Lessons from Australia about Desalination and Water Privatization

This story was first posted June 1, 2011

By Ian Douglas

Special to the Surf City Voice

Australians are battling to come to terms with the impacts of the oft-criticized process of national water reform. The ongoing, abrasive debate surrounding the Basin Plan being drafted by the Murray-Darling Basin Authority, outrage over the spiraling costs of currently redundant desalination plants and public protests about sky-rocketing water charges typify the predicament.

Australian water reform was conceived in 1994 by the Council of Australian Governments; nurtured by the prevailing mantra that free-market exposure was the ultimate panacea for under capitalized and inefficient public utilities. COAG went one giant leap further, in deciding to establish a national water market; arguing that this would direct water to its most productive use.

In the years since these sweeping changes were announced, the wisdom of applying free market principles to the management of an essential natural resource has been largely discredited by events overseas: In the water-supply sector, major corporate players have been accused and, in more than a few instances, convicted of price-gouging, anti-competitive behavior, corrupt practice and fraud. On all continents there are moves to wrest control from private corporations. Globally, more than 90 per cent of water services are now publicly owned.

In Australia there are valid concerns that water reform is leaving crucial decisions, with respect to the “where”, “when” and “how” of water distribution, in the hands of entities whose priority is profit rather than socially and environmentally responsible water use. Questions are being raised as to why our governments have been prepared to implement these radical policies without seeking and obtaining prior electoral mandate and in the absence of adequate constitutional protection of water.

The unbundling of water rights from land title has been the lynchpin of water reform, enabling water entitlements to be leased, treated as equity, bequeathed or permanently traded. In less than three years’ time, there will be no limit on the volume of water access entitlements that can be traded permanently between hydrologically connected irrigation districts anywhere in Australia.

Australian water is now effectively commoditized: allocated to whoever is willing to pay the going price. The market cares not whether you intend to drip-irrigate vegetables, cultivate cotton by flood irrigation, water golf courses – or merely hold your allocation as an investment for a rainy, or not so rainy, day. We are told that water trading will promote the allocation of water to “high value” uses, but the concept of “value” is far from precise. Large-scale agribusiness enterprises may reap high returns from the water they are well positioned to acquire, but their profits are largely internalized, increasingly to overseas interests, minimizing benefit to local communities. More traditional farming may result in lower profit at the farm gate, but is believed to have a more marked flow-on effect on local economies.

In 2008-9, water trades totalled 2.74 billion dollars. In the same year, whilst urban water users faced severe restrictions, water use for irrigated agriculture increased 3 per cent on the previous year, but the gross value of production from irrigation fell by 358 million dollars.In that year, following localised inflows into the northern Darling catchment, but whilst the vast majority of the Basin was enduring the peak of the worst drought in living memory, the cultivation of cotton and rice consumed 981 gigalitres of water.

This figure equates to the combined water consumption of Sydney, Melbourne and Adelaide (990 gigalitres) over the same period, to produce a crop with a combined value of less than 650 million dollars, in a year when the gross value of national agricultural production was in excess of $46 billion.

In consuming around 850 gigalitres of water, 23 per cent of the total volume diverted for irrigation in the Murray-Darling Basin, the 2008-9 cotton crop contributed only 4 per cent to the total value of agricultural production in the Basin. Our self-sufficiency in terms of food production also suffered: while the value of the cotton crop increased by 198 per cent over the previous year, irrigated vegetable production fell by over 350 million dollars.

Unrestrained exploitation effectively hamstrung the Murray-Darling Basin Authority, and its predecessor the Murray-Darling Basin Commission, in its statutory responsibility to manage the Basin’s water resources in the national interest, and dramatically impaired the inherent ability of the Murray-Darling river system to resist the effects of prolonged drought.

In 2005, Wendy Craik, Chief Executive of the Murray-Darling Basin Commission, confirmed the impotence of her organisation admitting, “We just have to hope it pours with rain”. Two years later, then Prime Minister, John Howard, refusing to deviate from market-based water management and resisting calls to invoke emergency powers, urged the nation to pray for rain. For eight long years, the nation’s most vital river was not allowed to flow to the sea.

