ࡱ> TVS!` Tbjbj\\ 4X>>u3,'J```````%%%%%%%$(h+X%"``""%``&%%%"~``%%"%%%%`> [}$%%&0'%h+w%h+%%h+%4`T% q```%%% ```'""""   Water Branch Australian Competition and Consumer Commission GPO Box 520 Melbourne, Victoria 3001 12 May 2008 Waterfind Submission to the ԭ Water Market Rules Issues Paper To Whom It May Concern, Waterfind appreciates the opportunity to provide comment on the Water Market Rules Issue Paper. Waterfind is a water brokerage company that facilitates trades across a variety of Australias surface and ground water markets. Waterfinds market position has allowed it develop a strong understanding of the Australian water market and the directions for it to become a more mature environmental market. Waterfind recognises that the ԭ has been requested by the Minister to provide advice on Water Market rules for the Murray Darling Basin and as part of this process has requested submissions regarding issues of the current Water Market rules. In its submission Waterfind has outlined factors important for effective and efficient water market operation rather than focusing on specific points raised in the issues paper. MEASURING THE VALUE OF WATER The National Water Initiative 2004 states that the goal of the Water Markets is to allow water to be shifted from low value to high value uses. Waterfind suggests that it is important for the National water initiative to further define value and we would support the definition to include four distinct criteria of Price, Diversity, Flexibility and Yield. The explanation of these are outlined below; Price, The ratio of dollars per megalitre This measure is calculated by the farm gate value of agricultural produce, divided by the amount of megalitres used to create that produce. This is the most commonly understood measure of value used and does not take into account the other measures outlined below. If using this measure in its own right, care must be taken to factor in commodity price fluctuations and potential efficiency changes in the short and medium terms. Diversity of irrigation products Much as in the same way that it is wise to maintain a diverse portfolio if investing your life savings, the strongest position for agriculture in Australia is to have a wide variety of crops being grown. This allows us to react to unique national (for consumption) and international (for export) food demands as they occur. It is important for us to recognise the importance of diversity as it assists us to both eat and sell a wide variety of agricultural produce. Information regarding the changing national and international food demands or supply due to climate change and or consumer demand is going to be important for the future of our farming communities. Armed with this information Australian farmers can be in a position to plan planting schedules and take advantage of opportunities arising from these changes. Flexibility of irrigation production Our irrigation production needs to be able to adapt to the variable nature of the boom / bust cycles of our water resources. It is essential therefore that we encourage a balance of perennial and annual type cropping. Too often annual type cropping produce such as rice has been blamed for the decline of our rivers rather than the fact that the rivers themself have been over allocated. It is important that we get it right in the national debate so we can focus on the applicable issues at hand rather than playing politics with water. Food yield As well as considering the economic benefits of agriculture, recent global events have highlighted the social importance of a secure food supply. When considering the value of a crop the indirect economic and social benefits of supplying food must be considered and the amount of food yield (tonnes food produced per ML of water used) is an important factor. 3 TOP ISSUES FOR MARKET PARTICIPANTS From Waterfinds experience as a participant in the Water Market there are several issues with the current operation of the market that impede the smooth functioning of the market. If progress was made towards the resolution of these issues it would, in Waterfinds opinion, significantly enhance the capacity of the Water Market to allow water to be shifted from low value to high value uses. The issues are; The speed at which Water Market trades are settled In Waterfind s experience the most salient concern that irrigators have in deciding whether to trade on the market is the time required to settle trades. During the settlement process for a Water Market trade there are many organisations, including Government Departments and Irrigation Authorities, which are required to review the trade and give their approval. The approval process for most trades within these organisations is relatively speedy, difficulties arise however with the communication and coordination