Detailed Case Study of the Costs and Benefits of Abstraction Reform in A

www.defra.gov.uk

Detailed case study of the costs and benefits of abstraction reform in a

catchment in Australia with relevant conditions to England and Wales

R&D Technical Report WT1504/TR

Produced: April 2013

Defra Water Availability and Quality R&D Programme

Detailed case study of the costs and benefits of abstraction reform in a catchment in Australia with relevant conditions to England and Wales

R&D Technical Report WT1504/TR

Produced: April 2013

Author(s): Prof. Mike Young and Christine Esau The University of Adelaide

Statement of use

This report has been produced by the Defra Water Availability and Quality Research Programme. Its overall objective is to examine the experience of the abstraction reform in the Gwydir catchment in Australia and assess the nature and extent of water rights trading that has been established in this catchment.

Dissemination status

Internal: Released Internally

External: Released to Public Domain

Keywords: Water supplies, abstraction, regulation

Research contractor: University College London The University of Adelaide

Defra project officer:

Henry Leveson-Gower

Publishing organisation Department for Environment, Food and Rural Affairs Water Availability Division, Ergon House, Horseferry Road London SW1P 2AL

Tel: 020 7238 3000 Fax: 020 7238 5524 www.defra.gov.uk/environ/quality/water

Copyright in the typographical arrangement and design rests with the Crown. This publication (excluding the logo) may be reproduced free of charge in any format or medium provided that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Crown copyright with the title and source of the publication specified. The views expressed in this document are not necessarily those of Defra. Its officers, servants or agents accept no liability whatsoever for any loss or damage arising from the interpretation or use of the information, or reliance on views contained herein.

Australian Case Study Project The Gwydir River Catchment

Prepared by Prof. Mike Young and Christine Esau Faculty of Professions The University of Adelaide Adelaide South Australia Australia 5005

Copyright © 2013 Faculty of Professions, The University of Adelaide. This work may be reproduced subject to the inclusion of an acknowledgement of its source. Responsibility for content remains with the authors.

Executive Summary This report is written to assist with the development of a new framework for the management of water in England and Wales. The approach taken is to describe experience with the development of water sharing arrangements in the Gwydir River Catchment in New South Wales and supplement this with a brief description of six lessons from other parts of Australia.

The scale and mix of the water sources used in this catchment is similar to those found in England and Wales. Many of the Gwydir River Catchment’s rivers are unregulated and abstraction licences are defined by reference to the flow rate. Groundwater use is widespread. At the top of this catchment, the Copeton Dam is used primarily to provide a highly reliable source of water for urban and high value agricultural purposes.

Conversion from 5 year renewable licences to the sharing regime now used in the Gwydir River Catchment began with the passage of a Water Management Act in 2000. Implementation started with the regulated river, then moved to groundwater and finally to the catchment’s unregulated and smaller alluvial sources.

Key features of the Water Management Act include requirements to

 Prepare a ten year water sharing plan for each water source  Identify how much water can be abstracted from each water resource without compromising environmental objectives  Issue entitlements to a perpetual share of the water that may be abstracted  Establish procedures that make it possible to trade water on a temporary and permanent basis Water sharing plans are statutory instruments and designed to provide security to water users and the environment. The search for an appropriate way to ensure that the environment is adequately protected is a key part of the process and, in the first round of reforms, was difficult to achieve.

During the conversion process, a priority allocation process that gives preference to urban, domestic and stock water users was adopted that was consistent with prior practice. Two classes of unit shares were then created – high security shares and general security shares.

Under the new regime, it is possible for licences to be acquired and held in the interest of the environment. This is now happening and being used with increasing sophistication as a complement to the role of environmental water allocation rules in water sharing plans.

In the process of converting to the new sharing regime, more efficient water accounting arrangements have been put in place.

Shares have become valuable. Care has been taken to build share registers that have investment integrity and allow financial interests in a person’s share holding to be registered.

Today, the Gwydir River Catchment water users are prosperous and water use is being kept within sustainable limits. Water trading is widespread in the region’s regulated river system and groundwater systems and is encouraging the efficient use of water. The result has been a considerable increase in investment and changes in the way that water is used throughout the region. Trading of unregulated water entitlements is in its infancy. Allocation trading in the region’s unregulated systems is awaiting a decision on the most appropriate form of meters to install in these systems.

Implementation of reforms on the scale undertaken in New South Wales was challenging. Development of the skill base and capacity to manage this reform process was difficult. In retrospect, it appears that it may have been better to invest more in the upfront development of policy guidelines. Communities expect this detail to have been thought through before they are asked to engage in the development of a water sharing plan.

The Gwydir experience in attempting to resolve over-allocation issues is significant. Sharing regimes and the water trading arrangements they facilitate are most easily implemented when either a water source is not over-allocated and/or over-allocation problems are resolved as a sharing regime is implemented. Experience with the resolution of over-allocation problems in the Gwydir’s groundwater systems is described.

One of the more surprising aspects of the reforms adopted in New South Wales and implemented in the Gwydir River Catchment is that the costs of implementing them are not excessive and can be recovered from users. The development of standardised approaches plays a critical role in keeping administrative costs low.

Acknowledgements We acknowledge the well considered input we received from so many people in writing this report and particularly wish to thank the following officials for their generosity in speaking with us over an extended period of time and for allowing us to quote excerpts of their conversations with us in preparing the content of this report:

 Rob Albert, Acting Licensing Manager, Namoi, Gwydir and Border Rivers, NSW Office of Water  Daryl Albertson, Senior Wetlands & River Conservation Officer, department of Environment, Climate Change and Water NSW  Peter Cuell, Licensing Officer, NSW Office of Water  Kenneth Gee, Senior Planning Operator, State Water  Zara Lowien, Executive Officer, Gwydir River Irrigators Association  Simon Morse, Supervising Hydrometrics Officer, NSW Office of Water  Tara Schalk, Senior Natural Resource Officer, Water Management and Implementation, NSW Office of Water. Tom Rooney the Chief Executive of one of Australia’s leading water broking firms – Waterfind – assisted with the preparation and presentation of information on the water market in the Gwydir Valley.

We are also grateful for the considerable wealth of published information already available about the Australian experience due to the diligence of concerned environmentalists, government agencies including the NSW Office of Water and NSW State Water, groups of individuals and lobbyists.

Finally and without naming them, we would like to acknowledge the important insights that we gained from the chance to meet with several irrigators in the Gwydir Valley. The information they provided to us will make it much easier for those in the UK to understand the Australian water reform experience from all viewpoints.

Much of the data in Chapters 2 and 3 of this report was obtained from published data available on public websites and for brevity is used without continuous citation. In order to make it easier for water managers in England and Wales to understand this text, however, the language has been changed to more closely align with terminology used in England and Wales. For instance, in England and Wales, a licence holder ‘abstracts’ water. In Australia, a licence holder ’takes‘ water. Therefore, for ease of reading, we have used the word ‘abstract’ rather than ‘take’.

Gwydir River, near Moree

Contents

Executive Summary ...... 3 Acknowledgements ...... 5 Appendices ...... 7 Appendix One Definitions...... 7 Appendix 2 Key policy documents ...... 7 1 Introduction ...... 8 1.1 Case Study objectives ...... 9 2 History of Australian water reform from a Gwydir River Catchment perspective...... 10 3 The current NSW water allocation and management system ...... 11 3.1 Legislative arrangements ...... 11 3.2 Water sharing plans ...... 11 3.3 Priority classes ...... 14 3.4 Preparing water sharing plans ...... 15 3.5 Bringing licences in under water sharing plans ...... 17 3.6 Categories of water access licences...... 20 3.7 The water access licence register ...... 20 3.8 Administrative arrangements ...... 21 3.9 Macro-Plans ...... 21 4 The Gwydir River Catchment’s water sharing and licensing regime ...... 22 4.1 The Gwydir River Catchment’s regulated river sharing plan ...... 24 4.1.1 Regulated river water allocation accounts ...... 26 4.1.2 Regulated river trading rules ...... 27 4.2 The Gwydir’s unregulated river and alluvial water sharing plan ...... 29 4.3 The Gwydir’s groundwater water sharing plan ...... 32 4.4 Environmental Water Holdings ...... 36 5 Monitoring the Gwydir River Catchment ...... 37 5.1 Equipment and processes used to regulate flow and use ...... 37 5.2 Metering abstractions ...... 38 6 Administrative personnel tasks, time and costs ...... 39 7 Experiences in transitioning from the old licensing regime to the use of shares and formal planning processes ..... 41 7.1 Socio-economic consequences of water reform ...... 41 7.2 Facilitating investment, the adoption of new technology and adjustment...... 42 7.3 Recovering water for the environment ...... 44 7.4 Resolving groundwater over-allocation ...... 47

7.5 Negotiating water sharing plans ...... 49 8 Insights from other parts of Australia ...... 51 8.1 The use of continuous accounting in some of New South Wales and Queensland’s regulated river storages ...... 51 8.2 The inclusion of forestry in the South East of South Australia ...... 51 8.3 The establishment of delivery shares in Victoria ...... 52 8.4 The introduction of a new type of low security entitlement in Victoria ...... 52 8.5 The use of tagged trading systems ...... 52 8.6 The development of shepherding arrangements in unregulated river systems ...... 52 9 Concluding comments ...... 53

Appendices Appendix One Definitions

Appendix 2 Key policy documents Appendix 2.1 Water Sharing Plan for the Gwydir Regulated River Water Source 2002 Appendix 2.2 A guide to the Water Sharing Plan for the Gwydir Regulated River Water Source Appendix 2.3 Gwydir River Groundwater Regulated River Water Sharing Plan Appendix 2.4 Guide to Water Sharing Plan for the Lower Gwydir Groundwater Source 2003 Appendix 2.5 Water Sharing Plan for the Gwydir Unregulated and Alluvial Water Sources 2012 Appendix 2.6 Water Sharing Plan for the Gwydir Unregulated and Alluvial Water Sources: Background document

Appendix 3 Environmental flow response and socio-economic monitoring: Gwydir Valley - progress report 2009

An Australian Koala

1 Introduction In partnership with the Welsh Government, Environment Agency and OFWAT, DEFRA is examining ways to improve the allocation and management of water in England and Wales.

One of the options under consideration is the conversion of licences into shares, coupled with the unbundling of these licence into a number of separate licences and the nesting of all of these inside water sharing plans. In order to help inform stakeholders and examine the merits of this option

 An international review of licensing arrangements has been completed; and  The development of a generic framework for the review of abstraction licensing arrangements has been funded through a Research Fellowship. The reports arising from these studies has identified Australian experience in the development of sharing regimes could assist further consideration of this option.

While the progress made in Australia has been significant, many mistakes were made (Young 2010). There is much to be learned.1 Much of the existing Australian literature needs to be read with caution, as the majority of it focuses on the regulated Southern Connected River Murray System. Sadly, almost none of it describes progress made in managing its unregulated and groundwater systems.

This case study report seeks to address this gap in the literature by describing the evolution of a river and groundwater system with characteristics similar to those found in England and Wales.

The catchment chosen is the Gwydir River Catchment in Northern New South Wales (see Figure 1). The Gwydir River Catchment is chosen because of its mix of regulated, unregulated and groundwater regimes and the overall success of the reforms that have occurred. Moreover and in contrast to many other Australian catchments, it only has a small dam – the Copeton Dam. The number of licence holders in this catchment is also similar to those found in many catchments in England and Wales. There are around

 480 regulated river licences  280 unregulated river licences  170 groundwater licences.

Figure 1 Location of Gwydir River Catchment, in Northern New South Wales Regulated rivers are shaded yellow. Unregulated rivers are shown as blue lines. Groundwater resources are not shown.

