‘Iwi leaders and the Government have agreed on a deadline to sort out Maori interests in fresh water by Waitangi Day 2016.’ (News: 5 February 2015)

Law and economics recognises three distinct aspects of property rights. There is the ability to use the property, the ability to transform it into something else, and the ability to alienate it – that is to transfer the property rights to others.

Typically an electricity generator has a consent which allows it to use water to produce electricity but not for any other purpose. It may not transform it and it may not sell the right to any other (although if the generator is privately owned it can be bought and the consent goes with it).

The same applies for farmers who have consent which allow a draw-off from an aquifer or river for irrigation purposes. (Another consent would be needed if they wanted to use the water for, say, bottling.) They are not allowed to transfer the water to another user (say, the farmer next door). But suppose a farmer irrigates an onion patch, sells you the onion and you eat it. The water from the draw-off, now in your body, is unquestionably privatised. So we do fully privatise some water.

In summary, while the water may not be ‘owned’, there may well be private property rights associated with it, typically formalised by a resource consent issued under the Resource Management Act. In effect the consent partially – or, in some cases, fully – privatises water.

I want to raise two consequential issues – whether the resource consent should be alienable and what is the Maori entitlement.

As far as I can see, there should be no great objections to being able to transfer the usage rights of resource consent to another – there may be a payment in return. We already do this with the fishing resource with its individual tradeable quotas. The experience elsewhere suggests that typically the transfer of a property right to use water will be on a temporary basis – a lease. I do not think there will necessarily be great efficiency gains but there will be some. One farmer might find it cheaper to put in a storage dam, another might switch to a water-conserving crop, each using the revenue from the lease to fund the investment.

We should be trying to conserve our water and use it effectively. A reasonably adequate supply of water is one of New Zealand’s international comparative advantages, especially as some of our competitors are running out of the stuff. So good water management can enhance the economy.

The reluctance to make a change seems to be because of the ‘P’ word of privatisation and the ‘M’ word of Maori claims. But the water is already at least partially privatised via the resource consents while by partial privatising the state electricity generators the government brought to the fore the Maori dimension.

I shall assume, for the purposes of dialogue, that Maori have a claim to the water resource under Te Tiriti o Waitangi similar to their claim to the fishing resource. It may be that a detailed study may conclude otherwise, but let’s make that assumption. (The problem with an alternative is that Maori had possession of the water rights on 5 February 1840. When and how did they pass to the Crown?)

I shall also assume that Maori will treat existing private sector property rights as they have already with the private alienation of land. They greatly regretted the loss of the land, but they have not generally demanded back that which has been legally acquired from the Crown.

The emergency Waitangi Tribunal hearings which followed the proposal to patrially privatise the state's electricity generators were unsatisfactory. The submissions never got their heads around how resource consents which established private property rights were at the centre of their claim; the Tribunal’s report was consequently also disappointing. I doubt the same mistake will be made a second time (which is why the negotiations may well open up to all resource consents for water).

What might be the outlines of a settlement? Probably there will be a financial compensation to iwi for consents already privatised, plus an involvement in all further issues of water resource consents. (The fishing settlement included that Maori being automatically given 20 percent of all new quota that was issued). Even so, the final settlements are likely to be complicated (and to be on a catchment by catchment basis) .

The purpose of this contribution is to clarify the issues of property rights and how to think of them in the particular context of the water resource. Additionally it cautions against hotheads – both brown and white – who will offer extreme and ridiculous responses based on shallow analysis. They will be given far more prominence than their importance – that is the way the media and the public rhetoric works.

What I expect is that men and women of goodwill – in the government and in the iwi – will negotiate a deal which will be on the whole fair and efficient (but expensive to the taxpayer).

