Navigating the new MDB water purchase strategy and framework

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Part 1: Reflecting on the 'Restoring our Rivers Trading Strategy'?

Considering the environmental needs of the Murray-Darling Basin and social and economic community priorities – while also ensuring information is available to all market participants – is a tricky balancing act.??

In this the first instalment of a two-part article, Erika van 't Veld summarises the key elements of the Australian Government’s Restoring our Rivers Trading Strategy (Part 1) and Restoring our Rivers: Framework (Part 2) – two significant steps towards achieving this balance.?

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In July 2024, Marsden Jacob water market advisors Simo Tervonen and Erika van 't Veld presented a Talks Live webinar on Australian water markets (1), looking back on the year that was and looking forward to the coming water year.??

Among other topics, the webinar contemplated the Australian Government's next steps in their direct water purchasing program to return 450 gigalitres (GL) of water from the Murray Darling Basin (MDB) to the environment by 2027. ??

Coincidentally, as we presented this webinar on 4 July, the Minister for the Environment and Water, the Hon Tanya Plibersek MP, published a press release on the topic of water purchases in the MDB, titled Voluntary water purchase in the Basin kicks off soon. Perhaps she tuned in to our discussion??

On the same day, the Commonwealth Government released the full Restoring our Rivers: Framework for delivering the 450 GL of additional environmental water and on 15 July, published the Restoring our Rivers Trading Strategy.??

What are the implications of the strategy and framework for water entitlement holders???

In a nutshell, if a water entitlement holder is interested in selling water to the Australian Government, they will need to participate in one of the competitive processes being managed by the Australian Government.?

The first of these is an open tender (Tender 1) that is being managed through AusTender – the Australian Government’s procurement information system. The tender opened on 15 July 2024 under the ATM ID:?ATM_2024_2454 and is scheduled to close on 11 September 2024 at 12pm AEST (Canberra time). Tender 1 concentrates on limited catchments in the Southern Connected Basin.?

If this is too soon for you or if you are located outside of the Tender 1 catchments, then keep an eye on the Department’s website and AusTender over the coming months, as according to the trading strategy, an EOI process will be run for participants in other catchments who would like to sell water in 2025.?

What is the Restoring our Rivers Trading Strategy??

The Restoring Our Rivers Trading Strategy details the Australian Government's approach to water purchases for the remainder of 2024 and into 2025, and is part of its plan to recover 450 GL of additional environmental water by 2027 to support native wetlands, riverbanks, and critical species across the MDB.?

Detailed guidelines about the strategy are available on the Department’s Voluntary Water Purchase Program website.?

Top 3 takeaways from the Trading Strategy?

1. The 2024 Selected Catchments Open Tender (Tender 1) will concentrate on limited catchments in the Southern Connected Basin for offers of 10 megalitres (ML) or greater, totalling up to 70 GL.???
2. Two multi-stage Expressions of Interest (EOI) processes will commence in August/September 2024 to inform further purchasing choices for 2025. EOI 1 will invite responses for SCB areas excluded from Tender 1, and EOI 2 will invite responses from entities interested in selling a large portfolio of water around 20 GL or greater, across multiple catchments in the southern Basin.?
3. No fixed volume is set for recovery from each state, each catchment, or each water right type.??

A focus on transparency and community engagement?

The Strategy makes clear that the approach undertaken considers three guiding principles that underpin all Commonwealth water recovery programs:?

1. Enhanced environmental outcomes: Focuses on restoring and protecting the ecological health of the Basin.?
2. Minimising socio-economic impacts: Seeks to reduce negative impacts on local communities – a topic assessed by Marsden Jacob as part of several publicly-available case studies for DCCEEW.?
3. Achieving value for money: Ensures cost-effective water purchases. Marsden Jacob has published an assessment of market price information across a range of entitlements in MDB catchments, including those relevant to the tender, available publicly here.??

The Restoring Our Rivers Trading Strategy sets out the methods the Government will use to procure water to achieve the 450 GL of water recovery. What is interesting for entitlement holders is that there may be multiple entry points to engage with the Australian Government, with the water purchasing approaches including:?

1. Open tender: Invites participants on the open market to submit offers to sell water entitlements. May be focused on specific states, locations or entitlement types.?
2. Limited tender: Approaches one or more potential suppliers directly. Only used when a competitive and open approach may not yield better value.?
3. Multi-stage approaches: Combines initial expressions of interest with subsequent tenders. Helps understand market interest and inform detailed tender design.?
4. Alternative methods: Includes leasing water, using market intermediaries, or accepting water donations. Ensures flexibility and adaptability to unique circumstances.?

However, note that the Australian Government’s preferred method of purchase is via open and competitive tender.?

The Trading Strategy outlines the 2024 Selected Catchments Open Tender (Tender 1), which will concentrate on limited catchments in the Southern Connected Basin. Although no fixed volume is set for recovery from each state, each catchment, or each water right type, several other limitations are in place for this open tender:?

• Areas with a high concentration of network customers (such as irrigation infrastructure operators) are excluded.??

• Catchments include SA River Murray Zone 12, Vic Murray, Ovens, MSW Murray, and Murrumbidgee, excluding the Upper Murray and Upper Murrumbidgee.??

• Purchases are for volumes 10 ML or greater.?

• Purchases will total up to 70 GL.??

• Additional rules specific to each state and region can be found in the published trading strategy.??

In addition to Tender 1, two multi-stage Expressions of Interest (EOI) processes will commence in August/September 2024 to inform further purchasing choices for 2025.??

• EOI 1 will invite responses for Southern Connected Basin catchment areas excluded from Tender 1. Purchases are not expected to occur before mid-2025.?

• EOI 2 will invite responses from single legal entities interested in selling a large portfolio of water around 20 GL or greater, across multiple catchments in the southern Basin. Purchases are not expected to occur before the first quarter of 2025. To be eligible, water rights must be held under the same legal entity name and be able to be acquired through a single contract of sale.??

Purchases of water rights that are already leased may be in scope for both tenders.??

Our concluding thoughts?

The announcement, strategy and framework documents confirm that the Australian Government remains committed to achieving full implementation of the Basin Plan 2012 (Cth) and that, in addition to water efficiency investments, direct water purchasing from entitlement holds is a key technique that will be used to support the return of 450 GL of water entitlements to the environment.?

The Australian Government maintains its commitment to transparent and effective engagement, confirming the commitment to good governance.?

If you are a water entitlement holder who is thinking about selling to the Australian Government, we recommend that you keep an eye on the announcements by the Department and familiarise yourself with their AusTender system.??

Stay tuned for the second part of this series, where we will delve into the accompanying framework that underpins the latest water purchase programs in the MDB.?

(1) The Navigating Australian water markets webinar and other Marsden Jacob Talks Live webinar recordings and slides can be accessed on our website here.?

Disclaimer

The information presented here is based on publicly available information including from the Restoring Our Rivers trading strategy published in July 2024 and is intended for informational purposes only. It is not intended as financial advice for water holders or guidance on how to sell your water, and we do not accept responsibility for any loss caused by reliance on it.?