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Water entitlements vs allocations

The two main tradeable water rights in South Australia are ongoing water entitlements and annual water allocations. Here are the differences between them:

Water access entitlement

A water access entitlement is an ongoing right to an exclusive share of water from a water resource (named a ‘consumptive pool’) as defined in the relevant water management plan (known as a ‘water allocation plan’).

In South Australia, the water entitlement share is specified on a water licence.

In the River Murray for example, each unit share may equate to a maximum of 1 kilolitre (kL = 1000 litres) and may be less depending on water availability.

In unbundled areas, a water entitlement is a property right that can be transferred independently of a water allocation.

The transfer of a water entitlement is commonly referred to as ‘permanent’ trade, although entitlement transfers can be:

for all or part of an entitlement
for a defined period (i.e. a temporary lease arrangement).

A temporary lease arrangement passes the benefits and responsibilities associated with holding the water entitlement from the seller to the buyer for the agreed period (30 June in the specified year). After that period, the entitlement will return to the original holder.

Water allocation

A water allocation is the right to access a volume of water for use or trade in the water year (1 July to 30 June):

The volume of water allocated to a water access entitlement share is determined in accordance with relevant legislation and Water Allocation Plans.
The allocated volume can change depending on the water that is made available in the relevant consumptive pool by the Minister.
The allocated volume is first determined on the water licence and is then credited to the relevant water account.
A water allocation is a property right that can be transferred independently of a water entitlement (in unbundled areas).
A water allocation can also be obtained via a water allocation transfer or from unused water from the previous water use year (known as ‘carryover’ allocation)
The transfer of water allocation is the transfer of the right to access a volume of water from the seller to the buyer.
Once a transfer has been approved, the water allocation is credited to the water account of the buyer and is then available for use, trade or potential carryover.
The transfer of water allocation is commonly referred to as ‘temporary’ trade.
You can only transfer water allocation that has not been used in the current water use year.

Example of the difference between a water access entitlement and a water allocation

An entitlement holder could have a water access entitlement of 100,000 shares. If full allocation equates to 1 kilolitre per share, then at full allocation the entitlement holder has access to 100,000 kilolitres (100 ML).

However, when low rainfall leads to a reduction in the volume of water available to the consumptive pool, then the Minister may need to make allocations at a reduced rate. If the reduced rate is say, 50 per cent allocation (instead of 100 per cent), the entitlement holder continues to hold 100,000 shares but the value of each share is 0.5 kilolitre, giving the entitlement holder access to 50,000 kilolitres of water (or 50 ML) in that year.

In the South Australian River Murray Prescribed Watercourse and the Southern Basins and Musgrave Prescribed Wells Area, the volume of water made available from a consumptive pool for allocation during a specified period is determined by water allocation announcements made by the Minister for Environment and Water. The volume available depends on the conditions during the year e.g. in a dry year an allocation may be less than 100 per cent of the volume of a water access entitlement.
Once the Minister has made a water allocation announcement, and the details of the announcement have been published in the South Australian Government Gazette, the water account of each relevant water access entitlement holder is credited with a volume of water allocation. The volume credited is equivalent to the number of unit shares that are held on entitlement, multiplied by the value of each unit share, multiplied by the announced allocation percentage.
Generally in other prescribed water resources, water licence holders receive 100 per cent of their entitlement each water year however in some circumstances licences, allocations and conditions may be varied by the Minister for Environment and Water.

What you can do with water instruments

You can do more with your water instruments than you might think.

For example, in specific circumstances prescribed in the Landscape South Australia Regulations, water instrument holders can leverage the value of their water rights to borrow money from a commercial lender.

Financiers can register security interests against water instruments, in a similar way they have for a long time in relation to residential and commercial real estate (via SAILIS).

Security interests

A security interest is a record made against a water licence or water access entitlement on the Water Register that secures the payment of a debt or the performance of some other obligation under a contract or other legally enforceable arrangement.

Security Interests:

provide the holder of the security interest (the lender) with a legislative mechanism for the enforcement of the security interest (a ‘power of sale’) in the case of a default by the holder of the interest in the water instrument (the borrower) to which the security interest relates
provide that certain dealings relating to the interest in the water instrument require the consent of the security interest holder
provide that a transfer of the water instrument does not expire the security interest unless the security interest is discharged beforehand
give priority to a security interest over other security interests in the order in which they are lodged, and over all unregistered interests
expire automatically 15 years after the date of registration (unless extended or discharged earlier).

Security interests cannot be recorded against a water allocation, a delivery capacity entitlement, a site use approval, or a water resource works approval or forest water licences.

If you’d like to know more, the mywater Contact Centre is here to help with general information. However, if you require specific information about your circumstances, you should contact your financial institution.