SEQ Water Grid Manager Annual Report

Transcription

1 SEQ Water Grid Manager Annual Report

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3 Contents About this Annual Report... 1 Performance snapshot... 2 Our business... 4 Chair and Chief Executive Officer s report... 7 Our corporate strategy... 8 Our operational performance... 9 Priority area 1 operations... 9 Priority area 2 risk and technology Priority area 3 governance and regulatory compliance Priority area 4 finance and corporate services Corporate governance Our people Our finances Summary of financial performance Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows...35 Notes to and forming part of the financial statements Management certificate...65 Independent auditor s report...66 Glossary SEQ Water Grid Manager SEQ Water Grid Manager Annual Report ISSN: (print) ISSN: (online) Copyright The State of Queensland. SEQ Water Grid Manager Copyright protects this publication. Except for purposes permitted by the Copyright Act, reproduction by any means (photocopying, electronic, mechanical, recording or otherwise) is prohibited without the prior written permission of the Chief Executive Officer, SEQ Water Grid Manager, PO Box 16205, City East, Queensland 4002.

4 Letter of compliance 14 September 2012 The Honourable Tim Nicholls MP Treasurer and Minister for Trade Level 9, Executive Building 100 George Street BRISBANE QLD 4000 The Honourable Mark McArdle MP Minister for Energy and Water Supply Level 13, Mineral House 41 George Street BRISBANE QLD 4000 Dear Ministers I am pleased to present the Annual Report and financial statements for the SEQ Water Grid Manager. I certify that this Annual Report complies with: the prescribed requirements of the Financial Accountability Act 2009 and the Financial and Performance Management Standard 2009, and the detailed requirements set out in the Annual report requirements for Queensland Government agencies. A checklist outlining the annual reporting requirements can be accessed at: Yours sincerely Gary Humphrys Chair SEQ Water Grid Manager

5 About this Annual Report The SEQ Water Grid Manager Annual Report has been produced according to the standards detailed in the following Queensland legislation and Government guidelines: Financial Accountability Act 2009 Financial and Performance Management Standard 2009 South East Queensland Water (Restructuring) Act 2007 Annual report requirements for Queensland Government agencies requirements for the reporting period. Communication objective The Annual Report is an essential part of the SEQ Water Grid Manager s corporate governance standards. This public report on our business performance ensures the actions we take as a business are accountable to the Parliament and the community. It is one way we publicly communicate to our stakeholders and the community about the work we do to strategically operate the SEQ Water Grid. Contact us For information about the SEQ Water Grid Manager, or for copies of this report, please contact us at: enquiries@seqwgm.com.au or phone: You can also download electronic copies of this report at: Translating and interpreting assistance The Queensland Government is committed to providing accessible services to Queenslanders from culturally and linguistically diverse backgrounds. If you need an interpreter, please call the Translating and Interpreting Service (TIS National) on and have them contact the SEQ Water Grid Manager on between 8am and 5pm, Monday to Friday (except public holidays). ANNUAL REPORT

6 Performance snapshot Five year strategic intent Maintain high standards of customer service by managing the SEQ Water Grid through a transparent, efficient and refined water supply chain. Business area Operations Continue to maintain SEQ Water Grid resilience through SEQ Water Grid emergency management and smarter and more flexible operating strategies. Operations and Risk and technology Manage our budget, direct the operation of the SEQ Water Grid and specify SEQ Water Grid asset service performance optimally to put downward pressure on the costs of the SEQ Water Grid. Operations and Finance and corporate services Implement strategies to ensure a strong and capable workforce within our businesses into the future. Finance and corporate services Leverage best practice technological solutions to support the efficient and effective management of our businesses. Risk and technology Engage in national water initiatives and facilitate information and compliance reporting programs. Governance and regulatory compliance Proactively promote the benefits of the SEQ Water Grid to Government, industry and the community. SEQ Water Grid communications We will maintain a customer service focus and, together with our Grid Customers, explore opportunities for the supply of purified recycled water to industry. Governance and regulatory compliance Deliver on our statutory obligations and provide reliable and timely information to our stakeholders, Grid Participants and the public. SEQ WATER GRID MANAGER 2

7 What we achieved in per cent compliance with water quality requirements. Continued to meet customers demand with 269,774 megalitres of water supplied in Nil disruptions to bulk water supply. Managed all SEQ Water Grid emergencies in accordance with the SEQ Water Grid Emergency Response Plan, ensuring continued supply to customers. Improved integration of the SEQ Water Grid risk and emergency management framework with the State Disaster Management Framework. Conducted the SEQ Water Grid Summer Preparedness Program. Provided a detailed submission to the Queensland Competition Authority and advice to our responsible Ministers on potential ways to operate the SEQ Water Grid more cost efficiently and defer more than $100 million in capital expenditure. Implemented a comprehensive People and Capability Plan to improve our operational effectiveness. The staff survey showed favourable results in all areas. Implemented the Decision Support System to better analyse and interpret data to operate the SEQ Water Grid. Participated in the Water Services Association of Australia National Performance Report : Urban Water Utilities. Conducted monthly stakeholder meetings. Implemented the Smart Grid Benefits Program. With Queensland Urban Utilities, explored potential purified recycled water commercial and industrial customers. Maintained transparency and accountability with our customers through Grid Customer Service Review Reports. Implemented the Risk and Compliance Software System to ensure continued compliance with our statutory obligations and effective risk management. ANNUAL REPORT

8 Our business Our vision To deliver world class water security and value to our customers. Our mission Safe, secure and efficient bulk water services for South East Queensland through partnership and innovation. Our values innovative deliver value motivated adaptable professional. Who we are The SEQ Water Grid Manager started operation on 1 July It is a statutory body established under the South East Queensland Water (Restructuring) Act 2007 and is responsible for strategically operating the SEQ Water Grid. Our core business is to sell treated bulk water to customers, and strategically operate the SEQ Water Grid to optimise our water allocations to support regional water security outcomes. We partner with State and local government organisations to deliver safe and reliable drinking water to the South East Queensland community. Our organisation also delivers economic stewardship for the State-owned bulk water authorities, ensuring our bulk water services deliver value-for-money and are provided cost effectively. The SEQ Water Grid Manager is a small, professional organisation, which sits at the centre of the SEQ Water Grid operationally and commercially. The SEQ Water Grid Manager does not own infrastructure assets but holds 64 urban water entitlements for South East Queensland. This means we can make strategic and operational decisions to produce and move water where it is needed most, at the least possible cost. Figure 1: SEQ Water Grid supply map LEGEND: Desalinated drinking water Purified recycled water Direction of water flow Power station Desalination plant Dams Drinking water Advanced water treatment plant Aquifier Raw water SEQ WATER GRID MANAGER 4

9 What we do Our primary functions to strategically operate the SEQ Water Grid, under legislation, are to: purchase water services and sell water as outlined by the South East Queensland Water (Restructuring) Act 2007 deliver desired levels of service under the South East Queensland System Operating Plan, with reference to the Water Act 2000 ensure financial and corporate governance compliance applicable to statutory bodies (Financial Accountability Act 2009, State Water Authorities Governance Framework 2008 and Statutory Bodies Financial Arrangements Act 1982) comply with The Market Rules SEQ Water Market, with reference to the Water Act We deliver: regional water security through strategically operating the SEQ Water Grid to provide a safe, secure and efficient supply of bulk water to South East Queensland council-owned water distribution-retail entities risk and emergency management services to manage and mitigate risks to ensure bulk water supply reliability and to ensure the water quality is of the standard required by the Australian Drinking Water Guidelines 2011 coordinated customer and stakeholder communications to provide the community, customers and stakeholders with a centralpoint-of contact, to access information, make an enquiry or provide feedback through the Water Grid Communications Unit, our 24-hour call centre ( ) and websites (seqwgm.com.au and watergrid.com.au) corporate governance and regulatory compliance services to ensure the SEQ Water Grid Manager complies with legislative obligations, including The Market Rules SEQ Water Market and the South East Queensland System Operating Plan. Our operating environment In South East Queensland, drinking water is delivered through an integrated supply network the SEQ Water Grid that sources, stores, treats and supplies water. As an integrated treated water supply network, the SEQ Water Grid connects our water supplies, storages and treatment plants across South East Queensland from Noosa in the north, to Coolangatta in the south and west to the Lockyer Valley. Three State-owned statutory bodies Seqwater, LinkWater and SEQ Water Grid Manager are responsible for bulk water delivery to the distribution-retail entities, Toowoomba Regional Council and Stanwell Corporation Limited. During , three council-owned organisations were responsible for delivering water to residents and businesses Unitywater, Queensland Urban Utilities and Allconnex Water. The governance of the SEQ Water Grid is represented in the diagram on page 6 figure 2: SEQ Water Grid supply chain. In June 2012, the State Government announced that as part of its commitment to lower the cost of living, the State water authorities LinkWater, Seqwater and the SEQ Water Grid Manager will merge to form a single State-owned water authority by 1 January The SEQ Water Grid Manager will continue to fulfil its legislative requirements until the amalgamation of the bulk water entities. ANNUAL REPORT

10 Figure 2: SEQ Water Grid supply chain 1. During , there was a change in the policy direction for distribution-retail entities. In February 2012, the SEQ Water (Distribution and Retail Restructuring) and Other Legislation Amendment Act 2011 was passed to allow the Gold Coast, Redland and Logan City councils to withdraw their business from Allconnex Water and establish their own council water businesses. SEQ WATER GRID MANAGER 6

11 Chair and Chief Executive Officer s report In our fourth year of operation, the SEQ Water Grid Manager has continued to deliver on our mission to provide secure, efficient and cost-effective bulk water services for South East Queensland by adopting an efficient SEQ Water Grid operational strategy and negotiating SEQ Water Grid services that optimise existing system capacity. While this is a time of change for our industry, we have continued to maintain our focus on delivering our core business buying and selling bulk water services. To deliver our core business effectively, our dedicated staff have worked to achieve the SEQ Water Grid Manager s key priorities of: be prepared for the next wet season be an efficient, effective and low-cost operator enhance our people and capabilities improve processes and procedures to do our job more efficiently and effectively build stakeholders understanding of the SEQ Water Grid and the SEQ Water Grid Manager understand and grow the purified recycled water commercial and industrial market. We have developed a comprehensive resilience framework and the SEQ Water Grid Risk Management Plan and associated guidelines to steer the identification and management of risks and emergencies across the SEQ Water Grid. Building on our continuous improvement approach, we implemented, before the start of the wet season, the small number of recommendations from the Queensland Floods Commission of Inquiry s Interim Report that were relevant to our organisation. During , the South East Queensland region continued to have a high-level of water security. Consequently, our operating focus for the SEQ Water Grid has been to improve efficiency through utilisation of existing capacity and reduce operating costs for the SEQ Water Grid. We directed the operation of the SEQ Water Grid to minimise output from the Gold Coast Desalination Plant and water transfers within the region to put downward pressure on the costs of operating the SEQ Water Grid. Our operations team developed, for the Queensland Water Commission, a comprehensive Annual SEQ Water Grid Operations Plan to strategically operate the SEQ Water Grid, supported by a five year assessment of water security. We also made submissions to the Queensland Competition Authority and highlighted the opportunity to avoid or defer more than $100 million in capital expenditure. We also continue to work with other entities to ensure that water quality is managed across the SEQ Water Grid as a whole. Key achievements this year include: gaining in-principle agreement that chlorination become the preferred disinfection regime; and revising disinfection residual target at key locations within the system. There has been continued interest from manufacturing and construction industries in using purified recycled water for industrial and commercial activities. In partnership with Queensland Urban Utilities, we conducted a desktop market analysis to investigate the extent of the potential market for commercial and industrial use of purified recycled water. This has included developing a pricing policy and working with Queensland Urban Utilities to finalise supply contracts with commercial and industrial customers. During business has continued to deliver our key business priorities, in partnership with our stakeholders to deliver an efficient and costeffective bulk water supply chain. This Annual Report outlines our performance against these key priorities. Our achievements are a tribute to the hard work and dedication of our staff, who continue to deliver a high standard of service to our customers and stakeholders. The skills and professionalism of our people will be a strong asset to the new State bulk water authority. Gary Humphrys Chair Barry Dennien Chief Executive Officer ANNUAL REPORT

12 Our corporate strategy Our organisation delivers its legislative and regulatory functions and obligations through five business units. We do not own infrastructure assets but hold the water entitlements for South East Queensland. Therefore, we are able to make strategic and operational decisions about the production and transportation of water to where it is needed most at optimal quality and cost. To achieve this role in managing the SEQ Water Grid our business delivers specialised services, as outlined in figure 3: SEQ Water Grid Manager business services. Figure 3: SEQ Water Grid Manager business services Operations Risk and Technology Governance and Regulatory Compliance Finance and Corporate Services Water Grid Communications Business unit Direct the SEQ Water Grid operations to ensure a safe, secure and efficient water supply to South East Queensland. Through planning, development and implementation of practical tools and business process we: manage SEQ Water Grid Manager risks manage SEQ Water Grid emergencies maintain a framework for the management of SEQ Water Grid risks. Ensure our business is open and accountable to our stakeholders and the community through meeting our statutory and regulatory requirements. Buy water services and sell wholesale water products in South East Queensland and to optimise, where possible, the SEQ Water Grid Manager s balance sheet. Coordinate communications with the public, media, Government, customers and stakeholders in order to provide a cohesive response to all matters relating to the SEQ Water Grid. SEQ WATER GRID MANAGER 8

