Public Submission to ACCC Water Market Rules Issues Paper
by Murray-Darling Basin Commission Office on 9 May 2008
1.
The Australian Competition and Consumer Commission (ACCC) Water Market Rules
Issues Paper (Issues Paper) describes the policy drivers and necessity for setting water
market rules for operators of irrigation infrastructure within the context of a water
trading regulatory and administrative framework with the Murray-Darling Basin.
The responsibility for water reform within the Murray-Darling Basin lies with several
different agencies. Amongst these, the ACCC has been charged with developing water
market and charging rules. These rules are a component of the broader water market
trading rules, for which other agencies such as the Murray-Darling Basin Commission
(MDBC) have a responsibility for developing and implementing under Schedule E of
the Murray-Darling Basin Agreement.
Therefore, it is important that any water market and charging rules for the MurrayDarling Basin
2.
a)
are developed for a specific purpose (as defined under the Water Bill 2007); and
b)
align with the broader rules that govern water trading (Schedule E of the MurrayDarling Basin Agreement) within a defined water market.
MDBC considers that the focus for setting water market rules within a defined market
should be on ensuring an appropriate level of transparency and an agreed level of
consistency between infrastructure operators so that distortions are not created within
the market. This will support water users in making informed decisions about the
operation of their individual water businesses and lead to an open and free market.
The Issues Paper appropriately acknowledges the importance of well defined property
rights within a water trading market. However, the MDBC office considers it equally
important that water market rules address, not only the key aspect of ensuring that
property rights (for both water and delivery entitlements) are well defined within
irrigation infrastructure entities, but the nature and level of their tradability as well.
3.
The Issues Paper emphasises ‘transformation arrangements’ [section 2.1] that allow for
water to trade out of an irrigation infrastructure entity and how they might impact on
market rules. While transformation appears to have limited current application (other
than when entitlement trading is enacted) within the Basin, the MDBC office considers
that the Issues Paper largely neglects to address the arrangements necessary to facilitate
trade of various water products back into an irrigation infrastructure entity.
Market rules that do not adequately address both the trade into and out of an irrigation
infrastructure entity, may result in entitlement holders feeling constrained to purchase
water products from within the entity [section 4.2] (especially if property rights have
not been well defined). Such constraints, real or promoted, would inhibit the water
user’s ability to make a choice about the best water product for their individual business
and could subsequently lead to a loss in water market confidence, resulting in increased
pressure on the broader water trading rules.
4.
It is important to note that water market rules do not need to cover all aspects of water
trading as there are other mechanisms (such as trading and water use rules) that have
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been developed by state jurisdictions to undertake specific functions within the water
market. For example, managing the application of water to land through water use
licences is a separate process to transforming or trading water.
5.
The Issues Paper acknowledges that there are a range of practices [section 4] that can
be carried out by infrastructure operators to prevent or delay transformations or trades
being completed. MDBC considers it is important that there is ‘full and upfront
disclosure’ by irrigation infrastructure operators of necessary processes/rules applying
to those who seek to undertake transformations or trades. In addition, irrigation
infrastructure operators should clearly define a dispute resolution process to allow a
mechanism for individuals to challenge processes if full disclosure does not occur.
Whilst water market rules can assist in addressing delays, MDBC recognises that some
practices may not be able to be managed through a set of rules. For example, an
immediate delay on processing trades or transformations could occur if an irrigation
infrastructure entity’s resources are limited to one person being responsible for
processing trades.
6.
Irrigation infrastructure operators may have legitimate concerns relating to security for
future payment of fees [section 4.4]. However, such concerns can be addressed if the
principles contained within the Schedule E Access, exit and termination fees protocol
for interstate trade are fully adopted by irrigation infrastructure operators and parallel
principles for intrastate trade are developed. While irrigation infrastructure entities
need to protect the interests of their shareholders, in the operation of a barrier free water
market, security for future payment of fees should only be sought when it is absolutely
necessary.
7.
The MDBC considers it is appropriate that all jurisdictional irrigation infrastructure
operator administrative fees and charges [section 4.5] are based on a full cost recovery
principle. Implementing this principle across the jurisdictions will assist in minimising
distortions in the market. Such charges should be regularly reviewed against an agreed
set of best practice standards.
It is possible that inequities may arise in adjoining districts where an infrastructure
operator has received government funding to assist in introducing water efficiencies,
while the neighbouring district recovers the cost of efficiencies it has introduced
independently. With government programs offering support for water efficiencies
introduced at a district level, monitoring may also be required to ensure that activities
funded by government are not included in cost recovery charges.
8.
The MDBC office considers it important to an informed market and efficient operation
that state water registers [section 5.5] and irrigation infrastructure operator registers are
both compatible and interoperable to ensure that information relating to transformed
entitlements is accessible by state and river operators. The Australian Government is
currently undertaking work for the Council of Australian Governments on development
of the registers.
9.
Application of water market rules within the Murray-Darling Basin should occur
seamlessly between all irrigation infrastructure operators across the jurisdictions
regardless of the size of the operation [section 7.1].
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