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The Water Corporation has rejected Opposition claims linking budget cuts to water losses from the utility's network of pipes.

An Auditor General's report yesterday found that 43 billion litres of drinking water were lost from the Water Corp's pipeline grid during 2012 and 2013.

This included about 30 billion litres of water that was "physically lost" - a figure the Auditor General said was about 10 billion litres too high.

The report was seized on by Labor, which claimed its contents were "scathing" and demolished the Water Corp's credibility in the eyes of the public.

Shadow water minister Dave Kelly also claimed the losses were being compounded by the Barnett Government stripping $350 million from the corporation's "water pipe maintenance program" this financial year.

"It's very simple - if you cut $350million from the Water Corporation's maintenance budget in an ageing system, it will cause huge amounts of water to be wasted," Mr Kelly said.

"This huge cut to water pipe maintenance will mean we will continue to see more water disasters like the ones that caused traffic chaos in the Perth CBD last year.

"This is an enormous amount of water to waste in a state where every drop is precious.

"The Water Corporation should be leading the charge in terms of water-saving measures in WA but this report shows it has lost all credibility."

The corporation said Mr Kelly's claim were factually incorrect.

A spokeswoman said the budget reductions announced by the Government related to new capital spending and had no bearing on maintenance expenditure.

"This statement is incorrect - there has been no reduction in the maintenance budget for 2013-14," the spokeswoman said.

"No reduction was made to the Corporation's Operations and Maintenance budget as part of the Mid-Year review.

"In the mid-year review, the Asset Investment Program (capital expenditure) over the four-year forward estimates was adjusted by $250mllion (7.3 per cent).

"There have has been no cuts to capital projects - we will achieve the saving through an inflation adjustment and efficiencies in the way we deliver new assets and manage engineering."

Water Corp boss Sue Murphy rejected Auditor General Colin Murphy's suggestion that the water losses outlined in his report undermined the utility's role as an advocate for water efficiency.

When asked whether the Auditor General was right to say the losses were "diminishing" the Water Corp's credibility, Mrs Murphy said "people are entitled to their opinions.

In his report, Mr Murphy said much of the 30 billion litres that were physically lost came as a result of bursts and leaks in the smaller pipes servicing households in suburbs and towns around WA.

The balance was from water that was consumed but not billed because of faulty meters, water taken for firefighting and stolen supplies.

Mr Murphy said the Water Corp generally performed well but there were areas for improvement and it faced "key" challenges.

He said the amount of water the utility lost in 2012-13 was about 10 billion litres more than its benchmark allowed and was, therefore, unacceptable.

"While water loss cannot be completely eliminated from any network, it can be minimised, and it is disappointing that Water Corporation is currently losing over 10 billion litres a year more than their benchmark," Mr Murphy said.

The report warned about the risks to the Water Corp from above-benchmark water losses.

"Water loss is a risk for the Water Corporation because it affects the sustainability of supply, reduces revenue, and can diminish its credibility as an advocate of water saving amongst its customers," the report found.

Mr Murphy said the Water Corp had developed measures to reduce the incidence of water loss, including a leak detection system and a "risk-based" approach to replacing ageing pipes.

Although he noted the measures had "prevented" 3.4 billion litres from leaking, Mr Murphy said the publicly owned group would also have to significantly increase the amount it spent on replacing pipes.

"The overall low level of leaks and bursts in the network has meant that the costs of pipe replacement have also been low pipes were replaced only when they failed," the report said.

"In 2009-10, the Water Corporation spent $9 million on pipe replacement.

"However, the pipe network is ageing and this will increase the cost of replacement.

"Between 2009-10 and 2012-13 an average of $17.25 million a year was invested but this will increase to $41.5 million a year on average between 2013-14 and 2018-19."