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AWA forum discusses ACCC interim report

The Australian Water Association hosted a virtual forum in August and invited a panel of water market experts to participate in a discussion on the ACCC interim report into Murray-Darling Basin water markets.

Panellists included Gwendolen DeBoe, a Director working on the ACCC Inquiry, Alister Walsh from Duxton Capital, Renmark Irrigation Trust’s Rosalie Auricht, Ben Williams from the Australian Water Brokers Association (AWBA) and the University of South Australia’s Lin Crase.

The Forum was attended by 60 people from a variety of water backgrounds. The panel discussed key topics from the ACCC’s interim report, including:

  1. Conduct of Market Participants
  2. Trade Processes and Market Transparency
  3. Market Architecture
  4. Market Governance

Following is a summary of the key points discussed during the forum.

Conduct of market participants – brokers and investors

The Interim Report raises concerns about the lack of oversight of market participants' conduct and integrity. While intermediaries bring a range of benefits to water markets, there is significant opportunity and incentives for brokers to exploit the market with no consequences. The report notes that industry-specific broker regulation would entail additional costs but suggests that it is needed now and into the future.

Three options are considered including:

  • A broker licensing scheme
  • Applying financial services legislation to brokers
  • Creating a new or bespoke cross-jurisdictional regulator of the market

Panel member and AWBA president Ben Williams noted that the AWBA had raised in a submission to the Inquiry that while the Australian Water Brokers Association has been working on self-regulation, there is a need for a regulatory framework to be put in place, with a licensing system to be run at a state level.

This is in part as not all entities who act as water market intermediaries are members of the AWBA, and therefore do not participate in the voluntary industry Code of Conduct. The majority of panellists agreed that there is a need for some form of regulatory framework, whether state or federally run. The panellists also agreed that there are many different types of investors in water markets, with limited rules around conduct.

Trade processes and market transparency

The Interim Report raises a number of concerns around trade processes and transparency of water market information, which prevent market participants from gaining a complete understanding of water trade. The ACCC suggests trade processes are outdated and indicates three areas where reform is needed, these include:

  • Mandates to provide efficient trade services and high-quality information
  • Making better use of digital technologies to streamline trade services and information
  • Greater interoperability between state registers

Gwen DeBoe commented that the options the ACCC is considering in this space are about streamlining collection, storage, and provision of water market data.

Ben Williams said the AWBA’s submission calls on state governments for trade classifications for allocation and entitlement trades and being listed on water registers.

Market architecture

The ACCC refers to market architecture as the rules and regulatory settings governing allocation, storage and delivery, trading and other operational matters (that is, the rules which enable trade to occur, and manage the impacts of trade). The ACCC considers that the design of key elements of the market architecture may be able to be improved, describing it as complex and fragmented, with key policies lacking transparency and being difficult to understand.

Gwen DeBoe said that the rules applying to water markets are interlinked with water management policies more generally, making it difficult to consider trading rules in isolation. The report proposes a range of options that could be explored to make improvements to market operation. The other panellists suggested that changes need to be made incrementally and that Government policy is driving the system, when it should be the other way around.

Market governance

The ACCC points to cross-jurisdictional governance arrangements as one of the potential underlying causes of problems with Basin water markets. The Interim Report suggests water markets need more detailed oversight, with more clarity about governance roles and frameworks, and clearer delineation of responsibilities assigned to particular entities. The ACCC is considering a range of options around decision-making structures, separating governance roles, reducing gaps in responsibility and conflicts of interest.

DeBoe commented that there are very complex governance issues and feedback is needed from water market participants. The panellists agreed with this, but indicated that work needs to be done to provide clarity of roles and responsibility assigned to particular entities, as well as more collaboration between states.

The forum generated a lot of discussion around the interim report’s four key topics and panellists and forum attendees saw a lot of benefit in discussing these complex issues. It’s hoped this forum and the issues discussed has generated informed submissions to the ACCC on the interim report.