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Focus: Victorian Government's White Paper on water

24 June 2004

In brief: Partner Grant Anderson and Lawyer Alistair Newton outline the key elements of the Victorian Government's recently released White Paper on water policy, Securing Our Water Future Together.

Background to the policy

In April 2003, the Victorian Government issued a Ministerial Statement on Water, which set out, in broad terms, the Government's future water policy framework. In August 2003, it released a more detailed discussion in the form of a Green Paper titled Securing Our Water Future. The Green Paper identified the key priorities that, in the Government's opinion, should underpin the future sustainable management of water resources in Victoria. These priorities have been carried forward into the recently released White Paper, Securing Our Water Future Together, which was launched by the Victorian Premier, Steve Bracks, and the Deputy Premier and Minister for Water, John Thwaites, on 23 June 2004. These priorities are:

  • the development of a sustainable water allocation and entitlement system that provides certainty in relation to water entitlements but also recognises the significant environmental impacts of the over-allocation of water;
  • the restoration of stressed rivers and ground-water sources by establishing Environmental Water Reserves, improving environmental flows, and implementing further river-bank and catchment management programs;
  • more effective use of irrigation water, for example by modernising irrigation practices and infrastructure and by creating an efficient water market through the unbundling of water rights and the removal of the requirement to hold irrigable land;
  • a reduction in the urban consumption of water, primarily through new measures to encourage water conservation and, where appropriate, the substitution of drinking-quality water by recycled and reclaimed 'grey' water;
  • the implementation of new water and sewerage pricing policies, structured to encourage water conversation; and
  • further institutional reform of the water sector.

Water allocations and entitlements

According to the White Paper, the current water allocation system, while generally providing for reliable entitlements, suffers from several shortcomings. In particular, the current system lacks sufficient safeguards against over-allocation (and the attendant environmental risks) and does not cover recycled water or stormwater. In response to these shortcomings, the Government has proposed that a new allocation system be implemented. The significant features of this new system are:

  • the extension of the water allocation framework to cover secure, tradeable entitlements to recycled water and stormwater;
  • the establishment of Environmental Water Reserves, with legal status and to be held by the Minister, which receive water set aside for environmental purposes;
  • the conversion of current 'sales' water allocations (ie those allocations previously made from water available to rural water authorities but not required to meet water rights) into an independent, legally recognised and tradeable entitlement (a 'low-reliability' entitlement) allocated by way of an auction or tender process; and
  • the regular publication of a Statewide Water Inventory (which will set out pressures and trends identified through measurement and monitoring systems) and the development of long-term Regional Sustainable Water Strategies to minimise risks in relation to water quality and supply.

Restoration of stressed rivers

The White Paper indicates that one-third of Victoria's rivers and two-thirds of its wetlands may be characterised as in poor or very poor condition. Accordingly, the Government has proposed an integrated approach to improving the well-being of Victoria's water resources. This approach is centred around:

  • regional River Health Strategies and Sustainable Water Strategies together with adaptive management of the Environmental Water Reserves, to improve flows;
  • the allocation of 20 per cent of the new 'low-reliability' entitlements referred to above to the Environmental Water Reserves;
  • practical restoration measures to improve water quality flows in rivers and wetlands;
  • targeted increases in funding for the Water Smart Farms and Sustainable Irrigation Land Management programs; and
  • ongoing cooperation with the New South Wales and Commonwealth governments to improve environmental flows in the Snowy and Murray rivers.

Irrigation

The White Paper also identifies a specific need to move water into more high-value uses and to invest in and adopt new irrigation practices and technology. To this end, the Government has advanced initiatives focusing on water trading and new processes to fund upgraded irrigation infrastructure.

Under the water trading proposals set out in the White Paper, water entitlements will be separated into three elements: two tradeable elements, a water share and a share of delivery capacity, and a site-use licence. In addition, non-irrigators will be permitted to hold the unbundled water shares (ie they will not be connected to any particular land). As a result of these reforms, irrigators will have more flexibility in managing their businesses; for example, they will be able to:

  • lease their water shares and shares of delivery capacity to other irrigators;
  • reduce their borrowing costs by using the tradeable elements of their water entitlements as collateral; and
  • more fully manage the reliability and timeliness of their water supply (since delivery capacity may be acquired without having to buy additional water).

Such unbundling will also facilitate water rights trading by financial intermediaries and aggregators, which should provide for a deeper and more liquid market.

In response to concerns that the separation of water entitlements from irrigable land might encourage speculators to manipulate the market for water entitlements, the State Government has set a limit on the total volume of water than can be held by non-irrigators in any one supply system. This limit will be 10 per cent of the system's total entitlement.

A new Water Register, which will list all water entitlements and trades, will also be established.

Urban consumption and pricing

In order to encourage reduced urban water consumption, the White Paper details proposals to:

  • extend Government rebates for water-saving devices (for example, under the existing Water Smart Homes and Garden Rebates initiatives);
  • achieve savings through modifying building practices, town planning schemes and plumbing standards;
  • introduce permanent water restrictions that will largely mirror the Stage 1 and 2 water restrictions currently in place; and
  • implement further recycling and stormwater conservation projects (with a view to achieving a recycling target of 20 per cent by 2010).

The White Paper also sets out new pricing structures that are to apply to water and sewerage services. The central elements of the new pricing structures are rising block tariffs for domestic users in Melbourne (where a premium price will be paid for quarterly consumption over 80KL) and, outside Melbourne, pricing structures that will be designed by water authorities in consultation with their customers.

Furthermore, water authorities will be required to make contributions to fund many of the initiatives detailed in the White Paper and they are expected to pass on these additional costs to consumers. As a result, the Government estimates that water prices for urban and rural customers will rise by five and two per cent respectively.

Institutional reform

The White Paper proposes further improvements to the institutional governance of Victoria's water sector – the water authorities serving water consumers in Melbourne and regional Victoria, the ten catchment management authorities, and local government – by clarifying their respective roles and responsibilities and improving their integration, coordination, capability and effectiveness.

National implications

The White Paper represents an important step forward in the management of water resources in Victoria. However, the White Paper is also an important contribution to the development of the National Water Initiative, a program that is being developed by the Council of Australian Governments to bring an intergovernmental approach to the issues facing water resource management. With the release of the White Paper, Victoria has therefore assumed a significant leadership role in the NWI process.

If you would like any further information in relation to the White Paper or its implications for the water industry and consumers, please contact any of the people listed below.

For further information, please contact:

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