ACCC issues position paper on water termination fees

The Australian Competition and Consumer Commission today issued its position paper seeking submissions on the development of water charge rules for termination fees.

"The termination fees proposed in the position paper will allow water markets to operate more efficiently by removing distortions to trade and by sending signals
to water users about efficient investment in water infrastructure assets," ACCC Chairman, Mr Graeme Samuel, said today.

"At the moment some irrigation infrastructure operators impose high termination fees on farmers who elect to sell their water and terminate water delivery rights. High termination fees prevent farmers from realising the market value of their water entitlements and deter trade in water.

"The position paper proposes a cap on termination fees of 11 times annual access fees, falling to 8 times annual access fees by 2015. In adopting these multiples the ACCC has attempted to balance the legitimate interests of irrigation infrastructure operators and farmers.

"Farmers will benefit through lower termination fees and higher net returns from selling water rights.

"At the same time the proposed multiples will give irrigation operators at least 10 years to assess the impact of trading on their networks and rationalise the network if necessary."

The position paper is part of an ongoing consultation process. Submissions are to be provided to the ACCC by 5:00 pm Monday 15 September 2008. Details on how to make a submission can be found in the position paper, which will be available from the ACCC website.

Background

Rules governing termination fees form a key component of the Water Act 2007, which creates new institutional and governance arrangements to address the sustainability and management of water resources in the Murray-Darling Basin. 
 
Fees or charges in relation to terminating access and/or surrendering a water delivery right may have influence over irrigators' decisions to trade water. Hence, water charge rules for termination fees will complement water market rules in facilitating the efficient functioning of water markets. The development of advice on water charge rules for termination fees has been progressed separately from the remainder of the water charge rules in order to align with the development of the water market rules.

The Water Act 2007, which came into effect on 3 March 2008, creates new functions for the Australian Competition and Consumer Commission. These include the development of water charge rules and water market rules for consideration by the Minister and for the ACCC to monitor compliance with and enforce these rules. While not yet asked to provide advice, the Act also allows for the ACCC to advise the new Murray Darling Basin Authority on water trading rules.

The ACCC will issue in due course position papers in respect of: bulk water charges; charges of irrigation infrastructure operators and charges levied to recover the costs of water planning and management.