FENNER CONFERENCE ON THE ENVIRONMENT
The MurrayDarling Basin: Down the drain or a vision splendid
Professor John Langford
John Langford has a PhD in engineering from the University of Melbourne, and extensive experience in water research and management over 35 years, before becoming an academic at the age of 60. He was the Managing Director of the Rural Water Corporation of Victoria from 1989 to 1994. He served as the inaugural Executive Director of the Water Services Association of Australia (the national industry association representing the interests of the major Australian urban water utilities) from 1994 to 2003. He has served as a Commissioner of the MurrayDarling Basin Commission and as Board Chairman of many research centres. He is a Fellow of the Australian Academy of Technological Sciences and Engineering and a Fellow of Engineers Australia. He was awarded a Centenary Medal by the Australian government in 2003 for services to environmental science and technology, and an Order of Australia in 2005.
I wonder whether anybody in this room understands the derivation of the English word 'rival', as in competitor. It is that people who 'share the same stream' are rivals. So if we go back to pre-Federation and the states, they were rivals and we nearly didn't federate, over water. The only way they could get the states to agree was on the promise of an inquiry. That inquiry was duly held in 1902. They didn't sign the resulting agreement until 1914. Why 1914? A drought, and we were running out of water and looking at mud in the bottom of reservoirs which focuses the mind of everybody.
That is because, unfortunately, water is what I call a Z to A product issue. Normally it is Z. If the water is in the dams, they're full and it's raining, nobody worries about it, you can't interest anybody in doing anything about it. But the minute it is not there, it doesn't just go gradually up the priority list, it goes zap and all of a sudden you're in a crisis.
The progress of water in Australia has been generated by crises, by droughts. If you look at our progress in water management, you see that it is punctuated by droughts. And here we are in another one of them, and Prime Minister Howard has made probably one of the greatest changes in the management of the MurrayDarling River system in 100 years, a very significant and substantial change. Might I at the outset say that in principle I am very strongly in support of that change, and I will illustrate that with a small story.
I was once Managing Director of the Rural Water Corporation, and a Commissioner of the MurrayDarling Basin, and I happened to be responsible for Dartmouth Dam and a hydroelectric power station. For reasons I won't go into, two steel beams ended up in the power station and the turbine didn't like it and shut down. So you had a column of water travelling at 60 km an hour this is a 4 m diameter column of water under 170 m head, at 60 km an hour, coming to a stop in 0.4 of a second. What that did was to blast the turbine casing through a metre of heavily reinforced concrete. I won't go into a description of what happened, but when I first saw it I came out shaking, because engineers understand forces but very rarely do they see the consequences of their being let loose.
The MurrayDarling Basin Commission is an unincorporated venture and it could not own assets, so the Rural Water Corporation owned Dartmouth Dam on behalf of the state of Victoria, in trust for the MurrayDarling Basin Commission. The owner of the power station was unhappy with its being blown to bits, and so sued the Rural Water Corporation and sued the Snowy Mountains Engineering Corporation, who were the designers.
Okay, that was fine. But the Rural Water Corporation owned this on behalf of four governments, so instantly we had the Commonwealth government joined in the action, the New South Wales government, the South Australia government and the Victorian government. It turned into the biggest legal and insurance mess in this country. (Probably not many of you know about that.) Anyway, they resolved it. Fortunately, we had been farsighted enough to insure the structure, and so at the end of it all we divided the bill among the four governments the deductible was $5 million, so $1¼ million each.
Suppose that had occurred at Hume. In fact, Victoria owned the earthen embankment of Hume and New South Wales owned the concrete structure. When it got into difficulty, the actual problem was right on the boundary between the two states' ownerships. Victoria, being rather conservative, had insured the structure. New South Wales self-insured, so if the failure had occurred on their side of it, the bill would have been very much bigger than if it had occurred on the Victorian side.
The Commonwealth owning these things simplifies matters enormously. I don't quite know that they understand exactly what they have taken over with a massive wholesale water business.
