Stranded Irrigation Assets

Abstract

The staff working paper 'Stranded Irrigation Assets' (Roper, H., Sayers, C. and Smith, A.) was released on 28 June 2006. Prior to the National Water Initiative (NWI), irrigation authorities imposed restrictions on outward trade of water entitlements partly to protect remaining irrigators against the risks and consequences of having to recover the costs of 'stranded' or under-utilised assets. This could be one of a number of reasons behind low levels of permanent water trade.

This paper examines ways of minimising the financial impact of stranded assets on remaining irrigators with the relaxation of trading restrictions. The aim of the project was to research the options to address the perceived adverse financial consequences of stranded irrigation assets. The authors concluded that it is not certain that proposals under the NWI to relax restrictions on permanent water trading will necessarily result in widespread stranded irrigation assets. Furthermore, stranded assets do not represent an impediment to the efficient use of infrastructure, the allocation of entitlements, or the use of water.

The key findings are that instead of using the ongoing payment of access fees, 'retail tagging' and 'exit' fees to manage financial impacts, a more efficient approach would involve abandoning charges for renewals annuities predicated on the full replacement of existing assets; revaluing under-utilised assets 'appropriately' to reflect their current economic value in use; charging to recover costs fully; and the introduction of cost differentiated charges for individual irrigators within irrigation areas.

The project is part of a larger suite of Commission research on water policy, which includes modelling regional economic impacts of changes in water trade and research into irrigation externalities. It also complements the commissioned research study on rural water use and the environment.

Keywords: Water trading, water pricing, exit fees, water management, water conservation, water resources

JEL Classification: Q