the hon. andrew constance mp

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The Hon. Andrew Constance MP Treasurer 52 Martin Place SYDNEY NSW 2000 The Hon. Dominic Perrottet, MP Minister for Finance and Services 52 Martin Place SYDNEY NSW 2000 Dear Ministers, We present State Water Corporation’s 2013-14 Annual Report, which outlines the performance of the corporation during the past financial year. This report is presented to the New South Wales Parliament, in accordance with the Annual Reports (Statutory Bodies) Act 1984 and the State-Owned Corporations Act 1989. It includes financial statements prepared in accordance with the Public Finance and Audit Act 1983 and a report on State Water’s compliance with the Government Information (Public Access) Act 2009. The Independent Audit Report for the 2013-14 accounts was signed by the Auditor-General’s Office on 19 September, 2014, allowing this Annual Report to be published. Yours sincerely,

Terry Charlton Chairman

David Harris Chief Executive Officer

LETTER TO SHAREHOLDING MINISTERS

3

Insert contents page here

LETTER TO SHAREHOLDING MINISTERS .................................................................. 2

ABOUT STATE WATER ............................................................................................ 6

Charter ................................................................................................................................................................ 6

Water Policy and Regulation .............................................................................................................................. 7

Bulk Water Pricing .............................................................................................................................................. 7

Ministerial Responsibility ................................................................................................................................... 7

STATE WATER BOARD ........................................................................................... 9

Meetings Attended ........................................................................................................................................... 10

STATE WATER EXECUTIVE .....................................................................................11

Management and Activities .............................................................................................................................. 13

Executive Remuneration ................................................................................................................................... 13

Executive Organisation Chart ........................................................................................................................... 14

GOVERNANCE ......................................................................................................16

Summary ........................................................................................................................................................... 16

Legal Change ..................................................................................................................................................... 16

Internal Audit and Risk Management Policy Attestation ................................................................................. 16

Government Information (Public Access) Act 2009 .......................................................................................... 16

Public Interest Disclosures ................................................................................................................................ 17

Risk Management ............................................................................................................................................. 17

CORPORATE AFFAIRS ...........................................................................................18

Summary ........................................................................................................................................................... 18

Implementation of Price Determination .......................................................................................................... 18

Human Resources ............................................................................................................................................. 19

OPERATIONS .......................................................................................................23

Summary ........................................................................................................................................................... 23

Land Disposal .................................................................................................................................................... 23

Customer Operations ....................................................................................................................................... 23

Water Operations ............................................................................................................................................. 26

CONTENTS

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Operations Assurance and Risk ........................................................................................................................ 29

MAJOR PROJECTS .................................................................................................31

Summary ........................................................................................................................................................... 31

Major Projects Progress Report ........................................................................................................................ 31

BUSINESS SERVICES ............................................................................................33

Summary ........................................................................................................................................................... 33

FINANCE .............................................................................................................34

Summary ........................................................................................................................................................... 34

Funds Granted to Non-Government Community Organisations ...................................................................... 34

Consultants ....................................................................................................................................................... 34

Payment of Accounts ........................................................................................................................................ 35

Investment Performance .................................................................................................................................. 37

Liability Management Performance ................................................................................................................. 37

Purchase Card Certification .............................................................................................................................. 37

FINANCIAL STATEMENTS ......................................................................................38

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State Water Corporation (State Water) is NSW’s rural bulk water delivery business that maintains, manages and operates major infrastructure to deliver bulk water to licensed water users on the state’s regulated rivers, along with associated environmental flows. State Water’s core water delivery business provides services to about 6000 customers in 14 regulated river systems, along some 7000km of river. In the past 20 years, water deliveries have averaged 4,587 gigalitres (GL) annually. State Water manages 20 dams and more than 280 weirs and regulators to deliver water for town water supplies, industry, irrigation, stock and domestic use, riparian and environmental flows. On a local level, Customer Field Officers work directly with customers to manage water accounts and improve water delivery efficiency. Teams operate from regional centres throughout NSW and work closely with water users and Customer Service Committees (CSC) to set asset management priorities and distribute water efficiently in regulated river valleys. State Water also monitors water usage, manages customer accounts, bills and collects bulk water charges as well as overseeing an asset portfolio of $4.5 billion.

CHARTER State Water Corporation is a statutory State owned corporation under the State Owned Corporations Act 1989 and established by the State Water Corporation Act 2004. Under this Act, the principal objectives of State Water are: To capture, store and release water in an efficient, safe and financially responsible manner. The other objectives of the organisation are as follows: 1) To be a successful business and, to that end: a) to operate at least as efficiently as any comparable business b) to maximise the net worth of the state’s investment in the corporation. 2) To exhibit a sense of social responsibility by having regard to the interests of the community in which it operates.

ABOUT STATE WATER

7

3) Where its activities affect the environment, to conduct its operations in compliance with the principles of ecologically sustainable development contained in section 6(2) of the Protection of the Environment Administration Act 1991. 4) To exhibit a sense of responsibility towards regional development and decentralisation in the way in which it operates. The other objectives of the corporation are of equal importance to each other, but are not as important as the corporation’s principal objectives.

WATER POLICY AND REGULATION In NSW, the regulator, policy maker and planner for water resource management is the NSW Office of Water (NOW). It develops natural resource policy frameworks, strategies and plans related to water management, water quality, salinity, soils, vegetation and environmental sustainability. NOW is accountable for Water Sharing Plans (WSP), which define the rules for sharing the water resources of each regulated river valley, between consumptive users and the environment. WSPs have been gazetted in thirteen regulated river valleys: Bega & Brogo, Belubula, NSW Border Rivers, Gwydir, Hunter, Lachlan, Paterson, Peel, Macquarie-Cudgegong, Murrumbidgee, NSW Murray-Lower Darling, Richmond and Upper & Lower Namoi.

BULK WATER PRICING Water prices set by the Independent Pricing and Regulatory Tribunal (IPART) were in effect until 30 June 2014 and cover State Water’s costs of delivering water and maintaining and operating infrastructure. Bulk water prices are based on the recovery of costs incurred in delivering water, not on the value of water.

MINISTERIAL RESPONSIBILITY State Water has two voting shareholders: the NSW Treasurer and the Minister for Finance, with whom State Water enters into a Statement of Corporate Intent (SCI). The operating licence is issued by our portfolio Minister, the Minister for Natural Resources, Lands and Water.

9

Terry Charlton MSc, BCom (Econ Acc)

• Appointed 1 March 2014 • Term – 18 months to 31 August 2015

Andrew Wilson BMed Sci, MBBS (Hons), PhD, FRACP, FAFPHM • Appointed 26 May 2014 • Term – 26 months to 22 July 2016

Carmel Krogh BE (Civil), MEng, MBA, Grad Dip, LGE, GAICD • Appointed 3 March 2014 • Term – 3 years to 2 March 2017

Chris Westworth LL.B (Hons) • Appointed 23 July 2013 • Term – 3 years to 22 July 2016

Nick Brunton BA, LLB, PhD, FAPI, MAICD • Appointed 3 March 2014 • Term – 3 years to 2 March 2017

Bruce Foy BCom.LL.B - Chairman • Appointed 27 November 2012 • Term – 15 months (resigned 28 February 2014)

Catherine Bolger BEc MLLR • Appointed 1 August 2007 • Term – 6 years (expired 31 July 2013)

Mick Lilley BBus MBus • Appointed 25 February 2011 • Term – 3 years (expired 24 February 2014)

Nick Di Girolamo BLegS • Appointed 1 July 2012 • Term – 20 months (resigned 18 February 2014)

Col Gellatly AO BAgEcos (Hons), Mcomm (Hons), PHD • Appointed 16 July 2007 • Term – 6 years (expired 15 July 2013)

STATE WATER BOARD

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David Harris B.Ec, LLB(Hons), MAICD– Executive member • Appointed 12 May 2014

Brett Tucker BRurSc(Hons) GradCertAcct – Executive member • Appointed 22 August 2011 • Term – 2 years, 10 months (ceased 12 May 2014)

MEETINGS ATTENDED

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E A E A E A E A E A E A Bruce Foy 7 7 N/A N/A 1 1 N/A N/A N/A N/A N/A N/A

Catherine Bolger 1 1 1 1 N/A N/A N/A N/A N/A N/A N/A N/A Mick Lilley 7 7 4 4 1 1 N/A N/A N/A N/A N/A N/A

Nick Di Girolamo 5 4 3 3 1 1 N/A N/A N/A N/A N/A N/A Chris Westworth 11* 6 5* 2 N/A N/A N/A N/A N/A N/A N/A N/A

Brett Tucker 9 9 6 5 1 1 N/A N/A N/A N/A N/A N/A Terry Charlton 4 4 2 2 N/A N/A 1 1 1 1 1 1 Andrew Wilson 2 2 2 2 N/A N/A 1 1 1 1 1 1 Carmel Krogh 4 4 2 2 N/A N/A 1 1 1 1 1 1 Nick Brunton 4 4 2 2 N/A N/A 1 1 1 1 1 1 David Harris 2 2 1 1 N/A N/A 1 1 1 1 1 1

E = Eligible A = Attended *Mr Westworth was technically appointed in July 2013 but advice of the appointment was not provided until September 2013, excusing Mr Westworth from a number of meetings.

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The State Water executive was established to focus on strategic direction. The team members meet monthly to discuss issues of a strategic nature including:

• workplace health and safety performance • developing strategic direction • policy development • operating licence compliance • corporate risk management • corporate planning targets • corporate culture and values • profitability • environmental responsibility

As of 30 June 2014 the State Water executive was made up of the following:

CHIEF EXECUTIVE OFFICER David Harris LL.B.(Hons) BEc As an executive director on the board, the CEO is responsible for corporate governance, direction and review. Responsible for leadership and strategic management of employees and customer and stakeholder relationships.

ACTING EXECUTIVE GENERAL MANAGER Brett Tucker BRurSc(Hons) GradCertAcct MAICD Provides executive leadership and management in the development, execution and maintenance of policies, systems, programs and services to safely, efficiently and effectively deliver shareholder value.

CHIEF FINANCIAL OFFICER Elli Baker CFA GAICD Responsible for the provision of strategic financial leadership to direct, control and administer the financial activities of the organisation. Provides leadership for all strategic and tactical matters as they relate to budget management, cost benefit analysis and forecasting needs.

EXECUTIVE MANAGER FINANCE AND BUSINESS SERVICES Jane Redden JP BBus (Accounting) ASA AIMM GAICD Responsible for offering strategic direction in the development and implementation of financial management strategies, policies, systems and processes. Overseeing information technology operations to plan, implement and

STATE WATER EXECUTIVE

12

maintain a stable technical infrastructure in support of State Water’s business systems and processes.

EXECUTIVE MANAGER CORPORATE AFFAIRS Lisa Welsh BA/BEc (Hons) Responsible for managing State Water's relationship with shareholders, regulators and other stakeholders. Provides advice on strategic matters affecting State Water, whilst overseeing corporate and business planning including measuring and reporting on strategic objectives. Oversight of Human Resources and internal and external communications.

CHIEF OPERATING OFFICER Dr Amit Chanan, PhD, Meng, MEM, MSc, GAICD, MASCE Strategically manages network operations and assets to optimise whole-of-life costs and maintain asset integrity and safety. Deliver the right amount of water efficiently for the environment and customers. Provide competitive, commercial and customer-focused asset maintenance and field-based services. Integrate existing and emerging control and communication technologies into network operations and asset management.

EXECUTIVE MANAGER MAJOR PROJECTS Peter English BBus MAICD Responsible for overseeing the corporate capital program, ensuring cost effective, timely and quality delivery and support of major projects.

EXECUTIVE MANAGER COMMERCIAL DEVELOPMENT Brett Hartman BBus Identify opportunities, undertake and present business case analyses for the CEO and board on commercial growth for State Water. Secure finance and lead negotiations with a view to increasing diversity and profitability. Secure business expansion opportunities in the water, energy and carbon sectors through a range of potential vehicles including greenfield investments, mergers, acquisitions and joint ventures.

EXECUTIVE MANAGER GOVERNANCE Timothy Noy Dip. Law, BEc Lead the governance team to provide legal services, board secretariat, regulatory compliance, risk management and internal audit and corporate governance. Provide oversight to the corporation’s risk and compliance systems. Provide commercial legal advice.

13

During the 2013-14 reporting period the below mentioned were also members of the State Water executive team: Suzie Koeppenkastropp – Executive Manager Governance Michael Jeffery – Executive Manager Major Projects

MANAGEMENT AND ACTIVITIES The decisions and strategic approach of the Chief Executive Officer (CEO) and the executive is subject to regular review by the board. All management and staff are guided by agreed work plans and employee review process, with work plan content drawn largely from the organisation’s corporate plan and business plans. Executives are also measured against key performance targets. Performance is also influenced by regular internal employee surveys and strategies are then developed to address priority areas of improvement to enhance staff engagement levels. Benefits have included consistently favourable engagement levels among personnel across the organisation. Management improvement has been achieved through management participation in programs and training provided by the Institute of Executive Coaching and Leadership. The development of a more comprehensive performance management framework has also enhanced the alignment of individual workplace performance with the objectives of the corporate plan.

EXECUTIVE REMUNERATION

Band 2013-14 2013-14 2013-14 Average Female Male Min Max

Band 1 3 4 $167,100 $238,300 $221,958 Band 2 0 0 $238,301 $299,750 Band 3 0 2 $299,751 $422,500 $383,288 Band 4 0 0 $422,501 $488,100 Total 3 6

9 7.07% of State Water Corporation's employee related expenditure in 2013-14 was related to senior executives.

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Lisa WelshExecutive Manager Corporate Affairs

8089 1 Sydney

David HarrisChief Executive Off icer

8000 1 Sydney

Elli BakerChief Financial Off icer8416 1 Sydney

Jane ReddenExecutive Manager Finance

and Business Services8073 1 Dubbo

Brett TuckerExecutive Manager

Rural Water8101 1 Dubbo

Timothy NoyExecutive Manager Governance

- General Counsel8374 1 Sydney

Amit ChananChief Operating Off icer

8377 1 Sydney

Peter EnglishExecutive Manager

Major Projects8422 1 Dubbo

Brett HartmanExecutive Manager

Commercial Development8423 1 Sydney

EXECUTIVE ORGANISATION CHART

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SUMMARY The Governance business unit provides leadership, support and services to the board and the corporation to ensure compliance with legal and statutory responsibilities and provides oversight to the corporation’s risk and compliance systems. Services provided include:

• legal • internal audit • compliance • risk management • company secretariat

LEGAL CHANGE No changes were made to the corporation’s enabling legislation, the State Water Corporation Act 2004.

INTERNAL AUDIT AND RISK MANAGEMENT POLICY ATTESTATION Internal audit activities in 2013-14 used a risk-based approach to determine the areas of the business to be reviewed. Internal audits were outsourced to Deloitte Touche Tohmatsu who conducted six reviews during the year. Progress on management’s action plans to implement recommendations arising from reviews were reported to each meeting of the board’s audit, risk and compliance committee.

GOVERNMENT INFORMATION (PUBLIC ACCESS) ACT 2009 During the financial year 2013-14 State Water received six valid access applications under the Government Information (Public Access) Act 2009 (GIPA Act). Five applications were from members of the general public and one application was from a Member of Parliament. All requests were for information other than personal information. Access was granted in full for five applications and access was granted in part for one application.

GOVERNANCE

17

Applications were assessed and the outcome communicated to applicants within the statutory timeframe. In accordance with Section 7(3) of the GIPA Act, State Water continually reviewed the program for the release of government information held that should in the public interest be made publicly available. Following reviews performed, no additional information, other than the information currently released will be made publicly available. State Water has proactively provided information on its website www.statewater.com.au and has a dedicated section to assist State Water customers with enquiries. This section can be located at: https://www.statewater.com.au/Customer%20service.

PUBLIC INTEREST DISCLOSURES There are no incidents to be reported for the period to 30 June 2014 under the Public Interest Disclosures Act 1994.

RISK MANAGEMENT State Water manages risk in a manner based on principles consistent with “Risk Management – Principles and Guidelines” (AS/NZS ISO31000:2009). In particular State Water:

• Implements risk management in order to create value for its stakeholders • Integrates risk management into all organisational processes • Applies risk management in a manner suitable to the context • Acknowledges that responsibility and accountability for risk are linked to

authority to take action • Utilises risk management to facilitate continual improvement and

organisational learning

The Board of State Water has endorsed a “Risk Management Framework” that details the corporation’s procedures and systems for managing risk.

http://www.statewater.com.au/

https://www.statewater.com.au/Customer%20service

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SUMMARY The Corporate Affairs business unit comprises the following functions:

• regulatory pricing • shareholder matters • human resources • internal and external communication • stakeholder engagement

IMPLEMENTATION OF PRICE DETERMINATION Part 3, section 29 of the State Water Corporation Act 2004 governs the nature of fees and charges which may be imposed by State Water. Under section 4 of the Independent Pricing and Regulatory Tribunal (IPART) Act 1992, State Water is a monopoly service provider for which IPART has standing reference to conduct investigations and report on the determination of pricing for monopoly services supplied and pricing policies. All charges imposed in 2013-14 occurred in accordance with the prices determined by IPART and outlined in tables one to four (page 7-9) of IPART’s 2010 State Water determination. The determination can be accessed at IPART’s website: www.ipart.nsw.gov.au. A copy of 2013-14 regulated customer prices was mailed to customers in June 2013. Changes to water legislation mean that the Australian Competition and Consumer Commission (ACCC) will review and determine State Water’s prices within the Murray Darling Basin from 1 July 2014. The ACCC is required to set charges consistent with the Water Charge (Infrastructure) Rules 2010 (Commonwealth). The rules are a legislative instrument made by the Commonwealth Minister for Water under section 92 of the Water Act 2007 (Commonwealth). The ACCC released its final pricing determination for State Water’s Murray Darling Basin regulated river charges after a lengthy review process. This included public submissions and information sessions with various stakeholders in 2013 and 2014. The ACCC determination is for the period 1 July 2014 to 30 June 2017.

CORPORATE AFFAIRS

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Further information is available on the ACCC’s website: http://www.accc.gov.au/regulated-infrastructure/water/state-waters-regulated-charges-2014-17-review. Water charges for customers outside the Murray Darling Basin (i.e. customers in the North Coast, Hunter and South Coast valleys) will continue to be set by IPART. At IPART's request, prices already set for 2013-14 apply for 2014-15 in these valleys (with no increase for inflation).

HUMAN RESOURCES DISABILITY PLANS State Water does not currently have a disability plan, but manages this area through the Equal Employment Opportunity (EEO) program 2012-2015.

HUMAN RESOURCES POLICY During the reporting period there were no changes to human resources policy.

EMPLOYEE ASSISTANCE State Water provides an employee assistance program, which is a free counselling and support service available to all employees and their immediate family members. Human Resources has promoted employee assistance through the ‘R U OK’ initiative which is dedicated to encouraging conversations to promote awareness of mental health issues and to assist in the prevention of suicide.

