THE Queensland Government is under fire from ratepayers and businesses over its plan to seize the Gold Coast's $4.5 billion water infrastructure assets.

The Beattie Government is calling it a 'streamlined, 21st century water management system' for south-east Queensland, but the proposed compensation cap of $2 billion is barely adequate, says Gold Coast City Council water sustainability chair Councillor
Daphne McDonald.

"It's a joke. It won't even cover the Gold Coast city," she says.

"This will have a major impact on residents and businesses on the Gold Coast. As a result, the Gold Coast City Council has lost $100 million in funding.

"We have led the way in water conservation and yet the community is being penalised for it by the State Government. This decision has left a big, black hole in our budget and something has to give."

Premier Beattie says it's impossible to nominate an exact compensation figure until the due diligence process is complete. However, he expects councils across the State to be compensated to the tune of $1 billion to $2 billion each.

"I want to be clear - it will be a fair process and councils will be fully and fairly compensated," he says.

The State will assume control of and operate the larger water assets that hold, manufacture (desalination and recycled) and distribute bulk water across the south east, but Mr Beattie maintains councils won't be left high and dry.

"Councils will still have an important role to play at the retail and distribution end - jointly owning a single distribution entity that will be responsible for the domestic pipe network and pumping stations and three retail companies," he says.

"For most councils, it will mean a significant strengthening of their balance sheet by removing their exposure to market and volume risk at the wholesale level - and it will reduce their debt burdens.

"In some cases, it will also provide additional funding for ongoing government capital expenditure requirements. Councils, of course, will be fully and fairly compensated for giving up their bulk water assets when the proper value of those assets are determined, which is a process we will determine with councils.

"We will have to look at a number of issues, including valuation methods, condition of the assets, current financials associated with the assets and timelines for payments."

Ms McDonald says the government is taking control of infrastructure implemented by council - such as the Tugun desalination plant and the Hinze Dam water supply, which she says is one of the most pristine in the country.

"State Government is planning to pump 120 megalitres of recycled water into one of the most pristine water supplies in Australia. I'm very concerned about that," she says.

Councils have until November to put their views on the structure of their proposed businesses to the Queensland Water Commission. Some of the new businesses will be up and running by October 2008, with all reforms in place by July 2009.