This is the fourth in McCullough Robertson's series on Understanding Water Regulation, which will focus on the complex water regimes across Queensland and New South Wales and its relevance to industry.

Look out for our previous insight articles (as well as articles still to come) on the following topics:

  1. understanding water regulation;
  2. the modern minefield – water approvals for mining projects;
  3. water theft and offences;
  4. project delivery options for large-scale water infrastructure;
  5. water infrastructure planning;
  6. pricing and competition for water; 
  7. native title and cultural heritage, and water; and 
  8. defects and compliance in construction.

Understanding water rights

As we outlined in our Understanding Water Regulation article, to ensure that water resources are sustainably managed for the benefit of industry, the community and the environment, each State and Territory regulates the use of water through specific legislation.

The general rule under the various State water legislation is that the take or extraction of water from a water source requires a person to hold a statutory permit or licence. There are some exceptions to the need to hold a water permit or licence – for example, if the water is being extracted for basic landholder entitlements (i.e. ‘stock and domestic' purposes).

In New South Wales, the relevant permit is a water access licence (WAL). A holder of a WAL, with both a share and extraction component attached to the WAL, has the right to extract water from a water source in New South Wales. A share component entitles its holder to specified shares in the available water within a specified water management area or from a specified water source. An extraction component entitles its holder to take water at specified times, at specified rates or in specified circumstances, or in any combination of these, and in specified areas or from specified locations. The amount of ‘shares' in a water resource is not infinite. The ‘shares' in the water resource is therefore crucial to an effective water trading strategy, because a share component in a WAL cannot be purchased from WaterNSW.

In Queensland, the relevant statutory permit is a water entitlement, which can be either a water allocation, a water licence or a water permit. A water allocation is held by an individual and can be traded independently of land, whereas a water licence attaches to specific land and generally cannot be sold separately to the relevant land.  A water permit authorises the taking of water for a particular activity for specific period of time, and cannot be transferred, amended or renewed.

Trading under the Water Management Act 2000 (NSW)

Water rights in New South Wales can be secured by purchasing an existing WAL on the open market (with a current share component attached to the WAL) or alternatively, by obtaining a WAL with a zero share component from WaterNSW, with the intent of transferring shares from another WAL to the new WAL. A WAL, or a share component in a WAL, can be secured on a permanent or temporary basis. There are however a number of restrictions on the transfer of WALs or a share component attached to a WAL, depending on the specific provisions of the relevant water sharing plan and the access licence dealing principles.

Trading under the Water Act 2000 (QLD)

Water rights in Queensland can be secured by purchasing an existing water allocation, or a seasonal assignment of a water allocation. In limited circumstances, a water licence can be sold (or ‘relocated') so that it attaches to new land. The Water Regulation 2016 (Qld) and applicable, water plan or water management protocol provide rules for trading water entitlements in each catchment.

In addition, Sunwater and other water authorities make water available for sale either through permanent sales or lease, short term supply contracts, or water trading.

Finding the appropriate trading solution

There are a number of common reasons why a person may need to obtain access to water rights, and these reasons will influence the appropriate water trading option to be pursued.

Each of the trading solutions considered below assumes that the person already holds a valid WAL in a New South Wales water source for a trade in New South Wales. There is no equivalent requirement to be an existing water holder in Queensland.

I need to increase my water entitlement

The common situation arises where a current water user needs to increase the amount of water available to them. To achieve this in New South Wales, an individual can either secure the transfer of an entire WAL (which contains an adequate share component already) or negotiate the assignment of a share component from another WAL (which means each party would retain the same WAL that they already hold, but the share component would increase on one WAL and decrease on the other).  Similarly, in Queensland an individual can purchase a seasonal assignment or permanent right to a water entitlement.  In any of these situations, a formal agreement should ordinarily be negotiated between the parties to set out the terms of the water transfer.

I need additional entitlements in place to conduct a new project

New or expanding projects will often require appropriate water rights to be in place prior to the project commencing. This is the reality for many industries – from mining to agriculture. In securing a new WAL in New South Wales for the project, or a transfer of a share component from one WAL to another WAL, it is also important to ensure that the WAL relates to the correct water source, the permitted purpose under the WAL is appropriate (i.e. irrigation, industrial, domestic and stock etc) and water can be legally extracted from the nominated work in accordance with a works approval.  In Queensland, before a project is given approval to take or deal with water, that taking or interference will be assessed against various parameters and outcomes under the relevant water plan for the area of the project. Different objectives and requirements will apply to a project depending upon which water plan area the project falls within.

I would like to make a profit from water I do not use, or I have been approached for water by another party

Often, parties have more water than they need. Perhaps a water entitlement with a large share component has been previously acquired, but for whatever reason the operations are at a standstill or yet to commence. There are two main options in this scenario, and the decision ultimately comes down to whether a party is seeking to divest its allocation permanently, for a long period or only in the short term. In these circumstances, water trading options include the permanent transfer of the water entitlement, a term transfer of a share component, or an assignment of a water allocation may be available for shorter term transactions.

Before considering any permanent, long-term or short term transactions involving water, it is necessary to consider the various restrictions and prohibitions under the relevant water sharing plan.  McCullough Robertson is able to provide detailed advice on these restrictions and the appropriate water trading option depending on your specific circumstances.

Carry over entitlements

Another important consideration for water trading is the ability to carry over unused water from a previous water year into the new one. In New South Wales and Queensland, the relevant water plan or operations manual will specify whether a water entitlement holder is permitted to carry over a portion of its unused water allocation to a following water year in certain circumstances.  As an example, the Sydney Basin-North Coast Groundwater Source enabled up to 100% of any unused water entitlement to be carried over to the next year, with Ministerial Approval. The water entitlement that can be carried over will be impacted on the ‘available water determination' that is made by the Minister on 1 July each year. By contrast, Sunwater generally applies a loss factor and caps the amount of water than can be carried over into the new water year.

If a seasonal water assignment is obtained by an individual in Queensland, the volume of water that can be taken under the allocation may increase depending on the water management protocol that applies under the relevant water plan.  In some areas of Queensland, a water management protocol (established under the applicable water plan) may require that the taking of water is managed under a ‘multi-year accounting water sharing' rule, by which a volumetric account is established for each water allocation.  Depending upon which protocol applies, unused water from an account may be carried over to the next year.

It is critical that operators obtain specific advice relevant to the appropriate water plan and protocols that apply to their project.

Major projects and dealing with third parties

Organising a reliable source of water is a critical component to any major project. In some cases, proponents have constructed kilometres of pipeline to transfer water from one site to another. Not only does this strategy require compliance with the relevant water plans and the approval regime under the relevant Water Act, it will also need planning approval for the construction and use of the pipeline and land access rights over public and private land. The proposed development may also require the installation of a reverse osmosis treatment process prior to discharging any excess water back into the environment and any discharge of water into the environment must comply with the Protection of the Environment Operations Act 1997 (NSW) or Environmental Protection Act 1994 (Qld).

Effective engagement will relevant Government agencies such as the local council(s), WaterNSW, Department of Natural Resources, Mines and Energy or Crown Lands Department will also be required to achieve the approvals and construction of such a pipeline for the transfer of water.  Whilst this seems like a complex process to secure a long-term water supply for a project, McCullough Robertson has successfully assisted a number of clients to work through the challenges associated with these types of proposals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.