EQUAL EMPLOYMENT OPPORTUNITY In 2013-14 State Water continued to implement the strategies identified within the 2012-15 Equal Employment Opportunity (EEO) management plan. The key initiatives from our program that were implemented in the 2013-14 year included:

• The newly developed EEO, discrimination, bullying, harassment and victimisation awareness training was introduced across the business with an approximately 90% completion rate. The training was specifically developed for State Water to address both employee and manager obligations and responsibilities in relation to EEO. This training will be reviewed and re-issued every 12 months.

http://www.accc.gov.au/regulated-infrastructure/water/state-waters-regulated-charges-2014-17-review

http://www.accc.gov.au/regulated-infrastructure/water/state-waters-regulated-charges-2014-17-review

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• State Water has also trained 62% of managers in DDI targeted selection interview training to ensure all recruitment and employment decisions are congruent with sound EEO principles. Additionally at least one member of every recruitment panel has been a qualified DDI targeted selection interviewer.

• State Water has continued to communicate to managers about the

flexibility options available for all employees at State Water through our managers’ orientation program again this year.

• State Water has also offered an additional three four-year indigenous

traineeships and successfully filled all positions, bringing the total number of indigenous traineeships to nine.

• State Water also ensures that all vacant positions advertised are done so

in a manner that meets accessibility standards.

• Additionally, State Water has commenced consultation with like corporations in relation to diversity strategies.

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Statistical information on EEO target groups Table 1: Trends in the representation of EEO groups1

% of Total Staff2 EEO group Benchmark 2010 2011 2012 2013 2014 Women 50% 23.0% 23.0% 25.2% 24.8% 24.1% Aboriginal People & Torres Strait Islanders

2.6%3 2.03% 2.0% 1.9% 1.9% 2.2%

People whose first language was not English

19% 15.5% 11.5% 8.7% 3.5% 4.1%

People with a disability N/A4 1.0% 1.0% 1.2% 1.3% 1.3% People with a disability requiring a work-related adjustment5

1.5% 1.32% .3% 0.3% 0.3% 0.3%

Table 2: Trends in the distribution of EEO groups6

Distribution Index7 EEO group Benchmark 2010 2011 2012 2013 2014 Women 100 79 85 87 89 84 Aboriginal People & Torres Strait Islanders

100 * * * * *

People whose first language was not English

100 105 105 119 * *

People with a disability 100 * * * People with a disability requiring a work-related adjustment

100 * * * * *

NB: Information for the above tables is provided by the Workforce Profile Unit, Public Sector Workforce Branch, PSC

* The distribution index is not calculated where EEO group or non-EEO group numbers are less than 20.

1 Staff numbers as at 30 June 2014 2 Excludes casual staff 3 Minimum target by 2015 4 Per cent employment levels are reported but a benchmark level has not been set 5 Minimum annual incremental target 6 A distribution index of 100 indicates that the centre of distribution of the EEO group across

salary levels is equivalent to that of other staff. Values less than 100 mean that the EEO group tends to be more concentrated at lower salary levels than is the case for other staff. The more pronounced this tendency is, the lower the index will be. An index more than 100 indicates that the EEO group is less concentrated at the lower salary levels.

7 Excludes casual staff

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EXCEPTIONAL MOVEMENTS IN WAGES, SALARIES OR ALLOWANCES There were no exceptional movements in wages, salaries or allowances in the 2013-14 year.

STAFF NUMBERS

NB Actual staff numbers. FTE was 313.28

RESEARCH AND DEVELOPMENT As in previous years, State Water demonstrated its commitment to the professional development of its employees and has assisted several employees with formal training through TAFE and university.

Business Unit Numbers

Customer Operations 36 Governance 7 Maintenance and Services 99 Asset Services 36 Major Projects 33 Water Operations 28 Finance and ICT Services 34 Corporate Affairs 14 CEO/COO 6 Commercial Development 2 Basin Planning 3 Operations Assurance and Risk 21 Total 2013-14 319 Total 2012-13 310 Total 2011-12 321

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SUMMARY The Operations business unit comprises the following branches:

• Asset services • Maintenance and services • Water operations • Customer operations • Basin planning • Operations assurance and risk

o Natural assets and sustainability o Business improvement o Operational risk o Procurement o Work health safety

LAND DISPOSAL State Water was not involved in any land disposals valued at greater than $5 million. Access to documents relating to land disposal can be obtained under the Freedom of Information Act (2010)/Government Information (Public Access) Act (2011 onwards).

CUSTOMER OPERATIONS MULTICULTURAL POLICIES AND SERVICES PROGRAM To enable non-English speaking customers to access and understand the information on State Water’s website, the customer operations branch identified which languages were predominantly spoken across the customer base in regional NSW. The following languages are mostly prevalent: Arabic, Chinese, Dutch, German, Greek, Hindi, Indonesian (Bahasa), Italian, Macedonian, Serbian, Spanish and Vietnamese. A translator from the National Accreditation Authority for Translation and Interpreters (NATI), developed a poly-lingual webpage directing customers to the Community Relations Commission (1300 651 500) for translation assistance.

OPERATIONS

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The page was linked to the respective country flags on the bottom of the homepage on State Water’s website.

CONSUMER RESPONSE During the year, 53 customer complaints were received. This represents a significant reduction in the number of complaints compared to the previous reporting period (145) and can be attributed to the improved process in managing the Murrumbidgee and Murray metering projects. In addition, State Water received 12 complaints on behalf of other agencies. These were directed back to the appropriate agency for resolution. The number of complaints by category and count are summarised in the following table:

At the end of the year, five complaints remained with a status of open. Outstanding complaints are now currently at the targeted KPI level.

Complaint type Count

Asset Management 5 Customer Service Charter 1 Employee Performance 2 Environmental Management 0 General 9 iWAS 0 Metering Project – Murray 5 Metering Project – Murrumbidgee 13 State Water Billing 7 Trade 0 Water Account Balances 2 Water Delivery 7 Water Metering – general 0 Water Ordering 2 Total 53

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COMPLAINTS TO OTHER BODIES There were two Energy and Water Ombudsman NSW (EWON) matters open at the start of the water year. There were seven matters opened during the year and nine matters closed. There are currently zero matters open as at 30 June 2014. EWON made no determinations for any State Water matters during 2013-14. COMPLIANCE

State Water treats compliance issues seriously to protect business revenue, ensure equity in customer access to water and prevent reduction of the value of water to customers as a business asset. State Water is legally obligated to report any alleged breach to the NSW Office of Water (NOW). State Water compliance reported 21 alleged breaches to NOW in 2013-14. As a result NOW issued penalty infringement notices, stop-work orders, pursued prosecutions, and issued formal warning. Breaches included:

• Illegal extracting of water

• Meter not operating or operating incorrectly • Suspected illegal structure • Extracting water without complying water orders • Leaking regulator, trash rack not installed correctly plus meter issue

The corporation works closely with customers to ensure accounts are paid and any necessary payment plans are established. Procedures led to 43 licences being suspended under Section 78 of the Water Management Act 2000 in 2013–14 and of these 26 suspensions have been cancelled. Procedures to fulfil requirements of Section 91i of the Water Management Act 2000 were implemented in 2010-11. Under Section 91i it is an offence to take water from a water source when metering equipment is not operating properly or is not operating. A total of 205 section 91i applications were received in 2013–14, and of these, no applications were rejected. Illegal water extraction has also reduced significantly due to improved monitoring and reporting of customer accounts, educating customers through verbal and written communications and regular communication with NOW.

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WATER OPERATIONS

WATER SALES As a result of the below average rainfall and above average temperatures the demand for water across the state was high. This combined with State Water storages being relatively full at the start of the year (72%) has resulted in above average water sales for the year. Water sales at the end of June were 4,929 GL which is about 7% above the 20-year average of 4,587GL.

Most valleys experienced average water sales, however the northern Valleys (Gwydir, Namoi and Border Rivers) and Murray experienced significantly above average water sales for the year.

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VALLEY OVERVIEW The higher-than-average water sales and drier conditions resulted in a significant reduction in the storage volumes over the 2013-14 reporting period. The overall status of the storages has fallen from 72% at the start of July 2013 to 54% at the end of June 2014. The decrease in storage volumes has been more extensive in the northern valleys where the storages have fallen from 72% capacity at the start of the year to 27% capacity in July. The decline in storage levels for central and southern valleys was not as extreme, with storages falling by 20% and 12% respectively.

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Valley overview for 2013-14 Capacity Start of Year

Storage Status End of Year

Storage Status Change in Storage Volume

Annual Usage

Licensed water sales (non

environmental)

Licensed Environmental

Water Sales

River/Valley Active Capacity

(GL)

% Volume

(GL)

% Volume

(GL)

GL GL GL GL

Border Rivers 566 76% 430 26% 148 -282 195 195 0

Gwydir 1,343 74% 994 33% 443 -551 408 376 32

Namoi/Peel 872 66% 576 20% 177 -399 285 285 0

Macquarie 1,566 47% 736 28% 440 -296 268 227 41

Lachlan 1,255 67% 841 46% 578 -263 249 226 23

Murrumbidgee 2,630 59% 1,552 62% 1,626 74 1,705 1,557 148

Murray-Lower Darling

8,368 77% 6,443 61% 5,102 -1,341 1,706 1,588 118

Hunter 1,052 99% 1,041 87% 918 -123 107 107 0

Coastal 20 101% 20 99% 19 -1 6 6 0

TOTAL 17,672 0.74 12,633 0.51 9,451 -3,182 4,929 4,567 362

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OPERATIONS ASSURANCE AND RISK INSURANCE ACTIVITIES State Water has policies under the Treasury Managed Fund, providing unlimited cover for the following insurable risks:

• Workers’ compensation, as per NSW statute • Comprehensive motor vehicle • Property (full replacement, new for old, including consequential loss) • Liability, including but not limited to public liability, product liability,

professional indemnity and directors’/officers’ liability • Miscellaneous, notably personal accident and protection for overseas

travel

WASTE State Water is committed to the NSW Government Waste Reduction and Purchasing Policy (WRAPP). The WRAPP drives the development and implementation of outcomes, targets and performance measures outlined in State Water’s Environmental Management Plan and Sustainability Management Plan. A waste and recycling awareness survey was undertaken by State Water employees to identify current behaviours and highlight key areas of improvement. From the survey results, State Water has implemented ink recycling at 11 sites and paper/cardboard recycling at 6 sites. State Water’s WRAPP progress for 2013-14 includes:

• 10% increase of total waste recycled compared to 2012–13 • 80% of paper/cardboard recycled • 89% toner cartridges recycled • 99% steel recycled

• 99% of paper purchased has recycled content WORK HEALTH SAFETY State Water's Work Health Safety (WHS) performance for 2013-14 has continued to follow a trend of continuous improvement. Outstanding results have continued to be achieved, culminating in being judged the winner in the NSW WorkCover awards in the category of Best Workplace Health and Safety Management System, and being adjudged a finalist in the National Safe Work Australia Awards in the same category.

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Key areas to note: • Continued low numbers of workers’ compensation claims, with

considerably lower than average claim costs • Continued low lost time injury frequency rates • Concerted focus on the identified top 5 risks areas • Further initiatives to improve communication methods for WHS training

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SUMMARY The Major Projects business unit is responsible for successfully delivering all major projects on time, on budget and to the required scope and standards. The unit works with Asset Services to provide input into the asset planning and project initiation phases as well as reporting to stakeholders throughout the project lifecycle.

MAJOR PROJECTS PROGRESS REPORT

Project Cost to

date ($,000)

2013-14 Expenditure

($,000)

Date of completion

Keepit Dam upgrade

66,822 2,992 Electrical relocation and upgrade to be completed in 2014.

Copeton Dam upgrade

53,139 589 Dam crest repairs completed in December 2013.

Hume Dam upgrade

49,412 4,370 Stage two completed on behalf of the Murray Darling Basin Authority. Construction of the 50,000 tonne concrete buttress wall to strengthen the southern training wall. Investigations for the third stage of works, to improve the ability of the dam to withstand extreme flood events, are continuing and the scope of the works is yet to be determined.

Wyangala Dam upgrade

33,521 18,457 New bypass road and bridge to be complete in 2014. Gate-raising and locking to be complete mid-2015.

Burrendong Dam upgrade

20,670 4,986 Construction of an auxiliary spillway, strengthening and painting of the existing spillway gates due for completion by December 2014. The spillway

MAJOR PROJECTS

32

automation and control systems upgrade to be completed by mid-2015.

CARM 8,433 2,017 The delivery of the operations planning module for the CARM river application in the first half of 2013-14. The second half of 2013-14 focused on assessment of CARM’s operational performance and planning for use by Murrumbidgee river operations during the 2014-15 irrigation season.

Chaffey Dam upgrade

4,014 1,246 Phase 2 - increasing the storage capacity to 100GL by raising the embankment and spillway is expected to be completed in February 2016.

Burrendong cold water pollution

3,707 3,129 Australia’s first temperature control curtain design, fabrication and installation project completed June 2014.

Murray pilot data management

2,424 1,190 Continued installation of technology to capture, store and display meter data. This included technology selection and design to enable the system to achieve production status by early 2014-15.

Murrumbidgee replace bulk water meters

1,750 1,218 Completed installation of meters in the Murrumbidgee including alternate technology sites.

33

SUMMARY The Business Services business unit is responsible for the planning, operation, maintenance and security of State Water’s information and communication technology infrastructure investments. Business Services is a small, highly specialised team that supports the organisation’s corporate and SCADA environments including major data centres, staff desktops/laptops and mobile devices as well as the data and voice communication networks. Business Services is also the SCADA thematic champion, collaborating with business stakeholders to develop ongoing plans in the infrastructure automation arena for implementation through the iSMART program as a component of the Business Transformation Program.

BUSINESS SERVICES

34

SUMMARY The Finance business unit provides strategic financial leadership and direction. The branch controls and administers the financial activities of the organisation through the development and implementation of financial management strategies, policies, systems and processes. The branch prepares State Water’s annual financial reports for internal and external customers including shareholders, State Water’s Board of Directors and the relevant pricing regulator. It is also responsible for the billing, payroll and accounts-payable functions within State Water.

FUNDS GRANTED TO NON-GOVERNMENT COMMUNITY ORGANISATIONS Nil noted.

CONSULTANTS CONSULTANTS EQUAL TO OR MORE THAN $30,000 Category Consultant Nature Cost $

Management Services

Presence of IT HR maturity assessment

35,899

Change Works Consulting

Develop CARM transition plan

40,500

Legal Baker and Mackenzie

Review of compliance systems

34,911

Finance and Accounting

KPMG Regulatory and financial model

47,083

FINANCE

35

CONSULTANTS LESS THAN $30,000 During 2013-14 consultants were engaged in the following areas: Category Cost $

Management Services 90,018

Information Technology 24,750 Legal 34,985 Finance and Accounting 14,157

PAYMENT OF ACCOUNTS

AGED ANALYSIS AT THE END OF EACH QUARTER Quarter <30 days

overdue 30-60 days overdue

61-90 days overdue

>90 days overdue

*Retention value

All suppliers September 1,091,759 497,941 2,130 115,946* 118,076 December 183,585 0 0 115,946* 121,262 March 1,827,983 306,426 44,616 136,402* 133,302 June 3,853,110 2,700,002 31,680 46,098* 546,098 * Retention amounts included. Retention monies are held for the major projects/upgrades/maintenance works completed. In the case of failure by the contractor to rectify any defect, State Water may apply the retention monies or any other monies held for the purpose of rectifying such defects. The retention may be held for a number of years. Once the retention (or defects liability) period has expired the monies are released to the creditor.

36

ACCOUNTS DUE OR PAID WITHIN EACH QUARTER Measure Sept Dec Mar Jun

All suppliers Number of accounts paid on time (from invoice date)

1131 1229 673 955

Actual percentage of accounts paid on time (based on number of accounts)

74 75 61 69

Total dollar amount of accounts due for payment

32,435,852 29,332,973 33,284,064 37,584,437

Dollar amount of accounts paid on time

21,269,199 20,481,531 25,113,211 29,349,487

Actual percentage of accounts paid on time (based on $)

66 70 75 78

Number of payments for interest on overdue accounts

0 0 1 1

Interest paid on overdue accounts

0 0 287,957 23,963

TIME FOR PAYMENT OF ACCOUNTS Invoices from creditors are sent to sites, processed and posted to Accounts Payable in Head Office, Dubbo. Purchase orders must be actioned by the site of origin in order for Accounts Payable to enter the invoice and process payments to creditors. State Water sites are remote and are not all are manned by administrative staff. Site staff may only visit a post office once a week due to remoteness of location. From September 2012 invoices <$3,000 are paid via purchase card where possible. This allows sites to process low value invoices more promptly.

37

INVESTMENT PERFORMANCE State Water benchmarks its investment portfolio’s performance against NSW Tcorp’s hourglass cash facility. As at 30 June 2014, the key statistics on State Water’s investment performance were: State Water Benchmark

Valuation 30 June 2014

$26.901m N/A

Interest % 2.75% 2.68%

LIABILITY MANAGEMENT PERFORMANCE State Water contracts the services of an external specialist (currently NSW Tcorp) to actively manage the entity’s debt portfolio. As at 30 June 2014, the key statistics on State Water’s debt portfolio were as follows: State Water Benchmark

Current capital value 30 June 2014

$158.995m N/A

Amortised interest cost %

5.86% 5.86%

PURCHASE CARD CERTIFICATION State Water operates MasterCard purchase card facilities with Westpac bank. All expenditure on purchase cards is certified by cardholders and independently verified by the cardholder’s supervisor. There is also continuous review of usage characteristics and authorisations to promote correct usage. Card usage is closely monitored by State Water and Westpac. Purchase card expenditure during the financial year complied with best practice guidelines.

