Chapter 5Water market reforms
Introduction
5.1This chapter examines submitter views on the water market reform provisions of the Water Amendment (Restoring our Rivers) Bill 2023 (the bill).
5.2It briefly describes the context of water market reforms in the Murray-Darling Basin, including recent relevant reviews. This is followed by an indicative account of key issues raised on these measures.
Water markets in the Murray-Darling Basin
5.3Australian water markets have become increasingly valuable over the last two decades, reflecting a trend of rising demand for water due to increasing water scarcity and investment in agricultural systems.
5.4In 2020-21, water markets in Australia had an estimated turnover of $6 billion (in terms of the monetary value traded), down from a record high of $7 billion in 2019-20. Of this, the southern Murray-Darling Basin comprises Australia’s most significant water market. In 2020-21, the turnover of surface water traded in the southern Murray-Darling Basin was estimated to be worth around $4.4billion.
5.5Water markets allow the trading of water rights within and between separate water resources. Within Australia there are two main water products: entitlements and allocations. Entitlements are ongoing rights to a share of water from a specific consumptive pool as defined in the relevant water resource plan (if in the Murray-Darling Basin), while allocations are the specific volume of water allocated to entitlements in a given water year or as specified in a water resource plan.
5.6While the trade in entitlements represents a permanent transfer of water access rights, allocation trades involve the temporary transfer of a volume of water.
Governance of water markets in the Murray-Darling Basin
5.7Basin state governments are primarily responsible for managing water markets, and each state has its own process for allocating water and managing its exchange through markets. Irrigation infrastructure operators (IIOs) operate water service infrastructure for delivering water for the primary purpose of irrigation. IIOs create and maintain trading rules within their networks.
5.8The Basin Plan 2012 includes water trading rules aimed at reducing restrictions on trade, improving transparency and access to information, and maintaining market integrity and confidence. These trading rules commenced on 1July2014. The Murray-Darling Basin Authority (MDBA) enforced the rules until 2021, which are now enforced by the Inspector-General of Water Compliance (IGWC). The Australian Competition and Consumer Commission (ACCC) has a role in providing advice on these rules.
5.9The ACCC also monitors and enforces rules made under the Water Act including water market rules and water charge rules.The Basin Plan’s trading rules operate alongside existing Basin state rules and IIO rules. Together, these rules are intended to address a range of issues including the reporting of trading prices, approval processes for the trade of water access rights, and information and reporting requirements for Basin states.
Water trading and the growth of water trade services
5.10Water trading has brought substantial benefits to many water users across the Basin. Irrigators, who account for most of the volume of water rights traded commercially, benefit from trading by:
increasing their water supplies;
earning income by selling their water rights;
expanding production; or
releasing capital for investment in their businesses.
5.11Other participants who trade in water markets include:
IIOs who are major holders of water entitlements;
urban water authorities;
environmental water holders;
First Nations groups;
investors who hold and trade water assets for financial gain and not production; and
water trade services.
5.12Beyond their economic value, water markets have become increasingly important for other reasons. These include changes to irrigated agricultural production in the Basin and strong international food and fibre markets, new entrants such as cultural users and environmental water holders bringing different demand and operating needs to water markets, better mechanisms for water trading and reduced restrictions on the movement of water access, and decreasing long‑term water availability.
5.13The development of water markets has also seen the growth of water trade services, such as intermediaries like brokers and exchange platforms, bringing together potential buyers and sellers. Intermediaries help market participants assess the market, form price expectations, make decisions and provide exchange platforms that facilitate direct trading between buyers and sellers.
5.14Water market intermediaries have been subject to limited industry-specific regulation to date. While a voluntary code of conduct was established by the Australian Water Brokers Association, the ACCC found that the code was not broadly adopted by the industry and is generally viewed by stakeholders as ineffective.
5.15Although developments in water markets and trading have had significant benefits, these benefits have not been evenly distributed across regions, sectors and groups. A 2019 Independent assessment of social and economic conditions in the Murray-Darling Basin (the Sefton Report) found that:
There is clear evidence that market reforms have had uneven impacts, with some communities feeling like the collateral damage of improved outcomes in another region. We consider these negative impacts are underacknowledged and often overlooked, including in Basin water reform evaluations.
5.16Some submitters identified the impact of water being purchased off market , and the behaviour of larger institutional investors. With respect to farmers selling water to investors:
It might return to farmers, but the actual behaviour is that it might be just managed for the benefit of carryovers so that it can be returned to farmers to extract monopoly rents during dry periods. So it might have price‑gouging impacts if it goes to institutional investors rather than actually returning in a helpful way.
