water—the development of rural water markets in australia ... by chloe munro.pdf · •more...
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Water—The development of rural water markets in Australia: Assessing progress, looking ahead
Chloe Munro, Chair, National Water Commission
ACCC Regulatory ConferenceJuly 2011
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Profile of Australian water markets All states and territories support trading but market activity is mostly concentrated in the MDB
402
666
VIC
12761479
NSW
150119
SA
2413
WA
27
4
TAS
Entitlement trade
Allocation trade
70214
QLD
Notes:Not drawn to scaleTrade volumes in gigalitresTrade volumes for each state equal to the sum of Internal state trades plus outbound trades
Entitlement and allocation trade in 2009-10
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Trade has been a huge successEntitlement and allocation trade - southern MDB 1983-84 to 2009-10
0
250
500
750
1,000
1,250
1,500
1,750
1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 2007-08
GL
sMDB allocation trade sMDB entitlement trade sMDB entitlement trade to CEWH
Large volumes of water reallocated
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Why trade?
Largest imports and exports of allocation trade 2007-08
Flexibility and resilience in changing conditions
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Largest imports and exports of allocation trade 2008-09
Why trade?
Flexibility and resilience in changing conditions
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Largest imports and exports of allocation trade 2009-10
Why trade?
Flexibility and resilience in changing conditions
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Rice production, rice prices and water allocation price, Murrumbidgee 2005-06 to 2009-10
0
200
400
600
250
500
750
1000
1250
2005-06 2006-07 2007-08 2008-09 2009-10
Pric
e ($
)
Prod
uctio
n (k
iloto
nnes
)
Rice (kilotonnes) Water allocation price in Murrumbidgee ($/ML)
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Fundamental elements of efficient water markets
Efficient water market
Clear rightssupported by
planningRobust
governance
EffectiveadministrationInformation
access
Monitoring& compliance
Scarcity-induced demand for tradePhysical capacity to trade Many potential traders
STRUCTURALELEMENTS
EXOGENOUS FACTORS
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Initiatives in progress for market strengthening
Principal initiativesBasin 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
Clear rightssupported by
planningMonitoring
& complianceInformation
accessRobust
governanceEffective
administration
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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
Key outstanding issues and gaps
Clear rightssupported by
planningMonitoring
& complianceInformation
accessRobust
governanceEffective
administration
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Summary of key priorities
Information access
Rights and planning Governance Administration Monitoring and
compliance
Unbundling &improved planning
Simplification of trading rules
Disclosure on processes
Establish complaints
handling
Streamline handling
Disclosure of potential conflicts
Ring-fencing or separation
Compliance against codes of
conduct
Mandatory collection and
disclosure
Verification, monitoring and
compliance
Disclosure of processes and
outcome
Compliance with disclosure rules
Disclosure of business practices
Formalise complaints
handling
Compliance with code of conduct
Limited groundwatertrade
Conflicts of interest
Transparency ofapproval processes
Inadequate priceinformation
Transparency ofallocation processes
Confidence in intermediaries
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Informationaccess
Recommended actionsInformation disclosure and 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
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Recommended actionsPlanning and rights definition
Clear rightssupported 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
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Effective administration
Recommended actionsAdministrative reforms
• 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
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Monitoring& compliance
Recommended actionsMonitoring and compliance
• Improved monitoring and compliance enforcement systems are needed
• Compliance with- Codes of conduct- Performance standards- Allocation determination and
trade approval processes- Price disclosure
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Robust governance
Recommended actionsGovernance
• Formal complaints handling processes– Trade approvals– Water intermediaries
• Prevention of conflicts of interest– Ring-fencing – Structural separation
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Benefits of the reforms
•Increased market confidence•Detection of market irregularities•Reduced perceptions of conflicts of interest•Additional security of water rights
•More efficient allocation of groundwater•More efficient investment in assessment
Information access
Monitoring & compliance
Governance
Administrative reforms
GW planning & rights
•Reduced transaction costs•More timely price information•Lower risk to traders from market movements prior to settlement
•Supports self regulation•Better performance through public disclosure•More educated market
Benefits
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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
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www.nwc.gov.au