179) {4,170) 3,380 2, ,261 Seqwater Annual Report

74 73 Seqwater Annual Report CS Intangible assets (continued) Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 CS-4 Intangible assets- balances and reconciliation of carrying amount (continued) Gross Less: accumulated amortisation Carrying amount at 30 June Software Other Software work in Land easements purchased intangibles progress ~ ~ Total 146,464 10,273 5,002 1, ,708 (,792) (6,117) (1,443) - (14,352) 139,67~ 4,156 3,559 1, ,356 Represented by movements in carrying amount: Balance at 1 July 2015 Acquisitions Transfers between classes Disposal Amortisation for the year Carrying amount at 30 June ,659 1,878 (1,865) 139,672 5,429 1,055 (154) ~ 174} 4,156 3, { 178) 3, ,825 3,024 4,902 (1,055) - (154) - (4,217) 1, ,356

75 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C6 Trade and other payables Current Trade and other payables Total ,682 47, ,623 45,623 Non current Other payables Total 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 C7 Employee benefits * Current Salaries and wages accrued 1,457 4,484 Liability for long service leave 4,582 3,935 Liability for annual leave 7,571 6,557 Total 13,610 14,976 Non current Liability for long service leave 6,207 4,759 Liability for annual leave Total 6,207 4,759 "The 2016 comparative has been restated to be consistent with disclosure in the current reporting period. 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 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. Seqwater Annual Report

76 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C7 Employee benefits (continued} 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 provision is calculated using the "shorthand measurement techniques" whereby 101% (2016: 89%) valuation factor is applied to the aggregate accrued long service leave liability. The valuation factor is reviewed periodically by Mercer Consulting (Australia) Pty ltd, an independent actuarial firm, to ensure that it remains appropriate. The last valuation date is 30 June Changes to the long service leave policy, included in the Seqwater Enterprise Agreement , entitle continuing employees to take a proportionate amount of accrued long service leave after completing seven years of continuous service. This entitlement change has impacted the calculation of long service leave obligations and is reflected in the shorthand percentage movement (2017: 101%, 2016: 89%). C8 Interest bearing liabilities Current QTC - Loans interest payable QTC - Redraw facility fees Total , , Non current QTC- Loans QTC - Redraw facility Total 10,064,335 (679,752) 9,384,583 10,064,335 (679,752) 9,384,583 Borrowings are initially recognised at fair value, plus any transaction costs directly attributable to the borrowings, and then subsequently held at amortised cost using the effective interest method. Any borrowing costs are added to the carrying amount of the borrowing to the extent they are not settled in the period in which they arise. Borrowings are split between current and non-current liabilities using the principles set out in the foreword and preparation information section of this financial report. The amount in the Redraw Facility (Facility) offsets the Entity's debt balance. The Facility will be cancelled on 30 April The Entity agrees not to make any deposit or redraw during the period from 30 June 2015 until the cancellation date. On the cancellation date, the Entity agrees all monies in the Facility will be applied against the relevant loan; no market value realisation will apply to the transaction. No assets have been pledged as security for any liabilities. All borrowings are in Australian dollar denominated amounts with interest being expensed as it accrues, except for assets under construction (refer to Note BS). There have been no defaults or breaches of the loan agreement during the 2017 and 2016 financial years. There is no early debt repayment planned. Loan interest is payable monthly in arrears on the first day of the new month. 75 Seqwater Annual Report

77 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C8 Interest bearing liabilities (continued) Balances of outstanding loans were as follows: 2017 QTC - Seqwater - Water Grid Debt QTC - Seqwater - Drought Assets Debt QTC - Seqwater - Non-Drought Assets Debt Total Carrying amount 2,157,978 5,408,178 1,860,182 9,426,338 Loans interest payable Loans principal Redraw facility Total 41,755 10,064,335 _ l679,752} 9,426,338 The Weighted Average Borrowing Rate for QTC borrowings as at 30 June 2017 is 5.46% (2016: 5.87%}. Interest payments are made monthly in arrears at rates ranging from 5.00% to 5.84% (2016: 5.33% to 6.32%). C8-1 Funding facilities Drawn Unused Total Facility , ,793 The State Borrowing Program funding application is submitted annually by the Entity and is approved by the Queensland Government. The funding facility is maintained by QTC. The Entity did not apply for the State Borrowing Program funding for CS-2 Credit standby arrangement Drawn Unused Total Facility , , , ,000 The credit standby facility remains fully undrawn at 30 June 2017 and is available for use in the next reporting period. The current overdraft interest rate is 1.8% (2016: 2.05%} Seqwater Annual Report

78 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C9 Tax assets and liabilities 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 income 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 liabilities are 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 or loss; and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred income 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 (DTA} is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. DTAs 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. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances related to the same taxation authority. C9-1 Recognised deferred tax assets and lfabilities Deferred tax assets and liabilities are attributable to the following: 2017 Assets liabilities Net Property, plant and equipment (1,221,918) (1,221,918} Provision for employee benefits 5,518 5,518 Tax losses 1,047,955 1,047,955 Government grant 98,303 98,303 Inventory (767} (767) Accrued expenses Total tax assets/(liabilities) 1,152,253 (1,222,685) (70,432) 2016 Assets Liabilities Net Property, plant and equipment (1,247,769) (1,247,769) Provision for employee benefits 4,684 4,684 Tax losses 1,027,698 1,027,698 Government grant 101, ,737 Inventory (733} (733} Accrued expenses Total tax assets/(liabilities) 1,134,631 11,248,50 2 ~ l113,871l 77 Seqwater Annual Report

