Profiteering from water

As a result of the Water Act 2007 taking effect on March 3, 2008 the Minister for Water, Senator Penny Wong, has referred the issue of the sale of water and trading in water licences in the Murray Darling Basin (MDB) to the ACCC (PDF 305KB). Submissions from interested parties have been called for.

The process being entered into by the Minister and the ACCC implies that there is no alternative to trading in water and that it is both desirable and sustainable. I would argue that this is not so.

Water is a vital and increasingly rare commodity. It is essential for the maintenance of life which includes cities, towns, small communities, agriculture and industry.

Ownership should be controlled by the state for equitable distribution and use by all on a sustainable basis. This process should be controlled by and answerable to the democratic process. It is the right of all citizens to have access to a life sustaining supply of potable water.

How will trading in water and water licences achieve this?

Climate change has steadily reduced the flow of water into the MDB. Over the past few years 15 per cent of irrigated vines and trees have been taken out of production in the MIA (Murray Irrigation Area) due to the reduced amount of water available.

Trading in water licences came about from a perceived economic advantage in artificially increasing the availability of water in areas short of water. The greed and lack of commonsense which drove this so called reform was compounded by the over allocation of water licences.

Even as this is being written major banks and irrigation conglomerates are buying up water licences. They are moving to corner the market on water. The intention of the major irrigators is to get enough licences to ensure a minimum supply of water in times of shortage.

They also plan to spread their holdings in order to increase access to commercial and tradeable quantities of water. Any excess in any one year will be available for sale.

Smaller producers are more likely to sell their licences and this will be to the major irrigators and banks because they will pay more than the government. Buying licences from smaller producers will make available cheap land to bigger producers, which they can lease back to skilled but cash strapped smaller producers, buy the shareholder crop and by so doing not only reduce their own risk but also ensure a return from the lease. If the crop fails it will be the leaseholder and not the owner who takes the risk.

Alternatively, or in conjunction with the above, land holdings will get bigger which will have the effect of shrinking towns and reducing services, particularly in the areas of health and education.

Investors and speculators hope to create a profitable market in water. For banks the acquisition of water licences represents an investment against which they can borrow, lend and trade. Controlling water will confer power.

The head of Treasury, Ken Henry, is, in my opinion, wrong in claiming that the market will regulate and conserve water through price. It will not. It will create winners and losers, cartels and monopolies, which will only work to the benefit of the big producers and the top end of town.

Such an arrangement would be feudal and one need look no further than Pakistan to see how it would operate and the extent to which equity would be lacking.

By what leap of faith is it asserted that licence holders will sell their licences to government when commercial assessments might lead to the conclusion that the market will offer six or 20 times the amount being offered in five or 10 years time? The same considerations will apply on the purchase of water for environmental flows. By acceding power to licence holders the government has become a mendicant, subject to the greed of the market place in relation to a scarce resource.

Faced with growing shortages for environmental and humanitarian needs the government might move to regulate prices and minimum purchases, however government regulation of private monopolies and cartels is an imperfect instrument as we have seen with Telstra and the oil companies.

Why, as we move into climate change, would any government seek to diminish its control over the conservation, regulation and distribution of scarce resources?

The behaviour of the oil companies should be a salutary lesson. How long will industrialised countries be able to tolerate and absorb the gouging now a feature of the oil market? And water, it might be argued, is an even more vital commodity.

Unspoken and un-argued is the need for a complete audit of Australia’s water resources past, present and future. Areas outside of the MDB, particularly Western Australia look askance at the eastern centric focus on the MDB as addressing the water problems of Australia. What is needed is a National Water Authority (NWA) to conduct such an audit and maintain a scientific and research overview of Australia’s water resources of which the MBD forms a part but only a part when account is taken of the Northern Territory, WA, northern Queensland and Tasmania. It is difficult to understand how proper and informed decisions can be made in the national interest, without such an audit and without such a body to maintain a close and ongoing focus.

As climate change advances, the demand on governments to equitably manage scarce resources will grow. How will this be achieved if they have yielded the power to do so?

Any analysis of the effect of climate change on governance must lead to the conclusion that the era of the privatisation of assets of public benefit and necessity is over. Scarcity and shortage will require the intervention of government to maintain a reasonable quality of life and evenly balanced productivity.

To favour major interest groups at the expense of equity will sooner or later lead to internal unrest and the movement of people.

To conclude I offer the insight given to myself as the result of a brief exchange during the course of the last election.

At the last Federal Election I stood as an Independent candidate for the seat of Parkes. There were two Independent candidates; the other appeared to be quite well funded. Following a radio interview in Dubbo on the question of water and irrigation in which I made many of the points above, including a plea for equity for all water and irrigation stakeholders, I received a call, within half an hour of the interview, from an individual who said that Independent candidates did not speak about water and irrigation in the terms that I had. I later identified him as the CEO of an irrigation association.

Self interest and the need to maintain and expand that self interest in the face of water shortage has destroyed the concept of equity and the benefit of the greater good for long term survival.