processes which are used between these organisations when they are approving trades. This needs to be urgently addressed and the benchmark to which the Water Market should be aspiring should be similar to the Australian Securities Exchange standard of settlement occurring three days after the trade is agreed upon. This benchmark would be applicable for either a temporary or permanent / entitlement transfer. Inconsistencies and difficulties with Water Market Registries In order for an efficient Water Market to exist there must be publically available sources of information pertinent to the market along with common transfer processes. As an example a single trade within the Murray Darling Basin Water Market may be needed to be recorded on up to four different registries. Each state controls its own water registery for private river diverters and irrigation delivery companies or joint water supply schemes can also have their own internal registries that need to record trading activity. While we believe it is needed to identify the attributes of a compatible water registry as outlined in the 2004 National water initiative, it would be surprising if the current water registries would be able to pass a test on even the lowest benchmarks of compatibility set. Given the significant complexities and cost associated with rebuilding many water registries, we should consider the merit of building a single national water registry that provides the ability for states to retain ownership over water entitlements while providing the ability to register unique attributes of varying water entitlements as required. The inability of Irrigators to access Water Market information Through communications with our clients Waterfind has found that many Irrigators who trade on the Water Market have, at some point, experienced difficulties in accessing information which was required to trade effectively on the Water Market. The types of information which Waterfinds clients have had trouble accessing include o Pricing information for historical Water Market trades o Policies and processes of the Water Market, including rules governing the ability to trade between specific regions. o Information on the status of individual trades which are in the process of being settled. o Models and information used to calculate water allcoations If this information were made more easily available to Irrigators then it is likely that they would feel more confident trading on the Water Market. 4 IMPORTANT ELEMENTS FOR SUCCESFUL WATER MARKETS The development of policies and programs which allow for the resolution of the issues of market speed, compatibility and lack of market information outlined above will be a difficult task. Waterfind understands that the ԭ has begun this process and in attempting to develop resolutions of these issues Waterfind proposes that the ACCC should be mindful of four conditions which Waterfind believes are essential to efficient water markets these are titled as transparency, liquidity, administration and settlement procedures and are outlined below. Transparency For a participant in the water market to be confident with market information there needs to be regulations which ensure that each organisation which possesses relevant information, release the information in a predictable and timely manner. Furthermore it is important that participants can rely upon the accuracy of this information so there needs to be processes in place that guarantees any information released. The current process where the release of information, such as allocation announcements, water trading rules and transfer processes and water trading activity including pricing and volume, occur if at all on an unpredictable basis which reduces the confidence held of the market and creates opportunities for a privy few. Liquidity Liquidity usually refers to the probability that an asset can be converted into an expected amount of value within an expected amount of time. In the Water Market the biggest limitations to preventing the development of market liquidity is high transaction costs. Waterfind suggests these costs incorporate government application fees, long processing times , low market access because of poor information regarding the barriers / opportunities to trade, and poor market confidence based upon historic trading difficulties. To increase the liquidity of the Water Market, regulations need to be implemented to ensure that we have low transaction costs. In particular Waterfind suggests national standards to create open and transparent water trading rules and a predictable / measurable process required to activate a water market within the various states and regional markets. Administration The responsibility for administering the Water Market is devolved to a broad number of organisations