The VEWH's water trade activities get a clean bill of health

The Victorian Environmental Water Holder (VEWH) has undertaken a health check of its water trading activities and has been given a clean bill of health.

Independent auditors, Marsden Jacobs, found the VEWH has not impacted water market prices, transparently signals its trading intentions to market participants, and effectively avoids market distortion and adverse impacts on other parties.

To support the VEWH’s continuous improvement, Marsden Jacobs have also suggested some minor improvements in how the VEWH reports its trades once completed, the details included in its public announcements and to provide more flexibility in its decision making.

The VEWH has sold or bought small volumes of water allocation in systems across Victoria in every year since it commenced in 2011-12, with all water sales occurring in northern Victoria and most purchases occurring in western and southern Victoria.

Environmental water supply and demand across systems varies due to climatic and ecological conditions. Being able to sell small volumes of water allocation allows the VEWH to effectively and efficiently manage its environmental water portfolio.

Under the Victorian Water Act, the VEWH can buy, sell or exchange water to meet environmental needs. Water set aside for the environment has strict rules governing its sale. Any trade by the VEWH must protect the environment, be in the public interest and have no adverse impacts on the community.

When the VEWH trades water, it makes the water available to the open market in ways to avoid adverse impacts and maintain fairness for all water users.  When considering the volumes of water to sell or purchase, the method of market participation, and the prices considered, the VEWH undertakes an assessment of potential market impacts and takes steps to minimise those impacts.

The VEWH regularly assesses its water demand and supply position throughout the year to identify any water trading opportunities. Current planning indicates that all available water for the environment is likely to be needed to support high priority environmental watering actions under dry conditions this year and to support carryover for environmental priorities into next year.

Review findings

• The VEWH’s allocation trades have not impacted on the market.
• The VEWH’s market performance has been good, both with timing of trade and achieving prices either close to, or slightly above, the prevailing market price.
• The VEWH has a clear and open way of signalling its trade intents and activities and gives enough detail to people taking part in the water market.
• The VEWH’s participation in the market does not have a big influence on market prices. These are largely affected by other market forces like climate conditions, water availability, commodity prices and annual cropping choices.
• The VEWH has effective processes to ease potential adverse impacts on other parties and avoid any distortion in the water market. These include only announcing specific trade intents and activities when they will definitely happen and using existing, well-functioning market methods as a silent participant in the market.
• Water market intermediaries engaged by the VEWH have generally performed well.

The review also made clear recommendations for future trade activities carried out by the VEWH. This included consideration being placed on informing the water market about the end of its trade activities and reporting trade results in more detail to promote water market transparency. Another recommendation for future activities stated that the VEWH should include specific trading zone details in announcements about trading and that consideration should be placed on decisions on volume and price limits with a view to be more flexible to trade at different points during the water year.

Click here for the full report: Allocation trade review - summary report: Victorian Environmental Water Holder - 1,050kb (PDF)