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It really boils down to water. Barney Foran and others have spoken about northern Australia. This map shows the proportion of runoff from the various basins in the country. If you add the Kimberley, the Gulf of Carpentaria, the Queensland coast and Tasmania, you have got 80 per cent of Australia's surface water resources. The MurrayDarling Basin is 6 per cent, roughly. It is a really small part, but the most heavily utilised part, of our water.
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These are figures from the middle of the 1990s, from a publication by this Academy and the Academy of Technological Sciences and Engineering, Water and the Australian economy. You could probably add at least 10 per cent now to these utilisation figures.
The numbers to look at are in the right-hand column, for the percentage utilisation. We have 38 per cent for Queensland; 12 per cent for the New South Wales coast, which includes Sydney; 24 per cent for the Victorian coast including Melbourne, so not very high utilisation; 76 per cent for Adelaide and the hinterland, the Adelaide Hills; 46 per cent for the south-west of Western Australia; 1 per cent for the Kimberley that is the Ord River scheme 1 per cent for the Northern Territory, which I suppose is Darwin; and 85 per cent for the MurrayDarling. When we look at those numbers, even just taking into account the low flows of the last 10 years and how that has depressed the average, we realise that that 85 per cent is probably closer to 95 per cent. That is a very, very high level of utilisation. For Australia in total, it is 20 per cent, but the distribution is the problem and it is the MurrayDarling Basin itself that is the real problem.
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If we look within the MurrayDarling Basin, we see that even in those days New South Wales' percentage of utilisation of surface and groundwater was 115 per cent. In other words, they were using more water than the previous average over-allocated to blazes. This is short-term politics influencing water. It has been going on for a long time. Water is a very political subject. Victoria is not as badly placed, at 58 per cent. They have been more conservative. Queensland is at 39 per cent. South Australia is at 2500 per cent, because of the water they shift out of the Murray into South Australia and into the Adelaide Basin. So it is not quite as bad as it looks.
But there is a very high level of utilisation, and in New South Wales, particularly, complete over-allocation of water. You can have any definition of sustainability you like, but that is not sustainable, explaining why New South Wales was willing to sign up.
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This is a graph showing the growth in diversions. Principally, the blue line indicates that New South Wales kept on allocating water well after the dam building stopped. In fact, the MurrayDarling Basin Commission in 1994 put a cap on the increase in diversions. But they were what were called sleeper and dozer licences. Sleeper licences for water allocation had been issued but not taken up and used. New South Wales had development clauses 'If you don't develop an irrigation enterprise by a certain date, this is null and void.' Once trading started, people applied political pressure. They now had a water licence and put it into the market to sell it. So that dotted line on the graph is where we have progressed in allocating water rights, almost to 14,000 GL per annum, the average natural flow to the sea, as seen in about the year 2000.
You can imagine the potential implications of climate change, for example if the last 10 years are a vision of our water future there will be a vigorous restructuring of irrigated agriculture.
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So we have the cap and over-allocation. The next issue we get into is water trading. Until the late 1980s, water was legally locked to land. If you wanted to buy irrigation water, you had to buy the land on which it was allocated. You couldn't trade the two separately. Now that bond has been broken. You can buy and sell water. In fact, I am running irrigation experiments at the moment, and how do you do that with no water? I had to go out and buy 35 megalitres, at $440 a megalitre, so I could irrigate 4 hectares of dairy pasture. So 35 Olympic swimming pools for four hectares it teaches you about the volume of water used.
But since that policy reform there has been a progressive increase in both intra- and interstate trading, both temporary and permanent. The temporary trading has been a brilliant success in managing the difficulties of these droughts. In a previous life, as somebody running one of these water utilities, I would have been severely criticised because I, as a government water manager, would have had to allocate the water, whereas under this temporary trading they have been able to sort it out themselves and the politics have been far easier.
Permanent trading has probably brought about some of the most significant changes in the irrigation industry, and it has got enormous potential, both for good and for bad. And therein lies my question: is the MurrayDarling Basin likely to go down the drain or become the vision splendid?
