NQ Water is expecting to pay $14 million to the Townsville and Thuringowa City Councils by way of dividends and tax equivalents this year.

The payments are part of the National Competition Policy reforms and reforms under the Water Act 2000, which commercialised the functions of NQ Water.

The reforms mean two things for NQ Water. Firstly, NQ water must show a return on its assets. Secondly, it makes NQ Water work within a commercial capital structure.

That means charging water based on a commercial level of debt.

NQ Water had engineered it so the net effect was neutral said Chief Executive Officer, Ken Diehm. It did this by lobbying the state government to become a local government, he said.

"Had we remained a statutory authority, we could have been required to pay tax and dividends to the state government," Mr Diehm said.

"The decision to become a local government effectively means we can pay that $14 million to the local community through the councils.

"So the price of water will increase under NCP but it will be mitigated by the returns paid to councils in the form of tax equivalents and dividends. The dividends will be paid annually so there is expected to be no net effect on the community."

Mr Diehm said the board took the path that allowed NQ Water to comply with the regulatory framework in a way that maximised benefits to the community.

"Many industries have gone through the pain of change with NCP," he said. "Reform in some industries has resulted in a flow of money out of the community."

"Having both Townsville and Thuringowa City Councils represented on the Board has meant the best possible outcome for the community and industry under the NCP reform agenda.

"The NCP agenda has been forced on us and we have come up with an innovative no-net-effect result, that owes a lot to the Board members’ skill, experience and concern for the local community."