13 Our operational performance Priority area 1 operations About this priority area A key role for the SEQ Water Grid Manager is to direct the SEQ Water Grid operations to ensure a safe, secure and efficient water supply to South East Queensland. During , our operational focus was to direct the operation of the SEQ Water Grid and specify SEQ Water Grid asset service performance optimally to put downward pressure on costs and ensure contract compliance. Performance highlights DELIVERED ONGOING NOT COMPLETED Five year strategic intent What we did Performance We will continue to maintain SEQ Water Grid resilience through SEQ Water Grid emergency management and smarter and more flexible operating strategies. Active participation on steering committees to review: the Wivenhoe, Somerset and North Pine dams flood mitigation manual; and the raising of the Wivenhoe Dam wall. We will maintain high standards of customer service by managing the SEQ Water Grid through a transparent, efficient and refined water supply chain. We will manage our budget, direct the operation of the SEQ Water Grid and specify SEQ Water Grid asset service performance optimally to put downward pressure on the costs of the SEQ Water Grid. Updated the SEQ Water Grid Quality Management Plan version 3. Completed a study and strategy into disinfection options. Implemented Decision Support System. Provided strategic, operational and financial advice to the responsible Ministers on planned SEQ Water Grid capital expenditure over $2 million. Updated the Annual Operations Plan. Completed and implemented a series of investigations in partnership with other entities, including reviewing requirements for the need for ongoing supply from a range of smaller water treatment plants. Made submissions to the Queensland Competition Authority, which outlined recommendations for improving operational efficiency and reducing capital and operating costs. ANNUAL REPORT

14 Our performance SEQ Water Grid operations During , the South East Queensland region continued to have a high-level of water security. Consequently, we continued to focus on improving efficiency and reduce operating costs for the SEQ Water Grid. Figure 4: SEQ Water Grid annual bulk water transfers BAROON POCKET LAKE MACDONALD & MARY RIVER Efficiency has been achieved by investigating and implementing operational changes to a series of SEQ Water Grid assets that are deemed to be not required beyond , such as ceasing the use of some small and aged water treatment plants. TARONG & TARONG NORTH SOMERSET 1,346 ML SUNSHINE COAST 27,729 ML NPI South 9,513 ML BRIBIE ISLAND AQUIFER NORTH PINE We also minimised SEQ Water Grid operating cost and improved efficiency of operations by maintaining key assets including the Western Corridor Recycled Water Scheme and Gold Coast Desalination Plant in a state of readiness, providing improved security and reliability to the region when required. In , we supplied 269,774 megalitres of water to our customers. This included: CRESSBROOK TOOWOOMBA LOCKYER VALLEY 2,012 ML SWANBANK IPSWICH 14,838 ML 5,630 ML SOMERSET & WIVENHOE BUNDAMBA BRISBANE 105,763 ML SRWP North 10,548 ML SRWP South 885 ML LOGAN 14,782 ML MORETON BAY 27,473 ML LUGGAGE POINT & GIBSON ISLAND REDLAND 12,142 ML LESLIE HARRISON STRADBROKE AQUIFER EPI West 1,201 ML EPI East 899 ML GOLD COAST 56,626 ML 250,900 megalitres from dams and weirs 3,400 megalitres from the Gold Coast Desalination Plant 5,600 megalitres via the Western Corridor Recycled Water Scheme to power stations 23,046 megalitres via major interconnecting pipelines, including the Northern Pipeline Interconnector and Southern Regional Water Pipeline. LEGEND: Desalinated drinking water Purified recycled water Drinking water SCENIC RIM 1,433 ML Raw water Annual pipeline flows Annual volume supplied HINZE Direction of water flow Power station Advanced water treatment plant TUGUN Desalination plant Dams Aquifier SEQ WATER GRID MANAGER 10

15 Planning for SEQ Water Grid operations We developed and submitted updated versions of the SEQ Water Grid s Annual Operations Plan to the Queensland Water Commission. Broadly, the SEQ Water Grid s Annual Operations Plan aims to: detail how we intend to supply water to meet forecast demands of our Grid Customers, including intended sources of supply, bulk water transfer arrangements and efficient and cost-effective operation proposals demonstrate our reasonable actions to be taken to achieve the Levels of Service objectives and key SEQ Water Grid storage risk criteria of the South East Queensland System Operating Plan. To develop this plan, we used best practice modelling tools and methodologies to manage the SEQ Water Grid to maintain water security, reliability and quality in South East Queensland in a cost effective manner. During we developed a technology solution the Decision Support System to strengthen our organisational capacity to analyse and interpret technical data required for operating the SEQ Water Grid. We also completed and implemented a model to enable us to better understand and model the reliability of supply across the system as a whole, taking into account the risks of key asset failures. We also participated and provided advice in investigations for key SEQ Water Grid assets, in partnership with other entities. These included the review of our need for ongoing supply from a range of smaller and aged water treatment plants. The outcomes of our investigations were included in our submissions to the Queensland Competition Authority on the draft report on SEQ Grid Service Charges Our submissions sought to reduce the cost of operation. For example, we recommended that no supply would be required from certain water treatment plants in , avoiding the need for capital upgrades. It was also determined that two other water treatment plants would be required to provide supply in response to emergencies only. We also made recommendations to the Queensland Competition Authority in relation to the water quality and reliability specifications required in our bulk supply contracts, as well as recommendations in relation to the staging, timing and prudency review of a range of possible capital works. Water quality The SEQ Water Grid Manager has an obligation to ensure the SEQ Water Grid bulk water delivered to our customers is monitored and tested to meet the Grid Contract water quality standards. During we improved the alignment between the SEQ Water Grid Quality Management Plan and the Grid Participants Drinking Water Quality Management Plans to ensure water quality monitoring and testing was delivered efficiently and effectively. We also completed a study to investigate the most beneficial secondary disinfectant for South East Queensland s drinking water supply. Through the study we gained in-principle agreement that chlorination become the preferred disinfection regime. We are now seeking to optimise current disinfection processes, and investigate how best to transition to free chlorine. In addition, we sought to review the secondary disinfectant levels delivered to our customers. For example, we have optimised the disinfectant levels delivered by the water treatment plants on the Gold Coast. In partnership with the Grid Participants, we also drafted minimum quality indicators for secondary disinfectant levels for all of the SEQ Water Grid s water treatment plants and for key locations across the SEQ Water Grid including major blending points. We will maintain and build upon these initiatives in , to ensure our customers continue to receive water quality that meets contractual requirements. ANNUAL REPORT

16 Finally, in collaboration with Queensland Health and the Office of the Water Supply Regulator, we developed and provided industry best practice documentation, as supporting documents to the Emergency Response Plan, for water quality emergencies. Contributing to dam management improvements Our organisation actively contributed to the following steering committees that worked to improve dam management practices: Wivenhoe, Somerset and North Pine dams Flood Mitigation Manual raising of the Wivenhoe Dam wall. SEQ WATER GRID MANAGER 12

17 Priority area 2 risk and technology About this priority area It is essential that risks are effectively managed in the SEQ Water Grid to ensure our water supply is safe and secure. The SEQ Water Grid Manager, through planning, development and implementation of practical tools and business processes: manages SEQ Water Grid Manager risks manages SEQ Water Grid emergencies maintains a framework for the management of SEQ Water Grid risks. The SEQ Water Grid Manager leverages best practice technological solutions to support the effective management of our business and the efficient operation SEQ Water Grid. Performance highlights DELIVERED ONGOING NOT COMPLETED Five year strategic intent What we did Performance We will continue to maintain SEQ Water Grid resilience through SEQ Water Grid emergency management and smarter and more flexible operating strategies. Developed and obtained approval for the SEQ Water Grid Risk Management Plan; and developed the SEQ Water Grid Risk Guidelines to assist in the implementing of the Risk Management Plan, covering business continuity and critical infrastructure. Integrated the SEQ Water Grid risk and emergency management framework with State Emergency Services requirements. Revised and obtained approval for the SEQ Water Grid Emergency Response Plan. Developed sub-plans for the most likely emergency scenarios related to water quality, supply disruption and mutual aid. Conducted the SEQ Water Grid Summer Preparedness Program. We will leverage best practice technological solutions to support the efficient and effective management of our business. Implemented the Data Management Capability test environment. Implemented the Decision Support System. Implemented the IS18 (Information Security) standard. Implemented the Risk and Compliance Software System. ANNUAL REPORT

18 Our performance SEQ Water Grid risk and emergency management Delivering risk management services to the SEQ Water Grid is an essential role for the SEQ Water Grid Manager. We have developed a comprehensive resilience framework and the SEQ Water Grid Risk Management Plan and associated guidelines to steer the identification and management of risks and emergencies within the SEQ Water Grid. During , we updated the SEQ Water Grid Risk Management Plan and associated guidelines. In preparation for the summer period, our risk and emergency management team has: developed comprehensive sub-plans for the most likely emergency scenarios relating to water quality, supply disruption and mutual aid established two emergency facilities a primary location and an alternative site conducted emergency management training across the SEQ Water Grid through a summer preparedness program and undertook contingency planning. During , SEQ Water Grid emergencies were successfully managed to ensure the water supply to our customers was not disrupted. This year, we have worked closely with the various Disaster Management Groups. In March 2012, staff responsible for actioning emergency responses attending training by Emergency Management Queensland, on how to work in the State Disaster Coordination Centre s logistics cell. Information systems help improve our effectiveness As a knowledge based business, the SEQ Water Grid Manager maintains accurate data and information to deliver comprehensive advice, of a high standard, to our responsible Ministers; and to our stakeholders. During , we undertook projects to improve our information systems to bolster our knowledge management capabilities. These key projects included: Implementing a Decision Support System, to provide the SEQ Water Grid Manager with a multi-criteria decision support (modelling) capability to enable optimisation of the planning and operation of the SEQ Water Grid. Implementing a GIS capability to enable the SEQ Water Grid Manager to capture, store, analyse, manage and present SEQ Water Grid data that is linked to a location. The GIS capability has enhanced the SEQ Water Grid Manager s ability to strategically operate the SEQ Water Grid. Implemented the Risk and Compliance Software System to facilitate the efficient management of SEQ Water Grid Manager risk and compliance obligations. Initiating the Knowledge and Information Management project to enhance the SEQ Water Grid Manager s capability to manage records and content, in accordance with the Queensland Government Information Management Policy Framework. Due to changes following the 2012 State election, this project was placed on hold. SEQ WATER GRID MANAGER 14

19 Priority area 3 governance and regulatory compliance About this priority area This priority area focuses on delivering a service that meets our customers expectations. A significant component of our customer service role is to deliver on the statutory obligations, to a high standard, using best practice governance processes. Performance highlights DELIVERED ONGOING NOT COMPLETED Five year strategic intent What we did Performance We will engage in national water initiatives and facilitate information and compliance reporting programs. Participated in the Water Services Association of Australia National Performance Report : Urban Water Utilities. Submitted the Annual Market Rules Review that reports on compliance with, and the effectiveness of SEQ Water Grid instruments and Grid Contracts and assess the capability of the SEQ Water Grid. We will maintain a customer service focus and, together with our Grid Customers, explore opportunities for the supply of purified recycled water to industry. We will deliver on our statutory obligations and provide reliable and timely information to our stakeholders, Grid Participants and the public. Completed a desktop market analysis of potential purified recycled water commercial and industrial customers with Queensland Urban Utilities. Completed a discussion paper on purified recycled water bulk price. Issued Customer Service Review reports to the Distribution-retail entities. Reported water quality compliance through the Customer Confidence Report (Bulk Water). Achieved 100 per cent compliance with statutory obligations. ANNUAL REPORT