The key issue revolves around 'security' of water entitlements. A high security water entitlement would deliver 100 per cent (or more) of the volume on your licence, or water right, in 95 years out of 100, as an example. If you had low security water you might expect, for example, to get 100 per cent (or more) of the volume in 60 years out of 100.
New South Wales has operated on a much lower security of water entitlements than Victoria and South Australia, for good reasons. New South Wales grows annual crops like rice, and the economic optimum for production is to grow a lot of rice when the water is there and not very much when there is not much water. That is the best way to manage rice, whereas Victoria, with permanent pasture, vines and fruit trees, needs a much higher security of water entitlements to support these permanent plantings.
The interactions between water entitlements in a complex operating system can cause all sorts of perverse outcomes. The original 1914 River Murray Agreement was that Victoria and New South Wales shared the resources upstream of Albury fifty-fifty. Downstream the tributaries belonged to the states in which they originated, so the Goulburn belonged to Victoria, the Murrumbidgee to New South Wales, and South Australia got a fixed quantity of 1850 GL.
Over the years, the interaction of those two different securities of entitlements in New South Wales and Victoria caused a distortion. I guess the way to explain it would be to suppose there was a benevolent parent who had two children and gave each one of them $500 at the beginning of the year, on the basis that the money that was left in their bank accounts at the end of the year was pooled and shared fifty-fifty. So the New South Wales child spent their $500, the Victorian child, being more conservative, spent $250 the Victorian child only spent half of theirs because they wanted to hold the water for the next drought. At the end of the year, there was $250 of Victorian money in the account and it was split fifty-fifty, $125 to New South Wales and $125 to Victoria. So you can see that the interaction in a system with different securities of water can produce unintended outcomes in water sharing, in this case to the detriment of Victoria.
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I call this a 'horrendogram', but it is only a small component of the water accounts for sharing the waters of the MurrayDarling Basin. I don't expect you to understand but it illustrates the complexity of the capacity-sharing between New South Wales and Victoria, set up to overcome the deficiencies of the original annual accounting rules.
Imposed upon this we have got climate change a very complex operating system and it is run by a monopoly. Very few people understand exactly how this works and you can play all sorts of games with it. Herein lies the cautionary tale.
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I see Bob Humphries from Perth in the audience. He would recognise this stream flow into Perth's water supply reservoir. You would notice that in about 1975 there was a sharp drop, and it looks as if it is continuing to go down. I understand that in 2006 about 10 GL went into the system, and as you see, 10 units on that scale would be the lowest one all along there, so virtually zero.
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More importantly, the nature of this change could not be worse for the sort of water supply systems we have built, in that we rely on the occassional very wet years to recharge all the dams. We have built these massive storages, several times the mean annual flow, so we require really wet years to fill them up and then we can survive very long dry periods. But, unfortunately, this change seems to be taking out all the very wet years and that means we will find it increasingly difficult to refill our storages.
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It seems that the problem is heading east. This is the flow in the Wimmera River, in western Victoria. It virtually ceased to flow in 2006, so that 11,500 GL average is even lower a very sharp step. The question in our minds is whether this is Western Australia repeated, or just a natural event from which it will spring back. Ultimately, we have got to do something about it.
This pattern across most of eastern and southern Australia, though not quite as severe as in Western Australia, is progressively reducing the storage levels in almost all of our water supply systems. If the autumn/winter of 2007 is dry, Australia will be in a critical position. I understand most of the water supply systems around the place, and we really need some rain. For the first time in our history all the irrigation storages are at critically low levels.
We have a combination of over-allocation, trading, a very sophisticated and complex operating system, and now climate change overlaid on this. The fundamental thing for irrigators is trust in the system that determines the security of their water entitlement. If short-term political influence results in over-allocation of water, it is like printing money in a time of inflation: all they are doing is degrading the security of all the other irrigators' entitlements. If we operate that complex water supply system in particular ways we can distort the security of irrigators' entitlements. So the maintenance of that trust is fundamental to investment, to people investing in water savings, to people accepting some of the pain they will have to accept if there is less water in these systems.
