National Water Initiative–The Economics of Water Management in Australia–An Overview - Water and Agriculture: Sustainability, Markets and Policies - page 13

the scope for governments to adversely affect the price for water by purchasing water
for the environment directly from entitlement holders; and
the potential for 'water barons' to buy up water, and subsequently distort both water use
(by withholding water from agricultural production), and water markets (by
manipulating price).
Overall, the desired outcome is efficient water markets, within and between states and
territories, and between rural and urban sectors, which recognises and protects the needs
of the environment and of third parties.
Improved water pricing
There have been significant improvements in water pricing arrangements since the
1994 COAG water reform framework. These include:
institutional separation of water service providers (e.g., urban and rural water suppliers)
from water regulation and planning bodies;
establishment of independent bodies for reviewing water pricing or price-setting
processes in every state and territory; and
a move to consumption-based pricing aimed at full cost recovery in almost all major
metropolitan centres.
In the NWI, governments have committed to continue with pricing reform, in
particular:
to continue movement to pricing which recovers the full costs of water storage and
delivery for rural and regional systems;
to continue movement to pricing which achieves a commercial return on assets (while
avoiding monopoly rents) for metropolitan, rural and regional water storage and
delivery;
pricing which recovers a proportion of the costs of water resource management and
planning - cost recovery for such activities to manage the consequences of commercial
water extraction has become a legitimate proxy for more direct externality pricing in
rural areas;
nationally consistent benchmark reporting on the service quality and pricing of all water
service providers Figure 3 illustrates some of the major components of cost recovery
and pricing); and
moving towards more nationally consistent approaches to pricing across all these areas.