The other side of it is, with strategic buybacks, strategic purchases or even open tender buybacks, you have the opportunity to confront the question head-on about what people want with their farm or business. But I think the assumption that institutional investors ultimately benefit farmers is worth investigating because it might not play out.
Recent reviews into water markets relevant to the bill
ACCC inquiry into Murray-Darling Basin markets
5.17From August 2019 to March 2021, the ACCC conducted an ‘inquiry into the markets for tradeable water rights relating to water in the Murray-Darling Basin’. The ACCC released its final report on 26 March 2021 and made 29recommendations to enhance the operation, transparency, regulation, competitiveness, and efficiency of Murray-Darling Basin water markets.
5.18The ACCC found significant deficiencies in current water trading arrangements. These include a lack of quality, timely and accessible information for water market participants, and scant rules governing the conduct of market participants, such as brokers and exchange platforms, that currently operate in a mostly unregulated environment.
5.19In relation to the conduct of the inquiry, the ACCC noted:
There was a lot of finger-pointing about certain parties taking advantage of being able to know something before someone else et cetera. Certainly, we did see evidence that some of the more sophisticated traders were dedicating a lot of resources to searching out all this disparate information and using that to make trading decisions, whereas an individual farmer, for example, who has a day job of trying to grow stuff and really has peripheral or very intermittent involvement in the market, couldn't possibly apply the same resources and obtain the same information. That disparity in information, creating what appeared to be a lack of transparency, resulted in suspicion, and that's a real killer of the market.
5.20In its final report, the ACCC recommended a package of reforms grouped across four themes:
governance of the Basin water markets;
market integrity and conduct;
trade processing and water market information; and
market architecture.
5.21Among its conclusions, the ACCC recommended new Basin-wide laws to be enforced by a single Water Markets Agency with a focus on water markets. The Basin-wide agency would have new market functions including with respect to regulation and surveillance, market evaluation and advisory and advocacy functions. These include new functions identified through the ACCC’s inquiry as well as combining functions that currently sit with other bodies. This recommendation is discussed below.
Water Market Reform: Final Roadmap Report
5.22In 2021, in response to the ACCC’s final report, the previous AustralianGovernment appointed Mr Daryl Quinlivan as an Independent Principal Adviser to develop a phased, practical and cost-effective roadmap for implementing the ACCC’s recommended reforms over the short-to-medium term.
5.23The Water Market Reform: Final Roadmap Report (Final Roadmap Report) was subsequently provided to the Minister for Environment and Water, the HonTanya Plibersek MP, in September 2022 and released publicly on 11October2022.
5.24The Final Roadmap Report outlined 23 recommendations that were supported in-principle by the Australian Government and all Basin Governments. While many of the proposed reforms align closely with the ACCC’s recommendations, some have been modified where more cost-effective or implementable alternatives were identified.
5.25Notably, the ACCC recommendation to implement a single Water Markets Agency was not pursued in the Final Roadmap Report, with little support found across the Basin states or other stakeholder groups due to the potential of adding to a very complex set of existing arrangements and systems. The roadmap process found that a new agency would only be the preferred model if the ’institutional arrangements to regulate efficient water markets for the Basin ‘were designed from scratch’.
5.26Instead, the Final Roadmap Report recommended dividing the water market functions between the proposed new National Water Commission (in the interim the Department of Climate Change, Energy, the Environment and Water), the ACCC, the IGWC, and the Bureau of Meteorology (BoM).
Findings of the Productivity Commission Interim Report
5.27The Productivity Commission’s (the Commission) recent Interim Report on its Murray-Darling Basin Plan: Implementation review 2023 found that ‘the implementation of the trading rules has been challenging and the water market itself has changed significantly since the trading rules came into effect in 2014’.
5.28The Commission’s report noted that the trading rules in the Basin Plan have not been comprehensively reviewed since they came into effect, and was not in scope of the ACCC’s review or the Final Roadmap.
5.29The Commission recommended that a comprehensive review of trading rules in the Basin Plan be undertaken. The MDBA should ask the ACCC to conduct a detailed review of the trading rules, to be completed prior to the 2026 review of the Basin Plan, with particular attention to the effectiveness of the rules about trade restrictions.
5.30The Commission further recommended that the Water Act should be amended to enable the ACCC to provide advice to the MDBA about the trading rules on its own initiative, and should notify the MDBA before preparing any such advice.
Measures in the bill to improve the transparency and integrity of water markets
5.31The bill would add a new object to the Water Act being to ‘ensure that the governance of markets and trading arrangements relating to Basin water resources is appropriate, and that governance measures promote integrity and transparency in water markets’.