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The Commonwealth has taken over a monopoly wholesale water authority. This monopoly is big, powerful and has a lot of skill in these operating systems. Victoria and South Australia have high security water; New South Wales lower security water entitlements, made even lower by over-allocation of water. The Commonwealth-controlled monopoly has got a strong financial incentive to rebalance the security of Victorian and New South Wales water entitlements to substantially reduce the cost of buying back water entitlements of the New South Wales irrigators.
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So I argue that there is a need for a very transparent method of operating these complex water supply systems so that the irrigators can see that their system is being operated fairly for all the players. We wouldn't let a financial market loose without a competent regulator; and we should not let a water market loose without a competent regulator. The institutional arrangements proposed in the National Strategy for Water Security must be developed further by, at the very least, adding a competent regulator of water allocation and trading to protect the integrity of the irrigators and environmental managers' water entitlements from the actions of a monopoly water supply authority with a strong financial incentive to manipulate the system.
Discussion
Question: I would be interested in your thoughts about a buyback strategy. We are obviously going to need to do it, and I wondered if you had any quick thoughts you could give us on the best way to start.
John Langford: In adapting to this?
Question (cont.): Well, just in general, in buying back over-allocated entitlements. Do you have any thoughts on that?
John Langford: The savings in distribution systems aren't as large as people think they are. We don't know what they are because of our water accounting and our measurement we measure water with elastic-sided buckets in this country. We need to know exactly what the savings are, and what is happening to the inefficiencies. For example, the Werribee Irrigation District has concrete channels. They are cracked, they leak like a sieve and that recharges the groundwater. The farmers have got pumps in, so if we pipe it, what's happened?
We really need to fix up the measurement and accounting, and so a very good aspect of the Prime Minister's package is the Commonwealth investment in metering. And that is going to shock quite a few of the irrigators they are getting much more water than they are actually paying for, because of the old, inefficient meters. Fair enough, in the old days water was cheap and readily available, and it really didn't matter. Now it is neither, and it does matter. So the measurement is important. But really the best way to adapt to this is to drive up the economic output of the irrigation with a lot less water, and we can do it. So we might well end up with a better irrigation arrangement than we have got now, if we are smart in the way we deal with it.
Okay, suppose we do drive up the economic output with a lot less water. As an example I could pick dairying. The average dairy farmer can produce about less than one tonne of dry matter per megalitre of water; the best, over two tonnes. So you can already see there are a lot of things we can do, even with what we know now, to boost that productivity all sorts of changes in farm management, some of which don't relate directly to water but impact on economic water efficiency. If we do drive that right up and it starts raining again, what damage have we done? One of the challenges we face is that if we pour a lot of money into infrastructure at this juncture and it pours with rain, we have literally poured that money down the drain. But if we have boosted the economic productivity, we haven't done any harm. So it is a much more robust strategy.
Question: On your point about if it doesn't rain seriously in the next two years…
John Langford: No, six months.
Question (cont.): Then it is going to be very serious for us. So why are we spending $10 billion on the supply side, and trying to stretch the supply side a little bit? When are we going to get real about actually addressing the demand limits and what we have to get adjusted to in six months if it doesn't rain, and what sort of percentage do we have to get adjusted to?
John Langford: In irrigation there is not much we can do about the supply side rain dances and cloud seeding or something of that sort so we are going to have to adapt to what we actually receive. I don't anticipate a repeat of 2006; I think the probability of that would be very low, but greater than zero. It is more likely that this pattern of the last 10 years, where we don't get a very wet year, will recur. That will force a fairly difficult, restructuring of irrigated agriculture, which has already started.
In the cities they have done a lot on managing demand. I used to be responsible for operating Melbourne's water supply system, and in the 198283 drought, before Mornington Peninsula was added, we set a target of 1100 ML per day. Here we are, 25 years later, another half million people plus all the Mornington Peninsula added to the system, and the average daily consumption in Melbourne is still 1100 ML per day. The cities in Australia have done a pretty good job of reducing their demand for water.
