PRESENTATION BY BOB SMITH

DIRECTOR-GENERAL

DEPARTMENT OF LAND AND WATER CONSERVATION

TO THE AGRIBUSINESS – KPMG WATER ISSUES FORUM

Introduction

It is with great pleasure that I was invited to speak to you all today as it provides a valuable opportunity to outline some of the issues in the Water Sharing in NSW paper.

The discussion paper forms the starting point for a major review of the water administration and licensing system in NSW. Bringing water administration up to date is essential if we are to meet today's water management challenges.

As the Minister mentioned in his opening speech, the discussion paper was released in April this year. The 6-month public consultation phase ended on 31 October. However, I believe the audience today represents a wide cross section of interests which could provide some valuable insights on the issues in the paper. I would therefore welcome any further submissions arising out of today's forum.

The paper covers water allocation, use, licensing and administrative arrangements in NSW. All of which are integral to the future water management in this State and no doubt to the future of agribusiness in this State.

Agriculture, and more specifically the irrigation industry, is the major consumer of water in NSW. While across the State irrigation consumes 75% of all water extracted in NSW, in the inland areas this figure approaches 95%. Agribusiness of course will be directly impacted by these decisions and needs to play a major role in the decision-making process.

Objectives

Our licensing and administration system forms the basis for how water is shared in NSW.

A re-think has been required because of the inadequacy of the current legislative and licensing system to deal with environmental issues, as well as, by the demand by water users for a clearer and more secure system of water rights.

Change won't happen over night, but by the turn of the century, we are aiming for a much clearer and more comprehensive framework of water rights.

A framework which:

The discussion paper represents an important component of the State Government's wide-ranging water reform commitments.

It is also part of NSW's strategy to meet the requirements of the national water reform agenda.

The Council of Australian Governments (COAG) requires development of quote 'a comprehensive system of water allocations or entitlements backed by separation of water property rights from land title and clear specification of entitlements in terms of ownership, volume, reliability, transferability and if appropriate quality."

This is in itself a major task but one that we are well on the road to achieving in NSW.

Key Issues

There are 21 issues raised in the discussion paper. Some of them are quite complex. I will touch on those that will be of main interest to agriculturists. Being the area of biggest use, most of the issues, but not all, relate to users on the regulated rivers that is, those controlled by the Department's dams.

1. Possible separation of the access and use right

This idea is presented at the start of the paper. I should point out that it is only an option, and your views are sought.

At present, water users have one license that governs both the right to take water from a particular source, and the fights and conditions to use that water. This latter component, however, is only a relatively recent addition and is not being applied on a consistent basis.

There are advantages in separating access and use rights. It would:

With separate rights, license holders could trade all or part of their access right, while still retaining their use right. At a later time, they could re-buy an access right if they wanted to resume their water use activities. Having an established use right will mean a lot less consideration of proposed trades by the bureaucracy.

Another benefit is that potential water users could obtain a water use license in advance - they could sort out their use conditions, so that they would be able to take advantage of a water access right as soon as it became available at a suitable price on the market.

Users would also have the flexibility of accessing water from a number of sources, including surface and groundwater, with total use being authorized under the one water use license. The one water use right would have environmental benefits in that it would ensure that the impacts of all types of water uses on a property could be considered together.

The system may also be simpler to administer. Processing of transfers would become relatively simple, and the water market could operate more effectively.

As I have said, I would welcome your views on this - in particular the implications for tax and financial arrangements.

2. Term Of Rights and Review Period

Currently, most irrigation licenses granted under the Water Act are for five years but with varying periods for other types of licenses such as for town water, stock and domestic and industrial use and for the large irrigation corporations in the south west.

License conditions are formally reviewed on license renewal. However, conditions can also be varied at any time during the license.

License holders and financial institutions believe that short-term licenses, with conditions that can be changed at any time, are not good for financial stability. There has also been concern over water management decisions that appear to be changing all the time.

The paper suggests various options - among these rolling licenses with their review period linked to the review of the water management plans. These water management plans are now being developed by the local management committees as earlier outlined by the Minister.

3. Water transfers

Allowing the market to dictate how water will be used is the future for water management in NSW.

No new additional water entitlements are being granted on the inland rivers and many coastal river systems, so trading provides the only real opportunity for new users to obtain supplies or existing users to expand their enterprises.

Currently, around 400,000 to 500,000 megalitres are transferred each year on the regulated rivers. By moving water to higher value uses, trading is adding about $12 million a year to the value received from irrigation. A limited trading scheme has just started for the unregulated rivers.

But there are still a number of issues that need to be resolved. For example, how do we free up the market but ensure consistency for inter-valley or even inter-state transfers?

Also, should high security users be allowed to trade? In the regulated river systems, there are essentially two classes of licenses - high security and general security. Town water supply licenses are high security, as are most irrigation licenses used for permanent plantings, such as fruit trees, or for some dairy operations and industry. Stock and domestic requirements are also treated as high security.

High security licenses are supplied their full entitlement in all but extreme drought periods. Typically, high security irrigation license holders do not use all of their water, and trade the rest temporarily.