5.32Schedule 3 and Schedule 4 of the bill would amend the Water Act and the BasinPlan respectively to implement a number of water market reform measures aimed at ‘improving the transparency and integrity of water markets and water management in the Basin’. In relation to reforming water markets, the Ministerfor the Environment and Water, the Hon Tanya Plibersek MP, stated:
Water market reform will crack down on the cowboys of the system, and make sure it’s a level playing field for those doing the right thing. These reforms will deliver trust and certainty to irrigators and industry.
5.33Transparency and integrity measures proposed in the bill include:
new water markets functions and powers for the ACCC, the BoM and the IGWC including compliance and enforcement powers and information sharing powers;
an enabling framework for a mandatory Water Markets Intermediaries Code, including civil penalty provisions, with the ACCC given powers to monitor water prices and investigate misconduct;
a new framework for statutory trust account requirements for water market intermediaries who handle clients’ monies;
provisions prohibiting insider trading and market manipulation in Basin water markets;
revised water announcement requirements and expanded price reporting requirements;
a new framework to enable a broader set of water markets and trade information to be collected in accordance with new data standards, for publication by the BoM; and
removal of an exemption in the Basin Plan that applies to grandfathered tagged water entitlements.
5.34These measures would apply to public and private IIOs, water market intermediaries (such as brokers and exchanges) and Commonwealth and Basin state agencies in Basin water markets.
5.35These reforms would apply to eligible water rights that can be traded or transferred, such as entitlements, allocations, delivery rights and irrigation rights, as well as any new types of water rights that are developed over time.
5.36As outlined in the Explanatory Memorandum (EM), the water market reforms will commence in various stages between 2024 and 2026 as the Water Markets Data Standards and other regulations and other subordinate instruments, such as the Water Markets Intermediaries Code, are developed, consulted on, and come into effect.
Amendments passed by the House of Representatives
5.37As outlined in Chapter 1, on 18 October 2023 the House of Representatives passed several amendments to the bill. A number of these amendments address proposed measures discussed in this chapter including:
ensuring the ACCC can enforce its new information gathering powers in the bill, by making the ACCC the appropriate enforcement agency for the power and by adding a civil penalty provision for contraventions;
ensuring that the IGWC does not have the function to monitor or provide oversight of the functions or powers of any Commonwealth agencies, including the ACCC or Basin States’ agencies obligations under the proposed integrity and conduct reforms; and
other minor and technical amendments to ensure the bill would operate as intended.
5.38Where relevant to views raised by submitters, these proposed amendments are discussed below.
The growth in water markets and the need for regulation
5.39Most inquiry participants who commented on the water market reform provisions broadly supported the underlying intent of these measures, albeit for different reasons.
5.40For example, the Law Council of Australia outlined that it ‘strongly supports the strengthening of the integrity and transparency provisions of the Act in respect of market operations’.
5.41Professors Wheeler, Grafton, Quiggin and Connor highlighted that the proposed changes to water market legislation were positive developments. They supported the introduction of ‘safeguards against water market manipulation and insider trading rules…the intermediary code of conduct which specifies detailed behaviour provisions and trust account rules, together with penalties for non-compliance...’
5.42Other groups such as the Goulburn Valley Environment Group and the Healthy Rivers Lower Murray also welcomed these measures.BorderRiversFood&Fibre Inc. emphasised that ‘[m]arket reforms must be introduced without delay to prevent market manipulation and insider trading.’
5.43Professor Richard Kingsford, the Biodiversity Council and the InlandRiversNetwork cited the social and environmental impacts of water markets.
5.44Professor Richard Kingsford noted the ‘unpredictable consequences of free market reform for river systems and the need to identify both the social and the environmental impacts of water markets’. He added that shifts in water allocation, including moving to highest value crops, has social and environmental impacts that are not well understood:
For example, the movement of irrigation water from dairy farms on the upperparts of the River Murray to almond industries in the lower Murray has had significant effects on the communities of these different irrigation areas. This also means considerable pressure on the delivery system of the River Murray, with many stakeholders arguing for increasing channel sizes of the ‘Barmah choke’. There are likely to be considerable costs, including environmental costs. Unfortunately, much of this market impact is poorly understood broadly within the community and has been used to argue that environmental reforms are significantly impacting the irrigation industry when much of the impact is occurring within the industry.
5.45TheBiodiversity Council echoed calls to regulate water markets, noting that ‘water markets are an imperfect mechanism without substantive regulation, as the adoption of economic incentives alone can generate social and environmental costs’.