Comments (9)

by barry on February 08, 2015
barry

Water management  and water rights is another example of the government giving away things it doesn't own.  As with the case of fisheries, there has to be an accounting and we the tax payers end up compensating the original owners not the people or companies that get the benefit.

by Andrew R on February 08, 2015
Andrew R

Trading water is a pretty darn complicated beast compared to other markets.  It has to be specific to the part of the catchment -- upper catchment large water takes are different to the lower catchment large water takes, what if trading allowed water takes to be shifted further up the catchment?  Then there is the use of water to dilute contaminants.  Does that mean having to buy sufficient water rights. Etc.  Perhaps a partial market option is best -- pay for the weather used, but not able to transfer to others?

by Phil Meup on February 09, 2015
Phil Meup

"The same applies for farmers who have consent which allow a draw-off from an aquifer or river for irrigation purposes...........They are not allowed to transfer the water to another user (say, the farmer next door)."

Say what......

How about RMA s136 which specifically allows for transfers?....or most Regional Water Plans which make specific prevision for transfers subject to specified requirements (in order to achieve allocative efficiency)?.....or maybe even sites which are specifically set up to facilitate transfers e.g. http://hydrotrader.co.nz/

While its called 'transferring' rather than 'trading', water permits are routinely transferred between properties in many parts of the country.

Would it be out of line to suggest a little more research into your subject matter may not be such a bad thing

 

by Lee Churchman on February 09, 2015
Lee Churchman

Does the government take money specifically for the water it allows people to use via consents (other than the cost of administering the consent system)? If so, I can see how the argument might work.

On the other hand, we might think that the government only has the right and obligation to manage water resources and not to sell water (this is my unconsidered view). That doesn't stop a farmer selling an onion or a vintner selling wine, but it does mean that Maori have no entitlement to money for water consents, although they might be entitled to representation on any body that dispenses them. 

by Peter on February 09, 2015
Peter

Regional and Unitary Councils can charge for the administration of water take consents as far as I am aware. Section 36 I think.  But it would be a conflict for a regulator to charge on a royalty basis.  Wrong incentive given their role.

That is what bemused me about he role of the HBRC in the Ruataniwha project.  Seems perverse in the extreme and it would appear to have resulted in some wrong decisions being made by that body given the BoI and subsequent court case outcomes.

by Brendon Mills on February 10, 2015
Brendon Mills

Why do I get the feeling that domestic and recreational water users would be worse off under a water rights market?

by Lee Churchman on February 10, 2015
Lee Churchman

Thanks Peter. I agree, with my person addition that I think an authority selling water rights is wrong from an ethical perspective. 

by Brian Easton on February 13, 2015
Brian Easton

Some contributors overlooked that water rights exist insofar as there are consents under the RMA to use water. My first point was to raise the question as to whether they should be transferable.

So, Andrew R,I may bow to your expert knowledge of the technical difficulties but repeat they have (or have not) been solved by the issuing of the consents.

Thankyou, Phil Meup, I was unaware hydro trader. Research is a community activity of correcting each other’s mistakes. Glad to be corrected; it makes the Maori settlement easier.

Lee Churchman says ‘we might think that the government only has the right and obligation to manage water resources and not to sell water’. Does it have the right to give it away?

May I finish off by endorsing barry’s original comment. ‘Water management and water rights is another example of the government giving away things it doesn't own.’

by Grant Henderson on February 17, 2015
Grant Henderson

The issue of tradeable water rights raises the bogey of major economic interests dominating the resource, as has happened with fisheries quota.

One other matter - I note that in the current drought, irrigation interests are clamouring for use of "alpine water". It seems these lobbyists expect to get use of that water for nothing. But a manufacturer doesn't get free raw materials from suppliers, so why should irrigators get free water from the public estate? The Greens suggested resource rentals for commercial water users a while back - anathema to National, of course.

The reality is that irrigators and farmers seek to quietly privatise what is a public asset. That process masks a contradiction. The rural sector is strident in its views on the sanctity of private property, but conspicuously silent when it comes to taking public property.

 

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