20 Our performance Queensland Floods Commission of Inquiry During , the SEQ Water Grid Manager stood ready to assist the Commission of Inquiry with any requests for information, statements and evidence. The Commission of Inquiry s August 2011 interim report and March 2012 final report contained the following six recommendations related to, or involving the SEQ Water Grid Manager: Interim report recommenda on 2.4: 2 For the purposes of making any decision about a temporary altera on to full supply level, the Minister should receive advice from: 1. Seqwater, as to the flood mi ga on impacts of such an altera on 2. the Water Grid Manager, as to the security of water supply implica ons of such an altera on 3. the Water Commission, as to both the flood mi ga on impacts and the security of water supply implica ons of such an altera on 4. DERM as to an analysis of the above advice, its own advice as to dam safety, the regulatory framework and any other ma er within its exper se. Interim report recommenda on 2.10: 2 Seqwater should act immediately to establish: 1. a steering commi ee to oversee the long term review of the Wivenhoe manual including senior representa ves of at least DERM, Seqwater, the Water Commission, the Water Grid Manager, Brisbane City Council, Ipswich City Council and Somerset Regional Council 2. a technical review commi ee comprised of independent experts in at least hydrology, meteorology and dam opera ons to examine all technical work completed as part of the review. Interim report recommenda on 2.27: 2 Seqwater should act immediately to establish: 1. a steering commi ee to oversee the long term review of the North Pine manual including senior representa ves of at least DERM, Seqwater, the Water Commission, the Water Grid Manager, Brisbane City Council and the Moreton Bay Regional Council 2. a technical review commi ee comprised of independent experts in at least hydrology, meteorology and dam opera ons to examine all technical work completed as part of the review. Final report recommenda on 2.1: 3 The steering commi ee of the Wivenhoe Dam and Somerset Dam Op misa on Study should consider whether it would be more effec ve for the floodplain management inves ga on to be removed from the Wivenhoe Dam and Somerset Dam Op misa on Study. Final report recommenda on 17.1: 3 The steering commi ees of the Wivenhoe Dam and Somerset Dam Op misa on Study and the North Pine Dam Op misa on Study should consider removing the water supply security inves ga on from each study. Final report recommenda on 17.2: 3 The steering commi ee of the North Pine Dam Op misa on Study should consider whether it would be beneficial for the floodplain management inves ga on to be removed from the North Pine Dam Op misa on Study. 2. Queensland Floods Commission of Inquiry, Interim Report, page 9 data/assets/pdf_file/0006/8781/qfci-interim-report-august-2011.pdf 3. Queensland Floods Commission of Inquiry, Final Report, page 12 data/assets/pdf_file/0007/11698/qfci-final-report-march-2012.pdf SEQ WATER GRID MANAGER 16

21 The SEQ Water Grid Manager has fulfilled the recommendations in the following ways: In November 2011, the SEQ Water Grid Manager provided advice to the Minister on the security of water supply implications of a temporary reduction to the full supply level of Wivenhoe Dam. This subsequently resulted in the Minister s decision to temporarily reduce the full supply level of Wivenhoe Dam to 75 per cent for the summer period. The SEQ Water Grid Manager participated on Seqwater s steering committees for the Wivenhoe Dam, Somerset Dam and North Pine Dam optimisation studies. In 2012, the steering committees decided that the Department of Local Government and Planning will host the floodplain management investigation together with Brisbane, Ipswich and Somerset City Councils, and considered removing the water supply security investigation from each dam optimisation study. Regulatory compliance Using best practice governance processes, we have implemented proactive governance and compliance to ensure we continue to deliver on our statutory obligations to a high standard. We improved processes and procedures to do our job more efficiently and effectively through the implementation of the risk and compliance system. This has helped our staff ensure that we continue our commitment to being an accountable and transparent organisation through meeting our statutory obligations on time, every time. ANNUAL REPORT

22 Priority area 4 finance and corporate services About this priority area The SEQ Water Grid Manager is responsible for buying water services and selling wholesale water products in South East Queensland; and to optimise, where possible, its balance sheet. This priority area focuses on ensuring our organisation is an efficient, effective and low cost operator. Our people make this a reality. Through implementing effective policies, systems and processes, we ensure that our organisation is able to attract and maintain talented professionals to work in our organisation. Performance highlights DELIVERED ONGOING NOT COMPLETED Five year strategic intent What we did Performance We will manage our budget, direct the operation of the SEQ Water Grid and specify SEQ Water Grid asset service optimally to put downward pressure on the costs of the SEQ Water Grid. Enhanced our financial modelling capabilities. Managed SEQ Water Grid debt at lowest interest rates available through effective cash flow management. We will implement strategies to ensure a strong and capable workforce within our business into the future. Implemented a comprehensive People and Capability Plan to improve our operational effectiveness. Implemented systems and training to improve workplace health and safety. Conducted a staff survey that showed favourable results in all areas. SEQ WATER GRID MANAGER 18

23 Our performance Financial modelling In conjunction with the 2012 Annual Operations Plan, we developed a detailed long-term financial model to provide improved financial forecasting and budgeting. The results of this financial modelling were presented in our quarterly reports to shareholders. Financial management The SEQ Water Grid Manager is responsible for managing our organisation s budget and the SEQ Water Grid debt. Our financial management objective in has been to accurately forecast the financial position of the SEQ Water Grid and ensure an optimised cost of funds. During we have continued to manage the SEQ Water Grid Manager budget, and have operated in a prudent and efficient way through implementing effective debt management and cash flow strategies. We continued to provide formal compliance training for staff in the areas of equal employment opportunity, harassment and discrimination and occupational health and safety. During , we established regular reporting and analysis of human resources information and progress against the People and Capability Plan. We improved our communication with staff through conducting monthly staff meetings, distributing a monthly staff newsletter and recognising employee and business milestones. We conducted our annual Staff Survey to benchmark and monitor our progress against our key priority area to enhance our people and capability. Implementing the People and Capability Plan has helped us achieve our key performance indicators relating to staff satisfaction. As a result, our Staff Survey results for regarding employee satisfaction have been positive. Information on our financial management performance is detailed in the Our finances section, on page 29, and in the financial statements, on page 31. Improving our workplace environment We have successfully implemented our People and Capability Plan to support our staff in achieving business outcomes. This has included undertaking the following activities to provide strong and robust way to manage, engage and encourage our people: We reviewed the SEQ Water Grid Manager Code of Conduct and trained staff on the new Code of Conduct. We established a policy and process for employee training and development that resulted in a robust training and development program that meets the needs of our business and staff. ANNUAL REPORT

24 Priority area 5 SEQ Water Grid communications About this priority area In 2010, the responsible Minister for the SEQ Water Grid centralised the coordination of communications with the public, media, government, customers and stakeholders to improve awareness and understanding of the SEQ Water Grid. Since 2010, the SEQ Water Grid Manager has hosted the centralised communications function the SEQ Water Grid Communications Unit on behalf of the SEQ Water Grid bulk water authorities. The SEQ Water Grid Communications Unit delivers consistent and coordinated communication, media and ministerial services for the SEQ Water Grid. Performance highlights DELIVERED ONGOING NOT COMPLETED Five year strategic intent What we did Performance We will proactively promote the benefits of the SEQ Water Grid to the Government, industry and the community. Conducted monthly meetings with stakeholders. Conducted quarterly Grid Customer and Grid Service Provider reviews. Implemented the Smart Grid Benefits Program. Leveraged positive sponsorship opportunities. Our performance Stakeholder engagement Our focus during was to continue developing and distributing consistent, accurate and timely information to government, media, industry and community stakeholders to position the SEQ Water Grid as a trusted and credible source of information. During , we implemented a comprehensive below-the-line communications strategy, focusing on raising awareness and informing stakeholders about the benefits of the SEQ Water Grid. We also worked to develop a strong advocate network with industry associations such as Urban Development Institute of Australia, academia, government at all levels and professional associations, such as Engineers Australia and the Australian Water Association. There has also been international interest in the SEQ Water Grid, with 10 international delegations visiting the SEQ Water Grid to learn more about the SEQ Water Grid model of sourcing, treating and supplying water. Our communications strategy and activities is informed by research. Research against key indicators is undertaken every six months to evaluate our activities and inform future strategy. Media relations The establishment of centralised media management services for the SEQ Water Grid has focused on developing trust and support of the SEQ Water Grid in the community through balanced reporting. More than 70 per cent of media coverage in , was balanced coverage. SEQ WATER GRID MANAGER 20

25 Government relations The SEQ Water Grid Communications Unit is the central point of reference for ministerial and Government requirements about SEQ Water Grid operations. During , the SEQ Water Grid Communications Unit developed and provided quality assurance on a wide-range of government relations material to support the delivery of Executive Government. Online media The SEQ Water Grid Communications Unit is responsible for maintaining the SEQ Water Grid Manager and the SEQ Water Grid websites. It is also responsible for managing the conversation on the SEQ Water Grid s social media channels Facebook and Twitter. During , we redeveloped the SEQ Water Grid Manager website to provide a greater focus on emergency management and the strategic operation of the SEQ Water Grid: This year also saw us increase our engagement with our stakeholders on dam release information, through Facebook and Twitter. Public interest in the information we provided saw our Twitter account rise in popularity to be the tenth most followed Queensland Government account. ANNUAL REPORT

26 Corporate governance Planning and reporting framework The SEQ Water Grid Manager is a statutory body established under the South East Queensland Water (Restructuring) Act We are governed by a Board of Directors reporting to our responsible Ministers. In there were machinery-of-government changes and for this year, our responsible Ministers were: 1 July 2011 to 24 March Minister for Finance, Natural Resources and The Arts, Hon. Rachel Nolan MP Minister for Energy and Water Utilities, Hon. Stephen Robertson MP. 3 April 2012 to 30 June Treasurer and Minister for Trade, Hon. Tim Nicholls MP Minister for Energy and Water Supply, Hon. Mark McArdle MP. To guide our business activity we prepare a five year Strategic Plan and an annual Operational Plan, which details our business strategy and operational priorities. These plans are a performance contract with our responsible Ministers. To ensure compliance with our statutory responsibilities, we undertake a rigorous reporting regime. We report on our operations to our stakeholders through a range of publications, including: this Annual Report SEQ Water Grid Manager Annual Market Rules Review quarterly and annual South East Queensland System Operating Plan reports quarterly reports against the strategic and operational plans quarterly reports against the State Borrowing Program. Our Board and committees The SEQ Water Grid Manager s Board strategically guides our organisation on opportunities to strengthen the operation of the SEQ Water Grid. Our Board is responsible for: determining our strategic direction determining our organisation s operational, administrative and financial policies ensuring we deliver the objectives under our strategic and operational plans reporting the performance outcomes to the responsible Ministers reviewing the performance of the Chief Executive Officer. Our Board members Our Board members bring to the SEQ Water Grid Manager extensive experience and knowledge in the water and energy supply industry. The Board members are: Gary Humphrys, Chair Gordon Jardine, Deputy Chair Dr David Cunliffe, Member Teresa Dyson, Member Jamie Quinn, Member. Gary Humphrys Chair Gary Humphrys has a strong background in finance and spent a large part of his career in the mining and energy industries. In 1998, he took the position of Chief Financial Officer of Stanwell Corporation Limited and ultimately became its Chief Executive Officer. Gary has held a number of Board appointments to corporations within the energy, water, mining and health industries. He is currently a member of the Ergon Energy Board and a member of the Australian Institute of Chartered Accountants and the Australian Institute of Company Directors. 4. The Queensland Parliament was dissolved on 19 February 2012 for a general State election. 5. Administrative Arrangements Order (No.3) 2012 was made by Governor in Council on 3 April SEQ WATER GRID MANAGER 22

27 Gordon Jardine Deputy Chair Gordon Jardine is the Chairman of ElectraNet SA, the South Australian electricity transmission utility. He was formerly ( ) the Chief Executive of Powerlink Queensland, which owns, develops and operates the $6.5 billion high voltage electricity grid in Queensland. Gordon brings to our Board a strong background in the regulated utility sector, management of capital-intensive assets and in implementing industry reforms. He holds bachelor degrees in engineering and commerce, and a masters degree in environmental science. In addition, he is a Fellow of the Australian Institute of Company Directors, the Australian Institute of Management and the Australian Academy of Technological Sciences and Engineering. Dr David Cunliffe Member David Cunliffe is the Principle Water Quality Adviser with the South Australian Department of Health. He has over 30 years experience in dealing with public health aspects of drinking water and recycled water. David has contributed to a range of national and international guidelines including Australian and World Health Organization (WHO) guidelines for drinking water quality and use of recycled water. He is a member of the WHO Drinking Water Quality Committee and chair of the National Health and Medical Research Council s Water Quality Advisory Committee. Teresa Dyson Member Teresa Dyson is a partner with Ashurst Australia. Teresa is a leading practitioner in taxation law, particularly in relation to the taxation of financial arrangements, infrastructure and Public Private Partnership developments, resource projects and asset finance. Teresa is a member of the Board s Audit and Risk Management Committee. Teresa holds tertiary qualifications in arts, law, taxation and applied finance and brings a wealth of knowledge from the financial, government and not-for-profit, sectors to our Board. In addition, Teresa is actively involved in industry and government advisory organisations in the field of taxation law and has lectured on taxation law at Monash University and Melbourne University. Teresa s a member of the Board of Taxation and the Business Tax Working Group. Jamie Quinn Member 6 Jamie Quinn is a former Commissioner of the Queensland Water Commission and was a member of our inaugural Board. He has extensive local government experience and specialist knowledge in sustainable development, including water and transport infrastructure. Jamie is the Chair of the Board s Audit and Risk Management Committee. For more than 30 years he held executive positions in councils throughout Queensland. He was the Chief Executive Officer of Ipswich City Council for 16 years to January Jamie is a Fellow of the Local Government Managers Australia and the Australian Institute of Company Directors. He received the Queensland Local Government Managers Australia Award 2005 for Excellence in Leadership and Management. Attendance The Board met 11 times during Member Meetings held Meetings attended Gary Humphrys Gordon Jardine Dr David Cunliffe Teresa Dyson Jamie Quinn Jamie Quinn resigned from the Board effective 1 July ANNUAL REPORT

