ACIL Water Reform and Industry May07

Water Reform and Industry
Implications of recent water initiatives for the

minerals, petroleum, energy, pulp and paper
industries
Prepared for Department of Industry, Tourism

and Resources
April 2007
© ACIL Tasman Pty Ltd
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Implications of recent water initiatives for the

minerals, petroleum, energy, pulp and paper
industries
Prepared by ACIL Tasman

Contents
Executive summary x
1 Introduction 1
1.1 Report structure 1
1.2 Background 2
1.3 Water use and economic contribution 3
1.3.1 Water use 3
1.3.2 Economic contribution by sector 6
1.4 Characteristics of water use in the MPEPP industries 8
1.4.1 Minerals industry 8
1.4.2 Petroleum 10
1.4.3 Electricity generation 10
1.4.4 Pulp and paper manufacture 11
2 Australian water market arrangements 13

2.1 Overview 13
2.2 Queensland 15
2.3 Victoria 20
2.4 New South Wales 25
2.5 Western Australia 27
2.6 South Australia 31
2.7 Tasmania 34
2.8 Northern Territory 39
3 The National Water Initiative 43

3.1 Key elements 43
3.2 Key points from the NWI for the MPEPP industries 43
3.3 Current state of implementation of the NWI 46
3.3.1 Report to Council of Australian Governments ² July 2006 46
3.3.2 Status of implementation 47
4 Case studies 50
4.1 The current water situation for the industries 50
4.2 Cadia Valley Operations 51
4.2.1 Water use and sources 53
iv
4.2.2 Water supply/access arrangements 55

4.2.3 Water management issues 56
4.2.4 Policy issues 57
4.3 Norske Skog Albury 57
4.4 Loy Yang A 62
4.5 Coal seam gas case study 66
4.6 Yabulu Nickel Refinery 68
5 Future water requirements from industry 73

5.1 Proposed developments 73
5.2 Water demand for anticipated projects 74
5.2.1 Water requirements for mining projects 74
5.2.2 Water requirements of electricity generators 77
5.2.3 Water requirements of pulp and paper projects 77
5.3 Projections of future water demand from the MPEPP industries 79
5.4 Location of future water demands and selection of priority case
study regions 80
6 Case studies of four catchments 82

6.1 The Hunter catchment 83
6.1.1 Water access arrangements 84
6.1.2 Demand and supply 85
6.1.3 Hydrology, droughts and some qualifications 89
v
6.1.4 Water prices 90

6.2 Fitzroy Basin catchment 91
6.3 Moreton catchment 98
6.4 Goldfields 105
7 Economic issues and implications 116

7.1 Economic efficiency of water use 116
7.1.1 Principles 116
7.1.1 Evidence 118
7.1.2 Implications of time of day pricing in electricity 120
7.1.3 Conclusions on the efficiency of water allocation 120
7.2 Impact on economic growth 121
7.2.1 General equilibrium modelling 121
7.3 The value of reforms 124
7.3.1 Estimates of value added per ML 124
7.3.2 Estimate of economic impacts of NWI 125
7.4 General observations 130
8 Conclusions and recommendations 131

8.1 General observations 131
8.1.2 Potential new projects 132
8.2 Summary of policy issues 133
8.3 Priorities 136
vi
8.4 Recommendations 137
Attachments
A National Water Initiative A-1

B Water use and access arrangements for case studies B-1
C Estimates of value added C-1

D Glossary D-1
Boxes, figures and tables

Box 1 Definitions 14
Box 2 Value of marginal product 117
Figure 1 Water use (per cent industry) by industry and State/Territory: 2004-05 5
Figure 2 Gross value added by industry type for 2000-01 and 2004-05 6
Figure 3 Estimates of gross value added per ML of water consumption by
industry sector, 2004-05 7
Figure 4 Progress of water planning activities in Queensland at mid 2006 16
Figure 5 2YHUYLHZRI9LFWRULD·VZDWHUPDQDJHPHQWIUDPHZRUN 22
Figure 6 Water management areas in Tasmania 36
Figure 7 Water control districts in the Northern Territory 40
Figure 8 Cadia Valley operations location (left) and historical gold production
(right) 51
Figure 9 Lachlan River catchment 52
Figure 10 Cadia Valley operations annualised water balance 54
Figure 11 Map of the Latrobe Basin 63
Figure 12 Projected water demand from the MPEPP industries ² 2006-2015 80
Figure 13 Map of the Hunter catchment 83
Figure 14 Projected water demand for the Hunter catchment ² total and
incremental water demand from new MPEPP industry projects 87
Figure 15 Projected water demand for the Hunter catchment 88
Figure 16 Location map for the Fitzroy Basin catchment 92
Figure 17 Projected water demand from MPEPP industry projects in the Fitzroy
Basin catchment 96
Figure 18 Total water demand projection in the Fitzroy Basin catchment 96
Figure 19 Map of the Moreton catchment 99
Figure 20 Cumulative and annual incremental demand from MPEPP industry
projects in the Moreton catchment 102
Figure 21 Projected water demand for the Moreton catchment 103
vii
Figure 22 DNRW forecasts of water demand and supply in South East

Queensland, to 2050 103
Figure 23 Annual incremental and cumulative water demand from MPEPP
industry projects 109
Figure 24 Water demand projection for the Goldfields region, 2005-2015 109
Table 1 Case studies xiv

Table 2 Statistics of water use in Australia 2000-01 and 2004-05 3
Table 3 SunWater supply and delivery charges for 2006/07 19
Table 4 Usage and licence fees set by water suppliers for selected (available)
regions 24
Table 5 Prescribed water areas with completed water allocation plans in South
Australia, as at February 2007 31
Table 6 Summary of water charges in South Australia 33
Table 7 Irrigation schemes in Tasmania 35
Table 8 Selected actions in implementing the NWI 48
Table 9 Case studies analysed for current market assessment 50
Table 10 Summary of key points in the Petroleum and Gas Act (Qld, 2004)
covering water 67
Table 11 Summary of future projects (new projects and existing project
expansions) in the MPEPP industries over the period 2006-2015 73
Table 12 Estimates of water extractions by minerals projects 75
Table 13 Unit water consumption measures for mining and minerals processing 76
Table 14 Estimates of water consumption for power generators 77
Table 15 Proposed new pulp and paper manufacture projects and associated water
consumption 79
Table 16 Summary of potential future MPEPP projects in catchments by project
type 81
Table 17 Areas selected for analysis 82
Table 18 Existing water licences for the Hunter catchment 84
Table 19 Permanent water trading in the Hunter catchment ² September 2005 to
September 2006 85
Table 20 Anticipated MPEPP industry projects in the Hunter catchment ² 2006-
2015 86
Table 21 Water charges in the Hunter catchment 90
Table 22 Water trades in the Fitzroy Basin catchment (2004-05) 93
Table 23 Anticipated new MPEPP industry projects in the Fitzroy Basin
catchment (2006-2015) 95
Table 24 Anticipated MPEPP industry projects in the Moreton catchment -2006-
2015 101
Table 25 MPEPP industry projects ² Goldfields Region (2006-2015) 108
Table 26 Goldfields palaeo-channel water availability and use 111
Table 27 Average prices for water trade 2002-03 118
Table 28 (VWLPDWHRIHOHFWULFLW\JHQHUDWLRQ·VVKRUWUXQYDOXHRIPDUJLQDO
production 119
viii
Table 29 Sectoral differences in value added from expanded water trade ² Murray-
Darling Basin 122
Table 30 Change in value added with the introduction of inter regional trade by
2030 ² compared with 2001 123
Table 31 Impact of expanded water trade on urban shadow water prices in 2032 ²
Dec 2005 prices 123
Table 32 Estimates of value added per ML 125
Table 33 Change in water use by mining and industry, the Hunter Catchment, ML,
2007-2015 126
Table 34 Value added from new projects in the Hunter catchment 126
Table 35 Increase in water use in mining and industry in the Fitzroy Basin
catchment, ML, 2007-2015 127
Table 36 Value added from additional projects in the Fitzroy Basin catchment 127
Table 37 Increase in water use in mining and industry in the Moreton Catchment 128
Table 38 Value added from additional projects in the Moreton Catchment 128
Table 39 Increase in water use in mining and industry in the Goldfields region 129
Table 40 Additional value added from mining projects in the Goldfields region 129
Table 41 Water uses and sources- case studies B-1
Table 42 Water access arrangements and infrastructure ² case studies B-2
Table 43 Change in value added and water use by selected sectors C-1
Table 44 Mining example C-2
Table 45 Estimates of additional value for coal mine C-3
Table 46 Value added per ML in electricity generation C-3
Table 47 Gross margins in agriculture C-4
Table 48 Average prices for water trade 2002-03 C-4
ix
Executive summary
Over the last decade or so, there has been a significant shift towards managing
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economic, social and environmental objectives are pursued in a balanced way.
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objectives.
In Australia, ownership of water is vested in the Crown. Development,

management and allocation of water resources are subject to relevant State and
Territory legislation. Water users are granted the right to extract water from a
surface or groundwater resource under water access entitlements which are
generally classified into the following three categories:
high reliability entitlements;
general reliability entitlements; and
volumetric entitlements on unregulated streams.
The amount of water that a user in each entitlement category can take in each
year is subject to an annual water allocation, which is determined by the
availability of water within the system (see Section 2).
Water has been a target for significant reform. As a consequence, water

management in Australia is currently undergoing dramatic change, with the
progressive implementation of the National Water Initiative (NWI) reforms
(see Section 3).
A central focus of the policy to date has been on the impact of reform on
water use and management in the urban and agricultural sectors, particularly
irrigated agriculture, and sustainable environmental flows. However, the water
needs of other sectors are also coming into focus for policy makers.
This study considers the potential implications of water reform on the mining
and petroleum, energy and pulp and paper industries (the MPEPP industries).
These industries, which made up 7 per cent of Australia's Gross Domestic
Product (GDP) in 2004-05, are not major users of water in absolute terms1.
They accountHGIRUDSSUR[LPDWHO\SHUFHQWRI$XVWUDOLD·VZDWHUXVHLQ-
05 (this is the most recent national water consumption data released by the
1 The value added, GDP and water consumption figures quoted in this report relate to
Australian Bureau of Statistics (ABS) industry definitions, unless stated otherwise. These
definitions may differ in scale and scope from other industry definitions.
Executive summary x
Australian Bureau of Statistics). In the same year, agriculture accounted for

around 65 per cent of water use. While total water use within these MPEPP
industries is relatively small, these industries make an important contribution to
both water use and infrastructure development in the areas in which they
operate, and are the single largest user of water in some catchments.
A key objective of this study is to examine the regulatory environment the

MPEPP industries are currently facing in respect to water, and the likely
benefits and costs from the full implementation of the NWI for these
industries and the Australian economy as a whole.
It should be noted that the engagement of MPEPP industries in water

management runs more broadly than the scope of this study. For example,
within the minerals industry there is ongoing work to restore the ecological
condition of priority catchments (particularly groundwater) and joint work with
government is also underway to improve industry water management and
recognise water as a community resource.
An important finding of this study is that current water access arrangements

are a constraint on efficient investment by MPEPP industries. Full
implementation of the NWI reforms should provide the necessary market and
other arrangements, to ensure these industries have access to a water supply in
a market which reflects both demand and and the opportunity cost of supply.
The NWI reforms should create opportunities for MPEPP industries to make
a significant contribution to regional and national economic growth.
However, some of the issues of greatest importance to the MPEPP industries

under the current reform agenda are likely to be addressed later in the NWI
reform program. The implementation priorities may need to be reviewed to
ensure the full economy-wide benefits of the reforms are achieved.
Water use and value added production

Water is not the main input used by the MPEPP industries. Nevertheless,
ZDWHULVFUXFLDOWRWKHVHLQGXVWULHV·SURGXFWLRQSURFHVVHV7KLVVWXG\KDVIRXQG
that the average value added generated per megalitre (ML) of water used in the
MPEPP industries is significantly higher than for some other water users2.
According to Australian Bureau of Statistics (ABS) figures, in 2004-05 the

average value added per ML of water used was around $86,000/ML for coal
2 The gross value added of an industry is the difference between the value of output and the
value of goods and services (intermediate input) used up in the process of production - it is
effectively returns to capital and labour and is the building block of Gross Domestic
Product.
Executive summary xi
mining, $71,000/ML for wood and paper, $52,000/ML for electricity and gas
supply (ABS category) and $50,000/ML and $25,000/ML for metal mining and
other mining, respectively (see Figure ES 1). The value added per unit of water
consumption for the oil and petroleum industry, according to ABS data,
exceeds $1 million/ML. This high figure reflects the high value added
contribution of the industry and that water is only a minor input to production
relative to other industries.
By comparison the value added generated per ML of water used in agriculture,

ZKLFKLV$XVWUDOLD·VODUJHVWXVHURIZDWHUUDQJHGIURPDURXQG0/IRUULFH
production to $3,870/ML for vegetable production. The relatively low value
added generated per ML used in irrigated agriculture does not downplay the
VHFWRU·VLPSRUWDQW contribution to the economy. In many respects, this
RXWFRPHIRULUULJDWHGDJULFXOWXUHLVQRWVXUSULVLQJJLYHQWKHVHFWRU·VKHDY\
reliance on water to produce its output. It should also be pointed out that the
data used to undertake these calculations is highly aggregated. It is likely that
value added generated per ML for certain irrigated fruits, vegetables or grapes
etc could be much higher than reported here. Other estimates, for example,
suggest that the value of water in some irrigated agriculture sectors (eg
horticulture) may be as high as $15,000/ML, which is greater than the
estimates shown in Figure ES 13.
3http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/5B8D05A86A3D4C21CA2571F6
00018FC6/$File/46230_2000-01%20to%202003-04%20v5.pdf, accessed April 2007.
Executive summary xii

Figure ES 1 Value added per ML of water used by industry, 2004-05

1,200,000
1,1190,00
90,000
80,000
70,000
60,000
$/ML
50,000
40,000
30,000
20,000
10,000
-
Livestock, Electricity
Dairy Metal ore Other Wood and Oil and gas
Vegetables Sugar Fruit Grapes Cotton Rice pasture Coal mining and gas
farming mining mining paper extraction
and grains supply
Gross value added/ML 717 3,867 376 2,744 1,833 498 162 255 86,127 49,906 26,175 70,759 1,200,151 51,552
Note: The value added and water consumption figures quoted in this report relate to ABS industry definitions using the Australian and New Zealand Industrial
Classification (ANZIC), unless stated otherwise. These definitions may differ to those used by industry.
Data source: ACIL Tasman estimates using ABS data from Water Account Australia, 2004-05, Cat. No 4610.0 and Australian National Accounts, Cat. No.
5206.0
While these estimates are not sufficient to conclude that the current water
access arrangements have resulted in major economic inefficiencies, the large
sectoral differences between the average value added generated per unit of
water used suggests that significant economic benefits are likely to be gained if
water can be more freely traded between users. This issue is examined in
greater depth in the catchment case studies in this report (see Section 6).
Key water issues for MPEPP industries

Five case studies were undertaken to analyse the current water access
arrangements in the MPEPP industries and assess the potential impact of the
full implementation of the NWI (see Section 4). The projects studied are
shown in Table 1.
Executive summary xiii

Table 1 Case studies

Project Description Output Catchment
location
Newcrest Cadia Valley Low grade Cadia Hill open 690,000 ounces of Belubula (NSW) ±
mine operations pit gold mine and higher gold and 72,000 surface water and
(NSW) grade Ridgeway tonnes of copper minor
underground gold mine groundwater
Norske Skog Albury Integrated thermo- 265,000 tonnes per Murray River
Paper Mill (NSW) mechanical pulp and paper annum newsprint (NSW) ± surface
mill at Albury water
Loy Yang 'A' power Brown coal-fired power 2,160 MW nameplate Latrobe Basin
Station (Loy Yang plant and associated coal capacity (Vic) ± surface
Power) (Victoria) mine in the Latrobe Valley water and
groundwater
CSG (Queensland) Coal seam gas (CSG) Approximately 23 PJ Fitzroy Basin
operations in the Surat of sale gas (Qld)
Basin
Yabulu nickel and Nickel and cobalt refinery 32,000 tonnes of Black River well
cobalt refinery (BHP near Townsville nickel and 2,000 field (Qld) ±
Billiton) (Queensland) tonnes of cobalt groundwater and
surface water
Data source: Norske Skog, Loy Yang Power, Newcrest, BHP Billiton, APPEA
The case studies reveal important differences between the regulations relating
to the access, use and discharge of water by these industries and those that
apply to other water users.
Water availability
Access to high reliability entitlements and allocations is critical for the efficient
operation of the MPEPP industries. The case studies reveal that availability of
water is a constraint on further investment and expansion of the MPEPP
industries. The case studies suggest that the potential value of lost production,
due to the unavailability of water of suitable quality, is high.
In three of the case studies, the project operators are examining a range of
supply options, including purchase from the market, investment in storage,
recycling and use of treated effluent.
All projects examined in the case studies have already invested extensively in
water use efficiency measures. MPEPP industries recognise that additional
water efficiency measures may be needed in response to increasing competition
for water resources.
With the existing inconsistencies in market arrangements, there is a risk that

the most economically efficient investment outcomes will not be realised. The
extent to which water efficiency measures are implemented by all water users
should, ideally, be determined primarily by price signals in efficiently operating
water markets.
Executive summary xiv

Legislative inconsistencies
The case studies revealed inconsistencies between water legislation and

legislation applicable to the minerals industry and petroleum sectors, mainly in
relation to access arrangements and trading. The report's findings suggest that
mining and petroleum legislation in all jurisdictions should be reviewed as a
matter of priority. The aim should be to achieve consistency with the water
access and trading principles of the NWI across all sources of water, including
groundwater and treated and untreated water produced from mine dewatering
and petroleum operations.
The case studies demonstrate that differences in the application of water

legislation can occur between water sources within water planning areas. This is
relevant to the treatment of groundwater and surface water but the case studies
suggest the findings also apply to discharge water (discussed below). Under the
current program of reform these differences may persist for some time.
Constraints on trade
The case studies demonstrate the importance of developing efficient water

markets and trading principles for all sources of water used by MPEPP
industries, including groundwater and discharge water.
The Norske Skog case study reveals a thin market for trade in high reliability
entitlements in the Murray River catchment. The reasons for this situation are
difficult to identify with certainty, particularly in the current drought. However,
impediments to trade in water in the lower Murray-Darling Basin have been
identified (for example exit fees) and could be a contributing factor. The
reform timetable will address these impediments in the course of implementing
the NWI. However, this report finds the issue is a high priority for MPEPP
industries.
The Yabulu minerals processing and Coal Seam Gas (CSG) case studies
demonstrate that trading rules in surface water, groundwater, re-use and
discharge water are not always consistent. As a result there may be distortions
in water allocation decisions within projects and between industries.
Removal or rationalisation of ongoing constraints on trade will be essential to

improve the efficiency of water markets. The Productivity Commission has
made recommendations on issues deserving early attention in priority
catchments, including:
unbundling of water use approvals and entitlements;
unbundling of water access entitlements and delivery entitlements;
removing restrictions on who can participate in water trade;
Executive summary xv
phasing out exit fees in the longer term;

decoupling exit fees from entitlements in the medium term;
reviewing constraints on trade in seasonal allocations; and
benchmarking processes and costs for transfer of water access
entitlements4.
The Australian Competition and Consumer Commission (ACCC) has also

developed recommendations for reform to distribution charges and exit fees
over a nine year timeframe5. A report on Water Trading released by the
Department of Prime Minister and Cabinet in June 20066 further develops
these themes. In addition, the National Water Commission (NWC) has been
assessing the States' progress on removing barriers to trade.
It is important for MPEPP industries that governments give early

consideration to these recommendations in high priority catchments.
This report finds that the establishment of well structured water markets is
critical in some regions if the future water requirements of MPEPP industries
are to be met in an efficient way. Water markets provide a mechanism for
water to be traded to its highest value use. Therefore, they also provide the
opportunity for existing entitlement owners to receive a return from sale of
entitlements and allocations they no longer require either in the long or short
term.
Groundwater access
This report finds that the different arrangements for water access entitlements
and water allocation between groundwater and surface water increases
investment risk for MPEPP industries. The general immaturity of reform with
respect to groundwater access arrangements, relative to surface water, increases
risks and uncertainty for current and future users of groundwater.
Governments have recognised that integrated management of surface and

groundwater requires improvements in groundwater monitoring and
accounting, and that this will take time to achieve. In particular, the impact of
WKHPLQHUDOVDQGSHWUROHXPLQGXVWULHV·DFWLYLWLHVRQJURXQGZDWHUQHHGVWREH
better understood. Resolution of these issues should be given a higher priority.
4 Productivity Commission, Rural Water Use and the Environment: The Role of Market Mechanisms,
Research Report, Melbourne, 11 August 2006.
5 ACCC, A regime for the calculation of exit, access and termination fees charged by irrigation water delivery
businesses in the Southern Murray-Darling Basin, 6 November 2006.
6 Price Waterhouse Coopers, National Water Initiative -Water Trading Study, for Department of
Prime Minister and Cabinet, Final Report, June 2006.
Executive summary xvi

Joint work with government, the NWC and the MPEPP industries is likely to
be an important factor in delivering the NWI reform agenda. It should be
noted that these industries have a broad base of technical expertise in
groundwater management and its integration with other water resources (such
as surface water).
Discharge water
One case study analysed in this project demonstrated that the terms for sale of
discharge water to third parties under petroleum legislation are not consistent
with the principles of the NWI. It seems that trading principles and
mechanisms applying to discharge water may be undeveloped compared with
those applying to surface and groundwater. This policy gap may:
impede the further use and value of discharge water;
constrain trade of discharge water produced from petroleum production
and dewatering of mines; and
impede efficient decision-making in the use or sale of discharge water and
return flows.
The case study suggests that a better understanding of the impact of mine
dewatering on groundwater resources is required. This should ensure more
informed management of potential impacts on groundwater and surface water
associated with discharges from mining and petroleum operations.
Consistent trading principles
The case studies indicate that trading principles do not always apply
consistently across different sources of water. For example, from the
perspective of the MPEPP industries, consideration should be given to:
extending the development of water markets in a consistent way to
groundwater, discharge water, waste water and treated effluent;
harmonising legislative and administrative arrangements so that trading
rules are consistent; and
removing or reducing any unnecessary impediments to the commercial
arrangements for the sale of treated or untreated discharge water from
mining and petroleum operations.
Clarification of property rights
While the NWI is making progress in separating water access entitlements

from land, this report finds that continued clarification of property rights to
water access entitlements and allocations is required.
Executive summary xvii

For example, the case study of the Cadia Valley mine indicates that lack of
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its additional supply haVFUHDWHGXQFHUWDLQW\LQWKHFRPSDQ\·VLQYHVWPHQW
decisions. Such uncertainty could impede further mining development.
The case studies suggest that clear policies and practices for defining the
resource share of the consumptive pool are required. This is of particular
importance for defining resource shares in water storages developed by
MPEPP industry operations, as well as for the consumptive pool in general.
Paragraph 34 of the NWI provides scope to deal with market inefficiencies

that have the potential to affect mining and petroleum industries. The option
to activate paragraph 34 should be retained for as long as the policies and
principles of the NWI are not fully implemented.
Market interventions
MPEPP industry projects often attract community opposition to their use of

water resources. The case studies describe specific examples of community
pressure to limit the access to water supplies. In response to these concerns,
governments at all levels may seek to intervene in water supply arrangements
for MPEPP industry projects. In such circumstances, administrative decision
processes may override market driven outcomes.
Examples cited in this report include:

the Eastern Water Recycling Proposal being developed by the Victorian
Government which, if implemented, would change water supply
arrangements for the Latrobe generators;
local appeals by community groups against the purchase of water
entitlements by the Cadia project, which have delayed decisions on further
investment; and
the Yabulu minerals processing plant has had to explore options for taking
recycled town water in place of its current lower-cost groundwater supply.
It is recognised that for some time to come, there are likely to be significant
externalities in water markets that may justify intervention by governments in
the distribution of water between consumptive uses. However, there is a risk
that regulatory and market failure will produce non-optimal outcomes from
such interventions. For example, pricing policies that do not reflect full
opportunity costs may impede the efficiency of government investment in
regional schemes which are intended to support communities and local
development.
Executive summary xviii

There is a corresponding need to address regulatory and market failure and,

where possible, to move towards improving market mechanisms to the point
where constraints and interventions can be progressively minimised.
As far as possible, in the absence of market based mechanisms, the use of

administrative intervention in the allocation of all water resources, whether
surface, groundwater, re-use or effluent water, should be based on a cost
benefit analysis that identifies the full opportunity costs of different water
supply options.
Regional projects to interconnect catchments and facilitate transfers in critical

areas funded by governments (for example, through the Australian
Government Water Fund), should aim to adopt best practice pricing policies.
Such policies should facilitate efficient investment decisions by market
participants.
Our analysis suggests that better community understanding of water resource

management issues, as they affect different users and the operation of water
markets, would assist in reducing the pressures on governments to intervene.
The challenge for government is to build community confidence in the
operation of well designed water markets as the most efficient means of
distributing water entitlements and allocations between users from within a
sustainable consumptive pool.
Implications of future water demand and supply

The study explored the water access implications for new investment by the
MPEPP industries in particular catchments (see Section 5).
A total of 252 potential new MPEPP industry projects over the next ten years
were identified across Australia. The majority of the new projects are
concentrated in Queensland, NSW and Western Australia. The study found
that water availability is constrained in some cases, such as in the Hunter
catchment and the Murray-Darling Basin. In these cases the option to trade in
water access entitlements will be critical if new investment is to proceed.
At the upper limit of estimates, these potential projects could increase total
water demand by the MPEPP industries from the current level of 830
GL/anum in 2006, to around 1260 GL/annum in 2015 ² an increase of
around 50 per cent. This change in demand would increase water consumption
by MPEPP industries from around four per cent of total water consumption to
approximately six per cent.
For some catchments, meeting future water requirements entirely through

water trading may be of concern to local communities. There will be a
Executive summary xix

continued need for all major users to engage with communities to address their
concerns.
Four catchments or regions with future MPEPP industry developments have

been analysed in this study (see Section 6):
the Hunter catchment (New South Wales);
the Fitzroy Basin catchment (Queensland);
the Moreton catchment (Queensland); and
the Goldfields region (Western Australia).
An embargo on applications for new commercial water licences has been in

place for the Hunter Regulated River catchment since 1982. The Moreton
catchment is located in a region where there is considerable pressure on water
supplies and there is consideration of future transfers between catchments.
In general, water supplies in the Goldfields region in Western Australia and the
Fitzroy Basin catchment in Queensland are not constrained in the short term.
However, there is evidence in the Goldfields region that mining and processing
could be constrained in the future by the cost of accessing good quality water
and there remain concerns over the supply of potable water. There may also be
localised constraints on supply and competition for access to water of suitable
quality between users.
In some cases, serious consideration is being given to seawater desalination as a

¶QRQ-FRPSHWLWLYH·VRXUFHRIVXSSO\WRLPSRUWDQWPLQLQJDQGPLQHUDOV
processing sites, including in the Goldfields. For example, United Utilities is
looking to expand potable supply to the region from a desalination plant in
Esperance. Again, the report highlights that best practice pricing policies are
important for efficient investment decisions in such circumstances.
Uncertainties associated with drought periods are critical factors in

consideration of water availability for MPEPP industries. Management of risk
associated with periods of water shortage is important in all catchments,
regardless of the degree to which they are fully allocated. As water markets are
reformed, options such as desalination for non-consumptive uses in some
MPEPP industries may become more attractive. However this will depend on
consideration of the opportunity costs of all supply options.
Inefficiencies in water markets are likely to transfer to electricity markets. The

value of water to power stations in periods of high pool prices is likely to be
very high. Any inefficiency in water markets is likely to be particularly critical in
drought periods.
Executive summary xx
Economic implications
The potential economic benefits of the implementation of the NWI are mainly
related to the trading of water to its highest value use and the efficient use of
all sources of water, including discharge water.
There is currently insufficient data on the respective marginal values of

production for all water uses to provide an accurate estimate across all
industries. Some broad estimates were made, based on ACIL Tasman models
and information from industry. The estimates support a conclusion that the
current distribution of water between industries is unlikely to be optimal in
terms of economic efficiency.
The report finds that there is little information available to assess the economic
implications of reform for MPEPP industries. Most of the current general
equilibrium modelling focuses on irrigated agriculture, urban supplies and
environmental flows. Estimates were made of the increase in value added that
could accrue if the potential projects identified in each of the regions were to
proceed. For example, new projects in the Hunter catchment could add
between $215 million and $410 million to GDP annually by 20107. However,
with an embargo on applications for new commercial licences in this
catchment, it is likely that most projects would need to meet their water
requirements through the purchase of access entitlements from current users
as well as from improvements in water use efficiency. This finding underlines
the importance of developing an efficient trading market, as provided for
under the NWI, to ensure that efficient decisions are made in regard to these
investments.
The findings of this report suggest that, to realise the potential economic
benefits of longer term investment, MPEPP industries will need policy changes
to create an environment that allows for efficient investment decisions on a
range of water supply options. These changes will include facilitation of intra-
and inter-regional trade, surface and groundwater access entitlements, purchase
of treated effluent, re-use and/or sale of discharge water and investment in
water use efficiency measures.
The reforms to be introduced over the next ten years offer the potential to
achieve such an environment. Some of the important reforms may take some
time to implement and consideration should be given to assigning a higher
priority to those of greatest importance to MPEPP industries.
7 These estimates are for direct value added associated with the trading of water between
irrigated agriculture and the MPEPP industries in the Hunter catchment and do not take
account of indirect effects such as output changes in other sectors of the economy.
Executive summary xxi

Recommendations
The following recommendations are drawn from the priority issues identified
in the study. They are consistent with the NWI principles, reinforcing
implementation in some cases and suggesting some areas for higher priority.
The matters for further consideration are:
1. Given the importance of trade in entitlements and allocations to these
industries, development of water markets should be given high priority.
Key objectives include:
± clear specification of entitlements and trading rules with minimal
impediments to trading;
± secure and enforceable entitlements that are transferable and divisible;
± separation of water access entitlements from water allocation and
distribution;
± trading rules that maximise participation; and
± rationalisation or removal of impediments to the efficient operation of
trading markets, such as exit fees and restrictions on market
participants.
2. Development of markets for water trading should be made consistent
between surface water, groundwater, waste water and treated effluent:
± governments should harmonise legislation and administrative
arrangements so that trading in all sources of water is consistent; and
± impediments to the sale of treated and untreated effluent from mines
and water produced from mine dewatering should be addressed.
3. Legislative amendments and water resource plans should be extended to all
water sources, including surface and groundwater in priority regions.
4. Petroleum and minerals industry legislation should be amended, where
necessary, to bring it into line with the principles of the NWI, particularly
the principles for trading set out in Schedule G of the NWI.
5. The full development of market instruments and products will be
important for risk management in all sectors but particularly for the
MPEPP industries:
± This should be taken into account in reform of water markets.
6. Development of consistent, and possibly joint, management of access
arrangements for surface water and groundwater should be given higher
priority.
7. To the greatest extent possible, governments should aim to allow well
defined water markets to resolve the distribution of available water
resources between users. While market mechanisms are being developed,
Executive summary xxii

governments should ensure that interventions in the market are based on a

full and rigorous cost benefit analysis of available options:
± projects assisted by governments (for example, through the Australian
Government Water Fund) should adopt best practice pricing policies as
formulated in response to jurisdictions' NWI commitments.
8. Improving community understanding of the advantages of well designed
water markets, as the most efficient means of distributing water
entitlements and allocations between users from within a sustainable
consumptive pool, should be given higher priority. In addition, there will
be a continued need for all major water users to engage with communities
to address any areas of concern, and where practical, accelerate efforts to
improve the efficiency of water use and management of all water resources.
9. The option to activate paragraph 34 of the NWI should be retained as an
avenue for addressing issues of specific concern to mining and petroleum
industries that will remain for as long as the reforms under the NWI are
not fully implemented.
10. High priority catchments should be identified for early attention in relation
to the above recommendations. Additional work should be undertaken on
a national basis to identify catchments where a major increase in water
demand is expected.
Executive summary xxiii

1 Introduction
ACIL Tasman was commissioned by the Department of Industry, Tourism
and Resources (DITR) to undertake a study of the implications of recent water
initiatives for the mining, petroleum, energy, pulp and paper industries (the
MPEPP industries). The study was conducted under the guidance of a Steering
Committee comprising DITR, the National Water Commission (NWC), the
Minerals Council of Australia (MCA), the Australian Petroleum Production
and Exploration Association (APPEA), the National Generators Forum
(NGF) and the Australian Plantation Products and Paper Industry Council
(A3P).
The overall objectives of the project were to:

provide an analysis of how the current Australian water management
arrangements and water market applies to the MPEPP industries,
particularly in the non-urban sector, including an examination of access,
pricing and cost recovery issues;
analyse future water demand arising from forecast investment in the
MPEPP industries and assess the implications for water competition
between sectors;
assess the manner in which access to water (often of poorer quality and
remotely located) for the MPEPP industries is provided in water
management plans; and
investigate issues associated with the operation of the National Water
Initiative (NWI) that are of particular relevance to the mining and
petroleum sectors (i.e. paragraph 34 of the NWI).
1.1 Report structure

This report begins with an introduction to water in the MPEPP industries in
Section 1. Section 2 contains an overview of current water access arrangements
in Australia and Section 3 provides an outline of key elements of the NWI.
Section 4 contains case studies of existing operations in the MPEPP industries,
to characterise water supply arrangements and any associated issues or
problems. Section 5 analyses the likely future investment in each of the
industries and projections of future water demand by these industries. Section
6 contains case study analyses of catchments or water management areas,
where significant future investment in the MPEPP industries is scheduled or
where water allocation issues are illustrated. Section 7 includes an indicative
analysis of the economic implications of the NWI at the catchment and
Introduction 1
business level. A summary of findings and recommendations is provided in

