Strategic approach to water purchasing in 2008-09
The objective of the Australian Government's $3.1 billion Restoring the Balance in the Murray-Darling Basin (RtB) program is to acquire water entitlements which will be used to improve the health of the Basin's rivers, wetlands and floodplains. This is necessary to address the impacts on aquatic environments of climate change and historical over-allocation.
Judgments about which sell offers to accept are being made at a time when information about the environmental watering needs of river systems across the MDB is incomplete. However, rather than waiting for full information to be available, and risking collapse of the ecosystems which rely on water flowing through the Murray-Darling Basin's rivers and tributaries, the Australian Government is pressing ahead with its water entitlement purchasing program.
The Australian Government is directing funds to catchments where the use of the water will deliver the highest environmental return. The water buyback is also helping smooth the transition to the new, lower sustainable diversion limits on water use in the basin which will take effect under the Basin Plan due to be finalised in 2011.
The long-term objective for the program is to rebalance environmental and consumptive use. Water entitlements held by the Commonwealth Environmental Water Holder (CEWH) are used to protect and restore identified environmental assets across the Murray Darling Basin, and to improve the health of the river system.
For further information on environmental watering activities undertaken by the CEWH go to the
Purchasing decision framework
The decision to accept water entitlements offered for sale through the RtB program was undertaken using the following criteria:
- The entitlements offered can provide water in catchments where there is scientific evidence that water needs to be recovered for the environment.
- There is a capacity to deliver water from these entitlements for an environmental benefit.
- The costs of purchasing the entitlement are judged to represent value for money.
These criteria were developed to ensure that the environmental benefits of the program are maximised against a widespread environmental need for more water, and a substantial but limited purchase budget.
Environmental need
Prior to the Murray Darling Basin Authority (MDBA) developing a Basin Plan to guide environmental watering priorities in the Murray Darling Basin (MDB), decisions about environmental need are made using best available science including the CSIRO sustainable yields report; the MDBC Sustainable Rivers Audit and other information on specific high value ecosystems. New information is added to the mix as it becomes available.
Environmental need is prioritised for individual catchments as high, medium or low. Catchments are ranked as high which have: numerous high value environmental assets; high levels of water resource development; and known additional watering needs to maintain or improve environmental assets. In directing purchases in this manner there is scope for addressing historical over-allocation.
Water purchases have been directed to high and medium priority catchments. No purchases have been made in low priority catchments. A list of priorities assigned to catchments in the MDB using best available science is provided in Table 1.
| Higher priority catchments | Southern connected Murray system |
|---|---|
| Lower Condamine-Balonne | |
| Gwydir | |
| Macquarie | |
| Moderate priority catchments | Border Rivers |
| Barwon - Upper Darling | |
| Lachlan | |
| Upper Condamine | |
| Namoi | |
| Lower priority catchments | Moonie |
| Paroo / Warrego | |
| Castlereagh |
Capacity to deliver
Another issue which is considered in deciding on which entitlements to purchase is the capacity of the CEWH to use the water entitlements being offered for sale, which includes:
- The management arrangements and infrastructure required to deliver and use the water entitlement for environmental benefit.
- Whether the entitlement is able to provide water when it is needed
- Possible water losses through seepage, evaporation and extraction by other licensed users.
- The relevant state legislation and water sharing plan which govern the use of the water entitlement and provide security over the property right.
In determining capacity to deliver environmental water, a risk assessment is undertaken for common entitlement types in the MDB (these risks are summarised in Table 2). Only entitlements that are rated as a low or moderate risk are accepted for purchase.
| Entitlement type | Risk | Rank (0-2) |
|---|---|---|
|
High | 0 |
|
Moderate | 1 |
|
Low | 2 |
The Australian Government has purchased a mixture of high and general security water in order to cater for the different watering needs of environmental assets.
Cost of entitlements
The Australian Government accepts sell offers of water entitlements based on a discriminatory price tender. Publicly reported market prices are used to set a price benchmark. This benchmark is the basis on which the Australian Government discriminates between sell offers, accepting only those offers for which prices are at or below the benchmark. Where water markets are immature and/or little trade has occurred, as is the case in the Northern Basin, the Australian Government has engaged the services of accredited values to develop a better understanding of market prices.
In assessing the cost of pursuing a water purchase, the Government takes into account the price of the sell offer, the transaction costs associated with the purchase, and the current estimate of the costs incurred in delivering water to the target environmental asset.
2008-09 Purchasing Outcomes
As at 31 July 2009, the Australian Government had secured 463 GL of water entitlements at a total value of $712 million through the 2008-09 tender program.
The majority of offers through the 2008-09 purchasing round came from regulated river systems for which market prices are well known and which are located upstream of high priority environmental assets, so the rejection rate was low.
The majority of expenditure on purchases made through the 2008-09 RtB program was for entitlements from three of the four high priority catchments– Gwydir, Macquarie and the southern connected Murray system (Table 3). Purchases have not been made in the Lower Balonne because the Resource Operation Plan has not been finalised for this catchment.
| Priority | Catchment | Percentage Spent |
|---|---|---|
| High | NSW Southern Connected System | 18 |
| High | VIC Southern Connected System | 35 |
| High | SA Southern Connected System | 2.5 |
| High | Lower Condamine-Balonne | 0 |
| High | Gwydir | 25 |
| High | Macquarie | 9 |
| Medium | Border Rivers | <0.5 |
| Medium | Barwon - Upper Darling | 1.5 |
| Medium | Lachlan | 8 |
| Medium | Upper Condamine | 0 |
| Medium | Namoi | 1.5 |
| Low | Moonie | 0 |
| Low | Paroo/Warrego | 0 |
| Low | Castlereagh | 0 |
Some sell offers received through the 2008-09 purchasing round were rejected on the basis that there was a high risk that the entitlements could not deliver water to produce environmental benefits and/or the price was too high. This included:
- purchases from unregulated systems where there was a risk that control over the water would be lost on entering an unregulated system,
- purchases from regions where no water sharing plan was in place and hence where there was no security over entitlements and/or poor information on the level of extraction, and
- purchases where there were delivery constraints (e.g. Barmah choke, Lake Cargelligo) or there was a risk of interception (e.g. overland flows).
For entitlements that were considered to be a moderate risk detailed research was undertaken to assess the risks associated with the specific entitlement offered.
Environmental Water Delivery
The CEWH delivers water acquired through the RtB program to protect or restore important environmental assets. Environmental assets include, for example, wetlands, rivers reaches and tributaries throughout the Basin as well as the wetland complexes at the terminal end of a river system, such as the Macquarie Marshes.
Environmental water will be delivered to environmental assets to reflect as closely as possible the historical and natural flood and drying cycle that is a feature of the Murray-Darling system. This means that environmental assets will be watered in some years and left to dry out in other years. The Murray-Darling environmental assets are stressed due to the unprecedented length of the drought, changing climate conditions and over-allocation of water, which has altered the natural cycle of flooding and drying.
To date the CEWH has allocated for delivery 10.9 GL of water for watering environmental assets in the southern connected system, as shown in Table 4.
| NSW Murray River catchment | Victoria Murray River catchment | South Australian Murray River catchment |
|---|---|---|
| Backwater Lagoon | Lindsay Island | Chowilla Floodplain |
| Hattah Lakes | Carpark Lagoons, Katarapko Floodplain | |
| Rocky Gully | ||
| Markaranka Floodplain | ||
| Overland Corner Floodplain | ||
| Murbpook Lagoon |
The 463 GL of water acquired so far through the 2008-09 purchasing round could yield 277 GL per year, on average, over the long term.