1 Young, M.D. (2010) Environmental Effectiveness and Economic Efficiency of Water Use in Agriculture: The Experience of and Lessons from the Australian Water Reform Programme. Background report prepared for OECD study (2010) Sustainable Management of Water Resources in Agriculture. Available at www.oecd.org/water 8

1.1 Case Study objectives With a view to helping to inform those responsible for assessing abstraction licensing reform options for England and Wales, the case study objectives of this report are to

1 Document the nature of the existing water licensing regimes used in the Gwydir River Catchment and their rationale, and the government resources and processes used to administer it 2 Provide examples of typical licences and a description of the way they are used by the licensee, and identify any operational issues that arise for the licensee 3 Report on the relevance of the Gwydir River Catchment experience to England and Wales 4 Document the level and type of trading that has occurred in each system and identify the factors that are driving trade 5 Provide a concise history of the policy reforms that have occurred since 1992 when a moratorium was placed on the release of new regulated river licences. 6 Describe the nature of the existing administrative regime, the functions necessary to maintain it, the nature of and number of transactions (e.g. plans, authorisations etc) involved, identify the key cost drivers and the number of personnel and time required to deliver the functions and process transactions 7 Describe the nature of the arrangements and equipment used to monitor the Gwydir River Catchment’s water resources and abstraction of water by individual water users 8 Provide an indicative estimate of the administrative costs of running the current regime and, where possible, the additional cost of the administrative processes used to implement the reforms made 9 Identify the extent of central administrative support given to the Gwydir by the State Government and Federal Government and the effect that this has on the cost of managing water use in the Gwydir River Catchment 10 Provide additional background experience in and related analysis of other parts of Australia that are of relevance to water administration in England and Wales

Kangaroo in the Upper Gwydir River Catchment

2 History of Australian water reform from a Gwydir River Catchment perspective The history of water reform in Australia is a long one. Broadly, two eras can be identified.

A development era when farmers were encouraged to apply for water licences, and provided they committed to using them, licences were issued on a first come, first served basis. During the first “development” era Gwydir land holders could apply for and receive a licence to irrigate 400 acres. In 1960s and 1970s, these area-based licences where then converted into volumetric licences generally at the rate of 6 ML per hectare.

Towards the end of this development era, it became increasingly clear that too many licences had been issued – especially to access the region’s groundwater resources – and that the health of several of the Gwydir’s environmentally significant wetlands was in decline. A new system was needed.

A management era when administrators stopped issuing licences and placed limits on the amount of water that could be abstracted. Transition to the second management era began in the 1990s and included

1. In 1994/5, the Commonwealth and all State Governments agreed to “cap” surface water use in the Murray Darling Basin which includes the Gwydir River Catchment and its tributaries. 2. In 1994, the Commonwealth Government introduced a National Competition Policy which amongst other things required States to separate the entity responsible for the provision of water services from the department responsible for the development of water allocation policies and, in particular, the allocation of water licences and, at the same time, introduce trading arrangements that would enable people to transfer water on either a temporary or permanent basis. 3. In 2000, the NSW Government passed a Water Management Act (2000) which introduced a suite of water sharing arrangements designed to drive investment without compromising the opportunities to protect and maintain environmental values. 4. In 2004, all Governments agreed to a National Water Initiative that set out a progressive framework for the robust management of water resources. 5. In 2007, the Commonwealth Government passed a Water Act (2007) which enabled it to move towards arrangements that seek to keep abstraction within sustainable limits and provided the funds necessary to resolve over-allocation problems in the Murray Darling Basin using voluntary market-based and investment processes. While all of these reforms were significant, the reform of greatest relevance to England and Wales was the NSW Government decision to introduce a totally new water sharing regime that is now used throughout Australia. This was achieved by passing the NSW Water Management Act (2000). This Act provides for the preparation of water sharing plans and the replacement of water licences issued under the Water Act 1912 with entitlement shares, use approvals and works approvals whose conditions are consistent with rules with allocation and use rules in the water sharing plans. To provide security, plans are statutory and reviewed on a ten year basis.

Rather than commencing with the preparation of water sharing plans for all water resources in the state, it was decided to prepare water sharing plans for 31 regulated river systems. Work on preparation of these plans began late in 2000 and following several years of consultation, these plans were gazetted and became legal instruments in 2004. On 1st July 2004, the Minister for Water Resources ordered that the volumetric component of all the licences covered by these water sharing plans be converted into shares by issuing one unit share per ML of water on the licence issued under the Water Act 1912. In effect, it was decided to grandfather in the licensed interests of all surface water shareholders irrespective of the quantity of water they had been using.

To this date, there is still confusion around the consequences of issuing licences on the basis of one unit share per ML. At the time, there was considerable debate around the question of whether or not those people who held a licence but never used any of it should receive the same number of shares as someone who had been using all their entitlement. During the debate, licences which had never been used were called ‘sleepers’ and those which had only used a relatively small proportion of their licensed volume called dozers. It should be noted, however, that while very few licensees had regularly abstracted the maximum volume they were entitled to take it would be economically irrational to do this in all but the driest of years. That is, in an environment where water supply varies the most rational strategy would be to hold some water in reserve.

3 The current NSW water allocation and management system 3.1 Legislative arrangements Water allocation and management in NSW began under the Water of 1912 and, with the introduction of water sharing arrangements has moved to the Water Management Act of 2000. Transition from one act to the other occurs with the gazettal of a Water Sharing Plan for a water source.

3.2 Water sharing plans A water sharing plan is a detailed legal instrument and, as a result, is written in a required statutory format (see Appendix 2.1 for an example).

The principal aim of a water sharing plan is to provide decade by decade security for the environment and water users. Security is achieved primarily by

 Redefining the entitlement component of each license as a share and issuing these shares as a continuing (perpetual) entitlement to a pro-rata share of any water allocated;  placing legislative limits on the degree of change to allocation and flow rules allowed during any 10 year period without paying compensation to any licence holder adversely affected by a change.2 Early progress with the development of plans was messy. Discussions with local departmental officials working with local community representatives revealed that senior administrators found it difficult simultaneously to manage preparation of 31 plans by teams of people with differing levels of experience, skill and understanding of the vision (see Box 1). This process was further complicated by an early decision to establish a series of stakeholder based committees to prepare the draft plan for each water resources. Non-government representatives sitting on each committee were paid sitting fees and typically they met on a monthly basis. In retrospect, this process proved very expensive, created significant levels of distrust among all stakeholders and rarely reached a consensus.

As a result and with the benefit of hindsight the process has now been changed to one that involves a different process. Today, water sharing plans are prepared by Interagency Panels.

In order to clarify many of the issues being raised by these committees, a set of 14 water policy advisory notes were eventually prepared on a whole of government basis (See Box 2). Policy documentation is now much more advanced and different administrative process is being used. In particular, there is now clarity about those parts of the plan that are negotiable and those parts of a plan that are non-negotiable. There is now a considerable degree of standardisation and a thorough understanding of the meanings of different concepts and terms. Along the way, considerable effort is put into the preparation of plain English guides.

2 In the recent millennium drought it became clear that many plan rules made too little water available to licence holders. As a result, most water sharing plans were suspended and replaced with arrangements that provided more water to licence holders than would have been the case if plan rules had been followed. 11

Box 1 Observations on the NSW approach to the development of water sharing plans from the perspective of a person responsible for guiding preparation of three plans in the Gwydir River Catchment

As a government employee, Tara Schalk has been involved in the development of the Water Sharing Plans in the Gwydir River catchment. Between 2002 and 2004, she was the executive officer supporting the committee responsible for the development of the sharing plan for the regulated river system under the Water Management Act (2000). She then went on to play similar roles in the development of plans for the Gwydir’s groundwater and unregulated systems. In the process of doing this she identified a number of areas that caused chaos, confusion and distrust between irrigators and the Government during the transition from water licences to that of a water sharing policy. Reflecting on the nature of the processes set in place she observed that

“There was initially a lot of confusion about what the Water Management Act meant for landowners and it was made even more difficult because there were no grounded policies in place when the rules started changing. Nothing was enshrined in legislation. The framework was not strong enough and seemed to change as it evolved so there was no defined policy in place that spelt out what could or couldn’t be negotiated. Everything was subject to interpretation and reinterpretation and the initial management team didn’t fully understand their role or the implications of shifting policies.”

“Another problem was that the Water Management Act of 2000 was a legal document in legal speak and frankly, a lot of people just didn’t understand it so we came up with a plain English guide that we called the Background Document on Water Sharing. Basically it explained what water sharing was, why we needed it, why the decision to change from licenses to shares was made and what the new rules were.”

“People were also confused because almost all the terminology was changed. For example, Water Licenses were renamed Water Access Licenses, Off Allocation Water or High Flow was renamed Supplementary Water. I’d suggest thinking carefully about changing terminology simply for change’s sake.”

“Clearly define why environmental water needs to be allocated because fundamentally people don’t want to give ‘their‘ water to the environment. The process used surrounding contingency allocation and environmental water was convoluted and complicated.”

“In water management there had been a status quo for so long that people were distrustful when the changes were first announced. Initially, there was a lot of anger but as they have gone through the process, they have become more and more comfortable.”

Today and as shown in Appendix Two, a typical water sharing plan:

 provides water for the environment by protecting a proportion of the water available for fundamental ecosystem health and/or including specific environmental rules – this is called planned environmental water  allows licensed water to be committed for environmental purposes – this is called adaptive environmental water which can arise from water recovery projects or by buying water licences and transfering responsibility for the management of these licences to an environmental trust or trustee.  protects the water required to meet basic landholder rights to abstract water for domestic and other specified purposes  specifies how shares will be issued and how many shares may be issued  sets annual limits on water abstraction to ensure that use neither erodes environmental outcomes nor the security of supply to water users  determines what types of special purpose licences can be granted such as local water utility access licences (for town water supplies) and Aboriginal cultural access licences 12

 determines supply priorities, licence types and the sharing system to be used to distribute water amongst shareholders  establishes water accounting systems along with announcement protocols and arrangements for tracking the use, transfer and the carry-over of unused water  specifies the rules for water trading on a temporary or permanent basis  sets out the mandatory conditions that apply to construction of works, abstraction or access and use of water  specifies the nature of changes that can be made without triggering the compensation provisions of the Act  sets out performance indicators, monitoring and reporting requirements.

Box 2 List of 14 water policy advisory notes prepared to assist with the preparation of water sharing plans

Regulated rivers systems

1. Managing to diversion limits in regulated rivers 2. Supplementary water access 3. Floodplain harvesting 4. Regulated rivers (high security) access licences Unregulated rivers systems

5. Managing to diversion limits in inland unregulated rivers 6. Water extraction volumes and daily flow shares in unregulated rivers 7. Diversion limits for coastal unregulated rivers Groundwater systems

8. Groundwater quantity management 9. Groundwater dependent ecosystems Coastal/estuarine areas

10. Freshwater flows to estuaries and coastal waters All water sources

11. Integrating water quality and river flow objectives in the water sharing plans 12. Conservation of aquatic and riparian biodiversity and threatened species management 13. Incorporating the results of the weir review in the water sharing plans 14. Aboriginal issues and cultural heritage protection

In regulated rivers systems where flows can be manipulated and releases from dams controlled, water sharing plans also set out

 a priority allocation regime  rules for making and announcing allocations  accounting for losses associated with evaporation, conveyance, etc  accounting for the effects of resource interconnectivity  rules for ordering water and releasing water from storage

In un-regulated rivers systems where the control of flows is difficult and, hence, abstraction entitlements have to be linked to the state of the river at any point in time, water sharing plans

 set out rules for times when flows are very low and abstraction is not permitted;

 set out daily limits on how much water can be taken during different flow levels3  require a visible flow at licensed pump sites or other locations before water users can extract water by creating a minimum level of environmental protection that will apply to all plans  introduce a 'cease to pump' condition when river flows drop below a specified level  set daily limits on extraction for different flows (low, medium and high flows) – where there are a high number of extractors or there is a high level of environmental protection required  recognise that some alluvial aquifers are highly connected to their parent streams, and in these circumstances, the goal of water sharing rules is to manage the surface water and highly connected groundwater as one resource.