Section 8.
1.2 Background
Over the last decade or so, there has been a significant shift toward managing
$XVWUDOLD·VQDWXUDOUHVRXUFHVLQDPRUHHIILFLHQWDQGVXVWDLQDEOHPDQQHU7KHUH
is now a greateUUHFRJQLWLRQRIWKHQHHGWRSURWHFWRXU¶QDWXUDOFDSLWDO·VRWKDW
economic growth and ecological sustainability are pursued in a balanced way.
To this end, the water industry has been a key target for significant reform, to
ensure its sustainability in the future.
The first major steps in the water reform process were the signing of the
Council of Australian Governments (COAG) Agreement on Water Resources
Policy (Water Reform Framework) in 1994, and later the Competition
Principles Agreement in 1995. The COAG framework set out a reform
process, which addressed the perceived economic and environmental
inefficiencies in the administration of water resources.
Water reform was subsumed within the National Competition Policy (NCP) to
provide clear and significant financial incentives for States and Territories to
implement these reforms.
In 2003, COAG announced its intention to extend the water reform agenda
and the Intergovernmental Agreement on the NWI was signed by the
Australian Government and the Governments of NSW, Queensland, Victoria,
South Australia, the Northern Territory and the ACT on 25 June 2004.
Tasmania signed the agreement in June 2005 and Western Australia in April
2006. The NWI establishes a framework for wide ranging reform in the
sustainablHPDQDJHPHQWDQGXVHRI$XVWUDOLD·VZDWHUUHVRXUFHV
A central focus of the policy debate to date has been on the impact of reform
on the agricultural sector, particularly irrigated agriculture, environmental flows
and urban water use and re-use. However, the industries discussed in this
report are now coming into focus for policy makers.
The sponsorship of this study by the members of the Steering Committee

reflects the importance attributed by these sectors to the water reform process.
Introduction 2
1.3 Water use and economic contribution
1.3.1 Water use
The Water Account Australia, issued by the Australian Bureau of Statistics

(ABS), provides data on water use in different industries8.
ABS released its report on water use in Australia for the year 2004-05 on 28
November 2006. This is the most recent comprehensive national water
consumption data from ABS. The previous water account released covered
2000-01. The breakdown between different categories of consumptive water
use is summarised in Table 2.
Table 2 Statistics of water use in Australia 2000-01 and 2004-05

Sector Sub sector 2000-01 net water 2004-05 net
consumption consumption
GL GL
Agriculture 14,989 12,191
Services to agriculture; 4 4
hunting and trapping
Forestry and Fishing 40 48
Mining Coal Mining 99 118
Oil and gas extraction 9 12
Metal ore mining 173 230
Other mining 39 54
Total 321 413
Wood and paper 105 99
products
Manufacturing 444 490
Electricity and gas 255 271
Water supply, 2,165 2,083
sewerage and drainage
services
Other industries 1,102 1,059
Household 2,278 2,108
Total 21,703 18,767
Note: Does not take account of un-metered water consumption
Data source: Water Account Australia 2000-01 and 2004-05
Key findings from the Water Account Australia 2004-05 include:

total water consumption was 18,767 GL in 2004²05, a decrease of 14 per
cent from 21,703 GL in 2000²01;
8 Water Account for Australia, Australian Bureau of Statistics (2004-2005).
Introduction 3
the agriculture industry consumed the largest volume of water with 12,191
GL, representing 65 per cent of total water consumption in Australia in
2004²05. Consumption by this sector has fallen from 14,989 GL in 2000²
01 when it represented 69 percent of the total;
water consumption by the minerals industry was 413,266 ML in 2004²05,
two per cent of total water consumption in Australia. Water consumption
by the minerals industry has increased from 320,848 ML in 2000-01 ²
reflecting the mineral commodities boom and increased production
associated with existing and new projects;
the State or Territory with the highest total water consumption within the
mining industry was Western Australia (182,552 ML), followed by
Queensland (83,057 ML), New South Wales (62,868 ML) and Victoria
(31,736 ML).
total water consumption by electricity generators was 271,220 ML, or one
per cent of total water consumption in Australia;
total water consumption by the wood and paper products industry (ABS
FDWHJRU\ZDV0/RUSHUFHQWRI$XVWUDOLD·VWRWDOZDWHU
consumption; and
in 2004-05, 1,053 GL of water was temporarily traded and 247,000 ML of
water was traded permanently.
Usage of water by industry for Australia and each State/Territory is illustrated

in Figure 1. In all cases except the Northern Territory (34 per cent), Western
Australia (38 per cent) and the ACT (two per cent), the agriculture, forestry
and fishing industries accounted for more than 60 percent of the total water
use for 2004-05 (the majority being for agricultural usage).
Introduction 4
Figure 1 Water use (per cent industry) by industry and State/Territory: 2004-05
NSW water use 2004-05 Mining Vic water use 2004-05 Mining
including oil including oil
and gas and gas
extraction extraction Wood and
Agriculture 1% Wood and 1% paper
forestry and paper Agriculture products
fishing products forestry and 1%
70% Electricity 0% fishing Electricity
and gas 65% and gas
1%
2%
Household Household
Other 10% Other 8%
18% 23%
Qld water use 2004-05 Mining SA water use 2004-05 Mining

and gas and gas
extraction Wood and Agriculture extraction Wood and
Agriculture 2% paper paper
forestry and 1%
forestry and products products
fishing
fishing
0% 75% 0%
67%
Electricity and Electricity and
gas gas
2% 0%
Household Household
11% Other 11%
Other
18% 13%
WA water use 2004-05 Mining Tas water use 2004-05 Mining

and gas and gas
Agriculture extraction extraction
forestry and 12% 4% Wood and
fishing Wood and paper
38% paper products
products Agriculture 8%
0% forestry and
Electricity and
fishing
Electricity and gas
60%
gas 0%
Other 1%
25% Household Household
24% Other
16%
12%
NT water use 2004-05 Mining ACT water use 2004-05 Mining

including oil
including oil
and gas
and gas
extraction
Agriculture extraction
12%
forestry and Wood and Other 0% Agriculture
fishing paper 42% forestry and
34% products fishing
0% 2%
Electricity
Electricity and gas
and gas 0%
1% Wood and
Other paper
31% Household Household products
22% 56% 0%
Data source: ABS, Water Account Australia 2004-05
Introduction 5
1.3.2 Economic contribution by sector
In 2004-05, the MPEPP industries (including wood products) contributed

$62.6 billion (chain volume measures, reference year 2004-05) in gross value
DGGHGFRUUHVSRQGLQJWRVHYHQSHUFHQWRI$XVWUDOLD·V*URVV'RPHVWLF3URGXFW
(GDP)9. Mining, including oil and gas extraction, accounted for five per cent of
GDP in that year. Other manufacturing (including textiles, machinery and
equipment manufacture) contributed 11 per cent of GDP, while the
agriculture, forestry and fishing sector contributed three per cent (see Figure 2).
Figure 2 Gross value added by industry type for 2000-01 and 2004-05
Mining (including Mining (including
Australia value added 2000-01 Australia value added 2004-05 oil and gas Electricity and gas
oil and gas Electricity and gas
Agriculture, extraction) Agriculture, extraction) 2%
2%
forestry & fishing 6% forestry & fishing 5%
4% 3%
Wood and paper

Wood and paper
1%
1%
Other
Other manufacturing
Other (inc
manufacturing Other (inc 11%
services)
12% services)
75%
78%
Note: Figures relate to ABS industry definitions using the Australian and New Zealand Industrial Classification (ANZIC), unless stated otherwise. These
definitions may differ to those used by industry.
Data source: ABS, 5206.0 Australian National Accounts.
Using ABS figures, the gross value added per ML of water used by MPEPP
industry sectors is illustrated in Figure 310. These figures show a marked
difference in the average value added per ML of water used between the
MPEPP industries and other water users. The average value added per ML in
agriculture is significantly less that in the MPEPP industries. The value added
for coal mining, for example, is $86,000 per ML of water used and for wood
and paper and electricity and gas it is $71,000 and $52,000 respectively. Metal
ore mining is $50,000 per ML. The value added per unit of water consumption
for the oil and petroleum industry, according to ABS data, exceeds $1,000,000
ML. This high figure reflects the high value added contribution of the industry
and that water is only a minor input to production relative to other industries.
9 The value added, GDP and water consumption figures quoted in this report relate to ABS
industry definitions using the Australian and New Zealand Industrial Classification (ANZIC),
unless stated otherwise. These definitions may differ to those used by industry.
10
Value added is the value of gross returns to an industry less the value of inputs. In practice
the value added by an industry is the value of salaries and wages plus depreciation and interest
expenses plus certain taxes and subsidies.
Introduction 6
Value added per ML of water consumed in agriculture varies from $162/ML

for rice production, to $498/ML for cotton production and $3,867/ML for
vegetables.
Figure 3 Estimates of gross value added per ML of water consumption by industry sector, 2004-05
1,200,000
1,1190,00
90,000
80,000
70,000
60,000
$/ML
50,000
40,000
30,000
20,000
10,000
-
Livestock, Electricity
Dairy Metal ore Other Wood and Oil and gas
Vegetables Sugar Fruit Grapes Cotton Rice pasture Coal mining and gas
farming mining mining paper extraction
and grains supply
Gross value added/ML 717 3,867 376 2,744 1,833 498 162 255 86,127 49,906 26,175 70,759 1,200,151 51,552
Data source: ABS ABS4610.0 Water Account Australia 2004-05, ABS 5206.0 Australian National Accounts
Other estimates by ABS suggest that the value of water in irrigated agriculture
may be as high as $15,000/ML, which is greater than the estimates shown in
Figure 3.
Recent research by CSIRO confirms the large differences between the average
values of water across different industries11. According to the CSIRO research,
the average economic value of water used by the minerals industry is
$80,000/ML, compared to average values of $40,000/ML for other industry
and $5,000/ML for the agricultural industry.
Some analysts have concluded that the extent of these differences between the
average value added across industries is so large as to suggest that the water
may not be allocated to its highest value use in all cases12. This issue is explored
in more detail in the catchment case studies.
11 www.csiro.au/files/CSIROau/Publications/ProcessFeb07.pdf
12 Australian Treasury, :DWHUDQG$XVWUDOLD·VIXWXUHHFRQRPLFJURZWK, Roberts, Mitchell and
Douglass, 2006
Introduction 7
1.4 Characteristics of water use in the MPEPP

industries
Water access arrangements for the MPEPP industries, and associated issues
that arise, will be illustrated by five case studies in Section 4. However, there is
a key set of water use issues that are fairly generic, both within and across the
industries in question. For example, water is an integral part of the continued
operation of all of the MPEPP industries. As such, many projects have
invested in purpose-built water supply infrastructure such as pipelines and
storage facilities. In many cases projects draw on multiple water sources,
including surface and groundwater and recycling and re-use measures.
Some issues not covered in the case study analysis are also introduced and
described here. The information here is largely drawn from policy position
papers and submissions prepared by MCA, APPEA, NGF and A3P.
1.4.1 Minerals industry
A number of key themes emerge about water and the minerals industry,
including:
water is a critical input into all aspects of the sector, particularly for
minerals processing, which is the major component of water use within
most operations;
the minerals industry operates in a wide range of environments, from
tropical rainforest to desert. As a result, there is a wide range of approaches
to water management within the industry, reflecting both climatic
conditions and community expectations;
groundwater is a particularly important area of use, being the major source
of water for the industry. It presents complex policy issues, because, in
addition to extractive use, some operations need to dewater aquifers to
access the resource;
an essential part of many minerals operations is the pumping of
groundwater out of the mine to allow ore extraction, known as mine
dewatering;
the industry is often able to make use of water that is unavailable or
unsuitable for other users, due to remote location, poor quality or other
factors;
the industry is responsible for sourcing its own water in many cases, and is
also responsible for building and maintaining a significant amount of
infrastructure. Arrangements for third party access to this infrastructure is a
very significant issue for the industry;
Introduction 8
the industry is recognised by governments as an efficient and high-value

user of water resources. It has an ongoing program of engagement and
joint work with all levels of government, focused on the sustainable
development of water resources; and
the industry recognises the rights and interests of Indigenous Australians
on lands and waters, and supports the provision of continued access to
waters for cultural purposes.
Mines often need to use the full gamut of water supply options available to
secure a reliable water supply. This may include dams, weirs and pipelines,
using waste water from surrounding towns (by pipeline), recycling process
water from the mine, collecting rainfall run-off and using water released from
the mine. In these circumstances, water quality is often a key issue,
necessitating either significant treatment (and associated concentrated brine
stream management) and/or using lower grade water, sometimes both.
Once mining is completed, one closure option is to allow mine pits (known as
final voids) to fill with water to create an artificial lake. While this approach can
KDYHDGYDQWDJHVWKHXVHRI¶ZDWHUFORVXUHV·QHHGVWREHFDUHIXOO\DVVHVVHG7KH
economic, social and environmental needs of the broader landscape and local
communities must be considered, and this technique may not be appropriate in
some cases.
In October 2006, Strategic Water Management in the Minerals Industry ² a Framework

was released, following joint development by industry and government13. The
Framework represents a jointly agreed view between the MCA and the
Ministerial Council on Mineral and Petroleum Resources, on approaches to the
effective management of water in minerals operations and the intersection
between industry, community and environmental needs.
A key concept running through the Framework is water as a community

resource, advocating a life cycle approach to management within sites to
ensure that water is put to its most appropriate use. Case studies throughout
the Framework provide practical examples of these principles in action within
the minerals industry.
The development of the Framework will be complemented by a range of

existing and planned initiatives, such as Enduring Value -The Australian Minerals
Industry Framework for Sustainable Development and the upcoming Leading Practice
Water Management booklet. The latter is due to be produced during 2007 under
the Leading Practice Sustainable Development for the Minerals Industry
Program.
13 Strategic Water Management in the Minerals Industry ² A Framework can be found at:
http://www.minerals.org.au/environment/water
Introduction 9
The Framework identifies a range of critical issues for the minerals industry in
the evolving national water debate, including:
the increasing competition for limited resources;
protection of water quality;
rising water prices;
changing community expectations;
impacts of climate change; and
shifting policy context.
The uncertainty of the availability of water for existing and future projects and
rising water prices pose serious risks to the industry.
1.4.2 Petroleum
Petroleum operators require access to water for operations, although the

quantities required may be relatively small and only for limited duration, such
as during the drilling stage in exploration. Despite not being a key input to
petroleum production, water is still a critical factor. For example, water is
essential to maintaining petroleum reservoir pressures, which allow petroleum
to be brought to the surface.
In the petroleum production stage, water from the geological formation being
targeted is actually released, along with the petroleum product. This water,
known as formation water in the case of oil, is bound up within a geological
unit and it is generally accepted that it is not connected to, and is therefore
distinct from, groundwater aquifers. Most petroleum legislation has provisions
for dealing with water produced from petroleum operations, mostly related to
environmental aspects of the water discharged, but there are some limitations
on the sale of this water in some States.
Typically the water released from petroleum production is re-used within the
petroleum operation, returned to the ground or released into nearby
waterways. It is worth noting that the quantity and quality of this discharge is
already strictly controlled by environmental regulations. In some cases the
water is used by local farmers for stock water. The petroleum industry is
interested in exploring opportunities for the sale of this water.
1.4.3 Electricity generation
Management of cooling water and water for steam generation in power

stations is a major design task. The power industry has been working to
significantly improve water use and re-use, treatment and disposal. With strong
Introduction 10
growth in electricity demand, particularly for intermediate and peak power

stations, there is expected to be significant new power station development.
While much of this development will be gas peaking power plants, which use
little water, any further development of coal stations will create more pressure
on water for cooling purposes.
Generation plants, such as Millmerran and the soon to be commissioned

Kogan Creek in Queensland, will employ relatively high capital cost air cooled
condensers. This technology means that water is only required for steam
generation and not for cooling purposes. This enables water consumption to
be as much as 90 per cent lower than in similar sized, wet (water) cooled,
power stations. While these generators have allowed vastly more efficient usage
of water, it has increased power plant costs and greenhouse gas emissions. The
majority of electricity generators in the National Electricity Market (NEM) are
likely to continue to rely on water cooling and to compete for water access in
the foreseeable future.
Water issues for electricity generators include the following:

opening up trade in existing water entitlements to provide more equitable
access to water supply options;
the greater use of market interventions that require the use of recycled
water (largely urban treated sewage and stormwater) in thermal plants;
administrative interventions that require the use of dry cooling for new
plants, impacting on thermal efficiency (and associated carbon emissions)
in most situations; and
the need to address community concerns over the use of indirect re-use of
water as a supply option for urban use which is leading governments to
consider substituting treated effluent for existing supplies in power
stations.
In response to some of these issues, the National Generators Forum (NGF)

Environment Working Group has released policy statements on water and
recycled water14.
1.4.4 Pulp and paper manufacture
Water is a critical input into both pulp and paper manufacture, as process
water, cooling water and for steam generation.
The pulp and paper industry in Australia has already achieved significant
reductions in water usage through large capital investments in re-use and
14 http://www.ngf.com.au/html//index.php?option=com_remository&Itemid=32&func=fileinfo&id=90
Introduction 11
recycling technologies. In 2003²04 the industry used an average of 26.7

kL/tonne of production. This is a 65 per cent reduction in water use per tonne
VLQFH7KH$XVWUDOLDQSDSHULQGXVWU\·VZDWHUXVHFRPSDUHVIDYRXUDEO\
with water use by the industry elsewhere in the world. The use of fresh water
by European papermakers averages 40 kL/tonne of product and the Forest
Products Association of Canada reports a water use figure of 67 kL/tonne of
production.
The scale of pulp and paper mills can, in some cases, make them a substantial
water user in their local area. Accordingly, any increase or decrease in water use
will have significant impacts on the supply infrastructure and the water
available for other uses, including environmental flows. There are strong
financial and community pressures to increase the level of water recycling
within pulp and paper mills. All mills recycle water within the process to some
extent. The risks to the industry from poor management of water use in paper
processing include: higher production costs through inefficient use of water,
increased costs per unit of water, and community opposition to access to water
if the industry is perceived as being an inefficient user.
Introduction 12
2 Australian water market

arrangements
This section provides an overview of water access in Australia and a discussion
of the current water access arrangements in each State.
2.1 Overview
In almost all cases, ownership of water is vested in the Crown and the
development, management and allocation of water resources is subject to
relevant State and Territory legislation. In some cases, such as in Western
Australia, ownership of unconfined surface water (overland flows) is vested in
the landowner. In general, large water users are granted the right to extract
water from a surface or groundwater resource under a water access
entitlement. The amount of water that such a user can take is subject to an
annual, or seasonal, water allocation, which is determined by the overall
availability of water from the hydrological system and varies with rainfall and
temperature.
Some MPEPP industries may acquire a property right to water under a supply
contract with a water authority. In this case the water authorities own the water
access entitlements transferring the property right to the user under contract.
Terminology for entitlements and allocations varies between the States. The
NWI established the definitions of water access entitlement and water
allocation. That terminology has been adopted in this report. Some key
definitions are provided in Box 1.
Australian water market arrangements 13

Box 1 Definitions
Consumptive use ² use of water for private benefit consumptive purposes,

including irrigation, industry, urban and, also, stock and domestic use.
Consumptive pool ² the amount of water resource that can be made available for
consumptive use in a given water system under the rules of the relevant water plan.
Water access entitlement ² a perpetual or ongoing entitlement to exclusive access to

a share of water from a specified consumptive pool, as defined in the relevant water
plan.
Water allocation ² the specific volume of water allocated to water access

entitlements in a given season, defined according to rules established in the relevant
water plan.
Reliability ² the frequency with which water allocated under a water access
entitlement is DEOHWREHVXSSOLHGLQIXOO5HIHUUHGWRLQVRPHMXULVGLFWLRQVDV´KLJK
VHFXULW\µDQG´JHQHUDOVHFXULW\µ
Data source: National Water Initiative
In general water access entitlements are classified into three categories:

high reliability entitlements;
general reliability entitlements; and
volumetric entitlements on unregulated streams15.
High reliability entitlements generally receive the full allocation of their

entitlement except in drought conditions. General reliability entitlements
receive allocations subject to water availability. The extent to which water
allocations meet entitlement levels varies between States. In the current
drought conditions, allocations under general reliability entitlements are
severely constrained in some States. Landholders generally have the right to a
proportion of run off from their land.
Water legislation in each State and Territory establishes the arrangements for
access to water entitlements. In some jurisdictions mining and petroleum
legislation may determine access arrangements for some projects.
The administration of water management functions varies between States. In

general, State agencies will be responsible for administering water access
entitlements, determining water allocations and managing bulk water supplies.
15 An unregulated stream is one with no control structures such as dams or weirs.

Delivery of water to end users is generally managed by urban and rural water
authorities or larger organisations such as SunWater in Queensland or State
Water in New South Wales (NSW).
The Murray-Darling Basin is subject to an agreement between governments

which provides the process and substance for the integrated management of
the Murray-Darling Basin16. The Murray-Darling Basin Ministerial Council
provides policy oversight for the management of water, land and
environmental resources in the Basin. The Murray-Darling Basin Commission
is the executive arm of the Ministerial Council which is responsible for
managing the River Murray and the Menindee Lakes system of the lower
Darling River.
The extent to which water trading has been established in each jurisdiction is
highly varied. For example, water trading in the Murray-Darling Basin began in
the early 1980s and has expanded considerably. However, in many catchments
water markets are yet to be established.
While most urban entitlements and allocations cannot be traded yet, a number
of urban water supply utilities are either considering, or already do, purchase
water from rural areas. Perth has purchased water on a temporary basis from
Harvey Water and South Australian Water has purchased entitlements to water
previously used for dairying in the Lower Murray swamps of South Australia.
Governments are now considering investments in infrastructure to transfer
water from more remote catchments to meet the needs of major urban and
metropolitan centres. The infrastructure necessary to connect Melbourne to
the Southern Connected River Murray system, via the Goulburn River, is
comparable with that connecting Adelaide to the River Murray.
Some river basins are over-allocated and governments have set limits to bring
extraction back to sustainable levels. In 1995 an interim cap on withdrawals
was set for the Murray-Darling Basin in recognition of the limitations on
capacity in the basin and the need to maintain environmental flows. A
permanent cap was agreed in 1997.
2.2 Queensland
Legislative framework and planning
4XHHQVODQG·VZDWHUUHVRXUFHVDUHPDQDJHGunder the Water Act 2000 and the

Water Regulation 2002.
16 http://www.mdbc.gov.au/about/murraydarling_basin_ministerial_council, accessed
September 2006.

7KH6WDWH·VZDWHUSODQQLQJLVXQGHUWDNHQLQDWZRVWDJHSURFHVVWKURXJKWKH
compilation of Water Resource Plans (WRPs) and Resource Operation Plans
(ROPs). A WRP sets out the environmental flow and water allocation
objectives for each catchment. A corresponding ROP details how water
resources will be managed to meet these objectives and defines the water
sharing and water trading rules for the catchment. Fully tradeable water
allocations are only created on commencement of an ROP. However, it is
possible to transfer interim water allocations to other land, in certain areas and
under certain circumstances as specified in the Water Regulation 2002.
Figure 4 shows the progress in Queensland towards meeting water planning

objectives. Where the water planning process has been completed (catchments
shaded bright green), a market for water trading has been established. The
status of all water planning activities is outlined at
http://www.nrw.qld.gov.au/wrp/timetable.html.
Figure 4 Progress of water planning activities in Queensland at mid 2006
Data source: Queensland DNRW
Highly developed groundwater areas in Queensland are managed under WRPs

and ROPs. Those groundwater management units in Queensland that do not
have a WRP and ROP are managed through a formal management
arrangement between the Department of Natural Resources and Water

(DNRW), local councils and minerals interests. Some areas, without well
developed groundwater resources, such as the Fitzroy Basin catchment, have a
WRP and ROP in place, but these plans do not provide for the management
of, or trade in, groundwater.
Water entitlements and administration
In Queensland, water is supplied to households and businesses in towns and

cities by local government authorities. Water is supplied to irrigators and other
users by water supply authorities and water service providers17. Most of the
storages which supply irrigation businesses are owned and operated by
SunWater, a government owned corporation and the largest single water
service provider in Queensland. There are also a number of private water
storages, large and small, in cropping, grazing and mining. The Queensland
Government is responsible for the allocation and sustainable management of
water and oversees water industry regulation.
In Queensland, water access arrangements include:

water licences;
interim water allocations; and
water allocations.
In the past, water was allocated through water licences that were tied to a land
title and could only be traded seasonally or temporarily through leasing. In
most cases, only landholders could own water licences.
Under the current planning process, interim water access entitlements (referred
to as interim water allocations) are issued to landholders for a volumetric share
of water supplied by the operator of a water supply scheme.
These interim water allocations are tied to the land, and are converted to full
tradeable water access entitlements (referred to as water allocations) on the
completion of the water planning process in the catchment in which the
interim allocation is held.
Under these new arrangements the water allocations are assets separate from
the land and have their own title which is registered on the Queensland Water
Allocations Register. They can be traded permanently or seasonally,
independent of landownership.
17 For a complete list and description of Queensland water supply authorities see:
http://www.nrw.qld.gov.au/compliance/wic/water_authorities.html, accessed August
2006. For a list of water service providers see
http://www.nrw.qld.gov.au/compliance/wic/service_provider_list.html

The allocation of water under water licences and water allocations is the
responsibility of DNRW. The transfer of water allocations involving changes
to resource elements of the allocation, is managed by DNRW (by contrast, the
transfer in ownership of water allocations is managed through a statutory water
allocations register). DNRW establishes water sharing rules to determine how
much water is available for extraction under water entitlements. There are high
and medium priority entitlements. In a water supply shortfall, medium priority
entitlements are curtailed before high priority entitlements.
Pricing
The Queensland Government has adopted the policy principles set out in the
NWI which requires a move to full cost recovery where practical. Government
policy is to apply lower bound pricing for rural irrigation water with the
prospect of moving to upper bound pricing in the longer term18.
Queensland Government pricing policy covers both:

water supply and delivery; and
resource management and planning.
Water supply and delivery charges are currently levied on water users by water
service providers. These charges vary across the range of water service
providers and for rural or urban water supply. These charges are, in the main,
set on a per ML basis.
Table 3 shows the charges levied by Sun Water for rural irrigation water in
certain catchments.
18 lower bound pricing ² the level at which to be viable, a water business should recover, at
least, the operational, maintenance and administrative costs, externalities, taxes or TERs
(not including income tax), the interest cost on debt, dividends (if any) and make provisions
for future asset refurbishment/replacement. Dividends should be set at a level that reflects
commercial realities and stimulates a competitive market outcome;
upper bound pricing ²the level at which, to avoid monopoly rents, a water business
should not recover more than the operational, maintenance and administrative costs,
externalities, taxes or tax equivalent regimes (TERs), provision for the cost of asset
consumption and cost of capital, the latter being calculated using a weighted average cost of
capital (NWI, page 29).

Table 3 SunWater supply and delivery charges for 2006/07

Catchment Charge
$/ML
Burdekin 14-41
Burnett 12-24
Fitzroy Basin Catchment 12-60
Moreton 27-35
Condamine-Balonne 16-42
Warrego/Paroo/Bullo/Nebine 19
Pioneer 11-54
Logan 38
Mary 17-58
Border 28
Data source: SunWater
The charges levied on water customers around the State vary considerably,
depending on, for example, the amount of water storage and supply
infrastructure in place to deliver water. For example, industrial customers of
NQ Water pay up to $1,000/ML for the delivery of water and the urban
councils of Townsville and Thuringowa pay up to $750/ML19.
New water charges to recover resource management and planning costs were
suspended in March 2006, pending the outcome of an independent analysis of
the charges.
Water trading and processes
In Queensland, three types of water trading are possible:

permanent trades of water access entitlements (water allocations) and
interim water access entitlements (interim water allocations);
leases of water access entitlements (water allocations); and
seasonal assignment of water which is available to be taken under water
allocations, interim water allocations and water licences (temporary trade).
Permanent trading within a catchment can occur once an ROP has been
established for the catchment and tradeable water allocations have been
granted. At the present time permanent trades can only occur within a
catchment. Arrangements are being developed to facilitate interstate trade with
NSW in the Borders Rivers Region on finalisation of the ROP for the
catchment. Permanent and temporary trading of surface water to date has
19 Industry consultation.

occurred in Queensland mainly in the Burnett, Pioneer, Barron and Fitzroy

Basin catchments.
Groundwater permanent trading would be permitted in Queensland in highly

developed groundwater areas where the planning process described above has
been completed. Groundwater trades to date have been seasonal water
assignments, and most have occurred in the Bundaberg and Condamine
groundwater management areas. No ROP to date has created permanently
tradeable groundwater allocations.
2.3 Victoria
7KHOHJLVODWLRQWKDWJRYHUQVWKHPDQDJHPHQWRI9LFWRULD·VZDWHUUHVRXUFHV
includes:
The Water Act 1989 which provides the legislative basis for the planning
DQGPDQDJHPHQWRIWKH6WDWH·VZDWHUUHVRXUFHV
The Water (Resource Management) Act 2005, which amended the Water Act
1989 to include provisions enabling:
± creation of an environmental water reserve;
± unbundling of existing water entitlements into water shares, water-user
licences and delivery shares;
± Water (Permanent Transfer of Water Rights) Regulations 2001, which provides
the regulatory basis for trading permanent water rights; and
± creation of the Victorian water register.
Ten regional Catchment Management Authorities (CMAs)20 have been

established under the Catchment and Land Protection Act 1994 to plan for
and implement integrated catchment management which underpins the
sustainable management of land and water resources and contributes to
biodiversity management. The CMAs are responsible for developing and
implementing integrated regional catchment strategies in close partnership with
all stakeholders.
20 'HWDLOHGLQIRUPDWLRQDERXW9LFWRULD·VFDWFKPHQWPDQDJHPHQWDXWKRULWLHVFDQEHIRXQGDW
http://www.dse.vic.gov.au/dse/nrenlwm.nsf/childdocs/-
E9B6826F3AB828F64A2567D7000B1BA6-82A6DD30CA52A8C0CA256E69002F506C-
C35E39DE033300D24A25679E00010C1F?open, accessed September 2006.

In Victoria, water is managed at three tiers, as shown in Figure 5. Under Tier 1,

the State Government retains the overall right to the use, flow and control of
all surface water and groundwater on behalf of all Victorians. Under Tiers 2
and 3, water is allocated by granting bulk entitlements and giving rights to
private consumers for various uses.
Water is first allocated by the State Government through the Minister for
Water. The Minister has delegated his powers to issue licences to some water
authorities. Bulk water entitlements are allocated to rural and urban water
supply authorities and to some power generators21. The water supply
authorities in turn supply water to end users including towns, irrigators and
industry. The water supply authorities are generally the first point of contact
for private individuals wanting to obtain a new water access entitlement.
21 A full list of these authorities, including contact details, can be obtained by

visiting:http://www.dpi.vic.gov.au/dpi/vro/vrosite.nsf/pages/access-water-authordetails,
accessed September 2006.

Figure 5 2YHUYLHZRI9LFWRULD·VZDWHUPDQDJHPHQWIUDPHZRUN
Data source: Department of Sustainability and Environment
The three main types of water access entitlements in Victoria are:

bulk entitlements held by urban and rural water authorities and some
electricity generators;
licences for individuals to divert water from streams and aquifers for their
own use; and
water rights in irrigation districts.
In the large irrigation systems, the rural water authorities make periodic
announcements of the allocation of water that is available for extraction as a

proportion of their entitlement. These announcements are usually posted as

PHGLDUHOHDVHVRQWKHUHOHYDQWUXUDOZDWHUDXWKRULW\·VZHEVLWH22.
From 1 July 2007, irrigation water rights and regulated diversion licences for
the large irrigation systems in Northern Victoria will be unbundled into:
a water share ² a legally recognised, secure share of water available for
consumption;
a delivery share ² entitlement to have a specified volume of water delivered
to a property within a specified timeframe; and
a water-use licence ² authority to use water for irrigation on a property.
Unbundling of water entitlements in other systems across the State will follow
in coming years.
Pricing
In Victoria, water charges are recovered by the water supply authorities. The
Essential Services Commission (ESC) reviews and sets the charges for water
based upon applications submitted by the water authorities. The charges are set
for the recovery of:
water supply and delivery costs;
some resource management and planning costs; and
an environmental contribution which authorities are required to pay the
Victorian Government to fund initiatives that promote the sustainable use
of water or address adverse water-related environmental impacts.
Table 4 sets out water charge on some of the major water sources in Victoria.
There is a fixed component and a variable component. These charges vary
according to the water supply authority.
22 For example: http://www.g-mwater.com.au/article.asp?ContentID=media_releases_2007,

sourced January 2007.

Table 4 Usage and licence fees set by water suppliers for selected
(available) regions
Region Licence fee/service fee Usage fee
($/annum)
$/ML
Murray regulated 120 10.26
Goulburn regulated 110 8.25
Murray unregulated 120 5.71
Goulburn unregulated 110 4.3
Groundwater ± Shepparton 150 2.79
Groundwater ± Spring Hill, 150 3.03
Campaspe
Groundwater ± Katunga 150 3.03
Data source: Victorian water supply authorities
Water trading and processes
Victoria's water market enables both permanent trade (transfer of a water

access entitlement) and temporary trade (transfer of a water allocation). Prices
paid for permanent and temporary water trades are determined in the market.
Water trading is permitted:

in individual licences in regulated and unregulated rivers;
in bulk water entitlements;
within an irrigation district; and
interstate.
All trades are subject to the approval of the Authority in the district the
holding is located.
Currently restrictions apply to permanent trade of water out of a water district.

This was previously restricted to two per cent (of entitlement) per annum but
was increased to four per cent per annum on 1 July 2006 consistent with the
objectives of the NWI.
For entitlement transfers, entitlement holders are required to submit to the

relevant water authority a copy of the land title or entitlement and written
consent from the entities with interest in the trade. Transfer fees are payable to
the authority in which the transfer takes place. Most of the rural water
authorities have internet based water trading arrangements23 and the
Department of Sustainability and Environment (DSE) is in the process of
developing an online entitlement register that will facilitate contact between
23 http://www.g-mwater.com.au/browse.asp?ContainerID=watertrading, Sourced
January 2007.

prospective entitlement buyers and sellers. The new water entitlement register
is planned to be in operation by 1 July 2007 to record and manage unbundled
entitlements.
2.4 New South Wales
The two principal pieces of legislation that apply to the management and
planning of water in NSW are:
the Water Management Act 2000; and
the Water Act 1912.
The Water Act 1912 is the original water legislation which is being replaced by
the Water Management Act 2000 as water sharing plans (WSP) are completed for
surface and groundwater resources.
A WSP is a legal document prepared by the Department of Natural Resources

(DNR) under the Water Management Act 2000. It establishes rules for sharing
water between the environmental needs of the river or aquifer and water users,
and also between different types of water users such as town supply, rural
domestic supply, stock watering, industry and irrigation. In addition, WSPs set
rules for water trading.
In NSW, 36 WSPs have commenced, covering 80 per cent of water extracted

including most of the regulated river systems (those controlled by major dams
for rural water supplies), a number of unregulated river systems and the major
inland alluvial aquifers. Most of the plans commenced in July 2004. The five
inland alluvial groundwater plans commenced in October or November 2006.
Licences come under the provisions of the Water Management Act 2000 once a
WSP commences.
Under the Water Act 1912, the licence covers both the works (pump, dam,
bore) plus the entitlement to take up to a certain volume of water. Under the
Water Management Act 2000, the approval for the works is separate from the
access licence. The access licence entitles the holder to a share in the available
water ² expressed as a unit share for most commercial or general security
licences (irrigation of annual crops, mining and other industries) and as a
volume for high security uses (permanent plantings for irrigation, power
generation) or specific purposes such as town water and domestic and stock
supply.