79 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C9 Tax assets and liabilities (continued) C9-2 Movement in temporary differences during the year Property, plant and equipment Provision Tax losses 2016 {1,247, 769) 4,684 1,027,698 Recognised in profit or loss 25, ,257 Acquired in equity {1,221,918) 5,518 1,047,955 Government grant Inventory 101,737 (733) (3,434) (34) 98,303 (767) Accrued expenses Total 512 {113,871) {35} 43, (70,432) Property, plant and equipment 2015 (1,492,222) Recognised in profrt or loss 39,040 Acquired in equity 205, (1,247,769) Provision Tax losses Government grant Inventory Accrued expenses Total 4, , , (398,421) ,078 (3,545) (733) (15) 79, ,413 4,684 1,027, ,737 (733) 512 (113,871) C9..J Tax losses A DT A 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. DTAs 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. During the year ended 30 June 2017, $0 of tax losses were utilised (2016: $0) with tax losses carried forward at 30 June 2017 amounting to $3,493 million (2016: $3,426 million). A DTA of $1,048 million has been recognised in relation to these carry tax losses as it is considered probable that future taxable profits will be generated against which the tax losses could be utilised. C9-4 Current and non--current deferred tax Current assets/(liabilities) Non-current assets/(liabilities) Total ,682 (72,114) (70,432) ,581 (116,452) (113,871) Seqwater Annual Report

80 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 C10 Other liabilities 2017 Current Unearned revenue - government grant 11,382 Unearned revenue - other Other 63 Total 11, , ,475 Non current Unearned revenue- government grant 316,293 Total 316, , ,675 C11 Asset revaluation surplus by asset class 2017 Land Building Infrastructure Balance at 1 July ,326 2,154 2,347,341 Revaluation increments I (decrements) Asset revaluation on disposal Deferred tax liabilities Balance at 30 June ,326 2,154 2,347,341 Total 2,428,821 2,428, Land Building Infrastructure Balance at 1 July ,067 3,911 2,845,136 Revaluation increments I (decrements) 30,245 (1,843) (706,404) Asset revaluation on disposal (1,303) (667) (4, 733) Deferred tax liabilities {8,683} ,342 Balance at 30 June ,326 2,154 2,347,341 Total 2,908,114 (678,002) (6,703) 205,412 2, The asset revaluation surplus represents the net effect of upwards and downwards revaluation of assets to fair value. 79 Seqwater Annual Report

81 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 SECTION4 NOTES ABOUT RISK AND OTHER ACCOUNTING UNCERTAINTIES 01 Fair value measurement 01-1 Accounting policies and basis for fair value measurement 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 value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. exit price) regardless of whether the price is directly derived from observable inputs or estimated using another valuation technique. Observa~le inputs are publicly available data that are relevant to the characteristics of the assets/liabilities being valued. Observable inputs used by the Entity include, but are not limited to, published sales data for land, general office buildings and residential houses. Unobservable inputs are data, assumptions and judgements that are not available publicly, but are relevant to the characteristics of the assets/liabilities being valued. Significant unobservable inputs used by the Entity include, but are not limited to, subjective adjustments made to observable data to take account of the characteristics of the Entity's assets/liabilities, internal records of recent construction costs (and/or estimates of such costs) for assets' characteristics/functionality, and assessments of physical condition and remaining useful life. Unobservable inputs are used to the extent that sufficient relevant and reliable observable inputs are not available for similar assets/liabilities. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use. All assets and liabilities of the Entity for which fair value is measured or disclosed in the financial statements are categorised within the following fair value hierarchy, based on the data and assumptions used in the most recent specific appraisals: Level 1 - represents fair value measurements that reflect unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2- represents fair value measurements that are substantially derived from inputs (other than quoted prices included within level 1) that are observable, either directly or indirectly; and Level 3 - represents fair value measurements that are substantially derived from unobservable inputs. Except for cash and cash equivalents, none of the Entity's valuations of assets or liabilities are eligible for categorisation into level1 of the fair value hierarchy. There were no transfers of assets between fair value hierarchy levels during the period. ~ I I I' 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. More specific fair value information about the Entity's Property, Plant and Equipment is outlined in Note C4. Seqwater Annual Report