In ground water systems, water sharing plans also set out

 rules for the allocation of water to each licence type  rules to minimise adverse impacts of abstraction on other groundwater users, dependent ecosystems, water quality and the stability of the aquifer  reserves for the storage component of the aquifer  protection of a proportion of the natural recharge – that is, the volume of water added to a groundwater system naturally, usually by infiltration from rainfall and river flows  recharge estimates and, if necessary, reduction of entitlements in those systems that are over-allocated  draw down distance limits between any new bores and groundwater dependent ecosystems  areas or zones where trading is and is not permitted

3.3 Priority classes As a general rule, the approach taken throughout Australia is one that involves the grandfather or existing access priorities. This certainly applies in the provision of priority access for domestic and stock water and for urban water use.

If a property fronts a river or overlies a groundwater aquifer, the landholder is entitled to pump water to meet reasonable domestic and stock requirements without a licence as part of their basic landholder rights. If they want to pump groundwater, however, they need an approval to do this.

Water sharing plans recognise this priority by ensuring that a full share of water is allocated first for domestic and stock use, except where exceptional drought conditions prevent this. In an unregulated river system, access may still be limited by the daily variations in river flow. When a river has very low flows, pumping by licensed domestic and stock users may be reduced or not permitted.

Towns have a higher priority for access to water than commercial licences. Water sharing plans recognise this priority by ensuring that a full share of water is allocated for annual town water supplies, except where exceptional drought conditions prevent this.

Unlike England and Wales, it is normal for a town to hold a water licence and then either for its municipality to manage this water resource or contract this to a water supply company. To date, no entitlement to a town water supply is held by a corporation.4 The annual share for every town water supply will be specified on the town's licence. This share will be based on either existing volumes or an assessment of reasonable use. Towns may be permitted to sell part of their annual account water to other towns but, unlike commercial users, will not be able to sell their share. Once sharing plan is introduced and if a town wants access to more water it would need to do this by purchasing water entitlements from existing shareholders.

In many systems and consistent with previous practice, licences for non-essential commercial purposes are further divided into high security, general security and supplementary licences. In these circumstances, water is allocated first

3 There is an exception to the ban on pumping when river flows are very low for existing licence holders who need water for animal health and hygiene such as for washing a dairy after milking or cooling chicken sheds. The plans list those licence holders granted this exemption.

4 With the exception of a few private towns managed by mining companies. 14 to the high security licences until they have received the maximum allocation they are entitled to, then to general security licences and, finally, in periods when flows are high to supplementary licences.

3.4 Preparing water sharing plans Water sharing plans are statutory and are required be written in a specified format. An overview of the steps involved in the development of a water sharing plan for a regulated river is shown in Figure 2.

As a result of the many challenges associated with the preparation of the first water sharing plans, Water sharing plans are developed now through a process involving technical assessments, classification and the development of water sharing rules by inter-agency panels. Care is now taken to ensure that environmental requirements are specified objectively and not stated as a wish list.

For surface water these panels are based on regional geographic areas, while for groundwater there is one panel for the state. As a general rule,

1. Sub catchments and aquifers are classified according to their social, economic and ecological values, and a standard set of water sharing rules is then developed and extended across catchments with similar classifications. 2. Individual water sources that pose particular environmental or socioeconomic issues are considered, so that water sharing rules can be tailored to their special requirements. An initial draft plan is developed following technical assessments, which include risk assessment and comparison of environmental values, and development of rules for each water source.

The interagency panel comprises staff from the following government agencies

 Office of Water (Chair)  the Office of Environment and Heritage  Department of Primary Industries  A plan coordinator supplied by the NSW Office of Water Catchment Management Authorities (who are responsible for managing the delivery of incentive based land management programs) have observer status on the panels and more broadly assist with the consultation process, providing expertise on specific local issues and ensuring that draft plans are consistent with Catchment Action Plans.

Consultation takes place on a formal and informal basis with care taken to ensure that key stakeholders are aware that the plan development is underway. To this end, it is common for targeted consultation meetings with key stakeholders to be run on a needs basis.

Rather than being responsible for the preparation of a draft plan, the Inter-Agency Regional Panel is responsible for making recommendations and then sending these recommendations to a specialist plan writing team who prepare a draft plan for public exhibition and comment. Where appropriate, key stakeholders are shown a copy of the draft plan before it is released for public exhibition on the understanding that changes will be made only if a demonstrable or critical error is identified.

A formal response addressing all the comments made is then prepared, the plan revised and any stakeholders that made a submission are notified of the changes to be made to the draft plan. The proposed final plan is then reviewed by the Department and sent on to the NSW Minister for Primary Industries and then the NSW Minister for the Environment for approval. Once both Ministers have approved the plan, it is tabled in parliament and ultimately becomes a legal document.

During the final stages of the process great care is taken to avoid making changes that might adversely impact on future allocation and management decisions. All involved in the final stages of the process are very aware of the importance of ensuring that any last minute change is made with a full understanding of its consequences.

STEP 1 – ESTABLISH THE FLOW RELATIONSHIPS OF THE RIVER AND ECOLOGICAL PROCESSES Based on historical flow records and known physical processes of the river, construct a hydrological model to analyse options for river management.

STEP 2 – PROVIDE WATER FOR THE ENVIRONMENT Establish key environmental features of the river and devise flow related rules to provide water to sustain or improve those features. Part 3– environmental water provisions

STEP 3 – PROVIDE WATER FOR BASIC LANDHOLDER RIGHTS Estimate total requirements for domestic and stock rights and native title rights. Part 4– basic landholder rights

STEP 4 – DETERMINE ACCESS LICENCE REQUIREMENTS Assess the total share volumes of all access licences and rules for granting of any additional access licences. Part 6 – requirements for water under access licences, and Part 7 – rules for granting access licences

STEP 5 – SET LIMITS ON WATER FOR EXTRACTION AND SHARE THAT BETWEEN DIFFERENT WATER USERS Set a limit on the water for extraction on an average yearly basis and the rules for management within these limits. Specify how the water that is available will be shared between all licences. Part 8 (Division 1) - long-term extraction limit, and Part 8 (Division 2) – available water determinations

STEP 6 – PROVIDE FLEXIBILITY FOR ACCESS LICENCE HOLDERS Set rules on how water accounts are to be managed and define the dealing arrangements. Part 9 (Division 2) – water allocation account management, and Part 10 – access licence dealing rules

STEP 7 – PROVIDE CLEAR LICENSED RIGHTS Translate Steps 5 and 6 into mandatory conditions on individual access licences and approvals, and specify any system operation rules, and if and how a plan rule can be amended. Part 11 – mandatory conditions, Part 12 – system operation rules, and Part 14 – amendment of this Plan

STEP 8 – MONITOR PLAN Review the implementation of the Plan each year and audit performance of the Plan every 5 years. Part 13 – monitoring and reporting

Figure 2 Steps in the preparation of a statutory water sharing plan for a regulated river Part numbers refer to sections of the Water Management Act (2000)

3.5 Bringing licences in under water sharing plans Under the Water Management Act (2000) and once a catchment plan has been gazetted, all water licences issued under the old 1912 Act are separated into their component parts. That is, a licence issued under the 1912 Act is separated into

 a water access licence (WAL)5 which defines the nature of the licence holders exclusive entitlement to access water  a water supply work approval authorising the installation and operation of all infrastructure needed to take, store and use water accessed via a water access licence  a water use approval6.

The separation process, now known as unbundling, makes it possible for people to hold a water access licence without owning land and for share and allocation trades to occur without the need to check to see if the buyer has the appropriate approvals.

As part of the separation process, the water access component of all water access licenses are uploaded onto a Water Access Licence Register and converted into shares. This usually occurs within one month of gazetting a water sharing plan. Once these shares have been issued, the Water Management Act (2000) makes it clear that no further shares may be issued unless it involves the creation or access to a new water source.

Key steps and an indication of timing for the conversion of a Water Act 1912 licence to a water access licence and the approvals associated with it are shown in Figure 3. A validation process is then run to determine whose names should be recorded on each licence by matching licence names with the names on the land title that the 1912 title was associated with.

Under this administrative arrangement,

 Water sharing plans establish rules for sharing water between the environmental needs of the river or aquifer and water users, and also between different types of water use such as town supply, rural domestic supply, stock watering, industry and irrigation.  Water access licences entitle licence holders to specified shares in the available water within a particular water management area (the share component) and to take water at specified times, rates or circumstances from specified areas or locations (the extraction component).

5 Where a prior licence has more than one 'purpose', a separate water access licence will be created with a corresponding 'category'. 66 A water use approval is not required for uses such as domestic, stock or some industrial purposes. In some cases, a water supply work and a water use approval are combined. 17

There are three types of tenure for water access licences:

'Continuing' water Defined as a clearly defined entitlement to a share of any water in a water defined access licences water resource that is made available for abstraction. Continuing licences are issued in perpetuity and, as a result of the separation of land titles from water licences can be traded. They are managed as a valuable asset and can be mortgaged.

Specific purpose are cancelled when the purpose for which the licence was issued ceases and water access generally have higher priority access to water than continuing licences. licences

Supplementary are cancelled when the relevant water sharing plan ceases to provide for the water access extraction of water under these licences and generally have lower priority than all licences other access licences. Supplementary water access licences only arise where a water sharing plan makes provision for them.

Irrespective of the type of tenure, a water access licence can be suspended or cancelled if there is a breach of the licence conditions or other non compliance.

One of the most important innovations in conversion of licences into shares, is the process of clarifying the nature of each person’s interest in a licence including those interests previously been expressed through an interest in land associated with a licence. In retrospect, it can be seen that this validation process has proved critical in enabling the development of low cost trading arrangements and stimulating investment.

Figure 3 Process used to convert Water Act 1912 licences into shares and establish a register that is trusted by investors

3.6 Categories of water access licences Water access licence categories help define the priorities between different access licences, the conditions that apply to them and, in the case of specific purpose category licences, define how water may be used. They include:

 regulated river (high security) access licences  regulated river (general security) access licences  regulated river (conveyance) access licences  unregulated river access licences  aquifer access licences  estuarine water access licences  coastal water access licences  supplementary water access licences  major utility access licences  local water utility access licences  domestic and stock access licences.

In regulated systems, all licences within a category tend to have the same priority level. In the case of unregulated river systems priority is determined by river flow rate and, hence, can vary within a licence category.

3.7 The water access licence register Transfer of 1912 licences to the Water Access Licence began on 1 July 2004 when the first water sharing plans were gazetted.

As a general rule, water access licences are defined as shares. Many utility access licences and most stock and domestic water access licences are defined as a volumetric entitlement.

The Water Access Licence (WAL) Register is designed to provide a record of every water access licence in New South Wales and is now available online. The aim of the WAL Register is to:

 Make information on water access licences easily available to the NSW Office of Water and to the public  Provide a secure system for water access licence information  Reduce conveyancing costs and  Help to develop a market for water by making it easy to transfer water access licences at low cost and with a high degree of confidence. The WAL Register is maintained by the same government entity that registers ownership and interests in land. In NSW this function is undertaken Land and Property Information.

