Public submission to charge rules issues paper for irrigation infrastructure operators
May 2008 and water market rules issue paper April 2008.
By Peter Leslie
Beverley
Nevertire NSW 2831
Doug Ferguson
Fairfield
Trangie NSW 2823
In response to:
Members of Trangie-Nevertire Irrigation Scheme (TNIS) 10 July 2008
Dear Sir / Madam
We are 4 of the 67 original irrigating members of the TNIS & are past Chairman &
Secretary. Our submission is to provide an alternate view to the one supplied by the
board of the Trangie-Nevertire Irrigation Scheme co-operative Ltd. We only became
aware of this submission on June 11th 2008 & hence our delay in making this
submission.
We contend that this submission is not a representative position of all members of the
TNIS as this paper has not been circulated for comment amongst all members.
Keeping TNIS closed to the river has the effect of reducing the capital value of water
entitlements and the temporary transfer value of water. This restricts competition
amongst TNIS members and only to the advantage of the purchasers.
The TNIS is a very different infrastructure operator to the ones in the Murrumbidgee
Irrigation Area. TNIS is privately owned & built; the entitlement holders are the
owners of the infrastructure. The TNIS does not have any recovery of used water
within its system. This recycling is carried out on each individual member’s farm
infrastructure.
From 1970 when TNIS commenced to 2001 we enjoyed a high rainfall period and our
access to water was under more favourable rules than that of today. The 1996 water
sharing plan (WSP) changed & restricted irrigator’s access to water by almost
eliminating high flow water (off allocation) & increasing the environment allocation
to the Macquarie Marshes. Both these measures have the effect of reducing irrigators
reliability to water. For the period 1970 to 2001 even if the WSP existed, would give
an average allocation of 64%. Without the WSP an annual average allocation would
have been around 80%.
Since 2001 a dry period has set in & this together with the 96 Water sharing plan has
changed our water access reliability. Indeed in August 2005 we presented a paper at
our AGM titled “probability of consecutive low allocation years & the need to plan
for them”. This was an attempt to show that the TNIS was becoming uneconomic &
needed to change the way it was managed. TNIS needed to reduce costs and open up
trading with the river to keep members viable. Low allocations could not be used as
losses were too great, however, to at least trade with the river on a temporary basis
would give some viability to members.
TNIS remains only able to trade riparian water that some members have, both
temporary & permanent, both on & off the TNIS, free of any charges. The original
water is only able to be traded within TNIS. Under the current circumstances of low
allocations this lack of ability to trade guarantees the TNIS members are unviable. It
is projected that our annual average allocation is to be about 45% & deducting 20%
for losses, you can only expect 25% at best of entitlement to actually be put on crops.
This is an uneconomic situation.
Off river irrigation schemes do have advantages over riparian irrigators; being away
from the river zone you escape the flooding & many weeds that exist in that zone.
Many soils away from the river zone seem to be able to grow better crops by utilizing
the irrigated water more effectively. Free trade of entitlements will make sure that
infrastructure operators have a competitive “cost & loss” structure in place so as to
retain entitlements & indeed attract more entitlements.
The aim to free up trade of water both permanent & temporary is to make sure the
scarce resource is used in the most effective & efficient way. Termination fees as
outlined by TNIS will eliminate trade & give no incentive to TNIS to provide an
efficient water delivery system. All their foreseeable costs will be more than covered .
Costs will not automatically increase as entitlements exit. Costs go up & down with
the volume pumped. When exiting entitlements are not pumped the previous cost of
this operation is eliminated. “Leaving” members who built the infrastructure, leave it
fully built & unencumbered. They give in these valuable assets to those remaining.
Temporary water transfer is only allowed within the TNIS. Currently we have a 5%
allocation which cannot be pumped as losses would be too high- a stranded asset.
Earlier in the year temporary water was worth $250 per ML on the river. No other
member of TNIS would be interested in this water as they would not be able to use it.
However, if trade to the river was allowed they could sell the small amount & recoup
all of their costs & this would keep them viable in the short term. The locking up of
trade has made small amounts of water in the TNIS a worthless asset & a further
contribution to an unviable asset.
The Trangie Agricultural Research Station is a member of the TNIS with 4000 ML’s
of high security licence at the top end of the scheme.(see map) The Research Centre
require water in all years to service their ongoing research plots and therefore the
channel to them is kept wet. Members in that section and beyond to “Carlisle” can
access water at lower volumes whereas the remainder of the membership require a
1600 ML single pump delivery. Our licenses at the end of the scheme are already in a
stranded circumstance.
Unbundling of entitlements from access to infrastructure operators will be a fact by
2010 & TNIS seem to want to put in place a set of charges that allows them to profit
from members exiting. This allows TNIS to continue operating in an inefficient way
with no incentive to improve. TNIS has admitted that it has inefficiencies & is seeking
to have a modernisation plan to reduce costs & losses. It is already reducing costs by
not replacing its recently retired manager.