82 o Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Fair value measurement (continued) 01-2 Categorisation of fair values Level2 Levell Total Land 529, , , ,930 Building 11,255 11, ,255 11,573 Infrastructure ,325,571 10,493,213 10,325,571 10,493,213 The Entity recognises any evident transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred Level 3 significant valuation inputs and relationship to fair value The following table summarises the quantitative information about the significant unobservable inputs used in recurring level 3 fair value measurements ~ estimated QCA bulk water price path from 2020 to The QCA bulk water price path has been determined using a building block approach and regulatory pricing principles. Demand forecast for physical sales projections have been forecast based on the 'most likely' growth scenario based on current trends value. A higher demand forecast increases the fair value. Operating Operating expenditures are based on the corporate plans A lower operating,,...,.._,., OMO-MO-OM --~--- - Revenue Revenue cash flows for the financial year 2018 to (and A higher allowed forecast including) financial year 2028 are based on the current rate of return QCA bulk water price path to 30 June 2019, and the increases the fair Expenditure of management reflecting the expenditure required to expenditure operate and maintain the assets. increases the fair ---- I value. Capital Future capital expenditure required to ensure the security A lower future Expenditure and reliability are based on South East Queensland's capital expenditure Water Security Program (Version 2), and the increases the fair current Board approved Asset Plan Master Plan (APMP value. ' k-.----:-"-' A"'-'- pr'-'- il 2 0_. 1 Termmal value Terminal value is based on the QCA accepted regulated A higher tenninal I : asset base and a terminal value multiple of value and multiple I increases the fair i value. l' Weighted A nominal vanilla WACC of 6.0% (with a range of 5.75%- The higher the i Average Cost of 6.25 %) has been applied in the valuation. The WACC nominal vanilla i Capital 0/VACC) discount rate used is based on professional valuation WACC, the lower_jl discount rate advice and is considered the best estimate of a long-term the fair value. 1 n-4-' l'- I view of the -~!l!_~~t CQ.~L<?.!._ca~p.;,: ita ""'l""' I 81 Seqwater Annual Report

83 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Fair value measurement {continued) - $11,267 I Revenue Revenue cash flows for the financial year 2017 to {and A higher allowed forecast including) financial year 2028 are based on the current rate of return QCA bulk water price path to 2019, and the estimated increases the fair QCA bulk water price path from 2020 to The QCA value. bulk water price path has been determined using a A higher demand building block approach. forecast increases Demand forecast for physical sales projections have the fair valtlie ~_en forecast using a medium growth scenario -- Operating Operating expenditures are based on the corporate plans A lower operating Expenditure of management reflecting the expenditure required to expenditure operate and maintain the assets. increases the fair value Capital Future capital expenditure required to ensure the security A lower future Expenditure and reliability are based on South East Queensland's capital expenditure Water Security Program increases the fair value. Terminal value Terminal value is based on the QCA accepted regulated A higher terminal asset base and a terminal value multiple of value and multiple increases the fair I! I value r w eighted A nomin~i~anilla WACC of 5.8% {with a range of 5.60~;~--= l The-higher the I Average Cost of 6.20%) has been applied in the valuation. The WACC nominal vanilla!i 1 Capital (yi/acc) discount rate nas been determined by management WACC, the lower L ~~~d~is~co~u~nt~r~a~te~~~b~a~s~ed~o~n ~a~lo~n~-t~e~rm~v~ie~w~o~f~th~e~m~a~rk~e~tco~s~t ~of~ca~~ita~l~. ~~t~h~e~fu~i~rv~a~lue. j I A fair value assessment for the Entity was undertaken as at 30 June 2017 using the income approach methodology which determined the fair value to be $11.38 (2016: $11.38). The Board considers that the carrying value is not materially different to the determined fair value and has elected not to record the revalued amounts in the 2017 financial statements Fair value disclosures for financial assets and liabilities measured at amortised cost The Entity does not recognise any financial assets or financial liabilities at fair value, except for cash and cash equivalents. The fair value of trade and other receivables and payables is assumed to approximate the value of the original transaction, less any allowance for impairment. The fair value of borrowings which is determined for disclosure purposes is notified by QTC and calculated using discounted cash flow analysis and the effective interest rate. The fair value 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 borrowing for their full term, no adjustment provision is made in these accounts. Seqwater Annual Report

84 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Fair value measurement (continued) 01-4 Fair value disclosures for financial assets and liabilities measured at amortised cost {continued) 2017 QTC borrowings - loans Total Carrying amount 9,426,338 9,426,338 Fair value 10,948,748 10,948, QTC borrowings - loans Total Carrying amount 9,420,402 9,420,402 Fair value 11,521,789 11,521, Impairment testing for Cash Generating Unit (CGU) The Entity has a single CGU for the purposes of impairment testing. An annual assessment on whether there is any indication that the CGU may be impaired has been performed, which includes the following areas: market value of the asset; negative change in technology, market, economic conditions, or law; Weighted Average Cost of Capital; obsolescence or physical damage to the asset; and asset idleness, discontinued or restructured operations. The Board has assessed that there is no impairment at 30 June Financial risk disclosures 02-1 Categorisation of financial instruments Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Entity becomes party to the contractual provision of the financial instrument. The Entity has the following categories of financial assets and financial liabilities: Category Financial assets Note Cash and cash equivalents Trade and other receivables Total C1 C2 168, , , ,835 Financial liabilities Trade and other payables Other financial liabilities - QTC borrowing Total C6 C8 47,682 45,732 9, ,402 9,474,020 9,466,134 No financial assets and financial liabilities have been offset and presented net in the Statement of Financial Position. 83 Seqwater Annual Report