The WAL Register has a separate record for each water access licence issued known as a WAL folio. Each WAL folio has a unique number for identification purposes, the first being "WAL1". The WAL folio shows water access licence details such as:

 Share component (volume)  Extraction component  Water source  Expiry date and  Conditions. The WAL folio also shows:

 Current ownership contains  Mortgages, charges and related information  A NSW Office of Water reference number. A duplicate of the WAL folio (called the WAL certificate) is issued to the licence holder, or any other party entitled to hold the WAL certificate, eg the mortgagee. As is the practice with land titles, the licence holder is required to produce a WAL certificate whenever a mortgage or other interest is entered into or removed from a WAL.

The information shown on the WAL Register is not guaranteed like the Torrens Title Register for land held under the Real Property Act 1900. Interested parties must search all of the transactions registered on the WAL folio to establish if there is an unbroken "chain of title'. Any person may search the WAL Register and this can be done either over the counter or online.

WAL register management is managed at a State Level from a number of centres. The NSW Office of Water advises that the time taken to convert a licence takes between one and three hours per licence.

Today, the department budgets on a rate of 5 licences per person per day to complete the licence verification process.

3.8 Administrative arrangements Responsibility for the administration and management of the Gwydir’s water resources and the natural resources associated with them is primarily divided between the

 NSW Office of Water – a government department responsible for policy, allocation and planning  NSW State Water – a government corporation responsible for infrastructure, delivery, management of water accounts, etc Important complementary roles are undertaken by

 NSW Gwydir River Catchment Management Authority – a statutory authority responsible for working with the community and delivery of incentive-based programs  NSW Office of Environment and Heritage – a government department responsible for protecting the State’s water resources and the environments associated with them and managing water entitlements purchased by the State for these purposes  The Murray Darling Basin Authority – a statutory authority responsible for managing the water resources of the Murray Darling Basin  The Commonwealth Environmental Water Holder – a government entity that holds water entitlements that have been purchased for environment7 by the Commonwealth Government as it seeks to resolve over- allocation problems in the Murray Darling Basin  NSW Independent Pricing and Review Tribunal – a statutory authority responsible for determining and approving changes in charges collected by NSW State Water  Australian Competition and Consumer Commission – a statutory authority responsible for determining water trading rules and ensuring that these rules both promote competition and fair trade  The NSW Natural Resources Commission – a government entity responsible for reviewing progress with plan implementation and overseeing co-ordination between water and land management programs.

3.9 Macro-Plans Initially, water sharing plans were developed on a resource by resource unit basis. More recently, however, the NSW Office of Water has begun developing macro- water sharing plans that bring together resources that are similar to one another and can be more efficiently administered using the one suite of administrative processes.8

7 The Commonwealth Government is also investing in projects improve water use efficiency and return a proportion of the “savings” to the Commonwealth Environmental Water Holder.

8 Each macro plan covers a large river basin rather than a single sub-catchment, or in the case of a groundwater system, covers a particular type of aquifer (e.g. fractured rock) within the river basin. These macro plans generally apply to catchments or aquifers where there is less intensive water use compared with the areas that were covered by plans in 2004.

4 The Gwydir River Catchment’s water sharing and licensing regime

Figure 4 Location of the Gwydir River Catchment in the Murray Darling Basin As shown in Figure 4, the Gwydir River Catchment (SW15) is at the top of the Darling River system and as a result its management and allocation regime is required to be consistent with the Murray Darling Basin Agreement and, from 2019, consistent with the Murray Darling Basin Plan. At this stage, it appears unlikely that this will result in many

22 changes to Gwydir River Catchment’s water sharing plans. It will, however, require a plan to be developed for the management of overland flows and floodplain harvesting.9

The need to manage the capture of overland flows and use of flood plain waters is a relatively new concern. This need has arisen as land users have realised that they can harvest these waters to advantage.10 Initially, this was not considered to be a major problem but careful analysis is revealing that this process is now capturing large amounts of water which, otherwise, would have flowed into a river and been available to downstream users.

There are four sources of water in the Gwydir River Catchment

 The Regulated River system  The Unregulated River and associated Alluvial Systems  The groundwater system; and also  Water that can be captured before it enters any of the above systems Plans have been completed for the first three of these water sources and is now underway for the fourth source.

Water in the catchment generally flows from East to West and it is wetter on the western side of this catchment.

Figure 5 shows the nature of irrigated and agricultural land use in the Gwydir River Valley Catchment. All irrigation is below Copeton Dam and most of it below Moree.

9 Floodplain harvesting is the collection, extraction or impoundment of water flowing across floodplains, excluding the following types of water extraction:

 taking of water under any other type of water access licence that is not a floodplain harvesting access licence or an applicable water access licence exemption  taking of water under a basic landholder right, including the harvesting of rainwater runoff  runoff of irrigation water and stormwater which is subsequently captured in tail water return systems or other means in accordance with licence conditions or methods which have been approved by the Office of Water. Floodplain harvesting works can generally be put into two categories:

 Purpose built works specifically built to facilitate floodplain harvesting including pumps, structures or other works that divert water into or from storages, supply channels, depressions or otherwise impound flows.  Works built for multiple purposes that have the effect of facilitating floodplain harvesting, such as: levees, conveying works and off-river storages constructed in billabongs or depressions and, also, below-ground level channels from which the water is delivered into storages. Floodplain flows can originate from local runoff that has not yet entered the main channel of a river, or from water that has overflowed from the main channel of a stream during a flood. 10 In England and Wales such water is known as storm water. 23

Figure 5 Land-use in the Gwydir River Catchment Source: CSIRO, 2007 4.1 The Gwydir River Catchment’s regulated river sharing plan A full copy of the statutory Water Sharing Plan for the Regulated River system in the Gwydir River Catchment is available in Appendix Two along with a copy of the plain English guide to this plan.

This regulated river plan in effect, makes it impossible for the government to issue new licences to take water from this system in any manner that would reduce the capacity of any existing licence holder to take water.

The Gwydir River Regulated River system relies heavily upon the capacity of Copeton Dam and a series of weirs located below this dam to regulate flows and provide a limited but highly reliable source of water (see Figure 6). Under the regulated water sharing plan,

1. The first 500 ML per day of flow from the system’s three largest tributaries is reserved for the environment (a hands off flow); 2. Half of the remaining flow is reserved for the environment; 3. Half of the remaining flow is reserved for the environment until its needs can be met 4. When the tributary inflow exceeds consumptive demand (orders), however, a “supplementary event” may be announced and abstraction of 50% of this “excess” flow made available for access by supplementary licence holders 5. There is a volumetric long term extraction limit on the total amount of water that may be abstracted in any year to an average of 392,000 ML per year.

6. Allocations are further limited by a complex set of rules associated with obligations to allow some flow from the bottom of the catchment into the Murray Darling River system. In addition to these arrangements, an environmental contingency allowance or account is held in Copeton Dam that gives the environment the equivalent of 45,000 shares and a right to hold up to 90,000 ML in the dam at any point in time. Water held in this account is not transferable but has double the carry-forward entitlement available to general security share holders.

The result is a regime which on average limits abstraction to an average of 34% of all flows.

Compliance with the long term extraction limit is to be determined using a computer model of the Gwydir River system. If this indicates that long-term average annual extractions are in excess of the Plan’s limit, then the maximum volume of water made available to supplementary water access licences and, if necessary, general security access licences will be reduced.

An advisory committee is to review annual allocations and makes recommendations on compliance strategies.

Figure 6 The Gwydir Regulated River Water Source Water held in the environmental contingency allowance account is used solely for environmental purposes. The most common use of this water is to extend flows during a bird breeding event.

Subject to the above arrangements, the remaining water is allocated under the following priority sharing regime. As shown in Table 1, the first two priorities are given a fixed volumetric allocation which may be taken in all but exceptional circumstances.

Table 1 Priority sharing system used in the Gwydir Valley Regulated River System

Entitlement Priority Entitlement Local water utility 3,836 ML per year

Domestic and stock 4,247 ML per year

High Security 19,293 unit shares with a maximum annual entitlement of 1 ML per share

General Security 509,500 unit shares with a maximum annual entitlement of 1 ML per share but a right to hold up to 1.5ML per share at any point in time and abstract not more than 1.25ML per share in any water allocation year and not more than 3ML per share in any 3 year period.

Supplementary water 170,000 unit shares with a maximum annual entitlement of 1 ML per share

With these sharing arrangements in place, the amount of water to be allocated per unit share is determined according to rules set out in the plan. Available water determinations, as they are known, are made at the start of each water year for each licence category which commences in mid-winter.

1. In all but the most exceptional drought years, these provide allocations to local water utility and domestic and stock access licences. These allocations are not tradeable. 2. In most years and provided there is sufficient water in Copeton Dam to allow this, a 100% allocation is then made to High Security Shareholders. This water is tradeable but if unused may not be carried forward to the following allocation year. 3. A decision is to determine what the initial allocation to general security share holders is then made Allocations to general security shareholders are tradeable and, if unused, may be carried forward to the following year.11 4. Allocations to supplementary shareholders are made only when there is abundant water in the system and it is decided that an announcement to this effect made. The state of the system is reviewed continuously and to minimise the opportunity for insider trading further allocation announcements are made on the first working day after the 1st and 15th day or each month.12

4.1.1 Regulated river water allocation accounts

All regulated licence use is metered and delivery charges collected in proportion to the volume abstracted. Every licence and shareholder in the regulated river system has a water allocation that is maintained by NSW State Water. Allocations are credited to these accounts as soon as they are made and transfers from one account to another similarly recorded.

When a licence holder wishes to use water they must order it from NSW State Water. Orders must be placed in enough time to allow it to be delivered. This means that users at the bottom of the Gwydir system must order water 21 days before they use it.

Water is debited from the allocation holder’s account at the time that the water is released and if it is not taken it is lost from the account. Users, however, are required to pay the volumetric delivery charge if their meter shows that the water was abstracted.

11 And whether, as is generally the case, any water carried forward from the previous year may be accessed. Under the current system it is not possible to hold any more water in an account than can be carried over (1.5 ML per unit share for general security in the Gwydir) - any additional water that enters an account above the 1.5ML per share is forfeited immediately (not at the end of the water allocation year). 12 The practice of making water allocation determinations and any other announcements on the first working day following the 1st and 15th of each month is now nationally adopted. 26

The maximum volume that may be abstracted from a general security licence or sold to another person is the lesser of 1.25 ML per unit share and 3 ML per unit share over any consecutive 3 year period. Water traded into an account, however, may be on sold without penalty.

4.1.2 Regulated river trading rules

As shares can be mortgaged and issued in perpetuity, share trades are less common than allocation trades. In day to day language, share trades are called “permanent trades” and allocation trades called “temporary trades”.

NSW State Water is responsible for temporary trades and aims to complete 90% of all temporary trades within 5 working days (see Table 2).

Table 2 Processing times for water trades executed by NSW State Water Allocation Trade Processing Times Number of Performance against Intended service 1 July 2011 to 30 June 2012 trades standard standard Inter-State trade, excluding to/from SA - % of trades 196 94.4% 90% processed within 10 business days

Inter-State trade, to/from SA - % of trades processed 49 95.9% 90% within 20 business days

Intra-State trade - % of trades processed within 5 1958 99.1% 90% business days

Water trading fees, as approved by IPART, involve an application fee of $50 plus $0.50 per megalitre traded (GST free) up to a maximum of $150.00 per transaction.

Examples of the fees charged by NSW State Water to transfer an allocation from one account to another a are as follows

 $50 + 10ML x $0.50 = $55  $50 + 50ML x $0.50 = $75  $50 + 100ML x $0.50 = $100  $50 + 150ML x $0.50 = $125  $50 + 200ML x $0.50 = $150  $50 + 250ML x $0.50 = $150 Brokers are involved in the negotiation of most sales and typically they collect a commission from the buyer and seller. Information on all trades is publicly available on an register accessible over the internet at http://www.wma.dnr.nsw.gov.au/wma/AllocationSearch.jsp?selectedRegister=Allocation. Extracted from the public register, Table 3 shows five of the 113 temporary trades made in 2010/11 in the Gwydir River Catchment. In the following year, 66 temporary trades were recorded in the Gwydir River Catchment.