38

FINANCIAL STATEMENTS

State Water Corporation

Financial Statements

For the Year Ended 30 June 2014

State Water CorporationFor the Year Ended 30 June 2014

CONTENTS

Page

Financial StatementsStatement by Members of the Board 1Independent Audit Report 2Statement of Comprehensive Income 4Statement of Other Comprehensive Income 5Statement of Financial Position 6Statement of Changes in Equity 7Statement of Cash Flows 8Notes to the Financial Statements 9


Statement of Comprehensive Income


Note

2014$'000

2013$'000

Revenue 2(a) 171,581 180,504Expenses, excluding finance costs 2(b) (116,878) (120,586)Finance costs 2(d) (10,425) (9,813)Revaluation of property, plant and equipment 6 15,058 (22,857)

Profit before income tax 59,336 27,248Deferred tax expense 3(a) (17,299) (7,575)

Profit after income tax 42,037 19,673

The accompanying notes form part of these financial statements4

State Water CorporationStatement of Other Comprehensive Income


Note2014$'000

2013$'000

Profit for the year 42,037 19,673

Other comprehensive income:

Items that will not be reclassified to net resultNet superannuation actuarial gains / (losses) 3(d) 589 12,351Net revaluation gain relating to revalued assets 3(d) 11,013 269,964

Items that may be reclassified subsequently to netresultNet impairment loss relating to revalued assets 3(d) - (260,267)

Other comprehensive income for the year, net of tax 11,602 22,048

Total comprehensive income for the year 53,639 41,721

Attributable to: Equity holders of State Water 53,639 41,721



Statement of Financial Position

As at 30 June 2014

Note2014$'000

2013$'000

1 July 2012$'000

ASSETS

Current assetsCash and cash equivalents 4 26,915 43,189 21,528Trade and other receivables 5 18,774 24,146 30,400Other assets 8 5,567 2,667 3,537

Total current assets 51,256 70,002 55,465

Non-current assetsProperty, plant and equipment 6 794,031 732,644 696,571Intangible assets 7 9,600 2,314 2,290

Total non-current assets 803,631 734,958 698,861

TOTAL ASSETS 854,887 804,960 754,326

LIABILITIES

Current liabilitiesTrade and other payables 9 30,039 40,271 33,401Dividend payable 14(b) 20,300 24,295 4,002Provisions 11(a) 13,140 12,615 13,791Other liabilities 12 9,707 10,294 5,922

Total current liabilities 73,186 87,475 57,116

Non-current liabilitiesBorrowings 10 158,995 158,664 157,971Deferred tax 3(c) 69,282 47,010 29,985

Provisions 11(a) 40,992 40,217 55,880Other liabilities 12 99,825 92,326 91,532

Total non-current liabilities 369,094 338,217 335,368

TOTAL LIABILITIES 442,280 425,692 392,484

NET ASSETS 412,607 379,268 361,842

EQUITYContributed equity 13 300,510 300,510 300,510Asset revaluation reserve 87,348 76,335 66,859Retained Earnings 24,749 2,423 (5,527)

TOTAL EQUITY 412,607 379,268 361,842


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State Water CorporationStatement of Cash Flows


Note2014$'000

2013$'000

Cash flows from operating activities:Receipts from customers 131,369 150,026Payments to suppliers and employees (118,072) (106,286)Interest received 754 827Interest and other costs of finance paid (13,599) (13,841)Receipt of grants and subsidies from NSW Government 52,096 50,647Net cash provided by operating activities 52,548 81,373

Cash flows from investing activities:Proceeds from sale of property, plant and equipment 1,196 1,239Proceeds from government grants in respect of property,

plant and equipment 10,752 2,109Acquisition of property, plant and equipment (56,806) (59,750)Net cash used by investing activities (44,858) (56,402)

Cash flows from financing activities:Proceeds from borrowings 331 692Dividends paid to equity holders of the corporation (24,295) (4,002)Net cash used by financing activities (23,964) (3,310)

Net increase (decrease) in cash and cash equivalentsheld (16,274) 21,661

Cash and cash equivalents at beginning of year 43,189 21,528Cash and cash equivalents at end of financial year 4(a) 26,915 43,189


State Water CorporationNotes to the Financial Statements


Corporate InformationState Water Corporation (State Water) is a statutory State Owned Corporation under the provisions of the State OwnedCorporations Act 1989 and was corporatised under the State Water Corporation Act 2004 on 1 July 2004. TheCorporation's ultimate parent is the NSW Government. Accordingly, the results, financial position and cash flows of theCorporation are included in the NSW Total State Sector Accounts.

State Water's principal function is to capture, store and release bulk water for the benefit of entitlement holders, for floodmanagement, and to meet the needs of the environment in an efficient, effective, safe and financially responsiblemanner. Entitlement holders include regional communities, primary producers, irrigators, industrial users and localutilities in regional NSW. These functions require that State Water construct, maintain and operate water managementworks and any other functions conferred or imposed on it by virtue of the operating licence granted to it and under anyapplicable requirements under the Water Management Act 2000 or the Water Act 1912.

In addition, State Water is a water supply authority under the provisions of Chapter 6 of the Water Management Act2000 for the purpose of administering the Fish River Water Supply scheme.

State Water also has a business relationship with the Murray-Darling Basin Authority (MDBA). The MDBA was establishedby the Commonwealth as an Authority and will work with the Department of Environment, Water, Heritage and the Arts(DEWHA) and with State Governments and their agencies to develop a plan for sustainable use of the rivers in the basin.It will also oversee the management of the Murray-Darling Basin water flow and usage. Under the terms of theagreement, each of the participating governments directly funds the operating and capital costs of the MDBA withprescribed contributions.

The MDBA costs form part of the submission that is made to the Australian Competition and Consumer Commission(ACCC) for its determination of pricing of water charges to bulk water customers located within the area of operations ofthe MDBA. The portion that MDBA costs represent of the total costs covered by the ACCC determination is then applied torevenue from water charges to bulk water customers located within the area of operations of the MDBA, and this amountis passed on to NSW Treasury to help meet the NSW Government's direct funding obligations under the Murray-DarlingBasin Agreement. State Water also rents accommodation properties from MDBA for use by its on-site employees.

The MDBA contracts State Water to undertake regular maintenance of the assets it controls, as well as repair work andconstruction of new or replacement assets. In addition, State Water rents equipment to the MDBA.

Water NSWOn 4 March 2014, the NSW Government announced that it will consolidate State Water with Sydney Catchment Authority(SCA) to form Water NSW, a new efficient service provider for the State's water sector. The Water NSW operating modelcommenced with State Water and SCA having separate boards with substantially common board members, a commonChairman and a common Chief Executive Officer.

An Executive Strategy team has been established to advise on the strategies to achieve improvements in priority areasconsistent with the objectives of the future consolidated business. The team consists of members of Executive from StateWater and SCA.

Water NSW is not a legal entity and the personnel and associated costs of the group management are separately funded,or equitably shared, between both organisations.

The financial statements were authorised for issue on 18 September 2014 by the Board of Directors.

1 Statement of Significant Accounting Policies

(a) Basis of Preparation

The financial statements are general purpose financial statements that have been prepared in accordance with AustralianAccounting Standards (which include Australian Accounting Interpretations) of the Australian Accounting StandardsBoard, mandates issued by NSW Treasury adopted in State Water's Statement of Corporate Intent, the Public Financeand Audit Act 1983 and the Public Finance and Audit Regulation 2010, and the State Owned Corporations Act 1989.

In preparing these financial statements, the accounting policies described below are based on the requirements applicableto for-profit entities under this financial reporting framework. Material accounting policies adopted in the preparation ofthe financial statements are presented below and have been consistently applied unless otherwise stated. Judgments, key

9



1 Statement of Significant Accounting Policies continued

(a) Basis of Preparation continuedassumptions and estimations management have made are disclosed in the relevant notes to the financial statements.

The financial statements have been prepared on an accruals basis and are based on historical costs, modified, whereapplicable, by the measurement at fair value of selected non current assets, financial assets and financial liabilities.

The financial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars($'000).

(b) Determination of for-profit or not-for-profit

State Water has applied its judgment in assessing whether it meets the definition of a for-profit or not-for-profit entity forthe purposes of the accounting standards. State Water has concluded that the business is a for-profit entity, taking intoaccount the objectives of corporatisation, the governance framework applied, the application of pricing principles toachieve full cost recovery on a commercially sustainable basis, and the registration of State Water Corporation under theNational Tax Equivalent Regime.

(c) Statement of Compliance

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financialstatements containing relevant and reliable information about transactions, events and conditions. Compliance withAustralian Accounting Standards ensures that the financial statements and notes also comply with International FinancialReporting Standards (IFRS).

(d) Fair Value of Assets and Liabilities

State Water measures some of its assets and liabilities at fair value on a recurring basis as required by accountingstandards.

Fair value is the price that would be received to sell an asset, or would be paid to transfer a liability in an orderly i.e.unforced, transaction between independent, knowledgeable and willing market participants at the measurement date.

As fair value is a market-based measure, the closest equivalent observable market pricing information is used todetermine fair value. Adjustments to market values may be made having regard to the characteristics of the specificasset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using oneor more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable marketdata.

To the extent possible, market information is extracted from the principal market for the asset or liability i.e. the marketwith the greatest volume and level of activity for the asset or liability. In the absence of such a market, information isextracted from the most advantageous market available to the entity at the reporting date i.e. the market that maximisesthe receipts from the sale of the asset or minimises the payment made to transfer the liability, after taking into accounttransaction costs and transport costs.

For non-financial assets, the fair value measurement also takes into account a market participant's ability to use theasset in its highest and best use or to sell it to another market participant that would use the asset in its highest and bestuse.

The fair value of liabilities may be valued, where there is no observable market price in relation to the transfer of anidentical or similar financial instrument, by reference to observable market information where identical or similarinstruments are held as assets. Where this information is not available, or other valuation techniques are adopted and,where significant, are detailed in the respective note to the financial statements.

10




(e) Revenue

Revenue is measured at the fair value of the consideration received or receivable. Any consideration deferred is treatedas the provision of finance and is discounted at a rate of interest that is generally accepted in the market for similararrangements. The difference between the amount initially recognised and the amount ultimately recovered is interestrevenue. All revenue is stated net of the amount of goods and services tax. The following recognition criteria must bemet before revenue is recognised:

Rendering of services

State Water delivers bulk water to its customers under the conditions of their licences. Revenue from rendering of theseservices comprises both fixed and variable charges. The fixed component is charged according to each licenceentitlement, whereas the variable component is charged according to actual consumption and use by the licence holder.The variable usage charges are recognised when the services are provided. Prices for water delivery were subject tocomplete price regulation by the Independent Pricing and Regulatory Tribunal (IPART) for the year ended 30 June 2014.Post 30 June 2014 prices for water delivery are subject to price regulation by either IPART or the ACCC, depending uponlocation of the relevant regulated valley.

State Water also provides infrastructure operation, maintenance and construction services to the MDBA and other clients.Revenue for work done by State Water on the operations and assets of other entities and on the provision of contractedservices, as covered by service agreements, is recognised when the services are provided. Revenue for constructionservices is recognised by reference to the stage of completion of the contract at the reporting date.

Ancillary services are those provided to customers for administering entitlement transfers, for providing the financialstatus of licences in preparation for licence sale or transfer, and for the use of water for hydro power generation.Revenue is recognised in respect of these services as the services are provided.

State Water also provides consultancy services to clients, primarily relating to surveying. Revenue from these services isrecorded as sundry revenue and is recognised when the services are provided.

Government grants and subsidy revenue

Under the funding model agreed to in setting up State Water as a State Owned Corporation and negotiated with theShareholding Ministers, State Water receives Government funding for agreed activities and for past and future capitalinvestment so as to achieve an expected commercial rate of return from its operations.

Grants and subsidies that are receivable for expenses incurred or revenue foregone are recognised as revenue in theStatement of Comprehensive Income on a systematic basis over the periods for which the grant or subsidy is to apply.Government grants are recognised as revenue at their fair value once all attaching conditions have been complied with.Income received in advance of the conditions being met is treated as a deferred government grant.

The share of the Government's contributions is determined by the relevant regulator through the Bulk Water PricingDeterminations. The amounts of the Government contribution to operations and of the Government operating subsidiesare negotiated annually with the Shareholding Ministers through the Statement of Corporate Intent (SCI). There is noprovision for adjustment to the quantum of the negotiated amounts. The revenue is accordingly recognised on a monthlybasis.

Income for Government funded projects is recognised once all attached conditions of the funding agreement have beensatisfied. Funds received in advance or in excess of funding agreements are held as a liability - refer Note 1(s) DeferredGovernment Grants.

For funding received relating to the construction of capital assets, the total grant amount received is treated as deferredrevenue until the asset to which it relates is complete. Upon completion of the asset the deferred revenue is thenrecognised in profit or loss on a systematic basis over the useful life of the asset.

Interest revenue

Interest revenue is recognised using the effective interest method, which for floating rate financial assets is the rateinherent in the instrument.

11




(e) Revenue continued

Other revenue

Other revenue comprises rental income, and gains arising from the disposal of recognised assets. Rental income (forforeshore land, cottages and hydro-electric plant) is recognised on a straight-line basis over the period of occupancy.

Disposal of property, plant and equipment, assets held for sale and intangible assets

The net gain or loss on disposal of these assets is calculated as the difference between the carrying amount of the assetsat the time of disposal and the net proceeds received for disposal; and is recorded in the Statement of ComprehensiveIncome in the period of disposal. Gains or losses arising from the sale of property holdings are recognised at the datethat the risks and rewards of ownership have been transferred to the purchaser and State Water has no continuinginvolvement with the relevant property. This is normally considered to be when legal title passes to the purchaser at thedate of settlement. Net losses on disposal are reclassified as expenses.

All revenue is stated net of the amount of goods and services tax.

(f) Expenses

Expenses are recognised in the Statement of Comprehensive Income when incurred. Expenses include items that areincurred in the course of ordinary activities as well as various losses that arise from either the disposal of recognisedassets or the re-measurement of some items at the reporting date that are required to be taken to the Statement ofComprehensive Income under the relevant Australian Accounting Standards.

Expenses are disclosed in the financial statements by nature. (Refer Note 2(b)).

12




(f) Expenses continued

Depreciation and amortisation

Items of property, plant and equipment (including buildings but excluding freehold land) and intangible assets with finitelives such as computer application software and development costs, are depreciated/amortised on a straight-line basisover their estimated useful lives, making allowance where appropriate for residual values. The lives are reviewedannually, taking into account assessments of asset condition, commercial and technical obsolescence and expectednormal wear and tear. The normal life expectancies of major asset categories are as follows:

Depreciable asset categories Number of years Property, plant and equipment

Buildings - cottages and dwellings/office buildings/accommodation 1 - 40

Dams - structure/concrete works 100

Dams - other civil components 100

Dams - mechanical/electrical components 5 - 100

Weirs and regulators - concrete components and fountain pilings 7 - 100

Weirs and regulators - steel structural components 80

Weirs and regulators - mechanical/electrical components 5 - 100

Channels and structures 10 - 100

Furniture and fitout 3 - 15

Scientific instruments 4 - 15

Marine craft 4 - 25

Computer equipment 2 - 10

Plant and equipment 3 - 32

Motor vehicles 5 - 15

Water meters 20

Intangible assets

Computer application software 5 - 10

Work in progress is not depreciable until the assets are brought into service and are available for use. Land is not adepreciable asset.

Operating lease expenses

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognisedas expenses on a straight line basis over the lease term. Lease incentives under operating leases are recognised as aliability and amortised on a straight line basis over the life of the lease term.

13




(f) Expenses continued

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take asubstantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such timeas the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit orloss in the period in which they are incurred.

(g) Taxation

Income Tax

State Water is subject to notional taxation in accordance with the State Owned Corporations Act 1989. An equivalent ornotional income tax is payable to the NSW Government through the Office of State Revenue. Taxation liability isassessed according to the National Tax Equivalent Regime (NTER). The NTER closely mirrors the Commonwealth IncomeTax Assessment Act 1936 (as amended) and is administered by the Australian Taxation Office (ATO).

The income tax expense for the year comprises current income tax expense and deferred tax expense.

Current income tax expense charged to profit or loss is the tax payable on taxable income calculated using applicableincome tax rates enacted, or substantially enacted, as at the end of the reporting period. Current tax liabilities, or assets,are therefore measured at the amounts expected to be paid to, or recovered from, the relevant taxation authority.

Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the yearas well as unused tax losses. Current and deferred income tax expense is charged or credited outside profit or loss whenthe tax relates to items that are recognised outside profit or loss. Deferred tax assets and liabilities are ascertained basedon temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financialstatements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions areavailable. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding abusiness combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the assetis realised or the liability is settled, based on tax rates enacted or substantively enacted at the end of the reportingperiod. Their measurement also reflects the manner in which management expects to recover or settle the carryingamount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it isprobable that future taxable profit will be available against which the benefits of the deferred tax assets can be utilised.

Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that netsettlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assetsand liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets andliabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or differenttaxable entities, where it is intended that net settlement or simultaneous realisation and settlement of the respectiveasset and liability will occur in future periods in which significant amounts of deferred tax assets and liabilities areexpected to be recovered or settled.

Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred isnot recoverable from the ATO. In these circumstances the GST is recognised as part of the cost of acquisition of the assetor as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusiveof GST receivable or payable. The net amount of GST recoverable from or payable to the ATO is included with otherreceivables or payables in the statement of financial position.

Cash flows are presented in the statement of cashflows on a gross basis. The GST components of investing and financing

14




(g) Taxation continuedactivities are disclosed as operating cash flows included in receipts from customers or payments to suppliers.

Commitments are disclosed inclusive of GST where applicable.

(h) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at-call with banks, other short-term highly liquidinvestments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within shortterm borrowings in current liabilities on the statement of financial position.

(i) Investments

Investments in marketable securities with a maturity period of three months or less are classified as cash and cashequivalents (see Note 1(h) above) and those with a maturity period longer than three months are classified asInvestments. This includes State Water's investment in the NSW Treasury Corporation (TCorp) Hourglass Cash Facility.

Those with a maturity period greater than 12 months are classified under non-current assets. All others are classifiedunder current assets. State Water currently has no investments other than those included in cash and cash equivalents.

(j) Receivables

Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinarycourse of business. Receivables expected to be collected within 12 months of the end of the reporting period areclassified as current assets. All other receivables are classified as non-current assets. Receivables generally havesettlement terms of 30 days from the date of issue of the invoice.

Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using theeffective interest rate method, less any provision for impairment. Recognition at original invoice amount is adopted asthis is not materially different to amortised cost, given the short-term nature of these receivables.

The allowance for impairment is recognised when collection of the full amount invoiced is considered to be no longerprobable after due consideration of factors such as past recoverability experience, prevailing economic conditions andother knowledge including seasonal conditions and current allocation levels. Known bad debts are written off against theallowance as and when identified.

(k) Property, Plant and Equipment

Acquisitions and Capitalisation

All items of property, plant and equipment acquired by State Water are recognised initially at the cost of acquisition.Subsequent to this initial recognition, each class of property, plant and equipment is valued in accordance with StateWater's valuation policies (see Asset Valuations below).

Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire the asset,including costs that are directly attributable to bringing the asset to the location and condition necessary for it to becapable of operating in the manner intended. Government grants related to assets are treated as deferred income andare recognised in profit or loss on a systematic basis over the useful life of the asset to which they relate.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and revenues at their fair valueat the date of acquisition. Fair value means the amount for which an asset could be exchanged between aknowledgeable, willing buyer and a knowledgeable, willing seller in an arms' length transaction.

Expenditure of the following type that will provide future economic benefit and which exceed the thresholds set will berecognised as an asset and capitalised:

15




(k) Property, Plant and Equipment continued

! acquisition costs of new assets or components of assets including water infrastructure, plant and equipment, land andbuildings or other non-current assets

! acquisition costs of replacement assets

! acquisition costs of asset enhancements and upgrades

! expenditure on major renewals or refurbishments which extend the economic life or service potential of the existingasset.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, onlywhen it is probable that future economic benefits associated with the item will flow to State Water and cost of the itemcan be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognisedwhen replaced. All other repairs and maintenance are charged to the statement of comprehensive income during thereporting period in which they are incurred.

Each river valley and all its specialised infrastructure assets form a river system asset, and are treated as a primary assetwith components. Specialised infrastructure assets are components of the relevant river system primary asset, and arereferred to as system assets. State Water's use of the river system delivers the economic benefit.

In respect of system assets constructed by State Water for its own use, cost includes:

! materials used in construction

! direct labour and oncosts

! contractors' services

! major inspection costs

! an estimate, where relevant, of the costs of dismantling, decommissioning and removing the asset and restoring thesite on which it is located, and

! an appropriate proportion of overheads, except those that are for administration or are general in nature.

