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Stranded Irrigation Assets

Author

Listed:
  • Heather Roper
  • Chris Sayers
  • Andrew Smith

    (Productivity Commission)

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. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.

Suggested Citation

  • Heather Roper & Chris Sayers & Andrew Smith, 2006. "Stranded Irrigation Assets," Staff Working Papers 0605, Productivity Commission, Government of Australia.
    • Handle: RePEc:ris:prodsw:0605
    as

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    File URL: http://www.pc.gov.au/__data/assets/pdf_file/0017/60461/strandedirrigation.pdf
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    File URL: http://www.pc.gov.au/research/staffworkingpaper/strandedirrigation
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    References listed on IDEAS

    as
    1. Heaney, Anna & Dwyer, Gavan & Beare, Stephen & Peterson, Deborah C. & Pechey, Lili, 2005. "Third-party effects of water trading and potential policy responses," Conference Workshop Proceedings 31907, Productivity Commission.
    2. Mike Young & Darla Hatton MacDonald, 2000. "Interstate Water Trading: a 2-year Review," Natural Resource Management Economics 00_001, Policy and Economic Research Unit, CSIRO Land and Water, Adelaide, Australia.
    3. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    4. Peterson, Deborah C. & Dwyer, Gavan & Appels, David & Fry, Jane, 2004. "Modelling Water Trade in the Southern Murray-Darling Basin," Staff Working Papers 31925, Productivity Commission.
    5. Productivity Commission, 2006. "Rural Water Use and the Environment: The Role of Market Mechanisms," Research Reports, Productivity Commission, Government of Australia, number 21, January.
    6. Randall G. Holcombe & Russell S. Sobel, 2001. "Public Policy Toward Pecuniary Externalities," Public Finance Review, , vol. 29(4), pages 304-325, July.
    7. Bjornlund, Henning, 2003. "Farmer participation in markets for temporary and permanent water in southeastern Australia," Agricultural Water Management, Elsevier, vol. 63(1), pages 57-76, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Biggar, Darryl, 2010. "Exit fees and termination fees revisited: funding irrigation infrastructure in a manner compatible with water trade," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 1-15.

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    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics

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