Table 3 Sample of five temporary water trades recorded by NSW State Water in 20010/11 water year

Assign From Assign To Details

Licence Access Water Source Water Category Licence Access Water Source Water Category Number on Applicati Assigned (ML) Volume ML'per Paid '$ Price

11353 Gwydir Regulated 11052 Gwydir Regulated SWC702984 16-JUN-2011 50 0 Regulated River (General Regulated River River (High River Security) Water Source Security) Water Source

347 Gwydir Regulated 8841 Gwydir Regulated SWC481680 16-JUN-2011 48 0 Regulated River (General Regulated River River (General River Security) Water Source Security) Water Source

11353 Gwydir Regulated 13303 Gwydir Regulated SWC702981 16-JUN-2011 223 0 Regulated River (General Regulated River River (General River Security) Water Source Security) Water Source

21412 Gwydir Regulated 8398 Gwydir Regulated SWC702878 08-JUN-2011 489 250 Regulated River (High Regulated River River (General River Security) Water Source Security) Water Source

7308 Gwydir Regulated 13303 Gwydir Regulated SWC701619 04-MAR-2011 100 240 Regulated River (General Regulated River River (General River Security) Water Source Security) Water Source

The Water Sharing Plan for the Regulated Gwydir system prohibits:

 any dealing which would result in an increase in the total share component of access licences in the Gwydir River below Tyreel Regulator, the Mehi River below the Moomin Creek junction, Moomin Creek or Carole Creek, until extraction components are determined,  trading of access licences outside of the Gwydir River Water Management Area,  assignment of water allocations between the Gwydir Regulated River Water Source and any other water source, and  assignments of supplementary water allocations. Conversion from one category of licence to another is possible with appropriate adjustment so that the interests of no other licence or share holder is affected adversely.

Figure 7 shows a summary of temporary trade data since 2007 for the Gwydir provided by one of Australia’s main independent water broking firms. These firms specialise in bringing willing buyers and sellers together, advising on the rules that determine if a trade is possible, and then managing all the financial and administrative processes associated with each transaction. The average price for an allocation varies continuously as product prices, rainfall and water supply conditions change.

Figure 7 Prices paid and the number of temporary trades executed in the Gwydir River Catchment Regulated River System Source: Waterfind, pers. com. (2013).

Figure 8 Prices paid and the number of general security permanent trades executed in the Gwydir River Catchment Regulated River System Source: Waterfind, pers. com. (2013).

4.2 The Gwydir’s unregulated river and alluvial water sharing plan Arrangements for the unregulated rivers and alluvial water resources are managed under a macro water sharing plan that brings all these water sources into a common framework. This enables their efficient management within the catchment and, also, management of connectivity with other water resources.

A draft plan was placed on public exhibition for six weeks in 2011 and following consideration of comments was adopted just over thirteen months later in December 2012. All submissions were considered in finalising the statutory plan which will remain in place for 10 years.

Usually one of the first steps in the development of any water sharing plan is to agree on the average amount of water that may be abstracted from each water source. As a result of efforts to develop a plan for the Murray Darling Basin that has hydrological rigour, considerable effort is being placed into the estimation of use by all users including those that are not metered. In the Gwydir’s unregulated and alluvial water source,

 Stock and domestic users are assumed to be taking an estimated 518.6 ML per annum;  Local Water Utility Access Licences are authorised to abstract up to a maximum of 817 ML per annum; and  Any remaining water is allocated to all users in proportion to the number of shares they hold in an unregulated water source. At the time when the unregulated and alluvial water sharing plan commenced in 2012, shares were issued at the rate of one share per ML of entitlement under the 1912 Act. The result was the creation of 61,722 unit shares which are now held by 284 licence holders.

In some unregulated water sources there are many users, in others such as Gurley Creek, for example, there are only three share holders. In the Georges Creek water source, there is one shareholder.

For each water resource, a summary of the rules that apply for each water course are published and accessible by clicking on the links in the rules summary sheet included in the plan (see

Table 5).

Within each water source, entitlement share trading, or permanent trading as it is often called, is relatively simple but subject to approval a case by case basis. Water sources are often divided into management zones and rules are written on a zone by zone basis. Trading between water sources is more complex and in some water courses is not allowed. .

Table 4 shows the summary rule sheet for the Upper Gingham Water Course Management Zone.

At the time of writing this report and although it is national policy to require that the abstraction of all water for consumptive uses be metered, very few unregulated system licences in the Gwydir are metered and, hence, there has been little temporary (allocation) trading of this resource. A metering project, however, is under development and trading is allowed only if both the seller and the buyer have meters installed.

A key feature of all unregulated licensing regimes used in New South Wales is the location of the reference or assessment point to determine when flows may be accessed. As far as possible and in contrast to practice in England and Wales, these assessment points are located at the top of a management zone so that a licence holder can decide whether or not to abstract without having to consider the downstream implications of doing so. This arrangement also makes it relatively easy to trade water within a management zone. Affordable development and access to the hydrological science needed to enable complex trading rules in unregulated systems remains a challenge.

Table 4 Rule summary sheet for the Upper Gingham Water Course

Upper Gingham Watercourse management zone Access rules for rivers and creeks Cease/commence to Very Low Flow Class Users must cease to pump when the flow at the pump reference point is less than or equal to 250 ML/day.

A Class Users can commence to pump when the flow at the reference point is more than 250 ML/day.

Planned Environmental Users can commence to pump when the flow at the Water Class reference point is more than the announced environmental water flow in ML/day. Reference point Gingham Channel at Tillaloo gauge (No. 418076) Access rules for natural off-river pools Cease to pump Pumping is not permitted when the water level in that natural off-river pool is lower than its full capacity.

Note: ‘Full capacity’ can be approximated by the pool water level at the point where there is no visible flow into and out of that pool.

Note: Natural off-river pools include those pools located on flood runners, floodplains and effluents e.g. lakes, lagoons and billabongs. Reference point Individual natural off-river pool Trading rules INTO Not permitted. management zone WITHIN Trades are permitted, subject to assessment. management zone

Table 5 Rules summary sheets for the Gwydir’s unregulated and alluvial water sources

Bakers Creek (PDF 142 Gingham Watercourse Roumalla Creek (PDF 134 Mehi River (PDF 134 KB) KB) (PDF 133 KB) KB)

Gurley Creek (PDF 132 Slaughterhouse Creek Barwon (PDF 126 KB) Millie Creek (PDF 133 KB) KB) (PDF 132 KB)

Boorolong Creek (PDF Moredun Creek (PDF 135 Thalaba Creek (PDF 132 Gwydir (PDF 128 KB) 132 KB) KB) KB)

Carole Creek (PDF 125 Tycannah Creek (PDF 132 Halls Creek (PDF 137 KB) Moree (PDF 132 KB) KB) KB)

Copeton Dam (PDF 134 Mosquito Creek (PDF 133 Upper Gwydir Alluvial Keera Creek (PDF 133 KB) KB) KB) (PDF 151 KB)

Georges Creek (PDF 132 Upper Gwydir River (PDF Laura Creek (PDF 132 KB) Myall Creek (PDF 132 KB) KB) 134 KB)

Mackenzies Flat (PDF 133 Warialda Creek (PDF 133 Gil Gil Creek (PDF 133 KB) Rocky River (PDF 132 KB) KB) KB)

4.3 The Gwydir’s groundwater water sharing plan The Water Sharing Plan for the Lower Gwydir Groundwater Source includes rules for protecting the environment, extractions, managing licence holders' water accounts, and water trading in the plan area. Gazetted in October 2006, this plan is due for extension or replacement after 10 years in July 2017.

Of all the water sharing plans in the Gwydir River, this plan is the most controversial as its implementation required the resolution of a serious over-allocation problem.

Historically, many more licences had been issued to this resource than could be sustained and recognition of the severity of this problem had forced the government to place a moratorium on the sinking of bores, etc. The government was, however, committed to moving from this regime to one that would enable these groundwater resources and several in other parts of the NSW to be put to their best use. Amongst other things this required resolution of the over-allocation problem by aligning entitlements with the amount that could be sustainably abstracted from each groundwater resource and considerable investment in the science needed to develop credible estimates of the amount of water that can be abstracted sustainably at any point in time.

Recalibration of groundwater entitlements caused much angst. While everyone’s allocation was reduced, farmers who had historically used less of their groundwater allocation had their entitlement cut more drastically than those that had regularly been using their allocation. This was seen as unfair by sleeper and dozer licence holders although it was seen as conceptually fairer to active water users who needed access to water to keep crops alive. It was not unusual for emotional farmers and their families to show up at community consultation meetings. To this day, a significant number of stakeholders perceive some of the decisions made where manipulated to the personal advantage of those most closely involved in the decision- making process. Nevertheless, the final result resolved the over-allocation problem and has encouraged the more efficient and productive use of groundwater.

Rather than making a pro-rata cut to all groundwater licences, ultimately, it was decided to

 give every licence holder at least a minimal share in the new regime defined as equivalent to the lesser of their current holding and 50 ML per annum  above the minimal share, give preference to those people who had a history of extraction and, hence, could demonstrate that they had made an investment that required ongoing access to water  in cases where a licence was being used and the history of extraction showed that the size of the reduction to be made was greater than that was being extracted, to o compensate licence holders for the difference in the assessed value of the water they had been extracting and the shareholding to be granted to them; o provide transitional access to a additional allocation by issuing them with a supplementary licence to top up their allocation to the amount they had been extracting for three years and then phase out this allocation over the next 7 years.13 The formula used to resolve this over-allocation problem is presented in Box 3.

Those entitled to compensation received a supplementary licence and an upfront payment of $500 per ML of water so that they had been extracting that would not be included in the shares they would end up with after the 10 year adjustment period. Assessment of the amount to be paid was determined by an independent valuation process. Many argued that this valuation was too low. Especially, as soon after the new plan came in, the value of groundwater shares jumped and, as a result, the amount of compensation received was insufficient to purchase this water back at its new market value. Others objected to the formula used on the grounds that they had applied for and where holding a largely unused groundwater licence in as a reserve to be accessed only in very dry times. When push came to shove, significant structural adjustment occurred and some, particularly those with a small shareholding, decided to sell their shares and exit the industry for a variety of reasons including retirement strategies or lack of viability. Many people in the community considered this to be unfair.

Ultimately, 171 Aquifer Access Licences and 28,858 permanent shares in this groundwater system were allocated. In addition and as a transitional arrangement 41 licences holders were issued with 13,930 supplementary shares.

13 At the end of this ten year period, the supplementary licence is cancelled. 32

Under the plan, allocations made to access licences and also to supplementary shares are tradeable. All use is metered. When it came to the right to carry forward unused allocations, however, it was decided that only allocations made to permanent shares in an aquifer could be carried forward from one year to the next. As shown in Table 6, this was achieved by placing limits on the amount of water that may be held in a water account. Table 6 ML per unit of share component that may be held in account

ML per unit of share component ML per unit of share that may be debited component that may be carried over Aquifer Access Licences 3 2 2 Supplementary Water Access 1 1 0 Licences Local Water Utility Access Licences 1 1 0

Box 3 The formula used to reallocate groundwater entitlements in the Gwydir

Where:

(a) SCAAL is the share component of the aquifer access licence, (b) AE is the adjusted entitlement calculated from the following formula:

Where:

HOER = 0 where HOE ≤ 50,

(ii) HOER = HOE − 50 where HOE > 50, HOE is history of use as defined in subclause (4),

(iiia) WAER = WAE − 50, and (iv) WAE is the Water Act 1912 entitlement, © ΣAE is the total of all adjusted entitlements, (d) R is the amount of recharge established, (e) PEW is the volume of recharge reserved as planned environmental water, (f) LWU is the total of local water utility access licence share components, (h) ΣSL is the total of all Water Act 1912 entitlements that are less than or equal to 50 ML,

(i) WAEP is the protected entitlement for entitlements where WAE >= 50 and is equal to the number of entitlements greater than 50 ML multiplied by 50,

(j) ΣEXC is the sum of share components identified as requiring an allocation determined via a separate process.