85 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Financial risk disclosures (continued) 02-2 Financial risk management 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 Market risk - interest rate Measurement Method Ageing analysis Maturity analysis Sensitivity analysis 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 is exposed to credit risk through its customers, investments with QTC and deposits held with banks. The Entity has a concentration of credit risk from receivables due from its customers. 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. The maximum exposure to credit risk at balance date in relation to each class of recognised financial assets is the gross amount of those assets inclusive of any provisions for impairment. The carrying amount of receivables represents the maximum exposure to credit risk (refer to Note C2). No collateral is held as security and no credit enhancements relate to financial assets held by the Entity. The following table represents the Entity's maximum exposure to credit risk based on contractual amounts net of any allowances: Category Financial liabilities Guarantee Total Seqwater Annual Report

86 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June FinanciaJ risk disclosures (continued) 02-2 FinanciaJ risk management (continued) 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. 100% (2016: 77%) of QTC borrowings are interest only with no fixed repayment date for the principal component. For the purposes of producing the maturity analysis, only the principal amount has been allocated to the over five year time band. 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 Financial liabilities QTC borrowings -loans Trade and other payables Total <1 year 510,222 47, ,904 Payable in 1-5 years 2,037,937 2,037,937 >5years 9,384,583 9,384,583 Total 11,932, ,980, Financial liabilities QTC borrowings -loans <1 year 548,640 Payable in 1-5years 2,196,069 >5years 9,836,879 Total 12,581,588 Trade and other payables Total , ,196,1 78 9,836,879 45, 73~ 12,627, Seqwater Annual Report

87 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Financial risk disclosures (continued) 02-2 Financial risk management (continued) r 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 risk in borrowing is effectively managed through QTC's capacity to issue securities with variable terms allowing an appropriate duration for debt. The Entity manages its loan portfolio by setting, monitoring and adjusting the terms and duration as allowed under its commercial financing contract with QTC. r ate.,. '>J 1< '" :.1 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 Cash and cash equivalents 168,556 (1,686} (1,686) QTC borrowings - loans Overall effect on profit and equity 9,426,338 4,220 2,534 4,220 2,534 Equity 2016 Cash and cash equivalents QTC borrowings - loans Overall effect on profit and equity Net carrying amounts 133,309 9,420,402 Profit (1,333) ,972-1% Equity Profit (1,333} 1,333 4,305 ~, 851 ) 2,972 +1% Equity Seqwater Annual Report

88 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Financial risk disclosures (continued) 02-3 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 2017 is $0 (2016: $0). Total borrowings Total assets (excluding cash and cash equivalents) Gearing ratio Note C ,426,338 11,217,590 84% ,420,402 11,405,318 83% 0 3 Contingencies c. Apart from the insurance matter relating to the January 2011 South East Queensland flood (refer to the litigation in progress section), the Entity has no other insurance claims as at 30 June The Entity is investigating a potential insurance claim in respect of property damage caused by the ex-tropical Cyclone Debbie weather event in March r 1,.. I ' A guarantee is provided to Stanwett Corporation Limited, in respect of the operation and maintenance agreement of the Wivenhoe Hydro Plant. The amount guaranteed was $200,000 (2016: $200,000). Guarantees were provided in relation to the tease premises at 200 Creek Street, Brisbane. The amount guaranteed was $245,056 (2016: $147,406). No defaults have occurred and the Entity does not expect that the guarantee Will be called upon. The guarantees are not recognised on the Statement of Financial Position as the probability of default is considered 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 02-2 Financial Instruments for full transparency purposes. 87 Seqwater Annual Report

89 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Contingencies (continued) 6 I If, J r"\ _, As at 30 June 2017, the following cases were filed in the courts naming the Entity as defendant: three individual submissions of notice of claim for personal injury in respect of the January 2011 flood; a class action claim relating to the January 2011 South East Queensland flood was filed on 8 July The Entity filed a defence on 7 September A trial on first stage liability issues has been set down for hearing commencing on 3 October 2017 in the Supreme Court of New South Wales. At this stage in the proceedings no quantum can be established; and a second class action claim, relating to the matter above was filed on 9 January 2017, but has been stayed by the Supreme Court of New South Wales. It is not possible to determine whether this matter will proceed nor establish any quantum, as the matter has been stayed. As at 30 June 2017, the following case was filed in the courts naming the Entity as plaintiff: a debt recovery claim in respect of outstanding irrigation water charges. It is not possible to make a reliable estimate of the final amounts payable, if any, in respect to the litigation before the courts at this time. 04 Capital commitments < I I Capital expenditure commitments inclusive of non-recoverable GST input tax credits if any, contracted for at reporting date but not recognised in the accounts are as follows: Property, plant and equipment Within one year One year and no later than five years More than five years Total , , ,876 1,403 67,279 Intangible assets Within one year One year and no later than five years More than five years Total Seqwater Annual Report

90 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Leases 05 1 Finance leases Leases in which the Entity assumes all of the risk and rewards of ownership are classified as finance leases. As a statutory body, the Entity cannot enter into a finance lease without the approval of the Queensland Treasurer. The Entity did not have any finance leases during the reporting period Operating teases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases and are not recognised in the Entity's Statement of Financial Position. Incentives received on entering into operating leases are recognised as liabilities. Operating lease payments and reduction of the incentive liabilities are expehsed in the period incurred and are representative of the pattern of benefits derived over the lease term Commitments under non-cancellable operating leases at reporting date are inclusive of non-recoverable GST input tax credit if any and are payable as follows: Less than one year 3,105 3,306 Between one and five years 12,046 12,952 More than five years 20,37.1_ 25J399 Total 35,525 41,657 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. During the year an amount of $3.1 M (20 16: $3.1 M) was recognised as an expense in the Statement of Comprehensive Income in respect of operating leases. Non-cancellable operating lease rentals are receivable as follows: Less than one year Between one and five years 1, More than five years 1,284 1,507 Total 6,060 2z829 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. 89 Seqwater Annual Report

