Water market needs a dedicated ASX-type agency that oversees the equities markets
Because of their inadequate record keeping and disclosure, each of the states’ water entitlements listed entities, if operating as companies, would be delisted by the ASX according to Mick Keogh OAM, deputy chair of the Australian Competition and Consumer Commission (ACCC).
Addressing a recent Rural Media webinar, he also said there needed to be a dedicated agency focused on oversight of the water market, with a similar role to one that oversees equities markets for the ASX.
Mr Keogh told the webinar a Murray-Darling Basin enquiry found no major discrepancies or malfeasance in the water market but given its size it fell short of developing infrastructure properly to underpin it -- as shareholders would expect to see in a comparable organisation listed on the ASX.
Water’s massive market value
He said the strongest message that came out of the enquiry was that people who were stakeholders in a market with an average annual turnover of $1.8b were entitled to transparency about what was happening in that market, and they rightfully expected information for enabling vital business decisions would be readily available.
The value of water allocations and entitlements in the Murray-Darling Basin now exceeds $26b, and 40% of the value of this asset base is in irrigation farms.
Mr Keogh said a database of the record of eight million transactions over six years involving state governments, various trading platforms and major traders, convinced the ACCC that Australian water markets were not only very important but “actually work in a reasonable fashion”.
For example, with the market determining the price of limited water, big growers of produce who decided it would be uncommercial for them to plant a crop in a year of drought, could derive benefit by selling their water allocations to small growers, who could then also benefit by getting access to otherwise unavailable water.
“After consideration of millions of transactions, I came away from the enquiry with the conclusion that for all its critics, and for all the assertions the market had failed, there was no evidence to justify this view”, Mr Keogh said
But the system’s not perfect
In his opinion “quite a lot of work” still needs to be done before limitations of the water market are extended so that transparency and information about it is supported by infrastructure that equates to what’s available to equities markets.
Transparency in the water market is doubly important because it curbs inappropriate behaviour and provides confidence for participants.
They are surely entitled to an opportunity to understand what is happening at the same level as, for example, people involved in the beef and wool industries who are supplied with regular and comprehensive reports that help them make various informed business decisions, particularly related buying and selling.
With stronger water market infrastructure, everyone in regional communities will better be able to plan for dealing with issues inevitably arising from decisions by a region’s major producers – rice growers, for example -- to curtail or shut down operations during a drought.
Mr Keogh said the ACCC believes it is important communities have means of knowing what’s happening to influence the price of water, how a vital and sometimes scarce resource such as water can best be accessed, who is trading in the market and to what extent.
But it obviously isn’t always clear to stakeholders what the ACCC is able to do and unable to do, towards making good things happen and preventing bad things from happening.
Limitations of the ACCC
The ACCC can issue what Mr Keogh described as “the effective equivalent of speeding fines” for breaches of legislation, but these infringement notices are contestable in courts and judges’ decisions “are not always what we would expect”.
In other words what the ACCC would want to happen, doesn’t always happen, so “it’s an erroneous perception the ACCC can run around the country handing out penalties and imposing fines”.
Penalties are matters for courts to decide and if a court doesn’t agree with what the ACCC believes should happen, it doesn’t happen.
The ACCC considers up to 500,000 matters a year raised by consumers, some individuals and others including some of the nation’s largest businesses.
Dealing with these, costs about $30m annually and may involve about 30 court cases, but the Commission may also during the same time be coping with an equal number of other actions that don’t involve courts – for example infringement notices or undertakings that are legally enforceable.
“The ACCC can’t take on all consumer and competition issues in all sectors of the economy and we have to be strategic in what we can effectively take on. And our critics need to understand that we are regulators not policy makers,” Mr Keogh said.
Parliamentary control rejected
On 30 September a Senate committee examining management of the Murray-Darling Basin Plan, released a report recommending SA Senator Rex Patrick’s Bill to amend the constitution so the commonwealth parliament would have “unambiguous authority” in the Plan’s management, be not passed.
While the committee rejected the senator’s claim his proposed Bill would ensure “fairer” administration of the Plan, it nonetheless made a range of recommendations aimed at fixing the “complicated maze of multi-jurisdictional and multi-agency bureaucracy” surrounding it, to improve transparency.
Macks Advisory has no wish to sound presumptuous but going on what Mr Keogh said at Rural Media’s webinar we’d be surprised if he wasn’t pleased at this step towards achieving the transparency he advocates for the Plan and for the water market relative to it.
