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National Action Plan for Salinity and Water Quality

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PDF files

• The Business of Saving Water - Main report (PDF - 1.68 MB)
• The Business of Saving Water - Appendices (PDF - 1.30 MB)

See also

• A series of working papers
• Australian Government response to the Business of Saving Water

Executive Summary

The Murrumbidgee Valley Water Efficiency Feasibility Project examines the business case for saving significant amounts of water, and to identify ways of boosting regional productivity and environmental quality with the savings.

This report is the record of these investigations and the findings.

The project - the first of its kind in Australia - was initiated in 2003, following sustained community concern at Australia's water resources crisis, and in response to a call for business and investment solutions to the national water efficiency challenge.

The project is purposely private-sector focused rather than adopting a government or regulatory focus. By examining the business case for alternative investment options to improve water use efficiency, create water savings, and utilise those savings for human and environmental use, it aims to provide an action plan for business, community and governments alike.

The work is based in the Murrumbidgee Valley of New South Wales, but the intention is that lessons learnt here will be applicable to other parts of Australia and beyond.

Funding for the project was provided by Pratt Water, the Australian Government and the NSW Government, with the government parties providing funds under the auspices of the National Action Plan for Salinity and Water Quality (NAP).

The Murrumbidgee River rises south of Canberra and runs westerly for some 1,700 km before entering the Murray River near Balranald. The Murrumbidgee Valley catchment is 84,000 km2 and the River conveys some 4,300,000 ML (4,300 GL) of water annually, of which about 65 per cent is licensed for diversion for irrigation and other human uses.

The communities of the Murrumbidgee Valley have established successful and valuable enterprises based on the innovative use of water in agriculture, horticulture and value adding businesses. People's innovation and continuous improvement have enabled this Valley to contribute to the nation's wealth.

However the Valley's water users face many challenges. These include problems with ageing water supply and distribution infrastructure, limits on current water allocations now, future uncertainty regarding climate, river flows in this Valley and others, the need to ensure sustainability of farms and of the Valley's environmental assets, and growing competitiveness from globalised markets for the region's products.

This project has a multi-disciplinary and integrated approach. That is, every relevant form of expertise has been sought to be harnessed and ideas captured. These have been brought together to fashion a cohesive, whole-of-valley solution to the water sustainability challenge.

Some of the questions that have driven the project's investigations, are:

• What is the scale of the Valley's water losses and water saving opportunities?
• How can those losses be captured or minimised?
• What investments can be made to save water?
• How can saved water be harnessed to provide sustainable regional benefits - both human and environmental?
• How can the cost of water-efficiency infrastructure be reduced?
• How can water-saving infrastructure projects be privately financed?
• What reforms can governments adopt to boost investment in water-efficiency and make it a priority on the nation's action agenda.

The principal findings of the project are set out in this report, The Business of Saving Water. The further detailed technical analyses and evaluations that formed the basis of the findings are contained in the report appendixes and the many working papers from which the findings were drawn.

In summary, the highlights of The Business of Saving Water in the Murrumbidgee Valley are:

• 1,334,000 megalitres per year of unaccounted water flows, water losses and water identified for saving in the River Valley system;
• $824m worth of new investments identified to save water in the Valley;
• At least an additional $293m per year of farm-gate production income identified within the Valley;
• Some $421m of new capital investment opportunities can be realised within the Murrumbidgee Valley's production enterprises, and
• Identified water saving investments and new water-efficient production in the Valley can provide 4,500 new job opportunities and boost regional income by up to $245m.

These benefits are not limited to conventional irrigation and agriculture, but extend throughout the Valley. For example, the flow-on investments from timber plantations in the upper catchment could exceed $600m in capital and generate $25m per year in regional income, with an additional 740 jobs.

The following tables summarise these findings in terms of Valley zones, water system components and investments.

The Business of Saving Water provides a solid business case for implementing an urgent national water reform agenda to realise the opportunities. If these are appropriately partnered with recent government policy intentions - such as are embodied in the National Water Initiative - Australia's water management challenge can be confidently met.