91 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Future impact of accounting standards not yet effective At the date of authorisation of the financial report, the expected impacts of new or amended Australian Accounting Standards issued but with future commencement dates are set out below: f This Standard will first apply to the Entity from its financial statements for The Entity has commenced analysing the new revenue recognition requirements under the standard and is yet to form conclusions about significant impacts. Potential future impacts identifiable at the date of this report are as follows: Depending on the respective contractual terms, the new requirements may potentially result in a change to the timing of revenue from sales of the Entity's goods and services, such that some revenue may need to be deferred to a later reporting period to the extent that the Entity has received cash but not met its associated obligations (such amounts would be reported as a liability in the meantime). The Entity is yet to complete its analysis of current arrangements for sale of its goods and services, but at this stage does not expect a significant impact on its present accounting practices. A range of new disclosures will also be required by the new standard in respect of the Entity's revenue. '" p, l This standard will first apply to the Entity from its financial statements for When applied, the standard supersedes AASB 117 Leases, AASB Interpretation 4 Determining whether an Arrangement contains a Lease, AASB Interpretation 115 Operating Leases- Incentives and AASB Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. Impact for Lessees Unlike AASB 117 Leases, MSB 16 introduces a single lease accounting model for lessees. Lessees will be required to recognise a right-of-use asset (representing rights to use the underlying leased asset) and a liability (representing the obligation to make lease payments) for all leases with a term of more than 12 months, unless the underlying assets are of low value. In effect, the majority of operating leases (as defined by the current AASB 117) will be reported on the Statement of Financial Position under AASB 16. There will be a significant increase in assets and liabilities for agencies that lease assets. The impact on the reported assets and liabilities would be largely in proportion to the scale of agency's leasing activities. The right-of-use asset will be initially recognised at cost, consisting of the initial amount of the associated lease liability, plus any lease payments made to the lessor at or before the effective date, less any lease incentive received, the initial estimate of restoration costs and any initial direct costs incurred by the lessee. The right-of-use asset will give rise to a depreciation expense. The lease liability will be initially recognised at an amount equal to the present value of the lease payments during the lease term that are not yet paid. Current operating lease rental payments will no longer be expensed in the Statement of Comprehensive Income. They will be apportioned between a reduction in the recognised lease liability and the implicit finance charge (the effective rate of interest) in the lease. The finance cost will also be recognised as an expense. MSB 16 allows a 'cumulative approach' rather than full retrospective application to recognising existing operating leases. If a lessee chooses to apply the 'cumulative approach', it does not need to restate comparative information. Instead, the cumulative effect of applying the standard is recognised as an adjustment to the opening balance of accumulated surplus (or other component of equity, as appropriate) at the date of initial application. The Entity will await further guidance from Queensland Treasury on the transitional accounting method to be applied. Seqwater Annual Report

92 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June Future impact of accounting standards not yet effective (continued) The Entity has not yet quantified the impact on the Statement of Comprehensive Income or the Statement of Financial Position of applying AASB 16 to its current operating leases, including the extent of additional disclosure required. Impact for Lessors Lessor accounting under AASB 16 remains largely unchanged from AASB 117. For finance leases, the lessor recognises a receivable equal to the net investment in the lease. Lease receipts from operating leases are recognised as income either on a straight-line basis or another systematic basis where appropriate. AASB ' Amendmente to Australtan Accounting Standards Disclosure lnlfrarivo,.,.nr u"" '<;, A~<: 1 As from the Entity's financial statements for , this standard will require additional disclosure to enable the reader to evaluate changes in liabilities arising from financing activities. These disclosures will include both cash flows and non-cash changes between the opening and closing balance of the relevant liabilities and be disclosed by way of a reconciliation in the notes to the Statement of Cash Flows. :AliSB 9 Fmana1allnstrumenrs md ~ASB Amandments to AuslroltCfl 4ocormUng ~ I J, C-t:. D 1 These Standards will first apply to the Entity from its financial statements for The main impacts of these standards on the Entity are that they will change the requirements for the classification, measurement, impairment and disclosures associated with the Entity's financial assets. AASB 9 will introduce different criteria for whether financial assets can be measured at amortised cost or fair value. The Entity has commenced reviewing the measurement of its financial assets against the new AASB 9 classification and measurement requirements. However, as the classification of financial assets at the date of initial application of the new standard will depend on the facts and circumstances existing at that date, the Entity's conclusion 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, all of the Entity's financial assets are expected to be required to be measured at fair value (instead of the measurement classifications presently used in Note 02). 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. Changes in the fair value of those assets will be reflected in the Entity's operating result. Another impact of AASB 9 relates to calculating impairment losses for the Entity's receivables. Assuming no substantial change in the nature of the Entity's receivables, as they don't include a significant financing component, impairment losses will be determined according to the amount of lifetime expected credit losses. On initial adoption of AASB 9, the Entity will need to determine the expected credit losses for its receivables by comparing the credit risk at that time to the credit risk that existed when those receivables were initially recognised. The Entity will not need to restate comparative figures for financial instruments on adopting AASB 9 as from However, changed disclosure requirements will apply from that time. A number of one-off disclosures will be required in the financial statements to explain the impact of adopting AASB 9. Assuming no change in the types of financial instruments that the Entity enters into, the most likely ongoing disclosure impacts are expected to relate to the credit risk of financial assets subject to impairment. All other Australian accounting standards and interpretations with future effective dates are either not applicable to the Entity's activities, or have no material impact on the Entity, 91 Seqwater Annual Report