Transmission losses are not increased by exiting members; if their water is not
pumped there can be no loss of it. TNIS over the past few years has found that it can
run the full length of its channels with as little as 1600 ML in total pumped & an
average of 22% loss. This would indicate that exiting members would NOT increase
losses & therefore compensation is not required.
The issue of stranded assets does not occur as the modernisation plan which reduces
losses can still effectively deliver water to areas below exiting members. However if
TNIS are concerned that exiting members will become large in number , they need to
question why this would be so. We would suggest that an uneconomic use of a
valuable asset would encourage members to trade out. The TNIS has to provide a cost
efficient home for the entitlement in competition with other places. Free trade in the
temporary market allows sustainability in low allocation periods & free trade in
permanent transfers pressures the infrastructure operator to be competitive in its
provision of services & so the viability of the entitlement holder.
The pace of change is very necessary as we have not grown a commercial irrigation
crop since 2002. Lower water allocations have made it necessary to look at new ways
of keeping irrigation entitlements economically viable. Freeing up trade is one of the
most necessary moves to keep water placed in areas of greatest efficiency.
Socio-economic impact, whilst will have some effect, is not quite as devastating as at
first thought. The advent of minimum & zero tillage farming systems has made it
possible to grow crops on rain that is stored in the soil & used during the growing
season. Crops require less rain as stored rain water is allowed to be only used on the
crops planted. In some places, no irrigation, will not be quite so disastrous.
The 4% limit of total water entitlement of each infrastructure operator that can be
transformed in any one year should not be enforced. Again, why are members wanting
to leave? Because their asset can not perform & so need to find a new home. By
restricting the uneconomic, unviable to exit you increase the chance of failure of
business. The last one to exit may have to wait 25 years!
After 6-8 years of drought, farming businesses are quite fragile. The pace of change,
unfortunately, has to be quick in order to give entitlement holders a means to find
profitable ways to run their business. One of these may have to be trading their
entitlement.
One issue that the TNIS does not address is where exiting entitlement holders are in
positions or areas that are not viable to run or have identifiable avoided fixed costssuch as congested areas, farthest reaches & uneconomic areas. In these cases the
remaining members actually gain by those members leaving.
After the presentation of our “Probability of consecutive low allocation years & the
need to plan for them” paper in 2005, the TNIS instigated a strategic plan. At a cost of
$32,000 & after consulting with all members it was found that one of the problems
that needed attention was losses. To reduce the length of the scheme was seen to be
one way to achieve this. In this plan it states “giving respect to people on the end of
the scheme, investigate ways to reduce the length of the scheme”.
The next step & as a result of the strategic plan a “modernisation plan” which would
allow delivery of water to members in low allocation years with minimal losses was
devised. This plan involves the Federal Government extending grants to the TNIS to
build infrastructure to achieve the above goal. As part of the modernisation plan
development “on farm water efficiency plans” are being drawn up for each member of
TNIS by Western Land Planning (WLP). In section 1 TNIS overview they state & we
quote “The total length of the main supply channel is approximately 240kms.
Estimates from delivery metering have indicated a 16-36% decrease in total volume
available to irrigators from the main supply channel, with median from 20-25%. This
decrease corresponds directly with the length of the conveyance distance from the
river source. Irrigators at the farthest limits of the scheme have estimated water loss
from TNIS to be in excess of 36%”. At a TNIS average loss of 22%, members would
be better off by 14% if irrigators at the farthest limits left. It can be seen that in the
case of irrigators at the farthest limit exiting, a reduction in losses would occur & if
these losses are valued, would more than compensate the infrastructure operator. The
reduction of channel length and associated infrastructure would be a further reduction
in fixed costs.
Congested areas occur where a section of channel cannot service all entitlement
holders at once. The exiting of one or more entitlement holders would benefit the
others by accessing their water more timely. These & any other situations that actually
advantage the infrastructure operator by exiting entitlement holders should at least
reduce any termination fee by the received benefit.
The TNIS submission, if acceded to, will be an impediment to trade. At present values
would reduce the purchase price by as much as 33% & so the sale may well be
terminated. Such a fee would allow the infrastructure operator to profit by exiting
members & confirm the position that these entitlements are not transferable and
therefore locking them into inefficient use. The inability to freely trade places a
significant reduction in capital value to this otherwise very valuable asset.
The water market rules have to allow water to find the most efficient and economic
use for this scarce & most valuable commodity. Such obvious & profit making
impediments to trade should not be allowed. Infrastructure operators have to improve
their efficiencies, and so, be the preferred place for entitlement holders.
Please find enclosed a copy of the public submission to the Water Market Rules issue
paper by the Trangie-Nevertire Irrigation Scheme co-operative to which we have
referred to in this submission.
Also enclosed is a copy of the letter from TNIS to Peter & Tina Leslie confirming that
our riparian water can be sold without any penalty.
Thankyou for this opportunity to make our submission. Any further information you
may require or discussion by personal interview at your office would be welcomed.
Yours faithfully
Peter Leslie
Doug Ferguson