The water market conspicuously failed to live up to the expectations of the National Water Initiative, driving down water storages in the Murray-Darling Basin to critically low levels at a time when conservation should have been paramount. The dire consequences for the environment, communities and economy of the Basin were clear for all to see.

In recent months, the raft of resignations from the Murray-Darling Basin Authority – including both the Chair and CEO – the distancing of recently appointed Chair and the Federal Water Minister from the Guide to the Draft Basin Plan, and the current Senate Inquiry into the Provisions of the 2007 Water Act, are further indications of the resolve of proponents of market-driven water reform.

The pressure being exerted by pro-marketeers was reconfirmed just last week, with the disclosure that the Authority is expected to recommend a paltry 2,800 gigalitre increase in environmental water allocation; prompting the Wentworth Group of Concerned Scientists to pull out of the Basin Plan consultation process, stating that it did not wish to be associated with an initiative which was destined to fail and waste billions of dollars.

The number of offshore players active in Australia’s water market bears testament to the rich pickings to be made speculating on the nation’s water reserves. It is believed than around 300 million dollars worth of water licences are currently in the hands of investors and this amount is steadily increasing. However it is impossible to confirm the precise figure: the National Water Commission has advised Fair Water Use that the Water Act prohibits public access to details on water entitlement holders.

Unlike the majority of our traditional farmers, investors are typically guided by global market trends and not merely the prevailing cost of Australian water. There are genuine concerns that, as more speculators, multinational agribusinesses and financial institutions enter the market, the inherent variability in water prices will be potentiated, particularly during drought; threatening the viability of previously profitable rural businesses and increasing pressure on rural communities.

The website of one such organization, US-based, Summit Global Management, contains the following observation: “Water is the most essential life-sustaining substance on earth and the most critical industrial input to the world’s economy. Demand for clean water has expanded unrelentingly as populations soar and societies modernize, and we now face crisis-level shortages for this most basic and necessary resource.”

In 2009, Summit Global’s chief marketing officer, Matt Dickerson, famously stated “There are few areas where we can execute our strategy, but Australia is one of them”. Summit, which in 2009 acquired at least 20 million dollars worth of permanent entitlements to Australian water, last month announced, through its Adelaide-based agent Blue Sky Water Partners, that it is seeking an additional 100 million dollars worth of water rights, focused on main systems such as the Murray-Darling.

In 2010, Australian-based Causeway Asset Management commenced a global drive to raise 100 million dollars of investment capital, to be used to acquire permanent entitlements to Murray-Darling water, stating: “There is a chronic supply/demand imbalance for Australian water which will result in higher water prices. Owning Australian Water Entitlements provides investors with direct exposure to water prices”.

It is clear that such investors are targeting the high returns to be made under leaseback arrangements during periods of water scarcity – an all too regular occurrence in this country. Where is the fundamental national benefit of exposing our water to such activity? What will be the impacts on the farming community, public water supplies and the environment?

In a statement on urban water policy released last month, the Chair of the National Water Commission, the statutory body responsible for driving the process of water reform, urged further deregulation and the construction of more desalination plants and dams – but tellingly made no mention of initiatives to reduce consumption in a country which, in 2004, was rated as the third largest per capita user of water in the world.

This blind commitment to growth, which also suffuses the policy platforms of the major parties, is being used to justify public-private partnerships and the construction of ill-conceived and untenably costly water infrastructure, most notoriously desalination plants. Our governments appear quite comfortable entering into public-private partnerships with multinationals whose track record in terms of corporate responsibility on the global stage is, at best, in-glorious.

In July last year, the Water Services Association projected that increased urban water consumption through to 2025, as a result of a 47 per cent hike in Australia’s population, to 31 million, could largely be met by the combined output of existing desalination plants and those currently under construction. Australians continue to be massaged into accepting this high tech, but inefficient and environmentally toxic industry; governments insisting that desalination is necessary to ensure water security, whilst largely ignoring the potential of “greener” and more efficient alternatives.