In respect of major inspections undertaken for system assets, the cost of the inspection is capitalised as part of the costof the asset if it is probable that future economic benefits will flow to State Water and the cost can be measured reliably.

Any inspection cost so capitalised is recognised as a component asset and depreciated over the period of time until thenext inspection. When each major inspection cost is capitalised, any remaining cost or estimated cost of the previousinspection is de-recognised.

Labour and on costs directly attributable to the construction and upgrade of property, plant and equipment (includingintangibles) are capitalised to the extent that future economic benefit will arise.

The cost of dismantling, decommissioning and removing an asset and restoring the site on which it is located iscapitalised when a decision to decommission the asset has been made. This gives rise to the recognition of acorresponding liability as a provision. (Refer also Note 1(r)).

Assets are capitalised only when they are brought into use. While an asset is being constructed or is not yet available foruse, the expenditure is treated as Work-in-Progress and recognised as such as part of property, plant and equipment inthe statement of financial position. Depreciation is not raised until an asset is brought into use.

16





Thresholds are applied for the capitalisation of expenditure according to asset classes as follows:

! Computers and electrical $1,000

! Other plant and equipment $5,000

! Initial acquisition of infrastructure $10,000

! Subsequent costs - Major enhancements or upgrades $10,000

Specialised assets - Water Infrastructure and Buildings

Fair value for specialised assets (Water Infrastructure and Buildings) is determined using an income approach. Previouslysuch assets were valued using a depreciated replacement cost approach and were then subject to a recoverable amounttest using a value in use calculation. Refer Note 1(n) for comparison between the income approach and the recoverableamount..

For further details regarding the key assumptions used in determining fair value, refer Note 6.

Operational Land

Fair value for operational land is determined as the market value of comparable land based on market evidence from thelocal area, or using an income approach. Fair value is considered to be that of the highest and best use of feasiblealternatives (i.e. the current use as a dam site is not necessarily the highest and best use of the land asset). The valuerecognised for land subject to inundation is then suitably impaired (in comparison to dry land) as part of the valuationprocess. These values are arrived at in accordance with TPP 14-01 Valuation of Physical Non-Current Assets at Fair Value.

Operational Plant and Equipment

Operational plant and equipment, including plant, vehicles, furniture and fittings, office equipment, computer hardwareand leasehold improvements are measured on the cost basis and are therefore carried at cost less accumulateddepreciation and any accumulated impairment losses. These assets are not revalued as it is considered that theirdepreciated net carrying amount closely approximates their fair market value less costs to sell.

Asset Revaluation Surplus / Deficit

Where an asset is revalued using the cost approach, the gross restatement method is used to treat any accumulateddepreciation on the asset. That is, accumulated depreciation is restated proportionately with the change in gross carryingamount so that the carrying amount of the asset after revaluation equals its revalued amount.

Where an asset is revalued using the income approach or market approach, the net restatement method is used to treatany accumulated depreciation on the asset. That is, accumulated depreciation is eliminated against the gross carryingamount of the asset and the net carrying amount is restated to the revalued amount of the asset.

Increases in carrying amount arising from the revaluation of land, buildings and water infrastructure are credited to anasset revaluation reserve within equity. To the extent the increase reverses a decrease previously recognised in profit orloss, the increase is first recognised in profit or loss.

Where a revaluation decrement or an impairment loss reverses a revaluation increment in the balance of the assetrevaluation reserve of an asset, the revaluation decrement or impairment loss is debited to that reserve. In other cases,the decrement or impairment loss of the asset is recognised as an expense in the statement of comprehensive income.

Asset revaluation surpluses must be transferred to retained earnings on derecognition of an asset.17





The asset revaluation reserve relates to property, plant and equipment and comprises after tax revaluation incrementsand decrements arising from the revaluation of these assets and any applicable impairment write-downs to therecoverable amount of the assets.

Revaluation and Fair Value Assessment

A comprehensive revaluation of land, buildings and water infrastructure assets was undertaken at 30 June 2013 using adepreciated replacement cost approach for infrastructure and buildings, and a market approach for land. These assetswere then subject to a recoverable amount test based on a discounted cashflow analysis to determine their value in use,and their subsequent carrying amount. In the current year State Water has determined fair value using an incomeapproach.

No material adjustments to the carrying amounts of of any of State Water's assets were required as a consequence of theapplication of AASB 13 Fair Value Measurement. Nevertheless, AASB 13 requires enhanced disclosures regarding assetsand liabilities that are measured at fair value and fair values disclosed in the financial statements. The disclosurerequirements in AASB 13 need not, and have not been applied in the comparative information provided for periods beforeinitial application.

(l) Intangible Assets

Intangible assets are identifiable non-monetary assets without substance. Intangible assets are capitalised initially atcost. These assets are not revalued as it is considered that their depreciated net carrying amount closely approximatesfair market value less costs to sell.

Useful lives of intangible assets are assessed to be either finite or indefinite. Where they are determined to have finitelives, they are amortised on a straight-line basis and the expense is recognised as part of the depreciation, amortisationand impairment losses line item in the statement of comprehensive income. These assets are recognised in thestatement of financial position at cost less accumulated amortisation and accumulated impairment losses, whereapplicable. Computer software and development costs are typical assets that come under this category.

Where intangible assets are determined to have indefinite lives they are not amortised. These assets are recognised inthe statement of financial position at cost less accumulated impairment, where applicable. Easements over property, andthe Instrument of Delegation for foreshore lands are typical assets that come under this category.

18




(l) Intangible Assets continued

Research and Development

Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs arecapitalised only when technical feasibility studies identify that the project will deliver future economic benefits and thesebenefits can be measured reliably.

Capitalised development costs are amortised on a systematic basis matched to the future economic benefits over theuseful life of the project.

(m) Leased assets

Leases of property, plant and equipment where State Water assumes substantially all the risks and rewards of ownershipof the asset, but not the legal ownership are classified as finance leases. Finance leases are capitalised by recognising anasset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of theminimum lease payments, including any guaranteed residual values. Lease payments are allocated between reduction ofthe lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight line basisover the shorter of their estimated useful lives or the lease term. Payments made under an operating lease arerecognised in accordance with the accounting policy in Note 1 (f).

(n) Impairment of Assets

At the end of each reporting period State Water assesses impairment by evaluation of conditions and events that may beindicative of impairment triggers. The assessment will include considering external sources of information and internalsources of information.

If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of theasset, being the higher of the asset's fair value less costs to sell and value in use to the asset's carrying amount.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds itsrecoverable amount. Impairment losses are recognised as an expense in the statement of comprehensive income, unlessan asset has previously been revalued through the asset revaluation reserve, in which case the impairment loss isrecognised as a reversal to the extent of that previous revaluation through the statement of other comprehensiveincome, with any excess recognised in the statement of comprehensive income. Impairment losses recognised in respectof a cash-generating unit are allocated to reduce the carrying amount of the assets in the unit on a pro rata basis.

Calculation of recoverable amount

Financial assets

The recoverable amount of receivables stated at amortised cost is calculated at the present value of estimated futurecash flows, discounted at the original effective interest rate determined at initial recognition of these financial assets.Receivables with a short duration are not discounted. Impairment in respect of these receivables is determined inaccordance with the accounting policy in Note 1(j).

Other assets

For property plant and equipment fair value in AASB 136 is defined consistently with AASB 13. The only differencebetween an asset's fair value and it fair value less costs of disposal are the direct incremental costs attributable to thedisposal of the asset. State Water considers disposal costs to be negligible and as such revalued assets assessed underthe income approach have not had their recoverable amount estimated.

19




(n) Impairment of Assets continued

Reversals of impairment

Financial assets

An impairment loss in respect of receivables stated at amortised cost is reversed if the subsequent increase inrecoverable amount can be related objectively to an event occurring after the impairment was recognised.

Other assets

Impairment losses in respect of other assets, such as system assets and development costs, are reversed if there hasbeen a change in the estimates used to determine the recoverable amount. Impairment losses are reversed only to theextent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net ofdepreciation or amortisation, if no impairment loss had been recognised.

(o) Trade and Other Payables

Trade and other payables represent the liability outstanding at the end of the reporting period for goods and servicesreceived by State Water during the reporting period.

Trade and other payables are recognised as a current liability when goods or services have been received and anobligation to make future payment arises, and are usually settled within 30 days from the date of the invoice unless otherterms are negotiated with a creditor.

(p) Borrowings

Interest-bearing financial liabilities or borrowings raised by the NSW Treasury Corporation on behalf of State Water arerecognised initially at cost, being the fair value of the consideration received less any transaction costs associated withthe borrowings. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using theeffective interest method.

Amortised cost is calculated by taking into account any issue costs and any differences between cost and the finalredemption value, such as discounts or premiums. These differences are amortised to the income statement as part offinance costs over the period of the borrowings on an effective interest basis.

Gains or losses are recognised in the statement of profit or loss when liabilities are derecognised, such as through a debtrestructuring, as well as through the amortisation process.

(q) Dividends payable

A liability for dividend payable is recognised in the reporting period in which the dividend is declared. This is consideredto be the period in which the dividend has been proposed, targeted and agreed with State Water's voting shareholdersthrough State Water's Statement of Corporate Intent (SCI).

The dividend is calculated according with TPP 14-04 Financial Distribution Policy for Government Businesses. The dividendpayable has been calculated based on 70% of the net profit for the year adjusted for various items as agreed withshareholders.

(r) Provisions

Provisions are recognised when State Water has a legal or constructive obligation, as a result of past events, for which itis probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions aremeasured using the best estimate of the amounts required to settle the obligation at the end of the reporting period.

If the obligation is to be settled more than 12 months after the reporting date and the effect is material, a provision is

20




(r) Provisions continueddetermined by discounting the expected future cash flows required to settle the obligation at a pre-tax rate that reflectscurrent market assessments of the time value of money and, where appropriate, the risks specific to the liability. This isusually the risk-free rates on Government bonds that closely match the expected future payments, except where notedbelow. If the obligation is due to be settled less than 12 months after balance date, the provision is stated at the bestestimate available and is not discounted.

When some or all of a provision is expected to be reimbursed from a third party, the reimbursement receivable isrecognised as an asset only when the reimbursement is virtually certain. The expense relating to any provision ispresented in the statement of profit or loss net of any reimbursement.

Employee benefits

Short-Term Employee Benefits

Provision is made for State Water's obligation for short-term employee benefits. Short-term employee benefits arebenefits other than termination benefits that are expected to be settled wholly before 12 months after the end of theannual reporting period in which the employees render the related service, including wages, salaries and sick leave.Short-term employee benefits are measured at the undiscounted amounts expected to be paid when the obligation issettled.

The obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as a part ofcurrent trade and other payables in the statement of financial position.

Other Long-Term Employee Benefits

Provision is made for employees' long service leave and annual leave entitlements not expected to be settled whollywithin 12 months after the end of the annual reporting period in which the employees render the related service. Otherlong-term employee benefits are measured at the present value of the expected future payments to be made toemployees. Expected future payments incorporate anticipated future wage and salary levels, durations of service andemployee departures and are discounted at rates determined by reference to market yields at the end of the reportingperiod on government bonds that have maturity dates that approximate the terms of the obligations. Upon the re-measurement of obligations for other long-term employee benefits, the net change in the obligation is recognised in profitor loss as part of employee benefits expense.

Termination benefits

Termination benefits are employee benefits payable as a result an employee's decision to accept voluntary redundancy inexchange for those benefits. The liability for redundancy benefits for specific employees is measured at the non-discounted calculated entitlement that will be paid to those employees.

The liability for redundancy benefits for employees that are subject to a restructuring program is recognised when adetailed formal plan for the restructuring exists and when a valid expectation in those affected has been raised.

Post-employment benefits

Post-employment benefits are employee benefits (other than termination benefits) that are payable after the completionof employment. In the case of State Water, this refers specifically to benefits provided to employees and formeremployees through superannuation schemes.

Defined contribution superannuation scheme

State Water contributes to defined contribution superannuation schemes in accordance with SuperannuationGuarantee Contribution legislation and employment agreements, based on the employees's ordinary timeearnings. Obligations for contributions to these schemes are recognised as an expense in the incomestatement as incurred. The liability recognised in the statement of financial position represents thecontribution to be paid in the following month.

21




(r) Provisions continued

Defined benefit superannuation scheme

State Water contributes to three defined benefit superannuation schemes in the NSW public sector PooledFund. These are: State Superannuation Scheme (SSS), State Authorities Superannuation Scheme (SASS)and State Authorities Non-contributory Superannuation Scheme (SANCS).

State Water's net obligation in respect of these schemes is calculated separately for each scheme byestimating the future benefit that employees have earned in return for their service in the current andprevious reporting periods. That benefit is discounted to determine its present value, and the fair value ofany scheme assets is deducted. The benefit is also adjusted for any asset ceiling i.e. the present value ofeconomic benefits available as refunds from the plan or reductions in future contributions to the plan.

In the event of a surplus in a defined benefit plan, State Water measures the net defined benefit asset atthe lower of the surplus in the defined benefit plan and the asset ceiling.

The discount rate is the yield at the reporting date on Government bonds that have maturity datesapproximating to the terms of State Water's obligations. Calculations are performed by the Pooled Funds'actuary using the projected unit credit method.

Where the present value of the defined benefit obligation in respect of a scheme exceeds the fair value ofthe scheme's assets, a liability for the difference is recognised in the statement of financial position. Wherethe fair value of a scheme's assets exceeds the present value of the defined benefit obligation for thatscheme, an asset is recognised in the statement of financial position.

Actuarial gains and losses are recognised in the statement of other comprehensive income in the year inwhich they occur. As a result of changes to AASB 119, prior period balances for defined benefitsuperannuation schemes have been restated. The impact of these changes is presented on Note 1(y).

Current and non current portions

AASB 119 does not specify whether an entity shall distinguish current and non-current portions of assetsand liabilities arising from post employment benefits because at times the distinction may be arbitrary.Based on this, State Water has decided it will disclose all its liabilities for defined benefit superannuationplans as non-current as it best reflects when State Water expects to settle this liability.

Other provisions

Employee benefit on-costs

Costs that are a consequence of employing employees, but which are not employee benefits themselves,such as payroll tax, are recognised as liabilities and expenses when the employment to which they relatehas occurred.

Payroll tax payable at year-end in relation to wages and salaries paid during the previous month isrecognised as part of trade and other payables in the statement of financial position, consistent with theclassification of any recognised liability for wages and salaries. Payroll tax payable in respect of annualleave or long service leave payments to be made in the future is recognised as part of provisions,consistent with the classification of liabilities for annual leave and long service leave.

Provisions for payroll tax on unpaid annual leave and long service leave benefits are measured at thereporting date based on payroll tax laws that have been enacted or substantially enacted at the reportingdate and take into consideration factors such as expected resignations or terminations that would give riseto payroll tax obligations.

22




(r) Provisions continued

Restoration of leased premises

Restoration costs in respect of leased premises are those costs that State Water must incur under theterms of the lease to restore the relevant leased premises back to their original state at the end of thelease term.

Provisions for restoration of leased premises are calculated based on discounted future cash flows using theyield on Government bonds, which is a pre-tax rate that State Water considers to be representative ofcurrent market assessments of the time value of money and the risks specific to the liability.

Provisions are recognised at the inception of the lease when such restoration is a condition of the lease.Unwinding of the discount is recognised as a finance cost in profit or loss.

The restoration costs are separately capitalised against assets that have been acquired as part of leasingthe premises, such as fitouts. Where State Water has not incurred expenditure to acquire assets as part ofleasing the premises, the restoration costs are expensed in profit or loss.

Fringe benefits tax

This provision is used to recognise State Water's obligation in respect of fringe benefits tax for providingemployees with fringe benefits that are covered by The Fringe Benefits Tax Assessment Act 1986.

(s) Deferred Government Grants

Government grants are recognised at fair value where there is reasonable assurance that the grant will be received andall grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary tomatch the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fairvalue and are credited to income over the expected useful life of the asset on a straight line basis. That portion ofdeferred government grants received in relation to capital expenditure that relates to useful life in excess of 12 months istreated as a non current liability.

(t) Financial Instruments

Initial recognition and measurement

Financial assets and financial liabilities are recognised when State Water becomes a party to the contractual provisions ofthe instrument. Financial instruments are initially measured at fair value plus transaction costs, except where theinstrument is classified 'at fair value through profit or loss', in which case transaction costs are expensed to profit or lossimmediately.

Classification and subsequent measurement

Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method or cost.Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable,willing parties. Where available, quoted prices in an active market are used to determine fair value. In othercircumstances, valuation techniques are adopted.

23




(t) Financial Instruments continued

Amortised cost is calculated as: the amount at which the financial asset or financial liability is measured at initialrecognition less principal repayments and any reduction for impairment, and adjusted for cumulative amortisation of thedifference between that initial amount and the maturity amount calculated using the effective interest method.

The effective interest method is used to allocate interest income or interest expense over the relevant period and isequivalent to the rate that exactly discounts estimated future cash payments or receipts Including fees, transaction costs(and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractualterm) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions toexpected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of anincome or expense in profit or loss.

Financial assets at fair value through profit and lossFinancial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid anaccounting mismatch. Such assets are subsequently measured at fair value with changes in carrying amount beingincluded in profit and loss.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in anactive market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss throughthe amortisation process and when the financial asset is derecognised.

Financial liabilitiesNon-derivative financial liabilities are subsequently measured at amortised cost. Gains or losses are recognised in profitand loss through the amortisation process and when the financial liability is derecognised.

Impairment

At the end of each reporting period, State Water assesses whether there is objective evidence that a financial asset hasbeen impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as aresult of one or more events having occurred, which has an impact on the estimated future cash flows of the financialasset.

In the case of financial assets carried at amortised cost, loss events may include indications that the debtors or group ofdebtors are experiencing significant financial difficulty; indications that they will enter bankruptcy or other financialreorganisation; and changes in arrears or economic conditions that correlate with defaults. Refer Note 1(j) for furtherinformation.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expire or the asset is transferredto another party whereby State Water no longer has any significant continuing involvement in the risks and benefitsassociated with the asset. Financial liabilities are derecognised when the related obligations are either discharged,cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred toanother party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, isrecognised in profit or loss.

(u) General insurance

State Water maintains a mix of external insurance policies. These are managed through the NSW Treasury Managed Fundon behalf of State Water. The treatment of risks and associated liabilities are determined in conjunction with independentinsurance advisors and loss adjusters.

24




(v) Key judgments

Estimates and judgments incorporated into the financial statements are based upon historical knowledge and bestavailable current information. Estimates assume a reasonable expectation of future events and are based on currenttrends and economic data, obtained both externally and within State Water. The following is a central reference point forthe key judgments made, with information available in the referred note section.

Topic area Section referenceRestructuring (voluntary redundancies) Note 1(r)Long service leave Note 1(r)Defined Superannuation Benefit Plans (Post employment benefits)

Note 1(r) and Note 24

Income approach for valuation of non current assets Note 1(n), Note 1(k) and Note 6

(w) New accounting standards for application in future periods

The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application datesfor future reporting periods, some of which are relevant to State Water. State Water has decided against early adoptionof these Standards. The following table summarises those future requirements, and their impact on State Water:

Standard name Effectivedate forentity: Yearended

Requirements Impact

AASB 9 Financial Instruments andamending standards AASB2010-7 / AASB 2012-6

30 June 2018 Revised requirements for theclassification and measurement offinancial instruments, as well asrecognition and derecognitionrequirements for financialinstruments.