The recommendations which have emerged from this study, as described in this report are, set out below in the form of The Pratt Water Action Plan. This provides a series of practical, achievable and business-based reforms that can drive the renewal of our regions, and through them,our nation

The Pratt Water Action Plan - Seventeen Steps to World-Class Water Management

1. Manage and account for all water on a business and 'balance-sheet' basis.

Australia must embrace a business investment agenda for fixing its water problems. There are enormous opportunities to invest to improve water use efficiency, create water savings, and utilise those savings for the good of Australian communities, both urban and regional.

A business investment-oriented framework will restore confidence, direction and sound decision-making so that the national water management imperatives can be met.

Our water must be managed according to a rigorous and transparent“balance sheet” approach, with unambiguous objectives and known costs and benefits.

Private business and governments must forge pro-active alliances to achieve water efficiency improvements, embracing business-sector ideas, technologies, networks and people to stop wasteful losses and improve production and environmental quality.

Rather than being treated at the “end of the pipe”, the environment must be considered as a prime and legitimate customer for water resources, and governments must account for and make public investments to support environmental and other community water benefits.

Public funds must be provided as recurrent revenue streams to support water projects that provide public benefits but might not meet the normal criteria of business for return on investment.

2. Identify unaccounted water and bring it into productive human and environmental use.

Inventory risk and the lack of confidence in the 'water stock control' system creates a level of uncertainty not appropriate to support major private sector investment. Uncertainty about the amount of water released, diverted and invoiced is a significant factor which inhibits investment security. No other business could tolerate such poor 'stock control' and remain solvent in the medium to long term.

Even in the very best managed Australian river systems, where public money has been invested in dams and regulated channels, more than a third of the collected water is simply unaccounted. Every year, billions of litres of water is lost to evaporation, contaminated with saline groundwater, or squandered through over-watering of crops and pastures.

Water authorities and irrigation corporations must apply a rigorous business approach to their water management. This must be aimed at recovering lost water and ensuring it is accounted using proper stock control principles, and stewarded for human and environmental benefits.

3. Invest immediately in water measurement information systems.

Accurate and transparent measurement and monitoring of water flows is essential to underpin private sector investment in water efficiency projects, for water trading and for risk management schemes such as a water futures market. Water auditing must be transparent and independent of government to ensure open market confidence by providing timely and accurate data.

Water measurement and monitoring in our river systems is currently not sufficient to underpin proper business investment. An investment of some $175m is required to establish a modern hydrometric and metering network for NSW's productive river systems.

This investment must be sponsored by the relevant government authorities, but must involve partnerships with private technology providers and operators to ensure efficient service delivery.

Whilst better measuring, monitoring and auditing of water flows will not in itself 'save' water, it will underpin better and more reliable management decisions. These decisions will then result in water saving investments.

4. Promote and facilitate just-in-time water delivery capacity to match product market demands.

Water planners must adopt a “just in time” approach to delivery technology so that farmers can respond quickly to changing markets for their produce, rather than being tied to outmoded and inflexible infrastructure. This can achieve water savings, around a 50 per cent reduction in costs, and higher farm profitability.

Irrigation planning rules must allow for roll-out/roll-up delivery systems and storage solutions that take best advantage of prevailing markets and production opportunities.

5. Conduct a targeted nation-wide refurbishment of irrigation channels, privately financed and backed by government guaranteed Water Bonds.

Much of our irrigation infrastructure is old and leaky. New piping technology with very low capital and operational costs must be installed in our irrigation delivery systems to save water and ensure long-term sustainability. This alone can save 30 per cent of the delivered water from being wasted.

Funds for a national irrigation refurbishment program should be sourced from the private sector via a special Water Bonds issue, underwritten by the Australian Government, consistent with specific national water efficiency targets.

This would include the establishment of a Water Bond Vehicle to control and manage proceeds from the sale of Water Bonds to investors. It would award and supervise contracts, covering infrastructure developments including new pipelines, and provide long-term finance to farm and regional organisations for approved projects.

6. Introduce market-based instruments to drive water saving investments, through Water Efficiency Certificates.

At present there is virtually no encouragement or reward for private parties undertaking water efficiency and water saving initiatives, except in specific on-farm situations. Further, water efficiency objectives do not have a central presence in the government-led water reform process. This prevents serious involvement of the private sector in the water-efficiency business.

