future proofing the mdb
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Future Proofing the MDB. Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide Griffith University Lighthouse Lecture Brisbane 2 nd June 2008. “The country that takes top prize in water management is Australia”. - PowerPoint PPT PresentationTRANSCRIPT
Prof. Mike Young
Research Chair, Water Economics and ManagementThe University of Adelaide
Griffith University Lighthouse LectureBrisbane 2nd June 2008
Future Proofing the MDB
2
“The country that takes top prize in water management is Australia”
The next prize dependsupon industry & community willingnessto support pursuit ofrobust permanent solutions
3
Which future is best?
One that gets the fundamentals right, now?
A system that can be confidently explained as able to cope -- whatever future arrives
One that commits all to more decades of reform and uncertainty?
Incremental progress
No guarantee of resolution of current problems
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0
500
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1500
2000
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01
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04
Ra
infa
ll (
mm
)
14% less 20% less
Rainfall for Jarrahdale
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1000
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Str
ea
mfl
ow
(G
L)
N o te s : S tre a m flo w is fro m Ma y o f la b e lle d ye a r to th e fo l lo w in g Ap ri l
48% less
66% less
S tre a m in flo w fo r P e rth d a m s (P rio r to S tirlin g D a m )
PERTH
P5. Insufficient planning for less water
- 1%
- 3%
5
Adverse climate change
Mean supply 10,000
River & Storage Evap 2,000
Flow to sea 2,000
Deliverable water 6,000
Environment Use 1,500
Consumptive Use 4,500
0
Mean supply 7,000
River & Storage Evap 2,000
Flow to sea 2,000
Deliverable water 3,000
Environment Use 1,500
Consumptive Use 1,500
0
In Mediterranean climates, a 10% decline in mean rainfall results in around a 30% decline in mean storage inflow
10% less rain water means a 67% reduction in allocations unless the system is resized
6
Planning for long drys
DRY WET
Total River Murray System Inflows (including Darling River)
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Total River Murray System Inflows (including Darling River)with post 1938 sequence imposed from 2002
0
5 000
10 000
15 000
20 000
25 000
1892 1902 1912 1922 1932 1942 1952 1962 1972 1982 1992 2002 2012 2022
Ann
ual In
flow
<= 25
000 G
L (G
L)
Re-live from 1938
2014
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Current Southern System
Cap on Diversions Normal years
NSW and Vic % Share inflows + obligation to supply SA
SA gets 1850 GL + Responsibility for maintaining bottom of system+ 100% entitlement but no carry forward
Special accounting
Each get ~ 1/3
Exceptional circumstances
Special arrangements & new rules possible
Volu
me o
f W
ate
r in
th
e
Syste
m
Indicative template for sharing water among States and with the environment
10
Interception & double counting
0GL 1,200GL 2,400GL 3,600GL
• Plus salinity interception• Plus overland flow capture
Solution Require interception to be offset (save 1500+ GL) Surrender entitlements equal to deemed impact
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Use it or sell it because you can’t save it
MDBC Active Storage : June 2000 to February 2008
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1000
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3000
4000
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6000
7000
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9000
10000
Ju
n/2
00
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Se
p/2
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c/2
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r/2
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n/2
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n/2
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p/2
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c/2
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r/2
00
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En
d o
f M
on
th S
tora
ge
(G
L)
Active Storage
Long Term Average Active Storage
Maximum Active Storage
Get data
Murray Darling Basin Commission 2008
Back to
empty
Inflows have dropped 68% but use has only dropped 12
Got by running the system too low
SolutionAllow saving (Carry forward) of all water with an adjustment for evaporative losses
Change MoU, Agreement and Act to allow SA to carry forward water.
12
Adverse climate change
Mean supply 10,000
River & Storage Evap 2,000
Flow to sea 2,000
Deliverable water 6,000
Environment Use 1,500
Consumptive Use 4,500
0
Mean supply 4,000
River & Storage Evap 2,000
Flow to sea 2,000
Deliverable water 0
Environment Use 0
Consumptive Use 0
0
In Mediterranean climates, a 20% decline in mean rainfall results in around a 60% decline in mean storage inflow
20% less rain means the system has to either be reconfigured or abandoned!
13
System reconfiguration options(Reducing evaporation)
More dams What will you fill them with?
