NSW opens floodgates of water reform

Sustainability of water reserves and supplies will be the major factor determining water allocation to rural and commercial users in NSW, now that the crucial licence and approval provisions of the Water Management Act 2000 (NSW) have commenced operation.

After nearly four years, and several false starts, the operation of the Act and a raft of reforms puts NSW at the forefront of water management. The recent amendments to NSW legislation are the first major legislative reforms since the long-awaited agreement on the National Water Initiative by the Commonwealth and all States and Territories (except for Western Australia and Tasmania) made on 25 June 2004.

While the licence and approval provisions came into force from 1 July 2004, so far they only apply to specified areas throughout the State which have water sharing plans in place. This reflects the dependence of the licensing and approval schemes on water management plans under the Act. At the same time, the changes made to the Act by the Water Management Amendment Act 2004 (the Amendment Act) also commenced from 1 July 2004, a new Water Management (General) Regulation 2004 was made, and new Access Licence Dealing Principles have been published.

In this Alert we look at some of the major changes and future issues which still must be addressed.

What's new in the Water Management Act

Several important changes have been made to the main Act by the Amendment Act, including the following:

• regionally based catchment management authorities have water planning functions (in addition to the Minister and management committees appointed under the Act) to assist the focus of water management planning on catchment health;
• challenges to the validity of a management plan must be brought within three months of gazettal or amendment of a plan, and can only be challenged in the Land and Environment Court;
• trading will be easier (eg. the Minister's consent will not be required for a trade if there is no change in the location at which the water is extracted);
• access share water entitlements will be made more secure, with a Water Access Licence Register being established at the Land Titles Office to record the grant of an access licence and any dealings in it (including security interests in respect of it), similar to the Torrens title registration system for land;
• the share component of access licences will no longer need to be renewed (they will now be indefinite instead of the previous 15 year term), but supplementary water access (previously known as off-allocation water) will only last as long as a water-sharing plan provides for it. A perpetual access share entitlement gives the entitlement holder a perpetual share of the available pool of water for extraction determined by the rules of the water-sharing plan.

Some of the fine detail of how the licensing and approval regime will work is filled in by the Water Management (General) Regulation 2004. The regulations cover (among other things) what the Minister for Natural Resources must consider when cancelling a special purpose access licence, what must be recorded on the Register of available water determinations, debits from water allocation accounts, exemptions from the requirement for an access licence or an approval in certain circumstances, specific purpose access licences, and requirements for a security holder’s consent to certain kinds of dealings in connection with access licences.

Sustainability and the precautionary principle

Adaptive management of water resources (responsive to monitoring and improvements in understanding of ecological water requirements) is central to the water management principles of the Act. So are ensuring the sustainability of water sources and applying the precautionary principle when making water allocation and planning decisions under the Act. This was reinforced by the recent decision of the Chief Justice of the Land and Environment Court, Justice McClellan, in Murrumbidgee Ground-Water Preservation Association v Minister for Natural Resources [2004] NSWLEC 122 (see our Alert)

The availability of water to users under access share entitlements will vary depending on the amount of water in the water source, as affected by climate, the pool of water available for extraction determined in accordance with water-sharing plans. As a consequence of the significance of water availability, as well as the open standing provisions to bring legal proceedings to restrain breaches of the Act or Regulations (despite the recent limitations on rights to challenge water management plans), water allocation and water use decisions under the Act will be subject to increased scrutiny and legal challenge where a decision adversely affects a person's interests or the environment.

Access Licence Dealing Principles

An Order establishing new Access Licence Dealing Principles has also been published by the NSW Government. All access licence dealings (ie. relating to the transfer of access licences), which require the Minister's approval, are to be dealt with in accordance with:

• the water management principles in section 5 of the Act;
• the principles in the Order;
• access licence dealings rules established by a relevant water management plan.

The principles in the Order for dealings are essentially that:

• adverse impacts on water sources (including ecosystems and sustainability) should be avoided;
• adverse impacts on indigenous, cultural, heritage or spiritual matters should be avoided;
• adverse impacts on other water users should be avoided; and
• community social and economic benefits of access licences should be maximised.

Specific principles apply to particular types of dealings, such as conversion to a new category, subdivision of access licences, consolidation, assignments, change of water source, or interstate transfers or access licence dealings.

The NSW regime and the National Water Initiative

The NSW reforms give effect to key elements of the National Water Initiative, including:

• clear and secure water access entitlements;
• transparent statutory-based water planning (promoting adaptive management of water systems and clear processes for returning overallocated or overdrawn surface and groundwater systems to environmentally sustainable levels of extraction);
• improved administrative arrangements to facilitate water trading.

Key elements of the Initiative, not fully dealt with by the Act at this stage, include:

• risk assignment of future reductions in water availability; and
• the assessment and control of major interceptions of water by land use change activities (eg. farm dams, bores, interception and storing of overland flows, large scale plantation forestry) to protect the integrity of water access entitlements.

Currently, under the Act, while a user's right to a certain share of water available may be secure, the risk of reductions in water availability is borne by the users (subject to any policy decisions of government to provide financial assistance to water users adversely affected by a reduction).

Under the Agreement, until 2014, it is proposed that the risk of reductions arising from bona fide improvements in the knowledge of water systems' capacity to sustain particular extraction levels is to be borne by water users, while Governments will bear the risk of reductions or less reliable water allocations arising from changes in government policy. This risk assignment proposal is still controversial as it's unclear where to draw the line between reductions arising from bona fide improvements in knowledge and those from government policy decisions.

As for the assessment of the impact of land use change activities that have the potential to intercept significant volumes of surface or groundwater, the Act does not specifically deal with this. . The Act however does deal with approvals required to use water for a particular purpose or to construct works to take water (including interference with an aquifer and controlled activities on waterfront land). These approval requirements are linked with the integrated assessment provisions of the development approval and environmental impact assessment process under Part 4 of the Environmental Planning and Assessment Act 1979.