93 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 SECTIONS OTHER fnformat10n E1 Key management personnel (KMP) disclosures E1-1 Details of Ministerial KMP and remuneration policies As from , the Entity's responsible Minister is identified as part of the Entity's KMP, consistent with additional guidance included in the revised version of AASB 124 Related Party Disclosures. These Ministers are the Hon. Curtis Pitt MP, Trea'surer, Minister for Trade and Investment and the Hon. Mark Bailey MP, Minister for Main Roads, Road Safety and Ports and Minister for Energy, Biofuels and Water Supply. Ministerial remuneration entitlements are outlined in the Legislative Assembly of Queensland's Members' Remuneration Handbook. The Entity does not bear any cost of remuneration of Ministers. The majority of Ministerial entitlements are paid by the Legislative Assembly, with the remaining entitlements being provided by Ministerial Services Branch within the Department of the Premier and Cabinet. As all Ministers are reported as KMP of the Queensland Government, aggregate remuneration expenses for all Ministers is disclosed in the Queensland General Government and Whole of Government Consolidated Financial Statements as from , which are published as part of Queensland Treasury's Report on State Finances. On 11 August 2017 published in the Government Gazette, the Hon. Anthony Lynham MP, Minister for State Development and Minister for Natural Resources and Mines was nominated to be portfolio Minister for the Entity. E1-2 Details of non-ministerial KMP and remuneration policies The following details for non-ministerial KMP reflect 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. Seqwater Annual Report

94 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 E1 Key management personnel (KMP) disclosures (continued) I" Board members' fees include fees paid for membership of the Audit and Risk Committee, the Investment and Procurement Committee and the People and Culture Committee. The Board members who were paid, or were due to be paid directly or indirectly from the Entity were: $ $ Dan Hunt 111,250 10,569 Michael Arnett 56,375 5,356 Shane McGrath 49,500 4,703 Samantha Pidgeon 55,250 5,249 John Dempsey 27, Marina Vlt 36, Leith Boully Jenny Parker Noel Faulkner Total 335, D Hunt appointed as Member of the Board on 1 October M Arnett appointed as Member of the Board on 1 January S McGrath appointed as Member of the Board on 18 December S Pidgeon appointed as Member of the Board on 1 October M Vit appointed as Member of the Board on 1 October Salary and Superannuation Salary and Superannuation Fees Contribution Fees $ J Dempsey appointed as Member of the Board on 23 December ,000 53,000 49,500 36,750 12,375 26,500 26! L Boully appointed as Member of the Board on 1 October 2009, appointment ended on 1 October J Parl<er appointed as Member of the Board on 1 January appointment ended on 31 December N Faulkner appointed as Member of the Board on 1 January 2013, appointment ended on 1 October Contribution $ 7,410 5,035 4,703 3,491 1,145 2,517 2,482 26, Seqwater Annual Report

95 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 E1 Key management personnel (l(mp) disclosures (continued) Position Responsibilities Chief Executive Officer (CEO) Chief Financial Officer (CFO) General Manager Operations The CEO is responsible for the efficient, effective and economic administration of the Entity. The CFO is responsible for finance, treasury management, financial modelling, procurement, fleet, property and facilities management. The General Manager Operations is responsible for the dam, catchment, water treatment operations and asset maintenance, flood operations and emergency management, manufactured water contracts and reporting, water transport network operations, water quality, environment, recreation and catchment services. General Manager The General Manager Asset Portfolio Development and Delivery is Asset Portfolio responsible for information technology, water quality monitoring, Development and environment management, asset capability and sustainabuity, Delivery infrastructure asset planning and asset investment. General Manager Strategy, People and Safety General Manager Water Supply Strategy and Policy General Counsel and Company Secretary The General Manager Strategy, People and Safety is responsible for enterprise strategy, governance and risk, brand management, customer service and stakeholder engagement, human resource management, safety strategy and policy, safety management systems and business improvement. The General Manager Water Supply Strategy and Policy is responsible for water supply strategy and policy, asset portfolio master planning, asset investment governance, economic regulation, research, science and technology, catchment strategy and community engagement. The General Counsel is responsible for company secretariat, insurance and legal counsel. Seqwater Annual Report

96 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 E1 Key management personnel (KMP) disclosures (continued) 1.. I IJO 1:::1 I ' I "'' ' r:>r ~ 1 II Remuneration policy for the Entity's key executive management is managed by the Board under the direction 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. Remuneration expenses for key executive management personnel comprise the following components: short term employee expenses which include: salary, allowances and leave entitlements earned and expensed for the entire year, or for the part of the year during which the employee was a key management person; performance payments recognised as an expense during the year; and non-monetary benefits - consisting of provision of car parking with fringe benefits tax applicable to the benefit. long term employee expenses include amount expensed in respect of long service leave entitlements earned; post employee expenses include amounts expensed in respect of employer superannuation obligations; termination benefits 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. 95 Seqwater Annual Report