It is highly significant that the Productivity Commission itself has recently criticized the move towards desalination plants on economic grounds alone, irrespective of the environmental costs.

Following the change of government in Victoria, it has been revealed that the water bills of Victorian households are set to double over the next five years, as a direct result of costs associated with the Wonthaggi desalination plant. Irrespective of whether the plant is required to operate, Victorian taxpayers face a bill of close to 20 billion dollars over the next thirty years. When former premier Steve Bracks first announced the plant in June 2007, Victorians were informed that it would cost $3.1 billion.

In December last year, the South Australian Water Minister, Paul Caica, confirmed that operational costs of the Port Stanvac desalination plant are projected to total $130 million per year. This figure is additional to construction costs of $1.8 billion. It bears stating that the Government could currently acquire permanent water licenses for 100 gigalitres, the maximum output of the plant, for around $150 million.

In attempts to stave-off persistent criticism of “white-elephant” infrastructure, it is probable that conservation of urban water supplies will continue to be a low government priority, other than during periods of severe drought.

Last year, Mr Caica was also quoted as stating, “I have always said that we will consider lifting the restrictions when the desal plant comes online”.

In 2007, the value of state-owned water assets was estimated at 70 billion dollars: clearly a major temptation for state-governments seeking to balance their budgets.

Nationwide, the corporatization of water utilities has resulted in price hikes and an accent on fixed rather than consumption-based charging; stimulating concerted public protests, such as those currently taking place in south-east Queensland, amid fears that corporatization is a precursor to privatization.

To date, South Australia is the only state to have dabbled with privatization of water supplies – and Adelaide consumers have literally been paying the price: last year the State Government announced that it would not be renewing its contract with United Water, a wholly owned subsidiary of Paris-based, water colossus Veolia Environment, due to allegations of over-charging, to the tune of tens of millions of dollars. Nonetheless, publications such as that released by Deloittes in March 2010 seem to be priming Australians for the progressive sell-off of public water utilities.

It bears repeating that the stated aim of water reform is “to implement a strategic framework to achieve an efficient and sustainable water industry“: but on whose terms? – and to whose benefit?

Despite the fact that polling has indicated that at least 70% of Australians are opposed to it, water privatization is being imposed on the nation, under the guise of water reform; as a result of a closed-door agreement made, nearly twenty years ago, by the then Prime Minister, State Premiers, Territory Chief Ministers and the President of the Australian Local Government Association.

Water reform need not and should not equate to privatization, a process largely incompatible with the protection of water as a public good. Australians have the right to indicate which path they wish to follow, via state-by-state plebiscite if necessary.

Free-trade agreements, which have laid out the welcome mat to overseas speculators, should be renegotiated or scrapped, at least insofar as they apply to water. This is consistent with data released by the Productivity Commission last month revealing that the benefits of free-trade agreements are oversold, creating unrealistic expectations and resulting in only small increases in national income.

Socially responsible water reform cannot proceed in the absence of sound legislated protection of water as a common good. In 2009, the High Court of Australia found that there was “a common law notion that water, like light and air, is common property not especially amenable to private ownership and best vested in a sovereign state”. First drafted over a century ago, our Constitution does not refer to water rights other than related in very general terms to navigation, conservation and irrigation. Section 100 requires amendment if the nation’s water is to be adequately protected in the 21st century and beyond.

Irrespective of whether the 1994 vintage of COAG had a full understanding of the implications of its decision, sincere governments would now admit that water reform is privatizing an all-too-finite and easily abused natural resource – and, by so-doing, poses a serious threat to Australia’s water future.

Ian Douglasis national coordinator of Fair Water Use (Australia). He is currently national coordinator of Fair Water Use (Australia), an independent and national lobby group, formed in early 2008 by Australians who share the vision of a revived Murray-Darling basin and the sustainable environmental, community and economic benefits that would flow from its recovery.