Developing Economic Arrangements for Water Resources Management—The Potential of Stakeholder-oriented Water Valuation - Water and Agriculture: Sustainability, Markets and Policies - page 133

volumes of water needed for the environment and for drinking water supply (priority
allocations) are first abstracted from the total available volume, before calculating the
water volumes per unit for commercial water licences.
Process leading to the establishment of water trading arrangements in New South
Wales
The serious problems related to overexploitation of the water resources in the
Murray-Darling river basin triggered the involved states' ministers to limit annual water
diversions in each of the basins states to the volume of water that would have been
diverted under 1993/94 levels of development (MDBC, 2004). In New South Wales,
enforcing this cap proved especially difficult, as in 1996 and 1997 three major sub-basins
in this State exceeded the cap (Tarlock, 2001). The Government of New South Wales
announced a comprehensive water reform package in 1997, initiating a participatory
stakeholder process through the establishment of community based Water Management
Committees (WMCs). The outcome of this process was consolidated in the 2000 Water
Management Act, which consolidated previous legislation.
The Water Management Act required the development of water sharing plans for all
water sources in NSW by local water management committees, which should give
directions for water allocations between competing users, including between the
environment and extractive users (ACIL, 2002). Furthermore, the Water Management Act
provided a framework for these water sharing plans, determining the conditions for water
rights and the duration of the water sharing plans. However, the duration of the water
sharing plans and of the water rights proved an important source of disagreement.
Initially, the state government of NSW announced plans for water sharing plans to have
five year tenure (NFA, 2005) and to confirm existing rights for only ten years (Moran,
2003). For farmers, a longer tenure for water sharing and perpetuity of water rights was
important to allow security for their investments. If water sharing arrangements could
change regularly and if water rights could be lost, risks of investment would become too
high and obtaining credits from financing institutions would be almost impossible
(Huckell, 2005).
Eventually, the framework for most water management provisions in New South
Wales evolved largely from agreements on water made between the Commonwealth and
the states in the Council of Australian Governments, which resulted in the National Water
Initiative, signed on 25 June 2004 (Hamstead & Gill, 2004; DIPNR, 2005). The 2004
NSW Water Management Amendment Act gave effect to aspects of the National Water
Initiative, including the creation of perpetual water rights and the provision for the term
of a water sharing plan to be extended beyond its ten years. This development was in
parallel to the agreement reached in NSW that existing rights were to be converted into
perpetual water access licenses, in return for agreed cuts in agricultural water use of a
further 3%, in addition to the basin cap, over a period of 10 years, from 2004 to 2014
(Huckell, 2005). In the agreed trading scheme, there is a phased transition towards full
trading to protect farmers in existing irrigation systems. To ensure that tail-end farmers
within an irrigation system do not, all of a sudden, find themselves alone within a system,
facing a much higher burden of operation and maintenance costs for irrigation
infrastructure, only 4% of a water licence can be traded annually. This will eventually be
phased out (Huckell, 2005).