The adoption of AASB 9 mayhave impact on State Water'sfinancial instruments, but it isimpracticable at this stage toprovide a reasonable estimateof such impact.

AASB 2013-9 Amendments toAustralian Accounting Standards- Part C Financial Instruments

30 June 2016 The main changes are: to addChapter 6 Hedge Accounting andmake consequential amendments toAASB 9 and other standards; topermit requirements relating to the"own credit risk" of financialliabilities measured at fair value tobe applied without applying anyother requirements of AASB 9 at thesame time.

Impact of the changes is notaccurately known at this time.

AASB 2013-9 Amendments toAustralian Accounting Standards- Part B Materiality

30 June 2015 The standard makes editorialcorrection to references tomateriality in other standards.

The impact of the on thefinancial statements will beminimal.

AASB 2013-8 Amendments toAustralian Accounting Standards- Australian ImplementationGuidance for Not-For-ProfitEntities - Control and StructuredEntities

30 June 2015 The amendments explain principlesregarding the criteria fordetermining control in NFP group.

As State Water is a for-Profitentity with no subsidiaryentities, the changes will haveno impact.

AASB 2013-7 Amendments toAASB 1038 arising from AASB10 in relation to consolidationand interests of policyholders

30 June 2015 The standard applies to LifeInsurance entities.

No impact on the financialstatements.

AASB 2013-6 Amendments toAASB 136 arising from ReducedDisclosure Requirements

30 June 2015 The changes incorporate reduceddisclosure requirements intoImpairment of Assets where tiers ofaccounting also applies.

No impact on the financialstatements

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(w) New accounting standards for application in future periods continuedStandard name Effective

date forentity: Yearended

Requirements Impact

AASB 2013-5 Amendments toAustralian Accounting Standards- Investment Entities

30 June 2015 The changes provide a definition ofan investment entity.

As State Water is not aninvestment entity there willbe no impact on the financialstatements.

AASB 2013-4 Amendments toAustralian Accounting Standards- Novation of Derivatives andContinuation of HedgeAccounting

30 June 2015 The standard permits use of hedgeaccounting where a derivative thatis a hedge instrument is novated.

No impact on the financialstatements.

AASB 2013-3 Amendments toAASB 136 Recoverable AmountDisclosures for Non-FinancialAssets

30 June 2015 The standard requires disclosuresabout fair value measurement whenthe recoverable amount of impairedassets is based on fair value lesscosts of disposal.

The impact on the financialstatements will be knownmore fully when changes tovaluation methods adoptedby State Water are reviewedas required by adoption ofAASB 13.

AASB 2012-3 Amendments toAustralian Accounting Standards- Offsetting Financial Assets andFinancial Liabilities [AASB 132]

30 June 2015 Provides clarifying guidance relatingto the offsetting of financialinstruments

Not expected to impact StateWater's financial statementsas there are no offsettingarrangements currently inplace.

AASB 1055 and AASB 2013-1regarding budgetary reporting

30 June 2015 Where budgeted financial statementsreflecting controlled items orbudgeted financial informationreflecting administered items arepresented to parliament, theoriginal budgeted financialstatements or information aredisclosed and significant variancesmust be explained.

The impact of this change hasnot yet been determined.

26




(x) Comparative information

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentationfor the current financial year.

Where State Water retrospectively applies an accounting policy, makes a retrospective restatement of items in thefinancial statements, or reclassifies items in its financial statements, a third statement of financial position as at thebeginning of the preceding period in addition to the minimum comparative financial statement is presented.

(y) New and Amended Accounting Policies Adopted

State Water adopted the following Australian Accounting Standard from the mandatory application date:

Employee Benefits

State Water adopted AASB 119: Employee Benefits (September 2011) and AASB 2011-10: Amendments toAustralian Accounting Standards arising from AASB 119 (September 2011) from the mandatory application date of 1January 2013. State Water has applied these Standards retrospectively in accordance with AASB 108: AccountingPolicies, Changes in Accounting Estimates and Errors and the transitional provisions of AASB 119 (September 2011).Note 1(r) provides further information on the accounting policies adopted by State Water with regard to EmployeeBenefits.

For the purpose of measurement, AASB 119 (September 2011) defines obligations for short-term employee benefits asobligations expected to be settled wholly before 12 months after the end of the annual reporting period in which theemployees render the related services. Previously, annual leave satisfied the definition of short-term employee benefitsand therefore the leave liability was measured on an undiscounted basis at the amounts expected to be paid when theliability is settled. However, under AASB 119 (September 2011) as State Water does not expect that employees will useall of their annual leave entitlements in the same year in which they are earned or during the following 12 month period,obligations for annual leave meet the definition of other long-term employee benefits, and therefore are required to bemeasured at the present value of the expected future payments to be made to employees. The effects of the adjustmentsrequired are not material to State Water and as a result retrospective restatement has not been made in relation toannual leave entitlements. The changes required by the standard do not impact the classification of leave entitlementsbetween current and non-current liabilities in the statement of financial position.

The adoption of this Standard has resulted in the following changes to the accounting for employee benefits:

Interest expense in respect of a defined benefit superannuation liability is now required to be calculated by applyingthe discount rate used to measure the obligation for employee's defined benefit entitlements to the net definedbenefit liability, taking into account any changes in the net liability during the period as a consequence ofcontributions and benefit payments. Further, the actual return on plan assets less amounts included in the net intereston the net defined benefit liability is now recognised in other comprehensive income. Previously, State Water haddetermined interest cost by applying the discount rate only to the gross obligation for defined benefits and calculatedinterest income on plan assets based on the long term expected return and recognised the expected return andassociated experience adjustments in respect of the returns on plan assets in profit or loss.

All past service costs arising from a plan amendment or curtailment of employee defined benefit entitlement are nowrecognised in profit or loss in the period in which the amendment or curtailment occurs.

The net impact of these adjustments on State Water's total comprehensive income is nil.

The following table provides a summary of the amounts of the adjustments for each financial statement line item affectedby the adoption of AASB 119 Employee Benefits (September 2011) for the annual reporting period ending 30 June 2014,as well as comparative periods ending 30 June 2013 and 30 June 2012.

27




(y) New and Amended Accounting Policies Adopted continued

Effects of the change in accounting policy for employee benefitsPriorPolicy$'000

Effect ofChangein Policy

$'000

RevisedPolicy$'000

2014 STATEMENT OF COMPREHENSIVE INCOMEExpenses, excluding finance costs (113,740) (3,138) (116,878)Deferred tax expense (18,241) 942 (17,299)Profit after income tax 44,234 (2,197) 42,037

2014 STATEMENT OF OTHER COMPREHENSIVE INCOMENet superannuation actuarial gains 2,724 (2,135) 589Other comprehensive income for the year, net of tax 13,737 (2,135) 11,602Total comprehensive income for the year 57,971 (4,332) 53,639

2014 STATEMENT OF FINANCIAL POSITION

NON CURRENT LIABILITIESProvisions 35,308 5,684 40,992Deferred tax liability 66,717 2,565 69,282

EQUITYRetained Earnings 32,997 (8,248) 24,749

2013 STATEMENT OF COMPREHENSIVE INCOMEExpenses, excluding finance costs (117,250) (3,336) (120,586)Deferred tax expense (8,576) 1,001 (7,575)Profit after income tax 22,008 (2,335) 19,673

2013 STATEMENT OF OTHER COMPREHENSIVE INCOMENet superannuation actuarial gains 8,406 3,945 12,351Other comprehensive income for the year, net of tax 18,103 3,945 22,048Total comprehensive income for the year 40,111 1,610 41,721


NON CURRENT LIABILITIESProvisions 34,621 5,596 40,217Deferred tax liability 48,689 (1,679) 47,010

EQUITYRetained earnings 6,340 (3,917) 2,423


NON CURRENT LIABILITIESProvisions 47,984 7,896 55,880Deferred tax liability 32,354 (2,369) 29,985

EQUITYRetained earnings - (5,527) (5,527)

28



2 Revenue and Expenses

Profit before income tax expense has been arrived at after including the following revenue and expenses:

(a) Revenue

2014$'000

2013$'000

Revenue from rendering of services

Storage and delivery of waterRegulated water sources 75,028 82,469Unregulated water sources 403 404

75,431 82,873

Infrastructure operation, maintenance and constructionMurray-Darling Basin Authority 31,186 40,791Other utilities 5,109 4,277

36,295 45,068

Other servicesAncillary services 1,353 1,368Metering Service Charge 230 111

1,583 1,479

Revenue from government grants and subsidiesNSW Government contributions to operations (i) 45,530 41,516NSW Government transitional operating subsidy(ii) 1,212 1,443NSW Government community service subsidy(iii) 500 500Other government grants 8,218 4,826

55,460 48,285

Interest revenueNSW Treasury deposits 425 392Bank operating accounts 240 322Overdue accounts (Refer note 5) 89 113

754 827

Other revenueRental income 2,058 1,972

2,058 1,972

Total revenue 171,581 180,504

(i) The NSW Government contributions to operations are provided to:

- meet the costs of certain activities that satisfy community expectations, public benefit or government requirements,e.g. flood operations, environmental flows, stock and domestic supply;

- finance on a commercial basis the agreed share of past capital investment along with any further capital investmentnecessary to address pre-1997 dam safety non-compliance conditions and other mandated capital improvements, e.g. forenvironmental compliance or to provide fishways at regulatory structures.

(ii) The NSW Government transitional operating subsidy is provided to explicitly recognise the extent to which there is a

29



2 Revenue and Expenses continued

(a) Revenue continuedshortfall between the agreed revenue requirements of State Water's operations and the revenues generated in anaverage water supply year from supplying customers and from the agreed government contribution to operations.

(iii) The NSW Government provides an additional subsidy for maintenance of unregulated weirs in rivers systems.

(b) Expenses, excluding finance costs2014$'000

2013$'000

Employee related expenses (ii) 33,819 31,589Operational services expenses (iii) 43,699 45,932

Depreciation expense 13,981 15,608Amortisation 979 1,155Materials, plant and equipment expenses 1,987 2,755Contribution to MDBA expenses (i) 9,195 10,969Operating lease expenses 1,127 901Electricity and other energy expenses 978 1,134Travel expenses 2,664 2,723Property expenses (excluding leases) 2,243 2,234Data management expenses (excluding leases) 700 1,576Other expenses from ordinary activities 2,546 2,214Capital work in progress written off 2,359 -Loss on disposal of property, plant and equipment 498 1,771Impairment - Receivables 103 25

Total expenses, excluding finance costs 116,878 120,586

(i) Contribution to MDBA expenses refers to a proportion of revenue from water charges to bulk water customers locatedwithin the area of operations of the MDBA, which is passed on to NSW Treasury to help meet the NSW Government'sobligations under the Murray-Darling Basin Agreement to directly fund a proportion of the operating costs and States'share of capital costs of the MDBA

30




(b) Expenses, excluding finance costs continued

(ii) Employee-related expenses2014$'000

2013$'000

Post-employment benefits (2c) 4,738 5,242Other employee-related expenses 33,903 31,726

38,641 36,968Less amount capitalised (4,846) (5,379)Termination benefits 24 -

Total employee related expenses 33,819 31,589

(iii) Operational services expenses

Hydrometric services expenses 3,927 4,026Professional, technical and trade services 14,189 41,416Other 67,729 44,484

85,845 89,926Less amount capitalised (42,146) (43,994)

Total operational services expenses 43,699 45,932

(c) Post employment expenses

Post employment expensesDefined benefit plans (i) 2,685 3,168Defined contribution plans 2,053 2,074

4,738 5,242Less amount capitalised (536) (305)

Post employment expenses 4,202 4,937

(i) For further detail refer to Note 24

31




(d) Finance costs2014$'000

2013$'000

Government guarantee fee expense 3,876 4,282Interest expense 9,345 9,669Other borrowing costs (39) 64Unwinding of discounts on provisions 14 13

13,196 14,028Less amount capitalised (2,771) (4,215)

Total 10,425 9,813

The capitalisation rate applied to determine capitalised borrowing costs for the year ended 30 June 2014 was 8.05%(2013:8.34%). This rate was determined via reference to coupon rates on outstanding treasury loans plus the applicablegovernment guarantee fee.

3 Income taxes

(a) Tax expense

The components of tax expense comprise:Deferred tax expense 17,299 7,575

Total tax expense 17,299 7,575

(b) Reconciliation between income tax (benefit) / expense and profit/(loss) before income tax

The prima facie tax on profit / (loss) fromordinary activities before income tax isreconciled to the income tax as follows:

Prima facie tax payable on profit / (loss) fromordinary activities before income tax at 30%(2013: 30%) 17,800 8,174

Increase / (Decrease) in tax expenses due to:- Non-deductible expenses 10 7- Tax effect of revaluation transfer - (95)- Utilisation of previously unbooked tax losses (511) (511)Tax expense attributable to State Water

Corporation 17,299 7,575

The applicable weighted average effective tax rate is 30% (2013: 30%).

32



3 Income taxes continued

(c) Deferred tax balances

Openingbalance$'000

Charged toincome$'000

Chargeddirectly to

equity$'000

Total$'000

2014

Temporary differencesProperty, plant and equipment (61,796) (19,320) (4,720) (85,836)Investments 29 (29) - -Other creditors 354 (6) - 348Employee benefits 3,877 185 - 4,062Leased premises 210 (44) - 166Defined benefit super 11,858 454 (253) 12,059Doubtful debts 79 29 - 108Deferred government grants 2,150 (1,138) - 1,012Prior year SD40F (6,359) - - (6,359)Oracle software licenses (16) 16 - -

(49,614) (19,853) (4,973) (74,440)

Unused tax losses and creditsTax losses 2,604 2,554 - 5,158

Total (47,010) (17,299) (4,973) (69,282)

2013

Temporary differencesProperty, plant and equipment (48,097) (9,543) (4,156) (61,796)Investments 20 9 - 29Other creditors 73 281 - 354Employee benefits 4,242 (365) - 3,877Leased premises 254 (44) - 210Defined benefit super 16,556 596 (5,294) 11,858Doubtful debts 76 3 - 79Deferred government grants 898 1,252 - 2,150Oracle software licences (16) - - (16)Prior year SD40F (6,359) - - (6,359)

(32,353) (7,811) (9,450) (49,614)

Unused tax losses and creditsTax losses 2,368 236 - 2,604

Total (29,985) (7,575) (9,450) (47,010)

Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibilityset out in Note 1(j) occur:

- tax losses (revenue in nature): $62.170 million (2013 $60.127 million)

33



3 Income taxes continued

Presented in the Statement of Financial Position as follows:2014$'000

2013$'000

Non-current liabilitiesDeferred tax 69,282 47,010

Total 69,282 47,010

(d) Tax effects relating to other comprehensive incomeBefore Tax

Amount$'000

Tax (Expense) /Benefit$'000

Net of TaxAmount$'000

Year ended 30 June 2014Revaluation gain relating to property,

plant and equipment 15,733 (4,720) 11,013Superannuation actuarial gains 842 (253) 589

Total 16,575 (4,973) 11,602

Year ended 30 June 2013Revaluation gain relating to property,

plant and equipment 385,663 (115,699) 269,964Impairment loss relating to revalued

assets (371,810) 111,543 (260,267)Superannuation actuarial gains 17,645 (5,294) 12,351

Total 31,498 (9,450) 22,048

Refer to Notes 6(a), 6(c) and 6(d) for further disclosure on revaluation and impairment adjustments relating to property,plant and equipment.

4 Cash and Cash Equivalents2014$'000

2013$'000

Cash on hand 14 14Bank operating accounts 13,512 15,774

Short-term investmentsHour Glass Investment - Cash Facility 13,389 27,401

Total 26,915 43,189

State Water holds units in the following NSW Treasury Corporation Hour-Glass investment facility:

Facility Investment sectors Investment horizonCash facility Cash, money market instruments Up to 1 1/2 years

The unit price of the above facility is equal to the total fair value of the net assets held by the facility, divided by the

34



4 Cash and Cash Equivalents continuedtotal number of units on issue for that facility. Unit prices are calculated and published daily. NSW Treasury Corporation(TCorp) as trustee for the hour glass investment facility is required to act in the best interest of the unit holders and toadminister the trust in accordance with the trust deed. As trustee, TCorp has appointed external managers to managethe performance and risks of the facility in accordance with a mandate agreed by the parties. TCorp has also leveragedoff internal expertise to manage certain fixed income assets for the Hour-Glass facilities. A significant portion of theadministration of the facilities is outsourced to an external custodian.

The effective interest rate on short-term bank deposits was 5.51% (2013: 6.47%)

(a) Reconciliation of cash2014$'000

2013$'000

Cash at the end of the financial year as shown in thestatement of cash flows is reconciled to items inthe statement of financial position as follows:

Cash and cash equivalents 26,915 43,189

Cash and cash equivalents in the statement of cashflows 26,915 43,189

5 Trade and Other Receivables

CURRENT

Trade receivables - water(i)Accrued water charges 8,676 11,445Outstanding water charges billed 2,588 2,993

11,264 14,438Provision for impairment (360) (261)

10,904 14,177

Trade receivables - other(ii)Accrued other service charges 1,578 5,309Outstanding other service charges billed 5,005 2,959

6,583 8,268Provision for impairment - (1)

6,583 8,267

Total trade receivables(iii) 17,487 22,444

Other receivablesGoods and services tax refundable 1,287 1,702

1,287 1,702

Total 18,774 24,146

(i) Trade receivables - water

Fees charged by State Water are a charge on the water access licence and as such the charges are attached to thelicence, so that if a licence is sold or transferred the debt remains with the licence and the new holder is liable. The WaterAct allows outstanding monies to be a charge on the land supplied with water, and if this charge is registered against theland title, the debt will pass with the land to any future owner. Given these facts, fees charged on a water access licenceare largely perpetual and not standard commercial debt where only court action is available to collect a debt when a debtis considered doubtful, unless security is held against the debt. Generally prospective acquirers of a water access licenceundertake searches on the licence they are seeking to acquire to determine whether there is any debt outstanding. Ifthere is, the acquirer discounts the market value of the licence by the debt owing or arranges to settle the debt at thetime of acquisition.

35



5 Trade and Other Receivables continued

Under the Water Act 1912 (Water Act) and the Water Management Act 2000 (WM Act) if the New South Wales Office ofWater issues a new licence or transfers an existing licence then that licensee automatically becomes a customer of StateWater under the conditions of that licence. State Water does not undertake any credit quality assessment or define anycredit limits before accepting new water customers.

State Water has a number of tools available to encourage debt payment or to enhance its ability to recover debt overtime. Interest is charged on outstanding water charges at the interest rate prescribed under the Civil Procedure Act 2005,and continues to apply until the outstanding water charges are fully paid.

State Water can take action to suspend a licence. The effect of suspension is that the licence cannot be operated oramended, i.e. it suspends the ordering of water, temporary trading etc. Under the WM Act the suspension must belodged at Land and Property Information, but this is not required under the Water Act.