New sources None have yet to passed detailed analysis
Leakage and seepage Most eventually reaches the river (for a gain most can’t be
shared)
Better control
A short term gain
Evaporation Real savings
Lakes, wetlands, weir pools, river height, etc
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Environmental security
The environment is the interest that always loses Irrigation Security at cost of Environmental Security
83% reductions from environment
17% reduction from users
SolutionGive the environment a share that has the same status as that given to all other users (as in NWI)
Allow environment to carry over water
{Entitlement purchases for environment are doing this!}
First priority to maintenance water needed for conveyance, evaporation, etc
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Future-proofing the Basinwww.myoung.net.au
1. A sustainable sharing system for ground & surface water
• Maintenance water (conveyance, evaporation + min flow to sea)
• Shares for all non-flood water
2. Put all states under the same regime and give all the opportunity to save water
• Share inflows (no cap the diversions)
• Shares issued to environment and States
3. 100% carry over of all water
• Continuous accounting – similar to Dudley’s capacity sharing system
4. Require off-set of all land use change that erodes entitlement reliability (forests, dams, SIS)
• State shares reduced as interception increases
5. An independent authority making allocations to shareholders
6. If still dry, review system configuration & size from top to bottom
Search for evaporative savings
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Market value of tradeable entitlements
State / Valley Entitlement ML Est. Value per ML Total $ Value
NSW Lower Darling General Security 30,000 $1,000 $30,000,000
NSW Lower Darling High Security 8,000 $2,500 $20,000,000
NSW Murray General Security 1,669,000 $1,100 $1,835,900,000
NSW Murray High Security 182,000 $2,400 $436,800,000
NSW Murrumbidgee General Security 1,986,000 $1,200 $2,383,200,000
NSW Murrumbidgee High Security 302,000 $2,500 $755,000,000
Vic Goulburn & Murray Connected High Reliability 2,288,000 $2,400 $5,491,200,000
Vic Goulburn & Murray Connected Low Reliability 784,000 $200 $156,800,000
SA Murray High Security 550,000 $2,350 $1,292,500,000
Total 7,799,000 $12,401,400,000
Source: Waterfind, 2008
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Waterfind buy-back warning
1. Purchase entire entitlement market would take 14 years to get 1500 GL.
2. If limit govt. to 30%, so some opportunities for structural adjustment remain, would take 47 years to get 1500 GL.
3. Warning that upward revision likely
• CSIRO Sustainable yield report
• Recent MDB report to Ministers says the collective effects of climate change, bushfire, afforestation, groundwater extraction, irrigation return flows and farm dams “could
reduce stream flow by approximately 2,570 GL per year by 2023
and by up to 4,690 GL per year by 2053.”
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$5 billion now or up to $10 billion over 10 years?
0
200
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1200
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2000
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
Budget Year
Mil
lio
ns
Do
llar
s
Modernising irrigation
Buying water for the environment
Next three years
Federal Govt has undertaken to bring forward $400 million from 20011/12
Pay $3.5 billion just and fair compensation now to southern irrigators and irrigation companies for a future-proofed regime to commence in 3 irrigation season’s time. Waive all govt. water trading charges. Informed by CSIRO modelling, environment’s share could be phased in.
(A confident step change, a new Agreement, a predictable sustainable future)
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Off-market share buybacks
Corporate experience reveals that large buybacks are best implemented quickly using an off-market mechanism.
Coles Myer in 2005 provided one of the better known examples of a corporate buyback.
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Coles-Myer Share Buyback Schedule
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Coles Myer “2005” Press Release
Price paid and volume shares purchased
Off-market buy-back price $8.30
{All who offered $8.30 or below per share were paid $8.30}
70.4 million shares bought back for a total of $585m
Secured 5.7% of Coles Myer shares on issue
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Indicative structure of water buyback tender
1. Irrigators invited to tender to sell a proportion or all of their water licence with option to lease back until 30th June 2010. (No change over the next two irrigation seasons).
2. Tender closes on 30 October.
3. Participants notified 2 weeks later on November 15th.
4. For each type of irrigation licence, a single clearing price will be paid.
5. Payments made two weeks later on 30th November.
6. Entitlements may be leased back for next two irrigation seasons at $300 per ML of allocation received.
7. This year’s allocation remains with licence holder for free.
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Illustrative Offer form (High security entitlement)
Type of Licence South Australian River Murray Licence
Offer 1 …………….. ML @ not less than $2,400.00 per ML
Offer 2 …………….. ML @ not less than $2,700.00 per ML
Offer 3 …………….. ML @ not less than $3,000.00 per ML
Offer 4 …………….. ML @ not less than $3,300.00 per ML
Offer 5 …………….. ML @ not less than $3,400.00 per ML
Signatures
Licence holder …………………………………………
Registered interest (if any) …………………………..
Will you be leasing back any allocations made to these entitlements at $300 per ML of allocation made until 30 June 2010? Yes / No
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Future-proofing the southern MDB
1. Future-proofed entitlement systems First commitment is to maintain the system Then to share the remaining non-flood water
2. Environment as equal shareholder
3. Enforceable register and accounts
4. Efficient storage and adjustment markets Carry-forward - so we can all start rebuilding (some safety) Instantaneous, low cost trading
5. Require offset of all increases in un-metered and un-meterable water use
Forestry, dams, salinity interception, leakage prevention, etc
6. No selective government investment in infrastructure A level playing field with full cost pricing Financial recompense paid to all entitlement holders and adequate warning about the
nature of the once-off change to be made
7. Re- set the system as quickly as possible• NWI Consistent investment
• Send out the money now and engage all in bottom-up process
• Options include Coles-Myer like buy-back
• Assist water supply companies to target and reconfigure inefficient areas
25
Recommended changes to the draft CoAG’s MoU
1. Establish maintenance as a system responsibility.• Authority to set aside enough and allocate the rest to States and
the environment.
• Entire connected ground & surface water system (not just the River Murray stem)
2. Environmental entitlements defined in same manner as irrigation entitlements, on system register and fines to States for over-use
3. 100% carry forward for all States and Environment. SA with storage rights the same as other States
4. 100% offset of interception from 2010.
5. Commitment to finalise foundations for the regime upon which a robust Basin Plan can be built within 6 months.
Contact:
Prof Mike YoungWater Economics and ManagementEmail: [email protected]: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au
Download our report from www.myoung.net.au