97 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 E1 Key management personnel (KMP) disclosures (continued) Koy <:Y.acullvu rnanilgumunl porsonuol,ltfld rornuncratlor 1 July June 2017 Short term employee expenses Post Monetary Non- monetary Long term employee employment Tennination expenses benefits expenses expenses benefits Total expenses Position $ $ $ $ $ $ J Pruss- CEO 523,529-50,504 35, ,933 D Gregory - CFO S Frazer - GC L Tobin - GM D Spiller- GM N Poteri-Collie - GM 183,387-15,036 20, , ,820-8,626 32, , ,513-8,431 33, , ,809-7,552 29, , ,288 - (4,226) 26, ,789 P Dennis - CEO 181,112 - (32,139) 14, , ,102 D Delaporte - CFO 97,730 - (7,587) 10,433 86, ,043 Total 2,2~8,11UL - 46, , ,461 ~8 1 2,968 J Pruss appointed as CEO on 27 April 2017, acting CEO from 11 August 2016 to 27 April 2017, GM on 1 July D Gregory appointed as CFO on 27 Apri12017, acting CFO from 1 October 2016to 26 April2017. Seqwater Annual Report S Frazer appointed as GC on 1 January l Tobin appointed as GM on 10 August D Spiller appointed as GM on 1 May N Poteri-Collie appointed as GM on 19 October 2015, left on 30 June P Dennis appointed as CEO on 15 May 2014, left on 1 November D Delaporte appointed a.s CFO on 30 March 2015, left on 30 September 2016.

98 97 Seqwater Annual Report E1 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 Key management personnel (KMP) disclosures (continued) Key 1!3XecUIIIIO man:~gornclll personnel and rcmuner1 1 "'1r 'c-- ILi 1 July June 2016 Short term employee expenses Long term Post Monetary Non- monetary employee employment expenses benefits expenses " expenses Position $ $ $ $ P Dennis - CEO 419,974-10,113 29,999 D Delaporte - CFO 262,642-6,164 23,425 S Frazer - GC 296,597-7,653 32,878 J Pruss- GM 383,155-10,691 35,000 L Tobin- GM 284,537-6,718 25,527 0 Spiller- GM 293,786-6,829 26,321 N Poteri-Collie - GM 178, Total 2,118,830-52, ,117 Tennination benefits $ " Long term employee benefits are accrued annually, when an employee leaves or takes long service leave the resulting entry is a reversal. - Total Expenses $ 460, , , , , , ,360,341

99 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 E1 Key management personnel (KMP) disclosures (continued) f"n OL tl J:'l 'I I r - Performance bonuses may be paid or payable annually depending upon satisfaction of key performance criteria. The calculation of the cash performance bonuses is as per the Entity's Remuneration Policy. 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 aggregate amount of performance payments made during the financial year with respect to the previous financial year was $125,442 (2016: $76,409). The performance bonus was paid on 23 September 2016 (2016: 11 September 2015). The cash performance bonuses for the year are yet to be determined by the Board. E2 Related party transactions I I 4 u I. During the period, Dan Hunt was a director of the Entity's subsidiary AWRCoE. I ll... C It; l.. u...j~l~ c.l ill.>d... nv.\. nl. 110\. :t... l..f I.:~n.. r_rj... rhruil The Entity is controlled by the Queensland Government and as a result there are a significant number of interactions with other entities controlled by the same parent. The Entity procures services from a number of Queensland Government departments on normal commercial terms. The following entities have the same controlling entity as Seqwater and therefore are considered to be related parties. Transactions with these entities during the year are: QTC, a Queensland Government owned corporation, provided loan debt funding to the Entity under normal commercial terms and conditions, refer to Note ca. Queensland Competition Authority (QCA) - investigation and recommendation on the price practices as per the Minister's Referral Notice, total amount paid $186,175 (2016: $489,649) and commitment at reporting date is $55,825; Department of State Development, Infrastructure & Planning - management of acquisition of land and easements along pipeline corridor, total amount paid $2,562,673 (2016: $5,347,341) and commitment at reporting date is $2,331,641; and Department of Housing and Public Works- Lease of premise, total amount paid $3,519,227 (2016: $3,081,682), and commitment at reporting date is $4,130,500. The Entity provided administrative and support services, at no cost to AWRCoE pursuant to a service level agreement. AWECoE ceased trading at 31 December 2016 and deregistered on 5 July 2017 (refer to Note A3) Seqwater Annual Report

100 Queensland Bulk Water Supply Authority Notes to the Financial Statements for the year ended 30 June 2017 E3 First year application of new accounting standards or change in accounting policy The Entity did not change any of its accounting policies during No Australian Accounting Standards have been early adopted for Seqwater Annual Report