28 Audit and Risk Management Committee The Audit and Risk Management Committee assists the Board in discharging its financial and risk governance responsibilities. It oversees the financial reporting processes that ensure the accuracy, transparency and integrity of reported financial information. The members of the committee as at 30 June 2012 are: Jamie Quinn, Chair Teresa Dyson, Member Gary Humphrys, Member. The Audit and Risk Management Committee is responsible for reviewing and monitoring the following: the effectiveness of our organisation s internal control and risk management systems the effectiveness and outputs of the internal audit function, including reports and recommendations the preparation of the annual financial statements the independent audit process, undertaken by the Queensland Audit Office our organisation s process for monitoring compliance with laws, regulations, internal standards and policies the development of the risk framework. Attendance The Audit and Risk Management Committee met six times during Member Meetings held Meetings attended Jamie Quinn 6 6 Gary Humphrys 6 6 Teresa Dyson 6 6 Risk management and accountability We are committed to developing an organisational culture that delivers effective business risk management. The function of risk management is to support the achievement of our corporate objectives. The scope of our risk management program includes financial, operational, communications, stakeholder and customer relations and legal aspects. We have developed a robust risk management and governance framework to ensure we meet the accountability measures required under the following legislation: South East Queensland Water (Restructuring) Act 2007 Water Act 2000 Financial Accountability Act 2009 Statutory Bodies Financial Arrangements Act The Chief Executive Officer is responsible for managing the SEQ Water Grid Manager s day-today operations and is supported by our Executive Management Group to deliver our organisation s functions. There is a strong governance relationship between the Board and the Chief Executive Officer, which ensures the Board is informed of our operations, our performance; and the decisions and directives of the Board are disseminated and actioned. Each month the Board receives a Monthly Performance Report outlining the organisation s progress and performance against the 2012 Operational Plan the performance contract it has with its responsible Ministers. Internal audit In accordance with section 29 of the Financial and Performance Management Standard 2009, the SEQ Water Grid Manager outsources the internal audit function, independent of management. SEQ WATER GRID MANAGER 24

29 Internal audit is governed by a charter that was developed having regard to Queensland Treasury s Audit Committee Guidelines and relevant audit and ethical standards. The objectives of internal audit are to provide: independent objective assurance on the state of the SEQ Water Grid Manager s risks and internal controls Executive Management with recommendations to enhance the SEQ Water Grid Manager s ability to operate and achieve its objectives and strategies in an efficient, effective and ethical manner assistance in the SEQ Water Grid Manager s compliance with all governance, legal and statutory requirements. As prescribed by the Internal Audit Charter, internal audit is responsible for: attending the quarterly Audit and Risk Management Committee meetings, including meeting with the Audit and Risk Management Committee at least once a year without management present seeking strategic direction for internal audit consulting on and setting objectives, scope, timing and resourcing of the Internal Audit Strategic Plan and Internal Audit Annual Plan liaising with External Audit in the course of preparing the Internal Audit Plans regularly advising of progress against the Internal Audit Plans and of any significant matters affecting the achievement of the Internal Audit Plans reporting on key risks and internal control issues arising from internal audit activity. All internal audit activities were undertaken in accordance with the Strategic and Annual Internal Audit Plan. Operational governance As a statutory body we comply with a number of State Government operational governance requirements in the way we: make decisions through ethical behaviour protect whistleblowers engage consultants undertake overseas travel manage our information systems and keep records manage our waste. Further information on how we have complied with these requirements is detailed below. Public Sector Ethics Act 1994 Our organisation values and actively supports a fair, safe and ethical work environment. Our Code of Conduct aligns with the requirements under the Public Sector Ethics Act It provides staff with a guide to the ethical standards and behaviour we expect in our workplace. During all staff received training in the Code of Conduct. We expect our staff to apply the Code of Conduct when working with each other, our stakeholders and customers. We are committed to the highest standards of integrity, honesty, ethical behaviour and accountability. Consultancies, overseas travel, information systems and record keeping Information regarding consultancies, overseas travel and information systems and record keeping is published online at ANNUAL REPORT

30 Our people Organisational structure The SEQ Water Grid Manager has a team of 28 full-time equivalent staff with extensive experience in water operations and business management. Our core skills set include: legal compliance and contract administration communications and stakeholder management risk and emergency management financial management information technology water operations and water quality. Figure 5: SEQ Water Grid Manager organisation chart Executive Management Group The Executive Management Group is responsible for implementing the Board s strategic vision for the organisation. The team consists of the Chief Executive Officer and five senior managers who provide leadership in the areas of: SEQ Water Grid operations risk and technology governance and regulatory compliance finance and corporate services SEQ Water Grid Communications Unit. Barry Dennien Chief Executive Officer Chief Executive Officer Water Grid Communications Unit Director Operations Unit Director Finance and Corporate Services Director Governance and Regulatory Compliance Director Risk and Emergency Correspondence Communications Water Quality System Capacity Policy Corporate Services Finance Legal and Governance Formerly the Executive Director of Regional Planning and Policy for the Queensland Water Commission, Barry was responsible for the Water for today, water for tomorrow South East Queensland Water Strategy, draft 2008 and system operation plans for the SEQ Water Grid. Barry has 25 years experience in water industry operations and planning, and a successful track record of managing commercial enterprises in the tourism, construction and primary industry sectors. Daniel Spiller Director of Operations Daniel joined the SEQ Water Grid Manager team as the Director of Operations in July 2010, from his previous role as the acting Executive Director of the Queensland Water Commission. Daniel was the principal author of the South East Queensland Water Strategy and was directly responsible for policy and communications regarding the development and use of purified recycled water schemes in South East Queensland. Daniel has previously been involved in infrastructure planning and assessment at Brisbane City Council, the Queensland Competition Authority and the Office of Urban Management. SEQ WATER GRID MANAGER 26

31 Daniel holds a Master of Professional Economics, Master of Urban and Regional Planning and Bachelor of Built Environment. Elaina Smouha Director of Governance and Regulatory Compliance Elaina joined the SEQ Water Grid Manager in August Her previous roles have given her a broad range of legal experience having worked as a lawyer in private practice in the areas of water, construction, mining, government, professional negligence and personal injury. Elaina holds a Bachelor of Laws and a Bachelor of International Business. Michael Lyons Director of SEQ Water Grid Communications Michael has wide experience in corporate affairs management and strategic communication both here in Australia and internationally. A former national award winning journalist, Michael also has post graduate qualifications in business and has served on a number of advisory Boards. Michael joined the SEQ Water Grid in August 2010 after working for one of Australia s biggest mining, engineering and water infrastructure companies. Joanne Collins Director of Finance and Corporate Services Joanne joined the SEQ Water Grid Manager in November 2010 bringing 20 years management experience in business consulting, corporate governance and financial management from a range of industries. Joanne has received a commendation from the Auditor-General for financial reform of local government, and was also recognised as Queensland CPA of the Year for the corporatisation of Wide Bay Water Corporation. Joanne has been a university lecturer and provided specialist advice on corporatisation and financial reform nationally and internationally. Scott Denner 7 Director of Risk and Technology Scott joined the SEQ Water Grid Manager team in July His previous roles, including Head of Department (Security, Risk and Compliance) for G4S in London, have seen him gain extensive knowledge across areas including risk management, business continuity management and business process improvement. Scott is a Graduate of the Royal Military College and is a Certified Practising Risk Manager. Scott holds a Bachelor of Management and Professional Studies and an Associate Diploma of Personnel Administration. Human resource management Our human resource management practice is based on providing our people with the resources, environment and capability to ensure we deliver our goals and improve organisational performance. The human resource activities we undertake to deliver this can be grouped into three areas capability, attitude and environment. During , our organisation has continued to focus on ensuring all three areas of capability, environment and attitude are supported to improve staff satisfaction and organisational effectiveness. The effectiveness of our human resource activities were demonstrated in the outcomes of our 2012 Staff Survey results. Overall, all areas surveyed this year returned favourable results, with 10 out of 12 key result areas receiving more favourable ratings in Absent on approved leave without pay from 28 December 2011 to 30 June 2012 while on active service with the Australian Defence Force. ANNUAL REPORT

32 Employment conditions We employ our staff under the South East Queensland Water (Restructuring) Act 2007 and their conditions of employment are outlined in the State Government Departments Certified Agreement Learning and development Our organisation is committed to providing our people with the opportunity to improve their skills and knowledge to enhance their work performance and job satisfaction. In we implemented a People and Capability Plan to provide our staff with a structured approach to learning and development. Individual Performance, Planning and Evaluation Plans were developed for all staff to evaluate performance and plan for training opportunities. Training opportunities have been provided to staff to help improve individual capabilities and operational effectiveness. Training areas include: presentation skills training writing, editing and proofreading workplace health and safety legal and governance. Attraction, retention and turnover Workforce statistics At the end of our organisation had 28 full-time equivalent staff. Our workforce gender balance was 46 per cent female and 54 per cent male full time equivalent staff. Our permanent retention rate is 88 per cent (%) (%) Women Men Permanent retention rate Permanent seperation rate Early retirement, redundancy and retrenchment During , our organisation did not offer any redundancies or retrenchments to staff. SEQ WATER GRID MANAGER 28

33 Our finances Summary of financial performance Statement of Comprehensive Income Budget $ Actual $ 000 Operating revenue Bulk water sales 509, ,952 Other 25,701 24,562 TOTAL OPERATING REVENUE 535, ,514 Operating costs Bulk water purchases 939, ,929 Finance costs 82,000 77,494 Other expenses 10,891 10,896 TOTAL OPERATING COSTS 1,032, ,319 OPERATING PROFIT (LOSS) (497,489) (433,805) PROFIT (LOSS) AFTER TAX (497,489) (433,805) Statement of Financial Position Budget $ Actual $ 000 Bulk water sales 96,176 95,204 Non-current assets 557 1,063 TOTAL ASSETS 96,733 96,267 Current liabilities 80,570 52,361 Non-current liabilities 1,646,201 1,555,473 TOTAL LIABILITIES 1,726,771 1,607,834 NET ASSETS (1,630,038) (1,511,567) Retained earnings (1,630,038) (1,511,567) TOTAL EQUITY (1,630,038) (1,511,567) ANNUAL REPORT

34 Financial commentary The financial results reflect the price path for bulk water as reviewed by the Queensland Government in November 2010, and the contracted costs to produce, treat and deliver water. Through the 10 year price path, the price of water has been set at a lower rate than the full cost of producing and delivering this water, resulting in a negative net cash flow until the optimal bulk water price is reached, when positive cash flows pay back the debt borrowed from the Queensland Treasury Corporation. Pursuant to section 21 of the Statutory Bodies Financial Arrangements Act 1982, debt raised by the SEQ Water Grid Manager through Queensland Treasury Corporation in accordance with the approval granted under that Act obtains the benefit of a State guarantee. Our organisation does not own infrastructure assets; however, we own the South East Queensland urban water entitlements. These water entitlements are for water drawn from watercourses, and in some cases from groundwater. As there is no active market for these intangible assets, these are not recognised in the financial statements. In June 2012, the Queensland Government announced its intention to undertake further structural consolidation of the SEQ bulk water industry, including the merger of Seqwater, LinkWater and SEQ Water Grid Manager. The merger process has commenced, however the Government has yet to finalise the reform legislation, institutional structure and the financial arrangements. Accordingly, we have been advised to continue on a business as usual basis, and the financial statements have been prepared on a going concern basis. The Queensland Government has confirmed its commitment to providing ongoing support to the SEQ Water Grid Manager, including the provision of access to funding necessary to meet any financial commitments and obligations. This commitment was recently reaffirmed in a letter from the Hon. Tim Nicholls MP, Treasurer and Minister for Trade, dated 17 August Revenue Bulk water sales were $507 million, which was within 0.5% of the original budget of $509 million. Other income of $25 million was 4% lower than budget due to a lower than expected State Government grant for competitive neutrality fees. Expenses Bulk water purchases were $877 million, 7% less than original full year budget of $940 million. This was largely a result of a reduction in capital charges due to the timing of finalisation of capital works by the bulk grid entities, and a small component of lower variable costs due to reduced water usage. Finance charges were $77 million, 5% less than original budget of $82 million, due to the lower bulk water costs. Other expenses for the operation and management of the organisation were $11 million, as per budget. Overall position As a result of expenses being below budget, the net result for was a loss of $434 million, a $63 million (13%) smaller loss than the original budgeted loss of $497 million. Our long term debt as at 30 June 2012 was $1,555 million, $91 million more favourable than the budget of $1,646 million due mainly to the lower bulk water purchases. SEQ WATER GRID MANAGER 30

35 Financial statements General information These financial statements provide information on the financial activities of the SEQ Water Grid Manager. The SEQ Water Grid Manager is a not-for-profit Queensland Government statutory body established under the South East Queensland Water (Restructuring) Act The head office and principal place of business of the SEQ Water Grid Manager is: Level Albert Street Brisbane QLD 4000 A description of the nature of the SEQ Water Grid Manager's operations and its primary activities are included in the notes to the financial statements. For information in relation to the SEQ Water Grid Manager's financial report please call (07) , finance@seqwgm.com.au or visit ANNUAL REPORT