Access licences are categorised according to priority of access. For example, in

regulated rivers, high security licences have priority over general security
licences. Water licences for town water supply have priority over other types of
licences.
DNR is responsible for issuing licences, assessment of surface and

groundwater availability and development of WSPs. State Water is responsible
IRUWKHUHOHDVHRIZDWHUIURPWKH6WDWH·VPDMRUUXUDOGDPVDQGWKHGHOLYHU\RI
water along these regulated rivers in accordance with the rules in the WSPs.
Pricing
NSW has adopted the pricing policies and principles of the NWI. Water
charges include recovery of user costs associated with management of the
6WDWH·VZDWHUUHVRXUFHVDQGLQWKHFDVHRIUHJXODWHGULYHUVWKHGHOLYHU\RI
water. State Water and DNR make submissions to the Independent Pricing
and Regulatory Tribunal (IPART) which regulates water charges and
determines the costs that can be recovered through water charges for each type
of water source in each region. IPART takes into account the pricing policies
of the NWI in making its determinations on prices levied by these
organisations.
Delivery charges for the regulated rivers include a fixed component (which for
2006-07 ranges from $3/ML to $11.50/ML of high security entitlement and
$2.87/ML to $7.22/ML of general security entitlement) and a variable
component (ranging from $1.50/ML to $13.31/ML of water actually
extracted).
Water management charges apply to all water sources ² regulated rivers,

unregulated rivers and groundwater. For regulated rivers they are based on a
fixed component (per unit of entitlement ranging from $0.76/ML to
$1.88/ML) and usage charge (ranging from $0.25 to $1.48/ML extracted). For
the unregulated rivers, charges are based on entitlement ($2.52/ML to
$5.60/ML) or area authorised for irrigation ($9.17/hectare to $16.12/hectare)
and usage if extractions are metered. For groundwater, the water management
charges in highly managed groundwater systems have an entitlement
($0.93/ML to $2.02/ML) and usage component ($0.57/ML to $1.01/ML) and
in the other systems have a base charge plus an entitlement component.
Water trading and process
In NSW permanent trades of water licences are permitted in regulated streams,

unregulated streams and the groundwater systems with WSPs. Temporary

trades in allocation are permitted in water sources where extractions are

metered (regulated rivers and the major inland alluvial groundwater systems).
Temporary trades on the regulated rivers are administered by State Water,

groundwater by State Water and DNR and permanent licence trades are
administered through DNR. The rules for trade in a particular water source are
set out in the WSP.
The process for trade begins with the identification of a potential buyer or
seller and agreement between the parties for trade. Government approval is
not required for a permanent trade that only involves a change in land
ownership. However, relocation of the water licence requires DNR assessment
and approval.
Interstate permanent and temporary trades are allowed between NSW, Victoria
and South Australia.
2.5 Western Australia
Water resources in Western Australia are controlled under the Rights in Water
and Irrigation Act 1914 (RIWI Act). A significant review of this RIWI Act was
undertaken during 1999 and 2001, resulting in amendments in 2001. A
subordinate piece of legislation is the Rights in Water and Irrigation Regulations
2000.
The RIWI Act allows for the development of water plans to guide the
management of water resources in regional, sub-regional and local areas In
contrast to water management plans in the eastern States, decisions made
under the licensing provisions of the RIWI Act are not bound by the water
plans. However, the RIWI Act provides for the amendment of licences,
LQFOXGLQJDPHQGPHQWVWRSUHYHQWD´VHULRXVLQFRQVLVWHQF\µZLWKDSODQ
approved under the RIWI Act.
The RIWI Act does however provide a comprehensive arrangement for water
access entitlements in circumstances where an area has been proclaimed.
Rights and obligations on the parties therefore vary between proclaimed and
XQSURFODLPHGDUHDV7KHPDMRULW\RIWKH6WDWH·VJURXQGZDWHUUHVRXUFHVKDYH
been proclaimed.
The Western Australia Government signed the Inter-Governmental

Agreement on the NWI in April 2006 and has embarked on a reform program

to address the policy issues of the NWI. It released a discussion paper setting
out a draft blueprint for water reform in Western Australia in July 200624.
Western Australia is well placed to respond to the challenges of water reform

because it has had to deal with a drying climate over a longer period of time
and find alternative water resources, especially groundwater, and develop a
coordinated approach to water resource management and service delivery.
The right to the use and flow, and to the control, of water in watercourses,
wetlands and underground water sources is vested in the Crown in Western
Australia. However unconfined surface waters (overland flows) are not vested
in the Crown under the RIWI Act.
Under the reform process, the Department of Water (DoW) will be the
responsible agency for managing and administering water access entitlements
and allocations in Western Australia25. The DoW currently grants the right to
take water through the issue of a licence under the RIWI Act to individuals or
FRPSDQLHVWKDWPHHWWKH'HSDUWPHQW·VFULWHULD7KHOLFHQFHGHILQHVWKH
quantities of water that can be taken and the conditions that apply in each case.
Under the RIWI Act, two types of licence may be issued:

a licensed allocation to take water from a proclaimed water source; and
a licence or approval to construct and operate works to access water.
In proclaimed areas, it is illegal to take water from a watercourse or

groundwater aquifer without a licence. Water can be taken from watercourses
LQXQSURFODLPHGDUHDVZLWKRXWDOLFHQFHVRORQJDVWKHIORZLVQRW¶VHQVLEO\·
diminished, affecting the rights of downstream users. If conflicts arise, the
DoW can issue a direction defining the amount, the purpose and the way the
water may be taken.
Where the volume of water under a licence has not been taken consistently, the
OLFHQVHGYROXPHPD\EHUHGXFHG7KLV¶XVHLWRUORVHLWSROLF\·DURVHRXWRI
concern over the possibility of speculation in water entitlements.
24 A Draft Blueprint for Water Reform in Western Australia, Discussion paper released by the
Water Reform Implementation Committee, July 2006.
25 This function is being transferred from the Water and Rivers Commission (WRC) to the
Department of Water in 2006/07.

There are 52 groundwater and 22 surface water management areas proclaimed

under the RIWI Act. These cover the major water resources of the State, and
licensing is active in most areas.
Currently, new licences can only be issued to applicants demonstrating that

they are the legal owner or occupier of the land associated with the taking of
water and that the land tenure matches the application purpose.
Small users of water are not licensed. These include more than 140,000 garden
bores in and around Perth and bores used for livestock watering in rural areas.
Pricing
Western Australia has signalled its intention to adopt the pricing principles of
the NWI in terms of pricing to recover costs of:
water supply and delivery; and
resource management and planning.
While full cost of supply/delivery recovery pricing is currently in place (with

subsidies applicable in some cases), resource management charges do not
currently apply. The charges currently in place vary by customer type.
Mining companies can be supplied water by the Water Corporation or through

self supply under a licence from DoW. Mining companies seeking a water
supply from the Water Corporation fall into two categories:
major consumers with a peak demand of 50 kL or more per day (termed
major consumers); and
by-law consumers with a peak demand not exceeding 49 kL/day (termed
mining by-law consumers).
Major consumers
Major consumers are supplied water under a Special Agreement negotiated

with the Water Corporation. The duration of the agreement is generally 45
years.
The charge for water under a Special Agreement is based on the cost of
augmenting water supply infrastructure to meet demand and the delivery of
water to the site. The capital component of the charge is based on the unit
costs of a notional scheme sized to meet the potential future demand, not just
the upgrades required for the individual customer.

Mining by-law consumers
Mining by-law consumers are supplied water under provisions defined by

mining by-law charges, which are uniform across the State. The terms and
conditions underlying the supply of water to mining by-law consumers are
defined in a Special Agreement with a maximum term of 15 years.
The charge for water for mining by-law consumers is made up of a standard
head works contribution and a delivery charge. Consumers exceeding their
water entitlement face a capital surcharge on top of the mining by-law charge.
The RIWI Act includes provision for the trading of water access entitlements.
Licences may be permanently transferred to another person who holds or is
eligible to hold a licence of the same kind. DoW is the Government
Department with responsibility for approving water trades. Once agreement is
reached between the buyer and seller, an application form for transfer of
entitlement must be completed and lodged with DoW.
Temporary trades can occur by allowing a third party to operate under the
terms of the licence for a period of one year. Where extenuating circumstances
can be proven, periods of less than one year may also be allowed. No other
form of temporary trade is permitted.
Generally, trades may only take place within a defined area containing an
aquifer or stream basin. Under the existing policy, licensed entitlements that
have never been used are generally not able to be transferred.
The current water entitlements system in Western Australia has some

weaknesses. For example, the RIWI Act does not provide a title structure that
readily allows entitlements to be mortgaged and remortgaged, bequeathed, held
by multiple people under joint or common tenancy arrangements, or be held
by people other than the water users. The result is a restriction on financing
and deterrence of investment.
As discussed above, the current system in Western Australia is under review,

with the aim of bringing it into line with the objectives and outcomes sought in
the NWI.

2.6 South Australia
The Natural Resources Management Act 2004 provides the legislative framework
IRUPDQDJLQJ6RXWK$XVWUDOLD·VQDWXUDOUHVRXUFHVLQFOXGLQJWKHSlanning and
PDQDJHPHQWRIWKH6WDWH·VZDWHUUHVRXUFHV
From 2006-07 the Natural Resources Management Act 2004 provides the legislative
basis for raising a levy on water licence holders in the State. Earlier legislation,
the Water Resources Act 1997, which was largely repealed in 2005, still provides
the legislative basis for the collection of debts accrued prior to 2006-07.
Water Allocation Plans (WAPs) are prepared for each prescribed water
resource by the regional Natural Resources Management (NRM) Board
responsible for that resource. This is a requirement of the Natural Resources
Management Act 2004. The WAPs set the principles or rules under which water
can be allocated on water licences. Principles for the transfer of water
allocations are also included. Table 5 shows prescribed water areas in South
Australia for which WAPs have been completed.
Table 5 Prescribed water areas with completed water allocation plans in

South Australia, as at February 2007
Prescribed water areas
McLaren Vale Prescribed Wells Area Southern Basins Prescribed Wells Area ±
Northern Adelaide Plains Prescribed Wells Area Musgrave Prescribed Wells Area ±
Barossa Prescribed Water Resources Area Comaum Caroline Prescribed Wells Area
Clare Valley Prescribed Water Resources Area Lacepede Kongorong Prescribed Wells Area
River Murray Prescribed Watercourse Naracoorte Ranges Prescribed Wells Area
Angas Bremer Prescribed Wells Area Padthaway Prescribed Wells Area
Mallee Prescribed Wells Area Tatiara Prescribed Wells Area
Noora Prescribed Wells Area Tintinara Coonalpyn Prescribed Wells Area
Morambro Creek Prescribed Water Course and
Surface Water Area
Data source: South Australia DWLBC
All of the above WAPs have either been reviewed or are currently under
review. WAPs are reviewed every five years and undergo extensive community
consultation.
WAPs are currently being prepared for the following resources:

Marne and Saunders Prescribed Water Resources;
Far North Prescribed Wells Area;
Eastern Mt Lofty Ranges;

Western Mt Lofty Ranges; and

Peake, Roby and Sherlock.
Groundwater of the central Adelaide plains is under a notice of intention to

prescribe as are the Baroota catchment in the mid-north and the Upper
Wakefield catchment near Clare.
In South Australia, water is accessed by users through water access

entitlements known as water licences. A water licence authorises a licence
holder to take and use a water allocation associated with the licence.
There are two main types of water allocations in South Australia:

water (holding) allocation; and
water (taking) allocation.
The water (holding) allocation provides the function of preserving the right of
the holder of the licence to obtain a water (taking) allocation in the future. In
the South East prescribed water resources this is tied to individual
management areas, elsewhere it is tied to individual resources unless specified
to management areas in the relevant WAP. The water (holding) allocation does
not authorise the extraction and use of water. It must first be converted into a
water (taking) allocation. The water (taking) allocation contains conditions
about how water can be extracted and used, and the land area to which it can
be applied.
Both the water (holding) allocation and water (taking) allocation are endorsed
with a volume of water. This is the maximum volume that may be extracted
each year, and is subject to any restrictions in supply.
The Department of Water, Land and Biodiversity Conservation (DWLBC) is

the administering agency in South Australia. The Government owned water
XWLOLW\6$:DWHUVXSSOLHVSLSHGSRWDEOHZDWHUWR6RXWK$XVWUDOLD·VUHVLGHQWVLQ
PRVWWRZQVDQGFLWLHVDQGWRDVPDOOSHUFHQWDJHRIWKH6WDWH·VKLJK-value
irrigators.
Pricing
Water charges in South Australia are generally of two types; those for supply of
water and those for management of the water resource itself. In most regions,
statutory NRM boards undertake water resource management activities. The
boards are able to seek levy funding from water users and landowners. The
ERDUGV·UHJLRQDO150SODQVVHWRXWIXQGLQJUHTXLUHPHQWVLQFOXGLQJWKH

amounts to be charged through regional NRM levies (land-based) and NRM

water levies.
The annual service delivery charge is the same for all SA Water customers, that
is, approximately $1/kL or $1000/ML for metered deliveries.
NRM water levies range from $2.08/ML to $21.88/ML. Most are levied as a
fixed charge per ML of allocation. However, in Northern Adelaide Plains up to
half of the levy is based on usage. Funds collected from the NRM water levies
are used to part-fund implementation of regional NRM plans. Table 6 provides
a summary of water charges in South Australia.
Table 6 Summary of water charges in South Australia

Charge Amount Charged to
$
Water supply and delivery $1/kL SA Water customers
charges
One-off licence application fee $166.00 All irrigators and non residential
for use of prescribed water water users (not stock use)
resource
Trade in allocation fee including $519.00
technical assessment of site
conditions
An additional fee may be
required for specific assessment $137.00
under certain conditions
NRM Water levy $2-20/ML of entitlement Irrigators
($3.83/ML for Murray river
irrigator)
Save the Murray levy $32.20/resident & Applies to all SA Water
$145.20/business annually customers.
Data source: SA DWLBC
Permanent trading in water allocations was first introduced in South Australia

in 1983. Trades can be temporary (leased), for a minimum period of a year, or
permanent. Where a water (taking) allocation is traded between locations or a
water (holding) allocation is converted to a water (taking) allocation, a technical
assessment must be undertaken. This is not required for trading a water
(holding) allocation.
Interstate trade in entitlements and allocations is supported by Schedule E of

the Murray-Darling Basin Agreement that facilitates trade between South
Australia, Victoria and New South Wales.

The trade is processed through the DWLBC, from which formal approval is
required.
2.7 Tasmania
The relevant legislation/instruments governing water management in Tasmania

are the Water Management Act 1999 and the Water Management Regulations 1999.
The Water Management Act 1999 provides the legislative basis for water access
licencing and allocation and the transfer of allocations (trade) in Tasmania.
Where water is sourced from an irrigation scheme it is administered under the

Irrigation Clauses Act 1973. However, this accounts for less than 10 per cent of
irrigation water used in Tasmania. Table 7 lists the irrigation schemes in
operation in Tasmania. The vast majority of water is sourced from unregulated
streams or on-farm storages utilising privately funded infrastructure and
licensed under the Water Management Act 1999.

Table 7 Irrigation schemes in Tasmania

Scheme Cressy Winnaleah South East River Clyde Lake Leake/ Tooms Lake/ Meander
Longford Irrigation Irrigation Irrigation Elizabeth/Macq Macquarie Irrigation
Irrigation Scheme Scheme District uarie River River District
Scheme Irrigation Irrigation (proposed)
District District
Number of 132 79 164 28 35 20 Approx 150
customers
Area in 14,667 ha 6,231 ha 15,077 ha 51,750 ha 45,300 ha 39,300 ha 8,200ha
system
Scheme Cressy- Winnaleah Rivers and Rivers and Elizabeth Elizabeth Rivers and
manager Longford Irrigation Water Supply Water Supply Macquarie Macquarie Water Supply
(water entity) Irrigation Scheme Commission Commission Irrigation Trust Irrigation Commission
Scheme Limited Trust
Limited
Volume 10 year 10 year 10 year 2005-06 Has just been Has just been Current
supplied average average average approx established but established average supply
(Megalitres) 7,300ML 4,000ML 2,800 ML 7,000ML will supply but will supply 10,000ML up to
approx 10,500 approx 9,000 24,000 ML
ML ML once the
Meander Dam
is operational
Current Water entity Water entity RWSC RWSC Water entity Water entity RWSC annual
reporting report to report to annual report annual report report to report to report
Minister Minister Minister Minister
Licence 12,000ML 10,000ML Surety 5: 5,700 Surety 5: 24,000ML
allocation (transfer from ML Surety 6 4,500 ML (transfer from
under WMA Hydro Tas) 4,800ML Surety 6 Hydro Tas)
4,500ML
Data source: Department of Primary Industries and Water
Tasmania is divided into eight water management areas, as shown in Figure 6.

Figure 6 Water management areas in Tasmania
Data source: Tasmania DPIW
Planning for the sustainable development of the water resources is undertaken

through the development of Water Management Plans (WMPs) for catchments
within the water management areas. WMPs specify the rules for water trading
in each area and ensure that water resources are managed in accordance with
the Water Management Act 1999. A WMP is generally implemented by the
Department of Primary Industries and Water (DPIW)26.
Water Management Plans (WMPs) do not override the Water Management Act
1999 nor can they provide powers that are not already specified within the
Water Management Act 1999. Rather, WMPs provide clear direction on how the
discretionary powers in the Water Management Act 1999 are to be applied for
particular water resources to best achieve the agreed WMP objectives.
The WMPs already completed are:

the Mersey water management plan;
the River Clyde water management plan;
26 To see the completed and draft water management plans see:

http://www.dpiw.tas.gov.au/inter.nsf/ThemeNodes/RPIO-4YH8EZ?open.

the Great Forester water management plan;

Lakes Sorrell and Crescent water management plan; and
Little Swanport water management plan.
A draft WMP has been completed for the Ringarooma Catchment.
In Tasmania, access to water resources is controlled through a licensing and

allocation system. Water licences and associated water allocations are required
to take water for a purpose, or in a manner, other than those specified in part 5
of the Water Management Act 1999. Water licences, set for ten years, are
specified in volumetric terms and are separate from the land title. Upon an
application to renew a water licence there is a presumption of renewal where
the licence must be renewed by the Minister if he or she is satisfied certain
criteria have been met (eg the applicant has complied with previous licence
conditions and paid all relevant fees). The Water Management Act 1999 provides
for licensing and allocation of water and transfer of licences and allocations.
Under Part 5 of the Water Management Act 1999, water may be taken without a
OLFHQFH3DUWVWDWHVWKDWULSDULDQRU¶TXDVL-ULSDULDQ·ODQGRZQHUVDVZHOODs
casual users of land, may take water from water courses and lakes for human
FRQVXPSWLRQGRPHVWLFSXUSRVHVVWRFNZDWHULQJDQGILUHILJKWLQJ¶ULSDULDQ
ULJKWV·VXEMHFWWRWKHWDNLQJRIZDWHUQRWOHDGLQJWRPDWHULDORUVHULRXV
environmental harm, or being contrary to the provisions of an applicable
WMP.
In Tasmania:
a licence entitles the holder to take water out of a water resource under the
terms of the licence; and
a water allocation specifies the amount of water that can be taken under the
licence and the purpose for which the water is taken.
The administration of the assignment of licences and the trade in licences is

undertaken by DPIW. New licences are acquired by approaching the relevant
regional offices of DPIW and completing and application form for review by
DPIW.
Urban water supply and wastewater are local government responsibilities in

7DVPDQLD%XONZDWHUIRURIWKH6WDWH·VORFDOFRXQFLOVLVVXSSOLHGE\WKH
6WDWH·VWKUHHPHWURSROLWDQEXONZDWHUSURYLGHUVWKH+REDUW5HJLRQDO:DWHU
Authority (HRWA), Cradle Coast Water (CCW), and the Esk Water Authority
(EWA). These authorities also supply industrial customers, for example the

EWA supplies industrial water users at Bell Bay. The remaining local
governments take, treat and reticulate water themselves. The three bulk water
providers are not responsible for irrigation or rural water.
Pricing
In line with the NWI, The Tasmanian Government has adopted the policy
principles for pricing for recovery of:
costs associated with water supply and delivery; and
costs associated with resource management and planning.
The costs of supply and delivery of water are recovered in charges by the bulk
water supply authorities. The charges are reviewed periodically by the
Government Prices Oversight Commission (GPOC). Table 2 shows the
charges set by the authorities.
Table2 Tasmanian bulk water supply authorities water charges (actual

reported or recommended by GPOC)
Water authority Water charges
$
Esk Water $20-30/ML (range, depending on extent of treatment required)
Cradle Coast $20/ML (regional average)
Hobart Water $17-$20/ML (range)
Data source: Esk Water, GPOC
Water resource management fees are structured to recover the costs of

providing water management services required to protect the rights of water
licencees and the aquatic environment.
The resource management fee structure for Tasmania water users includes:
an administrative fee (fixed); and
a field management fee (variable).
The administrative fee is set at $83/licence/annum, irrespective of region or

the size of the licence. In late 2005 this fee was increased from $37 to reflect
full cost recovery pricing27.
27 The variable field management fee varies by region and is calculated on a sliding scale
according to amount of water used (Tasmania DPIW).

The introduction of the Water Management Act 1999 enabled the trading of
water access entitlements in Tasmania. Over the last four years, trading has
been occurring to a limited degree, principally where access entitlements
change ownership in conjunction with associated land titles, or where water is
sold from privately owned dams to downstream irrigators. The transfer of a
licence may be permanent or temporary.
Generally three types of water trade occur in Tasmania:

transfer of water licence associated with the transfer of ownership of land;
transfer of a licence; and
sale of part of an allocation associated with a water licence, where the seller
retains the licence and the buyer already owns a licence.
Specific trading rules in a catchment are set out in the relevant WMP.
Applications for trade are made to the DPIW and must be accompanied by the
prescribed fees.
2.8 Northern Territory
The Department of Natural Resources, Environment and the Arts (NRETA) is

UHVSRQVLEOHIRUPDQDJLQJWKH1RUWKHUQ7HUULWRU\·VZDWHUUHVRXUFHVWKURXJKD
regulatory framework that includes the Water Act 2004, the Water Regulations
2002 and a series of water plans that are currently being developed.
The Water Act 2004 is the legislation which applies to the management and
trading of water in the Northern Territory. A subordinate piece of legislation
to the Water Act 2004, the Water Regulations 2002 provides the rules specific to
the issuing of surface and ground water licences and permits.
In the Northern Territory, water control districts have been declared for areas
that have been identified as requiring management to protect the water
resource. Water allocation plans (WAPs), that apply for ten years and are
reviewed every five years, will be compiled and enacted in these districts. The
WAPs govern the allocation of water, and trade in water, to users in the
districts. Figure 7 shows the water control districts that have been declared in
the Northern Territory.

Figure 7 Water control districts in the Northern Territory
Data source: NT NRETA
A WAP in the Northern Territory has been declared for the Ti Tree Water
Control District. Work is in progress for the Katherine, Darwin, and Alice
Springs Water Control Districts28. There is also a requirement to declare a
Water Control District and prepare a WAP for the Mataranka area south of
Katherine due to the expansion of irrigated horticulture in that area.
28 http://www.connectedwater.gov.au/water_policy/nt_perspective.html.

NRETA administers the issuing and administration of water licences in the

Northern Territory. Power and Water Corporation is the government-owned
corporation with responsibility for bulk water storage and delivery
infrastructure in metropolitan and rural/regional areas.
Water extraction licenses are required to take water from any waterway for uses
other than stock and domestic purposes. The licenses are normally issued for
up to ten years, and can be renewed. Upon application a licence may be
transferred when land changes ownership. Sections 45 and 60 of the Water Act
2004 provide for the granting of a licence to take or use surface water and to
take groundwater respectively.
Any interference with a waterway or obstruction of flow, such as damming of

or pumping from creeks, requires a permit. Small rural dams do not require a
permit. Bores require an extraction licence outside of Water Control Districts.
Within Water Control districts a ground water extraction licence is required for
all uses other than stock and domestic.
Pricing
In the Northern Territory, costs of water storage and delivery are recovered
through charges levied by the Power and Water Corporation on their
customers. The National Water Commission (NWC) noted, in relation to the
1RUWKHUQ7HUULWRU\·VSURJUHVVWRZDUGDFKLHYLQJIXOOFRVWUHFRYHU\29:
IRUPHWURSROLWDQZDWHUWKH3RZHUDQG:DWHU&RUSRUDWLRQ·V'DUZLQZDWer
and wastewater operations exceeded lower bound cost recovery over the
assessment period, and were approximately 11 per cent below recovery of
upper bound costs;
for the rural and regional water and wastewater operations, only the Alice
Springs operations of Power and Water Corporation recovered the full
costs of operations, maintenance, administration, debt servicing and asset
consumption. The Katherine and Tennant Creek operations did not meet
lower bound costs; and
there are currently no fees or charges in place for recovery of costs
associated with water resource management and planning.
29 National Water Commission. 2005 National Competition Policy Assessment of Water

Reform Progress. The document can be found at:
http://www.nwc.gov.au/nwi/ncp_water_reform.cfm.

Types of water trading and process
Section 92 of the Water Act 2004 allows the permanent and temporary trade in
water licences. Water trading is only permitted within water control districts
where WAPs have been completed. Currently, a WAP has only been
completed for the Ti Tree water control district. In addition, under the Water
Act 2004, trade is currently only allowed within a water control district,
reflecting the geographically dispersed nature of the water resources.
Some restrictions apply to water trade in the Northern Territory, such as:
upstream trade (in rivers) can only proceed if it does not have negative
impacts on the environment and does not compromise the environmental
objectives of the WAP;
groundwater trading is restricted to within aquifers and within the declared
Water Management Zone; and
to protect cultural and environmental water allocations, water cannot be
traded between consumptive and non consumptive uses.
7UDGHLVRQO\DOORZHGIRUZDWHUWKDWKDVEHHQDOORFDWHGWR¶EHQHILFLDO·XVHV
Beneficial users may include agricultural, cultural, aquaculture, public water
supply, environment, riparian and industry.

3 The National Water Initiative

The NW,LV$XVWUDOLD·VVWUDWHJ\IRUQDWLRQDOZDWHUUHIRUP0RVW6WDWHVDQG
Territories signed the Agreement in 2004. Tasmania signed in 2005 and
Western Australia signed in 2006. The intent of the Agreement is expressed in
Section 5:
The Parties agree to implement this National Water Initiative (NWI) in recognition of
the continuing national imperative to increase the productivity and efficiency of
$XVWUDOLD·VZDWHUXVHWKHQHHGWRVHUYLFHUXUDODQGXUEDQFRPPXQLWLHVDQGWRHQVXUH
the health of river and groundwater systems by establishing clear pathways to return
all systems to environmentally sustainable levels of extraction. The objective of the
Parties in implementing this Agreement is to provide greater certainty for investment
and the environment, and undHUSLQWKHFDSDFLW\RI$XVWUDOLD·VZDWHUPDQDJHPHQW
regimes to deal with change responsively and fairly.30
A description of the content of the NWI is provided in Attachment A.
3.1 Key elements

Under the NWI, governments have agreed to commitments and outcomes for
the following key elements:
water access entitlements and planning framework;
water markets and trading;
best practice water pricing;
water resource accounting;
management of environmental and public benefit outcomes;
urban water reform;
knowledge and capacity building; and
community partnerships and adjustment.
3.2 Key points from the NWI for the MPEPP industries
The NWI provides a policy framework that, if fully implemented, will provide
the framework for sustainable and efficient management and utilisation of
water by MPEPP industries. The timeframe for implementation extends out to
30 Intergovernmental Agreement On A National Water Initiative between the

Commonwealth of Australia and the Governments of New South Wales, Victoria,
Queensland, South Australia, the Australian Capital Territory and the Northern Territory,
2004.
The National Water Initiative 43

2014. Many of the key areas of reform of interest to these industries are to be
addressed in the later stages of the reform program. Policy issues that are
relevant to these industries include pricing and cost recovery, water trading,
security and droughts, integrated groundwater and surface water, and water
resource accounting.
Water access entitlements
A central element of the NWI is the establishment of a nationally consistent

approach to the granting of water access entitlements and to clearly specify the
statutory nature of those entitlements to enhance the security and commercial
certainty of those entitlements.
Under this approach, the consumptive use of water will require a water access
entitlement, separate from land, to be described as a perpetual or open-ended
share of the consumptive pool of a specified water resource, as determined by
a relevant water plan (sections 25 to 32 of the NWI). The NWI contemplates
an ongoing process to move such arrangements to a full entitlement
framework when this becomes appropriate for efficient management (section
33).
Paragraph 34 of the NWI recognises that special circumstances facing the

mining and petroleum sectors may require specific management arrangements
outside the scope of the Agreement. This is in recognition of factors specific to
resource development projects, such as isolation, relatively short project
duration, water quality issues, and obligations to remediate and offset impacts
that may apply in these cases.
Pricing and cost recovery
The NWI aims to move charges for licences and water use to recovery of
capital and operating costs, and resource management costs, associated with
water supply. There will be lower bound and upper bound pricing targets,
which differ according to the extent of cost recovery of capital investment and
resource management costs.
Improving the consistency of charging and cost recovery will encourage more
efficient resource allocation and distribution and redistribution of water access
entitlements. However, the methodology should take account of significant
investment in water supply infrastructure that may have been undertaken by
the water user itself.

Water trading
The introduction of efficient water trading mechanisms is expected to be a

benefit to these industries, particularly in over-allocated catchments, as this
may be the only way that water is available to future projects. Trading
mechanisms that recognise the different levels of security inherent in licence
arrangements will also be important.
Concerns in the implementation of trading arrangements include: the impact of

exit charges and taxes on water traded out of catchments; the need to develop
trading systems and products; progressing arrangements for trading in
groundwater; and interventions that might constrain the ability of the MPEPP
industries to purchase water or sell treated effluent.
Security and droughts
While the NWI acknowledges the importance of managing supply variability,

particularly for drought years, security of supply is a critical issue for the
MPEPP industries. Regardless of whether catchments are over-allocated or
not, the availability of high security water may be limited in times of drought.
The current drought underscores the value of high security water entitlements
and allocations to the MPEPP industries. The NWI offers the prospect of new
products and services in water markets that have the potential to improve risk
management by water market participants. This may be of benefit to the
MPEPP industries, particularly the electricity industry.
Integrated groundwater and surface water
Integrating the management of groundwater and surface water and recognising

the extent of connectivity between these water sources in the overall water
supply balance is an important objective of the NWI. It has particular
relevance for the objective of improved water reporting and accounting. As
discussed later in the case studies, increasing concern over groundwater
extractions and the integration of groundwater and surface water management,
may impact on MPEPP industries. This is particularly relevant to mining
operations where substantial mine dewatering is occurring or where
groundwater is the main water supply for processing.
Water resource accounting
Improving water resource accounting is an important goal of the NWI, which

will underpin sustainable water resource management and be critical to an
efficiently functioning water market.

From the perspective of the MPEPP industries, improved accounting of

groundwater use, recording of discharge water and return flows in a manner
consistent with the treatment of surface water, will be important. The use of
multiple sources by MPEPP industries requires consistent accounting and
pricing methodologies for efficient investment and sourcing decisions.
3.3 Current state of implementation of the NWI
3.3.1 Report to Council of Australian Governments ² July 2006
The latest report on implementation of the NWI was to the meeting of COAG
in July 2006. The key points of progress noted by COAG included the
following:
interim arrangements are being finalised for greater permanent trading
between the three southern Murray-Darling Basin States;
± a comprehensive system for permanent trade in water entitlements
between these States is expected to be in place by 1 July 2007;
the NWC will be reviewing progress on water trading as at 1 January 2007;
and
COAG reaffirmed its commitment to maintaining a longer term strategic
view of securing AusWUDOLD·VZDWHUVXSSOLHVUHFRJQLVLQJWKHLPSDFWRI
drought and the need to secure urban water supplies.
In addition, COAG agreed that resources and efforts should be prioritised to

deliver six fundamental reform elements in the NWI:
conversion of existing water rights into secure and tradable water access
entitlements;
completion of water plans that are consistent with the NWI, through
transparent processes and using best available science;
implementation of these plans to achieve sustainable levels of surface and
ground water extraction in practice;
establishment of open and low cost water trading arrangements;
improvement of water pricing to support the wider water reform agenda;
and
implementation of national water accounting and measurement standards,
and adequate systems for measuring, metering, monitoring and reporting
on water resources.

3.3.2 Status of implementation
The status of implementation as at November 2006, in areas of specific interest

to the MPEPP industries, is summarised in Table 8. A full list of action items
under the NWI is provided at Attachment A.
Water implementation plans for all jurisdictions have been completed and all
jurisdictions have separated water access entitlements from land. However,
implementation of trading arrangements is still subject to completion of water
management plans or WSPs in some catchments. In addition, the removal of
barriers to trade is still in progress. The deadline for full implementation of
water markets is 2014.
Improvements in the measurement and accounting of surface and groundwater

are to be completed by the end of 2008.
Areas of particular interest for MPEPP industries, such as full implementation

of water trading markets and integration of groundwater into measurement and
accounting frameworks, tend to be later in the work program. As shown later
in this report, in the case studies, the MPEPP industries have an interest in
ensuring that these items are progressed as quickly as possible.