5.46The Inland Rivers Network argued that ‘trading rules should ensure environmental consequences are considered and preference environmental improvement’:
Adverse environmental consequences are likely to result from some long‑distance movements of licences changing the timing, qualities and volumes of flow in river channels. Downstream transfer of licences to order and take regulated flow mean higher cold flows further down rivers at times of naturally warm, low flow. This is bad for ecosystems as wellas increasing operational "losses". Upstream transfer in regulated water sources could be environmentally beneficial.
5.47Similarly, the Australian Conservation Foundation (ACF) urged the Government to restrict trade when it impacts water quality and cultural heritage. Some submitters, such as Birdlife Australia, advocated that the environment should be protected from water markets.
5.48The absence of meaningful engagement in the water market by First Nations in the Basin was also emphasised by the NSW Aboriginal Land Council (NSWALC). While commenting on the delivery of the Aboriginal Water Entitlements Program (AWEP), the NSWALC noted ‘widespread concern that the recommencement of vital water buybacks will indeed impact the water market and pricing, with the possibility of pushing Aboriginal water holders out of the market before the AWEP even commences’.
5.49The NSWALC further recommended that the:
…Federal Government must immediately commit significantly more funding and resources to support First Nations engagement in the Australian water market… [and]…carefully consider the impact that water buybacks will have on the water market and provide solutions and contingencies to First Nations under the AWEP and beyond.
5.50In relation to the social and environmental impacts of water markets, the Department of Climate Change, Energy, the Environment and Water (DCCEEW) noted that while Basin states are otherwise responsible for regulating and managing water markets:
‘[t]he current water market reforms will deliver greater confidence, integrity and transparency for Basin water markets. This will improve the efficiency and productivity of Basin water markets, in turn delivering significant benefits to users and Basin communities’.
5.51DCCEEW will also:
….work with the Committee on Aboriginal Water Interests as standards and regulations are developed to ensure our engagement and approach is culturally sensitive and captures water markets information relevant to First Nations communities.
The regulatory cost in reforming water markets
5.52Submissions from irrigators and related industry bodies expressed concern about the potential regulatory costs of these measures and their broader impact on the community, including the agricultural sector.
5.53Renmark Irrigation Trust, for example, while supportive of greater integrity and transparency in the water market, highlighted the potential cost of these measures:
…the proposed water market reforms are an overreach on regulation, do not address the original concerns of farmers and will be a cost burden on taxpayers, farmers and organisations that support farmers like the Trust, for very minimal benefit.
5.54Similarly, the National Irrigators Council (NIC) emphasised the potentially adverse regulatory impact of the proposed integrity measures:
The NIC believes that the reform provides gross overreach on regulation with minimal benefit to farmers who wanted the reform to improve transparency. The reforms will add a significant regulatory cost to many market participants including Irrigation Infrastructure Operators.
5.55Lachlan Valley Water and Narrabri Industrial Network noted that intervention by the Australian Government in the water market could have unintended consequences for farmers. Lachlan Valley Water raised concerns that intervention could ‘place undue financial burdens on farmers, which may, in turn, result in higher food prices’. Narrabri Industrial Network similarly stated that farmers’ rising food production costs could result in increased consumer prices worsening the cost of living crisis.
5.56DCCEEW observed that its commissioned cost-benefit analysis of the recommendations from the Final Roadmap found that the expected benefits outweighed the costs with a ratio of 1.75 to 1.
Views of Basin states
5.57As mentioned above, in October 2022, the Murray-Darling Basin Ministerial Council (comprising Ministers responsible for water from each Basin jurisdiction and the Commonwealth) agreed in-principle to implement all recommendations of the Final Roadmap Report.
5.58Basin state agencies reiterated their commitment to reforms which would improve the effectiveness of water markets and improved regulatory oversight.
5.59For example, the Victorian Government outlined its broad support for the water market reforms enabled by the bill noting that it was ‘an example of collaborative work between governments to continually improve water management and which in large part reflects Victoria’s own work in water market reform over a number of years’.
5.60Similarly, the NSW Government stated that it is committed ‘to transparent, trusted and accessible water markets throughout the Murray-Darling Basin and NSW’. It set out that ‘accurate, timely and accessible information is critical to an effective trade market and to give confidence in our water management systems’.
5.61Some Basin state agencies, however, highlighted practical considerations for implementation, including likely cost and the need for further consultation.
