Saturday, March 15, 2008

Water buybacks in the MDB

I posted recently on the water buybacks about to occur in the Murray-Darling Basin to provide increased environmental water flows. John Quiggin also made an post based on an AFR article he wrote. At the time I scouted around for a brief of the current state of play. This article by Asa Wahlquist in The Weekend Australian provides very useful background – the scale of purchases achieved and sought, opposition from farmer groups (mainly, that it will drive up water prices) and the response of water owners to planned purchases. Some quotes (I inserted hyperlinks and corrected some minor inaccuracies in names):

‘Under the Living Murray, the Murray states have agreed to return 500,000ML to the environment by 2009.

The $425 million Water for Rivers program, run by a corporation funded by the NSW, Victorian and federal governments, will deliver 158,000ML by July. It aims to put 282,000ML back down the Snowy and Murray rivers.

The acting CEO of Water for Rivers...says most of the water will be acquired through water efficiency savings. But the corporation did purchase 40,000ML sooner than they originally planned: "We have front-ended our purchases in anticipation of these other players coming into the market. We felt we would get in there, we would buy as much water as was available."

...The NSW Government program NSW Riverbank has $105 million to spend over five years on purchasing water for inland wetlands, as well as the $28.5 million Wetland Recovery program. Together they have purchased 27,500ML so far.

South Australia has purchased 17,000ML for its 35,000ML Living Murray target, and is still buying, while Victoria is concentrating on acquiring the water through efficiency savings. But the really big money on the table will come from the commonwealth.

Earlier this month, federal Minister for Water Penny Wong announced that the Government would spend $50 million buying back water. That is just a small part of the $3.5 billion committed to water buyback under the National Plan for Water Security.

Water economist Mike Young, from the University of Adelaide, points out that $3.5 billion effectively means spending well over $400 million a year for the five years from 2009-10.
"The value of water traded in permanent sales at the moment in the entire southern system is about $100 million," Young says. "You are talking about government buying four times the current size of the market. Doing that without increasing the price of water is going to be very, very difficult."

...the 500,000ML of the Living Murray is just the first step. Scientists such as Rod Oliver argue that the river needs more like 2000 GL. Oliver has been working on the CSIRO's Murray-Darling Environmental Water project, looking at submerged wetland vegetation, or macrophytes, and red gums along the Murray.

"If we wanted to maximise the diversity of macrophytes along the Murray - this is not to return it to what it was, just to maximise where we could - we would need of the order of 2000GL of water," Oliver says. "The modelling for the red gums to sustain them in good health was of the same order."

The past year has been the 10th year of drought along the Murray River, and the water market has been going gangbusters.

Brian Peadon runs the Waterexchange, an exchange service for water trades. He says that for the first six months of this financial year the temporary trade notched up $160 million. "That is just phenomenal turnover, because there have been phenomenal prices. At the peak of the season it was $1200 a megalitre, which is totally unsustainable."

But he says not much is happening now in the permanent trade, "because the expectation for the sellers has been raised. If you have got four government departments competing with each other for the same resource, it is a seller's market, so why would you be selling now. What will the price get to?" Peadon says the price is certainly rising "but not dramatically at this point, purely because there is not much actually selling".

In July last year, the MDB Commission launched a pilot program to buy 20,000ML for the Living Murray. It was supposed to run for 11 weeks, but MDBC chief executive Wendy Craik says it had acquired enough water and closed at the end of four weeks.

"Given that other people got better offers than we were prepared to pay, I don't think we pushed the price up," Craik says. "The prices offered ranged from $790/ML to $3500/ML. The top price went up to $6000." A final report, with the prices paid, has not yet been released’.

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