Under the WM Act, State Water can also place a caveat on the licence through the Land and Property InformationRegister. This action is not available under the Water Act. The caveat will not obstruct the active use of the licence butwill protect the existence of the licence and its value. State Water can also take action under the WM Act to sell a licenceto recover a debt. Finally, State Water can also take court action to recover a debt.

Which action is taken is decided by particular circumstances, e.g. the cost/benefit of an action, or the assessed risk to thevalue of a licence, or the adjudged risk to recovery that suspension may produce by depriving a customer of the possibleavenue (i.e. water for a crop) that may generate revenue sufficient to make payment of the debt.

Charges generally have settlement terms of 30 days from the issue of the invoice. Interest is currently charged at8.50% p.a. (2013: 9.00% p.a.) on all water charges that are past due. An allowance has been made for estimatedirrecoverable trade receivable amounts arising from past water charges, determined by reference to State Water’sassessment of current conditions and past default experience. The total allowance for impairment of $0.360 million(2013: $0.261 million) represents 3.20% of total trade receivable and accrual balances for water charges (2013: 1.81%of trade receivable balances).

Accrued water charges represent entitlement and water delivery charges to State Water customers for the year ended 30June that remained unbilled at that date, but have been billed subsequent to year-end. State Water bills the majority ofits customers for water entitlement and usage charges quarterly in arrears. Metering service charges are billed inadvance.

(ii) Trade receivables - other

Charges generally have settlement terms of 30 days from the issue of the invoice. Interest is not charged on outstandingnon-water debtor balances. An allowance has been made for estimated irrecoverable trade receivable amounts arisingfrom past non-water charges, determined by reference to State Water’s past default experience. The total allowance forimpairment of $0.000 million (2013: $0.001 million) represents 0.00% (2013: 0.01%) of total trade receivable andaccrual balances for non-water charges.

91% (2013: 97%) of non-water charges are to the Commonwealth of Australia or State Government departments,corporations or bodies, or to local government bodies and are considered low risk. The remaining balance of chargesrelate to hydro-electricity and non-water customers and are not significant. State Water does not undertake any creditquality assessment or define any credit limits before accepting new non-water customers.

Accrued other charges represent income for services provided to State Water customers for the year ended 30 June thatremained unbilled at that date, but have been billed subsequent to year-end. Invoices for accrued other charges willusually be raised within 30 days of year end.

(iii) Total trade receivables

Included in State Water’s trade receivable balances are debtors with a carrying amount of $4.158 million (2013: $2.509million) which are past due at the reporting date but which State Water has not impaired as there has not been asignificant change in their assessed conditions and the amounts are still considered recoverable. Payment plans are inplace for balances outstanding totaling $0.279 million (2013: $0.103 million). Total interest received on impaired tradereceivables was $0.089 million (2013: $0.016 million).

36



5 Trade and Other Receivables continued

(b) Provision for impairment of receivables

Movement in the provision for impairment of receivables is as follows:2014$'000

2013$'000

Balance at beginning of the year 262 250Additional provisions 101 25Provision used (3) (13)

Balance at end of the year 360 262

(c) Aged analysis

The following table details the trade and other receivables exposed to credit risk with ageing analysis and impairmentprovided for thereon. Amounts are considered as "past due" when the debt has not been settled within the stated termsand conditions.

Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided forwhere there are specific circumstances indicating that the debt may not be full repaid.

The balances of receivables that remain within trade terms are considered to be of high credit quality.

Past due and impaired 360 262

Past Due but Not Impaired31 - 60 days overdue 3,270 1,50261 - 90 days overdue 84 110> 90 days overdue 804 897

Past Due but Not Impaired 4,158 2,509Within initial trade terms 3,075 3,181

Total 7,593 5,952

37



6 Property Plant and Equipment2014$'000

2013$'000

LandGross carrying amount 123,626 123,626

Total freehold land 123,626 123,626

BuildingsGross carrying amount 47,698 47,306Less accumulated depreciation and accumulated

impairment (44,806) (44,805)

Total buildings 2,892 2,501

Plant and equipment Gross carrying amount 8,041 7,227Less accumulated depreciation (5,189) (4,849)

Total plant and equipment 2,852 2,378

Furniture, fixtures and fittingsGross carrying amount 2,354 2,348Less accumulated depreciation (1,504) (1,140)

Total furniture, fixtures and fittings 850 1,208

Motor vehicles Gross carrying amount 7,945 8,255Less accumulated depreciation (1,933) (1,724)

Total motor vehicles 6,012 6,531

Computers & systems Gross carrying amount 7,337 5,468Less accumulated depreciation (5,056) (4,423)

Total computers & systems 2,281 1,045

Marine craft Gross carrying amount 236 236Less accumulated depreciation (155) (146)

Total marine craft 81 90

Instruments Gross carrying amount 1,311 1,311Less accumulated depreciation (663) (562)

Total instruments 648 749

Water infrastructure Gross carrying amount 4,290,732 4,267,922Less accumulated depreciation and accumulated

impairment (3,730,303) (3,750,883)

Total water infrastructure 560,429 517,039

Work in progress Gross carrying amount 76,471 64,580

Total work in progress 76,471 64,580

Water MetersGross carrying amount 28,597 23,417Less accumulated depreciation and accumulated

impairment (10,708) (10,520)

Total water meters 17,889 12,897

Total property, plant and equipment 794,031 732,644

38

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71,8

10)

Impa

irm

ent

loss

inpr

ofit

or lo

ss-

-(1

4,11

1)-

--

--

--

(9,5

59)

(23,

670)

Impa

irm

ent

reve

rsal

inin

com

e-

813

--

--

--

--

-81

3

Bal

ance

at

the

end

of

the

year

123,

626

2,50

151

7,03

92,

378

1,04

51,

208

749

906,

531

64,5

8012

,897

732,

644 40



6 Property Plant and Equipment continued

(b) Revalued assets based on cost model

If land, buildings and water infrastructure were stated at historical cost, amounts would be as follows:2014$'000

2013$'000

Land - Cost 14,752 14,752

Land - Net carrying amount 14,752 14,752Buildings - Cost 4,181 3,806Buildings - Accumulated depreciation (1,407) (1,260)

Buildings - Net carrying amount 2,774 2,546Water infrastructure - Cost 601,658 577,819Water infrastructure - accumulated depreciation (60,309) (51,188)

Water infrastructure - Net carrying amount 541,349 526,631

(c) Asset revaluations

Water Infrastructure

In the 2013 financial year water infrastructure assets of State Water were valued by independent valuers. The effectivedate of the valuation was 30 June 2013. Fair value of these assets was based upon depreciated replacement cost. Theseassets were then subject to a recoverable amount test using a discounted cashflow analysis. In the current year theseassets have been assessed for fair value using the income approach.

Buildings

In the 2013 financial year the building assets of State Water were valued by an independent valuer. The effective date ofthe valuation was 30 June 2013. Fair value of these assets were based upon either their fair value less costs to sell,based on an active market, or depreciated replacement cost. These assets were then subject to a recoverable amounttest using a discounted cashflow analysis. In the current year these assets have been assessed for fair value using theincome approach.

Land

In the 2013 financial year the land assets of State Water were valued by an independent valuer. The effective date of thevaluation was 30 June 2013. Fair value of these assets were based upon their fair value less costs to sell, based on anactive market. As mentioned in Note 1 (k), land subject to inundation is suitably impaired when compared to surroundingdry land as part of the valuation process. No comprehensive revaluation of land assets was undertaken in the 2014financial year. Fair values of land assets are not considered to have changed significantly in the current financial year.

(d) Fair Value of Property Plant and Equipment including Intangible Assets

Property, plant and equipment including intangible assets are assessed for fair value using an income approach based ona discounted cashflow methodology.

Due to the nature of bulk water industry assets, their fair value is determined by the stream of income that can bederived from the use of the assets working together as a cash-generating integrated network, rather than the realisablevalues of the assets themselves. Future cash flows for revenue and expenses are estimated over the average useful lifeof the assets, and are then discounted to their present value using a discount rate equivalent to State Water's weightedaverage cost of capital (WACC) calculated on a real pre-tax basis. State Water considers the entire network as an assetand for fair value purposes makes assumptions about highest and best use at this level.

Fair value is determined for the whole system asset (including land and corporate assets such as plant and equipmentand intangibles). Adjustments to the fair value of the system asset are only applied against the building, waterinfrastructure and water meter asset classes. The fair value of land has been separately assessed within the system asset

41



6 Property Plant and Equipment continuedat market value and as such is not subject to further adjustment. Other items of property plant and equipment such asoperational plant and equipment, including plant, vehicles, furniture and fittings, office equipment, computer hardwareand leasehold improvements are not adjusted given that it is considered that their depreciated net carrying amountclosely approximates their fair market value less costs to sell.

After considering revaluation of land, buildings and water infrastructure, additions, disposals and other movements forthe year, there is an increase in the carrying value of State Water property, plant, equipment and intangibles from$735.0 million to $803.6 million (2013: $698.9 million to $735.0 million).

Key assumptions used for discounted cashflow analysis

The key assumptions on which State Water has based its cash flow projections to undertake fair value assessment ofnon-current assets are:

·Discount rate - the real pre-tax WACC used to discount future cash flows was 4.26% pa (2013: 5.4% pa real pre-tax)

·Future cash flows - these have been estimated for the next 52 years based on SCI values, referenced to the average lifeof assets per State Water's ACCC pricing determination

·Future cash flows have been estimated for State Water’s specialised assets in their current condition and consequentlynew capital expenditure and enhancements have been excluded from cash outflows. The modelling also excludes futurereturn on the regulatory asset base (RAB) that State Water would receive for additional capital expenditure. Cashoutflows for operating expenditure that is regarded as necessary for the day-to-day servicing of the assets form part ofthe projections.

·Estimates of future revenues are based on prices determined in the final ACCC pricing determination released in 2014,which are applicable up to 30 June 2017, and expected water usage consistent with the 2014-15 SCI (2013: 2013-14SCI).

·Net cashflows - these are expected to be in line with State Water's SCI over the next four years and thereafterare based on average delivery of 4,315 gigalitres (2013: 4,627 gigalitres) and averaged costs.

Sensitivity Analysis

Significant unobservable inputs to the discounted cashflow analysis include the real pre tax discount rate and futurecashflows modelled in the SCI. Estimated fair value would increase (decrease) if:

·The real pre tax discount rate was lower (higher)

·The net cashflows were to increase (decrease)

The following table presents the impacts of separate changes to the discount rate and undiscounted net cashflowassumptions on the present value determined for 30 June 2014:

Actual Scenario A Scenario B

Change to Discount RateQuantum of change n/a -1% +1%Real Pre Tax Discount Rate 4.26% 3.26% 5.26%Fair Value $803.631m $922.031m $709.870mChange to CashflowsQuantum of change n/a +5% -5%Fair Value $803.631m $843.778m $763.418m

42



7 Intangible Assets2014$'000

2013$'000

Computer software

Gross carrying amountBalance at start of year 7,805 6,626Additions 8,265 1,179

Balance at end of year 16,070 7,805

Accumulated amortisationBalance at start of year (5,538) (4,383)Amortisation (979) (1,155)

Balance at end of year (6,517) (5,538)

Net carrying value 9,553 2,267

Easements over propertyBalance at start of period 47 47

Net carrying amount 47 47

Total Intangibles 9,600 2,314

For details regarding fair value of intangible assets refer Note 6(d).

Computersoftware,

other$'000

Easementsover property

$'000Total$'000

Year ended 30 June2013

Opening balance 2,243 47 2,290Transfers from WIP 1,179 - 1,179Amortisation (1,155) - (1,155)

Closing value at 30 June2013 2,267 47 2,314

Year ended 30 June2014

Opening balance 2,267 47 2,314Transfers from WIP 8,265 - 8,265Amortisation (979) - (979)

Closing value at 30 June2014 9,553 47 9,600

43



8 Other assets2014$'000

2013$'000

CURRENTPrepayments 5,560 2,661Other 7 6

Total current other assets 5,567 2,667

9 Trade and other payables

The average credit period on trade and other payables is 30 days. Interest is not incurred on overdue accounts.

CURRENTTrade payables 4,341 4,826

Non-trade payables and accrued expenses:NSW Treasury 9,977 10,969Other parties 15,721 24,476

25,698 35,445

Total trade and other payables 30,039 40,271

10 Borrowings

NON-CURRENTNSW Treasury Corporation - at amortised cost 158,995 158,664

Total non-current borrowings 158,995 158,664

Total borrowings 158,995 158,664

State Water has loans with NSW Treasury Corporation totaling $1.106 million (2013: $1.106 million) that fall due within12 months of the reporting period. State Water will continue to roll over these loans at its discretion, under an existingloan facility. For this reason, together with State Water's intention not to settle these loans in the next 12 months, theloans are classified as non-current. These loans are actively managed by T-Corp in accordance with the TreasuryManagement Policy approved by the Board.

State Water's borrowings are long-term loans that are either negotiated at a fixed rate of interest payable periodically inarrears or capital indexed loans that are restated by an indexation adjustment on a quarterly basis. Long term loans havematurities no later than November 2035.

Financing facilities

In respect of longer term borrowing facilities, State Water cannot borrow in its own name. Instead, both new loans andthe refinancing of maturing existing loans need to be arranged through the NSW Treasury Corporation, which raisesborrowings on State Water's behalf.

State Water Corporation has an approval from the Governor of the State of NSW to obtain financial accommodation inaccordance with the Public Authorities (Financial Arrangements) Act 1987. It also has the Treasurer's approval underSection 8 of that Act to hold borrowing facilities with a global limit of $275 million. The additional funding will be usedprimarily for capital projects.

44



11 Provisions

(a) Carrying amounts2014$'000

2013$'000

CurrentShort-term provisions

Employee benefits 2,845 2,653Employee benefits on costs 194 454Restructuring 24 -Fringe benefits tax 128 139

3,191 3,246

Current portion of long-term provisionsCurrent portion of long term provisions - Employee benefits 8,847 8,346Employee benefits on costs 1,102 1,023

9,949 9,369Total current provisions 13,140 12,615

Non-currentLong-term provisions

Employee benefits 454 374Employee benefit on costs 57 48Restoration of leased premises 285 271Defined benefit superannuation scheme deficit 40,196 39,524Total non-current provisions 40,992 40,217

Refer Note 1(r) for further information.

(b) Reconciliation of movements in carrying amounts

Employee benefits are excluded from the scope of AASB 137 Provisions, Contingent Liabilities and Contingent Assetswhich require a reconciliation of movements in the carrying amounts of the provisions.

Fringe benefits taxCarrying amounts at start of period 139 93Payments made from provision (489) (465)Provisions made during the period 478 511

Carrying amounts at end of period 128 139

This provision is used to recognise State Water's obligation in respect of fringe benefits tax for providing employees withfringe benefits that are covered by The Fringe Benefits Tax Assessment Act 1986. Estimates of fringe benefits arecalculated based on the conditions of current legislation and the nature and frequency of fringe benefits provided toemployees. Since the obligation is due to be settled less than 12 months after balance date, the provision is stated at thebest estimate available and is not discounted.

Restoration of leased premisesCarrying amounts at start of period 271 258Unwinding of discount on provisions 14 13

Carrying amounts at end of period 285 271

This provision is used to recognise State Water's obligation in respect of restoration costs for leased premises, wherebyState Water must restore the relevant premises back to their original state at the end of the lease term.

45



11 Provisions continued

(b) Reconciliation of movements in carrying amounts continued2014$'000

2013$'000

Restructuring and termination costsCarrying amounts at the start of period - -Additional provisions 24 -

Carrying amounts at end of period 24 -

The restructuring provision relates to employee redundancy costs.

12 Other Liabilities

CurrentIncome received in advance (i) 919 1,235Lease inducement release (ii) 160 160Deferred government grants (iii) 8,628 8,899

Total 9,707 10,294

Non-currentLease inducement release (ii) 109 270Deferred government grants (iii) 99,716 92,056

Total 99,825 92,326

(i) Income received in advance refers to amounts received for leases charged in advance by State Water, whose periodpartly covers beyond the reporting date.

(ii) The inducements received in respect of the operating leases for State Water's Sydney and Dubbo offices arerecognised initially as a liability and then released to reduce rental expense on a straight-line basis over the term of thelease.

(iii) The deferred government grant values in the financial statements relate to the proportion of grant monies received inrespect of which the operating expenditure to which they have been granted has not yet been expended, or moniesreceived in relation to grants relating to assets.

Deferred government grants comprise:

Deferred Government GrantsLake Brewster Water Efficiency Project (a) 9,429 9,634Rivers Environmental Restoration Program (b) 5,257 5,408Murrumbidgee Water Efficiency Projects (c) 65,217 67,822Booligal Weir Fishway (d) 147 150Hydrologic Monitoring Systems (e) 949 1,094NSW Metering Pilot Scheme (f) 10,418 10,374LMD Catchment Management Authority (g) 1,951 1,975Stevens Weir Fishway (h) 4,338 4,398Yanga Regulator (i) 100 100Chaffey Dam Augmentation (j) 8,250 -Metering Project (k) 2,288 -

Total 108,344 100,955

46



12 Other Liabilities continued

(a) State Water entered into agreements with the Federal Government, as represented by and acting through the nowDepartment of Sustainability, Environment, Water, Population and Communities; the Lachlan Catchment ManagementAuthority (LCMA); and Lachlan Valley Water, for State Water to undertake works known as Lake Brewster WaterEfficiency Project. The project is complete at the end of the reporting period and the deferred grant is now being creditedto the statement of profit or loss over the expected useful lives of the assets created.

(b) State Water entered into an agreement with the now Office of Environment and Heritage, under the NSW RiversEnvironmental Restoration Program, which was ultimately funded by the Federal Government’s Water Smart AustraliaProgram. Under the agreement, the Office of Environment and Heritage made financial contributions to State Water inadvance of State Water undertaking the activities. The project is complete at the end of the reporting period and thedeferred grant is now being credited to the statement of profit or loss over the expected useful lives of the assetscreated.

(c) State Water has signed an agreement with Water for Rivers to deliver Water Efficiency Projects for the MurrumbidgeeValley. $42.161 million relates to grant funding received in relation to construction of assets, while the remaining$23.056 million relates to grant income received in advance for expenditure to be incurred in future periods, the majorityof which relates to capital expenditure. Some projects associated with this funding have been completed and whereappropriate the deferred grant balance is being credited to income over the expected useful lives of the assets.

(d) State Water signed an agreement with Lachlan Catchment Management Authority (LCMA) to provide a fishway atBooligal Weir. This project was jointly funded, with the LCMA providing $0.150 million and State Water the remainingbalance. The project is complete at the end of the reporting period and the deferred grant is now being credited to thestatement of profit or loss over the expected useful lives of the assets created.

(e) State Water has signed an agreement with the Bureau of Metrology for the Modernisation and Extension of HydrologicMonitoring Systems Project. The project is complete at the end of the reporting period and the deferred grant is nowbeing credited to the statement of profit or loss over the expected useful lives of the assets created

(f) State Water has received funding from the Federal Government, via the New South Wales Office of Water, for theNSW Metering Scheme Pilot Project. This project is nearing completion. At reporting date $0.699 million has been treatedas deferred since the expenditure to which it relates has not yet been incurred and $9.719 million has been received inrelation to the creation of assets.