5.62The NSW Government emphasised that there would be significant costs for NSW in implementing these reforms, including transitional costs for parties, such as IIOs:
These costs should be borne by the Australian Government and not be passed onto NSW water users. As changes are introduced, affected parties will need reasonable timeframes to implement and adjust their practices.
5.63The Queensland Government stated that despite its water market being less mature than the southern basin, it is generally meeting water users’ needs. It recommended a fit-for-purpose approach to regulating water markets:
Queensland supports reforms that aim to increase the confidence of water market participants and pursues a fit-for-purpose approach to realise net market benefits. In the case of the reform recommendations, Queensland is seeking to ensure that any actions that increase regulatory oversight and compliance costs do not cause perverse and/or unintended impacts that potentially constrain Queensland’s market effectiveness.
Detail contained in regulations and the need for further consultation
5.64Some submitters expressed uncertainty about the impact of the water market reform measures, given that much of the detail would be specified in subordinate legislation such as the Water Markets Intermediaries Code and data standards.
5.65For instance, the Central Irrigation Trust, a manager of irrigation networks, recommended that the regulatory detail should be included in the bill rather than in subordinate legislation, a view expressed by other submitters such as Border Rivers Food and Fibre:
The bill uses key phrases such as “reasonable” and “material impact”, “interested public”. However, the definitions and interpretation of these terms will be left to the discretion of a regulator. Whilst this provides flexibility, it creates uncertainty for businesses involved in the operations of a water market in regard to what’s acceptable, particularly in the implementation phase… The lack of detail regarding these terms, means that organisations such as Irrigation Infrastructure Operators (IIOs) will be required to make their own interpretation, creating a high level of risk for IIOs in doing what they interpret is the right thing.
5.66The Queensland Government also called for detailed information on direct and indirect costs, potential benefits and regulatory oversight to be outlined in the bill. It recommended wider consultation with industry bodies and water trade entities to fully understand potential consequences.
5.67The Coleambally Irrigation Co-operative Limited (CICL), while highlighting that these measures would increase the cost to water market end users, acknowledged that it has had a range of opportunities to provide feedback:
In contrast, the Water Market Reforms are largely aligned with CICL’s expectations of these reforms. Whilst CICL believes the proposed changes will materially increase the cost to end users of water markets, CICL acknowledges it has had a range of opportunities to provide feedback on these elements of the Bill.
5.68The IGWC also emphasised the need for consultation on the regulations, as ‘[t]hese regulations will have significant consequences for both the effectiveness of the reforms, and for water users, brokers and relevant water agencies, including the Inspector-General as an enforcement agency’. The Inspector‑General continued: ‘As such, I encourage the regulations to be developed through an open and consultative process that maximises opportunities to test the regulations.’
5.69Subject to the passage of the bill, further consultation will occur on the development of the regulations, including the Water Markets Intermediaries Code (Intermediaries Code) and the Water Markets Data Standards. DCCEEW will lead consultation on regulations related to water markets information and decisions, while consultation on the Intermediaries Code will be led by DCCEEW and the ACCC. The Bureau of Meteorology (BoM) will lead consultation on the Water Markets Data Standards.
5.70With respect to the timing of these reforms, the committee heard evidence from the ACCC about the benefits of introducing these reforms at a time when the water market is not under pressure:
I suspect if the season turned around and storages were no longer full and water became short, we would run into the same sorts of issues around finger-pointing and suspicion about what's happening in the market. That's why we hope these reforms will help to progress that so it doesn't revert to the sort of situation in the future.
You could sensibly say that if you're going to introduce reforms then do it at a time when the market is not under pressure. If you do it when the market is already under pressure you've got quite high water prices and you've got people desperate for water. That probably isn't the ideal time for intermediaries to be trying to reform their system and comply with new regulations.
Views on specific measures of the bill
A Water Markets Intermediaries Code
5.71As outlined earlier, the bill proposes to amend the Water Act to establish a framework to allow the prescribing of the Intermediaries Code. The framework would be similar to the industry codes framework prescribed under Part IV of the Competition and Consumer Act 2010 (CCA) and would be made through regulations under the amended Water Act.
5.72The proposed Intermediaries Code is intended to establish and raise the standard of conduct of eligible water market intermediaries towards participants and potential participants in the water market. It would do this by requiring water market intermediaries to act in the best interests of clients, provide information to clients about the interests of the intermediary, and certain record keeping requirements.
5.73As such, water market intermediaries would be subject to broadly comparable regulatory safeguards that apply to intermediaries in other markets such as real estate agents and stockbrokers.