36 SEQ Water Grid Manager Statement of comprehensive income For the year ended 30 June 2012 Notes $ 000 $ 000 Income from continuing operations User charges 506, ,464 Grants and other contributions 24,180 24,799 Other revenue Total income from continuing operations 531, ,605 Expenses from continuing operations Employee expenses 3 4,311 3,824 Supplies and services 5 882, ,443 Depreciation and amortisation Finance/borrowing costs 7 77,494 51,056 Other expenses Total expenses from continuing operations 965, ,394 Operating result from continuing operations before income tax equivalent Operating result before income tax equivalent (433,805) (437,789) Income tax equivalent expense Total comprehensive income after income tax equivalent (433,805) (437,789) The accompanying notes form part of these financial statements. SEQ WATER GRID MANAGER 32

37 SEQ Water Grid Manager Statement of financial position As at 30 June 2012 Notes $ 000 $ 000 Current assets Cash and cash equivalents 10 14,857 1,085 Trade and other receivables 11 80,256 78,724 Other current assets Total current assets 95,204 79,857 Non-current assets Property, plant and equipment ,049 Intangible assets Total non-current assets 1,063 1,250 Total assets 96,267 81,107 Current liabilities Trade and other payables 15 51,357 13,598 Accrued employee benefits Other financial liabilities Other liabilities Total current liabilities 52,361 14,907 Non-current liabilities Accrued employee benefits Other financial liabilities 17 1,554,525 1,142,851 Other liabilities ,054 Total non-current liabilities 1,555,473 1,143,962 Total liabilities 1,607,834 1,158,869 Net assets (liabilities) (1,511,567) (1,077,762) Equity Retained surplus/(accumulated deficit) (1,511,567) (1,077,762) Total equity (1,511,567) (1,077,762) The accompanying notes form part of these financial statements. ANNUAL REPORT

38 SEQ Water Grid Manager Statement of changes in equity For the year ended 30 June 2012 The accompanying notes form part of these financial statements. Notes $ 000 $ 000 Accumulated deficit Balance as at 1 July (1,077,762) (639,973) Operating result from continuing operations after income tax equivalent (433,805) (437,789) Balance as at 30 June (1,511,567) (1,077,762) SEQ WATER GRID MANAGER 34

39 SEQ Water Grid Manager Statement of cash flows For the year ended 30 June 2012 Notes $ 000 $ 000 Cash flows from operating activities Inflows: User charges 510, ,477 Grants and other contributions 24,829 25,043 Interest received GST input tax credits received from ATO 78,869 55,924 Outflows: Employee expenses (4,152) (3,625) Supplies, services and other (927,014) (924,263) GST remitted to ATO (3,423) (2,432) Other - Net cash flows provided by/(used in) operating activities 19 (319,900) (454,539) Cash flows from investing activities Outflows: Payments for intangibles - Payment for property, plant and equipment (136) (17) Net cash flows provided by/(used in) investing activities (136) (17) Cash flows from financing activities Inflows: Proceeds from borrowings 333, ,065 Net cash flows provided by/(used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 333, ,065 13,772 (11,491) 1,085 12, ,857 1,085 The accompanying notes form part of these financial statements. ANNUAL REPORT

40 SEQ Water Grid Manager Notes to and forming part of the financial statements Objectives and principal activities of the SEQ Water Grid Manager Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 Note 10 Note 11 Note 12 Note 13 Note 14 Note 15 Note 16 Note 17 Note 18 Note 19 Note 20 Note 21 Summary of significant accounting policies Other revenue Employee expenses Key executive management personnel and remuneration Supplies and services Depreciation and amortisation Finance/borrowing costs Other expenses Income tax equivalent Cash and cash equivalents Trade and other receivables Other current assets Property, plant and equipment Intangible assets Trade and other payables Accrued employee benefits Other financial liabilities Other liabilities Reconciliation of operating surplus/(deficit) to net cash from operating activities Financial instruments Commitments SEQ WATER GRID MANAGER 36

41 SEQ Water Grid Manager Notes to and forming part of the financial statements Objectives and principal activities of the SEQ Water Grid Manager The SEQ Water Grid Manager s key objective is to manage the operation of the SEQ Water Grid in the most efficient manner; consistent with the South East Queensland System Operating Plan, The Market Rules SEQ Water Market, and associated legislative and regulatory requirements. The SEQ Water Grid Manager is involved in the purchase of bulk water services and the sale of bulk water. To achieve the outcomes of the South East Queensland water market and enhance the purchase of water services and sale of water, we manage the strategic operation of the SEQ Water Grid in the most efficient and effective manner consistent with applicable legislation and regulatory instruments. SEQ Water Grid Manager owns the urban water entitlements in South East Queensland, purchases water services from our Grid Services Providers (storage, treatment, transportation and manufactured water) and sells water to our Grid Customers. SEQ Water Grid Manager does not own infrastructure assets. 1. Summary of significant accounting policies (a) Statement of compliance The SEQ Water Grid Manager has prepared these financial statements in compliance with section 43 of the Financial and Performance Management Standard The financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations. In addition, the financial statements comply with the Queensland Treasurer's Minimum Reporting Requirements for the year ending 30 June 2012, and other authoritative pronouncements. These financial statements constitute a general purpose financial report. With respect to compliance with Australian Accounting Standards and Interpretations, the SEQ Water Grid Manager has applied those requirements applicable to not-for-profit entities. Except where stated, the historical cost convention is used. (b) The reporting entity The SEQ Water Grid Manager is a not-for-profit Queensland Government statutory body established under the South East Queensland Water (Restructuring) Act 2007 and became a separate legal entity on 2 May The financial statements include the value of all revenues, expenses, assets, liabilities and equity of the SEQ Water Grid Manager. The SEQ Water Grid Manager does not control any other entity. (c) Going concern/future developments On 26 June 2012, the Hon. Mark McArdle MP, Minister for Energy and Water Supply announced the Government s intention to undertake further structural consolidation of the SEQ bulk water industry, including the merger of the three SEQ bulk water entities, as well as the abolition of the Queensland Water Commission. The Government s intention is to facilitate the structural reforms through amendments to the South East Queensland Water (Restructuring) Act 2007 and other legislation, expected to be introduced into Parliament in late ANNUAL REPORT

42 SEQ Water Grid Manager Notes to and forming part of the financial statements Specifically, the businesses of LinkWater, Seqwater and the SEQ Water Grid Manager are expected to be aggregated into a single bulk water business. Whilst a program to commence the merger process has been initiated, the Government has yet to make some key decisions on the future institutional structure, including the financing arrangements. Furthermore, the legislation to facilitate the reforms is yet to be finalised and introduced into Parliament. The Entity has been advised to continue on a business as usual basis. The Queensland Government has confirmed its commitment to providing ongoing support to the SEQ Water Grid Manager, including the provision of access to funding necessary to meet any financial commitments and obligations. This commitment was recently reaffirmed in a letter from the Hon. Tim Nicholls MP, Treasurer and Minister for Trade, issued to the Entity dated 17 August Accordingly, the directors have prepared these financial statements on a basis that is consistent with a going concern basis. At balance sheet date, there is uncertainty about the nature of the merger and therefore the directors consider that the criteria to reclassify the non-current assets or disposal group as held for distribution in accordance with AASB 5 Noncurrent Assets Held for Sale (or Held as Distribution to Owners) and Discontinued Operations, as amended have not been met. It is anticipated that all assets and liabilities of the SEQ Water Grid Manager will be included in the single bulk water business at the values at which they are held by the SEQ Water Grid Manager. (d) User charges User charges and fees controlled by the SEQ Water Grid Manager are recognised as revenue after services are delivered. User charges and fees are controlled by the SEQ Water Grid Manager where they can be deployed for the achievement of the SEQ Water Grid Manager s objectives. User charges shown in these financial statements represent the revenue derived through selling bulk water to regional councils, power stations and other industrial and rural customers. (e) Grants and other contributions Grants, contributions, donations and gifts that are non-reciprocal in nature are recognised as revenue in the year in which the SEQ Water Grid Manager obtains control over them. Where grants are received that are reciprocal in nature, revenue is accrued over the term of the funding arrangements. Included in revenue for grants received in is $21,762,000 from Queensland Treasury. This additional ongoing revenue stream is for the return of competitive neutrality fees that have been paid by the Grid Service Providers, as Queensland Government statutory bodies, to Queensland Treasury. (f) Cash and cash equivalents For the purpose of the Statement of financial position and Statement of cash flows, cash assets include all cash and cheques receipted but not banked as at 30 June 2012 as well as deposits at call with financial institutions. SEQ WATER GRID MANAGER 38

43 SEQ Water Grid Manager Notes to and forming part of the financial statements (g) Trade and other receivables Trade debtors are recognised at the amounts due at the time of sale or service delivery. Settlement of these amounts is required within 20 business days from invoice date. The collectability of receivables is assessed periodically and a provision has been made for impairment. (h) Acquisitions of assets The actual cost of the asset is used for the initial recording of all non-current physical and intangible asset acquisitions. Cost is determined as the value given as consideration plus costs incidental to the acquisition, including all other costs incurred in getting the assets ready for use. Any training costs are expensed as incurred. Assets acquired at no cost or for nominal consideration, other than from an involuntary transfer from another Queensland Government entity, are recognised at fair value at the date of acquisition in accordance with AASB 116 Property, Plant and Equipment. (i) Property, plant and equipment Items of property, plant and equipment with a cost or equivalent value in excess of $5,000 are recognised in the year of acquisition. Items with a lesser value are expensed as incurred. Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that future economic benefits embodied within the part will flow to the SEQ Water Grid Manager and can be reliably measured. The cost of day-to-day maintenance of property, plant and equipment is recognised in the statement of comprehensive income as incurred. (j) Intangibles Intangible assets with a cost or other value greater than $100,000 are recognised in the financial statements. Items with a lesser value are expensed as incurred. Each intangible asset is amortised over its estimated useful life to the SEQ Water Grid Manager, less any anticipated residual value. The residual value is zero for all the SEQ Water Grid Manager's intangible assets. It has been determined that there is no active market for any of the SEQ Water Grid Manager's intangible assets. As such, the assets are recognised and carried at cost less accumulated amortisation and accumulated impairment losses. (k) Amortisation and depreciation of intangibles and property, plant and equipment 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 to the SEQ Water Grid Manager. Intangible assets under construction (work-in-progress) are not amortised until they reach service delivery capacity. Any expenditure that increases the original assessed capacity of the service potential of an asset is capitalised and the new depreciable amount is depreciated over the remaining useful life of the asset to the SEQ Water Grid Manager. ANNUAL REPORT

44 SEQ Water Grid Manager Notes to and forming part of the financial statements For each class of depreciable asset the following depreciation and amortisation rates are used: Class Rate % Property plant and equipment Computers and communications Furniture, fixtures and fittings 15 Leasehold improvements Office equipment 30 Amortisation Amortisation is recognised on a straight-line basis over the estimated useful life of the asset less any anticipated residual value from the date the intangible is available for use. The residual value for the SEQ Water Grid Manager s intangible assets is zero. Class Rate % Intangible assets Internally generated software 20 (l) Impairment of non-current assets All non-current physical and intangible assets are assessed for indicators of impairment on an annual basis. If an indicator of possible impairment exists, the SEQ Water Grid Manager 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. The asset's recoverable amount is determined as the higher of the asset's fair value less costs to sell and depreciated replacement cost. An impairment loss is recognised immediately in the Statement of comprehensive income. (m) Trade and other payables Trade creditors are recognised upon receipt of the goods and services ordered and are measured at the agreed purchase or contract price, gross of applicable trade and other discounts. Amounts owing are unsecured and are generally settled on 30 day terms. (n) Financial instruments Recognition Financial assets and financial liabilities are recognised in the Statement of financial position when the SEQ Water Grid Manager becomes party to the contractual provisions of the financial instrument. Classification - Cash and cash equivalents held at fair value through profit or loss - Receivables held at amortised cost - Payables held at amortised cost - Borrowings held at amortised cost SEQ WATER GRID MANAGER 40

45 SEQ Water Grid Manager Notes to and forming part of the financial statements 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. All interest incurred on the SEQ Water Grid Manager s borrowings are capitalised. The SEQ Water Grid Manager does not enter into transactions for speculative or hedging purposes. All disclosures relating to the measurement basis and financial risk management or other financial instruments held by the SEQ Water Grid Manager are included in note 20. All impairment losses are recognised in the Statement of comprehensive income. (o) Employee benefits Wages, salaries, recreation leave and sick leave Wages, salaries and recreation leave due but unpaid at the reporting date represent present obligations resulting from employees' services and are recognised in the Statement of financial position at the remuneration rates expected to apply at the time of settlement. Payroll tax and workers' compensation insurance are a consequence of employing employees, but are not counted in an employee's total remuneration package. They are not employee benefits and are recognised separately as employee related expenses. Employer superannuation contributions, annual leave and long service leave accruals are regarded as employee benefits. For unpaid entitlements expected to be paid within 12 months, the liabilities are recognised at their undiscounted values. For those entitlements not expected to be paid within 12 months, the liabilities are classified as non-current liabilities and recognised at their present value, calculated using yields on Fixed Rate Commonwealth Government bonds of similar maturity, after projecting the remuneration rates expected to apply at the time of likely settlement. Prior history indicates that on average, sick leave taken each reporting period is less than the entitlement accrued. This is expected to continue in future periods. Accordingly, it is unlikely that existing accumulated entitlements will be used by employees and no liability for unused sick leave entitlements is recognised. As sick leave is non-vesting, an expense is recognised for this leave as it is taken. Long service leave The SEQ Water Grid Manager provides for long service leave liability for all employees on the following basis: - employee with 2 years service, long service leave is recognised at 10% of the total liability. - employee with 3 years service, long service leave is recognised at 20% of the total liability. - employee with 4 years service, long service leave is recognised at 50% of the total liability. - employee with 5 7 years service, long service leave is recognised at 95% of the total liability. - employee with greater than 7 years service, long service leave is recognised at 100% of the total liability. ANNUAL REPORT

