Water—The development of rural water markets in Australia: Assessing progress, looking ahead Chloe Munro, Chair, National Water Commission ACCC Regulatory Conference July 2011
Profile of Australian water markets All states and territories support trading but market activity is mostly concentrated in the MDB QLD 70 214 Entitlement and allocation trade in NSW 2009-10 SA WA Entitlement trade 119 1276 150 1479 13 Allocation trade 24 VIC 402 TAS 666 Notes: Not drawn to scale 4 Trade volumes in gigalitres Trade volumes for each state equal to the sum of 27 Internal state trades plus outbound trades
Trade has been a huge success Entitlement and allocation trade - southern MDB 1983-84 to 2009-10 1,750 1,500 1,250 1,000 GL 750 500 250 0 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 2007-08 sMDB allocation trade sMDB entitlement trade sMDB entitlement trade to CEWH Large volumes of water reallocated
Why trade? Largest imports and exports of allocation trade 2007-08 Flexibility and resilience in changing conditions
Why trade? Largest imports and exports of allocation trade 2008-09 Flexibility and resilience in changing conditions
Why trade? Largest imports and exports of allocation trade 2009-10 Flexibility and resilience in changing conditions
Rice production, rice prices and water allocation price, Murrumbidgee 2005-06 to 2009-10 1250 600 1000 Production (kilotonnes) 400 750 Price ($) 500 200 250 0 2005-06 2006-07 2007-08 2008-09 2009-10 Rice (kilotonnes) Water allocation price in Murrumbidgee ($/ML)
Fundamental elements of efficient water markets Efficient water market STRUCTURAL Effective Information administration ELEMENTS access Monitoring Clear rights Robust & compliance supported by governance planning EXOGENOUS FACTORS Scarcity-induced demand for trade Many potential traders Physical capacity to trade
Initiatives in progress for market strengthening Clear rights Effective Information Robust Monitoring supported by administration governance access & compliance planning Principal initiatives Basin Plan water trading rules Water market rules Water charge rules National Water Market System Australian Water Resources Information System National Water Account National compliance framework
Key outstanding issues and gaps Clear rights Effective Robust Information Monitoring supported by governance administration access & compliance planning Outstanding issues Planning & entitlements in unregulated systems Trade processing methods Conflicts of interest in the market Allocation announcement processes Availability of price information Confidence in intermediaries Need for institutional strengthening in formative markets
Summary of key priorities Information Rights and Monitoring and Governance Administration access planning compliance Limited groundwater Unbundling & Simplification of improved trade trading rules planning Transparency of Establish Disclosure on Streamline complaints approval processes processes handling handling Disclosure of Compliance Ring-fencing or Conflicts of interest potential against codes of separation conflicts conduct Mandatory Verification, Inadequate price collection and monitoring and information disclosure compliance Transparency of Disclosure of Compliance with processes and allocation processes disclosure rules outcome Confidence in Disclosure of Formalise Compliance with business complaints intermediaries code of conduct practices handling
Recommended actions Information disclosure and access Information access • Prices for all trades • Allocation determination processes • Trade approval processes • Processing times at granular level • Conflicts of interest • Broker compliance information with industry code of conduct
Recommended actions Planning and rights definition Clear rights supported by planning • Adopt a systematic approach to improve planning and rights in groundwater systems to promote trade - Benefit-cost analysis - Public reporting of results - Review trade rules and simplify - Investigate new rights-based instruments
Recommended actions Administrative reforms Effective administration • Simplification of trade approvals where multiple authorities are involved • Consideration to be given to - Rationalising the number of approval authorities - Cross-delegating approval functions for interstate trades
Recommended actions Monitoring and compliance Monitoring & compliance • Improved monitoring and compliance enforcement systems are needed • Compliance with - Codes of conduct - Performance standards - Allocation determination and trade approval processes - Price disclosure
Recommended actions Governance Robust governance • Formal complaints handling processes – Trade approvals – Water intermediaries • Prevention of conflicts of interest – Ring-fencing – Structural separation
Benefits of the reforms Benefits Monitoring & compliance •Increased market confidence •Detection of market irregularities Governance •Reduced perceptions of conflicts of interest •Additional security of water rights Information access •Supports self regulation •Better performance through public disclosure •More educated market •Reduced transaction costs Administrative •More timely price information reforms •Lower risk to traders from market movements prior to settlement GW planning & •More efficient allocation of groundwater rights •More efficient investment in assessment
Pathways for implementation • The package of reforms is substantial • Will require leadership and commitment through COAG • Coordination of water market policy and design will be needed
www.nwc.gov.au
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