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Focus: New water legislation for Victoria

12 October 2005

In brief: The Water (Resource Management) Bill was introduced into the Victorian Parliament on 5 October this year. Partner Grant Anderson, Senior Associate Lauren Thompson and Lawyer Emily Gerrard look at the key reforms contained in the Bill.

The Water (Resource Management) Bill (the Bill) implements a number of the Victorian Government's policy commitments outlined in its White Paper, Securing Our Water Future Together, which was released in 2004 and is discussed in AAR Focus: Water, 24 June 2004.

Overview of the Bill

The Bill introduces a wide range of reforms to the management of Victoria's water resources and the trading of associated water entitlements. In particular, it improves the arrangements for the sustainable management of Victoria's water resources, creates an environmental water reserve, provides for new forms of water-related entitlements, establishes a centralised water register to record the details of these entitlements, and sets out a more robust framework for Victoria's participation in interstate water trading. These reforms, which are in accordance with the Victorian Government's commitments in its Securing Our Water Future Together White Paper and the objectives of the National Water Initiative1, are discussed in more detail below.

The Bill also creates a regime under which water authorities may prepare plans for the reconfiguration of water distribution systems that service properties in their districts and the charges for those services. These plans may provide for the reduction of services to properties, as well as for the payment by water authorities of compensation as a result of such service reductions. In addition, the Bill contains provisions that may be used to facilitate the restructuring of water authorities. 

Managing water resources and the environment

The Bill contains a number of refinements intended to improve the management of Victoria's water resources, including provision for the periodic reassessment of these resources (which may lead to the curtailment or other modification of rights to use water) and the development of regional sustainable water strategies.

Probably the most significant reform that is proposed in this respect, however, is the establishment of the environmental water reserve. This reserve comprises water that is set aside for the benefit of the environment under environmental entitlements or the operation of conditions on bulk entitlements, licences, permits or authorities, and under management plans or regulations. The objective of the environmental water reserve is to maintain a sufficient volume of water to preserve the environmental values and health of water ecosystems, including their biodiversity, ecological functioning and quality of water.

Under the Bill, the Minister is empowered to allocate environmental entitlements to water (other than recycled water) to the environment Minister2 , who may in turn assign an allocation of water under an environmental entitlement to the owner or occupier of land on which water may be used if the assignment will benefit the environmental water reserve. Further, such an assignee may (with the Minister's approval) temporarily assign all or part of that allocation to another landholder.

The introduction of the environmental water reserve means that, depending on the circumstances, an application for the grant or transfer of a bulk entitlement, licence, permit, authority or other water-related entitlement under the Act must, or may, be refused if it is likely to have an adverse effect on maintaining the environmental water reserve. Likewise, seasonal water allocations must take account of the amount of water reserved for the environment.

Replacement of existing water-related entitlements

The Bill provides for the unbundling of water entitlements, replacing existing water-related entitlements with water shares, water-use licences or registrations, and delivery entitlements. Each of these new entitlements is discussed separately below. However, the transition to the new water-related entitlements will not occur immediately. Instead, the existing forms of water-related entitlements will continue to operate until the water system to which they relate is declared to be a 'declared water system'. In this regard, the Bill provides for detailed transitional arrangements that are to apply in respect of the conversion of the existing water-related entitlements into these new forms of entitlements when the relevant water system becomes a declared water system. These transitional provisions also deal with related matters such as the conversion of mortgages over land to mortgages over land and the associated water share.

Water shares

A water share authorises the holder to take water under the water allocation for the share during the (annual) water season for which the water allocation is allocated or (if the Minister approves) in a subsequent water season. The ability to take a water allocation in a later water season with the consent of the Minister is intended to add to the value of water shares with a lower class of reliability, as these will typically receive a substantial water allocation late in the season when more water becomes available in the system for consumption.

The Minister may issue a water share in a declared water system (or in a zone of a declared water system) either on application, following a sale of the water share to the grantee by the Minister (eg through an auction or tender), or in exchange for the cancellation of an equivalent interstate right.

On issuing a water share, the Minister must determine the share of water available under the water share (expressed as a maximum volume of water over a defined period) and the class of reliability of the water share. The amount of water that is actually allocated to a water share depends upon the total amount of water that is determined by the Minister or the relevant water authority to be available for allocation for the relevant water season.

An associated water share is a water share that has been determined by the Minister to be associated with land that is specified in a water-use licence or registration (see below). Such a water share may only be issued to the owner or occupier of land specified in a water-use licence or registration or to a person who is 'related' to the owner or occupier of such land (eg a relative or a related body corporate). Moreover, a water share must be issued as an associated water share if the non-water user limit for the relevant water system is exceeded, or would be exceeded by virtue of the issue of that share. Broadly speaking, and unless the Minister determines otherwise, the non-water user limit for a water system is 10 per cent of the total maximum volumes of entitlement for water shares in the water system (although the limit may be defined by reference to classes of water shares of a particular reliability).

The purpose of the non-water user limit is to restrict the accumulation of water shares by those who are not able to use that water, thereby preventing excessive 'speculative' holdings. Consistent with this, the Bill contains a number of provisions dealing with circumstances in which the nexus between an associated water share and the relevant land is broken.

Conversely, a water share must not be determined to be an associated water share if it would result in the maximum volumes of all associated water shares that are referable to the relevant land being more than twice the maximum volume of water that is allowed to be used on the land under the relevant water-use licence or registration. This is a means of capping the water entitlements that may be accumulated by landholders.

Water share trading

The Bill permits the owner of a water share to transfer ownership of the share to any other person. However, such a transfer requires Ministerial approval and, for the reasons given above, the Minister must not approve the transfer of a water share that is not an associated water share if this would result in a breach of the non-water user limit for the relevant water system. In addition, the water allocated under the water allocation for a water share is not assigned until the transfer of ownership of the water share is recorded in the Water Register (see below).