The equity of allowing high security users to trade their unneeded water while other general security users are restricted has been questioned. The paper suggests that high security trades be limited during restrictions or that the concept of high security be removed. This would involve converting all licenses to general security.

4. Continuous accounting and capacity sharing

Continuous accounting occurs in a limited way in some regulated river systems by allowing irrigators to carry over some unused water to the next season. This practice is generally supported by the Government as it tends to encourage greater water efficiency.

However, under a true continuous accounting system there would be much greater flexibility because there is no "end of year". License holders water accounts would be continuously credited as inflows occur and more water becomes available and debited as they extract water.

Such a system has now started to be trialed in some rivers. We will be looking at an irrigator's ability to cope with such a system, and the impacts on cap management and the environmental flow rules.

Capacity sharing is a more complex system that is being promoted by some irrigator groups. License holders would have separate shares of dam storage volume, dam inflows and tributary inflows. They could continue to store inflows, providing the amount they are holding does not exceed the volume of their storage share, and call on water at any subsequent time. When water is ordered from the dam, users must also cover their share of any water lost between the dam and their extraction point.

It is important to note that capacity sharing is not supported by all water users. It would place significant responsibility on the shoulders of individuals to properly manage their combination of shares.

5. Small farm dams

The concerns over the impacts of growth in riparian extractions and small farm dams are canvassed in the paper. As the Minister mentioned, in response to these concerns and, as a result of public comments, a new farm dam policy has been announced. This will replace the riparian farm dam allowance and enables all landholders access to an equivalent volume of water, without leading to significant growth in the water extracted.

Many of the details still need to be worked out for the implementation of this policy which starts in January next year but the 10% share appears to be a much fairer system for all water users as well as providing a clear limit.

6. Off-Allocation

When water enters a regulated river from tributary streams downstream of a dam, or from spills from a dam, off-allocation extraction may be permitted. This means that any water diverted during this period will not be counted against a user's regulated flow allocation. In the northwest in particular, irrigators have built substantial storage to allow them to take advantage of such flows.

There are, however, no statutory rights to off-allocation flows, and access has always been dependent on meeting all other extractive or environmental needs first.

The paper canvasses the possibility of licensing this right. But because any off-allocation ~ could be substantially eroded over time to provide for environmental flow requirements or to keep extractions within cap limits, off-allocation would have to be a secondary, and very conditional, right. Licensing could lead to a possible trading in this right.

How water should be shared is another major issue. Should it be shared among those who have invested in the infrastructure and are already accessing this water or should it be shared in some way among all potential users?

7. Flood harvesting

Floodplain works (such as levies) can capture natural overland flood flows and prevent these from entering or returning to a river, or from recharging the groundwater system.

This is a growing problem in some areas and is an issue in terms of the need to contain use within the cap. There is now a need to control the harvesting of this water through the licensing system.

8. Sleeper and Dozer Licenses

Sleeper licenses are those that have never been used and dozer licenses are those that are only partially used or used in only some years.

The decision on sleeper and dozer licenses in the regulated system was made back in 1997 when it was agreed to allow them to continue and to trade. This was the option the majority of water users preferred although in some areas, particularly in the southwest, the activation or trade of sleepers and dozers could have more impact on reliability of supply than the environmental flow rules or the cap measures.

Sleepers and dozers make up a substantial proportion of the licenses in unregulated rivers. A decision also needs to be made on how these licenses will be dealt with in these systems. The paper canvasses whether they should be reduced or restricted from trading. Similar questions apply to groundwater.

Under the interim rules for the unregulated trading scheme currently in place, they cannot be traded.

9. Unlicensed Bores

All bores in the State, regardless of what the water is used for, are required to be licensed. Yet, the number of unlicensed bores may be as high as 50,000. These would be mostly low yielding bores.

Licensing of bores allows the Department to protect the viability of the groundwater systems themselves, and the rights of existing users, through imposing particular conditions on the license. While in theory the Department should pursue all unlicensed bores, this is almost impossible to administer. The paper questions whether all bores should be licensed or only those in systems at risk from over-extraction or contamination.

10. Conjunctive Use licenses

A conjunctive use license allows the pumping of groundwater in times when surface water supplies are restricted. The original intent of conjunctive use licenses was to provide drought security.

However, with restrictions on surface water extractions, there is an increasing reliance on the groundwater component of conjunctive licenses. In groundwater systems, which are already under stress, this has become a problem.

As part of the Government's 1997-water reform package, a decision was made to split these licenses into separate surface and groundwater licenses. However, it still needs to be decided how this should be done.

Conclusion

I have just provided a very brief overview of some of the aspects in the discussion paper.

The paper is the first attempt to come to grips with the issues that need to be addressed and present some, but by no means all, the possible options for dealing with these issues.

The time is right to start to rectify many of the problems with the water sharing and licensing system. Inappropriate or insufficient control over water use, not only threatens the success of the environmental rules, but also will directly impact on the supply available to existing licensed users. At the same time water users need to have the flexibility to manage their water use to met their business needs.

The Government recognizes that public input to the decision-making process is vital which is why there has been a 6-month public consultation phase plus the request for written submissions. Again, I would welcome any further input arising from today's forum.