101 Queensland Bulk Water Supply Authority Management Certificate for the year ended 30 June 2017 These general purpose financial statements have been prepared pursuant to section 62(1) of the Financ;aJ Accountability Act 2009 (the Act), relevant sections of the Financial and Performance Management Standard 2009 and other prescribed requirements. In accordance with section 62(1)(b) of the Act we certify that in our opinion: a) the prescribed requirements for establishing and keeping the accounts have been com plied with in all material aspects: b) the statements have been drawn up to present a true and fair view, in accordance with prescribed accounting standards, of the transactions of Queensland Bulk Water Supply Authority for the financial year ended 30 June 2017 and of the financial position at the end of that year; and c) these assertions are based on an appropriate system of internal controls and risk management processes being effective, in all material respects, with respect to financial reporting throughout the reporting period. Dan Hunt Jim Pruss Donna Gregory Chairman Chief Executive Officer 1 /1-v~ ~L# Signature... s'ignature Signature I Date J$ /s/17 Date "1'1. 1~1 7 Date,2 ~ ~ 11 Seqwater Annual Report

102 INDEPENDENT AUDITOR'S REPORT To the Board of Queensland Bulk Water Supply Authority Report on the audit of the financial report Opinion I have audited the accompanying financial report of Queensland Bulk Water Supply Authority. In my opinion, the financial report: a) gives a true and fair view of the entity's financial position as at 30 June 2017, and its financial performance and cash flows for the year then ended b) complies with the Financial Accountability Act 2009, the Financial and Performance Management Standard 2009 and Australian Accounting Standards. The financial report comprises the statement of financial position as at 30 June 2017, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes to the financial statements including summaries of significant accounting policies and other explanatory information, and the management certificate. Basis for opinion I conducted my audit in accordance with the Auditor-General of Queensland Auditing Standards, which incorporate the Australian Auditing Standards. My responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of my report. I am independent of the entity in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 11 0 Code of Ethics for Professional Accountants (the Code) that are relevant to my audit of the financial report in Australia. I have also fulfilled my other ethical responsibilities in accordance with the Code and the Auditor-General of Queensland Auditing Standards. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Key audit matters Key audit matters are those matters that, in my professional judgement, were of most significance in my audit of the financial report of the current period. I addressed these matters in the context of my audit of the financial report as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters. 101 Seqwater Annual Report

103 Valuation of property~ plant and equipment (Infrastructure assets) Refer to note C4-8 in the financial report. Key audit matter How my audit addressed the key audit matter Management has estimated the fair value of the entity's infrastructure assets to be $10.3b as at 30 June The fair value measurement is based on an estimation of future cash flows discounted to a present value. The valuations are dependent on certain key assumptions that require significant management judgement including the following in respect of: Bulk water pricing: uncertainly of price structure post 2028 and the use of weighted pricing scenarios. Demand: estimation of tong term population growth and consumption rates. Capital expenditure: estimating future capital required to meet demand, comply with legislative obligations and maintain service levels. Terminal value: a projected regulatory asset base value to compute the terminal value. Discount rate: a nominal post-tax I discount rate reflecting What a market I participant would use. My procedures in relation to management's valuation of the infrastructure assets included, but were not limited to: Obtaining an understanding of the discounted cash flow model, and assessing its design, integrity and appropriateness with reference to common industry practices. Checking, on a sample basis, the accuracy and relevance of the input data used, including by reconciling input data to supporting evidence such as approved budgets. Assessing the reasonableness of cash flow forecasts and terminal value estimates relative to the regulator-approved determination, board approved budgets, historical growth trends, long-term asset management plans and other relevant intemal and external evidence. The reasonableness of board approved budgets was assessed with reference to their historical accuracy and the budget preparation process. Evaluating whether the discount rate applied was within a reasonable range, with reference to market data and industry research. Challenging the reasonableness of key assumptions based on our knowledge of the entity and industry. Performing a sensitivity analysis to assist in considering the potential impact of reasonably possible changes (downside/upside) in these key assumptions. Verifying the mathematical accuracy of the net present value calculations. Useful lives estimated for depreciation expense Refer to note C4-7 in the financial report. Key audit matter The straight-line depreciation method used by Seqwater required significant judgements for: identifying the significant parts of infrastructure that have different useful lives forecasting the remaining useful lives of those significant parts. How my audit addressed the key audit matter My procedures included, but were not limited to: Evaluating management's approach for identifying the parts of infrastructure that have different useful lives, having regard to recent replacement projects and long-term asset management plans. Evaluating remaining useful life estimates for reasonableness with reference to management's documented assessments, historical disposal rates, condition assessments for older assets, and long-term asset management plans and budgets. Seqwater Annual Report

104 Responsibilities of the entity for the financial report The Board is responsible for the preparation of the financial report that gives a true and fair view in accordance with the Financial Accountability Act 2009, the Financial and Performance Management Standard 2009 and Australian Accounting Standards, and for such internal control as the Board determines is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. The Board is also responsible for assessing the entity's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless it is intended to abolish the entity or to otherwise cease operations. Auditor's responsibilities for the audit of the financial report My objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Au~tralian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, I exercise professional judgement and maintain professional scepticism throughout the audit. I also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of the entity's internal control. EvaJuate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the entity. Conclude on the appropriateness of the entity's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor's report to the related disclosures in the financial report or. if such disclosures are inadequate, to modify my opinion. I base my conclusions on the audit evidence obtained up to the date of my auditor's report. However, future events or conditions may cause the entity to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. 103 Seqwater Annual Report