Table 8 Selected actions in implementing the NWI

Key Action Completion Date Responsibility As at November 2006
Jurisdictions to End 2004 States Implementation plans in
develop place for all jurisdictions
implementation apart from Western
plans Australia
Water Access Implementation of 2005-2006 States Completed
Entitlements framework
Water access entitlements Immediate States Definitions completed.
to be defined and Entitlements for surface
implemented water and groundwater
not consistent.
Water plans 2007-2009 States In progress
Implementation measures 2011 States In progress
to address water
interception by land use
change activity
Adoption of publicly 2006 States Not completed (in
accessible, compatible progress)
systems for registering
water access entitlements
Water markets and Establish compatible 2007 -2014 States Work in progress.
trading institutional and regulatory Inconsistencies exist
arrangements that between surface and
facilitate trade groundwater and
between water and
petroleum and mining
legislation.
Southern MDB parties Relevant parties
agree to: (Commonwealth, NSW,
Vic and SA)
Enable exchange rates 2005 In progress
or tagging for interstate
trade
Reduce barriers to 2005 Completed (Achieved in
trade in Southern MDB 2006)
and establish an
interim limit of
permanent trade out of
irrigation districts of
four per cent/annum
Study mechanisms Completed (Key study
necessary to enable June 2005
completed in June
interstate trade 2006. Principles
endorsed in November
2006)
NWC to monitor impacts Ongoing

on trade NWC Ongoing
Review impact on trade
End 2009
under interim threshold Relevant parties In progress
Best practice water Complete commitments to End 2004 States Completed
pricing and bring into effect pricing
institutional policies for water storage
arrangements and delivery systems in
rural and urban systems

Key Action Completion Date Responsibility As at November 2006

Metropolitan
Movement to upper End 2008 In progress
bound pricing
Policies for pricing of End 2006 Not completed (in
recycled water progress)
Review pricing policies Not completed (in
for trade wastes End 2006
progress)
Develop guidelines for Not completed (in
water accounts End 2006 progress
Rural and regional States

Full cost recovery for Ongoing Achieved in all
all rural surface and jurisdictions
groundwater systems
Continued
improvement to lower
bound pricing Achieved
Achievement of upper
bound pricing where In progress
practicable
Water resource Consolidated water All parties
accounting accounts
Develop and End 2006 Not completed (in
implement robust water progress)
accounting
Identify situations End 2005
where close interaction Not completed (in
between surface and progress)
groundwater exist
Implement systems to
integrate the End 2008
In progress
accounting of surface
and groundwater
Metering and measuring All parties
actions
Develop actions Mid 2005 Not completed (in
progress)
Implement actions Mid 2005 Not completed (in
progress)
National guidelines on All parties
water reporting Mid 2005 Completed
Develop guidelines
Apply guidelines End 2007 In progress
Data source: COAG and ACIL Tasman

4 Case studies
4.1 The current water situation for the industries
This section provides an investigation into the use of water, the current rules
governing this use, and any associated issues for the MPEPP industries. This
has been achieved by analysing five case studies ² the list of case studies
selected is shown in Table 9. The list was agreed between ACIL Tasman,
DITR and the Steering Committee and covers the MPEPP industries,
including two minerals industry case studies:
the Newcrest Cadia Valley operation is currently the largest gold and
copper producer in NSW;
1RUVNH6NRJ·V$OEXU\SXOSDQGSDSHUPLOOLVFXUUHQWO\ the largest newsprint
mill in Australia;
/R\<DQJ$FXUUHQWO\SURGXFHVDERXWDWKLUGRI9LFWRULD·VSRZHU
requirements;
the Surat/Bowen Basin is one of Australia's largest gas producers,
supplying gas to all mainland Australian States and Territories, ethane to
Sydney, and oil and liquids to domestic and international customers; and
the QNI Yabulu refinery, owned by BHP Billiton, is a major nickel and
cobalt refinery, producing 32,000 tonnes of nickel and 2,000 tonnes of
cobalt a year.
Table 9 Case studies analysed for current market assessment

Project Description Output Catchment/ water
management area
location
Newcrest Cadia Valley Low grade Cadia Hill open 690,000 ounces of Belubula (NSW) ±
mine operations pit gold mine and higher gold and 72,000 surface water and
(NSW) grade Ridgeway tonnes of copper minor
underground gold mine groundwater
Norske Skog Albury Integrated thermo- 265,000 tonnes of Murray River
Paper Mill (NSW) mechanical pulp and paper newsprint/annum (NSW) ± surface
mill at Albury water
Loy Yang 'A' power Brown coal-fired power 2,160 MW nameplate Latrobe Basin
Station (Loy Yang plant and associated coal capacity (Victoria) ±
Power) (Victoria) mine in the Latrobe Valley surface water and
groundwater
Coal Seam Gas CSG operations in the Approximately 23 PJ Fitzroy Basin
(Queensland) Surat Basin of sales gas (Queensland)
Yabulu nickel and Nickel and cobalt refinery 32,000 tonnes of Black River
cobalt smelter (BHP near Townsville nickel and 2,000 (Queensland) ±
Billiton) (Queensland) tonnes of cobalt groundwater and
surface water
Data source: Norske Skog, Loy Yang Power, Newcrest, BHP Billiton, APPEA
Case studies 50
Although introduced briefly in Section 2, the water access arrangements for

each case study will be explored in more detail here. A summary of the issues
raised in the case study analysis is presented at the end of the section.
4.2 Cadia Valley Operations

The Newcrest Cadia Valley operation (Cadia), located near Orange in the New
South Wales Central Tablelands, is the largest gold and copper producer in the
State and one of Australia's largest gold producers. The operation comprises
the low grade Cadia Hill open pit mine, the higher grade Ridgeway
underground mine and a shared ore treatment facility.
Cadia commenced production in August 1998 and it is expected to continue

until 2013.
Figure 8 Cadia Valley operations location (left) and historical gold

production (right)
Data source: Newcrest Mining Limited
Ore from Cadia is processed through a plant comprising a crushing, grinding

and flotation circuit to produce a gold-rich copper concentrate. A majority of
gold is recovered within the concentrate. Gold is also recovered from a gravity
circuit and smelted on site to produce gold bars. Cadia produces 690,000
ounces of gold and 72,000 tonnes of copper each year.
Cadia is located on an unregulated31 part of the Belubula River in the Lachlan

River catchment (see Figure 9). The Belubula River is a tributary of the Lachlan
River, which is part of the Murray-Darling Basin. However, the part of the
Belubula River from which Cadia extracts water is not covered by the Lachlan
WSP. As such, any water reforms introduced as part of the water planning
31 According to NSW State of the Environment 2000, regulated rivers are those rivers proclaimed under the Water
Act 1912 as having their flows controlled by the major Government rural dams; 'regulation' means that the flows
along the length of the river are controlled or regulated by releases made from major dams to meet the needs of
licensed water users up to hundreds of kilometres downstream.
Case studies 51
process in the Lachlan catchment do not apply to the Belubula River (see
Section 2).
Figure 9 Lachlan River catchment
Data Source: Building a more secure future for the Lachlan, Lachlan River Management Committee, April 1988
The Belubula River has been severely affected by drought. Currently, general
security licence holders are unable to access any of their entitlement, while high
security licence holders are only able to access 50 per cent of their entitlement.
Since Cadia commenced operation, water has been a key development issue
and continues to be one of the great uncertainties for future development. It is
important to note that the project was only able to commence due to work by
NSW DNR in re-directing licences from the Lachlan River to the Belubula
River. By necessity, Cadia has employed innovative methods to access water
from numerous sources and has set in place significant water recycling
processes. To supply this water, a wide range of infrastructure has been
constructed, most of which is owned by Cadia. The water issues confronting
Cadia currently, and into the future, pertain to accessing additional water for
prospective mine developments.
As mentioned above, a WSP has been developed for the Lachlan River.
However it does not include either the regulated or unregulated parts of the
Belubula River. The legislation and administrative arrangements for water
management on the Belubula River have therefore lagged behind and are
causing delays in this process.
Case studies 52
4.2.1 Water use and sources
The main use for water at Cadia is for minerals processing. Other water uses
include:
dust suppression;
water for Ridgeway underground mine; and
environmental flow releases from a dam purpose-built to supply water to
the mines (Cadiangullong Dam).
Water is supplied to Cadia from the following sources:

water pumped via pipeline from the Belubula River (this water is both high
security and general security licenced water) to a water storage dam (Rodds
Creek Dam);
water sourced from Cadiangullong Dam, a purpose built water storage
facility constructed in 1996 to supply water to Cadia;
effluent water received from Orange City, which is delivered via a buried
pipeline. This scheme results in a considerable reduction in the amount of
pollutants being discharged to the local watercourse from Orange City;
water recovered from concentrate (concentrate is pumped to Blayney from
Cadia, where it is dewatered before being loaded into containers for railing
to Port Kembla. This water is returned to Cadia along with effluent water
sourced from the towns of Blayney and Milthorpe). The water sourced
from Blayney is transported to Cadia via a buried pipeline;
runoff water from incidental rainfall on site, which is captured in site
runoff dams and water collection ponds;
groundwater seepage into the Cadia Hill pit and Ridgeway underground
mine workings;
water is recycled from tailings storage facilities back into minerals
processing (approximately 80 per cent of water discharged into tailage
storage facilities is recycled); and
a weir constructed by Newcrest on Flyers Creek (access to this water is
only possible under certain flow conditions).
The quantities associated with these sources are shown in Figure 10.
Case studies 53
Figure 10 Cadia Valley operations annualised water balance
Data source: Minerals Council of Australia, Ministerial Council on Mineral and Petroleum Resources
Cadia owns the entire water supply infrastructure for the mines, with the
exception of the Orange-Cadia pipeline. The Orange effluent water system was
funded by Cadia but ownership is vested in the Orange City Council. Part of
the arrangement is that Cadia pays Orange City Council to maintain the
system. A $1 million payment was made to Orange City Council to secure the
supply of effluent water over the life of the mine. Orange also saves between
$50-100,000/year in EPA load based licence fees because their effluent is not
discharged into the rivers.
The NWI promotes best practice water pricing policies and encourages the re-
use and recycling of waste water where cost effective. Trading principles and
mechanisms should extend further than re-use in the urban environment. They
Case studies 54
should include purchase and/or sale of effluent at various levels of treatment

by users, including the MPEPP industries.
Cadia owns the Cadiangullong Dam, located on the mine site, but at the end of
life of the mine the ownership of the dam reverts to the local government.
4.2.2 Water supply/access arrangements
Water from the Belubula River is accessed via a high security and a general
security licence with the NSW DNR that in total amounts to 1,259 ML/annum
of licenced entitlement. This licenced water can only be accessed when certain
flow conditions are met in the Belubula River. For example, because of
reduced flows in the river over the last few years, associated with drought,
Cadia can only divert 50 per cent of the high security licence entitlement and is
unable to access the general security licenced water32. The annual volumetric
allocations of water, based on river flow conditions, are determined by State
Water and the relevant legislation is the NSW Water Act 1912.
As discussed earlier in Section 2, the assignment of new licences is

administered by DNR, whereas trade in existing licences is administered by
State Water.
The water entitlements on the Belubula River are tradeable. However, with the
current water restrictions as a result of the drought, only high security
entitlements are available for trade (general security entitlements are currently
voided).
Temporary transfers may be made by the licence holders and/or a water

broker. State Water makes a determination on temporary transfer applications
and, if approved, the transfer is registered. Unlike permanent transfers, which
deal with water entitlements or shares, a temporary transfer deals with physical
quantities of water. Temporary trades are now referred to as allocation
assignments and are provided for in the Water Management Act 2000.
The water from Cadiangullong Dam and Flyers Creek is accessed by an access
entitlement administered by DNR. The amount of water available from
individual sources each year is determined by water flow conditions. Water
must be released from Cadiangullong Dam for environmental flows on an
annual basis.
The recycled water from Orange and Blayney is administered by the associated
city councils, but no recurrent charge is levied for its use (the Cadia operators
made an up front payment for this resource).
32 http://www.dlwc.nsw.gov.au/mediarelnr/cw20060804_3404.html, August 2006.
Case studies 55
Water charges
Licensed water has a fixed charge component and a usage fee. These charges
are set by an IPART pricing determination. For the Belubula River, where
Cadia is located, the charges are $5.82/ML/annum of entitlement (fixed) for
high security entitlement, and $5.28/ML/annum of entitlement (fixed) for
general security entitlement. The variable usage charge is $1.43/ML of water
used.
4.2.3 Water management issues
Newcrest is evaluating a new project called Cadia East, which consists of a new
open pit and underground mine. Water supply reliability has been identified as
DNH\LVVXHIRUWKHSURMHFW·VGHYHORSPHQW&DGLDLVLQYHVWLJDWLQJDQXPEHURI
options for accessing additional water supplies. These include the upgrade of
Lake Rowlands Dam, which would more than double its current capacity.
Uncertainties exist over whether regulation allows the dam to be used for
industrial purposes and also whether the upgrade constitutes a new dam, which
would be considered in the context of the NSW Government State Weirs
Policy. That policy discourages the construction of new weirs, or enlargement
of existing weirs. If this source of water were available, Newcrest would retire
SDUWRIWKHULYHUOLFHQFHEHFDXVHRIWKHODWWHU·VORZOHYHORIUHOLDELOLW\
Cadia will not be able to proceed with the new development unless additional
water supplies are secured.
The Orange City Council is now supplying new residential projects in North
and West Orange with recycled effluent water as part of a dual reticulation
system. Negotiations between Orange City Council and the Cadia mine for
future supplies of effluent water are still ongoing, but it is likely that there will
be some competition for access to recycled water. This emphasises the need
for best practice pricing policies for trade in treated effluent from urban areas,
so that efficient price signals guide investment and trading decisions by market
participants.
The operators of the Cadia mine report that the water trading and allocation
arrangements generally work well. A list of licence holders is available from
DNR and licence holders can be directly approached with offers to purchase
their entitlements. There is also a reasonable ongoing interest from licence
holders to sell entitlements or allocations to the mine. However, the operators
have experienced problems in accessing further entitlements due to regulatory
provisions allowing appeal by other licence holders in the catchment, that
disrupt the operation of the water market.
Case studies 56
In early 2005, Cadia approached several landholders regarding purchase of

their water entitlements. Deposits were paid and the necessary paperwork for
the permanent transfer of water rights was submitted to DNR in March 2005.
These transfers were advertised and one objection was received. Under the
Water Act 1912 an objection must be heard by a local Land Board. In
September 2006, over 18 months later, Cadia received advice that the transfers
had been granted for April 2007 provided no further objections are received.
The main concern with the existing process is the delays in considering
objections. The Belubula River is not covered by the Lachlan River WSP and
the older NSW Water Act 1912 applies. Advice from the DNR is that had the
WSP been in place for the Belubula River, the provisions of the Water Resources
Act 2000 would have applied and the delays from appeals would not have
occurred.
4.2.4 Policy issues
The Cadia case study raises a number of important policy issues relevant to the
implementation of the NWI.
It identifies the need to progress the application of WSPs to all water sources.
The application of older legislation to the Belubula River acted as an obstacle
to efficient water markets.
It illustrates the importance of best practice pricing to multiple sources of

supply in the minerals industry. Best practice pricing policies will facilitate
efficient investment and trading decisions by all market participants.
Recycled discharge water and waste-water are important sources of water for
mining and mineral processing. Trading principles under the NWI should
extend to trade in discharge and waste-water from all sources.
Uncertainty over the rights to additional storage from augmentation of the

Lake Rowlands reservoir, has delayed decision making at Cadia. Policies for
water sharing arrangements for augmentation of water storages should be
clarified and consistent with NWI principles.
4.3 Norske Skog Albury

Norske Skog operates an integrated pulp and paper mill at Albury, New South
Wales, which was established in 1981. The project is located on the Murray
River.
The facility currently manufactures approximately 265,000 tonnes of newsprint

annually using thermo-mechanical and recycled fibre pulping processes. This
Case studies 57
represents around 35 per cent of Australia's newsprint requirements. Virgin

fibre for pulp is sourced from plantation grown radiata pine pulp logs, or from
sawmill residues in the local region. Recycled fibre is sourced from capital cities
and regional areas throughout Australia.
Norske Skog is Australia's only domestic manufacturer of newsprint and also

operates a newsprint mill at Boyer, near Hobart, Tasmania. A feasibility study
is underway for an expansion of the Albury mill that would double capacity by
2012.
One of the major issues associated with the expansion is the availability of
water to support the expanded output. The project is already an efficient user
of water and employs water recycling. A recent mill upgrade, that increased
annual output by 55,000 tonnes to 265,000 tonnes, was completed without
further water consumption. This was achieved by technological improvements
to increase water use efficiency.
Annual net water consumption (net of cooling water returned directly to the
Murray River) is approximately 3,500 ML. Effluent is treated and disposed of
by irrigation of nearby land.
Water is used DW1RUVNH6NRJ·V$OEXU\0LOOIRUWKHIROORZLQJSXUSRVHV

pulp and paper making;
cooling;
steam generation; and
potable water for staff and amenities.
Water is extracted directly from the Murray River at Albury via a purpose built
pipeline. A second pipeline transports used cooling water back to the Murray
River. The pipelines are owned and maintained by Albury City Council. An
agreement between the Council and Norske Skog governs the access to these
pipelines
The Norske Skog pulp and paper mill owns a high security surface water access
entitlement, issued by the NSW DNR. In line with the NWI, a WSP has been
established for the Murray catchment and a water market exists in the lower
Murray-Darling catchment. There is currently an embargo on groundwater
extraction in the Murray catchment.
Case studies 58
Norske Skog can purchase a surface water licence by contacting a licence

holder, through a register of licence holders maintained by DNR. Once the
terms are agreed with the seller, the trade is executed by submitting a
completed application form to State Water.
The Norske Skog pulp and paper mill is located in the Murray River
catchment, probably the most developed catchment for water management
planning and water trading. A water market exists and participants can make
temporary and permanent water entitlement trades. The key issues raised by
Norske Skog relate to market constraints, in terms of tightness in the market
for water licences, not regulatory constraints.
Norske Skog reports that there is low liquidity in the market for high security
entitlements and trades rarely take place. Currently, high security licences are
trading for small volume entitlements such as 20-50 ML/annum. As a relatively
large water user, Norske Skog could be seeking to purchase entitlements to the
order of 1,000-2,000 ML/annum.
Other options being explored are to purchase general security access

entitlements or temporary allocations to supplement supplies. General security
water can be a useful risk management hedge within a portfolio of water
supply arrangements. It would be possible to achieve a high level of reliability
through acquisition of general security water in excess of normal requirements,
providing room to absorb reductions in allocation in times of drought. Surplus
water could then be traded temporarily.
However, to be effective this strategy requires an efficient market so that water

can be traded in and out of the operation in response to availability of alternate
supplies.
The persistence of constraints in trading markets for water would impede the
ability of organisations such as Norske Skog to manage risk in this way. The
mitigating strategies would therefore be considerably more risky at the present
time.
4.3.4 Policy issues
The thinness of the water trading market in the lower Murray-Darling Basin,
particularly for high security entitlements, is a concern. The factors that create
this situation have not been explored in detail in this report. However, the thin
market may be explained in a report by the Productivity Commission which
noted:
Case studies 59
´:DWHUWUDGHLVH[WHQVLYHLQPDQ\UHJLRQVLQUXUDO$XVWUDOLDDQGLVDOUHDG\IDFLOLWDWLQJ
the continual movement of water to its most highly valued uses. While regulatory and
administrative constraints on water trade are being reduced, some constraints remain
WKDWLPSHGHHFRQRPLFHIILFLHQF\µ33
Many of the examples of constraints identified in this report were drawn from
the lower Murray-Darling Basin. These included:
restrictions on who can participate in water markets;
regulatory restrictions on trade in seasonal allocations and water
entitlements for both surface and groundwater;
limits on trade in entitlements out of a district, through application of exit
fees; and
fees associated with trading seasonal allocations and water entitlements,
processes and timelines for approving water trades.
It is not unreasonable to conclude that the continued existence of these

constraints is a contributing factor to the thinness of the market that Norske
Skog encountered.
The general timetable for achievement of full and open trade is set out in
Section 60 of the NWI, which includes the following:
´«LPPHGLDWHUHPRYDORIEDUULHUVWRSHUPDQHQWWUDGHRXWRIZDWHULUULJDWLRQDUHDVXS
to an annual threshold limit of four percent of the total water entitlement of that area,
VXEMHFWWRDUHYLHZE\ZLWKDPRYHWRIXOODQGRSHQWUDGHE\DWWKHODWHVWµ
Progress has been slower than envisaged but at a summit on the Lower
Murray-Darling Basin held on 7 November 2006, the Commonwealth and the
Governments of NSW, Victoria and Queensland agreed to:
´Accelerate the implementation of key aspects of the NWI, especially on water
trading, overallocation, water accounting and data sharing. Ensure that permanent
interstate trading will commence in the southern MDB States by 1 January 2007 as
recommended by the National Water Commission. New South Wales, Victoria, South
Australia and Queensland also agreed in substance to accept the advice from the
Australian Competition aQG&RQVXPHU&RPPLVVLRQRQH[LWIHHVµ
The timely implementation of reforms to reduce barriers to trade will be

critical for the MPEPP industries.
A related issue is the importance of best practice trade and pricing policies for
discharge water and re-use water. Water use efficiency and re-use results in
lower net extraction from the consumptive pool. It is important that incentives
33 Productivity Commission, Rural Water Use and the Environment, the Role of Market Mechanisms,
page 67, Melbourne, 11 August 2006.
Case studies 60
to do so are based on best practice prices for both purchase and sale of water
in the market.
Recommendations of the Productivity Commission on the removal of

constraints on trade in water are highly relevant to MPEPP industries. These
include:
unbundling water entitlements from water-use approvals should be
completed by those jurisdictions that have not done so, as a matter of
priority. There may be further opportunities to simplify the specification
and reduce the number of types of water entitlements;
restrictions on who can participate in water trade should be relaxed or
removed to improve the economically efficient use of rural water;
each jurisdiction should conduct a public review of remaining restrictions
on trade in seasonal allocations. Those that do not generate net public
benefits should be removed. Timetables for review should be transparent,
and progress and findings publicly reported;
exit fees on sales of water out of an irrigation district constrain trade in
entitlements and impede adjustment. They should be phased out;
water utilities in the southern Murray²Darling Basin should decouple exit
fees from entitlements in the medium term. Infrastructure charges should
EHOHYLHGRQWKHZDWHUXVHUV·OLFHQFHVRUGHOLYHU\FDSDFLW\VKDUHVDQG
approval processes and associated costs involved in trading water
entitlements should be benchmarked to best practice. Performance reviews
should be conducted periodically by the National Water Commission.
In a report on treatment of exit fees in November 2006, the ACCC

recommended:
water access entitlements and delivery entitlements should be unbundled;
the owner of a delivery entitlement should have the right to be able to
terminate all, or some part, of that entitlement, subject to the payment of
any termination fee. The process for such action should be clearly
specified;
fees should be rationalised
± annual access fees covering fixed costs associated with delivery should
be levied on delivery entitlements;
± costs associated with bulk water should be levied on the water access
entitlement; and
± variable delivery operating costs should be levied on the volume of
water delivered.
The ACCC argues that its proposals will enable water users to:
Case studies 61
sell excess water without incurring an exit fee;

adopt different water sourcing options, such as leasing or buying seasonal
allocations; and
make decisions about their holdings of water entitlements and holdings of
delivery entitlements independently, based on information relevant to each
asset available at the time.
These are highly desirable attributes of a general trading system and would
contribute to a more efficient market within which MPEPP industries such as
Norske Skog could operate. The ACCC has proposed a transition process for
implementation over nine years.
4.4 Loy Yang A

Loy Yang Power (LYP) operates the 2,160 MW capacity Loy Yang A power
plant and an adjacent brown coal mine, near the town of Traralgon, Victoria.
Approximately 60,000 tonnes of coal per day is supplied to Loy Yang A from
the Loy Yang mine. This case study primarily outlines the use of water within
the Loy Yang A Power station, and it should be noted that the associated coal
mine has a different water use profile.
Loy Yang A power station is located within the Latrobe Basin in Victoria. The
Latrobe Basin includes part of the Denison Water Supply Protection Area
(WSPA) and the Sale WSPA. Groundwater Management Areas (GMAs) in the
Latrobe Basin include all of the Moe GMA and part of the Rosedale and
Stratford GMAs.
Figure 11 shows a map of the Latrobe Basin and its constituent water
resources and management boundaries.
Case studies 62
Figure 11 Map of the Latrobe Basin
Data source: State water accounts 2004/05
www.dpi.vic.gov.au/CA256F310024B628/0/4A1AC3973E2BC3B5CA257155007FB88A/$File/swr_0405_part2_latrobe.pdf
A complex network of infrastructure supplies water to Loy Yang A from

multiple sources. The high quality water for generating steam is pumped from
Moondarah Reservoir, via pipeline and two intermediate storage reservoirs,
before being gravity fed to the LYP treatment plants. This is supplied under a
long term contract with Gippsland Water.
Low quality water is released into the Latrobe River from Blue Rock Dam.
From there it is pumped 25 km via pipeline to a storage reservoir and is then
gravity fed into the Loy Yang A low quality water system. Gippsland Water
owns the high quality water supply infrastructure to Loy Yang A treatment
plants. LYP owns the low quality water supply infrastructure. The Blue Rock
Dam was purpose built by the former State Electricity Commission of Victoria
to supply low quality water to LYP and Yallourn Power Station (and potential
future Latrobe Valley power stations) and is owned by Southern Rural Water.
Case studies 63
LYP currently holds a 40 GL/annum bulk entitlement to low quality water

with Southern Rural Water (SRW), for water supplied from Blue Rock Dam.
Groundwater pumped from the Loy Yang mine also supplies water to Loy
Yang A.
LYP has undertaken a program of water use efficiency improvements over the
last decade. Total per unit of output water consumption has been reduced
from 3.6 ML/gigawatt hour (GWh) in 1991 to the current level of
2.1 ML/GWh. Net water consumption, taking account of water discharged, is
somewhat less.
No issues have been raised by LYP about the way water is currently accessed
and allocated in the Latrobe Basin. All the water needs of the power station
and mine are met by the existing infrastructure and access arrangements,
although it should be noted that there are significant differences in the profile
of water use between the power station and the mine.
However, a key issue facing LYP, and other power generators, is the potential
State Government initiative to pipe recycled waste water, from the Melbourne
sewerage system, 120 km to the Latrobe Valley ² the Eastern Water Recycling
Proposal (EWRP). This would involve building a pipeline from the Eastern
Water Treatment Plant to transfer low quality water to the Latrobe Valley, to
substitute for higher quality water currently consumed in power stations and
other uses. The higher quality water would consequently be available to be
pumped to Melbourne to supplement urban supply.
A large amount of water treatment and supply infrastructure would be required

to implement the EWRP, at substantial (financial and energy) cost. This would
include:
450 ML/day pumping stations;
approximately 120 kilometres of 1.8 m diameter pipeline to Latrobe Valley;
multiple chlorination stations;
new infrastructure at all the Latrobe power stations to use recycled water
(dosing plants, storage dams, new cooling systems); and
reverse osmosis plants on discharges.
The substitution of treated effluent for higher quality water in power stations is
also being considered in south east Queensland, as discussed later.
This issue reflects concerns over the availability of water for urban and
metropolitan areas and over treated effluent as a source of urban supply. It is
Case studies 64
possible that funding for such investments will be sought under the Australian
Government Water Fund as part of implementation of the NWI.
The EWRP raises important issues for LYP and the other Latrobe Valley
power stations. Major water supply projects of this nature would require them
to restructure their existing water supply arrangements. It could require power
stations to exchange a tradeable resource for lower quality water with different
reliability characteristics. This would possibly involve additional investment in
plant and equipment to adapt operations. This has implications for the
efficiency and cost of their operations.
4.4.3 Policy issues
Concerns over the longer term supply of water, and issues associated with
recycled water for consumptive uses, are causing governments to examine
investments to re-allocate water between urban and large industrial users such
as the power industry.
For some time to come there are likely to be significant externalities in water
markets, which may provide justification for intervention by governments in
the distribution of water between consumptive uses. However there is also a
risk that inefficiencies in market operations will result in non-optimal
outcomes.
It is important, therefore, that such interventions are made on the basis of best
practice pricing, and that the full opportunity costs of options are incorporated
into economic assessment of such projects. These principles should apply to
any such projects funded by governments (for example through the Australian
Government Water Fund).
There is therefore a corresponding need to limit regulatory and market failure

and, where possible, to move towards improving markets to the point where
constraints and interventions can be progressively minimised.
This is consistent with the principles of the NWI. However, the development
of such markets is still someway off ² as is, possibly, community confidence in
the operation of water markets.
Building confidence in, and an understanding of, the operation of water

markets within a sustainable consumptive pool, should be a high priority for
governments as is community education about the potentially beneficial uses of
recycled water.
Case studies 65
4.5 Coal seam gas case study

7KHPDMRULW\RI$XVWUDOLD·VFRDOVHDPJDV&6*SURGXFWLRQSURMHFWVDUH
located in the Surat and Bowen Basins of Eastern Queensland. There is also
continuing exploration and evaluation activity for other CSG projects in these
basins and other basins in NSW and Queensland. There is some minor activity
in Victoria and Western Australia.
In aggregate, the CSG operations in the Bowen and Surat Basins currently
produce at a rate of some 200 terajoules/day or the equivalent of 72 petajoules
of gas annually. The industry estimates that the existing projects will continue
to produce gas over a 20-40 year horizon.
CSG production involves extracting methane from coal seams by reducing the
pressure within the coal seam cleat system that keeps the methane trapped in
the coal. Usually, but not always, the cleat system contains water, which is
bound to the mineral resource and inaccessible to other users in the absence of
mining activity. In addition, the mineral resource may be associated with an
aquifer, which may be affected during the mining process. Hence the primary
by-product of the process is water. This dewatering process usually results in
the highest volumes of water being produced during the early stages of the
project. The water produced can often contain salt and other substances,
which may make it unsuitable for direct use.
The volumes used, and variable quality, make water an important issue
associated with CSG production. The amount of water that needs to be
pumped off varies within the basins and projects, and also with the life of
individual production wells.
It is not unusual for a typical CSG project to produce 1,000 ² 2,000 ML of

water/year, which will decline with time. There are projects which produce less
than this and others that produce negligible amounts of water, depending upon
the initial state of the coal seam reservoir.
The water that is released is put to numerous uses, some of which are under
investigation for further development:
use by local landowners for stock;
drilling purposes, and in building and maintaining access roads;
agricultural trials, including cropping;
coal washing;
Case studies 66
treated via reverse osmosis units to produce potable water for various end
users in the community;
re-injected back into the ground; and
where of a suitable quality, released locally.
In some cases, legislation prevents mining companies from profiting from the
production of discharge water, and this has been given to local landowners at
no cost. However, the local landowners must organise transport of the water
from the CSG operations.
Water arrangements for CSG in Queensland are governed by the Queensland

Government through the Petroleum and Gas Act 2004.
Table 10 Summary of key points in the Petroleum and Gas Act (Qld, 2004) covering water
Relevant legislation sections Key points from section in relation to protection of water resources
Chapter 2, Part 4 ± Water 7KH$FWµHVWDEOLVKHVDVWDWXWRU\DXWKRULW\RIKROGHUVRIDQDXWKRULW\WRSURVSHFWRUDSHWUROHXP
entitlements for Petroleum Tenure lease (a petroleum tenure holder) to take or interfere with underground water in the area of the
WHQXUH¶
Establishes processes for protection of underground water during the course of authorised
petroleum activity.
8QGHUJURXQGZDWHUWDNHQIURPDSHWUROHXPZHOOLVUHIHUUHGWRDVµDVVRFLDWHGZDWHU¶RUµSURduced
ZDWHU¶$Q\DSSOLFDWLRQRIWKHDVVRFLDWHGRUSURGXFHGZDWHUQRWGLUHFWO\UHODWHGWRSHWUROHXP
activities within the tenure, can only be used or supplied for other purposes under the authority of
a water licence granted under the Water Act
An exception to the above is the application of associated or produced water within tenure to an
owner or occupier of land in the area of the tenure of land, for stock and/or domestic purposes
only.
To carry out water monitoring activities on land outside the area of tenure, a petroleum tenure
holder will require a water monitoring authority, as specified in the Bill.
Establishes link between the Petroleum and Gas Act and Water Act 2000, to ensure activities are
authorised in accordance with the Water Act 2000.
Chapter 2, Part 5 ± Water Establishes processes for tenure holders who may apply for a water monitoring authority and link
monitoring authorities of activities to the Water Act 2000.
Activities must be linked to petroleum tenure.
Chapter 2, Part 9 ± Existing Water 2XWOLQHVWKHREOLJDWLRQVIRUDSHWUROHXPWHQXUHKROGHUWRµPDNHJRRG¶WKHVXSSO\RIZDWHUWR
Act Bores VSHFLILHGDXWKRULVHGZDWHUXVHUVDIIHFWHGE\WKHWHQXUHKROGHU¶VH[HUFLVHRIHQWLWOHPHQWWRWDNHRU
interfere with underground water. Outlines a process of negotiation and, if required, a mechanism
to enable the Land and Resources Tribunal to decide the required measures.
Outlines the process for preparing an underground water impact report. This mandatory report
determines the area and extent of impact resulting from extraction of underground water. It
provides the mechanism for predicting the impact and for identifying existing bores that are
affected.
Outlines the processes for monitoring and review reports. A monitoring report is to be lodged at
the same time as the annual report of the petroleum tenure.
Chapter 2, Part 10 ± General Sets out the standard for drilling of petroleum wells to ensure they are drilled safely and minimise
provisions for petroleum wells, the potential for damage to natural underground reservoirs, or the possibility of adversely affecting
water supply bores and water future coal mining.
observation bores Outlines the process for decommissioning of a well or bore.
Case studies 67
Data source: Parsons Brinkerhoff, Coal seam gas water management study, August 2004
As shown in the table above, the Petroleum and Gas Act 2004 allows a petroleum
tenure holder to take or intercept underground water in the area of the tenure.
Importantly, an obligation exists for the petroleum tenure KROGHUWR¶PDNH
JRRG·WKHVXSSO\RIZDWHUWRDXWKRULVHGZDWHUXVHUVDIIHFWHGE\WKHWHQXUH
KROGHU·VDFWLYLWLHV
A number of issues are raised by the CSG example. While the CSG companies
are investigating means to enable beneficial use of discharge water, it is
apparent that the current legislation hinders this objective. In some cases it is
more onerous than for other suppliers of water. For example, the Petroleum and
Gas Act 2004 limits the return that operators can earn on sale of discharge
water. In addition, water production from CSG operations is around 25
ML/day. While this may increase as more projects are initiated, the quantity is
not large when compared to other water sources.
A second issue is the status of discharge water associated with production of

CSG. In most cases this water will not be connected to ground water aquifers
and will not be considered a use of surface or groundwater. However it may be
an addition to surface or ground water or be a source of re-use. Under the
NWI, integration of surface and groundwater management is a longer term
objective. The status of water supplied to the environment from dewatering
will need to be considered in this process.
4.5.4 Policy issues
This case study also demonstrates the need to review minerals and petroleum
legislation to achieve consistency with the water trading principles of the NWI,
across all sources of water including treated and untreated water produced
from petroleum operations.
The integration of surface and groundwater measurement and management

will have implications for the status of water produced in the course of
petroleum production. This is still some way off in the reform agenda. Until
this is addressed in full, paragraph 34 of the NWI provides a mechanism to
address issues on a case by case basis.
4.6 Yabulu Nickel Refinery

