Droplet 9 - New Water for Old: Speeding up the reform process |
October 07, 2007 |
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Posted by Joseph Taylor at October 7, 2007 04:20 AM |
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Forward: This Droplet proposes a pathway for the construction of a water entitlement register that will withstand the test of time.
Droplets explore ideas and propositions which, if developed further, might improve water use. They develop ideas and search for the fundamental concepts and building blocks that one might consider if not constrained by prior decisions.
New water for old: Speeding up the reform process
“The laws relating to the transfer and encumbrance of freehold and other interests in land are complex, cumbrous and unsuited to the requirements of the said inhabitants.” Torrens Title Act, South Australia, 1857-8.
The issue
There is an important relationship among water resource plans, entitlements, and registers. All three are of equal, essential and vital importance. Good registers do not fix bad plans. You can’t have a good plan unless it gives effect to a good entitlement system. Like Romeo and Juliet, plans and entitlements go hand in hand.
Knowing what we know today, to produce a good water resource plan, one would expect the planning process to begin by rigorously identifying the separate bodies or pools of water to be managed, and then establishing the rules for assigning water to each pool. The effect of one pool on another would be defined in a way that has hydrological integrity. Water can be assigned only to one pool at a time.
Entitlements to share access to the water assigned to each pool would then be defined and recorded on a register that guarantees ownership security and, through trade, facilitates efficient use and adjustment.
This is clearly not where we are today. Many entitlements were first issued in a developmental era when water resources were relatively abundant and were not defined to manage scarcity, interconnectivity and climate change. Today, many water allocation systems are under considerable stress. So much so, that some plans have been suspended. Entitlement trade, especially among States, remains cumbersome.
Given the circumstances Australia now finds itself in, we wonder whether or not there may be a need to adjust much more quickly than envisaged when existing water resource plans were put together.
What features would a new planning, entitlement and register system have to have to be deemed future proof? Could it be developed so that most entitlement holders would prefer it?
A way forward
In this Droplet, we explore the proposition that it may be advantageous to consider improving plans, entitlement systems and entitlement registers simultaneously. And, that this could be done in such a way that most water users would be keen to transfer their entitlements into this ‘new’ system.
The approach we have in mind draws upon NSW experience in persuading land holders to convert ‘old’ system land titles into a ‘new’ Torrens Land Title system. Conversion was voluntary and implemented over a number of years. The approach also draws upon experience gained when company share registers were moved from individual State registers to a single National register.
Water resource planning and entitlements
Good plans start by rigorously defining the relationship among the pools of water to be made available for environmental use, consumptive use and system maintenance.
Under the ‘new’ system and consistent with the National Water Initiative, plans and entitlements would be aligned in a manner that guaranteed that the water supply reliability would be a function of climate and nothing else. Entitlements would be defined as shares in the water assigned to each pool. Under this system, whenever one person’s shareholding is increased, another’s must be decreased. The system would have hydrological integrity. Amongst other things, each plan would require the offset of any adverse effects of land-use change or other similar processes on entitlement reliability.
An ‘indefeasible’ register
Good registers define ownership unequivocally. In the past, many of the processes used to issue water entitlements lacked consistency. Typically, entitlements were issued as licences. At the time, no-one envisaged that these licences would be separated from land title and be used to define assets that could be traded across large distances. When licences were first issued, it was always assumed that they could be changed as and when necessary. As a result of this history, even today, some governments remain reluctant to unequivocally guarantee the integrity of their water registers.
One of the most desirable features of the new register would be ‘indefeasibility.’ Whoever is named on the register as the owner of an entitlement is guaranteed to be its owner. The only way that ownership could be transferred to someone else would be to change the entry on the register. To provide for investment security changes are made only with the consent of all registered interests. Anyone who suffers a loss as a result of fraud, administrative error, etc. would be entitled to just compensation.
Financial risk
Throughout the world, banks are required to hold a proportion of their assets in extremely safe asset classes. Moreover, as a general rule, those who offer to mortgage these safer assets can borrow at a lower interest rate than everyone else.
While this may not seem important, if an entitlement register was defined so that it and its underlying assets were of the highest security, then irrigators should be able to use their entitlement to borrow money at cheaper rates than is presently the case. For this level of security, entitlements would need to be defined in a manner that prevented an entitlement from being forfeited or cancelled. There are many to ways to penalise bad water users. The threat of forfeiture of a water entitlement or, more seriously, the actual forfeiture of an entitlement need not be one of them.
Mortgageability and other interests
Well-defined registers record third party interests and guarantee that these interests will be protected. On the ‘new’ register, electronic access could be given to banks and other similar bodies so that they could clear part or all of a mortgage themselves. When loan payments are seriously in arrears, mortgagees (lenders) would have rights to foreclose their registered interest and sell enough entitlements to enable them to recover their interest. Mortgagors (borrowers) would have an equitable right of redemption. A mortgagee would not be able to recover more than that owed to them.
Trading
Imagine a register that provides maximum investment security and facilitates trading at very low cost. If the new register was built from scratch and designed for electronic trade, it should be possible to complete an entitlement trade in a few minutes.
Enter the name of the person to trade to, let the computing system check whether or not the proposed trade is possible, press the confirm button and the deal is done – done irrevocably! Partnerships with the banking system and brokers could be used to make execution conditional upon payment. No trade should cost more than the $60 or so currently charged for the electronic sale of shares in an ASX registered company.
Where to from here
If we had more space, we would add a lot more detail and also point to all the good work that States and the National Water Commission are doing to build state-of-the-art water resource plans, registers and trading systems. We also recognise the reality of the many water sharing plans and the constraints of plan review timelines and commitments among the various States and the Commonwealth.
In a few months, the results of the CSIRO Sustainable Yield Project for the Murray-Darling Basin will become available. One of the aims of this project is to identify over-committed water resource planning areas. One of the reasons for over-commitment is that some plans do not adequately account for ground-surface water interconnectivity and the consequences of a long drought. When the results of this project are considered alongside the impacts of the current drought, for some areas, it may be worth considering simultaneous improvement of the plan, the entitlement and the register system in a way that benefits all.
In areas where simultaneous change might be in the interests of all, an offer could be made to prepare a new resource area plan that properly accounts for system interaction and change, and then offer to issue new entitlements recorded on a new ‘state of the art’ register. Whilst we recognise that States may be reluctant to allow this to occur, we can see merit in letting the new Murray Darling Basin Authority offer to do this, and then invite all those with interests in a water resource planning area to choose between the ‘old’ and the proposed ‘new’ system.
For irrigators, this approach would involve no downside risk. There would, however, be a strong incentive for the Authority to get it right – reputations would depend upon it.
If a majority want the new system then, this process could set the standard for all to follow and provide a pathway for the progressive transfer of all water resource area plans and entitlements in the Murray Darling Basin to a single Basin-wide system.
Authors
Mike Young, The University of Adelaide, Email: Mike.Young@adelaide.edu.au
Jim McColl, CSIRO Land and Water, Email: Jim.McColl@csiro.au
Acknowledgements
Comments made on earlier drafts of this Droplet by Megan Dyson, Alistair Watson, Stephen Carroll, Murray Smith and our Steering Committee are acknowledged with appreciation.
Copyright © 2007 The University of Adelaide.
Production of Droplets is supported by Land and Water Australia and CSIRO Water for a Healthy Country. Responsibility for their content remains with the authors.