46 SEQ Water Grid Manager Notes to and forming part of the financial statements The SEQ Water Grid Manager s net obligation is respect of long service leave is the amount of future benefit that employees have earned in return for their service in the current and prior periods. For unpaid long service leave entitlements expected to be paid within 12 months, the liabilities are recognised at their undiscounted values. For those entitlements not expected to be paid within 12 months, the liabilities are classified as non-current liabilities and recognised at their present value calculated using yields of Fixed Rate Commonwealth Government bonds of similar maturity. Superannuation Employee superannuation contributions are paid to QSuper, the superannuation plan for Queensland Government employees, at rates determined by the State Government. Contributions are expensed in the period in which they are paid or payable. The SEQ Water Grid Manager s obligation with regard to employees is limited to its contributions to QSuper. Board members superannuation contributions are paid to their nominated fund. Contributions are expensed in the period in which they are paid or payable. The SEQ Water Grid Manager s obligation with regard to board members is limited to its contributions to the nominated fund. Key executive management personnel and remuneration Key executive management personnel and remuneration disclosures are made in accordance with the Financial Reporting Requirements for Queensland Government Agencies issued by Queensland Treasury. Refer to note 4 for the disclosures on key executive management personnel and remuneration. (p) Finance/borrowing costs Finance costs are recognised as an expense in the period in which they are incurred. Finance costs include interest on bank overdrafts, finance lease charges and ancillary administration charges. Borrowing costs are capitalised into the base level of the loan. Borrowing costs include long term borrowings and working capital facilities provided by the Queensland Treasury Corporation. (q) Insurance The SEQ Water Grid Manager s non-current physical assets and other risks are insured through the private insurance market with premiums being paid on a risk assessment basis. In addition, the SEQ Water Grid Manager pays premiums to WorkCover Queensland in respect of its obligations for employee compensation and provides Directors and Officers insurance to the SEQ Water Grid Manager s board members and officers. (r) Leases Operating lease payments are representative of the pattern of benefits derived from the leased assets and are expensed in the period in which they are incurred. Incentives received on entering into operating leases are recognised as liabilities. Lease payments are allocated between rental expense and reduction of the liability. SEQ WATER GRID MANAGER 42

47 SEQ Water Grid Manager Notes to and forming part of the financial statements (s) Taxation The SEQ Water Grid Manager pays Fringe Benefits Tax and Goods and Services Tax as required by Commonwealth legislation. i) Tax equivalents The Entity makes tax equivalent payments on their taxable income to the Queensland Government. These taxation payments are made pursuant to Section 155(4) of the Government Owned Corporations Act These payments are administered by the Australian Taxation Office (ATO) under the National Tax Equivalent Regime (NTER). The NTER broadly utilises the provisions of the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and associated legislation, as well as Rulings and other pronouncements by the ATO, in order to determine the tax payable by the entity. The entity is not required to maintain a franking account. ii) Income tax equivalent Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items directly in equity, in which case it is recognised in equity. Current tax equivalents is the expected tax equivalents payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment in respect of previous years. Deferred tax assets and liabilities are recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences occurring from the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit of loss or differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantially enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be released simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date are reduced to the extent that it is no longer probable that the related tax benefit will be realised. When the entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses or tax credits only to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the entity. ANNUAL REPORT

48 SEQ Water Grid Manager Notes to and forming part of the financial statements (t) Issuance of financial statements The financial statements are authorised for issue by the Chairman and Director, Finance and Corporate Services at the date of signing the Management Certificate. (u) Judgements and assumptions The preparation of the financial statements requires management to make judgements and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses within the next financial year. 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 period affected. The SEQ Water Grid Manager has made no judgements or assumptions that may cause a material adjustment to the carrying amounts of assets, liabilities, income or expenses within the next reporting period. (v) Rounding and comparatives Amounts included in the financial statements are in Australian dollars and 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. (w) New and revised accounting standards The SEQ Water Grid Manager did not voluntarily change any of its accounting policies during the period 1 July 2011 to 30 June Australian accounting standard changes applicable for the first time for have had minimal effect on the SEQ Water Grid Manager s financial statements, as explained below. The SEQ Water Grid Manager is not permitted to adopt early, new or amended accounting standard ahead of the specified commencement date unless approval is obtained from the Treasury Department. Consequently, the SEQ Water Grid Manager has not applied any Australian accounting standards and interpretations that have been issued but are not yet effective. The SEQ Water Grid Manager applies standards and interpretations in accordance with their respective commencement dates. At the date of authorisation of the financial report, significant impacts of new or amended Australian accounting standards with future commencement dates are set out as below. As the SEQ Water Grid Manager held no collateral or other credit enhancements in respect of its financial instruments, and did not renegotiate the terms of any financial assets, during the reporting periods presented in these financial statements, there were no other changes required to the SEQ Water Grid Manager s financial instruments note arising from the amendments to AASB 7 Financial Instruments: Disclosures. SEQ WATER GRID MANAGER 44

49 SEQ Water Grid Manager Notes to and forming part of the financial statements AASB 1054 Australian Additional Disclosures became effective from reporting periods beginning on or after 1 July Given the SEQ Water Grid Manager s previous disclosure requirements, AASB 1054 had minimal impact on the department. One of the footnotes to note 10 Other Expenses, regarding audit fees, has been slightly amended to identify the department s auditor and clarify the nature of the work performed by the auditor. At the date of the report, the following Australian Accounting Standards were issued, but were not yet effective. AASB 9 Financial Instruments (December 2010) and AASB Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023, 1038 and interpretations 2, 5, 10, 12, 19, 127] become effective from reporting periods beginning on or after 1 January The main impacts of these standards on the SEQ Water Grid Manager are that they will change the requirements for the classification, measurement and disclosures associated with financial assets. Under the new requirements, financial assets will be more simply classified according to whether they are measured at amortised cost or fair value. Pursuant to AASB 9, financial assets can only be measured at amortised cost if two conditions are met. One of these conditions is that the asset must be held within a business model whose objective is to hold assets in order to collect contractual cash flows. The other condition is that the contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. On initial application of AASB 9, the SEQ Water Grid Manager will need to re-assess the measurement of its financial assets against the new classification and measurement requirements, based on the facts and circumstances that exist at that date. Assuming no change in the types of transactions the SEQ Water Grid Manager enters into, it is not expected that any of the SEQ Water Grid Manager s financial assets will meet the criteria in AASB 9 to be measured at amortised cost. Therefore, as from the financial statements, all of the SEQ Water Grid Manager s financial assets will be required to be classified as financial assets required to be measured at fair value through profit or loss. The same classification will be used for net gains/losses recognised in the Statement of Comprehensive Income in respect of these financial assets. In the case of the SEQ Water Grid Manager s receivables, the carrying amount is considered to be a reasonable approximation of fair value. AASB Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 134, 1039 & 1049] applies from reporting periods beginning on or after 1 July The only impact for the SEQ Water Grid Manager will be that, in the Statement of Comprehensive Income, items within the Other Comprehensive Income section will need to be presented in different sub-sections, according to whether or not they are subsequently re-classifiable to the operating result. Whether subsequent reclassification is possible depends on the requirements or criteria in the accounting standard/interpretation that relates to the item concerned. ANNUAL REPORT

50 SEQ Water Grid Manager Notes to and forming part of the financial statements AASB 13 Fair Value Measurement applies from reporting periods beginning on or after 1 January AASB 13 sets out a new definition of fair value, as well as new principles to be applied when determining the fair value of assets and liabilities. The new requirements will apply to all of the SEQ Water Grid Manager s assets and liabilities that are measured and/or disclosed at fair value or another measurement based on fair value. The potential impacts of AASB 13 relate to the fair value measurement methodologies used, and financial statement disclosures made in respect of, such assets and liabilities. The SEQ Water Grid Manager has commenced reviewing its fair value methodologies for all items of property, plant and equipment measure at fair value to determine whether those methodologies comply with AASB 13. To the extent that the methodologies don t comply, changes will be necessary. While the SEQ Water Grid Manager is yet to complete this review, no significant changes are anticipated, based on the fair value methodologies presently used. Therefore, at this stage, no consequential material impacts are expected for the SEQ Water Grid Manager s property, plant and equipment as from AASB 13 will require an increased amount of information to be disclosed in relation to fair value measurements for both assets and liabilities. To the extent that any fair value measurement for an asset or liability uses data that is not observable outside the SEQ Water Grid Manager, the amount of information to be disclosed will be relatively greater. AASB 128 (revised) Investments in Associates and Joint Ventures These standards cannot be applied by not-for-profit entities prior to their effective date, as the AASB is presently considering modifying them for application by not-for-profit entities in an Australian context. Any such modifications are likely to clarify how the IASB s principles should be applied by not-for-profit entities. Hence, the SEQ Water Grid Manager is not yet in a position to reliably determine the future implications of these new and revised standards for the SEQ Water Grid Manager s financial statements. A revised version of AASB 119 Employee Benefits applies from reporting periods beginning on or after 1 January The revised AASB 119 is generally to be applied retrospectively. Given the SEQ Water Grid Manager s circumstances, the only implications are that the revised standard clarifies the concept of termination benefits, and the recognition criteria for liabilities for termination benefits will be different. If termination benefits meet the timeframe criterion for short-term employee benefits, they will be measured according to the AASB 119 requirements for short-term employee benefits. Otherwise, termination benefits will need to be measured according to the AASB 119 requirements for other long-term employee benefits. Under the revised standard, the recognition and measurement of employer obligations for other long-term employee benefits will need to be accounted for according to most of the requirements for defined benefit plans. AASB 1053 Application of Tiers of Australian Accounting Standards applies from reporting periods beginning on or after 1 July AASB 1053 establishes a differential reporting framework for these entities that prepare general purpose financial statements, consisting of two tiers of reporting requirements Australian Accounting Standards (commonly referred to as tier 1 ), and Australian Accounting Standards Reduced Disclosure Requirements (commonly referred to as tier 2 ). Tier 1 requirements comprise the full range of AASB recognition, measurement, presentation and disclosure requirements that are currently applicable to reporting entities in Australia. The only difference between the tier 1 and tier 2 requirements is that tier 2 requires fewer disclosures than tier 1. SEQ WATER GRID MANAGER 46

51 SEQ Water Grid Manager Notes to and forming part of the financial statements Details of which disclosures in standards and interpretations are not required under tier 2 reporting are set out in amending standards AASB , AASB , AASB and AASB (which also apply from reporting periods beginning on or after 1 July 2013). However, Treasury Department s Financial Reporting Requirements effectively do not allow application of AASB in respect of controlled entities, associates or interests in jointly controlled entities. Pursuant to AASB 1053, statutory bodies like the SEQ Water Grid Manager may adopt tier 2 requirements for their general purpose financial statements. However, AASB 1053 acknowledges the power of a regulator to require application of the tier 1 requirements. In the case of the SEQ Water Grid Manager, the Treasury Department is the regulator. Treasury has advised that its policy decision is to require all statutory bodies to adopt tier 1 reporting requirements. In compliance with Treasury s policy which prohibits the early adoption of the arrangements outlined in AASB 1053 and its accompanying amending standards. Therefore, the release of AASB and associated amending standards will have no impact on the SEQ Water Grid Manager. All other Australian accounting standards and interpretations with future commencement dates are either not applicable to the SEQ Water Grid Manager s activities, or have no material impact on the SEQ Water Grid Manager. 2. Other revenue $ 000 $ 000 Interest Other Total Employee expenses $ 000 $ 000 Employee benefits Wages and salaries 2,942 2,579 Annual leave* Employer superannuation contributions* Long service leave* Other employee benefits Employee related expenses Workers compensation premium* 15 8 Payroll tax* Other employee related expenses Total 4,311 3,824 *Refer to note 1 (o) The number of employees as at 30 June 2012 including both full-time and part-time employees measured on a full-time equivalent basis is: Number of employees: ANNUAL REPORT

