Trading consultation and development

Public consultation

For further information, or to request a hard copy of the document, please contact the Commonwealth Environmental Water Office by email at ewatertrade@environment.gov.au or by phone on (02) 6274 1439.

Arrangements under development

Scoping study into the use of intermediaries

Marsden Jacob Associates (Marsden Jacob) was engaged by the Commonwealth Environmental Water Office (the Office) to undertake a scoping study into services that are provided by water market exchanges and brokers (intermediaries) across the Murray-Darling Basin (MDB).  The scoping study has been classified as ‘commercial-in-confidence’ at the request of intermediaries that were surveyed in the production of the report, because the report contains commercially sensitive information on their service offerings, geographic coverage and pricing.

The scoping study has informed forward planning on the feasibility and cost-effectiveness of different alternatives available to the Office to interact as either a buyer or seller of allocation (temporary) water.

The following key findings have emerged from the scoping study analysis:

1. The cost of tenders is a function of the number of applications received and the proportion of applications that are accepted / rejected.
2. Most intermediaries charge a percentage commission, which means the cost of water trading services increases in line with allocation water prices.  Because allocation water prices across the MDB are elevated, the Office should focus its effort on ways to reduce the transaction costs associated with running tenders, such as streamlining and automating processes.
3. In the southern MDB, intermediaries could deliver cost-efficient outcomes for the Office when allocation prices fall.
4. In the northern MDB trading zones prices are generally higher than the southern MDB, so intermediaries are only likely to deliver cost-efficient outcomes for the Office if the typical transaction size is small (<50 ML) or prices fall significantly.
5. Engaging the services of intermediaries could deliver benefits to the Office (that were not included in the cost-efficiency analysis) including:
   • anonymity in the market;
   • the flexibility to opportunistically sell allocation water to market participants who list buy orders broker bulletin boards or on exchanges;
   • reduced inconvenience for the Office in mobilising a team to implement a tender; and
   • more control/certainty in costs because commission fees are only paid for successful transactions.
6. Ahead of procuring intermediaries a number of key issues would need to be resolved, including transactions risks related to fraud or insolvency; equity and competition issues; time limits ( particularly as they relate to allocation purchases); and price and volume disclosure.

Next Steps

In line these key findings the Office is currently implementing improvements to streamline and automate its open tender processes.  These improvements will reduce the transactions costs associated with running tenders as well as ensure heavily subscribed tenders can be processed in a timely manner.

The Office intends to develop a specific briefing paper that helps explain to intermediaries the implications of key trading frameworks and rules, such as the Commonwealth Environmental Water trading framework, Commonwealth Procurement Rules and Basin Plan Trading Rules.  In early 2016 the Office intends to meet with intermediaries to discuss the briefing paper and further investigate/resolve issues.

Narran Lakes temporary purchase

The Commonwealth Environmental Water Office is continuing to develop options to purchase temporary water from landholders in the Lower Balonne to enhance flows to environmental assets of the Narran Lakes. Purchase of temporary water could contribute to achieving annual basin watering priorities including the Northern Basin fish refuges priority, the Basin-wide in-stream and riparian vegetation priority, and the Basin-wide flow variability and longitudinal connectivity priority.

Temporary purchase options include water from off-stream storages being released to the watercourse by landholders under an agreement with the Commonwealth Environmental Water Holder. In order to comply with the general environmental duty and protect the environmental values in the Lower Balonne under the Queensland Environmental Protection Act 1994 (EP Act), reasonable and practicable measures to prevent or minimise environmental harm caused by prescribed water contaminants should occur. The Queensland Department of Environment and Heritage Protection (DEHP) has advised the Commonwealth Environmental Water Office that this requires, at a minimum, a comprehensive monitoring program to establish relevant background contaminant concentrations in the adjacent watercourses and off-stream storages. The Commonwealth Environmental Water Office, Queensland Department of Natural Resources and Mines and Queensland DEHP are currently developing a monitoring proposal for implementation from October 2015 to October 2016.

Further information

• Current trade actions
• Past trades
• Portfolio Management Update
• Trade rules and legislation