30 Oct 2014

Changes to water management in NSW - more flexibility for water trades and clearer controls

by Nick Thomas, Mark Brady

Recent amendments to the Water Management Act 2000 will provide some important clarification of the controls on the capture and use of overland water flows, greater security for supplementary water entitlements, and more flexibility for water allocation trading.

The NSW Parliament recently passed the Water Management Amendment Act 2014, which makes significant changes to the primary water control law in NSW, the Water Management Act 2000. The changes have not yet commenced. When they do, they will:

  • clarify the way in which water users can capture and use surface water flows such as rainfall and surface runoff;
  • provide greater security for supplementary water entitlements; and
  • provide for a more flexible approach to water allocation trading.

Many of the changes in the Amendment Act have been welcomed by agricultural groups, who have advocated for the changes for several years. The new provisions on overland water flows clear up some of the uncertainty on how this water is regulated, and also provide more flexibility on how it can be stored and used. They also give water entitlement holders more value for supplementary water rights, and more control over the way in which they use their water entitlements.

How water rights work

The State has the right to the control, use and flow of all water in rivers, lakes and aquifers as well as all water occurring naturally on or below the surface of the ground. There is a lot uncertainty about how this other surface water is controlled. The Amendment Act removes some of that uncertainty, as we explain below.

The Water Management Act establishes a regime for licensing of the taking and use of water from the water sources and areas of land which are governed by water sharing plans made under the Act. Gradually, plans are being made for each water source and area in NSW. There are some purposes for which water may be taken and used without a licence. These include basic landholder rights such as stock and domestic rights, and "harvestable rights" which allow the capture and use of a proportion (usually about 10%) of water flowing on the ground (and, in some situations, to obstruct minor streams on a land holder's property).

In most other situations, the taking and use of water requires a water access licence (WAL). WALs are like personal property, which give the holder the right to access a share (measured in units) of the available water from a specified water source or area. WALs can be traded, mortgaged, leased and subdivided. Units in a WAL can be traded separately from the WAL itself, and the allocation of water per unit for any given year can be traded in that year.

There are several classes of WALs, and, when water availability for a particular source is low, water is allocated to holders of WALs for that source using a priority system for the different WAL classes.

Overland flow water

It is not uncommon for water users to capture and use flood water, rainfall, runoff and urban storm water, but the extent to which they are allowed to do so is unclear, and this has caused concern for both land holders and regulators.

The Amendment Act introduces a new concept of "overland flow water", which essentially includes all water flowing over or lying on the ground or other artificial structures such as roads, but not water falling on roofs. This concept is consistent with similar concepts used in other legislation around Australia, and it clarifies the broad reach of the Water Management Act controls.

Council have expressed concern that this concept also captures urban stormwater harvesting, and would require many stormwater harvesting projects to be licensed. In response, the Government has indicated that it will prepare an urban stormwater harvesting policy, and we expect it will provide some exemptions for stormwater harvesting in regulations under the Water Management Act.

Harvestable rights and floodplains

The Amendment Act also provides more clarity and flexibility as to how overland flow water can be captured using harvestable rights (which do not need a WAL). Among other things, the amendments clarify and expand:

  • the rights of landholders to use dams and other structures to store both harvestable rights water and other water which is taken pursuant to a WAL;
  • the situations in which adjoining land holders can share water capture infrastructure; and
  • the scope of the controls which can be imposed in Ministerial "harvestable rights orders".

These changes should give:

  • landholders both more flexibility and certainty in the nature and scope of their harvestable rights; and
  • the Minister more flexibility in the way in which harvestable rights are controlled from one area or landholding to another.

The Amendment Act also introduces new categories of WAL for floodplain harvesting. The Government proposes to make transitional regulations which will provide for the grant of floodplain WALs for some existing or proposed floodplain water capture activities. It is not yet clear whether this will involve a change from the current approach in the NSW Floodplain Harvesting Policy of assessing existing activities before deciding whether to approve them.

Supplementary water access licences

Supplementary WALs are usually at the end of the WAL priority list, and they carry limited statutory rights. This has produced uncertainty of supply under supplementary WALs and has kept their value low.

The Amendment Act improves the rights of holders of supplementary WALs, primarily by:

  • removing the requirement for the Minister to cancel a supplementary WAL for a regulated river if the water sharing plan for the river ceases to make provision for the extraction of water under that WAL;
  • enabling the holders of supplementary WALs for regulated rivers to obtain compensation for specified water allocation reductions;
  • precluding the Minister from cancelling a supplementary WAL so as to increase the availability of "planned environmental water"; and
  • enabling a water sharing plan to provide for the circumstances in which the taking of water under supplementary WALs is authorised.

Water allocation transfers

The Amendment Act will make the trading of annual water allocations easier and more flexible, by introducing a new form of trade called a "term water allocation transfer".

The amount of water which is allocated to each unit in a WAL is determined by the Minister for Water via an Annual Water Determination (AWD). Currently, a WAL holder can transfer the amount of water allocated to one or more units in that WAL only after the annual allocation is known, when the AWD is issued. This restricts the timing of trades in any given year, and prevents forward trading of allocations (ie. for years in advance).

Under the Amendment Act, a WAL holder may trade the allocations under one or more of the WAL units for up to ten years at a time, and for periods beginning up to five years after the current water year.

This will give water users greater flexibility as to how they use their allocations. Potential buyers should note that this will introduce additional risk into an allocation trade, because buyers of water allocations in future years will not know the amount of the allocations for those years at the time of the trade.

Other changes

The Amendment Act includes a variety of other amendments, some of which are intended to streamline the administrative process for water trades.

Next steps

The Amendment Act will commence on a date to be fixed by proclamation. We expect this will occur when the Government has prepared the accompanying regulations and has addressed consequential issues such as the effect of the "overland water flow" amendments on stormwater harvesting.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.