52 SEQ Water Grid Manager Notes to and forming part of the financial statements (a) Key executive management personnel and remuneration The following details for key executive management personnel include those positions that had authority and responsibility for planning, directing and controlling the activities of the organisation during Further information on these positions can be found in the body of the annual report under the section relating to Corporate Governance. Position Responsibilities Current incumbents Contract classification and appointment authority Chief Executive Officer Director, Risk and Technology Director, Operations Director, Communications Director, Finance and Corporate Services Director, Governance and Regulatory Compliance Chief Executive Officer is responsible for managing the organisation s affairs under the South East Queensland Water (Restructuring) Act 2007 and other relevant legislation, and the Board s policies. Director, Risk and Technology is responsible for providing strategic leadership to ensure the risk and emergency management and technology goals of the organisation are met. Director, Operations is responsible for the planning and management functions of water grid demand and supply, water quality and systems operations. Director, SEQ Water Grid Communications is responsible for management of all media and stakeholder relationships on behalf of the SEQ Water Grid entities. Director, Finance and Corporate Services is responsible for the financial management of the organisation and providing corporate services in the areas of knowledge management and human resources. Director, Governance and Regulatory Compliance is responsible for supporting the Board and the organisation to ensure all legal and regulatory compliance obligations are met. Common law contract. South East Queensland Water (Restructuring) Act 2007; State Water Authorities Governance Arrangements for Chief and Senior Executives. Common law contract. South East Queensland Water (Restructuring) Act 2007; State Water Authorities Governance Arrangements for Chief and Senior Executives. Common law contract. South East Queensland Water (Restructuring) Act 2007; State Water Authorities Governance Arrangements for Chief and Senior Executives. Common law contract. South East Queensland Water (Restructuring) Act 2007; State Water Authorities Governance Arrangements for Chief and Senior Executives. Common law contract. South East Queensland Water (Restructuring) Act 2007; State Water Authorities Governance Arrangements for Chief and Senior Executives. Date appointed to position (date resigned from position) Appointed 3 December 2008 Appointed 5 July 2010 Appointed 5 July 2010 Appointed 9 August 2010 Appointed 1 November 2010 SO3 equivalent. Appointed 1 November (b) Remuneration Remuneration policy for the agency s key executive management personnel is set by the board of SEQ Water Grid Manager 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 payments and other benefits. SEQ WATER GRID MANAGER 48

53 SEQ Water Grid Manager Notes to and forming part of the financial statements For the year, remuneration of key executive management personnel increased in accordance with employment contracts. Remuneration packages for key executive management personnel comprise the following components: - Short term employee benefits which include: o Base consisting of base salary, allowances and leave entitlements paid and provided for the entire year or for that part of the year during which the employee occupied the specified position. Amounts disclosed equal the amount expensed in o the Statement of Comprehensive Income. Non-monetary benefits consisting of provision of car park together with fringe benefits tax applicable to the benefit. - Long term employee benefits include long service leave accrued. - Post employment benefits include superannuation contributions. - Redundancy payments are not provided for within individual contracts of employment. Contracts of employment provide only for notice periods or payment in lieu of notice on termination, regardless of the reason for termination. - Performance payments may be paid or payable annually depending upon satisfaction of key criteria. Performance payments of the key executive management are capped at 15% of total fixed remuneration. The amounts payable are tied to the achievement of predetermined organisation and individual performance targets as agreed by the board. Total fixed remuneration is calculated on a total cost basis and includes the base and non-monetary benefits, long term employee benefits and post employment benefits. 1 July June 2012 Position Short Term Employee Benefits Long Term Employee Post Employment Termination Benefits Total Salary $ 000 Non- Monetary Benefits $ 000 Benefits $ 000 Benefits $ 000 $ 000 $ 000 Chief Executive Officer Director, Operations Director, Finance and Corporate Services Director, Communications Director, Risk and Technology* Director, Governance and Regulatory Compliance Total 1, ,371 *Absent on approved leave without pay from 28 December 2011 to 30 June 2012 while on active service in defence force overseas. ANNUAL REPORT

54 SEQ Water Grid Manager Notes to and forming part of the financial statements July June 2011 Position Short Term Employee Benefits Long Term Employee Post Employment Termination Benefits Total Salary $ 000 Non-Monetary Benefits $ 000 Benefits $ 000 Benefits $ 000 $ 000 $ 000 Chief Executive Officer Director, Finance and Corporate Services (resigned 27 August 2010) Director, Operations (appointed 5 July 2010) Director, Finance and Corporate Services (appointed 1 November 2010) Director, Communications (appointed 9 August 2010) Director, Risk and Technology (appointed 5 July 2010) Director, Governance and Regulatory Compliance (appointed 1 November 2010) Total 1, ,313 4 (c) Performance payments The basis for performance payments paid or payable in the financial year is set out below: 2012 performance payments Position Date paid Basis for payment Chief Executive Officer August 2012 The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 9.8% as compared to the maximum of 15% total fixed remuneration payable. Director, Operations Director, Finance and Corporate Services Director, Communications Director, Governance and Regulatory Compliance August 2012 August 2012 August 2012 August 2012 The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 9.8% as compared to the maximum of total 15% fixed remuneration payable. The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 11.3% as compared to the maximum of 15% total fixed remuneration payable. The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 9.8% as compared to the maximum of 15% total fixed remuneration payable. The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 11.3% as compared to the maximum of 15% total fixed remuneration payable. SEQ WATER GRID MANAGER 50

55 SEQ Water Grid Manager Notes to and forming part of the financial statements performance payments Position Date paid Basis for payment Chief Executive Officer August 2011 The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 12.2% as compared to the maximum of 15% total fixed remuneration payable. Director, Operations (appointed 5 July 2010) Director, Finance and Corporate Services (appointed 1 November 2010) Director, Communications (appointed 9 August 2010) Director, Risk and Technology (appointed 5 July 2010) August 2011 August 2011 August 2011 August 2011 The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 12.4% as compared to the maximum of total 15% fixed remuneration payable. The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 11.3% as compared to the maximum of 15% total fixed remuneration payable. The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 11.8% as compared to the maximum of 15% total fixed remuneration payable. The cash performance payment was calculated by reference to the weighted achievement of predetermined performance targets. The performance payment paid equated to 12.4% as compared to the maximum of 15% total fixed remuneration payable. The aggregate performance payments paid to or provided for all key executive management personnel are as follows: $ 000 $ 000 Key executive management personnel (d) Remuneration of board and board committee members was as follows: Board members $ 000 Position $ 000 Directors fees $ 000 Superannuation $ 000 Other $ 000 Total $ 000 Gary Humphrys Chairman Gordon Jardine Deputy Chairman David Cunliffe Director * 50 Teresa Dyson Director Jamie Quinn Director Board members $ 000 Position $ 000 Directors fees $ 000 Superannuation $ 000 Other $ 000 Total $ 000 Gary Humphrys Chairman Gordon Jardine Deputy Chairman David Cunliffe Director * 50 Teresa Dyson Director Jamie Quinn Director * Other remuneration relates to air travel to attend board meetings. ANNUAL REPORT

56 SEQ Water Grid Manager Notes to and forming part of the financial statements Supplies and services $ 000 $ 000 Water services purchases* 876, ,590 Consultants and contractors 3,410 4,263 Service providers 922 1,110 Travel and accommodation Supplies and consumables Other Total 882, ,443 *Under the South East Queensland Water (Restructuring) Act 2007, the SEQ Water Grid Manager is responsible for the efficient operation of the SEQ Water Grid. In undertaking these duties, the SEQ Water Grid Manager contracts with other State Government water entities for the storage, treatment, transportation and manufacture of water. 6. Depreciation and amortisation Depreciation and amortisation were incurred in respect of: $ 000 $ 000 Property, plant and equipment Leasehold improvements Internally generated software Total Finance/borrowing costs $ 000 $ 000 Interest 76,193 50,114 Administration charges 1, Total 77,494 51, Other expenses $ 000 $ 000 External audit fees* Internal audit fees Insurance Miscellaneous - 3 Board expenses Receivables impairment expense/(recovery) (4) 18 Loss on disposal of assets 2 - Total *Total external audit fees relating to the financial year are estimated to be $28,000 (2011: $49,000). There are no non-audit services included in this amount. SEQ WATER GRID MANAGER 52

57 SEQ Water Grid Manager Notes to and forming part of the financial statements Income tax equivalent Current tax expense $ 000 $ 000 Current period - - Adjustment for prior periods - - Deferred tax expense Origination and reversal of temporary differences Reduction in tax rate - - Change in unrecognised deductible temporary differences - - Recognition of previously unrecognised tax losses - - Total income tax expense - - Numerical reconciliation between tax expense and pre-tax operating result: $ 000 $ 000 Operating result before income tax equivalent ( 433,805) ( 437,789) Prima facie income tax effect using tax rate of 30% (2011: 30%) ( 130,141) ( 131,337) Tax effect of current year tax losses for which no deferred tax asset 130, ,337 was recognised Under/(over) provided in prior periods - - Total - - Deferred tax liabilities: $ 000 $ 000 Taxable temporary differences 1,870 2,114 Offset of deferred tax assets (1,870) (2,114) Total - - Deferred tax assets: $ 000 $ 000 Deductible temporary differences Tax effect of current year tax losses 454, ,926 Offset of deferred tax liabilities (1,870) (2,114) Total 453, ,358 ANNUAL REPORT

58 SEQ Water Grid Manager Notes to and forming part of the financial statements Assets Liabilities Net $'000 $'000 $'000 $'000 $'000 $'000 Accruals Accrued Income - - (7) - (7) - Intangibles Lease Asset/Liability (253) (309) - - Prepayments Provisions Fixed Assets Grants Receivable - - (1,610) (1,805) (1,610) (1,805) Tax Losses 454, , , , , ,472 (1,870) (2,114) 453, ,358 Set-off of tax (1,870) (2,114) 1,870 2, Deferred tax asset not recognised 453, , , ,358 Net tax assets/(liabilities) The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these because it is not probable that future taxable profit will be available against which the SEQ Water Grid Manager can utilise the benefits there from. The aggregate amount of deferred tax assets not recognised at 30 June 2012 was $453,499,000 (2010: $323,358,000). 10. Cash and cash equivalents $ 000 $ 000 Imprest accounts 1 1 Cash at bank 14,856 1,084 Total 14,857 1,085 Cash held during 2012 earned between 3.35% and 4.6%. 11. Trade and other receivables $ 000 $ 000 Trade debtors 67,531 67,806 Less: allowance for impairment loss ,531 67,788 GST receivable 7,333 4,902 Interest receivable Grants receivable 5,368 6,016 Total 80,256 78,724 SEQ WATER GRID MANAGER 54

59 SEQ Water Grid Manager Notes to and forming part of the financial statements Movements in the allowance for impairment loss $ 000 $ 000 Balance at beginning of year 18 - Amounts written off during the year (14) - Amounts recovered during the year (4) - Increase/decrease in allowance recognised in the operating result - 18 Balance at the end of the year Other current assets $ 000 $ 000 Prepayments Total Property, plant and equipment $ 000 $ 000 Plant and equipment at cost 1,516 1,394 Less: accumulated depreciation (558) (345) Total 958 1,049 Plant and equipment are valued at cost in accordance with Queensland Treasury's Non-Current Asset Policies for the Queensland Public Sector Property, plant and equipment reconciliation Plant and equipment Leasehold Total improvement $ 000 $ 000 $ 000 Carrying amount at 1 July ,028 1,049 Acquisitions Disposals (2) - (2) Depreciation (43) (183) (226) Carrying amount at 30 June Plant and equipment reconciliation Plant and equipment Leasehold Total improvement $ 000 $ 000 $ 000 Carrying amount at 1 July Acquisitions Depreciation (15) (164) (179) Carrying amount at 30 June ,028 1,049 ANNUAL REPORT

60 SEQ Water Grid Manager Notes to and forming part of the financial statements Intangible assets $ 000 $ 000 Internally generated software at cost Less: accumulated amortisation (340) (244) Total The SEQ Water Grid Manager has developed a contracts and settlements system to assist in the management of its Grid Contracts. This system was developed in-house and the costs associated with the development of the system have been capitalised and are reported as an intangible asset. This system has been in use since August 2008 and has been amortised during the current financial year. This asset will be amortised on a straight-line basis over the period of expected benefit to the SEQ Water Grid Manager, namely five years. The system has undergone further development in the current financial year which has captured data in accordance with the Market Rules SEQ Water Market. Expenditure on research activities relating to internally-generated intangible assets is recognised as an expense in the period in which it is incurred. The water entitlements received by the SEQ Water Grid Manager on 1 July 2008 represent an intangible asset under the requirements of AASB 138 Intangible Assets. The restructure of water arrangements in South East Queensland resulted in the transfer of the water entitlements from existing holders to the SEQ Water Grid Manager on 1 July 2008 which represented a contribution under the requirements of AASB 1004 Contributions. AASB 1004 requires a contribution to be recognised by a not-for-profit entity as income at the fair value of the contribution received or receivable. The water entitlements have a fair value of nil. Intangible asset reconciliation Internally generated software $ 000 $ 000 Carrying amount at 1 July Amortisation (96) (96) Carrying amount at 30 June Trade and other payables $ 000 $ 000 Trade creditors 51,374 13,538 GST payable (17) 60 Total 51,357 13,598 SEQ WATER GRID MANAGER 56