including State Government Departments and localised Authorities including irrigation companies and bulk water trusts. It is important for the protection of the directors and share holders of corporatised government entities, irrigation companies and bulk water trusts that there be regulations in place to create the appropriate level of regulatory separation between the duties of water market operation (such as operating water markets or brokerage houses) and regulating those markets such as approving transfers or setting water market rules. Waterfind suggests that an appropriate level of regulation of the water market can adequately address these issues. Settlement Procedures In order for any market to build confidence it is essential that participants in the market can rely upon dependable, transparent and common settlement processes. To allow for this,common approvalprocedures should be set in place across all jurisdictions. Waterfind proposes that either fully compatible registers or a single national register would support such a process andbe used by all relevant organisations in the Water Market including Irrigation Authorities, Government Departments and Water Market Intermediaries. bqb c Z * )HIUvxa$$$$>&&&xxxnhMOJQJ^JhMB*CJaJphhMB*OJQJphhM6B*]phhM56B*\]phhM5>*B*\phhMB*phhMOJQJ^JmH sH hM5\mH sH hM56>*\]mH sH hM56\]mH sH hMmH sH hM(=Jcdpq- . b c Y Z * +  $^a$gdM$a$gdM$a$gdMT)HIUvxa $8^8a$gdM$8^8`a$gdM$a$gdM$a$gdM $^a$gdM $h^ha$gdMab^!###$$=&>&&& $h^ha$gdM$8^8`a$gdM $^a$gdM $8^8a$gdM $$^a$gdM $$8^8a$gdM$$5^5`a$gdM $$5^5a$gdM&&&&&J'K'N''''''(((+++++--////i3444.4046888:8J8v8P;L7RSSS{hMCJOJQJaJhMCJOJQJaJhMOJQJ^JhMmH sH U hM6]hM5B*\phhMB*phhM56\]hMOJQJ hM5\hM5>*\hMOJQJhMOJQJ^JhMhMCJaJ+&&J''''~((((+++--///22i3$8^8`a$gdM$a$gdM$a$gdM $^a$gdM $8^8a$gdM$^`a$gdMi3j304776888v8M;N;P;MMNN6R7RSSSTTTTgdM$a$gdM $^a$gdM$8^8`a$gdM $h^ha$gdMIn conclusion the two critical elements for us to focus on for the development of Australia water market are Compatible / interoperable registers or the development of a common water register and the regulation of market operators. A common water register can address issues such as settlement procedures and transparency while regulation of the water market can address the administrative and confidence issues presently facing the water market. In the past discussions about regulation of the water market has been limited to the operations of water brokers. While this will be an important part of any potential regulation, market success will require regulation to stretch much further than this single group of market operators. The ԭ in its paper raises the issue of brokers regulation and addresses the question of common water contracts. As outlined in the paragraph above it is important that regulation be extended to all market participants including approval authorities, irrigation companies and governments themselves. Waterfind supports the regulation though government licencing of the water brokerage industry. It does however see that common water contracts will not be an important factor to the regulation of this stakeholder group. It is important to have the requirement for water brokers and market intermediaries to operate trust accounts, publish to the government regulator quarterly audits of their operations and preclude these participants in being able to trade in the market themselves at the same time as conducting trades for their clients. Waterfind remains committed and focused to the development of our National water market and believe that an effective and efficient market will be crucial to the future management of our scarce water resources, further more water markets can provide us with the ability to react to a changing climate and opportunities with food production. Tom Rooney Chief Executive Officer Waterfind.com.au "Winner of the 2006 Water Innovation Award" Phone: 1800-890 285 Mobile: 0407-974 100 email:  HYPERLINK "mailto:tom@waterfind.com.au" \o "mailto:tom@waterfind.com.au" tom@waterfind.com.au SST TjTkTTTTTTTҼh=hMhMCJOJQJaJhMOJQJ^JhM0JCJOJQJjhMCJOJQJUaJhMCJOJQJaJ"hM56CJOJQJ\]aJ 21h:pT. A!"#$% @@@ NormalCJ_HaJmH sH tH DA@D Default Paragraph FontRi@R  Table Normal4 l4a (k@(No List4U`4 M Hyperlink >*phu3X=Jcdpq-.bcYZ  *+   ) H I U ~abTU567tu ) ""'"8$9$%%%F(G((((***,,--'1(1~222r3s3t3w300000000000000000000000000000000000000000000000 0 00000000000000000000000000000000000000000000000000000000=Jcdpq-.bcYZ  *+   ) H I U ~abTU567tu ) ""'"8$9$%%%F(G((((***,,--'1(1~222r3s3t3w300000000000000000000000000000000000000000000000 0 0000000000000000000000000000000000000000000000000000000 0t3&ST#+a&i3T!"$%T 3[3p3u3XIrT!JrtKr4LrMr%Nr%Or8PrQr,RrSr$%Tr UrlVrWr Xr?@ABDEFGHIJLMNOPQRURoot Entry F[W1Table-h+WordDocument4XSummaryInformation(CDocumentSummaryInformation8KCompObjq  FMicrosoft Office Word Document MSWordDocWord.Document.89q