Victorian Write-Off

3 July 2019

Despite the best efforts of the Victorian water authorities to inform allocation holders about “unsecured allocation” in their accounts, there was still a substantial amount of write-off at the end of the season.

According to the Victorian Water Register, a total of 30GL of allocation was socialised at the end of the 2018-2019 irrigation season (12.1GL in the Goulburn and 17.8GL in the Murray). By conservative estimates that is $12-15M worth of allocation! That 30GL** could have supplied 2,000Ha of permanent horticulture or nearly 5,000Ha of dairy in the 2019-2020 season.

Admittedly, the allocation that is “lost” gets socialised back into the resource pool and, in 2019-2020, has added at least 1% to opening determinations against both Murray and Goulburn entitlements. In that sense every entitlement holder benefits.

The vast majority of this water would have been lost against small volume accounts – typically those who own a small block with a few ML for stock and domestic use. Even if they fully understood the water market and knew the value of their allocation, the “difficultly” in trading 1-2ML seems insurmountable.

Interestingly we had a water owner ring at the end of last season with 1ML to sell. We managed to find a buyer at $300/ML with one day to spare. The allocation owner was more than happy to receive $300 for nothing more than a few phone calls and the buyer ended up with some cheap water, even factoring in the water authority fees.

At the end of the 2017-2018 season 15GL was written off between the Murray and Goulburn systems, demonstrating there is a massive under-valued resource due to the un-bundling process (where everyone got their fair-share) and inefficiencies (high transaction costs) in the water market.

Crunching some numbers from the Victorian Water Register, there are over 13,000 high reliability entitlements held in the Murray and Goulburn which have a volume less than 10ML (average volume of 3.2ML). In fact, 52% of the total number of entitlements are less than 10ML but they account for only 2.2% of the total entitlement volume.

While the un-bundling process was “fair” it has also introduced a major inefficiencies to the market. Small volume entitlements are costly to trade and aren’t appealing to most water users. The water authorities need to provide each entitlement owner with an invoice for their holdings and manage all the payments.

With every ML of critical importance, it is imperative that market inefficiencies are removed and entitlement owners realise the full value of their asset. This can only be done by the Victorian water authorities (Goulburn-Murray Water and Lower Murray Water) in conjunction with the Victorian Government.

**UPDATE 9 July 2019: Correspondence from DELWP states that 30 per cent less water was written off from customer accounts, than in the previous financial year.

“The write off volume of customer accounts for 2018/19 was close to 10GL,” the spokesman said. “Much of this success can be attributed to Goulburn-Murray Water’s  proactive actions to ensure the volume written off customer accounts was as low as possible.”

Of the 30 GL of water allocation recorded as ‘write off’ in the Victorian Water Register, 20GL was ‘written off’ as part of project management requirements for the Goulburn Murray Water Connections Project including:

  • an adjustment of approximately 12GL made to the Goulburn Murray Irrigation District modernisation offset account in the Murray system to preserve the reliability of entitlements and;
  • a further 8GL of allocation retired to cover the volume held in Greens Lake that contributed to the Goulburn system seasonal determination in 2018/19.

H2OX is unsure as to why 20GL have been recorded as a “write-off” rather than an “adjustment” in the Victorian Water Register with a corresponding note.