61 SEQ Water Grid Manager Notes to and forming part of the financial statements Accrued employee benefits $ 000 $ 000 Current Salaries Annual leave Long service leave Total Non-current Long service leave Total Other financial liabilities $ 000 $ 000 Current Queensland Treasury Corporation borrowings Security deposit Total Non-current Queensland Treasury Corporation borrowings 1,554,525 1,142,851 Total 1,554,525 1,142,851 No assets have been pledged as security for any liabilities. A working capital facility and a long-term debt facility have been established with the Queensland Treasury Corporation, and are available for use in future periods. The working capital facility of $70 million (2011: $70 million) was available during the year along with a long-term debt facility of $501 million (2011: $500 million) for to meet the operating costs of the SEQ Water Grid. All borrowings are denominated in Australian dollars and carried at amortised cost. The Queensland Government has confirmed its continued financial support of the SEQ Water Grid Manager, through the provision of access to debt funding. Pursuant to section 21 of the Statutory Bodies Financial Arrangements Act 1982, debt raised by the SEQ Water Grid Manager through Queensland Treasury Corporation in accordance with the approval granted under that Act obtains the benefit of a State guarantee. The SEQ Water Grid Manager has received a letter from the Treasurer dated 17 August 2012 supporting the future cash flow requirements of the organisation. ANNUAL REPORT

62 SEQ Water Grid Manager Notes to and forming part of the financial statements The working capital facility interest rate applied during was 3.55% to 4.8% (2011: 4.55% to 4.8%). The fair value of the SEQ Water Grid Manager s borrowings at 30 June 2012, as notified by the Queensland Treasury Corporation, was $1,702,974,799 (2011: $1,160,558,632). The Queensland Treasurer has approved a borrowing allocation of $501 million for the SEQ Water Grid Manager under the State Borrowing Program. 18. Other liabilities $ 000 $ 000 Current Leasehold improvement Lease incentive Total Non-current Leasehold improvement Lease incentive Total 847 1, Reconciliation of operating deficit to net cash from operating activities $ 000 $ 000 Operating loss (433,805) (437,789) Depreciation and amortisation expense Lease incentive received/(expensed) (10) 219 Leasehold improvement expensed (184) (164) Queensland Treasury Corporation loan interest and borrowing expense 77,494 51,056 Change in assets and liabilities: (Increase)/decrease in trade debtors 257 (18,646) (Increase)/decrease in GST input tax credits receivable (2,431) (480) (Increase)/decrease in interest receivable (6) (5) (Increase)/decrease in grant receivable (Increase)/decrease in prepayments/other (42) (25) Increase/(decrease) in trade creditors 37,731 (49,533) Increase/(decrease) in accrued employee benefits Increase/(decrease) in GST payable (77) (107) Increase/(decrease) in other payables - Net cash from operating activities (319,900) (454,539) SEQ WATER GRID MANAGER 58

63 SEQ Water Grid Manager Notes to and forming part of the financial statements Financial instruments (a) Categorisation of financial instruments The SEQ Water Grid Manager has the following categories of financial assets and financial liabilities: Category Notes $ 000 $ 000 Financial assets Cash and cash equivalents 10 14,857 1,085 Trade and other receivables 11 80,256 78,724 Other current assets Total 95,204 79,857 Financial liabilities Trade and other payables 15 51,357 13,598 Other financial liabilities 17 1,554,535 1,143,233 Other liabilities 18 1,054 1,248 Total 1,606,946 1,158,079 (b) Financial risk management The SEQ Water Grid Manager s activities expose it to financial risks interest rate risk, credit risk, liquidity risk and market risk. Financial risk is managed pursuant to Government and the SEQ Water Grid Manager s financial policies. These policies seek to minimise potential adverse effects on the financial performance of the SEQ Water Grid Manager. All financial risk is managed by the Chief Executive Officer under policies approved by the board. The SEQ Water Grid Manager measures risk exposure using a variety of methods as follows: Risk exposure Credit risk Liquidity risk Market risk Measurement method Ageing analysis, earnings at risk Maturity analysis Interest rate sensitivity analysis (c) Credit risk exposure Credit risk exposure refers to the situation where the SEQ Water Grid Manager may incur financial loss as a result of another party to a financial instrument failing to discharge their obligation. The maximum exposure to credit risk at balance date in relation to each class of recognised financial assets is the gross carrying amount of those assets inclusive of any provisions for impairment. ANNUAL REPORT

64 SEQ Water Grid Manager Notes to and forming part of the financial statements The following table represents the SEQ Water Grid Manager s maximum exposure to credit risk based on contractual amounts net of any allowances: Maximum exposure to credit risk Category Notes $ 000 $ 000 Financial assets Cash and cash equivalents 10 14,857 1,085 Trade and other receivables 11 80,256 78,724 Other current assets Total 95,204 79,857 No collateral is held as security and no credit enhancements relate to financial assets held by the SEQ Water Grid Manager. No financial assets or financial liabilities have been offset and presented net in the statement of financial position. The method for calculating any provisional impairment for risk is based on past experience, current and expected changes in economic conditions and changes in client credit ratings. There is no impairment loss to be recognised for No financial assets have had their terms renegotiated to prevent them from being past due or impaired, and are stated at the carrying amounts indicated. Ageing of past due but not impaired financial assets are disclosed in the following table: Financial assets Trade and other receivables 2012 financial assets due but not impaired Contractual repricing/maturity date Not overdue Less than 30 days days days More than 90 days Total $ 000 $ 000 $ 000 $ 000 $ 000 $ ,826 29, ,256 Total 50,826 29, ,256 Financial assets Trade and other receivables 2011 financial assets due but not impaired Contractual repricing/maturity date Not overdue Less than 30 days days days More than 90 days Total $ 000 $ 000 $ 000 $ 000 $ 000 $ ,672 6, ,724 Total 72,672 6, ,724 SEQ WATER GRID MANAGER 60

65 SEQ Water Grid Manager Notes to and forming part of the financial statements (d) Liquidity risk Liquidity risk refers to the situation where the SEQ Water Grid Manager may encounter difficulty in meeting obligations associated with financial liabilities. The SEQ Water Grid Manager is exposed to liquidity risk in respect of its payables and borrowings from the Queensland Treasury Corporation for operational funding. Borrowings are accessed through a Queensland Treasury Corporation Client Specific Pool Facility and Working Capital Facility. The SEQ Water Grid Manager manages its liquidity risk through the use of a liquidity management strategy. This strategy aims to reduce the exposure to liquidity risk by ensuring the SEQ Water Grid Manager has sufficient funds available to meet employee and supplier obligations as they fall due. This is achieved by ensuring appropriate levels of cash are held in the bank account so as to match the expected duration of the various employee and supplier liabilities. The Queensland Government has confirmed its continued financial support of the SEQ Water Grid Manager, through the provision of access to debt funding. Pursuant to section 21 of the Statutory Bodies Financial Arrangements Act 1982, debt raised by the SEQ Water Grid Manager through Queensland Treasury Corporation in accordance with the approval granted under that Act obtains the benefit of a State guarantee. The SEQ Water Grid Manager has received a letter from the Treasurer supporting the future cash flow requirements of the organisation. The following table sets out the liquidity risk of financial liabilities held by the SEQ Water Grid Manager. It represents the contractual maturity of financial liabilities, calculated based on cash flows relating to the repayment of the principal amount outstanding at balance date Payable in Financial liabilities Notes < 1 year 1 5 years > 5 years Total $ 000 $ 000 $ 000 $ 000 Trade and other payables 15 51, ,357 Queensland Treasury Corporation borrowings Client specific pool* ,084,443 2,084,443 Working capital Other liabilities ,054 Total 51, ,084,443 2,136,854 ANNUAL REPORT

66 SEQ Water Grid Manager Notes to and forming part of the financial statements Payable in Financial liabilities Notes < 1 year 1 5 years > 5 years Total $ 000 $ 000 $ 000 $ 000 Trade and other payables 15 13, ,598 Queensland Treasury Corporation borrowings Client specific pool* ,521,193 1,521,193 Working capital Other liabilities ,054-1,248 Total 14,164 1,054 1,521,193 1,536,411 *Contractual undiscounted cashflows as at 30 June 2012 on Queensland Treasury Corporation borrowings. No repayments are currently being made on this debt and interest is capitalised. The weighted average borrowings rate for Queensland Treasury Corporation borrowings is 5.86% (2011: 6.11%). (e) Market risk The SEQ Water Grid Manager does not trade in foreign currency and is not materially exposed to commodity price changes. The SEQ Water Grid Manager is exposed to interest rate risk through its borrowings from the Queensland Treasury Corporation and cash deposited in an interest bearing account. The SEQ Water Grid Manager does not undertake any hedging in relation to interest rate risk and manages its risk as per the liquidity management strategy. Interest rate sensitivity analysis The following interest rate sensitivity analysis depicts the outcome to profit and loss if interest rates change by +/- 1 per cent from the year-end rates applicable to the SEQ Water Grid Manager s financial assets and liabilities. With all other variables held constant, the SEQ Water Grid Manager would have a deficit and equity increase/(decrease) of $651,000 (2011: $612,000). This is mainly attributable to the SEQ Water Grid Manager s exposure to variable interest rates on its borrowings from the Queensland Treasury Corporation. Financial instruments Carrying amount 2012 Interest rate risk -1% +1% Deficit Equity Deficit Equity Cash and cash equivalents 14, (149) (149) Queensland Treasury Corporation borrowings Client specific pool* 1,554,525 (670) (670) Working capital Overall effect Potential impact (521) (521) *The results of this sensitivity analysis are based on a portfolio modified duration of five years. The analysis has been performed on a net debt basis. The increase/decrease in interest cost is the result of periodic rebalancing over the year. SEQ WATER GRID MANAGER 62

67 SEQ Water Grid Manager Notes to and forming part of the financial statements Financial instruments Carrying amount 2011 Interest rate risk -1% +1% Deficit Equity Deficit Equity Cash and cash equivalents 1, (11) (11) Queensland Treasury Corporation borrowings Client specific pool 1,142,851 (619) (619) Working capital 372 (4) (4) 4 4 Overall effect Potential impact (612) (612) The SEQ Water Grid Manager s sensitivity to interest rates has increased in the current period due to increased borrowings for operational requirements. (f) Fair value The fair value of monetary financial assets and financial liabilities, other than borrowings, is based on market prices where a market exists, or is determined by discounting expected future cash flows by the current interest rate for financial assets and liabilities with similar risk profiles. The fair value of trade receivables and payables is assumed to approximate their nominal value less estimated credit adjustments. The carrying amounts of all financial assets and financial liabilities, except the borrowings from the Queensland Treasury Corporation are representative of their fair value. The fair value of borrowings is determined by reference to published price quotations in an active market and reflects the value of the debt if the SEQ Water Grid Manager repaid it in full at balance date. It is calculated using discounted cash flow analysis and the effective interest rate and is disclosed below Financial liabilities Carrying Carrying amount Fair value amount Fair value $ 000 $ 000 $ 000 $ 000 Financial liabilities at amortised cost: Queensland Treasury Corporation borrowings Client specific pool* 1,554,525 1,702,975 1,142,851 1,160,559 Working capital Total 1,554,525 1,702,975 1,143,223 1,160,931 *The book value of Queensland Treasury Corporation borrowings as at 30 June 2012 is $1,554,525,049 (2011: $1,142,850,735). The fair value of borrowings as at 30 June 2012 is $1,702,974,799 (2011: $1,160,558,632) as advised by the Queensland Treasury Corporation. The fair value represents the true value of a debt at a relevant time and hence the repayment amount that would be required at that time to extinguish the debt. ANNUAL REPORT

68 SEQ Water Grid Manager Notes to and forming part of the financial statements Commitments Non-cancellable operating lease Commitments under operating leases at the reporting date are inclusive of anticipated GST and are payable as follows: $ 000 $ 000 Not later than one year Later than one year and not later than five years 3,157 3,422 Later than five years Total 3,963 4,738 Operating leases entered into as a means of acquiring access to office accommodation. Lease payments are generally fixed, but with inflation escalation clauses on which contingent rentals are determined. There is an existing option of a five year renewal in relation to the operating lease. Contractual commitments The SEQ Water Grid Manager has in place Grid Contracts with other State Government water entities for the provision of storage, treatment, transportation and manufacture of water. The SEQ Water Grid Manager is required to pay for services provided under these contracts for charges on capital assets, fixed operating costs, fixed corporate costs, variable operating costs and other allowable costs. Amounts payable for charges on capital assets may be payable in the event that the services are not required by the SEQ Water Grid Manager. The amount payable for this item in is yet to be determined by the responsible Minister. SEQ WATER GRID MANAGER 64

69 Management certificate of the SEQ Water Grid Manager These general purpose financial statements have been prepared pursuant to section 62(1) of the Financial 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) (b) The prescribed requirements for establishing and keeping the accounts have been complied with in all material respects. The financial statements have been drawn up to present a true and fair view, in accordance with prescribed Accounting Standards, of the transactions of the SEQ Water Grid Manager for the financial year ended 30 June 2012 and the financial position of the SEQ Water Grid Manager as at 30 June Joanne Collins Director, Finance and Corporate Services SEQ Water Grid Manager Date Gary Humphrys Chair SEQ Water Grid Manager Date ANNUAL REPORT

70 SEQ WATER GRID MANAGER 66

71 ANNUAL REPORT