So two years into the Rudd government, and where are we on the Murray-Darling Basin?

Well, if it’s any consolation, no one is happy, not after this month, during which has been a flurry of activity on water issues.   Not farmers, irrigators, conservationists, South Australians, Victorians, New South Welshpersons, politicians or bureaucrats.

The one clear area where there has been progress has been on information: thanks to the efforts of the National Water Commission, which is emerging as one of the hardest-hitting reform agencies in the Commonwealth, we are much better informed about just badly managed the MDB is, just how inept state governments have been, and how slow the pace of reform has been over the past two years.

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In their October report on reform progress  backed by their 2008-09 water markets report earlier this month, Ken Matthews and his 50-strong team have shone a light on the hopeless mess of state-based stupidity in a way that should shame the last remaining federalism advocates left in Australia.

Nevertheless, despite of the best efforts of state governments, the water market in Australia — something that barely existed a couple of years ago — continues to grow.  The only area where it isn’t growing is in interstate trading of water entitlements.  As in 2007-08, in 2008-09, the NWC’s December report showed, there was no interstate trading of entitlements.  There also remains the vexed issue of state government caps on out-of-area water trading, and particularly the Victorian government’s cap, which is a straight-out anti-competitive restriction in the guise of social policy.  The cap was triggered six times in Victoria during 2008-09.  Worse, the NSW government imposed its own cap on environmental purchases in May.  There was, admittedly, some basis for the NSW government’s decision: because of the Victorian cap, about 72% of the Commonwealth’s environmental purchases had been in NSW, meaning NSW farmers and irrigators were doing the heavy lifting in the recovery of the MDB, while the Victorians sat and did virtually nothing.

Despite the constrained market, the Commonwealth accelerated its water buy-back program, having committed to expand it when negotiating with Nick Xenophon over the second stimulus package in February.  For all the criticism of Penny Wong, particularly in 2008, over the Coorong and Lower Lakes, her department has done exactly what people were demanding the Commonwealth do —  drop everything and buy water.  About 60% of the water acquired came from Toorale Station and the Twynam Group (the great bulk from the latter).  By September, the government had purchased 588 GL of entitlements (nearly all low-security entitlements) at a cost of $913 million of the 10-year program’s $3.1 billion.

But the other key Commonwealth program, its funding for irrigation infrastructure, remains stuck where it was back in October when the mainstream media last paid some attention to it.  Back then, there was much angst and outrage that negotiations with the states to provide Commonwealth funding of $3.7 billion for irrigation infrastructure were taking so long, given COAG had come to an agreement on the funding in mid-2008.

Since then, nothing has happened.

The irrigation infrastructure programs that the Commonwealth has direct control of, such as its PIIO and the On-Farm Irrigation Efficiency programs, where it provides grants directly to irrigators, have been rolling out relatively smoothly.  But the “state priority projects”, where most of the Commonwealth’s irrigation funding is directed, remain examples of just how inept and unco-operative state governments are when it comes to water.

But the story on infrastructure upgrades is complicated by the Productivity Commission.  A fortnight ago, it released a draft review of water recovery mechanisms that slammed irrigation investment as economically unmerited — any worthwhile irrigation infrastructure investment should be undertaken by the beneficiaries, irrigators themselves — and of limited environmental benefit — much of the water “saved” through better infrastructure would have remained in the system anyway as groundwater or for downstream users.  This aspect of the PC draft report was politely ignored because everyone involved in water issues except environmentalists and the Greens has an interest in irrigation infrastructure investment — the government because it has committed billions to keep irrigators in side, the Opposition because it has repeatedly criticised the slow rollout of the funding and demanded it be accelerated, irrigators because they stand to benefit most from the investment and state governments because the Commonwealth investment enables them to cost-shift by reducing their own expenditure.

The one benefit of the delays to the “state priority projects”, the PC noted, was that infrastructure investment is best undertaken after a major buyback of environmental water is completed, a circumstance that looks like happening by default.  The PC also thought the Commonwealth should be purchasing a greater variety of environmental flows.  Whereas most criticism has focused on the predominance of cheaper, lower-security entitlements in the Commonwealth’s purchases, the PC proposed that the Commonwealth aim to not just purchase entitlements but lease entitlements, purchase seasonal flows and even explore options contracts, to enable it to respond more flexibly to environmental needs, particularly as the MDB Plan is developed between now and 2011.

It also suggested putting the environmental purchasing program and irrigation infrastructure funding programs together into one large program that funded whatever would yield the most water.

COAG belatedly moved to address several of the glaring problems identified by the National Water Commission. Earlier this month it “agreed to redouble its efforts to accelerate the pace of reform under the National Water Initiative”, which presumably meant the pace of reform would accelerate from “glacial” to “snail’s pace”.  The measures agreed (yet again) by the Commonwealth and the states included finalising water plans, getting metering consistent across jurisdictions (or, in some places, just getting metering), something about skills in the water industry (because this is the Rudd government) and a “framework” to address water theft.

A couple of days afterward, the government announced another round of water tenders, worth $270 million, in Victoria, where the 4% cap remains.  Two weeks before, Mike Rann had finally — seven months after he announced it — got around to starting proceedings in the High Court to challenge the Victorian cap as an unconstitutional restraint of trade.  The High Court also this month found against irrigators seeking compensation for reductions in their water allocations, declaring that if the state was not benefiting from the reduction, it was not required to compensate those affected by the reduced value of their property.

Andrew Gregson, the head of the NSW Irrigators’ Council, immediately spotted where the High Court’s decision interacted with the MDB planning process.  There has been concern for some time, including on the part of the PC and the NWC, about the “risk assignment provision” of the National Water Initiative, which allocated responsibility for the impacts of reduced water allocation among water entitlement holders and governments, according to circumstances.  The provisions are extraordinarily general and are, in the words of  the PC and the NWC, in urgent need of clarification.  The High Court decision, which affects the second of the provisions (that governments bears responsibility for changes in water entitlements arising from changes in government policy), makes that clarification even more urgent for irrigators and farmers who face potentially significant changes in the cost and availability of a key business input in the years ahead and have to negotiate with finance providers without any certainty.

Many of these problems are ones that would be solved with several months of above-average rainfall across the basin.  In the absence of that, they’re virtually insoluble with the governance arrangements imposed on the basin by our federal structure.  And while the Commonwealth is acting as quickly as it can in the areas it can control, the future of the Australian water industry remains too dependent on state bureaucracies.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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