(g) Construction of a fishway at Weir 32 on the Darling River was paid for the Lower Murray Darling CatchmentManagement Authority. Weir 32 is a State Water asset and it has been deemed that State Water also controls thefishway. The value of the asset and deferred grant balances were based upon advised construction costs as a proxy forfair value. The project is complete and the deferred grant is now being credited to the statement of profit or loss over theexpected useful life of the fishway.

(h) State Water has received funding from the Murray Darling Basin Authority to construct a fishway at Stevens Weir, aState Water owned and controlled asset. The project is complete and the deferred grant is now being credited to thestatement of profit or loss over the expected useful life of the fishway.

(i) State Water received funding from the Department of Industry, Innovation, Climate Change, Science, Research andTertiary Education as a contribution to the upgrade of Yanga Regulator. The project is yet to commence.

(j) State Water received funding from NSW Trade and Investment for the Chaffey Dam Augmentation project. The projecthas commenced and is expected to be completed during the 2015/16 financial year.

(k) State Water has received funding from the Federal Government, via the New South Wales Office of Water, for theStatewide NSW Metering Project. At reporting date $0.877 million has been treated as deferred since the expenditure towhich it relates has not yet been incurred and $1.411 million has been received in relation to the creation of assets.

47



13 Contributed equity2014$'000

2013$'000

- -Net asset value transferred effective 1 July 2004, as agreed to byNSW Treasury after converting $60 million into a loan 249,073 249,073

- -Net asset value transferred effective 1 January 2005, as agreedto by NSW Treasury 51,437 51,437

Issued capital - -

Balance at end of period 300,510 300,510

Issued capital is two (2013: two) fully paid $1.00 ordinary shares. Authorised capital is two $1.00 ordinary shares. Therewere no movements in share capital during the period.

14 Dividends

(a) Franking account

Under the National Tax Equivalent Regime, State Water is not required to maintain a dividend franking account.

(b) Dividend payableDividend payable 20,300 24,295

15 Notes to the Cash Flow Statement

(a) Financing facilities

Unsecured bank credit card facility payable at call- amount used 210 175- amount unused 640 675

850 850

The NSW Treasury approved credit card facility limit at 30 June 2014 was $850,000 (2013: $850,000).

Unsecured loan facilities with various maturity datesthrough to 2035

- amount used 158,995 158,664- amount unused 116,005 116,336

275,000 275,000

Unsecured Come and Go facility payable at call- amount unused 7,000 7,000

7,000 7,000

48



15 Notes to the Cash Flow Statement continued

(b) Reconciliation of cash flows from operating activities with profit/(loss) for the year

2014$'000

2013$'000

Profit/(loss) after income tax 42,037 19,673Adjustments for:

Statement of Profit or Loss items classified as investingor financing:Net (gain)/loss on disposal of property, plant andequipment 498 1,771

Depreciation, amortisation, impairment and fair valueadjustments through profit of loss (98) 39,620

Capitalised borrowing costs disclosed as operatingcashflow (2,771) (4,215)

Capital work in progress written off 2,359 -Movement in superannuation liability through equity 842 17,645Government grants received for capital projects (10,752) (2,109)Income tax expense relating to movements in equity (4,973) (9,450)Capital prepayments 2,682 (908)Trade and other receivables 5,372 6,254Other assets (2,900) 870Trade and other payables (10,232) 6,870Provisions 1,300 (16,839)Other liabilities 6,912 5,166Income tax assets and liabilities 22,272 17,025

Net cash flows provided by operating activities 52,548 81,373

16 Commitments for expenditure

(a) Capital expenditure commitments

Capital expenditure commitments contracted for:Property, plant and equipment 16,340 36,380

16,340 36,380

Amounts disclosed for these commitments include total GST of $1.487 million (2013 $3.291 million) that is recoverablefrom the ATO.

(b) Operating lease commitments

Payable as lessee

Future operating leases contracted for but not capitalised in thefinancial statements:

Not longer than one year 705 1,061Longer than one year and not longer than five years 1,161 2,080Longer than five years 310 144

2,176 3,285

49



16 Commitments for expenditure continued

(b) Operating lease commitments continued

2014$'000

2013$'000

Representing:Cancellable operating leases - -Non-cancellable operating leases 2,176 3,285

2,176 3,285

State Water leases primarily property and information technology equipment under non-cancellable operating leases.Leases for property generally have terms of three to six years. All lease agreements are subject to an annual review inwhich the rental amount can be increased (usually by approximately 3%). All leases allow for renewal at the end of thelease term. Amounts disclosed for these commitments include total GST of $0.197 million (2013: $0.299 million) that isrecoverable from the ATO.

Receivable as lessor

Future operating lease rentals not provided for in the FinancialStatements and receivable:

Not longer than one year 1,897 1,833Longer than one year and not longer than five years 6,585 6,949Longer than five years 35,631 31,356

44,113 40,138

Representing:Cancellable operating leases - -Non-cancellable operating leases 44,113 40,138

44,113 40,138

State Water leases to other parties positions to locate hydro-electric equipment and structures under non-cancellableoperating leases. These leases also convey certain rights to access water discharges over the term of the agreement.These leases are for terms ranging from 10 years to 75 (2013 10 years to 75 years) years with option periods following,ranging up to 75 years. The longest remaining term before option is 63 years. Lease rentals are generally reviewedannually. The lessee does not have an option to purchase the property at the expiry of the lease period. State Waterleases to other parties foreshore land at some of its water storage facilities under non-cancellable operating leases forperiods of 5 years, with 2 further option periods of 5 years each. Lease rentals are generally reviewed annually. Thelessee does not have an option to purchase the property at the expiry of the lease period. This foreshore land does notform part of the Transfer Order for the creation of State Water. However, State Water leases this land under anInstrument of Delegation from the Water Administration Ministerial Corporation (WAMC). This instrument delegates toState Water the administration functions over the land, and the authority to negotiate leases on behalf of the WAMC.State Water is paid an administration fee by WAMC which is equal to the net lease fee collected. In practice, this is paiddirectly from the lessee to State Water. Amounts disclosed for these commitments include total GST of $4.010 million(2013: $3.649 million) that is payable to the ATO.

17 Maintenance expenditureEmployee-related maintenance expenses 5,728 5,389Contracted labour and other (non-employee related) expenses 7,895 8,064

Total 13,623 13,453

This represents the costs of maintenance functions carried out on State Water's system assets.

50



18 Consultants

The total amount paid/payable to consultants engaged during the period was $0.320 million (2013: $0.677 million).

19 Directors

Names of persons holding the position of director in office at any time during the financial year are:Bruce Foy Chairman and non-executive director - resigned 28 February 2014Terry Charlton Chairman - appointed 1 March 2014Brett Tucker CEO and Executive Director - resigned 12 May 2014Michael Lilley Non executive director - appointment expired 24 February 2014Nicholas Di Girolamo Non executive director - appointed 1 July 2012, resigned 18 February 2014Christopher Westworth Non executive director - appointed 23 July 2013Carmel Krogh Non executive director - appointed 3 March 2014Nick Brunton Non executive director - appointed 3 March 2014Catherine Bolger Non executive director - appointment expired 31 July 2013Col Gellatly AO Non executive director - appointment expired 15 July 2013David Harris CEO and Executive Director - appointed 12 May 2014

Details of Directors remuneration are set out in Note 20(a).

20 Related party disclosures

State Water has related party relationships with Key Management Personnel (refer (a) below), their related entities (refer(b) below), other directorships (refer (c) below) and other related parties (refer (d)).

(a) Key Management Personnel

Key Management Personnel (KMP) are those persons having authority and responsibility for planning, directing, andcontrolling the activities of State Water, directly or indirectly, including any director (whether executive or otherwise).During the year the executive structure reporting to the Chief Executive Officer was updated. This resulted in changes topositions classified as Key Management Personnel. Positions falling into this category comprise:

DirectorsChief Executive OfficerActing Chief Financial OfficerExecutive General Manager Rural DivisionChief Operating OfficerExecutive Manager Corporate AffairsExecutive Manager Finance and Business ServicesExecutive Manager Major ProjectsExecutive Manager Commercial DevelopmentExecutive Manager Governance

51



20 Related party disclosures continued

(a) Key Management Personnel continued

Key Management Personnel compensation is as follows:

Short-term benefitsPost employment

benefitsOther long-term

benefits TotalSalary $'000

Termination benefits$'000

Superannuation$'000 $'000 $'000

2014 1,882 - 156 - 2,038

2013 1,943 - 161 - 2,104

2014$'000

2013$'000

This comprises compensation relating to:Directors, excluding Chief Executive Officer 349 247Senior executives 1,689 1,857

2,038 2,104

(b) Other transactions with key management personnel and related entities

Key Management Personnel (KMP) are free to engage in purchase of goods or services from State Water in accordancewith State Water's Code of Conduct. These purchases are on the same terms and conditions as those entered into byother customers or clients.

Any transactions undertaken with entities related to KMP are conducted on an arm's length basis in the normal course ofbusiness and on commercial terms and conditions.

Given the specialised nature of goods and services provided by State Water, these purchases are non-existent for themost part.

During the current reporting period there were no related party transactions with entities related to key managementpersonnel.

(c) Other directorships

Notwithstanding common directorships held by board members with the Sydney Catchment Authority, there are nodirectorships held by KMP with related parties.

52



20 Related party disclosures continued

(d) Transactions with other related parties

There were no transactions with other related parties during the reporting period.

21 Financial Risk Management

(a) Capital risk management

State Water manages its capital to ensure that it will be able to continue as a going concern while maximising the returnto stakeholders through the optimisation of the debt to equity balance.

State Water’s overall strategy remains unchanged from 2013.

The capital structure of State Water consists of debt, which includes borrowings (refer Note: 10 Borrowings), cash andcash equivalents (refer Note: 4 Cash and cash equivalents) and equity comprising contributed equity, reserves andretained earnings (refer Note: 13 Contributed equity and statement of changes in equity).

Operating cash flows are used to maintain and expand State Water’s assets, as well as to make the routine outflows oftax, dividends and repayment of maturing debt. State Water’s policy is to borrow to meet anticipated fundingrequirements.

State Water’s management reviews the capital structure on an annual basis with the preparation of the Statement ofCorporate Intent. State Water has a target gearing ratio that is determined as the proportion of debt to debt plus equity.State Water will balance its overall capital structure primarily through the payment of dividends and the issue of new debtor the redemption of existing debt.

The gearing ratio at year end was as follows

2014$'000

2013$'000

Debt (i) 158,995 158,664Equity (ii) 412,607 379,268

Debt + equity 571,602 537,932

Debt to debt+equity ratio for 2014 financial year is 27.82% (2013: 29.50%)

Target debt to debt+equity ratio for 2014 financial year was 34.46% (2013: 32.98%)

(i) Debt is defined as long-term and short-term borrowings, as detailed in Note: 10.

(ii) Equity includes all capital and reserves.

53



21 Financial Risk Management continued

(b) Categories of financial instruments

The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in theaccounting policies to these financial statements, are as follows:

2014$'000

2013$'000

Financial assetsCash and cash equivalents 26,915 43,189Trade and other receivables 17,325 21,959

Financial liabilities (at amortised cost)Trade and other payables 29,306 38,752Borrowings 158,995 158,664

(c) Financial risk management objectives

Key Management Personnel and the Board of Directors monitor and manage the financial risks relating to the operationsof State Water through a range of internal reports that analyse exposures by degree and magnitude of risks. These risksinclude market risk, credit risk, liquidity risk and cash flow interest rate risk.

State Water does not use derivative financial instruments for any purpose. State Water does not enter into or tradefinancial instruments for speculative purposes.

(d) Market risk

State Water‘s activities expose it to the financial risk of changes in interest rates (Note 21(e)). It is not exposed to thefinancial risks of changes in foreign currency exchange rates.

There has been no change to State Water’s exposure to market risks or the manner in which it manages and measuresthe risk from the previous period.

Exposure to 'other price risk' primarily arises through the investment in the NSW Treasury Corporation (TCorp) HourGlass Investment Facility, which is held for strategic rather than trading purposes. The entity holds units in the CashFacility Hour Glass investment trust. This facility invests in cash and money market instruments, with an investmenthorizon of up to 1.5 years. The carrying value of this facility is disclosed in Note 4.

Investment in the Hour Glass Facility limits the entity's exposure to risk, as it allows diversification across a pool of fundswith different investment horizons and a mix of investments. TCorp provides sensitivity analysis information for the HourGlass investment facility, using historically based volatility information collected over a ten year period, quoted at twostandard deviations (i.e 95% probability). The TCorp Hour Glass Investment facilities are designated at fair value throughprofit or loss and therefore any change in unit price impacts directly on profit (rather than equity). A reasonably possiblechange is based on the percentage change in unit price (as advised by TCorp) multiplied by the redemption value as at30 June each year.

Change in UnitPrice

2014$'000

2013$'000

Hour Glass Cash Investment Facility +/- 1% +/- 125 +/- 257

(e) Interest rate risk management

State Water is exposed to changes in market interest rates. Although there is a small exposure arising from cash andinvestment portfolios, the main exposure arises from State Water's interest bearing liabilities.

TCorp manages interest rate risk exposures applicable to specific borrowings of State Water in accordance with a debt

54




(e) Interest rate risk management continuedportfolio mandate agreed between the two parties. TCorp receives a fee for this service, which may include aperformance component where TCorp is able to add value by achieving a reduction in State Water's debt costs againstagreed benchmarks. TCorp uses derivatives, primarily interest rate futures, to establish short term (tactical) and longterm (strategic) positions within agreed tolerance limits to manage portfolio duration and maturity profiles. At reportingdate the carrying value of borrowings managed by TCorp stood at $158.995 million (2013: $158.664 million).

The following table details the carrying amounts of financial assets and financial liabilities, including their weightedaverage interest rate, that are exposed to interest rate risk at reporting date.

Weightedaverage

interest rate2014 %

Weightedaverage

interest rate2013 %

2014$ '000

2013$ '000

Financial assetsBank operating accounts 2.54 2.79 13,512 15,774

Financial liabilitiesTCorp borrowings 5.58 5.61 158,995 158,664

The following table illustrates sensitivities to State Water's exposures to changes in interest rates. The table indicates theimpact on profit and equity values reported at the end of the reporting period if nominal interest rates had been 100basis points higher or lower than current levels, with all other variables remaining constant. A sensitivity of 100 basispoints has been used as this is considered reasonable based on the official Reserve Bank of Australia (RBA) interest ratevolatility over the last five years.

There have been no changes in any of the assumptions used to prepare the above sensitivity analysis from the prioryear.

Profit or Loss -100 basis point

increase$'000

Profit or Loss -100 basis point

decrease$'000

Equity - 100basis point

increase$'000

Equity - 100basis pointdecrease

$'000

2014Variable rate instruments (81) 81 (81) 81

(81) 81 (81) 81

2013Variable rate instruments (54) 54 (54) 54

(54) 54 (54) 54

(f) Credit risk management

Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contractobligations that could lead to a financial loss to State Water.

In respect of trade and other receivables, State Water monitors balances outstanding on an ongoing basis and haspolicies in place for the recovery or write-off of amounts outstanding. Trade and other receivables that are neither pastdue nor impaired are considered to be of high credit quality. Refer Note 5(c) for further detail.

In relation to receivables for water charges, the credit risk is mitigated by the conditions under which water licences areheld by customers, the result of which is that before a sale or transfer of licence takes place the market, as representedby the buyer or transferee, ensures the settlement of all amounts owing. For further detail refer to Note 5.

55




(f) Credit risk management continued

In respect of cash and cash equivalents and investments in marketable securities, State Water only deals withcreditworthy counterparties and recognised financial intermediaries as a means of mitigating against the risk of financiallosses from defaults.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset, net of anyallowances for losses, in the Statement of Financial Position.

At the reporting date there were no significant concentrations of credit risk in which State Water is significantly exposedto any single counterparty. There was no change to the level of credit exposure to State Water during the currentreporting period.

(g) Liquidity risk management

Liquidity risk refers to the risk that State Water will be unable to meet expenditure commitments when they fall due.State Water has built an appropriate liquidity risk management framework for the management of State Water’s short,medium and long-term funding and liquidity management requirements. Liquidity risk is managed through the availabilityof financing facilities including a long-term fixed borrowing facility with NSW Treasury Corporation, and through themaintenance of extensive short-term and long-term cash flow forecasting, which is regularly monitored by the Board.Disclosed in Note 15 are details of State Water’s financing facilities, including undrawn facilities that State Water has atits disposal to further reduce liquidity risk.

State Water has a transaction negotiation authority with Westpac Banking Corporation amounting to $11.000 million(2013: $11.000 million). This facility authorises Westpac Banking Corporation to draw funds from the nominated StateWater account up to the value of the agreed limit to enable the processing of electronic payments.

56

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57




(h) Fair values of financial assets and financial liabilities

Cash and cash equivalents, trade and other receivables, trade and other payables and other financial liabilities are short-term instruments in nature whose carrying amounts are considered to be a reasonable approximation of their fair values.

As stated in Note 1(p) borrowings are stated at amortised cost. Comparison between amortised cost and fair value isshown below. (Excluding principal and interest equipment finance, and bank overdraft).

2014$'000

2013$'000

Carrying value at amortised cost 158,995 158,664Fair value 181,145 175,422

22 Fair Value Measurement

The Company measures the following assets at fair value on a recurring basis:

! Property, plant and equipment, including intangibles

! Hour Glass Investment Cash Facility

AASB 13 Fair Value Measurement requires all assets and liabilities measured at fair value to be assigned to a level in thefair value hierarchy as follows:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that the entitycan access at the measurement date.

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset orliability, either directly or indirectly.

Level 3 Unobservable inputs for the asset or liability.

The fair value of assets and liabilities that are not traded in an active market are determined using one or more valuationtechniques. These valuation techniques maximise, to the extent possible, the use of observable market data. If allsignificant inputs required to measure fair value are observable, the asset or liability is included in Level 2. If one or moresignificant inputs are not based on observable market data, the asset or liability is included in Level 3.

Valuation Techniques

State Water selects valuation techniques that are appropriate in the circumstances and for which sufficient data isavailable to measure fair value. The availability of sufficient and relevant data primarily depends on the specificcharacteristics of the asset or liability being measured. The valuation techniques selected are consistent with one of moreof the following valuation approaches:

! Market approach: uses prices and other relevant information generated by market transactions involving identical orsimilar assets or liabilities

! Income approach: converts estimated future cash flows or income and expenses into a single current i.e. discountedvalue

! Cost approach: reflects the current replacement cost of an asset at its current service capacity.

Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing theasset or liability, including assumptions about risks. When selecting a valuation technique State Water gives priority to

58



22 Fair Value Measurement continuedthose techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs thatare developed using market data, such as publicly available information of actual transactions, and reflect theassumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable,whereas inputs for which market data are not available and therefore are developed using the best information availableabout such assumptions are considered unobservable.

The table below provides the fair values of assets measured and recognised on a recurring basis after initial recognition,categorised within the fair value hierarchy.