BHP Billiton-owned Queensland Nickel (QNI) operates the Yabulu nickel and
cobalt and nickel processing plant at Townsville (Qld). BHP Billiton Yabulu
Case studies 68
refines a lateritic ore into 32,000 tonnes per annum of nickel as nickel oxide
and 2,000 tonnes per annum of chemical grade cobalt.
The Yabulu Extension Project is an extension of the metal refining section of

the existing refinery. It will process a mixed hydroxide precipitate (MHP) or
partially processed ore from an integrated mine and primary processing facility
currently completing construction at Ravensthorpe, 155 kilometres west of
Esperance, Western Australia.
The expansion will more than double current production at the Yabulu
Refinery and significantly improve water use intensity. The projects received
investment approval in March 2004. The first shipment of MHP to Yabulu is
expected in the first quarter of CY2008 and the first metal in the same quarter
of CY2008.
At Yabulu, about 7,000-8,000 ML/annum of water is sourced for the following

uses:
boiler feed water is used to make up water in the power plant boilers.
Water is also required to replace water lost as steam in processing;
demineralised water is used in various unit operations in the cobalt plant
and gas plant. Demineralised water is desirable due to its low potential to
form scale under high temperatures and pressures and its low level of
product contaminants;
process water is used throughout the refinery for a range of applications;
potable water;
service water; and
fire-fighting water.
Water is supplied to Yabulu from a number of sources:

groundwater is sourced from a network of 23 production wells in the Black
River aquifer to the south of the refinery. The resource can be augmented
by drawing water directly from the Black River surface water source during
periods of surface flow. All water drawn from the aquifer is directed into
the Yabulu raw water reservoir ² this accounts for the majority of the water
supplied to the plant;
water from NQ Water (the municipal water supplier) is sourced under
commercial arrangement. The agreement allows for provision of up to
2,000ML/annum of water to be supplied from the Paluma/Mt Spec system
or from the Ross River Dam/Douglas Treatment Plant;
Case studies 69
recycled water is produced as a by-product of treating wastewater stored in

the tailings storage facility. The water recycling facility uses reverse osmosis
to treat tailings liquids;
cooling water blowdown from the Transfield Power Station is directed to
the Yabulu Refinery under deed of agreement. The 72ML/annum effluent
stream is directed either to the Yabulu raw water reservoir or to the
secondary tailings sump, depending on water quality;
green water (so named because of its colour) is generated by the Yabulu
wastewater ponds and is re-used. Green water can be returned to the plant
at a rate of 3ML/day; and
recycled water which is a combination of tailings liquor and reclaimed
seepage waters stored as supernatant on the tailings ponds.
Infrastructure
The Black River wellfield was established when the refinery originally
commenced operation in the early 1970s. It currently consists of 23 bores from
ZKLFKZDWHULVSXPSHGWRWKHUHILQHU\·VZDWHUVWRUDJHUHVHUYRLUWKURXJKD
network of pipes. The network of bores and pipes is operated and maintained
by BHP Billiton Yabulu staff.
Water supplied from Mt Spec is taken directly from one of two spur pipelines
linked to the municipal pipeline that runs past the refinery, from the Paluma
Dam to the twin cities of Townsville/Thuringowa. This is undertaken within
an annual threshold consumption level specified by NQ Water.
The two refinery bores are minor producers of water and are also operated and
maintained by BHP Billiton Yabulu staff. BHP Billiton owns and maintains the
bores, pipes and associated infrastructure of the refinery bores.
BHP Billiton Yabulu has invested $25 million in a major water recycling facility
as a sustainable long term solution to water management at the refinery. The
custom designed facility treats up to 12.5 ML of water per day from the tailings
ponds and produces recycled water for reuse throughout the refinery
processes. The facility has also allowed a significant reduction in BHP Billiton
<DEXOX·VUHOLDQFHRQRXWVLGHVXSSOLHs and allowed the practice of routine ocean
discharge to cease in December 2001.
The Queensland Nickel Agreement 1970 establishes the right to draw water from
the Black River wellfield for the Yabulu refinery. BHP Billiton Yabulu is
authorised under the Agreement to use up to a maximum annual quantity of
8,638 ML at a maximum rate of 24 ML/day. Predictive groundwater modelling
Case studies 70
indicates that the aquifer has a sustainable yield of 8,900ML/annum, which

includes a demand of 1,400ML/annum from domestic water users. Water
licences under the Water Act 2000 are held for its bores. Access rights are
granted for the bores that are not on BHP Billiton Yabulu land.
No acute issues with the existing water supply arrangements for BHP Billiton
Yabulu have been identified. However, the Queensland Nickel Agreement 1970
specifies a maximum amount of groundwater that can be extracted, without
provision for increases. The water rights associated with this Act are not
tradeable, nor are licences for surface water or groundwater in the catchment
planning area (Upper Burdekin) currently tradeable because the water planning
process has not been completed in this catchment34. This lack of flexibility is
likely to be a constraint on the proposed BHP Billiton Yabulu expansion.
In response to this constraint it is expected that the majority of the additional

water for the expansion (6 ML/day) will be sourced from recycled water from
the BHP Billiton Yabulu water recycling facility, municipal sources or
enhanced recycling/optimisation initiatives. Continuous operation of the
water recycling facility will reduce the demand for water from the Black River
wellfield.
A serious issue for the BHP Billiton Yabulu refinery is the ongoing concern in
the community over the extractions from the Black River Wellfield by all users.
In 1989, an optional addition to the groundwater entitlement held by BHP
Billiton Yabulu of 2,692 ML/annum was removed after a Supreme Court
action, leaving the current legal entitlement at 8,638 ML/annum. The State
Government sought to reduce the entitlement further to 6,600 ML/annum but
this was found to be in breach of the Queensland Nickel Act.
More recently, BHP Billiton Yabulu has explored sourcing its water from
recycled effluent from Townsville/Thuringowa. The proposal has received
support from the State Government, local councils and in principle support
from BHP Billiton Yabulu itself. It is likely that the groundwater freed up by
this process will be used for irrigation purposes.
4.6.4 Policy issues
This case shows how water for mining industry projects can be sourced from a
mix of supplies with quality differentials between them. Efficient water
34 http://www.nrw.qld.gov.au/wrp/burdekin.html.
Case studies 71
markets that apply to all sources of supply will be essential if economically

efficient outcomes are to be realised by project operators.
Development of efficient water markets should be progressed as a high

priority. Best practice pricing should apply in all cases.
As with the Cadia case, this example demonstrates that relevant mining
legislation may not always be consistent with NWI policies and principles.
Case studies 72
5 Future water requirements from

industry
This section provides an overview of the future water requirements of the
MPEPP industries, including the likely size, timing and location of the
projected demand for water from new projects. The projected water demand is
based upon assumptions about future anticipated projects and estimates of
likely water needs of these future projects. The information has been collated
into a geographic information system (GIS), database and map. The aim is to
compare the annual water demands of these new projects with the estimated
water available in the project locations. From this, a number of important
catchment locations are identified, which are examined in Section 6.
5.1 Proposed developments

A summary of the likely or scheduled projects likely or scheduled in the
MPEPP industries over the period 2006-2015 is shown in Table 11. The
majority of potential new projects are new mines, particularly black coal mines
(61). The realisation of these projects depends on volatile market conditions.
In some cases, such as in the pulp and paper and coal mining industries,
competing projects may be mutually exclusive.
The listing of projects, however, provides a basis for assessing the level and
location of potential new water demand.
Table 11 Summary of future projects (new projects and existing project

expansions) in the MPEPP industries over the period 2006-2015
Category/State NSW VIC QLD WA NT Tas SA Total
Electricity gas-fired
CCGT 5 3 0 0 0 0 0 8
Electricity gas
peaking 3 4 4 0 0 0 8 19
Electricity coal-fired 2 1 2 0 0 0 0 5
Pulp/paper mill 2 3 1 1 0 1 1 9
Iron ore mine 0 0 0 17 0 0 1 18
Nickel mine 0 0 2 13 0 1 0 16
Other commodities
mining 1 0 3 11 1 0 2 18
Gold mine 6 1 2 15 0 0 1 25
Mineral sands mine 3 5 1 6 0 0 2 17
Black coal mine 23 0 38 0 0 0 0 61
Aluminium smelter 3 0 1 0 0 0 0 4
Nickel refinery 0 0 2 1 0 0 0 3
Future water requirements from industry 73

Category/State NSW VIC QLD WA NT Tas SA Total

Iron and steel 4 0 1 0 0 0 0 5
Alumina refinery 0 0 3 2 1 0 0 6
Petroleum 1 2 2 7 1 0 0 13
Base metals mine 3 0 2 4 2 1 2 14
Copper
mining/processing 0 0 0 0 0 0 0 0
Tin mine 0 0 0 0 0 1 0 1
Titanium
processing plant 0 1 0 2 0 0 0 3
Rare earths mine 0 0 0 2 0 0 0 2
Copper smelter 0 0 3 0 0 0 0 3
Magnesium smelter 0 1 0 0 0 1 0 2
Total 56 21 67 81 5 5 17 252
Data source: ABARE major development projects ² April 2006 listing, A3P, ACIL Tasman
The anticipated projects tend to be concentrated in Queensland, Western

Australia and New South Wales ² the traditional mining States. Over 20
projects are also anticipated in Victoria, mainly power stations, pulp and paper
projects and mineral sands mines.
5.2 Water demand for anticipated projects
5.2.1 Water requirements for mining projects
Water requirements of minerals projects vary greatly according to the type of

project (be it a mine, a refinery or a smelter), the processes employed in
mining, refining and smelting, and the extent to which water recycling and re-
use is employed in the project. Research by ACIL Tasman into reports that
comprehensively documented relative water consumption between mining
projects revealed a paucity of information, with the exception of some recent
work completed by CSIRO35.
ACIL Tasman also consulted company annual reports and

environment/sustainability reports that contained water consumption for
specific projects, then compared this data with the estimates from CSIRO. The
information gathered from company reports is shown in Table 12. Note that
these figures only show extractive use and do not account for recycled or re-
used water (i.e. water extraction refers only to water extracted from the
environment). Water use information was also derived from the case study
analysis in Section 4.
35 CSIRO, Water use in Metal Production ² a life cycle perspective, September 2004.

Table 12 Estimates of water extractions by minerals projects

Company Description Operation Production (tonnes) Water extraction (net Unit water
of recycled water) consumption
ML (kL/tonne)
BHP Billton Alumina refinery Worsley 3,270,930 10,050 3.07
BHP Billton Base metals mine Cannington 378,841 1,750 4.62
BHP Billton Coking coal mining Queensland Coal 56,447,000 11,980 0.21
BHP Billton Coking coal mining Illawarra Coal 6,251,000 660 0.11
BHP Billton Minerals processing Yabulu refinery 32,000 6,810 212.81
BHP Billton Thermal coal mining Mt Arthur 9,865,000 460 0.05
BHP Billton Iron ore mine Various 113,817,647 17,080 0.15
Alcoa Bauxite mining Huntly and 28,951,000 911 0.03
Willowdale mines
Alcoa Alumina refining Wagerup 7,830,000 24,125 3.08
Alcoa Aluminium smelting Portland 546,000 764 1.40
Alcoa Alcoa ARP (cold rolled Point Henry and 181,000 365 2.02
aluminium) Yennora
Iluka Mineral sands mine and Douglas 100,000 n/a 2.00
processing (est)
Xstrata Alloys Various 1,135,783 8,045 7.08
Xstrata Coal mining Various 61,800,000 23,338 0.38
Xstrata Copper mining Various 493,809 32,300 65.41
Xstrata Base metals mining Various 1,406,391 11,580 8.23
Comalco Bauxite mining Weipa n/a n/a 1.21
WMC/BHP Billiton Nickel smelter Kalgoorlie Nickel 91,919 511 5.56
Smelter
Data source: Company annual reports/environment reports
CSIRO has undertaken research into the water consumption of mineral

processing operations. The results of the analysis are shown in Table 13 below.
The figures represent extractive use and do not take into account recycling or
re-use. However, as shown in the Cadia and Yabulu case studies in Section 4,
the majority of water extracted is re-used multiple times, thereby limiting the
amount of future water extractions. These figures are also averages and would
be expected to vary somewhat with location. For example, losses from
evaporation in north central Queensland may necessitate a higher per unit
water consumption than in Victoria.

Table 13 Unit water consumption measures for mining and minerals processing
Metal Process Stage Water Unit
consumption
Copper Smelting/converting & electro-refining Mine & concentrator 0.37 m3/t ore
Smelting 7.8 m3/t Cu
Refining 0.6 m3/t Cu
Heap acid leaching Mining & heap leaching 23 m3/t Cu
SX/EW 6.4 m3/t Cu
Nickel Flash furnace smelting refining Mine & concentrator 0.93 m3/t ore
Smelting 0.81 m3/t conc
Refining 7.16 m3/t matte
Pressure acid leaching Total all stages * 3.4 m3/t ore
Lead Blast furnace Mine & concentrator 0.64 m3/t ore
Smelting 4.85 m3/t Pb
Refining 0.47 m3/t Pb
Imperial smelting process Mine & concentrator 0.64 m3/t ore
Smelting 12.73 m3/t Pb
Refining 0.47 m3/t Pb
Zinc Imperial smelting process Mine & concentrator 0.64 m3/t ore
Smelting 12.73 m3/t Zn
Refining 0.54 m3/t Zn
Electrolytic process Mine & concentrator 0.64 m3/t ore
Electrolytic refining 12.33 m3/t Zn
Aluminium Bayer/Hall-Heroult processes Mining 0.03 m3/t bauxite
Bayer alumina refining 2.9 m3/t alumina
Hall-Heroult smelting 1.5 m3/t Al
Titanium Becher/Kroll processes Mine & concentrator 5.16 m3/t ilmenite
Becher process 6 m3/t S rutile
Kroll process 40 m3/t Ti
Iron/steel Blast furnace & Basic Oxygen furnace (BF & BOF) Mine & concentrator 0.21 m3/t ore
Sintering 0.15 m3/t sinter
BF & BOF 1.94 m3/t steel
Stainless steel Electric arc furnace / argon oxygen decarburization Smelting & refining 2.24 m3/t s steel
± ferronickel feedstock
Electric arc furnace / argon oxygen decarburization Smelting & refining 2.24 m3/t s steel
± nickel feedstock
Gold cyanidation and smelting Total all stages * 0.74 m3/t ore
Note 1m3 = 1 kL water
Data source: CSIRO
ACIL Tasman has used a combination of the CSIRO research and company
reports for the unit water rates used to calculate future mining and minerals
processing water demand. These estimates are for illustrative purposes and do
not take into account the variability between different projects that exists in
practice.

5.2.2 Water requirements of electricity generators
The water consumed by electricity generators varies according to many factors,

including:
the type of electricity generator (technology and fuel inputs);
the amount of electricity generated; and
environmental factors including location, humidity, rainfall and quality of
discharge.
Table 14 shows estimates of water consumption rates for selected power

generators, sourced from company reports and the literature.
Table 14 Estimates of water consumption for power generators

Source (year) Plant type Total consumption Net consumption
(ML/GWh (ML/GWh
generated) generated)
Yallourn Energy (2004) Coal (baseload) 3.02 1.59
Loy Yang Power (2004) Coal (baseload) 2.1 1.59
Macquarie Generation Coal (baseload) n/a 1.547
(2005)
Estimate Combined cycle gas turbine n/a 0.95
(baseload)
Estimate Open cycle gas turbine n/a 0.1
(peaking plant)
Delta Electricity Coal (baseload) n/a 1.6-1.8
(2002-03)
ESAA industry average Average n/a 1.4
(2003-04)
Data source: Yallourn Energy, Loy Yang Power, Macquarie Generation, Delta Electricity, ESAA, ABS, ACIL Tasman
ACIL Tasman has used the gross water consumption figures for average
extractive unit water requirements for future power stations. These
assumptions are for illustrative purposes and do not reflect the possibility of
dry cooling which is being implemented in some power stations. Dry cooling
reduces water requirements significantly, but at the cost of thermal efficiency
and higher greenhouse gas emissions.
5.2.3 Water requirements of pulp and paper projects
The amount of water typically used by pulp and paper projects depends on
whether pulp or paper (or both) are produced and the production process used
in each case. Manufacture of pulp generally uses more water than paper.
There are two processes for manufacturing pulp ² WKHFKHPLFDO¶NUDIW·

process or the mechanical process. Each of these processes has different water

requirements. Mechanical pulping processes separate the fibres in the raw

material with mechanical pressure. These processes, which use relatively large
amounts of energy, produce high yields of relatively low quality pulp suitable
for newsprint and packaging papers where high tearing strength is not
required.
The chemical pulping processes separate the fibres by dissolving the lignin that
binds the fibres together and stiffens the fibre walls. These processes, which
require expensive effluent disposal and chemical recovery systems, produce
low yields of relatively high quality pulp suitable for printing and writing
papers, and grades of paper where high tearing strength is required.
Possible future pulp and paper projects identified in the short to medium term
are shown in Table 15, along with the associated water consumption for each
project. These figures have been used to estimate future projections of water
needs for the pulp and paper industry. Caveats apply in forecasting future
developments in the industry. It is not certain that all of these projects will
proceed ² some may not be realised.
For example, there is recent speculation that a paper mill located adjacent to
the proposed Gunns pulp mill in Tasmania may be substituted for the
proposed Swanbank paper mill. That said, the table provides a listing of
potential developments in the pulp and paper industry to aid in estimating
potential future water demands by this industry.

Table 15 Proposed new pulp and paper manufacture projects and associated water consumption
Project Description Location Estimated Expected Estimated total Water
production start-up water consumption
(tonnes) consumption per unit
(kL/tonne)
Swanbank paper mill Paper Ipswich (Qld) 390,000 2008 4 GL/year 10.3
Gunns bleached kraft pulp Pulp Bell Bay (Tas) 820,000, 2009 26 GL/year at 23.6
mill anticipated to capacity (1.1 mt)
reach 1.1 million
Protavia mechanical process Pulp Penola (SA) 350,000 2009 1.46-2.19 5.71
pulp mill GL/year
(2 GL/year
assumed)
Protavia mechanical process Pulp Heywood (Vic) 350,000 2008 1.46-2.19 5.71
pulp mill GL/year
(2 GL/year
assumed)
Australian Paper ± Maryvale Pulp and Maryvale (Vic) 70,000 n/a n/a 23.33
plant upgrade and expansion paper
Visy Tumut mill proposed Pulp and Tumut (NSW) 400,000 Mid 2009 n/a 16.78
expansion paper
Norske Skog expansion Pulp and Albury (NSW) Double current 2007 n/a 21.38
paper production (an
addition 265,000
tonnes/annum)
Data source: A3P, company websites and company environment impact reports
A3P publishes an industry average water consumption rate per tonne of output
for pulp and paper manufacture in Australia. In 2003-04, this value was
26.7 kL/tonne. Where water consumption estimates are not available for the
anticipated projects, the A3P industry average has been employed.
5.3 Projections of future water demand from the

MPEPP industries
Based on the information described in sub sections 5.1-5.2, a projection of
potential water demand for the MPEPP industries over the period 2006 to
2015 is shown in Figure 12.
The figure depicts total annual demand on the left axis (line) and incremental
annual demand on the right axis (column), beginning from the base of around
825,000 ML/annum in 2006, it indicates demand of around 1,258,000
ML/annum in 2015, an increase of about 50 per cent over 2006 levels.
The starting year water consumption is based on latest figures available from
the ABS. The projected demand pattern indicates strong growth in water
demand out to 2010, reflecting the high number of potential new projects
being considered in the period 2006-2010. After 2010, a tapering off of
incremental water demand is observed. This mainly reflects the greater number

of mining projects anticipated in the first half of the projection period, and
relatively poorer information or higher uncertainty about projects likely to
come online later in the period. Because both likely and uncertain future
projects (according to ABARE) have been included, this projection is likely to
be an upper bound on the potential water demand and represents values that
water demanded by the MPEPP industries may reach.
Potential improvements in water use efficiency for each industry, that could
impact on the per unit water consumption assumptions, have not been taken
into account in developing these projections.
Figure 12 Projected water demand from the MPEPP industries ² 2006-2015
1,400,000 120,000
1,200,000
100,000
Incremental demand (ML/a)

Cumulative demand (ML/a)
1,000,000
80,000
800,000
60,000
600,000
40,000
400,000
20,000
200,000
- -
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Incremental demand Total demand
Data source: ACIL Tasman, ABARE
5.4 Location of future water demands and

selection of priority case study regions
The locations of the projects discussed above were mapped in relation to water
catchments or water management areas using GIS software. The number of
projects by industry category and by catchment/water management area is
shown in Table 16. Note that the list only includes those catchments with four
or more new MPEPP projects over the projection period (2006-2015).

Table 16 Summary of potential future MPEPP projects in catchments by

project type
Catchment/water State Minerals Electricity Pulp and Petroleum Total
management area paper
Fitzroy Basin QLD 25 0 0 0 25
Salt Lake
(Goldfields) WA 25 0 0 0 25
Hunter River ±
regulated NSW 17 3 0 0 20
Port Hedland Coast WA 4 0 0 6 10
Latrobe River VIC 0 6 1 1 8
Torrens River SA 0 8 0 0 8
Fortescue River WA 7 0 0 0 7
Leichhardt River QLD 7 0 0 0 7
Macquarie River ±
Brisbane
River/Moreton
Catchment QLD 1 4 1 0 6
Murray River (WA) WA 5 0 0 0 5
Upper Condamine
River QLD 4 0 0 2 6
Wollongong Coast NSW 2 4 0 0 6
Burdekin River QLD 5 0 0 0 5
Darling River ±
Murrumbidgee
River ± regulated NSW 0 4 1 0 5
Namoi River ±
Wimmera ± Avon
Rivers VIC 5 0 0 0 5
Avon River WA 4 0 0 0 4
Boyne River WA 4 0 0 0 4
Finniss/Elizabeth
/Howard Rivers QLD 3 0 0 1 4
Lake Frome (SA) NT 4 0 0 0 4
Portland Coast SA 1 0 2 1 4
Burnett River VIC 2 2 0 0 4
Data source: ABARE, A3P, NGF, ACIL Tasman
As shown in the table the areas with the highest number of proposed projects
are the Fitzroy Basin catchment in Queensland, the Goldfields region in
Western Australia, the Hunter catchment in New South Wales and the Port
Hedland coast region. However, there are some catchments/areas in South
Eastern Australia, such as the Latrobe, Hunter, Murrumbidgee, Namoi and
Torrens, where a significant number of projects are to be located and where
access to water is currently either constrained or over-allocated.

6 Case studies of four catchments

Four catchments were selected for more detailed study. The criteria used to
select them were:
the number of new MPEPP industry projects and the volume of water
requirements within the catchments;
coverage of MPEPP industries;
water access issues:
± competition with irrigated agriculture for water supply, or with urban
water users;
± possible reliance on ground water supply or non-traditional sources,
such as recycling or treated effluent; and
catchments where water demands exceed potential supply over the
projection period.
The Fitzroy Basin catchment was selected because it has a high number of
potential new minerals projects and the Goldfields region was selected because
of the high number of projects and the groundwater issues that arise. The
Hunter catchment was selected because it is over-allocated and has a large
number of future coal mining and power projects. The Moreton catchment
was selected because of the potential paper mill at Swanbank, the potential for
significant competition with rapidly growing urban water demands, and
because it is likely to be subject to inter-basin transfers with stressed
catchments in South East Queensland.
The number of potential MPEPP industry projects in each case study

catchment is shown in Table 17. These four areas account for 30 per cent of
the identified potential projects over the projection period.
Table 17 Areas selected for analysis

Number of projects Total
Area State Mining Electricity Petroleum Pulp and paper

Fitzroy Basin catchment Queensland 25 25
Hunter catchment NSW 17 3 20
Goldfields (Salt Lake) WA 25 25
region
Moreton catchment Queensland 1 4 1 6
Total 68 7 1 76
Data source: ABARE, A3P, ACIL Tasman
Case studies of four catchments 82

6.1 The Hunter catchment

The Hunter catchment (also known as the Hunter Water Management Area
and which includes the Hunter Regulated River Water Source) covers an area
of 23,096 kilometres2, two per cent of the total area of NSW36. The catchment
FRQWDLQVWKH$XVWUDOLDQ%XUHDXRI6WDWLVWLFV·6WDWLVWLFDO/RFDO$UHDV6/$VRI
Cessnock, Dungog, Maitland, Merriwa, Murrurundi, Muswellbrook, Newcastle,
Scone and Singleton.
Figure 13 Map of the Hunter catchment
Data source: NSW DNR
Water use in the Hunter catchment is dominated by irrigated agriculture. Over

80 per cent of the total regulated water entitlement is used for irrigation
purposes. The second largest regulated entitlement is for the power generation
and minerals sectors with an annual combined total entitlement of 40,940 ML.
Unregulated river water is mostly used for irrigation, stock and domestic use.
Table 18 shows the breakdown by water user type of existing water licences in
the Hunter catchment.
36 NSW DNR, 1999. Information to assist the preparation of community water profiles ² Hunter
Catchment, page 6.

Table 18 Existing water licences for the Hunter catchment

User type Licensed entitlements(ML/a)
Major utility 36,000
Local water utility 10,832
Domestic and stock 1,738
High security 22,159
General security 128,163
Supplementary water 49,000
Total 247,892
Data source: Guide to the Hunter water sharing plan
The Hunter catchment is over-allocated and the total quantity of entitlements

is to be reduced by around 49,000 ML/annum. Supplementary water access
licences will be issued to those who, in the past, have extracted more water
than their amended share component as set out in the Hunter WSP37.
These licences will initially give users access to extraction levels close to their
historical use and allow time to adjust. The water available under
supplementary water access licences will be phased out over the term of the
plan. It is the lowest ranked category of licence (refer Section 58 of the Water
Management Act 2000). These licences are not tradeable and the water share
attached to the licence cannot be carried over into subsequent years.
6.1.1 Water access arrangements
In the Hunter catchment all water extraction, other than that associated with
basic landholder rights, is authorised under a water access entitlement (access
licence). Each access licence specifies a share component in ML/annum and
licences are issued for major users, irrigators, stock and domestic use and water
utilities. The licences are ranked in order of priority from high security to
general security and supplementary water access licences.
As discussed in Section 2, NSW DNR issues and administers trade in water

access entitlements in the Hunter catchment, while State Water administers
annual and seasonal water allocations and their trade.
An embargo on applications for new commercial water licences has been in

place for the Hunter Regulated River since 1982. Applications can only be
made for local water utility and domestic and stock access licences.
37 $VSDUWRI16:*RYHUQPHQW·VFRPPLWPHQWWRWKHSODQQLQJREMHFWLYHVRIWKH1:,:63V
have been compiled for catchments. In some WSPs, such as that for the Hunter, the
amount of water available for extraction through licences has been reduced compared to
historical volumes. For more information see:
http://www.dnr.nsw.gov.au/water/ind_sharing_plans.shtml.

A WSP has been issued for the Hunter Regulated River Water Source and the
Water Management Act 2000 provides for the trading of water access
entitlements and water allocations.
Therefore, under current arrangements any new MPEPP project would have to
source water through purchase from existing entitlement holders.
The WSP does not extend to groundwater, although specific groundwater

plans are currently being developed. It is not yet known whether groundwater
plans will affect future levels of water access entitlements in the catchment.
Water trading in the Hunter catchment has so far been dominated by

temporary transfers. In terms of permanent trades, in 2005/06 a total of 2,783
ML of water access entitlements were traded in the Hunter catchment, as
shown in Table 19.
Table 19 Permanent water trading in the Hunter catchment ² September 2005 to September 2006
Category Application Transferred (date) Share Price Paid
Number (units or ML) ($/ML of entitlement)
Regulated river (general security) 1000100 22 September 2005 80 1,120
Regulated river (general security) 1000077 2 December 2005 40 1,425
Regulated river (high security) 1000359 23 December 2005 1,135 2,795
Regulated river (high security) 1000521 13 April 2006 250 NA
Regulated river (general security) 1000349 16 June 2006 100 2,600
Regulated river (high security) 1000570 7 August 2006 150 3,000
Regulated river (high security) 1000571 18 August 2006 150 3,000
Regulated river (general security) 1000100 22 September 2006 80 1,120
Total 2,783
Data source: NSW DNR
The reason for the low levels of permanent trade is not entirely clear.
Constraints to trade mentioned in the Norske Skog case study may be one
factor (Section 4.3). Another might be the low availability of high security
water entitlements (22,000 ML of the 247,892 ML of total entitlements). High
security water is of particular interest to MPEPP projects.
6.1.2 Demand and supply
Table 20 shows the future MPEPP industry projects anticipated in the Hunter
catchment over the projection period and an estimate of the likely water
consumption for each of these projects. In total, the anticipated projects would
increase annual water demand by 27,973 ML over the projection period.

Table 20 Anticipated MPEPP industry projects in the Hunter catchment ² 2006-2015

Project Company Start up Output Water consumption Water
(year) (units) rate (KL/unit of output consumption (ML)
± tonnes or GWh)
Anvil Hill open-cut Centennial Coal 2008 10.5 mt 0.2 2,100
Ashton underground longwall Felix Resources/Itochu/ 2007 3 mt 0.2 600
Pan Asia/Austral-Asia
Coal Holdings
Austar underground (formerly Yanzhou 2006 3 mt 0.2 600
Southland) (started)
Bickham open-cut Winsian Investments/ 2007 2.5 mt 0.2 500
Bloomfield Collieries
Cold rolling mill Protech 2007 520 kt 1.5 780
Electricity coal baseload plant n/a 2012 500 MW 2,000 7,884
Electricity coal baseload plant n/a 2013 500 MW 2,000 7,884
Electricity gas peaking plant n/a 2008 300 MW 100 13
Glendell opencut Xstrata 2007 2 mt 0.2 400
Kooragang Island coal terminal Port Waratah Coal 2007 13 mt 0.0 -
expansion Services
Kurri Kurri aluminium smelter Hydro Aluminium 2007 200 kt 1.5 300
(fourth potline)
Kurri Kurri aluminium smelter Hydro Aluminium 2006 8 kt 1.5 12
(Surf project Stage 2) (completed)
Mount Arthur North underground BHP Billiton 2008 8 mt 0.2 1,600
Mount Owen and Bulga Xstrata 2007 2 mt 0.2 400
expansions
Newpac longwall expansion Resource Pacific 2007 4 mt 0.2 800
Holdings
Saddler's Creek underground & Anglo Coal Australia 2009 4 mt 0.2 800
opencut
Sandgate Rail Grade Separation Australian Rail Track 2006 106 mt 0.0 -
(rail flyover) Corporation (completed)
Tomago smelter expansion Tomago Aluminium 2010 200 kt 1.5 300
(fourth potline)
Ulan longwall Xstrata 2006 3.5 mt 0.2 700
(completed)
Wambo opencut Excel Coal 2006 1.5 mt 0.2 300
(completed)
Total 27,973
Note: Company information for the power stations is not available because the power station additions hDYHEHHQGHULYHGIURP$&,/7DVPDQ¶VPRGHOOLQJRI
the National Electricity Market and resultant estimates of required capacity additions to meet demand in future.
Data source: ABARE, ACIL Tasman
Figure 14 shows the total water demand from MPEPP industry projects
projected to 2015, including the 20 new projects anticipated by 2015 ² coal
mines, aluminium smelter upgrades and electricity plants identified in the
above table. In 2007 it is anticipated that total water demand by the MPEPP
industries will be 31,333 ML/annum, rising to 52,214 ML/annum by 2015 if
these new power plants, mines and smelter upgrades are commissioned.

The incremental water demand each year from these projects is also shown as
the columns in Figure 14. It ranges from 2,000ML/annum to as high as 8,000
ML/annum. The latter exceeds the sum total of 2,783 ML of permanent water
trade in the Hunter in 2005-06. Higher levels of trade in permanent water are
likely to be required in some years if new projects are to proceed over this
period.
Figure 14 Projected water demand for the Hunter catchment ² total and
incremental water demand from new MPEPP industry projects
60,000 10,000
50,000
8,000
40,000
Additional ML/a
6,000
Total ML/a
30,000
4,000
20,000
2,000
10,000
- -
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Additional water demand mining/industry Total water demand mining/industry
Figure 15 is a projection of total water demand in the Hunter catchment out to

2015, including the water demanded by the projects listed in Table 20. As
shown in the chart, water demand is likely to exceed the extraction limit of
217,000 ML imposed for the Hunter by 2013.

Figure 15 Projected water demand for the Hunter catchment
300,000
250,000
200,000
Total ML/a
150,000
100,000
50,000
-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total water use Extraction limit
Existing total entitlement Existing total entitlement (net of supplementary water)
At present around 170,000 ML/annum is extracted, compared with the

extraction limit of 217,000 ML/annum.
Water consumption is projected to rise to the level of the current extraction

limit by 2013, and by 2015 annual consumption will exceed the extraction limit
by 18,000 ML.
Figure 15 also shows the existing total entitlement, excluding supplementary

water. Supplementary water is an allowance for additional water that was
provided to allow consumers to adjust to the lower extraction limit imposed in
2004 when the Hunter catchment WSP was released. This amounts to 47,000
ML/annum and will be phased out in the coming years. Supplementary water
is not available for trade.
If the supplementary allowance is deducted from the amount of total

entitlement, the water available for trade is less and the time when
consumption exceeds tradeable entitlement occurs in 2010.
Up to 2010 therefore, and in non-drought years, it is possible that water for

new projects could be drawn from purchases of appropriate security level
water entitlements from existing entitlement holders, that are not being used.
Given the current level of under-utilisation, this may not be at the expense of
production elsewhere in the catchment. However, after 2010, annual
consumption will have exceeded the amount of tradeable entitlement and any
transfer of water access entitlements will have to come at the expense of
existing production. By 2013, the annual consumption will pass the extraction
limit. The outcome will depend on the timing of new projects and their water
requirements.