In order to facilitate water trading, the Minister is authorised:

  • to vary a water share by converting it into a water share in a different water system (or zone) or by converting it into a water share with a different class of reliability;
  • to convert a water share into an associated water share or (if it does not result in the non-water user limit being breached) to convert an associated water share into a water share that is not an associated water share; and
  • on application by the owner of a water share, to divide or consolidate the owner's water shares.

Further flexibility in trade is provided in that:

  • the owner of a water share may transfer the whole of the right to future water allocations under that share for up to 20 years to the owner or occupier of land specified in a water-use licence or registration (a 'limited term transferee');
  • the holder of a water share (ie the owner or a limited term transferee) may assign the whole or part of the water allocation available to that person under the water share to the owner or occupier of land specified in a water-use licence or registration (a 'water allocation assignee'); and
  • a water allocation assignee, or a subsequent such assignee, may assign the whole or part of the assigned water allocation to the owner or occupier of land specified in a water-use licence or registration.

While all such transfers require Ministerial approval, the ability to undertake these transfers effectively permits the leasing and granting of derivatives (such as options) over water entitlements. These innovations should add to the liquidity of the water market and enable water users to better tailor their water holdings to the needs of their businesses.

Moreover, to facilitate interstate water trading, the Bill empowers the Minister to enter into agreements with Ministers of other States or Territories for:

  • the conversion of water shares or equivalent rights as between States and Territories;
  • the recognition of water rights in one State or Territory in another State or Territory; and
  • the assignment of water allocations as between States and Territories.

While, again, the approval of the Minister is required before a person may take water from a declared water system in Victoria under a right in another State or Territory that is equivalent to a water share, these provisions create a platform for interstate trading as contemplated under the National Water Initiative.

Water-use licences and water-use registrations

Water that is authorised to be taken under a water share must not be used on land unless the user has a water-use licence (where the water is used for irrigation) or a water-use registration (where the water is used for any other purpose).

Both water-use licences and water-use registrations transfer with the ownership of the land to which they relate, ie they remain linked to the land.

In granting a water-use licence, the Minister must consider the impact the proposed water use may have on other persons or the environment and must not grant the licence if (among other things) the proposed use:

  • would not comply with Ministerially determined standard water-use conditions (eg relating to the maximum volume of water per hectare that may be applied, the way the water is used, drainage, monitoring and reporting); or
  • would be inconsistent with Ministerially determined water-use objectives (eg relating to minimising the impact of water use on the environment).

In addition to being subject to any applicable standard water-use conditions, water-use licences will also be subject to any other specific conditions that are imposed by the Minister relating to meeting the applicable water-use objectives, as well as to any annual use limit that is specified in the licence. The conditions of a water-use licence may be varied by the Minister (both unilaterally and on application by the licensee). A water-use licence may also be suspended for suspected breach or revoked for breach.

The Minister must only grant a water-use registration if (among other things) the use of water for the relevant purpose is not prohibited and the maximum volume of water is reasonable for that purpose. A water-use registration may specify an annual use limit and may be varied by the Minister on application by the holder.

Delivery entitlements

An irrigation authority is required to determine the volumes at which and periods for which water is to be delivered for irrigation purposes to each of the serviced properties within its irrigation district (this determination is referred to as the 'delivery entitlement' for each such serviced property). However, an irrigation authority may, on application by the owners of two parcels of land in its irrigation district (and subject to such conditions as the authority determines), transfer to one of those parcels of land all or part of the volumes at which and periods for which water is to be delivered to the other parcel of land. Such a transfer may be made on a permanent basis or for a limited period of time only. This gives scope for the development of a trade in delivery entitlements within an irrigation district.

In addition, the Bill allows irrigation authorities to levy an exit charge. Under the relevant provisions of the Bill, an irrigation authority is permitted, on application by the owner of a serviced property within its irrigation district, to reduce the level of service to the property or declare the property to cease to be a serviced property, but only if the owner pays the authority an amount that is equal to the present value of the fees that would otherwise have been payable for the pre-existing level of service.

Water register

Finally, the Bill provides for the establishment of a central water title registry, the Victorian Water Register, that is to record information relating to Victorian water-related entitlements (eg water shares, water-use licences and registrations, bulk entitlements and environmental entitlements), as well as information relating to the allocation and use of water resources in Victoria. In so far as water shares are concerned, the information will include, for example, the owner, the relevant water system, the share of water available under the water share, its class of reliability, and any land with which it is associated (including the details of relevant water-use licences or registrations). Much of this information will be accessible by the public.

However, the Register will not just be a repository of information. As stated above, the transfer of ownership of a water share must be recorded in the Register for the assignment of the water allocation under that share to be effective. In addition, provision is made for limited term transfers, as well as mortgages of water shares, to be recorded in the Register. While it is not compulsory to do so, the benefit of recording a mortgage of a water share in the Register is that, should the mortgagee become entitled to enforce the mortgage and exercise its power of sale in accordance with the Act, the mortgagee can have the interest of the mortgagor in the water share recorded as being transferred to the purchaser. On the transfer being recorded, the purchaser will take the water share free from the mortgage and any subsequent recorded mortgage, and free from impeachment on the grounds that the power of sale has been improperly or irregularly exercised.

While the Register is still a fair way from a Torrens system of title registration, it represents at least some progress towards establishing firmer title arrangements and (together with the information that may be obtained from the Register) should facilitate trading in water entitlements.  

Footnotes
  1. See AAR Focus: Water, 30 June 2004.
  2. The 'environment Minister' is defined under the Bill to be the Minister responsible for administering Part 4 of the Catchment and Land Protection Act 1994.

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