5.74Intermediaries receiving money on behalf of another person, while providing water markets intermediary services, will also be required to comply with statutory trust accounting obligations. These include obligations to maintain a statutory trust account for client funds and notifying the ACCC of the trust account and appointing an auditor, as well as other obligations in relation to these funds (for example, the funds cannot be used to pay the debts of an intermediary).
5.75In regulating the Intermediaries Code and statutory trust accounting arrangements, the ACCC will have the power to collect information, share information with the IGWC and the BoM and enforce new civil penalty provisions for certain contraventions of the Code.
5.76Submitters such as the River, Lakes and Coorong Action Group welcomed measures that would restore transparency, integrity and confidence in the water market and argued that a code of conduct administered by the ACCC is long overdue:
Monitoring compliance and taking enforcement action where necessary with comparable regulatory safeguards similar to stock agents, real estate agencies and stockbrokers is needed to improve the current impression, deserved or not, of behaviour resembling “dodgy used car salesmen”.
5.77Some submitters queried the proposed scope of the Intermediaries Code, including the extent to which it applies to government-owned or state-owned corporations such as WaterNSW, or sole traders. The NSW Government recommended that an amendment be made to define a water market intermediary as excluding a ‘water market authority’ to achieve the Code’s intended outcome.
5.78In its submission, DCCEEW noted that there was widespread support for the proposed reforms, including the Intermediaries Code, with stakeholders ‘acknowledging they are necessary to increase integrity safeguards for Basin water markets and improve trust in water markets’.
Prohibiting price manipulation and insider trading
5.79The bill proposes to expand obligations relating to water announcements, including a prohibition on insider trading. This would replace existing obligations in the Basin Plan.
5.80The first insider trading prohibition proposed relates to water announcement information of Commonwealth, Basin states and IIOs. Market participants would be prevented from certain actions if they are aware of a water markets decision or sensitive information relating to that decision, where that decision has not yet been announced.
5.81A second insider trading prohibition would apply to anyone who is aware of water-market sensitive information not captured by the water announcement insider trading framework. A person who is aware of this type of information would be prohibited from engaging in certain trading activities until that information is generally available.
5.82The bill would also introduce new prohibitions against market manipulation by all water market participants including:
creating or maintaining an artificial price for tradeable water rights;
creating a false impression of trading;
making false offers, or undertaking false trades or transfers, that results in artificial changes to market prices; and
spreading information about market manipulation.
5.83In enforcing these prohibitions, the ACCC will have powers to collect information, share information with the IGWC and the BoM, and enforce civil penalty provisions.
5.84Submissions from the National Farmers’ Federation (NFF), RiceGrowersAustralia (RGA), and Lachlan Valley Water highlighted strong concerns that these provisions would not commence until 1 July 2026. For example, Lachlan Valley Water commented that:
The market reforms are in this Bill but do not come into effect until mid‑2026, giving the Government time to engage in the exact kind of anti-competitive manipulative market activity for buybacks that the Bill seeks to stop others doing. These provisions would be completely broken by the Federal Government’s actions with regard to buybacks. It appears deliberate that these sections do not commence until 1 July 2026. This appears to be a hypocritical move by the Federal Government in seeking to provide more integrity and scrutiny to the water market – whilst simultaneously, as the largest water market participant, undertaking a mass violation of these provisions first.
5.85Coleambally Irrigation Co-operative Limited (CICL) recommended that references to a ‘reasonable period’ applying to insider trading provisions should be removed, as water market participants should be able to trade as soon as an announcement is public, consistent with arrangements for the Australian Stock Exchange.
5.86It also recommended that decisions made by IIOs when making distributions to members or customers from the IIO’s assets should be exempt from the new market manipulation provisions. This would protect IIOs from practices that have become standard business practice and reflected in the CICL’s own rules.
Water announcements
5.87The bill includes comprehensive conditions for water market decisions that would require water prices to be publicly announced in a consistent way. This would ensure that water market participants can make informed trading decisions. Future regulations would set out what constitutes ‘water markets decisions’.
5.88These requirements mean that certain decisions by Commonwealth, state and territory governments, and private and public IIOs, would need to be announced by providing the decision to the BoM to publish on its website, or through an alternative method, which will be set out in regulations.
5.89In regulating water announcements, the ACCC would have powers to collect information, share information with the IGWC and the BoM, and enforce new civil penalty provisions for not meeting water announcement obligations, failing to provide information to the ACCC or providing false and misleading information to the ACCC. The ACCC would also be responsible for enforcing civil penalty provisions for the reporting of water announcements to the BoM.
