SA Banker’s Briefing on the MDB

Prof. Mike Young

Research Chair, Water Economics and ManagementThe University of AdelaideSA Banker’s Briefing,

Friday 15th June 2007

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Caveat

This is presentation is offered by an independent observer who is not fully informed, who does not have access to all the information necessary to make reliable predictions about the future and who has no training in the provision of financial advice.

Before making any decisions associated with investments reliant upon the health or otherwise of the River Murray, independent advice as to the State of the River Murray and likely nature of government policy decisions pertaining to this resource should be obtained.

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Total Murray-Darling Basin inflows Annual flows (year ending June) showing forecast for 2006/07

Source: Craik, MDBC

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Impacts of drought on average seasonal irrigation allocations

Entitlement 2006 2001-2005 Long term

NSW HS ~ 60% ~ 97% 97%

NSW GS 0% ~ 63% 85%

Vic WR

Murray

95% ~ 96% 100%

Vic Sales 0% ~ 45% 76%

SA ~ 60% ~ 70% >99%

Source: Craik, MDBC

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River Murray inflowsAverage and Selected Years

Source: Craik, MDBC

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River Murray System Cumulative Inflows

2007 to date compared to 2006

Source: Craik, MDBC

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Murray System Total Storage June 2000 to May 2007

with indicative outlook to end September 2007

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Jun-

00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

En

d o

f M

on

th S

tora

ge

(GL

)

Total Storage

Long Term Average Total Storage

Maximum Possible Total Storage

Source: Craik, MDBC

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Modelled outlookTotal MDBC storage

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Probability of Exceedance

To

tal

Sto

rag

e (

GL

)Current June 2007 Forecast

Current November 2007 Forecast

Current May 2008 Forecast

Modelled Current Conditions Values : Long Term Average Values are marked with

Minimum Values are marked with

Total Capacity

Source: Craik, MDBC

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Rainfall outlook3 months June – August 2007

Source: Craik, MDBC

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Temperature Outlook3 months June – August 2007

Source: Craik, MDBC

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BOM Outlook

•Current ENSO conditions neutral

•All 6 international models predict a La Nina in 2007

=> Higher than average rainfall over winter/spring

Source: Craik, MDBC

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Indicative Water

Availability

in 07/08

Current estimate of

water availability

Low Reserves Remain- 'Normal' Sharing Arrangements- Reserves may remain depleted- Consider building strategic reserve for 2008/09- Effective markets

Transition Zone- transition back to normal water sharing arrangements- limited 2007/08 allocations

Special Arrangements- Normal Agreement sharing suspended- Don’t get 1850 GL to SA- Contingency Measures Required- Carryover able to be progressively allocated- Markets limited

Contingency Arrangements- Repeat 2006/07 inflows - Normal Agreement sharing suspended- Contingency Measures Required- Markets inoperableSource: Craik, MDBC

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Water accounting bottom lines

At 1850 GL, SA is nearly over-allocated!

Evaporative losses ~1100 - 1300 GL

Urban and industrial allocation 650/5 = 130 GL

Irrigation ~ 500 GLA bit for the Coorong and to flush salt ~ 120 GL

Total ~1850 - 2050 GL

Options under worse case scenario

1. Close parts of the system (Lower Lakes, Bonney & wetlands)

2. Lower the River (but salinity)

3. Empty Snowy (very expensive)

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Policy recommendations

1. Any announcement made must be bankable

2. Speedy, unrestricted basin-wide trading

3. Put Adelaide on tougher restrictions

4. Unrestricted carry-forward

5. Govt. buy-up and lease back for two years to resolve over-allocation

6. Don’t invest in subsidised infrastructure upgrades until we see how the system responds to less water

7. New agreement and new governance system

Contact:

Prof Mike YoungWater Economics and ManagementEmail: Mike.Young@adelaide.edu.auPhone: +61-8-8303.5279Mobile: +61-408-488.538 www.myoung.net.au

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Lake Alexandrina Level: Forecasting from 12 June 2007

-2.2-2.1

-2-1.9-1.8-1.7-1.6-1.5-1.4-1.3-1.2-1.1

-1-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.1

00.10.20.30.40.50.60.70.80.9

1

08/06 09/06 10/06 11/06 12/06 01/07 02/07 03/07 04/07 05/07 06/07 07/07 08/07 09/07 10/07 11/07 12/07 01/08 02/08 03/08 04/08 05/08 06/08 07/08 08/08 09/08 10/08 11/08 12/08

Date (month/year)

Wat

er L

evel

(m A

HD

)

_

Level w ith Mean Evaporation/Rainfall Conditions

Level w ith Maximum Net Evaporation (1982) Conditions

Level w ith 90th Perc. Evaporation / 10th Perc. Rainfall Conditions

Observed Low er Lakes Levels

Minimum Level for Metro Adelaide pumping after pumps are low ered (-1.5m AHD)

PROJECTION ONLY

Prepared by DWLBC

Forecasting Assumptions (MDBC w ater year - June to May)Flow : Flow to SA at 1470 GL 2006/07, 487 GL 2007/08, 537GL 2008/09

Diversions:Metro Adelaide (210 GL/yr 2006/07, 95 GL 2007/08, 145GL 2008/09)Country Tow ns / Other S&D (43 GL/yr 2006/07, 50 GL/yr 2007/08, 2008/09)AOP + LMS at 60% for 2006/07 (372GL), 0% for 2007/08, 2008/09

Wetlands: Area of connected w etlands d/s Lock 1 reduced by 50%30GL of reduced loss from w etlands u/s Lock 1