Australia must adopt a formal and mandatory water efficiency target program to drive innovation and water-saving actions. This will reward innovation in water saving and penalise water wastage through a proper market mechanism such as currently applies for renewable energy.

The creation of a tradable statutory instrument based on an approved and verifiable water efficiency action would revolutionise water-efficiency investment. One statutory Water Efficiency Certificate could be issued by a regulator for every megalitre of water saved. These could be utilised to reward proponents of approved water saving projects by creating tradable Water Efficiency Certificates which could be sold to liable entities under the compliance scheme. In addition, accredited saved water could be 'tagged' and traded free from existing institutional boundaries.

7. Implement a national water efficiency compliance scheme.

A national water efficiency compliance scheme should be introduced by the Australian Government which would require liable entities in each State to meet a set of long term water efficiency targets. The entities can do this by implementing a range of approved internal water efficiency and water saving actions.

Any potential limitation on Commonwealth power to regulate water or water efficiency across state boundaries could be addressed via the Council of Australian Governments (CoAG) framework in the same way that the National Water Initiative has been developed under CoAG. A uniform national water efficiency regulatory framework should be developed using this co-operative federalism model, as has been done in the past to establish the National Electricity Market and uniform national corporations legislation.

Consistent with this recommendation, the Australian Government must take a greater role in coordination and funding of national water efficiency programmes and projects.

8. Match production areas and crops to soil type.

Farmers must be assisted, through appropriate technology, education and extension services, to practise enhanced soil and crop matching through remote-sensing technology to optimise water use for specific crop types. This can yield significant water savings for irrigated and broadacre crops such as wheat.

Renovation of existing irrigation areas and the design of future ones must embrace changes in irrigation technologies, to meet the twin goals of ensuring land-use sustainability while responding to emerging product market opportunities.

9. Streamline the water trading administration system.

The system of water management and approvals in most states, and especially NSW, is immensely complex. Governments must simplify and streamline the administration of water titles and approvals to encourage innovation, attract private capital to the water-saving imperative, and free up rational business decision-making.

Recent progress in national reform, clarifying property rights for farmers, is an important step. However without more far-reaching reform it is likely that future public investment will decline as governments pass further responsibility to private irrigation entities and corporatised government-owned water delivery entities. Following the expiry of the existing 'dowry' contribution scheme, these entities lack the long term capital structure to manage the existing network and make the substantial investments required for new water efficiency undertakings.

To ensure the best possible distribution of water rights and their trade, to limit the risk of exit charges distorting water trading and preventing it from reaching its highest total use efficiency, consolidation of water delivery entities may be required.

10. Create a 'saved water' title.

There is currently no practical distinction between water allocated conventionally to users, and “new” water that has been saved as a result of specific investment. Saved water should be recognised as a new category of water, with secure title commensurate with the investment effort taken to secure it.

Private sector investment in water efficiency must thus be accompanied by a clear and unequivocal property right to the water saved. This right must take precedence over existing water security levels to provide more guaranteed access to the saved water during times of scarcity. This would create a differential right of access earned by investment in accredited water efficiency projects.

This saved water could be 'tagged' as the property of the originator and freely traded in the market on a short or long term basis for human and/or environmental use.

A possible mechanism for implementing this action is the creation of a 'Saved Water Certificate' (SWC). This would give investors in accredited water saving activities a reward with an instrument redeemable for a defined entitlement to water.

Governments must also establish more innovative and market-responsive ways of providing water allocations for high-value production. For example, in the Murrumbidgee, a winter allocation of water for the Lower Valley region would provide a basis for farmers there to expand winter production of high-value crops without compromising summer supplies to growers upstream.

11. Implement business-based contractual mechanisms to underpin private-public-community alliances for investment in water efficiency.

Attracting investment for regional water-saving infrastructure is difficult because most systems involve a complicated mix of land holdings, water user titles, and land management objectives. Governments must encourage and provide for contractual mechanisms, such as a concession deed, to package and aggregate regional water-saving opportunities into identifiable investment projects.

A concession deed would provide a detailed contractual regime where the obligations for government and the private sector funding parties are defined for the investment payback period. These contracts must have precedence in any review of water sharing plans.

