TOTAL RESOURCE RENTS OF AUSTRALIA

Water
The separation of water title from land title in 1994 by the National Water Commission is delivering positive outcomes for the
highest and best use of water. However, public policy must acknowledge that great profit can be made for little effort if there
are no public holding charges on entitlements to scarce natural resources. At present, there appears to be little in the form of
recompense for the public.
“public policy must acknowledge that great profit can be made for little effort if there are no
public holding charges on entitlements to scarce natural resources.”
Water can be traded either as a temporary ‘allocation’ or a permanent ‘entitlement’. In 1990, a water licence for a one megalitre
(ML) allocation sold for $50 to $100. At the height of the drought in 2007, water licences sold for $2,600/ML, an increase of 26
times. 79
The Australian water market doubled in size between 2007-08 and 2009-10. $1.5 billion in water licences were traded and the
market reached $3 billion.
Arbitrage opportunities with irrigation water
In March 2012, Blue Sky Water (BWSP) released an Australian Water Market update:
Urban water supply involves recurrent costs of about $2.50 to $3.00 per kilolitre (kL) across
Australia. This is the equivalent to $2,500 to $3,000 per mega-litre and it is a recurrent cost
which is paid as water is consumed. This compares to the $2,000/ML ‘one off’ cost for an
irrigation water licence.
As well, the cost of urban water is increasing, as Australian governments seek full cost
recovery for water. It is expected that potable water will cost Australians about $4.00/kL for
every kL of water they use within two to three years.
The movement of irrigation water to industry and mining presents arbitrage opportunities for
owners of irrigation water licences, as superior returns are possible. Arbitrage opportunities
indicate that irrigation water licences in Australia are undervalued. 80
Arbitrage opportunities indicate that irrigation water licences in Australia are undervalued.
In March 2012, Blue Sky Water (BWSP) released an Australian Water Market update:
Current market prices (where settlement and registration will occur over the next 1-2
months) suggests selective opportunities are present to acquire Water Entitlements in the
southern MDB at perhaps a further 10% discount to the volume weighted average prices
registered in February 2012. 81
Reflecting the abundant supply available following the breaking of the drought, the price of water allocations (annual water
volumes allocated) have fallen to historic lows in the last few years. Since January 2011, water allocations have traded between
$10 and $30 per megalitre (ML) across the southern interconnected trading zones (including the Murray, Murrumbidgee and
Goulburn rivers). This compares to an average in the range of $80 to $120/ML over the past ten years and a peak between $800
and $1000/ML during the worse drought period in 2007-08. 82
79 www.australianwaterinvestments.com.au
80 www.australianwaterinvestments.com.au/.../29_water_prices_being_an_asset_bubble.pdf
81 p1, www.dealersgroup.com.au/kb/quarterly-review-austral-1.pdf
82 ibid, p4
28