5.90The NSW Department of Environment and Planning emphasised the need for careful consideration when implementing these requirements. This includes minimising the administrative burden on water market participants, and ensuring that the regulations are informed by input from Basin States:
Requirements with respect to water announcements need to be carefully considered so as not to impact the ability of water managers to manage the resource in real time, impose an unreasonable administrative burden, impede effective environmental water management, or inadvertently make it harder for water users to access relevant information. Carefully crafted regulations informed by Basin State input will facilitate the seamless interaction between Federal and State legislation and avoid significant unintended consequences.
5.91Minor amendments were made to the bill on 18 October 2023 to require a person who provides a water markets decision to the BoM or reports the announcement of a decision to the BoM to comply with any requirements prescribed in the regulations. This would provide the necessary flexibility to respond to changes in the regulatory framework and ensure the BoM can carry out its functions effectively.
Water markets data reforms
5.92Improving access to water markets data and information improves knowledge and understanding of the market and enables regulators to identify and enforce compliance with market conduct rules.
5.93The bill proposes to amend the Water Act to:
expand the BoM’s existing water information role by making it the custodian of water markets information;
create new water markets information collection, generation, recording and reporting obligations;
introduce a framework for the development of new Water Markets Data Standards; and
expand the price reporting rule to ensure that complete and accurate information is provided to a water markets authority in an application for trade or transfer of an eligible tradeable water right.
5.94The amendments would give the BoM powers to collect and publish de‑identified water markets information, and share identified information with the ACCC and the IGWC. This would give the BoM the authority to establish the data and system reforms needed to support improved transparency and integrity of Murray-Darling Basin water markets.
5.95New Water Markets Data Standards set by the BoM would enable comprehensive and consistent collection and reporting of water trading data. New obligations for Basin state agencies, IIOs and water market intermediaries to report data to the BoM, would be regulated by the IGWC.
5.96To support these reforms, the BoM would develop a single digital platform (the Water Data Hub) for national water data management, and a new markets website to publish minute-by-minute updates on water market information.
5.97The bill would give the IGWC powers to collect and share information with the ACCC and the BoM and enforce new civil penalty provisions for failing to collect, generate, record or provide water markets information to the BoM, or for providing false or misleading water markets information.
5.98The IGWC would also enforce the requirement to comply with the Water Markets Data Standards and civil penalty provisions for failing to provide or providing false or misleading information to a water markets authority. The IGWC’s existing power to undertake audits will apply to the new data obligations.
5.99While measures to improve the availability of water market information was broadly supported, some stakeholders highlighted concerns about their potential cost and their intended benefit.
5.100For example, the Central Irrigation Trust (CIT) outlined that:
‘[it] is very concerned that the additional information that will be collected and reported through the Water Market Data Standards will not greatly benefit our members who wish to engage with the Water Market, given their trading habits and size. CIT remain concerned that the additional reporting and information provision will only add costs to water market participants.
5.101One submitter put forward the view that the removal of relevant provisions from the Basin Plan and their incorporation into the regulations could create ambiguity about the enforcement of mandatory price reporting until the standards become active. Professors Wheeler, Grafton, Quiggin and Connor noted that the proposal for the BoM to set water market data standards could create a legislative grey area concerning mandatory price reporting.
5.102Their submission also outlined that it is unclear whether disclosure for scientific research purposes would be permissible as a ‘public interest’ disclosure and the use of data identifiers:
Firstly, data can only be disclosed to the ACCC, the IGWC, and if it is in the “public interest”. It is unclear whether making data available for scientific research is or is not in the public interest. Furthermore, the BOM is prohibited from publishing data identifiers, which allow water market participants to be identified, unless they are already published. It is unclear how this interacts with the “unique identifier” for water market participants as recommended by the ACCC. Does it rule out any newly created identifier, and would it enable ABNs to be used, as they are already publicly available?
5.103Other submitters highlighted the need for adequate consultation on these measures. This included amendments to the bill to include ‘minimum consultation requirements’ or requiring the BoM to consult with both the states and other stakeholders ‘…as this reform extends beyond government, imposing significant additional reporting requirements on IIOs.’
5.104The BoM outlined its commitment to develop the data standards in a way that ensures it is ‘fit for purpose’ and does not impose an excessive regulatory cost on water market participants noting:
It's an interesting reform to be involved in because it is probably one of the few things I've seen in the Basin Plan space where generally everyone agrees with what we're trying to achieve in principle, which is really nice reform to be a part of and something we're trying to protect. Obviously, the devil is in the detail, which is what we're mostly hearing from people. They understand the outcomes we're trying to achieve but they want to do so in a pragmatic way, in a flexible way and in a way that achieves the outcomes without having undue regulatory burden or ongoing costs associated with it. Regardless of whether you speak to a big state agency or some of the small irrigation organisations or the brokers, the sentiment is: we're here, we want to participate but we want it to be fit for purpose.