(4) HOE is to be calculated as not more than the maximum licence entitlement and excluding zero and low extraction years prior to activation is equal to the greater of:

(a) the average extraction over the five water years from 1993/94 to 1997/98,

(b) the average extraction over the five water years from 1997/98 to 2001/02

With the over-allocation solved and a water sharing plan in place, it has been possible to lift the moratorium on groundwater development and, in particular, allow shareholders to trade water with one another on either a temporary or permanent basis. Figure 9 shows the nature of temporary groundwater trading in the Gwydir River Catchment. Allocations are made on an annual basis and shareholders are free to decide whether or not to use these allocations, sell them or within limits save them for use in a subsequent year.

Figure 9 Prices paid and the number of temporary trades executed in the Gwydir River Catchment Groundwater System Source: Waterfind, pers. com. (2013). Following a review of the Lower Gwydir Groundwater Source conducted in the first half of 2008, an area between Moree and Ashley was identified as having significant drawdown and recovery decline, with drawdowns of up to 40 per cent of saturated thickness during the 2006–2007 pumping season.

This area between Moree and Ashley has become an area of concern in regard to the cumulative impacts on the aquifer and water users, and that the declining water levels above those anticipated under the Water Sharing Plan may result in a reduced economic benefit to the community.

The identification of this area of concern has lead to definition of two trading areas being established to assist in the management of groundwater dealings (see Figure 10).  Area 1 – the area outside of the area of concern;  Area 2 – the area of concern between Moree and Ashley. All proposals for a permanent share trade are subject to a full assessment by office of Water and refused if assessed as having an adverse impact. More specifically, a proposal to make a permanent trade is refused if  The calculated drawdown at 200m from any production bore exceeds 40 per cent of the saturated thickness of the alluvium.  The additional drawdown at the nearest neighbouring bore screened in the same aquifer exceeds 2m. Permanent groundwater trades are permitted if they are  between properties within the same trading area,  from Area 2 into Area 1

Dealings may be approved subject to conditions being placed on nominated work or combined approvals such as bore extraction limits to minimise potential impact on neighbouring bores. Temporary trades are approved without a hydro-geological assessment if they are:  Into Area 1 (including trades out of the Area 2).  Into and within Area 2 but are capped so that the total amount abstracted does not exceed the past maximum history of use of the buyer.

Figure 10 Trading areas of the Lower Gwydir Groundwater Source. 4.4 Environmental Water Holdings In addition to water held in the Environmental Contingency Allowance both the State and the Commonwealth Government have acquired water shares in the Gwydir that are used for environmental purposes. Most of this water has been acquired through voluntary tender processes. Some of it has been through an arrangement whereby the Commonwealth Government invests in water saving programs in return for an agreement to transfer an entitlement to half the water saved to the Commonwealth. Table 7 shows the size of these holdings. Table 7 Environmental Water Shares held by a Government in the Gwydir Valley, January 2013

Holder Commonwealth State Government Government Total Regulated River 375 unit shares 375 unit shares (High Security) Regulated River 89,525 unit shares 17,092 unit shares 106,617 unit shares (General Security) Supplementary Water 375 unit shares 375 unit shares 89,900 unit shares 17,092 unit shares 106,992 unit TOTAL shares

5 Monitoring the Gwydir River Catchment 5.1 Equipment and processes used to regulate flow and use At the system level, control structures are now almost fully automated. As a general rule, gauges are placed to allow a 24 hour travel time between gauging points. At points where rivers divide a gauge is typically placed above the divide and immediately below on each branch.

As a general rule, gauges are inspected and checked six times a year with the precise frequency of these visits frequently determined by specific events, such as flood. Some gauges need regular recalibration as the river bottom moves and conditions change. Other gauges can be relied upon to provide constant readings from year to year. Figure 11 shows a map of the location of gauging sites in the river system.

Every day, orders for water are uploaded into a spreadsheet that is used to determine when and how flow needs to be controlled. Travel times are well known and in the regulated system, orders must be placed in time for the water to arrive before it is taken.

X Gauging Station

Figure 11 Location of gauging stations used to control water flow in the Gwydir River System Source: Ken Gee, pers. Comm., NSW State Water, 2013. As shown in Figure 12, the investment in groundwater monitoring bores is significant and used to determine how much water may be abstracted. Data collected from each of these monitoring bores is transferred to computer models that combine this information with that on rates of abstraction to determine how much water can be allocated and, also, how the transfer of abstraction from one point to another is likely to affect the aquifer.

Figure 12 Location of groundwater monitoring bores in the Lower Gwydir Groundwater Source 5.2 Metering abstractions Throughout NSW, State Water is exclusively responsible for reading meters on all water sources. As a matter of policy, the Government prefers to own all meters and charge water users a fixed fee sufficient to cover the cost of reading them.

Under the National Water Initiative, governments have agreed that meters should be installed for

 all categories of entitlement identified in a water sharing planning process as requiring metering;  where water access entitlements are traded;  in an area where there are disputes over the sharing of available water;  where new entitlements are issued; or  where there is a community demand. Consistent with this policy, while not palatable to every water users, eventually all types of water use with the exception of domestic and stock water use will be metered. All regulated and Lower Gwydir only ground-water use is already metered. Most unregulated water use in the Gwydir, however, is still unmetered. At the time of writing, conversion from a conventional metering to continuous metering has been trialled in another part of New South Wales and a business case for the conversion of all existing meters to continuous meters prepared. The trial has found that conversion to continuous meters that can be read remotely at any point in time has the potential to both reduce administrative costs and make trading more efficient. In the interim, installation of meters on the Gwydir’s unregulated water system has been postponed unless a shareholder wants to complete a temporary trade. Temporary trading of unregulated water is allowed only when use by both the buyer and seller is metered.

If the business case is accepted then eventually all meters in the Gwydir River Catchment will be owned by a government corporation. The main reason stated for government ownership of meters is that this reduces administrative costs, and makes it easy to insist that no-one other than a government appointed person is allowed to “adjust” a meter. Arguably, this approach also reduces the cost of meter installation as meter supply is put out to tender and enables the government to negotiate a contract to supply all the meters needed in a district.

6 Administrative personnel tasks, time and costs To an outsider looking in, the cost of setting up and administering a regime of the size described may seem prohibitive. When examined carefully, however, the number of staff required to administer this regime is small. Considerable savings have been made by centralising processes and, as mentioned earlier standardising the approach taken to the development of water sharing plans, maintenance of registers, etc. Most staff also work across several catchments in a regionalised model and are distributed throughout the region. The Gwydir River Catchment, for example, is administered primarily by people located in Goondiwindi, Moree, Armidale, Tamworth and Narrabri and supported by people located in Sydney, Dubbo and Orange.

Table 8 summarises the number of resources required to administer this system in the Gwydir River Catchment including an estimate of the resources used centrally in effective full time staff equivalents. The numbers presented in this table were estimated by identifying the number of staff employed to undertake each function and then the informed distribution of their time across each system. In summary, a total the equivalent of 13 staff are employed by the NSW Office of Water to manage this system’s licensing system and 7 staff are employed by NSW State Water to operate system on a day to day basis.

When the regime is extended to include full management and regulated use of the capture of overland flows and runoff before it reaches a licensed water source, it is estimated that as additional two effective full time equivalents will be required. Once meters are installed throughout the unregulated river and alluvial system, it is estimated that an additional 0.5 effective full time equivalents will be required.

Under the current administrative regime, all administrative costs associated with these regimes are recovered from users. The costs of associated government programs such as payments for the fencing of wetlands, the payment of compensation associated with the resolution of over-allocation problems are not recovered from users and are financed from government revenue. Key drivers of cost include the number of licence holders and the complexity of each system. Across the state, considerable effort has gone into the development of arrangements that reduce administrative costs. In particular,

 Many staff work across several catchments;  Software and management systems are standardised;  Specialised processing centres have been established; and  Extensive use of the internet and websites are used and hard copies of documents no longer made. With experience the cost of preparing water sharing plans reduced considerably by reducing the amount of consultation undertaken and bringing clarity to policy detail.

Pipes extracting water from the Gwydir River Catchment

Table 8 Estimated costs of running the administrative regime in the Gwydir River Catchment

Number of EFT Staff System Overland Activity Total Regulated Unregulated Groundwater flow

NSW Office of Water Plan preparation and administration 0.50 0.10 0.10 0.10 0.20 Licence management, trading and other forms of dealing 3.00 0.50 0.50 2.00 0.00 Compliance and enforcement 1.00 0.25 0.25 0.50 Monitoring and recalibrating gauges, etc 3.50 2.00 1.00 0.50 Hydro-geological groundwater assessments 1.00 0.30 0.70 System support 2.00 0.75 0.25 1.00 Model development and analysis 0.50 0.10 0.10 0.30 Environmental Water Management 1.00 0.25 0.25 0.30 0.20 Sub-total 13.00 3.70 3.00 4.85 1.45

NSW State Water Meter reading 2.00 1.00 1.00 River and weir operations 2.00 2.00 Dam operations 2.00 2.00 Environmental and water quality management 0.30 0.30 Regional support 0.30 0.30 Centralised administration 0.30 0.30 Sub-total 6.90 5.90 0.00 1.00 0.00

TOTAL 19.9 9.6 3 5.85 1.45 Maximum amount that can be extracted (ML) 628,792 536,876 28,858 63,058 Number of licence holders 933 478 284 171

ML managed per EFT 31,598

Licences managed per EFT 47

7 Experiences in transitioning from the old licensing regime to the use of shares and formal planning processes This section seeks to present an overview of stakeholder perceptions of the process and outcomes resulting from the water sharing reforms implemented in the Gwydir River. It attempts to identify steps in the Australian experience so that the UK Government can adopt better procedures and lessen the negative impact of change. To assist we focus on five issues

 Socio-economic consequences of water reform

 Facilitating investment, the adoption of new technology and adjustment

 Recovering water for the environment

 Resolving groundwater over-allocation

 Negotiating water sharing plans

7.1 Socio-economic consequences of water reform While many irrigators complained about aspects of the process and the perceived losses they suffered, most admitted that they would not choose to go back to the old system. All those interviewed admitted that they were in a much better financial position than they were a decade ago and that they all had more reliable access to water. It is important to recognize that water reform delivers negative and positive results that need to be managed (see Box 4).

A number of farmers left the Gwydir Valley Catchment when water trading was introduced as they saw the Government’s compensation as an opportunity to leave farming. This resulted in a change of the type of farming that has occurred in the Gwydir River. Where many farmers had made a subsistence livelihood, the transition to water sharing changed farming practice to more profitable crops.

This too had ramifications. There was a measurable impact on the local communities and towns. The population of Moree has decreased significantly but the value of production has increased significantly. As is the case with dryland farming, fewer landholders with larger holdings use state of the art machinery and employ fewer workers.

Flood irrigation in the Gwydir River Catchment

Box 4 Stakeholder comments on socio-economic consequences of water reform “Owning a share of water should be seen as beneficial not detrimental to a farmer’s future. It can be traded, it provides security and it encourages better farming practice.”

“On balance, it has been a good result, arguably better than it should have been. With more efficient water use I was able to sell half the water entitlement I had and still run the same sized property. If it wasn’t for water trading I would not have been able to afford this farm or the factory that I subsequently bought so I could value add. Water trading has made me a very wealthy man.”