In practice, there is no sharp transition from under-allocation to over-

allocation of water. As utilisation rises, reliability of supply falls, increasing the
likelihood of actual extractions being limited to below nominal levels. Business
planning must be based around the statistical reliability of access and implied
costs of limitations. Importantly, as new projects come on line, even before the
extraction limit is reached, the reliability of supply to existing users, not just the
new users, falls. There are strong whole-of-system interactions.
6.1.3 Hydrology, droughts and some qualifications
The discussion above oversimplifies what involves both a complex

hydrological cycle and an undeveloped water market. The discussion assumes
no augmentation of infrastructure, whether through storage or better
utilisation of groundwater and surface water sources to improve general levels
of security both in normal and drought conditions. The Hunter catchment
WSP is silent on augmentation but notes it might be considered in future if the
need to satisfy new industrial demand arises.
The distinction between demand and supply in normal years and in drought
years is also crucial. Different classes of use, whether consumptive or not, have
different tolerances to interruption. In general, the MPEPP industry projects
require, and will value very highly, reliable supply of water as the cost of
cutting production is high. However, the same can be applied to agriculture.
Some industries may be able to adapt to supply curtailment in drought, while
others, such as permanent plantings of fruit trees, risk major loss of capital
investment if water becomes too scarce. For example, reserve power stations in
the Hunter may be able to draw on seawater for cooling if water supplies to
operating power stations are cut. Mines may be able to increase re-use and
recycling, or draw on low quality groundwater. However this would come at a
cost and require lead-times ² and it would carry important implications for the
operation of water markets in different circumstances.
In addition, the relative value of water to different industries will inevitably differ
in years of scarcity compared to normal years. This has implications for the
potential for trading in temporary water allocations to meet competing
demands for water between industry sectors in these periods. These variations
in relative value can be expected to rise with increased utilisation in the
catchment. Hence trading in both permanent entitlements and temporary
allocations may become increasingly important in the future as competing
demands for water intensify.
For these reasons it is dangerous to generalise the conclusions about the

availability of water for new projects. For a complete analysis, the situation
would need to be examined under different scenarios ² including drought years

² or, preferably, would implement more comprehensive hydrological and

economic modelling. The key drivers of strategy are unlikely to relate to
average conditions, demands and supplies anywhere near as closely as they
relate to extreme conditions and to relative values of water at those extremes.
However, for the purpose of this discussion it is concluded that, without

augmentation or changes in the operating arrangements for storage and
extraction of the available water in the Hunter catchment, supply of water for
new MPEPP industry projects is likely to be constrained in the near term. New
projects will only proceed through reallocation of existing licences. This is only
likely to occur if some production is curtailed in those industries that sell water
licences.
6.1.4 Water prices
There is an embargo on the granting of new commercial water extraction

licences in the Hunter catchment; therefore purchase of existing licences is the
only way for a new project to access water. As shown in Table 19, permanent
water licence trades are currently trading in the range of $1,000-
$3,000/ML/annum of entitlement; depending on the unique circumstances of
the trade and whether a general or high security licence is traded. General
security licences are typically traded in the range $1,000-$2,000/ML/annum
while high security licences are typically traded for $2,500-$3,000/ML/annum.
Water charges, as distinct from the purchase price for a water licence, in the
Hunter catchment include fixed and recurrent charges for water access
entitlements. The water licence charge involves an annual fixed licence charge
(specified in $/ML of entitlement) and a usage charge (specified in $/ML of
water extracted). As discussed in Section 2.4 these charges are now in line with
the pricing policies of the NWI.
Table 21 Water charges in the Hunter catchment

2005-06 2006-07
$/ML $/ML
Surface water high security 17.5 18.8
Surface water general security 11.3 10.9
60 per cent allocation
Surface water general security 8.7 7.9
20 per cent allocation
Groundwater 50 per cent 2.0 2.4
allocation
Data source: Review of bulk water prices in NSW, 2006, IPART
The move to cost reflective pricing may lead to increased charges for bulk
water, but this is unlikely to be a material issue in terms of the economics of

future MPEPP projects. The pricing policy will encourage more rational
decision making by marginal users of water, who may be more likely to trade
licences in the future. In fact, an increase in water charges is likely to be largely
capitalised as a reduction in the cost of acquiring additional water rights. The
aggregate cost of water should be relatively insensitive to these charges, since
they increase the willingness to sell at the same time as they reduce the
willingness to buy.
It is unlikely therefore that the charging policies of the NWI will be a

significant constraint on the MPEPP industries in the Hunter catchment. More
importantly, they are likely to encourage more rational use of water in high
value uses.
6.1.5 Policy issues
The Hunter catchment also demonstrates the importance of efficient water

markets for the future of MPEPP industries. Future water supply for such
projects will most likely have to be sourced from the market. The removal of
constraints on trading is therefore a critical imperative for these industries.
The Hunter catchment also illustrates the importance of managing supply risks
associated with drought conditions. MPEPP industries generally require high
reliability of supply of water. Policies that facilitate trading in temporary
allocations as well as the development of risk management instruments for
water markets will be important.
6.2 Fitzroy Basin catchment

The Fitzroy Basin catchment stretches from the Carnarvon Gorge National
Park in the west to Rockhampton on the central Queensland coast. The
Fitzroy Basin catchment is the second largest in Australia, nearly 150,000km2,
and is dominated by agriculture (grazing, dryland cropping, irrigated cotton and
horticulture) and by minerals (coal production of 100 million tonnes/year,
magnesite, nickel and, historically, gold and silver).

Figure 16 Location map for the Fitzroy Basin catchment
Data source: Queensland Department of Natural Resources and Mines
In the Fitzroy Basin catchment water access entitlements are referred to as

water allocations. The water allocation is a new form of tradeable entitlement
that replaced the (untradeable) water licence in the Fitzroy Basin catchment in
2004.
Permanent trading of these water access entitlements is currently available for

both supplemented and unsupplemented supplies in the Fitzroy Basin
catchment, subject to the trading rules specified for each of the sub-regions.
The issuing and trading of these water access entitlements is administered by

DNRW. These arrangements are set out in the Fitzroy Basin catchment Water
Resource Plan (WRP) and Resource Operations Plan (ROP)38.
Water access entitlements are divided into high and medium priority,
corresponding to high and medium reliability respectively. In 2004-05, the total
nominal water entitlement in the catchment was 410,684 ML while the water
allocated was slightly lower at 400,837 ML. Importantly, the actual volume of
water taken was substantially less, at 323,619 ML. In only one of the Fitzroy
Basin catchment sub-catchments a determination was made that the water
available was less than total possible allocation ² zero percent for medium
priority and 60 per cent for high priority.
Table 22 provides summary statistics of water trading in the Fitzroy Basin

catchment in 2004-05. In that year, the total volume of water allocation
permanently traded amounted to 7,562 ML. The volume of temporary trades
amounted to 39,785 ML (around 12 per cent of water consumed in that year in
the basin).
Table 22 Water trades in the Fitzroy Basin catchment (2004-05)

Number of Volume of Number of Volume of
allocations allocations allocations allocations
Water permanently permanently seasonally seasonally
type/indicator traded traded (ML) assigned assigned (ML)
Supplemented
water allocations 51 5,859 197 38,474
Unsupplemented
water allocations 5 1,703 31 1,311
Total 56 7,562 228 39,785
Data source: Qld DNRW
The WRP for the catchment indicates that there is a balance of unallocated
water over and above existing surface water allocation, of up to:
300,000 ML of mean annual diversion from the Isaac/Connors and Lower
Fitzroy River systems;
40,000 ML of mean annual diversion from the Comet/Nogoa/Mackenzie
River system; and
11,500 ML of mean annual diversion from the upper Dawson River.
The unallocated water generally represents a low reliability resource, because it

is unsupplemented water. It is likely that useful access to this water will require
significant new storage infrastructure (either in- or off-stream). Unallocated
38 See http://www.nrw.qld.gov.au/wrp/fitzroy.html), Accessed 30 December 2006.

water is procured by a tender process in accordance with the provisions and

processes of the ROP.
The Fitzroy Basin catchment WRP and ROP do not include groundwater.
Unallocated groundwater is procured by application under Part 6, division 2 of
the Water Act 2000. Applications and expressions of interest are generally
received by DNRW from mining companies who require water for new mining
ventures, as well as from landholders who are diversifying from cattle
production into irrigation.
The 2005 Annual Report on the Fitzroy Basin catchment notes that in recent
years there has been an increase in applications for water access entitlements
from alluvial aquifers in some areas of the catchment. These alluvial aquifers
are linked to rivers and streams in the basin, being recharged during times of
high flow and providing base flows to streams.
The Annual Report identifies emerging issues needing consideration including

the:
effect that granting future groundwater entitlements in some aquifers,
combined with granting new surface water entitlements through the ROP
process, will have on the integrity of the WRP;
level of groundwater entitlements able to be sustained from these systems;
and
joint management of surface and groundwater entitlements.
In December 2006 the Queensland Government released the Central

Queensland Water Management Strategy. The Strategy addresses the need to
facilitate trade in the catchment to meet the needs of the mining and
agricultural sectors and, if necessary, to develop additional supply sources
where the demands cannot be met by trading or by water use efficiency
measures.
The Annual Report also notes that in catchments where there is no unallocated
water and a high demand for water to service the coal mining and urban
requirement, amendments may be required to facilitate the conversion of water
allocations from medium to high priority.
Table 23 shows a listing of anticipated new MPEPP industry projects in the

Fitzroy Basin catchment in the projection period, with estimated water
consumption. The annual water consumption figures are calculated using the
water consumption rates discussed in the previous section.

Table 23 Anticipated new MPEPP industry projects in the Fitzroy Basin catchment (2006-2015)
Project Company Start up Output Water cons rate Water
(year) (units) (kL/unit of output) consumption
(ML/annum)
Belvedere underground Aquila Resources/ AMCI 2015 12 mt 0.2 2,400
Holdings/ CVRD
Carborough Downs & Broadlea AMCI Australia 2006 3 mt 0.2 600
North (started)
Clermont opencut Rio Tinto 2008 12 mt 0.2 2,400
Curragh North expansion Wesfarmers Ltd 2007 2.4 mt 0.2 480
Dawson Mine Anglo Coal Australia Mitsui 2007 12 mt 0.2 2,400
Ensham Central opencut Ensham Resources 2008 3 mt 0.2 600
expansion
Ensham Central underground Ensham Resources 2010 7 mt 0.2 1,400
German Creek coal projects Anglo Coal Australia 2006 1 mt 0.2 200
(Aquila & Bundoora) (started)
Gladstone nickel project (stage Gladstone Pacific Nickel 2010 40 kt 0.93 37
1a)
Goonyella Riverside Expansion BHP Billiton Mitsubishi 2010 7 mt 0.2 1,400
Alliance (BMA)
Grasstree Anglo Coal Australia 2006 3 mt 0.2 600
(started)
Grosvenor underground Anglo Coal Australia 2010 5 mt 0.2 1,000
Isaac Plains project Aquila/AMCI Coal Holdings 2007 1.6 mt 0.2 320
Australia
Lake Lindsay opencut Anglo Coal Australia/ Mitsui 2007 4 mt 0.2 800
Millenium coal project (CHPP) Excel Coal/ Millenium 2006 3 mt 0.2 600
(started)
Moorvale West underground Macarthur Coal 2008 0.5 mt 0.2 100
(stage 1)
Moranbah South project Anglo Coal Australia/ 2011 5 mt 0.2 1,000
Kumba Australia
Peak Downs expansion BHP Billiton Mitsubishi 2012 6 mt 0.2 1,200
Alliance (BMA)
Queensland Coke & Power Queensland Coke & Energy 2008 3.2 mt 0.2 640
project (Macarthur Coal)
Rolleston expansion Xstrata/ Itochu/ Sumitomo 2008 8 mt 0.2 1,600
Togara North Xstrata 2010 2 mt 0.2 400
Vermont Coal Project Bowen Basin Coal 2009 2.5 mt 0.2 500
Wandoan opencut Xstrata 2012 10 mt 0.2 2,000
West Rolleston opencut Macarthur Coal 2008 4 mt 0.2 800
Total 23,477
Figure 17 shows the incremental annual demand (left axis) of MPEPP industry
projects and the total cumulative demand of these projects (right axis) out to
2015. The incremental demand profile represents the amount of additional
ZDWHUDERYHWKHSUHYLRXV\HDU·VFRQVumption) that would need to be available
for the anticipated projects to commence operations.

Figure 17 Projected water demand from MPEPP industry projects in the

Fitzroy Basin catchment
120,000 7000
100,000 6000
5000
80,000
Additional ML/a
Total ML/a
4000
60,000
3000
40,000
2000
20,000 1000
- 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Data source: Queensland DNRW, ACIL Tasman, ABARE
The volumes of additional water compare well with current levels of water
trading ² 7,562 ML of permanent entitlement was traded in the Fitzroy Basin
catchment in 2004-05. In addition, 39,785 ML of seasonal allocation was
traded in the same year. However, it is unlikely that the latter would be secure
enough as the basis for a new minerals project to commence operations that
may last as long as 30 years.
Figure 18 shows the projected water demand from all water users in the
Fitzroy Basin catchment out to 2015.
Figure 18 Total water demand projection in the Fitzroy Basin catchment
450,000
400,000
350,000
300,000
250,000
ML/a
200,000
150,000
100,000
50,000
-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total water use Total licenced amount Announced allocation (based on 2004/05)

This demand profile includes the anticipated MPEPP industry projects listed in
Table 23. It incorporates assumed levels of 2.5 per cent and one per cent
growth/annum in urban and irrigation water demand throughout the period.
In 2004-05, the total water consumed in the Fitzroy Basin catchment was
323,619 ML. In the same year, the total amount of water access entitlement in
the catchment was 410,684 ML ² the announced allocation was slightly lower
at 400,837 ML. Based on the existing levels of total licensed water and
announced allocations, there is under-utilised licensed water in the Fitzroy
Basin catchment. Assuming that the level of licensed water, or the announced
allocations, do not deviate significantly from current levels, it is projected that
there will continue to be unutilised water in the Fitzroy Basin catchment out to
2015.
In summary, it is likely that there will be adequate un-utilised licensed water

available to be purchased by anticipated mining projects out to 2015. Current
volumes of permanently traded licences would support the notion that the
water would be available for sale to meet the anticipated demand. In addition,
there is a large quantity of unallocated water (approximately 350,000 ML) that
WKH4XHHQVODQG*RYHUQPHQWKDVLQGLFDWHGPD\EHFRPHDYDLODEOHRQDQ¶DV
QHHGHG·EDVLs (despite perhaps requiring new infrastructure to make the water
available). It is technically possible to make the unallocated water available for
future consumptive use by urban, rural or industrial sectors without
compromising the environment or the security of supply to existing water
users.
6.2.3 Water prices
Detailed information about the price of water trades in the Fitzroy Basin
catchment is not easily available. However, a submission from the Queensland
Government to the Productivity Commission inquiry into rural water use and
the environment reported an average permanent trading price of water of
$2,000/ML39. Given the long term availability of water in the Fitzroy Basin
catchment, future water trade prices are not expected to increase significantly
from the current average level.
Water charges in the Fitzroy Basin catchment are consistent with the statewide
policy adopted by the Queensland Government, to move to lower bound
pricing in accordance with the policies agreed under the NWI. This issue is
discussed in Section 2.
39 www.pc.gov.au/study/waterstudy/subs/sub038.pdf, Accessed 11 October 2006.

6.2.4 Policy issues
Given the general supply outlook, there should be no significant aggregate

constraints on the availability of water for MPEPP industry projects in the
Fitzroy Basin catchment. However, there may be policy and operational issues
to be addressed at the sub-catchment level.
Development of water markets is also important in catchments that are not

fully allocated. Purchasing an existing entitlement may be more economical
than investing in new regulatory structures.
Differences in arrangements for allocating surface water and groundwater will

need to be addressed. The ability to trade surface water but not groundwater
may also affect the efficiency of water allocation to the highest value use.
Government policy recognises the need to address the interaction between

groundwater and surface water and to understand the sustainable levels of
groundwater entitlements from groundwater systems. This may also extend to
converting water access entitlements from medium to high priority.
Joint management of groundwater and surface water entitlements may need to

be considered.
6.3 Moreton catchment

The Moreton catchment (also known as the Moreton Water Resource Planning
Area) is located in south east Queensland. The catchment area is 13,500km2 in
size and extends from Moreton Bay to the Great Dividing Range. This
catchment includes the sub-catchments of the Upper Brisbane, Stanley,
Lockyer and Bremer Rivers. It includes 850 kilometres of river and lake banks
as well as 50 major creeks. The catchment is subject to diverse rainfall patterns
and has experienced a number of drought periods over the past 100 years. The
region is currently experiencing its worst drought in over 100 years, which is
affecting water storages and water availability.

Figure 19 Map of the Moreton catchment
Data source: Queensland DNRW
Water use categories within the area include:

urban, which is the largest water consumer in the region;
industrial, including mines, power stations; and
rural, including agricultural and domestic users.

Urban and industrial users account for approximately 75 per cent of the
allocated water use in the region. Rural users, mainly irrigation, make up the
remainder. Urban and industrial users account for approximately 87 per cent of
the supplemented water entitlements40, and irrigators/agriculture account for
the remainder. Agricultural users also access unsupplemented or unmetered
water sources.
South east Queensland is experiencing the effects of one of the most severe
droughts on record and continuing uncertainty over the reliability of supply. It
is also a region that is growing rapidly. The Queensland Government estimates
that the region is adding around 50,000 people annually.
In response to the water supply challenges this presents, the Queensland

Government has released a strategy for the supply of water to this region. As
part of this plan the Government is examining the possibility of linking
catchments in the region by pipelines to facilitate inter-basin transfers. The
proposed south east Queensland water pipeline grid will link water sources in
the Moreton catchment with rapidly growing areas to the south.
Part of the strategy may also include substituting treated effluent for water
supplied to power stations under surface water access entitlements.
The Moreton catchment also includes a potential paper mill, new power
stations and a possible steel plant. The area therefore illustrates possible
interactions between inter-basin transfers, substitution of treated effluent for
surface water entitlements to industry, and the potential to trade water between
sub-catchments or catchments, via the south east Queensland water pipeline
grid.
New water access arrangements have yet to be introduced in the Moreton

catchment. A draft WRP was released on 10 July 2006, however, a final plan
has not been approved or issued. A draft ROP is expected to be released in
200741.
Under the current arrangements water access entitlements are attached to land
and can be leased but not traded. A moratorium notice has been published for
the Moreton catchment, which effectively restricts the acquisition of new water
40 Water supplied by infrastructure, such as dams, weirs and irrigation channels or managed as
part of a water supply scheme. Supplemented water supplies are managed by water service
providers.
41 http://www.nrw.qld.gov.au/wrp/moreton.html, Accessed 30 December 2006.

entitlements until the planning process has been completed (WRP and ROP
have been approved and issued).
Table 24 is a list of anticipated MPEPP industry projects, and their estimated

water demands, in the Moreton catchment over the projection period. The
projected annual water demand has been calculated using the water
consumption rates set out in Section 5.
Table 24 Anticipated MPEPP industry projects in the Moreton catchment -

2006-2015
Output/ Water cons Water
Start up capacity rate (kL/unit consumption
Project Company (year) (units) of output) (ML/annum)
Australian Steel Project Boulder 2010 350 kt 1.5 525
Steel
Electricity gas peaking n/a 2007 150 MW 100 6.6
plant1
plant1
plant1
plant1
Swanbank paper mill Swanbank 2008 390 kt 10.3 4,017
paper
Total 4,568
Note: 1. The gas fired peaking stations do not use significant quantities of water and are not likely to be constrained.
2. Company information for the power stations is not available because the power station additions have been derived
IURP$&,/7DVPDQ¶VPRGHOOLQJRIWKH1DWLRQDO(OHFWULFLW\0DUNHWDQGUHVXOWDQWHVWLPDWHVRIUHTXLUHGFDSDFLW\DGGLWLRQV
to meet demand in future.
The dominant demand is from the possible Swanbank paper mill at around
4,000 ML/annum. The proposed steel mill would require 525 ML/annum.
Peaking power stations would only require a total of 6-7 ML/annum.
However, they would require secure supplies and the value of the water in
peaking power stations would be very high.
Figure 20 shows cumulative and annual incremental demand from MPEPP

industry projects in the Moreton Catchment. The demand profile is dominated
by the Swanbank paper mill. While there remains some uncertainty that this
project will proceed and its location, the issues highlighted by analysis of such a
project are relevant for any large potential MPEPP project in the Moreton
catchment.

Figure 20 Cumulative and annual incremental demand from MPEPP

industry projects in the Moreton catchment
100,000 4,500
4,000
80,000 3,500
Additional demand ML/a

Total demand ML/a
3,000
60,000
2,500
2,000
40,000
1,500
20,000 1,000
500
- -
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total mining/industry Water demand mining/industry
Figure 21 shows projections of potential water demand by broad user category

in the Moreton catchment ² compared with the existing total water entitlement
in the catchment. The total water use projection includes estimated water
consumption for the list of projects in Table 24.
The urban water demand projections have been calculated by applying DNRW
forecast growth rates for urban/industry water demand in south east
Queensland, to the existing urban water consumption in the Moreton
catchment. Figure 19 shows that the overall water available for the catchment
exceeds present consumption and expected consumption in 2015.
Therefore, when water trading is introduced in the catchment, there will be

unutilised water entitlements available for water trade over the period to 2015.
After that, any further demand for water entitlements would need to be met
from trade in fully utilised water entitlements.
However, the continued drought in the region is creating considerable

uncertainty. Normal adequacy of supply does not preclude significant
constraints in the short- to medium-term under some of the more severe
drought scenarios. This could well delay the start up of some projects, or entail
increased pressure on established uses if new projects do start.

Figure 21 Projected water demand for the Moreton catchment
440,000
420,000
400,000
Total ML/a
380,000
360,000
340,000
320,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total water use Total allocation
Other analysis indicates that there are serious longer term (post 2015) water
demand and supply issues facing catchments in south east Queensland. Recent
assessments by DNRW indicate that in the south east Queensland region
(incorporating other areas in addition to the Moreton catchment) water
demand could exceed supply volumes in future. South east Queensland will
need additional urban and industrial supplies by about 2021. Figure 22 shows a
forecast of water demand and supply across all south east Queensland
catchments to 2050 from DNRW analysis.
Figure 22 DNRW forecasts of water demand and supply in South East

Queensland, to 2050
Data source: DNRW

As shown in Figure 22, uncertainty in the order of 100,000 ML exists over the
amount of water that will be available. This reflects uncertain outcomes
associated with drought and climate change.
Proposals for a south east Queensland water pipeline grid mentioned above,
could lead to inter-basin transfers and substitution of treated effluent in current
and future power stations. It is possible that transfers of water from the
Moreton catchment to southern areas could be required by 2010.
This will have implications for the economics of power stations. The power
sector is heavily dependent on high reliability water access entitlements. The
development of risk management products in water markets will be very
important to these industries in the longer run. It will be important that market
interventions by governments do not discourage the development of such
products.
6.3.3 Water prices
The CSIRO and Monash University have recently examined a series of

scenarios assessing how Australian cities could cope with the likely rise in
demand for water42. The Moreton catchment is one of the areas modelled.
The report assumes that by 2032, industry and people living in a city will be
able to get by with 22 per cent less water, and farmers will increase their water
use efficiency by 34 per cent. The report also includes various supply options.
The modelling concluded that retail water prices would rise from the current
level of $1.27/kL ($1,270/ML) to around $2.30/kL ($2,300/ML) if efficient
water pricing was achieved through trading, and desalination was a supply
option at $1/kL ($1,000/ML). However, in the absence of these efficient
market arrangements and, if no action is taken to increase supply in the region,
prices could rise to over $10/kL. There is a range of possibilities within these
bounds but strategies already in place make the high-end scenarios fairly
implausible. However, all scenarios modelled pointed to a significant increase
in the unit cost of water, driven by the extremely rapid regional growth and the
fact that the readily accessible water sources have already been tapped.
6.3.4 Policy issues
The Moreton catchment is an example of an area where inter-basin transfers

may be necessary to meet growing urban demand for water. Possible solutions
42 CSIRO, Without Water: The economics of supplying water to 5 million more Australians, CSIRO
Water for a Healthy Country Flagship report, Mike D. Young, Wendy Proctor, M. Ejaz
Qureshi and Glyn Wittwer, June 2006.

include the substitution of treated effluent from urban areas for water supply
to power stations. Investment in pipeline grids to facilitate such substitution
may also be candidates for funding under the Australian Government Water
Fund.
The Moreton catchment is yet to have the necessary planning and operational
plans in place to implement the initial stages of reforms that will facilitate
trading in water access entitlements. Implementation of these policy reforms
will be essential for efficient investment in transregional schemes.
The Moreton catchment is not expected to have as many new MPEPP industry
projects as the other catchments studied. However, if the proposed Swanbank
paper mill was to proceed, there would be a requirement for a significant water
access entitlement. A sound trading market would be critical for efficient
investment decisions and resource allocation.
The peaking power stations are minor consumers of water but will need water
when pool electricity prices are at peak levels. The availability of high reliability
entitlements will be important to these power stations.
In general, inefficiencies in water markets will translate into inefficiencies in

electricity markets.
Based on these points it is highly desirable that the ROP is implemented at the
earliest possible time. Decisions made on funding a south eastern Queensland
pipeline grid, or substitution of current supplies to power stations with treated
effluent, should take into account the full opportunity costs of different supply
options for the MPEPP industries.
6.4 Goldfields
The Goldfields region in Western Australia is centred along a major regional
drainage divide between seagoing and palaeo-drainage systems. Groundwater is
generally found in fractured rock aquifers and palaeo-channels in the west, and
sedimentary basins in the east of the region43. The three major groundwater
resources in the region are the Eucla, Officer and Canning Basins. The
Canning Basin contains some fresh water, however most of the groundwater is
saline or hyper-saline and limited in its use, except in the mining industry.
Surface water resources in the area are insignificant as a water supply source,
mainly due to the flat terrain, low rainfall and high evaporation rates in the
43 Ancient buried drainage channels in the Goldfields region covering an area of about 700 km
N-S and 350 km E-W. They contain up to 15,000 GL of mostly hyper-saline water (up to 7
times saltier than sea water), but also some fresh and brackish water in tributaries.

area. Surface water flow is ephemeral and is most common in times of cyclonic
events44.
Despite the high salt levels, palaeo-channel water is the major source of water
for the mining industry in the Goldfields region ² accounting for around 70
per cent of total water usage (ACIL Consulting 2002, p. 1). Some mines extract
ore from below the water table and experience intrusion of water from palaeo-
channels and fractured rock. This creates the need for dewatering as part of
their operations, making the effective cost of palaeo-channel water for other
uses particularly competitive45.
It has been estimated that the mine sites in Western Australia recycle around
30 per cent of their water allocations and the resources sector develops around
95 per cent of its water supplies. In many cases the mining company discovers
and assesses the groundwater source involved.
The Goldfields and Officer Basin areas are Proclaimed Groundwater Areas
under the Rights in Water and Irrigation Act 1914. Access to, and use of,
groundwater is subject to water access entitlement licensing. Consequently,
licences are issued under Part III of the Act and in accordance with
Department of Water (DoW) policy. That policy is to license water use up to
sustainable limits only where there is an immediate need and efficient water use
can be demonstrated (Water and Rivers Commission 2002, p. 28).
Most of the water used by the industry is self supplied under a groundwater
licence issued by the DoW. Some mines receive reticulated supply via the
Goldfields and Agricultural Water Supply (G&AWS) pipeline from the Perth
Basin, which is also the primary supply for Kalgoorlie/Boulder. As at 30
March 2004, there were 641 licences in the DoW database involving a total
allocation of 629 GL (Economic Consulting Services 2004, p.15).
Demands for less than 1.5 ML/annum for purposes such as stock, domestic,
mineral and petroleum exploration are currently not required to be licensed.
However, they are encouraged to provide relevant information such as
location, depth of bore, geology, groundwater yield and its quality (Water and
Rivers Commission 2002, p.28).
United Utilities Australia has applied to become a bulk water provider as a

replacement for the G&AWS system. It would supply additional new mining
44 Water and Rivers Commission 2002, p. 11.

45 ACIL Consulting 2002, p. vi.

demand for reticulated water directly, based around a desalination plant it has
proposed for construction in Esperance. The application has received in-
principle endorsement for cost effectiveness following a recent regulatory
review, but a firm project has yet to emerge.
The economics of the proposal rest heavily on the scope offered to avoid the
costs of working with hyper-saline water, or to enable mineral processing
where it would not otherwise have been feasible. There are also potential
EHQHILWVIRU3HUWK·VZDWHUVXSSO\WKURXJKUHGXFLQJWKHGHPDQGVRQWKH3HUWK
system.
Demand
Table 25 contains a listing of anticipated MPEPP industry projects in the

Goldfields region, and estimated water consumption, in the projection period.

Table 25 MPEPP industry projects ² Goldfields Region (2006-2015)

Project Company Start up Output Water cons rate Water
(year) (units) consumption
kL/unit of output
(tonnes or oz) ML/annum
Aldiss/Randalls Integra Mining 2007 120,000 oz 28 3,324
Black Swan Disseminated 2 project LionOre 2007 6 kt 1 6
(BSD2)
Brightstar A1 Minerals 2007 500,000 oz 28 13,852
Bronzewing redevelopment View Resources 2008 70,000 oz 28 1,939
Electrolytic manganese dioxide HiTec Energy 2009 40 kt 2 80
project (Stage 1)
Frog's Leg underground Dioro Exploration/ 2010 60,000 oz 28 1,662
Mines & Resources
Aust
Gwalia Deeps St Barbara Mines 2007 150,000 oz 28 4,156
Higginsville Avoca Resources 2007 60,000 oz 28 1,662
Honeymoon Well LionOre 2008 40 kt 1 37
Jaguar base metals Jabiru Metals 2007 43.2 kt 1 28
Kalgoorlie Nickel smelter furnace BHP Billiton 2009 0 kt 1 -
(No.3 flash furnace)
Kalgoorlie nickel project Heron Resources/ 2011 53 kt 1 49
BHP Billiton/Inco
Lake Way and Centipede Deposits Nova Energy 2007 9 kt 0 2
Laverton redevelopment Crescent Gold 2008 80,000 oz 28 2,216
Magellan lead project (Stage 2 ± Magellan Metals 2007 90 kt 1 58
lead refinery) (Ivernia)
Maggie Hays Upgrade project LionOre 2013 4 kt 1 4
Mt Keith BHP Billiton 2009 22 kt 1 20
Mt Keith concentrator & low BHP Billiton 2008 25 kt 1 23
pressure leach plant
Mt Weld Lynas Corp 2014 15 kt 5 77
Murrin Murrin Minara Resources 2008 10 kt 1 9
Prospero Jubilee Mines 2007 20 kt 1 19
Sunrise Dam underground AngloGold/ Ashanti 2007 100,000 oz 28 2,770
development
Wallaby underground extension Barrick Gold 2007 100,000 oz 28 2,770
(Granny Smith)
Windimurra vanadium project Precious Metals 2015 9.1 kt 2 18
Australia
Yakabindie BHP Billiton 2012 30 kt 1 28
Total 34,810
Data source: ABARE, CSIRO
Figure 23 shows the annual incremental and cumulative water demand from
anticipated MPEPP industry projects in the Goldfields region out to 2015.

Figure 23 Annual incremental and cumulative water demand from MPEPP

industry projects
190,000 35,000
185,000
30,000
180,000
175,000 25,000
170,000
20,000
ML/a
ML/a
165,000
15,000
160,000
155,000 10,000
150,000
5,000
145,000
140,000 -
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Data source: ACIL Tasman
Figure 24 shows the projection of water demand in the Goldfields region by

user category out to 2015. Information on the total licensed amount of water
for the Goldfields region is not currently available.
Figure 24 Water demand projection for the Goldfields region, 2005-2015
250,000
200,000
150,000
ML/a
100,000
50,000
-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Water demand urban/industrial Water demand irrigation/stock

Total water demand mining/industry Total water demand

Supply
Over the last decade, several issues emerged that prompted the Western
Australia Government to review whether water resources available in the
Goldfields region are sufficient to meet the needs of the minerals industry and
other users in the longer term. These issues include:
private proposals for the provision of water (saline and/or potable) to
Kalgoorlie-Boulder from Esperance and the Officer Basin;
concerns about the capacity of the G&AWS as a result of continuing and
increasing restrictions on domestic use, especially during summer;
concerns over the ability of local groundwater (mainly from the palaeo-
channels near Kalgoorlie) to provide for the future, particularly following
the expression of concerns by the Australian Government over the
¶VXVWDLQDELOLW\·RIXVHRIJURXQGZDWHU at rates higher than recharge;
potential shortages of water (particularly fresh to brackish water) in the
Northern Goldfields due to the expansion of laterite nickel mining and
processing;
water pricing for major users has been a major incentive for mining
companies to develop their own groundwater sources as cheaper
alternatives than government investment in infrastructure; and
the need for volume related entitlements tied to the life of the mine.
These issues gave rise to several initiatives, including significant capital

expenditure by the Water Corporation to increase capacity of the G&AWS and
storage at Kalgoorlie. The Western Australia Government also commissioned
an assessment of several Goldfields-Esperance water supply options.
Subsequent studies into strategies for supplying the Goldfields water needs:
demonstrated the availability of sufficient groundwater in the region to
sustain predicted mining industry demands for at least 45 years;
demonstrated that a new arrangement to meet potable water needs for the
region is potentially the best strategy; and
concluded that there is sufficient water to satisfy near-term requirements
and that there is no immediate need to develop an alternative water supply
to the G&AWS.
Reports of the various studies were then consolidated to form the Goldfields
Esperance Water Supply Strategy.
The Strategy recommended that several options should be considered:

taking desalinated seawater from Esperance,
groundwater from the Eucla or Officer Basins, and

seawater from Esperance or Hopetoun.
The economic, social and environmental costs and benefits of each option
should be evaluated to identify a preferred option. The Strategy also
recommended that the evaluation should include a market study for brackish
and/or saline water.
None of the studies cited above identified an urgent need for additional water
supplies for use by either the community or minerals industry. However, there
is the potential in the Goldfields region that mining and processing will be
constrained by the cost of accessing good quality water.
Use of palaeo-channel water
A study of the sustainability of abstraction and use of water from palaeo-

channels found that, contrary to previous understanding, palaeo-channels are
often recharged from water in surrounding rock and clays. Experience has
demonstrated that long-term yields are well in excess of initial expectations.
The study indicated that the total system holds around 15,000 GL, with 13,000
GL occurring in the Northern goldfields. Of this total storage, around 7,000
GL is estimated to be recoverable. The average recharge rate is estimated to be
around 12 GL/annum (ACIL Consulting 2002, p. vi)46. Table 26 summarises
the water availability results of the study.
Table 26 Goldfields palaeo-channel water availability and use

Total resource 15,000GL
Recoverable water 7,000GL
Recharge (approximate) 12GL/yr
Mining use Total current use (G&AWS, 150GL/yr
harvesting, fractured rock,
palaeo-channels)
Use of palaeo-channels only 100GL/yr
Total use by 2020 250GL/yr
Use of palaeo-channels by 200 GL/yr
2020
Palaeo-channel yield estimate: 200 GL/yr for 45
yrs
Source: Palaeo-channel Study Final Draft Report, ACIL Consulting February 2002, published in Goldfields Esperance
Draft Water Supply Strategy Background Papers, September 2002.
There is evidence to suggest that not all mines take account of the full costs of
using hyper-saline water over the life of the mine, which usually extends well
beyond the life assumed for the purpose of feasibility studies. These costs,
compared to using fresh or brackish water, can include: additional reagent
46 Case Studies: Cost of hyper-saline water in the Goldfields, ACIL Consulting, 11 February
2002.

usage, scaling in pipes, corrosion in plants, slower reaction time, decreased

tailings return usage, higher pumping costs, increased equipment downtime
and maintenance, reduced equipment life, cost of water storage and disposal,
management of environmental issues, and rehabilitation. In particular, mine
planning and economic analysis may not take into account the full costs of
hyper-saline water usage over the life of mine ² which usually extends well
beyond the life assumed for the purpose of feasibility studies.
Recycling and re-use
Many mines use water from mine dewatering in their processing plants and in
dust suppression. Gold mines re-use a high proportion of their process water,
as it contains valuable reagents (e.g. cyanide). However, laterite nickel mines do
not currently recycle much water, due to magnesium build up, which interferes
with metallurgical processes. For example, almost 100 per cent of the 6 GL per
year of fresh and brackish water (high quality water by Goldfields region
standards) used by the Murrin Murrin nickel operations, is disposed of (via
evaporation) after one use. The availability of technology to economically
remove the magnesium and allow re-use would result in a major reduction in
water demand.
Environmental impacts of water use and disposal
Use and disposal of hyper-saline water in the Goldfields region has

environmental impacts that need to be managed, including:
salt build-up associated with dust suppression on mine roads;
seepage from tailings;
higher local water tables, accompanied by evidence of salt damage;
formation of elevated hyper-saline lakes on tailings storage facilities;
possible instability of tailings facilities;
groundwater contamination from salts and metals via seepage from tailings
storage facilities and mine pits; and
disposal of hyper-saline water into salt lakes.
These impacts are usually local, but constitute valid concerns. There are real
risks that need to be managed if long-term, intensive, use of the hyper-saline
resource is to be acceptable. Substantial regulation is already in place and can
be expected to limit the risks considerably.
Implementation of the NWI will reinforce rather than undermine this work.
Cost reflective pricing and charging policies, sustainable environmental
management practices and a fully operating water market, will be necessary to

provide the price signals to the industry and government when considering
investment decisions for new supplies.
Water trading
The size and diversity of Western Australia, and the comparatively low levels
of utilisation and competition for water, have meant that water trading has
been, and will be, introduced for only a limited number of surface and
groundwater systems; and only when utilisation reaches appropriate levels
relative to availability, to enable a market to operate.
For the minerals sector, this is likely to occur only in the south west, and
possibly in the northern Goldfields, if water demand for the laterite nickel
industry rises significantly. The slowdown of laterite nickel development has,
for now, removed the immediate pressure on the northern Goldfields water
supply, but parts of the south west could be subject to a trading regime in the
medium term.
There was concern that parties holding extensive water rights in certain areas
HJWKHQRUWKHUQ*ROGILHOGVFRXOG¶FRUQHUWKHPDUNHW·LQZDWHUDQGGULYHXS
the price of water allocations. Other parties were concerned that their future
access to water could be compromised.
The pastoral industry in the northern Goldfields has expressed concerns about
the impact of extractions from groundwater resources by the mining industry
lowering water levels in bores. Generally, industry licence conditions require
water to be supplied to pastoralists or towns if this occurs. This is a case where
a properly operating trading market would provide an efficient process for
allocation of water between different uses and set a fair market price for water
between the competing uses.
6.4.3 Water prices
Information on water charging to users in the Goldfields region is limited and

specific charging arrangements are not made public.
Major minerals industry water users, with a peak demand of more than
49kL/day, are charged on the basis of the unit cost of augmenting the water
supply to their location. Major customers also pay a service availability charge
for the peak capacity they require, based on the cost of expanding capacity to
their location. They also pay a consumption charge based on average operating
costs for the supply system. The standard agreement includes an initial capital
contribution that secures their water entitlement for 45 years.