New water markets functions and powers for Commonwealth regulatory bodies
5.105As outlined above, the bill provides new water markets functions and powers for the ACCC, the BoM and the IGWC including compliance and enforcement powers and information sharing powers.
5.106While the introduction of these new water markets functions was broadly supported, some submitters highlighted ambiguity regarding roles and responsibilities and recommended a more unified approach.
5.107For example, Professors Wheeler, Grafton, Quiggin and Connor stated that the ‘…bill fragments water market regulatory and compliance responsibility and, thus, appears to have departed from the original ACCC advice about the need for uniting water market reform under one organisation’. While the proposed responsibilities of the BoM, IGWC and ACCC are set out, there are gaps relating to the intermediary code of conduct, as ‘the code may delegate its powers to a)the minister, b) the ACCC, or c) another person’.
5.108Their submission also recommended that a revamped NationalWaterCommission could assume responsibility for the water market overview to unite water functions under one organisation:
In particular, a revamped [National Water Commission] should conduct water audits, support water extraction measurement, play a role in creating opportunities for consideration of broader water values; and implement robust risk analyses of government-funded water infrastructure and also a range policy options and water reforms.
5.109While recognising the current IGWC’s contribution in improving water compliance and transparency, the SA Minister for Climate, Environment and Water, the Hon Susan Close MP, noted that the previous government’s appointment process was ‘far from transparent and risked undermining public confidence in the function and office holder’:
This could be resolved by amending the Water Act and/or publishing criteria or guidelines by which future Inspectors-General are selected. Appointments should be based on appropriate expertise and should not give rise to perceptions of political bias or interference.
5.110In its submission, the IGWC outlined potential unintended consequences in the bill relating to extending its oversight functions to the ACCC noting that:
It does not appear appropriate that the ACCC be subject to oversight by the Inspector-General of Water Compliance with respect to the new proposed Parts 5, 5A or 10AC, as it may impair their governance or independence as an enforcement agency.
5.111The IGWC further noted that:
[i]t will, therefore, be open to the ACCC to exercise its powers with respect to those parts and, potentially, with respect to the Inspector-General, and/or staff supporting the Inspector-General in some circumstances. The Inspector-General therefore considers it would be inappropriate for the role of the Inspector-General to oversee the ACCC’s exercise of its regulatory powers with respect to the Inspector-General’s role or supporting staff.
5.112To address this, amendments to the bill passed on 18 November 2023 would remove the potential for overlap between the IGWC’s oversight functions and the ACCC’s proposed role as the regulator of water markets integrity and conduct.
5.113As outlined in the Supplementary Explanatory Memorandum to the amendments:
Without this amendment, the ACCC would be subject to the Inspector-General’s oversight function under section 215C of the Water Act, including under Part 8 of the Water Act. This may undermine the ACCC’s ability to properly carry out its functions and powers and remain an independent regulator if the Inspector-General is able to monitor the carrying out of its functions.
Committee view
5.114The committee welcomes the broad support of inquiry participants—including: Basin states; business and industry, including irrigators and water market intermediaries; legal experts; and environmental groups—for measures in the bill that would improve the transparency and integrity of water markets in the Murray-Darling Basin. This echoes feedback received through other processes, including DCCEEW’s consultation on an exposure draft of these measures, the Final Roadmap and the ACCC’s inquiry into Murray-Darling Basin water markets.
5.115The committee notes that various submitters have raised the need for proper consultation on the subordinate legislation if the bill is passed, particularly the intermediaries code and water markets data standards. This is necessary to ensure that the regulations are fit-for-purpose, do not have unintended consequences, and that its intended benefits exceed the regulatory costs that would be imposed on water market participants.
5.116The committee acknowledges the extent to which the BoM, the ACCC and DCCEEW have consulted on these measures to date, and that the technical issues raised by stakeholders will be addressed through consultation on the subordinate legislation.
5.117Finally, the committee notes the recent findings of the Productivity Commission’s interim report on its implementation review of the Murray‑Darling Basin Plan. This includes reviewing the effectiveness of the Basin Plan’s trading rules and proposals to amend the Water Act to enable the ACCC to provide advice to the MDBA about the trading rules on its own initiative. The committee considers that, where appropriate, the Australian Government should give regard to this recommendation as part of this bill.