30 June 2014Level 1$'000

Level 2$'000

Level 3$'000

Total$'000

Recurring fair value measurements

Financial assetsHour Glass Investment - Cash Facility - 13,389 - 13,389

Non-financial assetsLand - 123,626 - 123,626Property, plant and equipment - - 680,005 680,005

30 June 2013Level 1$'000

Level 2$'000

Level 3$'000

Total$'000

Recurring fair value measurements

Financial assetsHour Glass Investment - Cash Facility - 15,774 - 15,774

Non-financial assetsLand - 123,626 - 123,626

Property, plant and equipment - - 611,332 611,332

Level 2 measurements

The Hour Glass Investment Cash Facility is considered a level 2 measurement. Prices are observable, however, no activemarket exists for these facilities as they are only accessible to government agencies. The input used by State Water toassess fair value is the current advised unit rate provided by NSW Treasury Corporation.

Land is valued using a market approach which references recent observable market data for similar properties. The inputused is a price per hectare.

Level 3 measurements

State Water adopts an income approach using a discounted cashflow methodology to calculate fair value of property,plant and equipment. Further information on the valuation technique and inputs used are contained in Note 6(d).

59



22 Fair Value Measurement continued

Level 3 measurements continued

A reconciliation of the movements in recurring fair value measurements allocated to Level 3 of the hierarchy is providedbelow:

2014$'000

Balance at beginning of year 611,332

Total gains or losses for the yearRecognised in profit or loss 15,058Recognised in other comprehensive income 15,733

Other movementsPurchases 56,894Disposals (1,693)Depreciation and amortisation (14,960)Capital WIP written off (2,359)

Balance at end of year 680,005

Transfers between levels of the hierarchy

There were no transfers between levels of the fair value hierarchy (2013: No transfers).

Highest and best use

The current use of each asset measured at fair value is considered to be its highest and best use.

23 Auditors Remuneration2014$'000

2013$'000

Remuneration to State Water's auditor for:Auditing or reviewing the financial statements 208 180

208 180

24 Post employment benefits from superannuation plansState Water contributes on behalf of its employees to defined contribution superannuation plans and to defined benefitsuperannuation plans.

Defined benefit superannuation plans

The Pooled Fund holds in trust the investments of the closed NSW public sector superannuation schemes:

! State Authorities Superannuation Scheme (SASS)! State Superannuation Scheme (SSS)! State Authorities Non-contributory Superannuation Scheme (SANCS)

These schemes are all defined benefit schemes - at least a component of the final benefit is derived from a multiple ofmember salary and years of membership. Members receive lump sum or pension benefits on retirement, death,disablement and withdrawal.

All the schemes are closed to new members.

60



24 Post employment benefits from superannuation plans continued

The schemes in the Pooled Fund are established and governed by the following NSW legislation: Superannuation Act1916, State Authorities Superannuation Act 1987, State Authorities Non-Contributory Superannuation Scheme Act 1987,and their associated regulations.

The schemes in the Pooled Fund are exempt public sector superannuation schemes under the CommonwealthSuperannuation Industry (Supervision) Act 1993 (SIS). The SIS Legislation treats exempt public sector superannuationfunds as complying funds for concessional taxation and superannuation guarantee purposes.

Under a Heads of Government agreement, the New South Wales Government undertakes to ensure that the Pooled Fundwill conform with the principles of the Commonwealth's retirement incomes policy relating to preservation, vesting andreporting to members and that members' benefits are adequately protected.

The New South Wales Government prudentially monitors and audits the Pooled Fund and the Trustee Board activities in amanner consistent with the prudential controls of the SIS legislation. These provisions are in addition to other legislativeobligations on the Trustee Board and internal processes that monitor the Trustee Board's adherence to the principles ofthe Commonwealth's retirement incomes policy.

An actuarial investigation of the Pooled Fund is performed every three years. The last actuarial investigation wasperformed as at 30 June 2012.

The fund's Trustee is responsible for the governance of the fund. The Trustee has a legal obligation to act solely in thebest interests of fund beneficiaries. The Trustee has the following roles:

! Administration of the fund and payment to the beneficiaries from fund assets when required in accordance with thefund rules;! Management and investment of the fund assets; and! Compliance with other applicable regulations.

There are a number of risks to which the fund exposes the employer. The more significant risks relating to the definedbenefits are:

! Investment risk - The risk that investment returns will be lower than assumed and the employer will need to increasecontributions to offset this shortfall.! Longevity risk - The risk that pensioners live longer than assumed, increasing future pensions.! Pension indexation risk - The risk that pensions will increase at a rate greater than assumed, increasing futurepensions.! Salary growth risk - The risk that wages or salaries (on which future benefit amounts for active members will be based)will rise more rapidly than assumed, increasing defined benefit amounts and thereby requiring additional employercontributions.! Legislative risk - The risk that legislative changes could be made which increase the cost of providing the definedbenefits.

The defined benefit fund assets are invested with independent fund managers and have a diversified asset mix. The fundhas no significant concentration of investment risk or liquidity risk.

Description of significant events

There were no fund amendments, curtailments or settlements during the year.

61




Reconciliation of the Net Defined Benefit Liability/(Asset)

For the financial year to 30 June 2014SASS$'000

SANCS$'000

SSS$'000

Total$'000

Net Defined Benefit Liability/(Asset) at start ofyear 3,513 864 35,147 39,524

Current service cost 455 141 529 1,125Net interest on the net defined benefit

liability/(asset) 124 30 1,327 1,481Past service cost - - - -(Gains)/losses arising from settlements - - - -Actual return on Fund assets less interest

income (1,950) (211) (3,906) (6,067)Actuarial (gains)/losses arising from changes in

demographic assumptions - - - -Actuarial (gains)/losses arising from changes in

financial assumptions 794 205 3,235 4,234Actuarial (gains)/losses arising from liability

experience 1,314 4 (327) 991Adjustment for effect of asset ceiling - - - -Employer contributions (505) (139) (448) (1,092)

Net Defined Benefit Liability/(Asset) at end ofyear 3,745 894 35,557 40,196


SANCS$'000

SSS$'000

Total$'000

Net Defined Benefit Liability/(Asset) at start ofyear 5,421 1,527 48,238 55,186

Current service cost 499 175 761 1,435Net interest on the net defined benefit

liability/(asset) 159 44 1,469 1,672

Past service cost - - - -(Gains)/losses arising from settlements - - - -Actual return on Fund assets less interest

income (1,905) (310) (3,572) (5,787)Actuarial (gains)/losses arising from changes in

demographic assumptions 412 (6) 2,486 2,892Actuarial (gains)/losses arising from changes in

financial assumptions (1,288) (278) (10,133) (11,699)Actuarial (gains)/losses arising from liability

experience 698 (149) (3,600) (3,051)

Adjustment for effect of asset ceiling - - - -Employer contributions (483) (139) (502) (1,124)

Net Defined Benefit Liability/(Asset) at end ofyear 3,513 864 35,147 39,524

62




Reconciliation of the Fair Value of Fund Assets


SANCS$'000

SSS$'000

Total$'000

Fair value of Fund assets at beginning of theyear 14,350 2,331 39,114 55,795

Interest income 530 87 1,455 2,072Actual return on Fund assets less interest

income 1,950 211 3,906 6,067Employer contributions 505 139 448 1,092Contributions by participants 232 - 237 469Benefits paid (495) (69) (1,647) (2,211)Taxes, premiums and expenses paid (30) (22) 77 25Transfers in - - - -Contributions to accumulation section - - - -Settlements - - - -Exchange rate changes - - - -

Fair value of Fund assets at end of year 17,042 2,677 43,590 63,309


SANCS$'000

SSS$'000

Total$'000

Fair value of Fund assets at beginning of theyear 12,427 2,403 34,619 49,449

Interest income 367 69 1,039 1,475Actual return on Fund assets less interest

income 1,905 310 3,572 5,787Employer contributions 483 139 502 1,124

Contributions by participants 230 - 347 577Benefits paid (1,038) (709) (1,137) (2,884)Taxes, premiums and expenses paid (24) 119 172 267

Transfers in - - - -Contributions to accumulation section - - - -Settlements - - - -Exchange rate changes - - - -

Fair value of Fund assets at end of year 14,350 2,331 39,114 55,795

63




Reconciliation of the Defined Benefit Obligation


SANCS$'000

SSS$'000

Total$'000

Present value of defined benefitobligations at beginning of the year 17,863 3,195 74,261 95,319

Current service cost 455 141 529 1,125Interest cost 654 117 2,782 3,553Contributions by participants 232 - 237 469Actuarial (gains)/losses arising from

changes in financial assumptions 794 205 3,235 4,234Actuarial (gains)/losses arising from

liability experience 1,314 4 (327) 991Benefits paid (495) (69) (1,647) (2,211)Taxes, premiums & expenses paid (30) (22) 77 25Transfers in - - - -Contributions to accumulation section - - - -Past service cost - - - -Settlements - - - -Exchange rate changes - - - -

Present value of defined benefitobligations at end of the year 20,787 3,571 79,147 103,505


SANCS$'000

SSS$'000

Total$'000

Present value of defined benefit obligations atbeginning of the year 17,848 3,930 82,857 104,635

Current service cost 499 175 761 1,435Interest cost 526 113 2,508 3,147

Contributions by participants 230 - 347 577Actuarial (gains)/losses arising from changes in

demographic assumptions 412 (6) 2,486 2,892Actuarial (gains)/losses arising from changes in

financial assumptions (1,288) (278) (10,133) (11,699)Actuarial (gains)/losses arising from liability

experience 698 (149) (3,600) (3,051)Benefits paid (1,038) (709) (1,137) (2,884)Taxes, premiums & expenses paid (24) 119 172 267

Transfers in - - - -Contributions to accumulation section - - - -Past service cost - - - -Settlements - - - -Exchange rate changes - - - -

Present value of defined benefit obligations atend of the year 17,863 3,195 74,261 95,319

64




Reconciliation of the effect of the Asset Ceiling

For the financial year to 30 June 2014 SASS$'000

SANCS$'000

SSS$'000

Total$'000

Adjustment for effect of asset ceiling atbeginning of the year - - - -

Change in the effect of asset ceiling - - - -

Adjustment for effect of asset ceiling at end ofthe year - - - -


SANCS$'000

SSS$'000

Total$'000

Adjustment for effect of asset ceiling atbeginning of the year - - - -

Change in the effect of asset ceiling - - - -

Adjustment for effect of asset ceiling at end ofthe year - - - -

Fair Value of Fund Assets

At 30 June 2014

All Pooled Fund assets are invested by STC at arm's length through independent fund managers and assets are notseparately invested for each entity. As such, the disclosures below relate to total assets of the Pooled Fund.

Quoted prices inactive markets for

identical assetsLevel 1$'000

Significantobservable

inputsLevel 2$'000

UnobservableinputsLevel 3$'000

Total$'000

Asset CategoryShort Term Securities 1,572,615 880,140 - 2,452,755Australian Fixed

Interest 10,928 2,354,086 - 2,365,014International Fixed

Interest - 880,529 - 880,529Australian Equities 11,494,549 241,423 2,664 11,738,636International Equities 8,172,677 2,780,531 121 10,953,329Property 894,113 692,296 1,686,577 3,272,986Alternatives 565,401 4,897,152 866,857 6,329,410

Total 22,710,283 12,726,157 2,556,219 37,992,659

Information on the fair value of fund assets as at 30 June 2013 is not available from the Trustee.

65




The percentage invested in each asset class at the reporting date is:

2014 2013

Short Term Securities 6.5% 13.1%Australian Fixed Interest 6.2% 6.9%International Fixed Interest 2.3% 2.2%Australian Equities 30.9% 30.4%International Equities 28.8% 26.1%Property 8.6% 8.3%Alternatives 16.7% 13.0%Total 100.0% 100.0%

Derivatives, including futures and options, can be used by investment managers. However, each manager's investmentmandate clearly states that derivatives may only be used to facilitate efficient cashflow management or to hedge theportfolio against market movements and cannot be used for speculative purposes or gearing of the investment portfolio.As such make limited use of derivatives.

Fair value of entity's own financial instruments

The disclosures below relate to total assets of the Pooled Fund.

The fair value of the Pooled Fund assets include as at 30 June 2014 $173.9 million in NSW government bonds.

Significant Actuarial Assumptions at the Reporting Date2014 2013

Discount Rate 3.57% p.a. 3.80% p.a.Salary increase rate (excluding promotional increases 2013/14 n/a 2.25% p.a. 2014/15 2.27% p.a. 2.25% p.a. 2015/16 to 2017/18 2.50% p.a. 2.00% p.a. 2018/19 to 2019/20 3.00% p.a. 2.00% p.a. 2020/21 to 2022/23 3.00% p.a. 2.50% p.a. 2023/24 onwards 3.50% p.a. 2.50% p.a.Rate of CPI increase 2.50% p.a. 2.50% p.a.

Pensioner mortality

As per the 2012 ActuarialInvestigation of the PooledFund

As per the 2012 ActuarialInvestigation of the PooledFund

66




Sensitivity Analysis

The entity's total defined benefit obligation as at 30 June 2014 under several scenarios is presented below. The totalbenefit obligation disclosed is inclusive of the contribution tax provision which is calculated based on the asset level at 30June 2014.

Scenarios A to F relate to sensitivity of the total defined benefit obligation to economic assumptions, and scenarios G andH relate to sensitivity to demographic assumptions.

Base Case

Scenario A-1.0% discount

rate

Scenario B+1.0% discount

rate

Discount rate 3.57% 2.57% 4.57%

Rate of CPI increasePer actuarialassumptions

Per actuarialassumptions


Salary inflation ratePer actuarialassumptions



Defined benefit obligation ($'000) 103,504 119,799 90,384

Base Case

Scenario C+0.5% rate ofCPI increase

Scenario D-0.5% rate of CPI

increase

Discount ratePer actuarialassumptions



Rate of CPI increase 2.5% 3.0% 2.0%





Base Case

Scenario E+0.5% salaryincrease rate

Scenario F-0.5% salaryincrease rate

Discount ratePer actuarialassumptions



Rate of CPI increasePer actuarialassumptions




Per actuarialassumptions plus0.5%pa

Per actuarialassumptions less0.5%pa


Base Case

Scenario G+5% pensionermortality rates

Scenario H-5% pensionermortality rates


The defined benefit obligation has been recalculated by changing the assumptions as outlined above, whilst retaining allother assumptions.

67




Asset-Liability matching strategies

The Trustee monitors its asset-liability risk continuously in setting its investment strategy. It also monitors cashflows tomanage liquidity requirements.

Funding arrangements

Funding arrangements are reviewed at least every three years following the release of the triennial actuarial review andwas last reviewed following completion of the triennial review as at 30 June 2012. Contribution rates are set afterdiscussions between the employer, STC and NSW Treasury.

Funding positions are reviewed annually and funding arrangements may be adjusted as required after each annualreview.

Surplus/deficit

The following is a summary of the financial position of the Fund calculated in accordance with AAS 25 Financial Reportingby Superannuation Plans:

SASS$'000

SANCS$'000

SSS$'000

At 30 June 2014Accrued benefits * 17,072 2,832 41,537Net market value of Fund assets (17,042) (2,677) (43,590)

Net (surplus)/deficit 30 155 (2,053)

SASS$'000

SANCS$'000

SSS$'000

At 30 June 2013Accrued benefits * 14,916 2,618 39,664Net market value of Fund assets (14,350) (2,331) (39,113)

Net (surplus)/deficit 566 287 551

* There is no allowance for a contribution tax provision within the accrued benefit figure for AAS 25. Allowance forcontribution tax is made when setting the contribution rates.

Contribution recommendations

Recommended contribution rates for the entity are:SASS

ASANCS

BSSS

A2014 1.9 2.5 1.62013 1.9 2.5 1.6

A = multiple of member contributionsB - percentage of member salary

68




Economic assumptions

The economic assumptions adopted for the 30 June 2012 actuarial investigation of the Pooled Funds are:

Weighted Average Assumptions 2014 2013

Expected rate of return on Fund assets backingcurrent pension liabilities 8.3% pa 8.3% pa

Expected rate of return on Fund assets backing otherliabilities 7.3% pa 7.3% pa

Expected salary increase rate (excluding promotionalsalary increases)

2.7% p.a. to 30 June2018, then 4.0% p.a.thereafter

2.7% p.a. to 30 June2018, then 4.0% p.a.thereafter

Expected rate of CPI increase 2.5% pa 2.5% pa

Expected employer contributionsSASS SANCS SSS Total

$'000 $'000 $'000 $'000

2014 442 131 379 9522013 437 148 555 1,140

The weighted average duration of the defined benefit obligation is 14.2 years (2013: 14.0 years).

25 Administered Revenue, Assets and Liabilities

2014$'000

2013$'000

Administered RevenuesNOW - Water Charges 45,557 40,965NSW Treasury - Pindari Levy - 2,215YCATAC - Yanco Columbo System Levy 152 142

Total Administered Revenues 45,709 43,322

Administered AssetsAdministered cash 781 4,276Debtors and accrued charges NOW 3,825 10,792Debtors and accrued charges YCATAC - 146

Total Administered Assets 4,606 15,214

Administered LiabilitiesCreditors and accruals NOW 4,610 12,841Creditors and accruals Pindari - 2,215Creditors and accruals YCATAC (4) 158

Total Administered Liabilities 4,606 15,214

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25 Administered Revenue, Assets and Liabilities continued

State Water administers, but does not control, certain activities on behalf of the New South Wales Office of Water (NOW),NSW Treasury and Yanco Creek and Tributaries Advisory Council (YCATAC). Transactions and balances relating toadministered activities are not recognised as State Water's income, expenses, assets and liabilities but are disclosed inthe above schedules as "Administered Revenues", "Administered Assets" and "Administered Liabilities".The accrual basisof accounting and applicable accounting standards have been adopted.

Under these arrangements State Water is responsible for billing water licence holders on behalf of:

! NOW for unregulated river and groundwater charges as well as regulated river charges which are shared between StateWater and NOW.

! NSW Treasury for the Pindari Dam Levy.

! YCATAC for a levy on irrigators in the Yanco Columbo System.

These charges are payable by State Water to the respective agencies as and when collected.

Accrued charges are based on known entitlement charges and on usage, where applicable.

Billing of customers is completed after year end.

26 Contingent liabilities

Some project works recently undertaken by State Water, either on its own behalf or on behalf of third parties, have beensubject to delays and disruptions. As a result State Water has received and rejected claims from contractors forvariations to contracted amounts, which are now the subject of dispute. Irrespective of the legal position with respect tothese disputed claims, the amounts are either not material to State Water, or are the ultimate responsibility of thirdparties as pass through costs for State Water.

27 Events after balance sheet date

There are no known events that would impact on state of affairs of the economic entity or have a material effect on thesefinancial statements.

* * End of the Audited Financial Statements * *

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CONTACT DETAILS

BUSINESS SERVICES AND HOURS

ANNUAL REPORT AVAILABILITY

State Water Corporation Head office: 7 Commercial Avenue Blue Ridge Estate Dubbo, NSW 2830 1300 662 077

Business hours are between 8:30am and 4:30pm at most offices across NSW.

The State Water Corporation annual report will be available on the State Water Corporation website, which can be access at http://www.statewater.com.au.

GENERAL INFORMATION

http://www.statewater.com.au/

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