The current unit cost of capacity of the G&AWS Scheme at Kalgoorlie is

$16,238/peak kL/day (e.g. for a peak daily entitlement of 100 kL, the up-front
cost is $1,623,800). As the Water Corporation pays national tax equivalents to
the Government, the contribution amount is grossed up for tax. The
consumption charge is currently $1.2730/kL.
ACIL Consulting found that supply cost of hyper-saline water in the

Goldfields region ranged from $1.37/kL to $2.67/kL47. However, the full cost
to mines ranged from $2.29/kL to $3.93/kL when taking into account the
need for treatment.
In 2003, the Water and Rivers Commission48 undertook a study to develop

options for water resource management (WRM) charges for consideration by
the Government. The overarching objective of the WRM charging regime was
to contribXWHWRWKHVXVWDLQDEOHPDQDJHPHQWRIWKH6WDWH·VZDWHUUHVRXUFHVE\
providing:
a higher, and possibly more secure, level of funding to enable the Water
and Rivers Commission to undertake more WRM activities; and
financial incentives to water users to either undertake more WRM activities
themselves or to change their water use patterns to minimise the need for
the Water and Rivers Commission to undertake WRM activities.
A decision on the WRM charges is yet to be taken. However, given the

involvement of the mining industry in locating, developing and treating much
of its water supplies, it will be important that any WRM levy is fully cost
reflective. It should not charge the industry for its own investment in resource
management and development actions.
6.4.4 Policy issues
The use of saline groundwater and discharge raises significant environmental

issues which will impact on supply decisions by the mining industries. Policies
that deal with these externalities in the most efficient manner will be extremely
important in the forthcoming review of legislation by the Western Australian
Government.
Decisions on new sources of supply will depend on clear policies for water and
environmental management and best practice pricing if they are to arrive at
efficient and sustainable outcomes.
47 Case Studies: Cost of hyper-saline water in the Goldfields, ACIL Consulting, 11 February
2002.
48 Now the Department of Water.

The reform process is also likely to address the need for volume related
entitlements tied to the life of the mine.
While reforms are still being implemented there may be a need to activate
paragraph 34 of the NWI to address these matters.

7 Economic issues and implications

A key concern in this report is whether the availability of water will place a
constraint on further development and growth in the MPEPP industries. This
concern is a sub-set of a broader question about the efficiency with which
water is allocated between different users. This is recognised in the NWI.
The terms of reference require a preliminary analysis of the current or intended

water access arrangements compared to those that might apply in the event
that water management plans give full effect to the NWI. To do this it is
necessary to consider what conditions might constitute an efficient allocation
of water resources between different uses, how NWI policies might help
achieve this ideal, and then consider how far the current situation departs from
this ideal.
A practical approach is necessary in this discussion. Water markets, like many

other markets in the Australian economy, are constrained in many respects and
cannot fully match the requirements of a perfectly efficient market.
7.1 Economic efficiency of water use

The contribution that industry sectors make to the national economy is
measured by the ABS as the gross value added by each industry.
Value added is the value of gross returns to an industry less the value of
immediate inputs49. In Section 1.3 it was shown that the gross value added per
ML of water used in MPEPP industries is significantly higher than in certain
sectors of irrigated agriculture. Analysts have observed that these differences
are so large as to suggest that water is not being allocated to its highest value
use at the margin50.
7.1.1 Principles
In economic terms, an efficient allocation of water between different uses

occurs when it is not possible to increase economic surplus for the economy as
a whole by transferring water from one activity to another. This allocation will
vary with chance variations in hydrology and climate trends, with changing
49 In practice the value added by an industry is the value of salaries and wages plus depreciation
and interest expenses plus certain taxes and subsidies. Gross Domestic Product is the total
value added across the whole economy.
50 Australian Treasury, :DWHUDQG$XVWUDOLD·VIXWXUHHFRQRPLFJURZWK, Roberts, Mitchell and Douglas,
2006, page 61.
Economic issues and implications 116

technologies and markets, and with changes in the flexibility built into
investments to respond to fluctuating availability or cost of water.
Allowing for the dynamic nature of water markets, it is not sufficient to look at
average value per ML of water use. For firm conclusions on allocative
efficiency it is necessary to examine the value of marginal production per unit
of water use.
The value of marginal production (or marginal product) of water is the change
in net returns that would arise for a small increase in use of water (see Box 2).
For an efficient allocation of resources, the value of the marginal product of
water would be equal across industries.
The marginal value of additional production from the use of more water is not
necessarily equal to the average values of additional production (see Box 2).
This would only occur with constant returns to scale. However, as noted
above, the large differences in average values suggest that the marginal values
are not likely to be equal. In other words, water resources are not being
allocated to their highest value use.
Box 2 Value of marginal product
Water that is used as an intermediate input to production will be used by a profit

maximising enterprise up to the point where the net revenue gained from one
additional unit of water is just equal to the marginal cost of obtaining that water.
There is little information available on the value marginal product of water for most
industries. The price enterprises are prepared to pay for water is an indication.
Gross margins in enterprises measure average product. In 2006 a UN publication drew

on the following as an approximation of the price a project would be prepared to
pay for water.
903 ¨793² SL¨TL) ¨Tw
Where
VMP= value of the marginal product of water
¨793 7RWDODGGLWLRQDOYDOXHRISURGXFWLRQ
pi¨Ti = additional opportunity cost of other inputs required
¨Tw = quantity of the additional water used
For a project this is still an average product. Average and marginal values are
identical only in cases where the production function exhibits constant returns to
scale.
Data source: System of environmental and economic accounting for water, UN 2006

7.1.1 Evidence
There appears to be no data publicly available on the value of the marginal

production in the MPEPP or agricultural industries. Gross margins are
reported to range between $30/ML to $2,000/ML in irrigated agriculture (see
Attachment C). However, gross margins in agriculture do not necessarily
represent the value of marginal production. The same applies for MPEPP
industries.
It is possible, however, to draw conclusions on the value of marginal

production in agriculture from recent evidence of trade in permanent and
temporary water. A report released by the ABS in September 2006, showed
recent prices for traded water in irrigated agriculture51. A sample of average
prices of traded water in 2002-03 is shown in Table 27 .
Table 27 Average prices for water trade 2002-03

Type Irrigated Cotton Horticulture Irrigated Grapes
pasture vegetables
$/ML $/ML $/ML $/ML $/ML

Temporary sales 191 - 146 273 152
Permanent sales 217 - 687 791
Temporary 158 131 268 204 260
purchases
Permanent 565 1,078 1,103 758 1,805
purchases
Note: Note permanent sales and purchases entail supply for a period and are not directly comparable to temporary
trade prices.
Data source: ABS Characteristics of Australian Irrigated Farms
The temporary sales and purchase prices are an indication of the value of
additional water use at the margin in these enterprises in 2002-03. Based on
these data, the value of water in agriculture in the short run ranges from
$131/ML to $273/ML. The value of permanent water ranges from $217/ML
to $1,805/ML. The ABS report also notes prices for permanent trades as high
as $4,820/ML for certain areas of irrigated grape growing in south east
Australia. The price of permanent water represents the price of purchasing an
access entitlement, not the price of water.
There is little information on the value of the marginal production of water or

trade by MPEPP industries. While some research has been undertaken on the
economics of water use in manufacturing overseas, most of the recent
economic modelling undertaken in Australia appears to have grouped this
51 Australian Bureau of Statistics, &KDUDFWHULVWLFVRI$XVWUDOLD·VLUULJDWHGIDUPV-01 to 2004-05,

Melbourne, 27 September 2006, pages 47 to 55.

sector into a general industry sector classification52. ACIL Tasman has used
internal models of power stations and evidence of power station costs to
estimate the value of additional power generation per ML of water used53.
These show that the value of additional production could be as high as

$18,000/ML for a brown coal power station, $16,000/ML for a new black coal
power station and $14,000/ML for a new combined cycle gas turbine power
station. The difference in prices received for each plant reflects the dispatch
characteristics of the plant.
Open cycle gas turbine power stations are used to meet peak loads when
electricity pool prices are high. These power stations typically generate for less
than five per cent of the year and when pool prices rise in response to peak
demand (electricity pool prices can rise as high as $10,000/MWh). They may
use water in the generation stage to improve vapourisation or sometimes for
emission control. Either way they only use small amounts of water. However
the marginal value of this water is high. At $60/MWh the marginal value of
production would be around $100,000/ML (see table Table 28).
Table 28 (VWLPDWHRIHOHFWULFLW\JHQHUDWLRQ·VVKRUWUXQYDOXHRI
marginal production
Combined Open
Cycle Gas Cycle Gas
Indicator Units Brown coal Black coal Turbine Turbine2
Return per MWh $/MWh 33 40 45 60
Short run marginal cost $/MWh 4 15 32 50
Value of additional production $/MWh 29 25 13 10
Additional water used ML/MWh 0.0016 0.0015 0.00095 0.0001
Value of marginal production $/ML 18,125 16,667 13,684 100,000
for water use
Note: 1. Based on ACIL Tasman power station models. 2. Pool prices received vary between generator types,
depending on when they generate power. Open cycle gas turbines are used for peaking power and generate when
pool prices are high. 3 Open Cycle Gas Turbines may use only small amounts of water to improve vapour performance
or emission control.
These values are average values for new generation capacity. Whether these
vary from marginal values is not known with certainty. However, they provide
52 International research includes: Renzetti, S. (1992). 'Estimating the Structure of Industrial

Water Demands: The Case of Canadian Manufacturing'. Land Economics, 68: 396-404,
Dupont, D.P. and S. Renzetti (2002). Water's Role in Manufacturing. Environmental and
Resource Economics, 18: 411-432, Renzetti, S. (ed.) (2002). The Economics of Industrial Water
Use. Northampton, MA: Edward Elgar Publishing.
53 ACIL Tasman, Report on NEM Generator Costs, Report for the Inter-Regional Planning
Committee, February 2005, pages 65 to 74.

some indication that the marginal value of production is likely to be higher

than the price at which water is currently trading in the eastern States.
There are no comparable figures available for the mining or pulp and paper
industries. In two of the case studies it was reported that the projects were
willing to purchase water access entitlements from local irrigators at current
prices. This suggests that the marginal value of water is at least as high as in
irrigation in these cases.
7.1.2 Implications of time of day pricing in electricity
Electricity prices in the National Electricity Market (NEM) can vary

significantly depending on time of day, season, outages, temperatures and
drought. The value of water to this industry can therefore also vary
significantly, depending on the time of day and part of the year that it is used.
Drought conditions could also affect the value of water to the power sector. In
a study of the impacts of constrained water flows undertaken by ACIL Tasman
for Delta Electricity and Macquarie Generation in 2000, the positive
correlation between water scarcity and high pool prices was noted54. During
drought periods, constraints on hydro-generation and cooling water for power
stations resulted in an increase in pool prices in the NEM. The scarcity value
of water to these power stations, and to the market as a whole, rose above that
of normal flow conditions.
7.1.3 Conclusions on the efficiency of water allocation
There is little information on the marginal values of water use in the mining,
power, and pulp and paper industries. Consequently, it is difficult to form
conclusions on the economic implications of the current efficiency of water
allocation between the mining and energy sectors and the rest of the economy.
However, the analysis of water trading prices in irrigated agriculture, the

evidence that MPEPP industries are willing to purchase water from the market
at current prices, and the significant differences in the average value of water
use between industries all suggest that water trading is more likely to lead to
higher value use in MPEPP industries.
54 ACIL Consulting, 6RFLR(FRQRPLF6WXG\RI&KDQJHVWR&R[·V5LYHU(QYLURQPHQWDO)ORZV, report

prepared for Delta Electricity and Macquarie Generation, September 2000, pages 66 to 68.

7.2 Impact on economic growth
7.2.1 General equilibrium modelling
One way in which the economic benefits of trading water can be estimated is
through the use of computable general equilibrium (CGE) modelling. Such
modelling was not included in the terms of reference for this brief. While there
has been some important work done in modelling the effects of water trading
in Australia, there appears to be no published analysis that focuses on the
impact on the MPEPP industries.
A paper prepared by staff from the Productivity Commission, for the 4th
Biennial Regional Modelling Workshop held in September 2004, used a CGE
model to estimate the effect of water trade in the Southern Murray-Darling
Basin55. This report focussed mainly on agriculture and included mining and
energy with other manufacturing. The study used the Monash TERM CGE
model developed by the Monash-based Centre of Policy Studies (COPS).
This work showed that expanding water trading lessened the impact of
reductions in water availability. As a result of inter-regional trade, value added
in the primary and services sectors, and the non-food processing, and
manufacturing sectors, declined in some regions as inter-regional water trade
was expanded. However, these declines were offset by increases in value added
in other regions. In other words, value added for the entire Southern Murray-
Darling Basin increases as water trade expands (Table 29).
55 Productivity Commission, ModellingWater trade in the Southern Murray-Darling Basin,

Staff Working Paper, D Peterson, G Dwyer, D Appels and J Fry, Melbourne, 19 November
2004.

Table 29 Sectoral differences in value added from expanded water trade ²

Murray-Darling Basin
Primary Food processing Other Services
Production manufacturing
Per cent Per cent Per cent Per cent

NSW
Murrumbidgee -40.9 47.7 7.9 -38.1
Murray -44.7 22.3 42.0 -40.9
Victoria
Mallee 41.9 47.8 -60.8 43.8
Goulburn 55.7 54.9 -13.7 56.3
Loddon 41.5 41.4 -9.5 43.2
Campaspe
Ovens Murray 74.1 45.8 25.2 68.5
South Australia
Murray Lands 77.8 63.6 156.6 73.3
Southern MDB 16.4 53.8 3.7 15.4
Data source: Water Trade in the Southern Murray-Darling Basin, Productivity Commission
A subsequent study using the same model showed that expanded water trading
had the potential to increase national welfare slightly, but concluded that its
greatest benefit may be in alleviating the need for investment in new water
supply projects.
The modelling estimated, for example, that value added per ML for the
industries of interest in this report would increase slightly in the Hunter Region
with the introduction of inter-regional trade in water.
The modelling results, comparing the situation of no inter-regional trade with

established inter-regional trade, are positive for the MPEPP industries. While
the differences are not great, the economic impacts are positive when growing
urban demands are assumed (see Table 30).

Table 30 Change in value added with the introduction of inter regional

trade by 2030 ² compared with 2001
Scenario Sector Value added Value added/GL
$ million
No inter-regional trade Wood and paper 120.5 128.2
Petroleum coal chemicals 462.3 335.3
Non metals mining 140.2 522.8
Electricity and gas 1,225.9 340.1
Inter-regional trade Wood and paper 121.8 129.3

Petroleum coal chemicals 465.6 337.5
Non metals mining 141.7 525.1
Electricity and gas 1,232.8 342.6
Percentage difference Wood and paper 1.1 per cent 0.9 per cent
Petroleum coal chemicals 0.7 per cent 0.7 per cent
Non metals mining 1.1 per cent 0.4 per cent
Electricity and gas 0.6 per cent 0.7 per cent
Note: Assumes desalination in major urban centres.
Data source0XOWLUHJLRQDOSURMHFWLRQVRI$XVWUDOLD¶VZDWHUGHPDQGVLQUHODWLYHWR
A further study completed by the CSIRO Water for a Healthy Country

Flagship, in conjunction with COPS, shows that trade in water reduced the
shadow price for urban water. The shadow price in Sydney, with trade, was
$2,840/ML compared with a cost of $7,650/ML without trade.
Table 31 Impact of expanded water trade on urban shadow water prices

in 2032 ² Dec 2005 prices
Location Current No trade Trade Trade plus Trade plus
water price desalination desalination
at $1.50 /kL at $1/kL
$/kL $/kL $/kL $/kL $/kL

Sydney 1.36 7.65 2.84 2.60 2.52
Melbourne 1.17 5.58 1.60 1.50 1.48
Brisbane ± Moreton 1.27 9.78 2.06 2.30 2.23
Adelaide 1.30 1.41 1.73 1.63 1.61
Perth 1.12 10.59 4.41 4.23 3.68
ACT 1.11 3.06 1.54 1.44 1.42
Data source: Without water ± The economics of supplying water to 45 million more Australians, CSIRO
These results are somewhat inconclusive for the purposes of this report and
there is no modelling available at the present time that focuses specifically on
the value of water to the MPEPP industries.

It would be important in future that such economic modelling address MPEPP

industries in more detail.
7.3 The value of reforms

In order to gain some insight into the value of NWI reforms to the MPEPP
industries, estimates of additional value added per ML for these industries were
made. As the case studies revealed many projects constrained by the availability
of water in the lower Murray-Darling Basin and the Hunter will only proceed if
they are able to purchase water access entitlements from the market.
Other projects are also subject to constraints on their sources of supply;

constraining expansion or requiring substitution of high cost sources of supply
from inter-basin transfers and the use of treated effluent.
7.3.1 Estimates of value added per ML
As discussed above, there is no data in the public domain on the value of

marginal production per ML. As an illustration, some estimates were made of
the additional value added that might arise with some of the MPEPP industry
projects identified in this report and for some agricultural water use. These
estimates are based on general enquiries of the mining sector, an examination
RIZDWHUWUDGLQJGDWDDQG$&,/7DVPDQ·VPRGHOVRIWKHHOHFWULFLW\VHFWRUDQG
coal mines. They are indicative only.
With no information on additional value added for aluminium smelting or iron

and steel production, no additional value added was attributed to these
industries.
It was assumed that the additional value added in agriculture was in the range
$100/ML to $2,000/ML (see Attachment C). This was based on an
examination of the price of water traded as summarised in Table 32, and
examination of gross margins, recognising that the latter more likely reflects
average not marginal values.
These values were then applied to the additional water use associated with the
MPEPP projects identified in the four catchments discussed in Section 6.

Table 32 Estimates of value added per ML

Industry Value added/ML
$/ML
Mining $5,000 ± 15,000
Black coal based electricity $20,000 ± $40,000
Combined cycle gas turbine for intermediate load $10,000-$20,000
2
Open cycle gas turbine for peaking load $50,000 -$200,000
Pulp and paper manufacture $15,000-$20,000
Coal mines $20,000 ± $40,000
Agriculture $100-$2,000
Note: 1. Based on limited data from ACIL Tasman models and industry. 2. Open cycle gas turbines only generate at
times of peak prices, often with capacity factors around 5 per cent. 3. Open cycle gas turbine peaking plants only use
small amounts of water and are unlikely to be constrained by impediments in trading markets or water allocation
mechanisms.
Data sources: ABS and ACIL Tasman
7.3.2 Estimate of economic impacts of NWI
Hunter catchment
At the present time, with an embargo on the issue of new commercial licences
in the Hunter catchment, new investment in coal mines and power projects are
not likely proceed unless water can be purchased in the market. The only
exception might be a proposed open cycle gas peaking plant which would use
only small quantities of water. The estimated net additional value added to the
economy from the proposed investment is an indication of the benefits that
could accrue from the full implementation of the NWI trading principles in the
Hunter catchment.
Table 33 shows the break up of additional water demand in the Hunter

catchment for the MPEPP projects over the projection period. The table
assumes that until 2009 all the additional water requirements for the minerals
industry and power would be purchased from currently under-utilised water
access entitlements in the agricultural sector. In principle this would not result
in a reduction in agricultural production as it draws on underutilised
entitlements. From 2010, water consumption would have reached the
entitlement limit for the catchment. If the additional demand were to be met
from purchase of further entitlements from the agricultural sector, it would
result in a reduction in agricultural production in the absence of increased
water use efficiency in that sector. Under this assumption, a total of around
28,000 ML/annum would be transferred from agriculture to MPEPP industries
by 2015.

Table 33 Change in water use by mining and industry, the Hunter

Catchment, ML, 2007-2015
Project 2007 2008 2009 2010 2011 2012 2013 2014 2015
ML ML ML ML ML ML ML ML ML
Coal mine 3,000 6,300 10,000 10,800 10,800 10,800 10,800 10,800 10,800
Smelter 12 312 312 312 612 612 612 612 612
Iron and steel 0 780 780 780 780 780 780 780 780
Coal power
0 0 0 0 0 0 7,884 15,768 15,768
station
Open gas cycle
0 0 13 13 13 13 13 13 13
for peaking1
Total change in
water use in
3,012 7,392 11,105 11,905 12,205 12,205 20,089 27,973 27,973
MPEPP
industries
Change in
water use in -12,205 -12,205 -20,089 -27,973 -27,973
agriculture
Note: 1. Open cycle gas turbine peaking plants do not use large quantities of water and may not be constrained by the
embargo on issue of commercial licences.
Using the average value added per ML of water used, as shown in Table 32 and
Attachment C , and the change in water consumption by industry in Table 33,
the increase in net value added in each year was calculated for the high and low
cases. The results are summarised in Table 34. The methodology for these
calculations is included in Attachment C.
Table 34 Value added from new projects in the Hunter catchment

2007 2008 2009 2010 2011 2012 2013 2014 2015
$m $m $m $m $m $m $m $m $m
High case 252 403 435 410 410 710 1,009 1,009 1,009
Low case 126 201 217 215 215 372 529 529 529
Note: This table is based on assumptions of additional value added and assumes that MPEPP industries would source
water through purchase of water access entitlements from irrigated agriculture. Note: no value has been attributed to
aluminium smelting or steel production because of lack of data.
If the proposed MPEPP projects proceeded, and after allowing for a reduction
in agricultural output from 2010, the net value added could increase by
between $215 million and $410 million annually by 2010. Allowing for a
reduction in agricultural output, the net increase in value added would be
between $529 million and $1 billion annually by 2015.
These figures are provided to demonstrate the possible impact on economic

activity of developments that might be viable with a fully operational trading

market. It must be emphasised that the values are indicative only and depend
on numerous assumptions.
Fitzroy Basin catchment
The Fitzroy Basin catchment includes 24 potential new coal mines and one
potential new nickel mine. If these were to eventuate, the additional water
demand could be as shown in Table 35. Overall, the catchment does have
unallocated water, but efficient investment will depend on the full
implementation of the NWI.
Table 35 Increase in water use in mining and industry in the Fitzroy Basin
catchment, ML, 2007-2015
Project 2007 2008 2009 2010 2011 2012 2013 2014 2015
Coal mine 3,120 6,000 12,140 12,640 16,840 17,840 21,040 21,040 21,040
Nickel mine - - - 37 37 37 37 37
Total change in
12,140 12,640 12,640 19,840 20,840 24,040 24,040 24,040 26,440
water use
Based on the increased water use in Table 35 and the indicative additional
value added per ML in Table 32, high and low estimates of the additional value
added from mining projects utilising the water resources in the catchment, are
provided in Table 36.
Table 36 Value added from additional projects in the Fitzroy Basin

catchment
2007 2008 2009 2010 2011 2012 2013 2014 2015
$m $m $m $m $m $m $m $m $m
Value added high 240 486 506 674 714 842 842 842 938
Value added low 120 243 253 337 357 421 421 421 469
Note: Not necessarily dependent on purchase of water access licences.
The additional value added from new mining projects in the Fitzroy Basin
catchment could lie between $337 million and $674 million annually by 2010
and $470 million and $938 million annually by 2015. These projects would
benefit from the full implementation of the NWI, from best practice pricing
for all sources of water, and from integrated management of groundwater and
surface water.

Moreton Catchment
The Moreton catchment has six potential new projects, including the proposed
Swanbank paper mill, four gas open cycle peaking power stations and a steel
mill. If these were to eventuate, the additional water demand could be around
4,500 ML/annum, as shown in Table 37. The water is not fully allocated but is
likely to be subject to inter-basin pipeline links and potential use of urban
waste water as a source for the projects. Efficient investment will depend on
best practice pricing policies and an efficient market for all sources of water
supply.
Table 37 Increase in water use in mining and industry in the Moreton

Catchment
Project 2007 2008 2009 2010 2011 2012 2013 2014 2015
Iron and steel - - - 525 525 525 525 525 525
Pulp - 4,017 4,017 4,017 4,017 4,017 4,017 4,017 4,017
Gas peaking
power stations 13 13 13 13 13 20 20 20 26
Total increase in
water use by
MPEPP 13 4,030 4,030 4,555 4,555 4,562 4,562 4,562 4,568
value added per ML in Table 32, high and low estimates of the value added
from projects utilising the water resources in the basin are provided in Table
38.
Table 38 Value added from additional projects in the Moreton

Catchment
2007 2008 2009 2010 2011 2012 2013 2014 2015
$m $m $m $m $m $m $m $m $m
High value 3 123 123 123 123 124 124 124 126
Low value 1 61 61 64 64 64 64 64 64
Note: Not necessarily dependent on purchase of water access licences.
The additional value added from new mining projects in the Moreton
catchment could lie between $64 million and $123 million annually by 2010.
These projects will benefit from the full implementation of the NWI,
particularly from the development of trading markets, and the implementation
of best practice pricing policies for all sources of water, including water
transferred into, or out of, the catchment.

Goldfields region
The Goldfields region includes 25 potential new minerals projects. If these

were to proceed, the additional water demand could be some 35,000
ML/annum, as shown in Table 39.
Water consumption in the catchment is not likely to exceed supply over the
forecasting period. However, there are some areas of competing use, between
minerals, agriculture and urban uses. In addition, use of hyper-saline
groundwater is a concern that may require augmentation of supplies to the
region, either through the augmentation of the Goldfields and Kalgoorlie
pipeline, or a desalination plant. Best practice pricing and trading mechanisms
will be critical for efficient development.
Table 39 Increase in water use in mining and industry in the Goldfields

region
Project 2007 2008 2009 2010 2011 2012 2013 2014 2015
Mining projects 28,644 32,869 32,970 34,632 34,681 34,709 34,713 34,790 34,809
value added per ML in Table 32, high and low estimates of the value added
from minerals projects utilising the water resources in the basin, are provided
in Table 40.
Table 40 Additional value added from mining projects in the Goldfields

region
Project 2007 2008 2009 2010 2011 2012 2013 2014 2015
$m $m $m $m $m $m $m $m $m
High value added 430 493 495 519 520 521 521 522 522
Low value added 286 329 330 346 347 347 347 348 348
Note: Estimates are illustrative only. Value of additional production may vary significantly between mining projects
Data source: Industry supplied data
The additional value added from new minerals projects in the Goldfields
region could lie between $346 million and $519 million by 2010. The water
requirements arising from these projects will not be totally dependent on water
markets. However, NWI policies will contribute to more efficient decision
making and will be critical if supplies are to be further developed by
augmentation of supplies to the region.

7.4 General observations

The economic benefits that could accrue from the implementation of the NWI
arise from the potential for water from the consumptive pool to be traded to
the highest value use.
In catchments such as the Hunter, where there is an embargo on new water

access entitlements for commercial purposes, water trading will be required for
the projects that proceed.
The large difference between the average value added per ML of water use
between the MPEPP industries and other sectors, suggests that economic
benefits will accrue if water can be traded between different sectors.
There is no reliable data on the marginal value of production between MPEPP

industries, agriculture and urban users. Estimates made in this report suggest
that trade in water access entitlement from agricultural enterprises to MPEPP
industries, would, in general, result in this water being distributed to higher
value use.
In the four catchments studied, a total additional water use by the MPEPP
industries of 122,000 ML/annum, less a reduction of 27,000 ML/annum in use
by agriculture in the Hunter catchment, is involved. Based on these estimates
and the indicative estimate of the additional value added per ML, this was
estimated to produce a net increase in value added of between $1,096 million
DQGPLOOLRQDQQXDOO\E\%\FRPSDULVRQ$XVWUDOLD·V*'3ZDV
around $820 billion in 2004-05. The Hunter catchment discussed above,
however, provides a direct indication of the value of introducing a trading
market consistent with the NWI principles.
The introduction of efficient water markets and best practice pricing for all
sources of water is critical for efficient investment in water infrastructure and
water use efficiency. However, the total package of policies under the NWI is
fundamentally important to the MPEPP industries. With future water supplies
likely to be more restricted than in the past, the efficiency with which water is
used and allocated to the highest value uses, becomes increasingly important.
The more efficiently water is allocated between different classes of use, the less
the finite nature of the water resource and the variability of supply will impact
on economic growth. This is the ultimate economic impact of the NWI for
Australia.

8 Conclusions and recommendations

This report examined water policy issues for MPEPP industries through five
project case studies, an analysis of the prospective water demand from future
MPEPP projects, and an examination of four catchments of specific interest.
The analysis confirmed the importance of the policies and principles of the
NWI to future investment in, and economic returns from, the MPEPP
industries.
However, the policy agenda for MPEPP industries differs in some respects
from that for urban and agricultural use; a different focus on policy issues and
priorities will be required.
The following sections summarise the policy issues and priorities for MPEPP
industries that have emerged from this analysis. Recommendations arising
from it are included at the conclusion of the discussion.
8.1 General observations
The project case studies illustrate the complex arrangements for water use and
supply that are characteristic of MPEPP industries. Summary tables of water
use and sources, and access arrangements and infrastructure, for the five case
studies are included at Attachment B.
All of the case studies, apart from CSG, are major consumers of water in their
region and water is an essential input to production. Some mining projects
produce water from mine dewatering, which can be recycled, reinjected or
discharged to water courses. In the CSG case, discharge water is used by local
farmers.
The sources of water include surface and groundwater, purpose built storages,
re-use, water released in production, treated waste water and water purchased
from the market.
The case studies illustrate the investment in water recycling and water use
efficiency that has been undertaken more generally in many MPEPP industry
projects. In the case of Loy Yang A, total water consumption has been reduced
by 42 per cent since 1991 through water use efficiency measures.
Four of the projects source a component of their water from municipal and
local water authorities. The Cadia project uses treated wastewater. Treated
Conclusions and recommendations 131

effluent is also under consideration for supply to power stations in the Latrobe
Valley and in south east Queensland.
All projects invest in water treatment to meet environmental standards for

discharge to the environment.
Further investment at the Cadia, Norske Skog and Yabulu projects is

constrained by uncertainty over water supply. Constraints on the operation of
water markets are impeding developments in two of these cases. Concern over
access to groundwater is a constraint on a third.
The studies of the four catchments revealed that, while not all catchments are
over-allocated, the reforms proposed under the NWI are important for
efficient allocation of water resources between industries, and for efficient
investment by MPEPP industries. In the case of the Hunter catchment and the
lower Murray-Darling Region, efficient investment by MPEPP industries is
constrained by impediments in water markets that are being addressed under
the NWI.
Governments and industry are considering investments in regional schemes to

transfer water between catchments. The Eastern Water Recycling Proposal for
the Latrobe Valley and the proposed South East Queensland Pipeline Grid are
examples of schemes that could change the way in which MPEPP projects
access water in those areas. Saltwater desalination, such as the proposed
investments at Esperance for the Goldfields region, is being seen as potentially
competitive for mine supply a long distance from the coast, because of the
opportunity to resolve reliability and quality concerns in respect of a key input.
Where externalities in water markets exist, there is likely to be a case for

intervention by governments in the distribution of water between consumptive
and non-consumptive uses. However there is a risk that inefficiencies in
market operations could result in non-optimal outcomes where market
structures are still not fully developed.
There is, therefore, a corresponding need to limit regulatory and market failure
and, where possible, to move towards improving markets to the point where
constraints and interventions can be progressively minimised.
8.1.2 Potential new projects
The report identified 252 potential MPEPP projects that could arise over the
period 2006 to 2015 (including projects that commenced in 2006). These tend
to be concentrated in Queensland, Western Australia and New South Wales.