“A lot of people had a very sound understanding of how water shares could be leveraged and made an obscene amount of wealth. I’m one of them.”

“There is not as much reliability in general security water because you might only get 10pc of your allocation during drought years but groundwater is more reliable. Once the change had been made, I looked at alternative crops. I negotiated a very good deal and invested it back into irrigation. I bought a factory to value add and I now sell my product into supermarket chains around the country”.

“By and large there is a high degree of satisfaction. The big ticket is the security of my asset. There is unlimited carry over and perpetuity. Nobody can ever take my water entitlement again.”

“The truth is that not all will survive when you introduce water trading. Water sharing shut down some farms and the people who worked them.”

“People struggle with change. The fact is that the changes made a lot of people a huge amount of wealth. For many it was there superannuation and their ticket out of farming.”

“There has never been an economic report for the valley that talks about social considerations. How to do you get the balance right? When you start changing things, everyone in the community starts to compete rather than stick together cohesively.”

“When you dis-empower towns, the whole community is affected. You need to talk to the whole community because livelihoods will be lost if sections of the community leave. Lots of doctors, nurses, teachers and shop owners have simply left as there is not enough work or business to keep them here.”

7.2 Facilitating investment, the adoption of new technology and adjustment The overall impression is that generally the result has been a positive one for the community and for licence holders. As shown in Figure 13 and Figure 14, this observation is supported by a survey conducted in 2006 and repeated in 2010. Less than 25% of water users in the Gwydir River disagree with the statement that water sharing plans have made a lot of different to water use.

The degree of investment in new technology can be seen from the extent of change in water use technology that occurred soon after the plan for regulated water use in the Gwydir was gazetted in 2004 and completion of the share register validation process that ran into 2005. As shown in Figure 15, irrigators almost immediately began replacing inefficient flood technology with much more efficient centre pivot technology. Investment in very efficient drip irrigation has now commenced.

Figure 13 Water user perceptions of the difference that water sharing plans have made to the nature of water use in the Gwydir and the State as a whole in 2006

Figure 14 Water user perceptions of the difference that water sharing plans have made to the nature of water use in the Gwydir and the State as a whole in 2009

Figure 15 Changes in the proportion of irrigated land by technology type from 2006 – 2009 Source: Office of Water, 2010a and 2006 Surveys also indicate that the entitlement register validation process was extremely important. Before the completion of this validation a water licence could not be used as security for a loan. Soon after the validation process, in 2006, 29% of irrigators in the Gwydir had mortgaged their shares and by 2009, this proportion had increased to 47% (Source: Office of Water, 2010a).

Both permanent and temporary water trading also became a common event. Gwydir River Catchment specific information on the reasons for doing this is not available but an impression can be gleaned from NSW wide data. In a state wide survey of reasons for the permanent sales of water conducted with a sample of 10% of all water users in the State, the increasingly dominant reason for trading entitlement shares is that it enables people to “make additional income” presumably by making better investment decisions and more efficient use of the resources at their disposal.

Table 9 Reasons for selling water on the permanent market

2006 2010 Reasons Count Per cent Count Per cent Make additional income 9 3 6.1 40 51.2 Reduce debt 9 3 3.8 42 53.5 Water was surplus to my 7 2 6.0 13 16.4 needs No longer farming 2 8 3 9 11.5 Commodity prices too 2 8.3 8 9.8 low Retirement 1 4.1 3 4.0 Other reasons 7 27.8 16 18.1

7.3 Recovering water for the environment As mentioned earlier, one of the key reasons for implementing the water sharing reforms was a need to find a way to recover water for the environment. Several water reforms introduced before 2000 sought to do this for a number of reasons but none were judged to be adequate. One implemented in the Gwydir was the development of an Environmental Contingency Allowance. Debate about the need to do this was further complicated by the fact that farmers with land in the Lower Gwydir could graze livestock in the wetlands. As more and more water was used upstream, they lost out as ‘their’ wetlands remained dry and or were inundated less frequently.

Mechanisms in the water sharing reform package that enable the recovery of water for the environment include

 The provision of rules that determine how much planned water must remain in a river – the rule that reserves the first 500 ML of flow per day is an example;  The definition of water access licences as shares so that it is clear that the entitlement is to a share of the amount allocated and not to a guaranteed volume;  Provisions that allow the purchase of water shares and their transfer to an environmental trust or similar entity – adaptive environmental water While virtually all people in the Gwydir recognise that water is not an infinite resource and that the environment needs to have a share in the Gwydir River catchment water plan, during the transition the issue of how much water to give to the environmental divided environmentalists, irrigators and Government (see Box 5). More recently and as a result of

44 the Commonwealth involvement in the development of a Murray Darling Basin Plan, scientists are also becoming involved as stakeholders.

Previous arrangements encouraged the development of “aspirational” plans for the environmental outcomes. Under the new sharing regime being implemented in the Gwydir, the planning and entitlement arrangements being put in place virtually guarantee implementation.

Comments made also suggest that Australia has yet to find the best way to represent those interested in environmental outcomes. It is fair to say that the scientific knowledge about the responsiveness of different river systems sometimes is poorly understood by the community at large. Environmentalists frequently wish for ideal outcomes without understanding the best way to achieve them. Some wetlands, for example, may not need to be watered every year to thrive. Variability is natural.

The Gwydir River near Moree

Box 5 Stakeholder views on giving water to the environment

Government Administrators Environmental Managers Water Users

“Explanations of proposed “As soon as you create water “The environment needs to be just environmental water policy didn’t trading you also create problems as accountable about what is work. It was complicated and for environmental projects.” achieved as other users are. convoluted.” ‘You need to mesh natural “Most irrigators will work together “Fundamentally people don’t want resource planning with water to achieve environmental to give their water to the planning so that environmental outcomes.” environment. You need to issues are actioned rather than “There is a need to tweektweet underpin negotiations with facts.” aspirational.” the rules for the environment and “..., irrigators are interested in “When the Water Management bring them in line with other users. profit.” Act was in the planning stages, the For instance the ECA irrigators had the loudest voice (Environmental Contingency “It is imperative to ensure that and were a powerful lobby group Allowance) doesn’t pay for river irrigators understand that they will while the environment came to maintenance.... and they duck get more water if the river is the table unsupported. As the Act evaporation losses.” healthy and that environmental didn’t set the environment water secures their allocation.” This is important and needs to be protection.” clarified “A good environmental water “Environment became a token facilitator can pull irrigators “It is really important to stakeholder. Before water trading, together to work together to demonstrate to irrigators the there were 200,000 ha of achieve good environmental reason for taking water out of the wetlands. Now just 15,000 ha outcomes. system for the environment but it remain.” was never explained to us. ... “Set up an environmental trust “One of the greatest weaknesses Once an irrigator understands that and sell water to achieve of the Act was that irrigators felt concept, they won’t mind if he environmental outcome. It should they gave water away and have environment gets a share.” be possible to offset always grizzled about every drop environmental water in used in In fact the reliability of water they lost.” one valley to help another.” increased by 10 pc so there was an “Many farmers were expected to extraordinary benefit to irrigators

do projects to protect wetlands. but no-one explained this to us. But they got no perceived benefit We felt we were being robbed of for doing the right thing.” water.”

“Vitally important to assign a good In a culture of scarcity, decisions negotiator who can articulate are made around self interest but clearly and has a strong conviction in a culture of plenty, farmers to ensure the environmental won’t care if some goes to the provisions are given a mandate environment.” from the start.” “I think a lot of environmentalists “Ten years is a long time to wait try to blame the irrigators for without reassessing the data changes in the basin where in especially if there is a noticeable truth some of the issues are nature change in the environment.” at work”

7.4 Resolving groundwater over-allocation Management of the groundwater systems under NSW Government management in the Gwydir River has proved highly controversial as the volume of entitlements issued to these aquifers was significantly greater that the amount being used. Details of the policy changes associated with the reforms made are summarised in Section 6.3.

Compensation was paid but many thought that it was inadequate. The reality is that many small farmers felt disadvantaged because, when the process was finished, the best option for them was to sell their water shares. In a number of cases, this is all they could afford to do as they could not afford to or did not want to remain in farming. This water reform process also caused a change in behaviour where farmers became much more competitive and less willing to cooperate with each other. Transition from a fixed allocation regime to one where water shares and allocations are tradeable built a different much more competitive community.

Box 6 presents a range of stakeholder views about the process used. The overall conclusion that results from consideration of these statements is that water managers in England and Wales should do everything in their power to avoid over-allocating water. Resolution of over-allocation problems is unlikely to be easy.

Options mentioned to us in discussions for the resolution of this problem include

 Not renewing the unused portion of 5 year licences and thereby avoiding the need to compensate for water that has not historically been used;  Introducing early moratoriums to limit the risk of over-allocation. Where possible, these steps would be completed before announcing any changes to the current system.

Box 6 Stakeholder views on groundwater reallocation and the planning process

Government Administrators Water Users

“At the height of the water sharing plans I was “The process has been very painful. Some irrigators are still harassed in supermarkets and couldn’t even seeking additional compensation 15 years on as they felt have a drink in the local hotel without being the government rates were less than the value of the water threatened. That’s how much angst there was they lost.” among irrigators in the community. “They didn’t pay commercial compensation rates. There “There was a perception that the Government was no history of water trading at the time so the stole their water. You had to be pretty strong Government set a figure and we had no say. Within a short to cope.” time of trading, the water value skyrocketed so we were robbed.” “There was a lot of anger and my role was one of high level stress. In the end we moved from “The price skyrocketed from $500 to $2,700 per ML almost Goondiwindi to Moree to get away from it.” overnight and I spent millions buying back water.” (Many of the irrigators have since apologised for their “The Government held a gun to our heads. There should angry behaviour during the conversion process and now recognise the contribution that was made and continues to have been recognition that there was a change in the value be made.) of water so we weren’t left with enough money to buy back the water they stole from us.” “People struggle with change.” “A lot of sleepers began pumping groundwater where they “One of the real issues was that sleepers hadn’t before because they knew that if they didn’t use it realised the value of their unused water and they would lose it.” felt robbed when it was taken back.” The Government took back all groundwater licences that “Ideally you would get back all the sleeper hadn’t been used but that was unfair. I only used licences before starting any water sharing groundwater as a last resort because I was a responsible agenda to avoid argument and compensation.” farmer and tried to look after the aquifer so my “The irrigators were hard negotiators not groundwater allocation was cut by 95%. I was punished for wanting to give away a drop without a fight. good farming practice whereas my neighbour only lost 45% They were bullies.” of his groundwater allocation because he used water less efficiently than me.” Very common statement and view ‘There was a very heavily entrenched view that farmers had an absolute right to groundwater “It was all done with indecent haste. It was a travesty of on their property.” justice. I felt like the Government pulled my pants down and didn’t want to pay me.” “There was so much emotion that at one meeting two groups of irrigators began a fist “I was using my water. I recon the Government should fight with each other. The Chair of the meeting have got rid of all the sleepers and there should have been was so concerned that women were going to an embargo on bore licences so you couldn’t start be injured that he shut the meeting down.” increasing your opportunity to draw more water.”

“Some farmers didn’t survive the cuts to “Sometimes you just have to shrug your shoulders and groundwater. They fell into a gap where they accept that you lost your right to groundwater. I bought did not have enough water to continue.” water rights to survive. The real consequence is that before all this there was no real protection for me under the old

system. Nobody can take any of my water allocation again without compensation.”

“There wasn’t a lot of understanding about the effects on irrigators. If I had taken half of their pay packet they would have murdered me but they just took away half my water.”

