Lex Batters: Intervalley trade limits must be managed for fair access

Auctioning water transmission rights would open up a more fair and open channel of trade, writes H20X chief executive Lex Batters.

There are calls to ensure those who need water for agricultural purposes will not be thwarted by traders exploiting IVTs for profit.

Intervalley trade limits play a vital role in the Southern Murray Darling Basin.

They ensure that water can be transported to its destination, protect entitlement holders, and reduce the likelihood of channel collapse. It is vital that these trade limits are operated in a fair and transparent way.

Market prices vary in different river valleys, and there can be significant arbitrage opportunities when the IVT opens and prices diverge — the Murrumbidgee IVT often presents the most lucrative arbitrage opportunity.

Water NSW has improved transparency around the Murrumbidgee IVT opening by notifying the market in advance. However, several market participants, notably brokers, have devised ways to ensure their applications are at the front of the queue.

When trade from the Murrumbidgee to the Murray opened for the first time this season on January 5, WALs associated with brokers or other intermediaries transferred the vast majority of available volume. A similar thing happened when the IVT opened the next three times.

From January to March 2020, of the 133GL of trade opportunity, at least 67 per cent was transferred to intermediaries’ WAL.

When brokers control the IVT, they can determine when to trade cheap Murrumbidgee water in the Murray market — rather than Murrumbidgee water instantly becoming available to Murray buyers if only commercial trades were allowed through the IVT. By drip feeding Murrumbidgee water into the Murray, Murray prices remain high, while Murrumbidgee prices remain low.

Broker dominance of the IVT has resulted in irrigators being forced to use brokers to move their water, raising questions about ownership while on the broker account, as well as reducing trade transparency for regulatory bodies such as the ACCC.

We know similar activities occur in Victoria around the Goulburn IVT and the Barmah Choke; however, public access to the Victorian Water Register does not identify water owners. These examples highlight how current IVT management — a “first in, best dressed” basis — has been exploited by the few to the detriment of the market, as price equalisation and two-way trade are prevented.

We believe the current method of managing these IVTs is no longer fit-for-purpose and must evolve.

There are examples in other markets, such as the electricity, where transmission rights are used to manage trade restrictions in a more fair and equitable way. The auctioning of transmission rights for IVT transfers would ensure these IVTs were managed in a more transparent, equitable way. By auctioning transmission rights, arbitrage opportunity would be reduced, ensuring those who need water for agricultural purposes will not be thwarted by traders exploiting IVTs for profit.

H2OX doesn’t hold water licences in any system. All water transferred on behalf of clients is transferred between client-owned licences only.

● Lex Batters is the chief executive of H2OX

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