If these projects were to proceed, total additional annual water consumption by

MPEPP industries could be around 430,000 ML/annum by 2015. By
comparison, this is in the order of 69 per cent of total Sydney consumption.
This would represent an increase of around 50 per cent over the 2006 level of
consumption by these industries
There is little information available to assess the economic implications of

reform for MPEPP industries. Most of the current general equilibrium
modelling focuses on irrigated agriculture, urban supplies and environmental
flows.
Some estimates were made in this report based on assumptions about value
added by representative projects. Using these assumptions, it was estimated
that new projects in the Hunter catchment could add between $215 million and
$410 million annually to GDP by 201056. However, with an embargo on
applications for new commercial licences in this catchment, these projects
would need to acquire water access entitlements from current users. This
example underlines the importance of developing efficient trading market as
provided for under the NWI.
8.2 Summary of policy issues

The project case studies illustrated that, for full realisation of the benefits of
the NWI, it is essential that legislative amendments and water resource plans
are completed for all water sources, including surface and groundwater. The
Cadia and Yabulu case studies demonstrated how incomplete implementation
is impeding further investment.
Minerals industry and petroleum legislation is not always consistent with NWI
policy, as illustrated in the Yabulu and CSG cases. As reforms are
implemented, other relevant legislation should be reviewed for consistency
with the NWI.
Efficient water markets are important for both over- and under-allocated
catchments. In over-allocated catchments, water supplies for MPEPP projects
will only be available from the market. This is the case for the Hunter
catchment, for example. In under-allocated catchments, efficient investment
decisions depend on the price signals from the market.
There are major inconsistencies in the operation of water markets between

surface and groundwater, discharge water and treated effluent. This was
56 These estimates are for direct value added associated with the trading of water between
irrigated agriculture and the MPEPP industries in the Hunter catchment and do not take
account of indirect effects such as output changes in other sectors of the economy.

illustrated in all the minerals industry case studies. Until these issues are
addressed, prices will not necessarily reflect the full opportunity cost of water
from different sources. This will promote inefficient investment decisions by
industries and governments.
Recycled discharge water and treated effluent from urban centres are important
sources of water for some mining and minerals processing. The CSG and
Cadia studies demonstrate this.
Jurisdictions should ensure that market rules for all classes of water are
developed so that groundwater, surface water and recycled and waste water can
be traded to the highest value use. Early resolution of trading principles and
market arrangements is critical for priority catchments relevant to MPEPP
industries.
Constraints on trade continue, particularly for high security entitlements that

are important for MPEPP industries. The Productivity Commission has made
recommendations deserving early attention, including:
unbundling of water use approvals and entitlements;
unbundling of water access entitlements and delivery entitlements;
removing restrictions on who can participate in water trade;
phasing out exit fees in the longer term;
decoupling exit fees from entitlements in the medium term;
reviewing constraints on trade in seasonal allocations; and
benchmarking processes and costs for transfer of water access entitlements.
The ACCC has also developed recommendations for reform of distribution

charges and exit fees over a nine year timeframe.
In addition, the NWC has been assessing States' progress on removing barriers
to trade.
A report on Water Trading, released by the Department of Prime Minister and

Cabinet in June 2006, further develops these themes57.
It is important that governments give early consideration to these issues in high

priority catchments for MPEPP industries.
Clear policies and practices for defining the resource share of the consumptive
pool are required. This is of particular importance for defining resource shares
57 Department of the Prime Minister and Cabinet, National Water Initiative, Water Trading Study,
Price Waterhouse Coopers, June 2006.

in water storages developed by MPEPP operations, as illustrated in the Cadia

case study. It applies also to the consumptive pool in general.
In some circumstances mining projects may require a volumetric entitlement

over the life of the project rather than an access entitlement to the
consumptive pool. This was identified as an issue in Western Australia but
applies generally.
Integration of surface and groundwater management is a high priority for

MPEPP industries and should be accelerated in priority catchments. The
Yabulu case study illustrates the importance of this issue.
The status of water produced from mine dewatering needs to be determined.

The CSG case study illustrated this issue but it applies more generally.
Requests to re-use or sell discharge water would best be handled on a case by
case basis but should be treated in a consistent manner with the rest of the
water market.
Security of supply is important to all MPEPP industries. In practice,

management of high security versus general security water is generally done via
notional allocations of shares of capacity in the storage systems, based on
hydrological modelling. High security water might, for example, require three
to four times the nominal capacity to sustain its reliability. The possibility exists
of allowing trade in shares of capacity in storage that would allow the market
to determine an appropriate mix of cost and reliability.
Future supply risk management will depend on efficiently functioning water

markets. Risk management products are likely to be an important part of future
water markets, and market rules must facilitate their development.
Uncertainties associated with drought periods are critical factors in

consideration of water availability for MPEPP industries. Management of risk
associated with periods of water shortage is important in all catchments,
regardless of the degree to which they are fully allocated.
Inefficiencies in water markets are likely to transfer to electricity markets as

illustrated in the Loy Yang project. Discussion of the Moreton catchment also
emphasised that the value of high security water to power stations in periods of
high pool prices is likely to be higher than in normal periods. Any inefficiency
in these markets² inclusive of inefficiently limited flexibility with respect to
timing of access to water as well as total volumes over time ² is likely to have a
significant effect on the efficiency of electricity markets during drought
periods. This highlights the potential role for trading in the timing of water
usage as well as in allocations.

Community concerns over the availability of future water supplies and the role
of waste water in the supply mix have created pressure for governments to
intervene in water markets. This is shown in the Loy Yang case. This may lead
to requirements to limit surface and groundwater use by MPEPP industries or
to substitute treated effluent for traditional supplies. Consideration is being
given to regional schemes to transfer water and waste water between regions
and consumptive use.
These schemes may be candidates for government funding, such as through

the Australian Government Water Fund. It is critical that best practice pricing
policies and efficient markets are developed, and apply where such financial
assistance is granted, to ensure that investment decisions are based on the full
opportunity costs of supply options.
It is important that governments build community understanding of, and

confidence in, the management and operation of water markets as an efficient
mechanism for ensuring that water from the consumptive pool is used
efficiently.
8.3 Priorities
Water reform will take up to ten years to complete. Some prioritisation will be
required if policy issues of concern to MPEPP industries are to be advanced.
Governments have concerns over the sustainability of the consumptive pool

for water in Victoria and NSW and in south east Queensland. Demands on
groundwater and surface water resources in the Goldfields and Pilbara regions
of Western Australia raise questions over longer term supplies, competing
demands in regions, and the use and treatment of hyper-saline water.
Areas that might be considered as high priority reforms relevant to MPEPP

industries are likely to include:
Lower Murray-Darling Basin;
Hunter catchment;
Fitzroy Basin and Burdekin catchments;
Goldfields and Pilbara regions;
Latrobe Valley;
Torrens and Fortescue Rivers; and
South East Queensland and the Moreton Catchment.
However, other regions also have the potential for significant projects or
expansions to existing projects. For example, serious consideration is being

JLYHQWRVHDZDWHUGHVDOLQDWLRQDVD¶QRQ-FRPSHWLWLYH·VRXUFHRIVXSSO\WR
important mining and minerals processing sites, including Roxby Downs
(where BHP Billiton and the SA Government are considering a joint project to
supply the mine and some regions of SA) and the Goldfields region (where
United Utilities is looking to expand potable supply to the region from a
desalination plant in Esperance). Such regions may also deserve priority
attention.
Policy makers will need to prioritise the catchments most in need of timely
reform from the point of view of MPEPP industries.
Until full implementation of the NWI is achieved (including the full integration
of surface and groundwater management, fully operational trading and efficient
markets in all water sources), paragraph 34 will provide a mechanism to
address weaknesses in water markets for mining and petroleum industries and
to allow for specific issues such as volume related entitlements for the life of
the mine.
8.4 Recommendations
In addressing the policy issues identified in this report, the following matters
deserve further attention, particularly in regions and catchments considered
high priority for MPEPP industries, and for the Australian economy.
1. Given the importance of trade in entitlements and allocations to these
industries, development of water markets should be given high priority.
Key objectives include:
± clear specification of entitlements and trading rules with minimal
impediments to trading;
± secure and enforceable entitlements that are transferable and divisible;
± separation of water access entitlements from water allocation and
distribution;
± trading rules that maximise participation; and
± rationalisation or removal of impediments to the efficient operation of
trading markets, such as exit fees and restrictions on market
participants.
2. Development of markets for water trading should be made consistent
between surface water, groundwater, waste water and treated effluent:
± governments should harmonise legislation and administrative
arrangements so that trading in all sources of water is consistent; and
± impediments to the sale of treated and untreated effluent from mines
and water produced from mine dewatering should be addressed.

3. Legislative amendments and water resource plans should be extended to all

water sources, including surface and groundwater in priority regions.
4. Petroleum and minerals industry legislation should be amended, where
necessary, to bring it into line with the principles of the NWI, particularly
the principles for trading set out in Schedule G of the NWI.
5. The full development of market instruments and products will be
important for risk management in all sectors but particularly for the
MPEPP industries:
± This should be taken into account in reform of water markets.
6. Development of consistent, and possibly joint, management of access
arrangements for surface water and groundwater should be given higher
priority.
7. To the greatest extent possible, governments should aim to allow well
defined water markets to resolve the distribution of available water
resources between users. While market mechanisms are being developed,
governments should ensure that interventions in the market are based on a
full and rigorous cost benefit analysis of available options:
± projects assisted by governments (for example, through the Australian
Government Water Fund) should adopt best practice pricing policies as
formulated in response to jurisdictions' NWI commitments.
8. Improving community understanding of the advantages of well designed
water markets as the most efficient means of distributing water
entitlements and allocations between users from within a sustainable
consumptive pool should be given higher priority. In addition, there will be
a continued need for all major water users to engage with communities to
address any areas of concern, and where practical, accelerate efforts to
improve the efficiency of water use and management of all water resources.
9. The option to activate paragraph 34 of the NWI should be retained as an
avenue for addressing issues of specific concern to mining and petroleum
industries that will remain for as long as the reforms under the NWI are
not fully implemented.
10. High priority catchments should be identified for early attention in relation
to the above recommendations. Additional work should be undertaken on
a national basis to identify catchments where a major increase in water
demand is expected.

A National Water Initiative

A.1 Overview of the National Water Initiative
7KH1:,LV$XVWUDOLD·VVWUDWHJ\IRUQDWLRQDOZDWHUUHIRUP$OOJRYHUQPHQWV
signed the NWI on 25 June 2004, except for Tasmania and Western Australia.
Tasmania signed the agreement in June 2005 and Western Australia in April
2006.
The overall purpose of the NWI is to achieve a national system for water
regulation, water resource planning, and water trade that optimises the
following outcomes:
economic ² for example, full recovery of all costs, including capital,
operational, administrative and maintenance;
environmental ² maintaining ecosystem function, water quality, and river
health; and
public benefit ² amenity value, cultural significance, recreation and public
health.
A.2 Key elements

Under the NWI, governments have agreed to commitments and outcomes on
the following key elements:
water access entitlements and planning framework;
water markets and trading;
best practice water pricing;
water resource accounting;
management of environmental and public benefit outcomes;
urban water reform;
knowledge and capacity building; and
community partnerships and adjustment.
Each of these is briefly discussed below.
A.2.1 Water access entitlements and planning framework
The use of water by residential, agricultural and industry sectors (called

consumptive use) generally requires a water access entitlement. As discussed
above, these entitlements are determined by State government policy and,
National Water Initiative A-1

increasingly, are being articulated in water plan documents. Most State and
Territory governments have developed, or are developing, statutory water
plans for ground and surface water in consultation with all relevant
stakeholders.
For water access entitlements and planning, key outcomes from the NWI
include:
returning all over-allocated systems to environmentally sustainable levels by
2010;
operation of measures to deal with water interception by land use change
activities (i.e. farm dams and bores, large-scale plantation forestry and
storing of overland flows) by no later than 2011;
establishment of public registers of all water access entitlements by 2006;
enhancing investor certainty by specifying entitlements and WSPs under
statutory law; and
consideration of environmental and social outcomes in statutory water
plans.
The definition of water access entitlements is as follows. They:

allow the entitlement holder ongoing, exclusive, access to a defined amount
of water, separate from land;
can be traded;
can be mortgaged;
can be sub-divided or amalgamated; and
will be recorded in public water registers by the end of 2006, stating who
owns the entitlement and the nature of any burdens on it:
± in a step towards establishing the registers, the NWC Working Group
SUHSDUHGDUHSRUWWLWOHG¶&RPSDWLELOLW\RI:DWHU5HJLVWHUV·in September
2005.
The NWI recognises that in some cases there may be water management
considerations for the mining and petroleum sectors that are not fully covered
by its arrangements. Specifically, paragraph 34 of the NWI states:
´«WKHUHPD\EHVSHFLDOFLUFXPVWDQFHVIDFLQJWKHPLQHUDOVDQGSHWUROHXPVHFWors that
will need to be addressed by policies and measures beyond the scope of the NWI
Agreement. In this context, the Parties note that specific project proposals will be
assessed according to environmental, economic and social considerations, and that
factors specific to resource development projects, such as isolation, relatively short
project duration, water quality issues, and obligations to remediate and offset impacts,
may require specific management arrangements outside the scope of this agreement.µ

A.2.2 Water markets and trading
The States and Territories have agreed to facilitate efficient water trade where
water systems are physically shared or hydrologic connections allow trade. In
the NWI, governments agreed to:
fully remove institutional barriers to water trade by 2014;
facilitate intra- and inter-regional trade (i.e. trade will not be confined to
within a catchment);
establish public registers of all water trades in each State and Territory by
2006; and
set up compatible institutional and regulatory arrangements that facilitate
trade by the end of 2007 (for example, trading zones, water tagging and
trading rules).
A.2.3 Best practice water pricing and institutional arrangements
Governments have agreed to implement pricing policies for water storage and
delivery in rural and urban systems that facilitate efficient water use and trade
in water entitlements, through the following actions:
use of consumption-based pricing and full cost recovery;
± continued movement towards upper bound pricing58 for metropolitan
water use by the end of 2008;
± continued movement towards lower bound pricing59 for rural and
regional water use;
± eventual achievement of upper bound pricing, if possible, for rural and
regional water use, as an ongoing target;
consistency of pricing policies across jurisdictions (where entitlements are
able to be traded) by the end of 2006;
development of pricing policies for recycled, stormwater and trade wastes
by end 2006; and
ensure that the roles of water resource management, standard setting,
regulatory enforcement and service provision continue to be separated
institutionally.
58 According to the NWI, upper bound pricing is the level at which a water service provider
should not charge more than the operational, maintenance and administrative costs,
externalities, taxes and the provision for the cost of asset consumption and cost of capital.
59 According to the NWI, lower bound pricing is the level at which a water business is
commercially viable by recovering operational, maintenance and administrative costs,
externalities, taxes, cost of debt, dividends and provision for asset refurbishment.

A.2.4 Water resource accounting

In the NWI, governments aim to enhance public and investor confidence in
the system by:
setting in place adequate and reliable systems to account for water
resources by the end of 2006;
± systems will record water source, location, volume, security, use, and
environmental and outcomes sought.
implementing accurate and reliable metering and measurement systems by
the end of 2007; and
developing and applying national guidelines for water reporting by the end
of 2007.
A.2.5 Management of environmental and public benefit outcomes
Governments agree to develop environmental and public benefit outcomes

under the new planning framework. Agreed actions under this area of water
reform include:
implementing management practices that will achieve environmental and
public benefit outcomes, for example:
± establishing joint arrangements where resources are shared between
jurisdictions;
± the ability of environmental water managers to trade water on
temporary markets at times when it is not needed for environmental
and public benefit outcomes; and
± periodically audit, review and report on the achievement of
environmental and public benefit outcomes.
A.2.6 Urban water reform
In relation to urban water reform, it has been agreed that the States and
Territories will:
apply demand management initiatives by the end of 2006, for example, the
Water Efficiency Labelling Scheme (WELS), Smart Water Mark (for
gardening equipment, designs and plants) and extension of low level water
restrictions as standard practice;
facilitate trade between urban and rural water;
promote recycling and re-use of water;
improve metropolitan pricing;
encourage innovation in water supply sourcing, treatment, storage and
disposal by the end of 2006; and

ensure quality and security of water supply in towns and cities.
A.2.7 Knowledge and capacity building
The NWI agreement identifies a number of areas of knowledge and capacity

building needs for the ongoing implementation of the NWI, including:
regional water accounts and their availability over time;
the effect of climate change on water availability; and
interaction between surface and ground water.
States and Territories have agreed to:

identify significant knowledge needs for ongoing implementation of the
NWI; and
apply the necessary measures to more effectively coordinate and publicise
the national water R&D effort, as a continuing target.
A.2.8 Community partnerships and adjustment
In the NWI, the States and Territories aim to gain community confidence
through:
open and timely community consultation;
the provision of reliable information to key stakeholders on the progress of
water plan implementation; and
developing and applying better monitoring, measurement and reporting
methods and allowing public access to this information.

A.3 Timetable for implementation





B Water use and access arrangements

for case studies
Table 41 Water uses and sources- case studies
Case study Water use Water source Water uses Recycling/re-use
(ML/annum)
Cadia Valley 17,774 Multiple sources: Belubula Processing water (main use), dust Yes
River, Cadiangullong Dam, suppression, water for underground
effluent water from Orange City, mine, environmental flows release
runoff water from rainfall, water form Cadiangullong Dam
recovered from concentrate
(recycled water), groundwater
seepage into the mine, Flyers
Creek weir.
Norske Skog mill 3,500 All water is sourced directly from Process water, cooling water, steam Yes
the Murray River at Albury generation and potable water use.
Loy Yang A 34,548 (made up Low quality water, supplied from For steam generation, cooling and Yes
of 33,464 ML of Blue Rock Dam on the Tanjil mine fire services
low quality water River. High quality water is
and 1,084 ML of pumped from Moondarah
high quality reservoir, groundwater is
water) sourced from nearby Loy Yang
mine
CSG Minor Water is released from coal The water released is used in the Part of the water
Surat/Bowen seams in association with gas operation, injected back into the released by CSG
ground, released into waterways and production is re-
used by local farmers for stock used in production.
Yabulu 8,000-9,000 Groundwater (mainly), local Process water, boiler feed water, Yes
river/dam, onsite bores, recycled potable water, fire water, service
water, effluent water
Data source: Loy Yang Power, Norske Skog, Newcrest, BHP Billiton, APPEA
Water use and access arrangements for case studies B-1

Table 42 Water access arrangements and infrastructure ² case studies

Case study Water access arrangement Water supply infrastructure Ownership of infrastructure
Cadia Valley Water from Belubula River is Water pumped from Belubula River by Newcrest owns the entire water
accessed via a high security and a pipeline. Water is also suppled from supply infrastructure for the
low security water licence. This Cadiangullong Dam, a purpose built Cadia operation, with the
water can only be accessed when water storage constructed in 1996 to exception of the Orange-Cadia
certain flow conditions are met in supply water to Cadia. Effluent water pipeline. The latter was funded
the river. received from Orange City is supplied by by Newcrest but ownership is
a buried pipeline. Recycled water from vested in the Orange City
Balyey is supplied via a buried pipeline. Council. At the end of mine life,
Runoff water from rainfall is collected in the ownership of the
site runoff dams and water collection Cadiangullong Dam reverts to
ponds. A weir has also been constructed the local government/water
by Newcrest on Flyers Creek. supply authority.
Norske Skog mill High security water surface Water supplied from Murray River by a Pipelines owned and
licence with NSW Government. In purpose built pipeline. Cooling water is maintained by Albury City
addition, water supply agreement returned to the Murray River via a Council. Water treatment and
with Albury Council. Embargo second pipeline. A water treatment and recycling facility owned by
exists on groundwater licences in recycling facility is located on site. Norske Skog.
the Murray Valley.
Loy Yang Power LYP holds a 40 GL/annum bulk High quality water is pumped via Gippsland Water owns the high
entitlement to low quality water pipeline to Loy Yang from Moondarah quality water supply
and a long term contract with Reservoir via two further storage infrastructure to the point of
Gippsland Water for high quality reservoirs, before being gravity fed to supply to LYP treatment plants.
water. A separate entitlement is the LYP treatment plants. Low quality LYP owns the low quality water
held for extraction of groundwater water is released from Blue Rock Dam supply infrastructure. The Blue
for mine stability purposes in the Latrobe River from where it us Rock Dam was purpose built by
pumped 25 km to a storage reservoir SECV to supply low quality
from which it is gravity fed into the LYP water to LYP and is owned by
low quality water system Southern Rural Water.
CSG Surat/Bowen Water supplied free to local users Pipelines installed by users or Water user
(stock) by arrangement. transported by truck.
Yabulu Queensland Nickel Agreement 20 bores at Black river and associated All owned, operated and
1970. pumps, pipelines, 2 spur pipelines linked maintained by Yabulu
to municipal water pipeline. 2 bores
onsite.
Data source: Loy Yang Power, Norske Skog, Newcrest, BHP Billiton, APPEA
Water use and access arrangements for case studies B-2

C Estimates of value added

C.1 Industry estimates
There are no reliable estimates of value added per ML of water for the mining,
energy, or pulp and paper sectors. Changes in average value added per ML of
water used between 2001-02 and 2004-05, are shown in Table 43. These
figures are not helpful for this discussion as they include both the effects of
drought and changes in technology.
Table 43 Change in value added and water use by selected sectors

Agriculture, Metal Wood &
forestry & Coal ore Other paper Electricity
fishing mining mining mining products and gas
Gross value added
Gross value added
2000-01 $m 26,031 7,342 8,584 1,486 6,604 13,056
Gross value added
2004-05 $m 26,635 10,146 11,468 1,406 6,934 13,097
Change in value
added $m 604 2,804 2,884 -80 330 41
Water consumption
ML 2001 12,191,372 117,803 229,791 53,716 99,238 271,220
Water consumption
ML 2005 16,660,381 99,119 172,766 39,485 104,979 255,024
Change in water
consumption GL -4,469,009 18,684 57,025 14,231 - 5,741 16,196
Change in value
added/change in Water Water Water
water consumption consumption consumption consumption
$/ML declined 150,088 50,583 declined declined 2,531
Data source: Australian Bureau of Statistics publications
The following (extremely) indicative estimates provide some base points for
WKHDQDO\VLVRIWKH´SRWHQWLDOµLPSDFWVRQDGGLWLRQDOYDOXHDGGHGSHU0/of
water used in new MPEPP projects.
Estimates of value added C-1

C.2 Mining
Value added per ML for the minerals industry is likely to vary significantly. An
estimate has been made for a metal mine, which is not necessarily
representative but gives some indication of a possible number.
Value added is measured by the ABS as returns to labour and capital plus taxes
and subsidies. Estimates of wages and salaries for a representative mine are
shown in Table 44 . Data on the return on capital for this representative mine
were not available. The return on capital might be approximated by interest
and depreciation for the purposes of this exercise. There was no data on
interest payments for this representative example but an estimate of
depreciation was available. There was no information on taxes and subsidies.
Table 44 Mining example

Mine Estimate
$
Wages and salaries 50,000,000
Depreciation 20,000,000
Interest n/a
Taxes plus subsidies n/a
Total 70,000,000
Additional water 5,500
Marginal value added per ML 12,727

For the purpose of this analysis a range of $5,000/ML to $15,000/ML has

been assumed. This compares with the average value per ML in mining of
between $25,000/ML and $50,000/ML.
C.3 Coal
The estimates for coal are based on internal models prepared by ACIL
Tasman. Estimates of wages and salaries and depreciation for a representative
mine were made. As with the mining case above, there was no information on
which to base reliable estimates of interest or taxes and subsidies.
Using these assumptions, additional value added per ML was calculated as

shown in Table 45. The additional value added for a representative coal mine
might fall between $20,000 and $40,000/ML. This does include estimates of
return on capital or taxes and subsidies. The average value added per ML for
coal mining in Australia was around $85,000/ML.

Table 45 Estimates of additional value for coal mine

Black coal
Low water usage High water usage

Additional value added for a
representative coal mine
Wages and salaries $/tonne 3 3
Depreciation $/tonne 6 6
Taxes plus subsidies n/a n/a
Total $/tonne 9 9
Water consumption ML/ tonne 0.0002 0.0004
Additional value added $ per ML 42,857 23,684

C.4 Electricity generation

(VWLPDWHVIRUHOHFWULFLW\JHQHUDWLRQDUHEDVHGRQ$&,/7DVPDQ·VPRGHOVRI
power stations. Estimates of short run marginal cost were deducted from
indicative pool prices for representative power stations. The pool price is
varied in recognition that different power station technologies are most
economic for base, intermediate and peak loads. For example, coal is generally
base load and gas is intermediate to peak load.
The short run marginal costs were calculated for the National Electricity
Market Management Company60.
Table 46 Value added per ML in electricity generation

Combined Open
Cycle Gas cycle gas
Indicator Units Brown coal Black coal Turbine turbine
Return per MWh $/MWh 33 40 45 60
Short run marginal cost $/MWh 4 15 32 50
Value of additional production $/MWh 29 25 13 10
Additional water used ML/MWh 0.0016 0.0015 0.00095 0.0001
Short run value marginal
product $/ML 18,125 16,667 13,684 100,000
Data source: ACIL Tasman modelling
60 ACIL Tasman, Report on NEM Generator Costs, Report for the Inter-Regional Planning
Committee, February 2005, pages 65 to 74.

C.5 Irrigated agriculture

As with MPEPP industries there is very limited data on the value of the
marginal product of water in agriculture.
Estimates of gross margins per ML in agriculture range from $30/ML to

$2,000/ML as shown in Table 47.
Table 47 Gross margins in agriculture

Commodity Gross margin
$/ML
Pasture (livestock) Low High
Pasture (livestock) 30 120
Rice 50 200
Dairy 90 550
Cereal 70 200
Annual row crops 150 300
Vegetables 400 1,800
Vine and tree fruit 200 700
Viticulture 600 2,000
Data source: Land and Water Australia, Improving water-use efficiency in irrigation conveyance systems:a study of
investment strategies, Marsden Jacob, 2003, page 18
Gross margins however do not necessarily reflect the value of marginal

production. Some indication of the value of water at the margin is given in the
value of water traded in the market. Examples of the price of water traded in
the market are provided in Table 48. Prices of temporary trades range from
$131/ML to $268/ML.
Table 48 Average prices for water trade 2002-03

Type Irrigated Cotton Horticulture Irrigated Grapes
pasture vegetables
$/ML $/ML $/ML $/ML $/ML

Temporary sales 191 - 146 273 152
Permanent sales 217 - 687 791
Temporary 158 131 268 204 260
purchases
Permanent 565 1078 1103 758 1805
purchases
Note: Note permanent sales and purchases entail supply for a period and are not directly comparable to temporary
trade prices.
Data source: ABS Characteristics of Australian Irrigated Farms 61
61 Australian Bureau of Statistics, Characteristics of AusWUDOLD·VLUULJDWHGIDUPV-01 to 2004-05,

Melbourne, 27 September 2006, pages 47 to 55.

The temporary sales and purchase prices are an indication of the value of
additional water use at the margin in these enterprises in 2002-03. Based on
these data, the value of water in the short run for agriculture ranges between
around $131/ML to around $273/ML. The value of permanent water ranges
between around $217/ML to $1,805/ML. The ABS report also notes prices for
permanent trades as high as $4,820/ML, for certain areas of irrigated grape
growing in south east Australia.
This data suggests that the additional value of water in irrigated agriculture
might range between $100/ML and $2,000/ML. These are only assumptions,
but for the purposes of illustration this range has been used in this report.

D Glossary
A3P ² Australian Plantation Products and Paper Industry Council
ABARE ² Australian Bureau of Agricultural and Resource Economics
ABS ² the Australian Bureau of Statistics
ACCC - Australian Competition and Consumer Commission
Access fee ² a fixed fee charged to the holder of a delivery entitlement for the
right to continuing access to water delivery services.
Allocative efficiency ² efficiency that is achieved by allocating a resource such

that the price of a service reflects the value society places on the next best
alternative use of the resource that is used to produce the service.
APPEA ² Australian Petroleum Production and Exploration Association
CGE ² computable general equilibrium
CMAs ² Catchment Management Authorities
COAG ² Council of Australian Governments
Consumptive pool ² the amount of water resource that can be made available
for consumptive use in a given water system under the rules of the relevant
water plan.
Consumptive use ² use of water for private benefit consumptive purposes,

including irrigation, industry, urban and, also, stock and domestic use.
COPS ² Centre of Policy Studies (Monash University, Victoria)
CSG ² coal seam gas
Delivery entitlement ² an entitlement to have water delivered at specified

times, rates and locations under specified circumstances
DITR ² Department of Industry, Tourism and Resources (Federal)
DNR ² Department of Natural Resources (New South Wales)
DNRETA ² Department of Natural Resources, Environment and the Arts

(Northern Territory)
DNRW ² Department of Natural Resources and Water (Queensland)
Glossary D-1
DSE ² Department of Sustainability and Environment (Victoria)
DoW ² Department of Water (Western Australia)
DPIW ² Department of Primary Industries and Water (Tasmania)
DWLBC ² Department of Water, Land and Biodiversity Conservation (South

Australia)
ESC ² Essential Services Commission (Victoria)
Exit fee ² a payment made to an infrastructure operator upon surrendering a

delivery entitlement to the infrastructure operator, with the corresponding
removal of the rights and obligations associated with that delivery entitlement.
G&AWS ² Goldfields & Agricultural Water Supply
GDP ² Gross Domestic Product
Inter-regional trade ² a water trade that results in the water/water

entitlement moving to a new location outside the irrigation district (or
LQIUDVWUXFWXUHRSHUDWRU·VQHWZRUNRIRULJLQ
Intra-regional trade ² a water trade that results in the water/water

entitlement moving to a new location within the irrigation district (or
LQIUDVWUXFWXUHRSHUDWRU·VQHWZRUNRIRULJLQ
IPART ² Independent Pricing and Regulatory Tribunal
Irrigation district ² an area or district that is supplied with water via an

infrastructure supply network (channels, pipes and other structures) operated
and maintained primarily for properties within that district
kL ² kilolitre
GIS ² geographic information system
GL ² gigalitre.
MCA ² Minerals Council of Australia
MHP ² mixed hydroxide precipitate
ML ² megalitre.
MPEPP industries ² the minerals, petroleum, energy, pulp and paper

industries
Glossary D-2
MWh ² Megawatt hour.
NCP ² National Competition Policy
NEM ² National Electricity Market
NGF ² National Generators Forum
NWC ² National Water Commission
NWI ² the National Water Initiative
QNI ² Queensland Nickel
Reliability ² the frequency with which water allocated under a water access
entitlement is able to be supplied in full. Referred to in some jurisdictions as
´KLJKVHFXULW\µDQG´JHQHUDOVHFXULW\µ
Retail tagging ² water entitlements that are sold to a buyer located outside
WKHVHOOHU·VLUULJDWLRQGLVWULFWRULQIUDVWUXFWXUHRSHUDWRU·VQHWZRUNEXWWKH
ZDWHUHQWLWOHPHQWUHPDLQVRQWKHUHJLVWU\RIWKHVHOOHU·VUHJLRQDQGUHWDLQVDOOLWV
original characteristics, including the obligation of the buyer to pay fees and
FKDUJHVOHYLHGRQWKHZDWHUHQWLWOHPHQWE\WKHVHOOHU·VLQIUDVWUXFWXUHRSHUDWRU
RIWI Act ² Rights in Water and Irrigation Act 1914 (Western Australia)
ROP ² resource operations plan
Seasonal allocation ² an authorisation to extract or divert a nominated

volume of water, up to the volume or share of the consumptive pool stipulated
in any one season
SLAs ² Statistical Local Areas
WAP ² water allocation plan
Water access entitlement ² a perpetual or ongoing entitlement to exclusive

access to a share of water from a specified consumptive pool, as defined in the
relevant water plan
Water allocation ² the specific volume of water allocated to water access

entitlements in a given season, defined according to rules established in the
relevant water plan
WELS ² Water Efficiency Labelling Scheme
WMP ² water management plan
Glossary D-3
WRM ² water resource management
WRP ² water resource plan
WSP ² water sharing plan.
Glossary D-4

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Water Reform and Industry

Implications of recent water initiatives for the

Prepared for Department of Industry, Tourism

ACIL Tasman Pty Ltd

Melbourne Brisbane Perth

For information on this report

Implications of recent water initiatives for the

Prepared by ACIL Tasman

2 Australian water market arrangements 13

3 The National Water Initiative 43

4.2.2 Water supply/access arrangements 55

5 Future water requirements from industry 73

6 Case studies of four catchments 82

6.1.4 Water prices 90

7 Economic issues and implications 116

8 Conclusions and recommendations 131

8.4 Recommendations 137

A National Water Initiative A-1

C Estimates of value added C-1

Boxes, figures and tables

Figure 22 DNRW forecasts of water demand and supply in South East

Table 1 Case studies xiv

In Australia, ownership of water is vested in the Crown. Development,

Water has been a target for significant reform. As a consequence, water

Australian Bureau of Statistics). In the same year, agriculture accounted for

A key objective of this study is to examine the regulatory environment the

It should be noted that the engagement of MPEPP industries in water

An important finding of this study is that current water access arrangements

However, some of the issues of greatest importance to the MPEPP industries

Water use and value added production

According to Australian Bureau of Statistics (ABS) figures, in 2004-05 the

By comparison the value added generated per ML of water used in agriculture,

00018FC6/$File/46230_2000-01%20to%202003-04%20v5.pdf, accessed April 2007.

Executive summary xii

Figure ES 1 Value added per ML of water used by industry, 2004-05

Key water issues for MPEPP industries

Executive summary xiii

Table 1 Case studies

With the existing inconsistencies in market arrangements, there is a risk that

Executive summary xiv

The case studies revealed inconsistencies between water legislation and

The case studies demonstrate that differences in the application of water

The case studies demonstrate the importance of developing efficient water

Removal or rationalisation of ongoing constraints on trade will be essential to

 phasing out exit fees in the longer term;

The Australian Competition and Consumer Commission (ACCC) has also

It is important for MPEPP industries that governments give early

Governments have recognised that integrated management of surface and

Executive summary xvi

Consistent trading principles

Clarification of property rights

While the NWI is making progress in separating water access entitlements

Executive summary xvii

Paragraph 34 of the NWI provides scope to deal with market inefficiencies

MPEPP industry projects often attract community opposition to their use of

Examples cited in this report include:

Executive summary xviii

There is a corresponding need to address regulatory and market failure and,

As far as possible, in the absence of market based mechanisms, the use of

Regional projects to interconnect catchments and facilitate transfers in critical

Our analysis suggests that better community understanding of water resource

Implications of future water demand and supply

For some catchments, meeting future water requirements entirely through

phasing out exit fees in the longer term;

the industry is recognised by governments as an efficient and high-value