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Focus: WA's first-in/first-served water policy under review

27 September 2011

In brief: Licenced water users in Western Australia should be aware that the WA Department of Water is reviewing its current water allocation policy. Partner Jodi Reinmuth (view CV) and Special Counsel Robyn Glindemann look at the Department's recently released discussion paper on the issue.

How does it affect you?

  • The Department is examining the basis upon which it will allocate water from resources approaching full allocation.
  • The Department has recommended that a market-based mechanism, such as auctioning, be adopted when resources reach 70 per cent allocation, rather than continuing with the current first-in/first-served policy.
  • Public comments on the Department's discussion paper can be made until 28 October 2011.

The discussion paper

On 19 September 2011, the Department of Water released a discussion paper seeking input on how the Department should allocate entitlements to water resources, particularly where there is competition for the resource among actual and potential users. The discussion paper's release follows the June 2011 release of a draft guide to water allocation planning in Western Australia.

To date, the Department has prioritised applications for unallocated water entitlements based on the timing of receipt of applications (the so-called 'first-in/first-served' approach). For these purposes, requirements for the existing and future supply of water to the public and entitlements reserved under State agreements are considered to be unavailable and therefore not available to be allocated.

The discussion paper notes that '[h]istorically, the first-in first-served approach was widely used to allow immediate development of available water...The justification for the policy is basically one of equity, procedural simplicity and the absence of any clear alternative'.1 However, competition for water is increasing and the deficiencies in the first-in/first-served policy have become more apparent.

Move to a market mechanism?

Noting that the first-in/first-served policy does not direct water to its highest value use, and is not consistent with the National Water Initiative to which Western Australia is a signatory, the discussion paper recommends that a market-based allocation mechanism be used once allocation levels in a given water resource exceed 70 per cent of the identified allocation limit. The discussion paper states that auctions are the preferred mechanism because they allocate water to the highest value use, water's economic value can be assessed and the auction process encourages efficiency and reuse where economically justified.2 Market mechanisms are preferred by the National Water Initiative and are in use in several other Australian states.

The discussion paper does briefly consider other allocation mechanisms; however:

  • merit selection was not practicable given it is subjective and technically complex and there is a difficulty in setting reliable criteria. It may also lead to appeals and therefore investment uncertainty; and
  • direct sale of entitlements and ballots do not sufficiently address the need to administer scarce entitlements in the most environmentally sustainable manner and in a way that maximises its use value.

Each of these mechanisms was rejected by the Department. The discussion paper is seeking public comment on whether there are any other allocation mechanisms that should be considered and how the auction mechanism, preferred by the Department, should be designed.

The discussion paper also calls for comment on whether 70 per cent is the right level at which the allocation methodology should move from the current first-in/first-served approach. It may be appropriate to set a higher or lower threshold in certain circumstances. Further, how should applications that 'straddle' the 70 per cent limit be addressed? For example, if an application takes a resource from 50 per cent allocated to 80 per cent allocated, should the portion over the 70 per cent threshold be allocated on a first-in/first-served basis or should some other methodology be used?

Comments on the discussion paper can be emailed or mailed to the Department before 28 October 2011. Comments received will be considered before the development of a policy for the approval of the Minister for Water in early 2012.

Other comment sought

Importantly, the discussion paper does not address water reservation policy or how large volumes of water should move from one area to another. Both these issues will be the subject of a separate discussion paper and public comment at a later date.

The Water Services Bill 2011 and Water Services Legislation Amendment and Repeal Bill 2011 are both before the WA Parliament for consideration. These Bills focus on the reform of water services provision and licensing of water and water services providers. An issues paper on the proposed regulations that will support the Water Services Bill was released in August for public comment until 11 November 2011.

Conclusion

The National Water Commission's 2011 report on the implementation of the National Water Initiative recommends that all governments should refresh their commitment to water regulatory reform program. The release of this discussion paper is yet another step in the WA's gradual shift to integrate the principles of the National Water Initiative into State water law and policy. While much progress has been made, there is still a considerable amount of reform still to be achieved in this State.

Footnotes
  1. Page 13.
  2. Pages 18 – 19.

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