PC News - December 2017

Reforming Australia's water resources sector

The National Water Initiative (NWI) has made a significant contribution to managing Australia’s water resources, but further work remains. A Commission draft report identifies future reform priorities and recommends they be progressed through a renewed national water reform agenda.

Australia is viewed as a world leader in water management. This reputation is the direct result of co-operation between Australian, State and Territory Governments in water reform over the past 20 years. A cornerstone of these reforms is the 2004 National Water Initiative (NWI) (see box). In recent years much of the policy focus has been on the Murray-Darling Basin, including through the implementation of the Basin Plan, but the NWI remains nationally relevant.

What is the National Water Initiative?

• While some State and Territory Governments began reforming aspects of water policy in the 1980s, a comprehensive national approach commenced in 1994 with COAG’s Water Reform Framework.  The NWI was developed in 2004 as an extension of the 1994 reforms to maintain the momentum of reform, respond to overallocation, and address water scarcity issues arising in the early years of the Millennium Drought (1997 to 2009).

  The NWI included eight key elements for which there were agreed outcomes and actions:

  • water access entitlements and planning frameworks
  • water markets and trading
  • best practice water pricing and institutional arrangements
  • integrated management of water for environmental and other public benefit outcomes
  • water resource accounting
  • urban water reform
  • knowledge and capacity building
  • community partnerships and adjustment.

In early 2017, the Australian Government asked the Productivity Commission to undertake an inquiry into national water reform. The Commission is to assess progress in achieving the objectives and outcomes of the NWI and make recommendations on future reform priorities. A draft report was released in September 2017, and the Commission’s final report will be submitted to Government by the end of 2017.

The inquiry provides the first of the Productivity Commission’s three-yearly assessments of the progress of the NWI, required under the Water Act 2007. The Commission will also undertake inquiries into the effectiveness of the implementation of the Basin Plan every five years, with the first to be completed by the end of 2018.

What have the reforms achieved?

The Commission found that overall, most jurisdictions have made good progress in meeting the objectives and outcomes of the NWI. The reforms have significantly improved the way water resources are managed and water services delivered, resulting in significant benefits for the community.

Water resource management

The introduction of water entitlement and planning frameworks has created secure property rights and established transparent processes for deciding how water is shared between environmental and consumptive uses. This has provided the fundamental basis for the establishment of water markets, and has underpinned the move towards improved environmental sustainability.

There is widespread agreement that these reforms have produced significant financial benefits. Water entitlements are now valuable business assets, with financial institutions accepting them as collateral for loans. The capacity to trade water has allowed water to move to higher value uses and has provided a vital business management tool for irrigators.

The provision of water for the environment is also a key achievement of the reforms. The environment is now recognised as a legitimate user of the resource and environmental water has been allocated in all systems with significant water use. While the recovery of large volumes of water for the environment  has only occurred recently, there is already evidence of improved water quality and ecological outcomes.

Water service delivery

Reforms to institutional arrangements for urban and irrigation infrastructure services has improved efficiency in water service delivery.

In the urban water sector, institutional and pricing reforms have brought significant benefits. Where adopted, the combination of the corporatisation of water utilities and the introduction of independent economic regulation has improved efficiency by separating service delivery from policy making, increasing the transparency of investment decisions and promoting more efficient pricing.

In the irrigation infrastructure sector, the corporatisation of bulk water providers has delivered more efficient water services and a stronger commercial focus that has benefited both irrigators and governments. Local ownership and management of distribution networks, which has been introduced in New South Wales, Western Australia, South Australia and parts of Queensland, is generally considered to have improved productivity, accountability, long-term planning and responsiveness to irrigators.

Overall, water reform under the NWI has delivered significant benefits to irrigators, other water users, and the broader community.

Why further reform is needed

While much has been achieved, further reform is needed because:

• there is important unfinished business from the NWI, including modernising water entitlement regimes in Western Australia and the Northern Territory, better engaging Indigenous people in water planning, extending economic regulation across all major urban water sector providers and improving urban water services in regional areas
• experience has revealed some gaps and limitations in the NWI, including the need for improved planning processes to ensure that major investments in new urban water supplies to maintain water security are efficient
• of the need to respond to challenges, such as population growth in our major cities, the impacts of climate change and changing community expectations on the role water can play in improving the amenity and liveability of cities and towns.

Effectively, water managers in the future will have to manage a potentially reducing water resource and meet the demands of an increasing population for a wider range of water services.

Priorities for future reform

The Commission has identified the following key priorities for a future national water reform agenda.

Maintaining the key foundations of water management

The achievements of the NWI in water entitlements and planning, water markets, water accounting and compliance, water pricing, and governance should be maintained. They are the key foundations of sustainable water resource management and efficient infrastructure service delivery. Strong commitment to community and stakeholder engagement in all areas of water management should also be maintained.

Revising existing policy settings

The Commission found a number of areas that require revisions to current policy settings to respond to contemporary issues and concerns. These include:

• more fully incorporating mining and other extractive industries into water entitlement and planning frameworks
• enabling the inclusion of alternative water sources, such as recycled water and stormwater, in water entitlement frameworks
• developing contemporary water entitlement and planning frameworks to underpin the second and third generation of water plans that are now being developed
• more fully recognising the water requirements of Indigenous people
• removing remaining barriers to water trade
• better targeting adjustment assistance.

Enhancing national policy settings

The Commission identified the following three key priorities for a future national water reform agenda:

• Making urban water management more robust and responsive. This involves more robust supply augmentation planning with all options on the table and clear accountabilities, enhancing competition through improving regulatory frameworks and exploring decentralised approaches to providing water and wastewater services.
• Improving environmental management. This re-quires: integrated management of environmental water and waterways, improved governance arrangements for managing entitlement-based environmental water, and facilitating adaptive management by implementing processes for monitoring, evaluation and reporting.
• Delivering new water infrastructure that is viable and sustainable – poor past decisions should not be repeated. The environmental sustainability and financial viability of new infrastructure should be ensured before government resources are committed.

Progressing reform

The Commission considers that retaining and renewing the NWI is the best approach to progressing national water reform.

National Water Reform

• Read the Draft Report released September 2017
• The Commission’s final report will be handed to the Australian Government in December 2017.

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