Australia's water trouble a warning to big users

By ANDREW MacDONALD

The gatekeepers of New Zealand's hydro lakes may in future unlock more value from their vast reservoirs if a recent call for tradeable water rights succeeds.

That's seemingly a long way off, and then only after a long process of consultation and evaluation.

It's likely the Australian water market model will be studied as key stakeholders, including Maori, grapple with the issue.

A spokesman for South Island hydro giant Meridian Energy, Alan Seay, said the concept of tradeable water rights in New Zealand was still in its infancy.

"We'd be keen to see debate happening and want to be very much part of that dialogue," he says.

Dialogue, yes, but Meridian, which recently suggested New Zealand consider introducing a water market, is clearly wearing its water rights colours for all to see.

Other than citing its benefits - among them water being used for its greatest economic good - Seay has recognised some difficulties.

Getting the public and stakeholders to embrace the conceptual change is likely to be a stumbling block.

On that note, they will "have to make that philosophical leap to look at it as a commodity that can be bought and sold".

New South Wales water broker Brian Peadon, of Waterexchange, says water trading has long been an accepted part of the Australian farming sector, but is becoming more complex.

About 10 per cent of that country's electricity is hydro generated against more than 60 per cent here. Most water is used for irrigation.

"The commodity's [water] value is what it can produce," Peadon says, referring to the value of the end product it was used for, notably livestock or grain crops.

Under the Australian system, farmers bought and sold quantities of water from one another either temporarily, permanently or in the future at market prices.

Competition between farmers for water was common, with prices ranging between A$30 ($32) and A$3000 a megalitre, although the average was about A$100 a megalitre.

Keeping tabs on the water trade in the Murray-Darling Basin, which spans NSW, Victoria, South Australia and Queensland, are a string of state authorities.

Ensuring continuity of water supply, conservation of water stores, and managing environmental concerns are among the authorities' key functions.

River Murray Water chief executive David Dreverman said New Zealand should consider the negative effect high demand for irrigation water had on the environment if not managed carefully.

Big budget projects are under way to reverse the environmental damage - under the Living Murray project A$500 million will be spent on that waterway and others linked to it.

Other objectives include protecting the irrigation, industry and clean water, natural landscape, history, culture and traditions afforded by the Murray, a River Murray Water report says.

Extra care was needed to ensure the Murray did not deteriorate further.

"We developed our rivers and we didn't leave the flow in the river to give them a chance of being healthy," Dreverman says.

"With the benefit of hindsight, we're a little bit late in doing it and now we have to try and work our way back to there and that takes a fair bit of investment.

"I think you [New Zealand] have to do the modelling of the whole of the impact and all the scenarios."

By their own admission, the Australians failed to do this.

At the heart of the issue is the two nations' different, but increasingly similar, attitudes to water.

In Australia, water has always been a scarce resource and, until recently, key waterways have been plundered for their valuable contents.

New Zealanders have regarded water as a plentiful resource, although looming power shortages in past winters through lack of hydro stores suggests that attitude could be changing.

It is against this background and Merdian's failed Project Aqua for the lower Waitaki catchment that the state-owned generator has mooted tradeable water rights.

"It's now becoming a matter of New Zealand having to consider it because the issue is starting to be thrown into sharp focus," Seay says.

"We've got the problem and we've got to look at the solutions. We're advancing this [tradeable water rights] as a solution.

"It works in Australia ... it's in its early days and there are teething problems."

This is a fair assessment. Trading water rights in Australia has taken off since use was capped at 1994 levels.

But Peadon said the formerly ad hoc market was increasing in complexity. Average gross yield was about 2 per cent. About $50 million of water was traded during the summer months, the season of high demand.

And there were others queueing for access to the water market, notably Merdian's Australian unit, Southern Hydro.

Southern Hydro chief executive Simon Maher said hydro firms could benefit from buying and selling water.

"From a hydro electricity generator's perspective, obviously water is our fuel ... [but] we don't necessarily want to generate electricity," he says.

Again, water should be used for the greatest economic good, he says - that is, whoever can generate the best profit from it according to the market forces of supply and demand.

Seasonal factors will also influence the market.

Seay said: "If we can get a better return by selling water for irrigation rather than putting it through the turbines and out to sea we'd rather do that."

The concept views water as a commodity in its own right and in Australia water entitlements have increasingly less direct links to land ownership.

- NZPA

* Andrew Macdonald travelled to Australia as a guest of Meridian Energy.