7.5 Negotiating water sharing plans The concept of water sharing and trading was unmapped territory when water users, environmental lobbyists and Government officials began competing for the available water in the Gwydir River Catchment. The journey was often one of angst and agony for all involved. Much of the process was by trial and error, drafts documents, frequent amendments, interpretation and revision. As a consequence there was a lot of distrust between different groups of stakeholders.

As observed by one NSW administrator we spoke to, the reason there was so much angst associated with the development of sharing plans in the Gwydir River Valley is that

“the process did not have clear guidelines and boundaries. It was the first time NSW had embarked on such a process and the boundaries were very fluid. It left communities and the people working with these communities feeling less and less confident about the process and the change that was occurring.”

“A strong, robust and well thought out process would have created more confidence. Having said that, a strong and robust process or framework, may not have been initially possible due to the complexities of the change.”

This point cannot be made too strongly. NSW started preparing water sharing plans simultaneously for 31 water sources. There is an opportunity for those involved in water reform in England and Wales to move more slowly, to develop the framework carefully and test it in one or two catchments.

Box 7 presents a range of stakeholder views about the negotiation process. Many pitfalls were identified and there is much opportunity to learn from their comments.

Box 7 Negotiating water sharing plans

Government Administrators Environmental Managers Water Users

“It is critically important to have “A lot of the consultation “It felt like it was never going to end. clear and enduring leadership to was reactive rather than There were so many drafts and so much ensure consistency in vision from proactive. The Government paperwork.” the top.” wasn’t interested in “We weren’t a respected seat at the encouraging community “If possible ensure permanent table but rather as the group they had to response.” tenure for all top jobs so there is have. An example of that was continuity throughout the process.” “The Water Act was government officials being recorded in aspirationally one of putting the minutes by their first name but “Initially we formed community the environment first but in irrigators being referred by their committees to discuss proposed the end, environment came surnames.” changes to water licences. They to the table unsupported. were death traps. They cost a “They called it community consultation The irrigators squawked and fortune and rarely reached a good but it was a farce, a complete waste of complained and became the outcome. We subsequently ran time. We were walked all over. They powerful lobby with the intra-agency panels and once an weren’t honest. For instance they asked loudest voice.” issue specific draft paper was us our thoughts about giving 10 pc of prepared we’d hold targeted The Act should have set the the water allocation to the environment consultations with specific environment protection but and then they took 20 pc without ever stakeholders who may be impacted the irrigators felt they gave having mentioned that figure at the by the changes prior to a more water away and always meetings.” general release of a draft plan. This grizzled.” “There was no discussion about how the meant that we only changed things Environment was a new $9b government water buy back was if there was a demonstrable or player and the going to be spent. One guy negotiated a critical error.” environmental reps were great deal and got $385m to sell his “If you import Government officers not as up to speed as the property and its water allocation back to to do the job, you need to make sure old irrigation warhorses. At the Government and then he packed his they take time to get to know the end of the day, bags and took the lot to Brazil.” everyone in the district or you won’t regardless of the rhetoric, ‘The guys in their suits needed to sit have the respect of the locals. the drive that took over was down on a hollow log, leave their Whoever does the role needs to anthropocentric and the computers and ipads in the office and understand the local area, be environment was given listen to the guys on the ground. The empathetic to their livelihoods and what was left over.” old system wasn’t perfect but they were have spent time on the ground. “I believe the environment being paid to be at meetings. They While there are bonuses in having reps are now better forgot that they were dealing with our someone fly in and fly out, there are prepared and know what livelihoods.” probably more advantages in having the future needs of the someone already in the community “I dealt with about six successive environment are. In the in the role because they will know Government officials because people next phase, I think the the locals and earn their trust.” kept changing roles. There were three environment will be in a departmental name changes and I can’t “Define policy is the key.” better position to remember how many draft documents. negotiate.” “Where-ever possible try to decide They just kept changing their mind. It on policy before starting to prepare was a complete debacle.” a plan.” “Irrigators were seen as prosperous tall “Government officials need to have poppies who could afford to cop the credibility.” loss.”

8 Insights from other parts of Australia Whilst the experience in the Gwydir is closely aligned with options under consideration in England and Wales, there are a number of administrative structures and arrangements in other parts of Australia that need to be brought to the attention of those interested in the Australian experience. These include some experience with

 The use of continuous accounting in some of New South Wales’ and Queensland’s regulated river storages  The inclusion of forestry in the South East of South Australia  The establishment of delivery rights in Victoria  The introduction of a new type of low security entitlement in Victoria  The use of tagged trading systems  The development of shepherding arrangements in unregulated river systems 8.1 The use of continuous accounting in some of New South Wales and Queensland’s regulated river storages One of the most challenging choices to make in the design of a water allocation system is to decide whether or not to put aside sufficient water to cover storage and delivery losses or deduct these loses from the allocation made to each user. In most of Australia, sufficient water is set aside to provide for storage and delivery losses. In some systems however, water accounts are managed on a continuous basis including the Gwydir’s regulated water source.

The Australian eWater Collaborative Research Centre defines continuous accounting as

1. The sub-division of water resources in a dam (within a regulated river system) into user shares. The shares are updated on a frequent basis: eg currently monthly in the Gwydir and Namoi systems. Users manage their usage from their own account.

2. A resource assessment and allocation system with carryover only limited by available storage, user's balances limited to an upper bound, and the storage, transmission and operation losses funded from a communal account.

3. The accounting and sharing out of water resources in either a regulated or an unregulated river system based on an annual cycle, as for annual accounting, but with broader carryover provisions than under annual accounting. This provides water users with greater flexibility in managing their own accounts than under annual accounting, although account balances may not be permitted to become negative (ie no overdraw permitted; if a user needs more water they can enter into a temporary or permanent trade to buy the water needed). Carryover may be limited by annual and multi-year use limits. In a regulated river system the storage, transmission and operation losses are funded from a communal account.14

Accounting processes similar to this are also used in some parts of Queensland where the approach is known as continuous sharing. Arguing the case for consideration of such systems, one of Queensland’s administrators Tom Vanderbyl15 states that continuous sharing “provides each customer with a detailed daily inventory of the storage and transmission losses that are applied to their individual account balance. This provides the information and an important incentive for customers to be more efficient in the way that they store or take water.

8.2 The inclusion of forestry in the South East of South Australia In many parts of Australia, there is increasing concern about the impacts of unmetered water use on the availability of water to licensed users. One of the most controversial, is the impact of plantation forests on water supplies. In grassy areas, where run-off is high and in areas where an aquifer is close to the surface, the establishment of a plantation forest can significantly reduce run-off. The Australian State most advanced in the management of this issue is South Australia.

14 See http://www.ewater.com.au/glossary/QID.ljb63f2c.1/QID.ljb63f2c.1.qy5pxe.280.html 15 See http://www.myoung.net.au/water/policies/SunWater_Continuous_Sharing.pdf 51

In South Australia, a bill has been presented recently to parliament which, if passed, will require people who wish to establish a plantation to first acquire a forest water licence and then at all times acquire and hold sufficient water allocations to offset the effects of their plantation on the quantity of water available to others.16 Options to secure sufficient water in the Bill include buying water from other plantation holders irrigators.

8.3 The establishment of delivery shares in Victoria In Victoria, a delivery share is defined as “the right to have water delivered by a water corporation and a share of the available flow in a delivery system.” Delivery shares are defined in terms of unit volume per unit of time of the total amount of water that can be drawn from a water system at a certain point.

In some water trading systems, a decision by one person to trade water through a congestion point from one place to another can preclude the opportunity for all other people in the system to make similar trades. Where this is likely to happen, Victoria has established delivery shares and made these shares tradeable so that the actions of one person cannot preclude an opportunity that another licence holder assumed they had.17 As a result, congestion is seen to be managed equitably.

8.4 The introduction of a new type of low security entitlement in Victoria In a well developed trading regime, users are given the opportunity to manage supply risk by holding a water entitlement portfolio that includes shares of differing priority. In recognition of the merits of encouraging all water users to do this, during the water reform process used in Victoria, the opportunity was taken to partition the pools of water now allocated through a water sharing process into high reliability and low reliability shares. These are similar in form to the high and general security shares issued in New South Wales. The distribution of these shares, however, is quite different. In New South Wales, few people hold a portfolio of high and general security shares. When sharing was introduced in Victoria’s Goulburn Broken System, however, most irrigators started with a mix of high and low reliability shares.

8.5 The use of tagged trading systems Tagged water trading involves an agreement to permanently allow a water entitlement to be used at another location but to administer this agreement as if the water was temporarily traded from one location to another. The approach, now well developed in New South Wales, has particular merit when conveyance and other losses are poorly understood.

In a tagged trading regime, the amount of water available is determined by the conditions at the point where the water entitlement is defined and not where it is used. It can be particularly useful when a permanent trade from one water source to another is being contemplated. In England and Wales, an example would be the transfer of water via a canal from one river system to another.

8.6 The development of shepherding arrangements in unregulated river systems Shepherding is the process of arranging to deliver a water allocation from one user to another when the entitlement is a function of river height. New South Wales has issued a proposed framework for the shepherding of environmental water. 18 A framework for the shepherding of water allocated to commercial water users has yet to be released. The approach, however, is recognised as the key to the development of trading arrangements between unregulated water sources.

16 Details of this draft legislation can be viewed at http://www.austlii.edu.au/au/legis/sa/bill/nrmfab2011565/#Elkera_Print_BK24 17 For more information, see http://www.water.vic.gov.au/allocation/water_allocation_framework/water_shares 18 See http://www.water.nsw.gov.au/ArticleDocuments/34/recovery_water_shepherding_proposed_arrangement 52

9 Concluding comments The evidence contained in this report suggests that the reason there was so much angst associated with the development of sharing plans in the Gwydir River Valley is that the process did not have clear guidelines and boundaries. Many of the reforms appear to have been rolled out too hastily.

With the benefit of hindsight, a strong, robust and well thought out process would have created more confidence. The ultimate outcome, however, would have been the same. Today, the water sharing plans and the allocation regimes associated with them are more robust and are providing the security necessary to drive investment while protecting the environment.

There is an opportunity for those involved in water reform in England and Wales to learn from this experience, and focus on developing the detail and trialling it in a few carefully chosen catchments.

The ultimate benefits of moving from a conventional licensing regime to one that uses water sharing plans to establish the rules for allocating and using water are clear. This Gwydir Valley Catchment case study demonstrates that conversion from a traditional allocation framework to a share based system is both feasible and affordable. Administered well, significant economic and environmental benefits can be expected. Care must be taken, however, to manage community expectations.

Well designed sharing regimes provide security for both water users and the environment.

Well designed sharing regimes start with a crystal clear vision about the nature of the reforms that are necessary and why they are needed. Clear legislation needs to be supported by clear policy documents that bring clarity to the many challenging issues that need to be resolved. If costs are to be kept low – as was the case in NSW, and communities are to be kept onside, parallel investments must be made in the validation of registers and the preparation of water sharing plans.

The report shows that water sharing regimes can be used in all types of water sources including unregulated river systems and groundwater systems.

Water reform in the Gwydir River Catchment has taken what could be called a step-wise approach. That is, the government began with reform of the regulated river system, then moved on to groundwater and subsequently to unregulated and alluvial systems. Ten years on, and with much more experience, work is now commencing on the preparation of water sharing plans for the capture of overland flows and floodwater. Careful thought needs to be given to the merits of a step wise rather than entire water resource approach. Early investment in development of the scientific knowledge necessary to enable development of plans appears to be beneficial. It is important to develop and maintain up to date data systems.

Another clear message emerging from this report is the importance of avoiding over-allocation problems or addressing such issues as a top priority where they have already occurred. Resolution of them without angst is both difficult and expensive. One of the strengths of the water sharing approach to water allocation is that the approach can be used to prevent over-allocation problems from emerging and doing so in a manner that can accommodate changes in supply and demand.