Under such arrangements, environmental objectives must be funded by governments as a recurrent revenue stream through annual payments for environmental services or urban water guarantees. Such revenue streams would ensure the funding mechanisms for otherwise economically marginal water investments to then meet normal commercial parameters for investment, and open the market to other sources of capital such as superannuation funds.

Security for the investment must be supported by clear title and contract arrangements.

12. Include the costs of storage and transmission in water charges.

For water to be managed and traded according to proper business principles, for both human and environmental use, there must be further unbundling of access rights to dam storage, transmission system capacity and infrastructure access. This is because there is no proper recognition of the true cost of water storage, transmission and management in the bulk water charging regime.

In NSW, bulk water charges are not sufficient to maintain a proper and modern water storage and management network. By implementing more far-reaching water charging reforms including unbundling, governments can ensure such rights are fully costed (either administratively or otherwise) and properly passed on as charges to users. The unbundled rights could also be separately traded.

Unbundling of rights will ensure proper pricing of the delivery and use of water, which is critical to raising revenue to fund bulk and retail water system improvements. In the case of bulk water delivery in NSW, the Independant Pricing and Regulatory Tribunal provides an appropriate mechanism. However, in the case of irrigation corporations there is often a conflict between the desire of shareholders to receive low cost water, and the requirement to fund and manage the existing delivery infrastructure and further invest in water efficiency undertakings.

13. Promote strategic environmental watering with well-sited new storages.

Investment in new near-river storages is urgently needed to manage high summer flows and provide water for targeted environmental restoration. Past proposals have been hampered through poor planning approvals, red tape and lack of proper investment packaging.

Above ground storage should be complemented by aquifer storage and recovery (ASR) schemes, which can halt the lowering of groundwater tables and help reverse existing damage. Increased water can be made available for human and environmental use from ASR projects, and water otherwise lost to evaporation and leakage from old surface dams can be saved for strategic release.

14. Provide efficient and reliable water services to regional communities.

New investment in piping of stock and domestic water supplies must be harnessed using, where appropriate, funds raised by Water Bonds and other mechanisms. In parts of the Murrumbidgee Valley, modified water delivery systems would provide more reliable and better quality water for stock and domestic users.

However, there must be clear separation of the community and private benefits and costs of these systems. As well as achieving significant water savings, the modified channels would also provide significant environmental improvements.

15. Mandate water efficiency and new investment criteria in the licensing of State government-owned water businesses.

The NSW Government should impose a State water-saving compliance target on its own bulk water business (such as State Water) via water savings or efficiency targets built into its operating licence as a State Owned Corporation, as a counterpart to the proposed national compliance regime.

This would need to include such bodies obtaining a revision of their administrative pricing review structures (in the case of NSW, IPART) to allow them to raise funds for additional capital works for infrastructure enhancement and new water savings projects in order to meet these new compliance targets.

16. Review the Murray-Darling Basin Cap to create incentives for major water saving investments.

The Murray-Darling Basin Agreement parties must review any current impediments imposed by the existing MDBC Cap on the allocation and use of savings created by investments in water efficiency works outside the jurisdiction of existing irrigation corporations. In particular, the parties must clearly define the rights pertaining to saved water for productive diversion as a means of regional job creation and industry development.

It is recognised that any variation of the MDBC Commission Cap requires careful consideration, however Pratt Water believes there is a need for greater clarity of conditions under which the limits established by the Cap can be adjusted to meet national water efficiency goals and objectives.

17. Streamline the development approval regime for water efficiency works.

Most approvals for water efficiency works are the responsibility of State governments. Specific action is required to give greater certainty and transparency to the process of lodging, assessing and approving applications for water efficiency works. In NSW, the Minister has complete discretion to grant or refuse a water supply work approval, and there is no right of appeal .

Governments must integrate the approvals regime for water supply works with the relevant environmental planning acts (in the case of NSW, the Environmental Planning & Assessment Act). This could be achieved via a special Water Efficiency State Environmental Planning Policy. Such an approach is consistent with the NSW situation where works by government agencies are assessed under Part V of the Planning Act.

Private sector investors and funding providers, who may not be traditionally associated with water investments, need confidence that any application for water efficiency works will be treated by government in the same way as any other major developments, which receive a legally secure consent supported by legislative and legal certainty.