Water Rights, Markets, Monopolies and Royalties

Transcription

1 Water Rights, Markets, Monopolies and Royalties Te Wai Maori Trust has produced this paper to provide an overview of some of the important areas that need to be discussed before any meaningful settlement can be explored in relation to Maori rights and interests in fresh water. Introduction In its initial report on the National Freshwater and Geothermal Resources Claim (WAI 2358) the Waitangi Tribunal found that there was a nexus between the sale of 49% of shares in power-generating SOE companies and the ability to recognise Maori rights in water or remedy breaches in the Crown duty to protect such rights. The Tribunal agreed with Crown submissions that the proposed share sale would not impair the ability of the Crown to provide almost all forms of commercial rights recognition and/or remedy after the sale but also concluded that the Crown would possibly be unable to establish a special class of Maori shares in the SOEs after the sale if that was agreed that such shares would be a component of any agreed settlement between Crown and Maori over water claims. The preservation of this shares plus possibility was considered so important that the share float process should be halted, a national hui held to discuss the issue so as to identify an agreed way forward and that to proceed with the share sale without first determining whether shares plus is a necessary part of any arrangement to protect Maori property rights or to remedy well-founded claims would (in the view of the Tribunal) create a new Treaty breach. These findings have the effect of elevating the prominence of shares plus in any water claim and settlement discussions. This is unfortunate because there are very good general reasons why shares plus should be rejected as part of the governance structure of corporations whose efficient operation is of critical importance to performance of the New Zealand economy. It is also unfortunate that the water claim has given such prominence to energy companies rather than to extractive uses of water or uses of water that degrade the quality of water remaining in-stream. The construction of a dam has many effects of interest to Maori but the generation of electricity from an existing dam has few additional effects. Arguing Maori claims and remedies on situations that are peripheral to the real issues runs the risk that failure to establish the peripheral case will set back negotiations on the core. If shares plus is not a preferable claim remedy, what is? There are four reasons why this question is almost impossible to answer at present:

2 2 1. The nature and extent of Maori residuary proprietary rights in water bodies has not been established but there is good reason to believe that any such residuary rights would be heterogeneous (specific to local situations). 2. In the absence of authoritative information on residuary proprietary rights, it is not possible to establish the nature and extent of Treaty breaches by past, current or proposed Government water management policies, laws and actions. 3. In the absence of authoritative information on Treaty breaches, it is not possible to determine the parties who should receive rights recognition/remedies or the extent or form of compensation that could constitute an appropriate package of recognition or remedy. 4. In the absence of clear direction on how the Government intends to modify its role in water management and the current regime for regulating water quality, allocating use rights and imposing royalties, it is not clear whether any remedies identified above can be practically integrated with that new regime (whatever it might be). In spite of this flux and confusion, it is still possible to assemble a few more or less sensible observations about water management policy, Maori water rights, Treaty claims and remedies. The modesty of this assembly is probably compelling evidence that settlement negotiations are currently premature. Water Management A trigger for current water claims is the prospect of introducing royalties associated with rights to use water. This would be both an enlarged demonstration of the Crown acting as owner of water and a reinforcement of the status of royalty payers as property right holders. These changes would merely be matters of degree as the Crown already acts as water owner and existing water rights are property rights. A justification for the imposition of royalties is that putting a price on water creates an incentive for people to conserve it. Moreover, the royalties or a share of them could be remitted to Maori as part of a Treaty claim remedy. However, water is not always scarce. There are many circumstances where it does not need to be conserved or is even available in excessive amounts. It is true that instances of scarcity are increasing, particularly in situations where there is strong demand for extractive uses, especially for the irrigation of pasture. It is only in these situations of scarcity where rationing is needed. Good resource management in situations of scarcity occurs when there is efficient decision making at the margin, i.e. the least beneficial use of water is the one under threat of discontinuance. These decisions are best made by resource owners but in New Zealand water allocation decisions are made by Regional Government, which claims that they are not an owner. Leaving aside the ownership debate for the moment, there are good reasons to criticise the water management and allocation performance of Regional Councils under the Resource Management Act (RMA). Water rights in the form of secure property rights with terms of up to 30 years have been allocated on a political basis to holders of these rights who are not those who necessarily value them most. Furthermore, the flows of some rivers are arguably over-subscribed and yet individual rights cannot be easily pro-rated to real-time water availability. Introducing tradability of these property rights further punctures the Government rhetoric on water rights by drawing attention to the reality that private property rights in water have been allocated by the Government without due consideration for the nature and extent of residuary Maori proprietary rights in water. In an over-

3 3 subscribed river the practical scope of those residual rights has now been reduced to zero by Government management. The agreed design and implementation of a new resource management framework for water is the logical starting point for discussions between Maori and the Government about water, rather than the sale of SOE shares. These discussions need to be wider and deeper than the current discussions with the Iwi Leaders Forum. It has been observed in the course of the interim hearing that the fisheries settlement could provide a model for a water settlement. The comment was related to the allocation of settlement benefits but the most important feature is that it was the prior design of the Quota Management System (QMS) that provided both a robust fisheries conservation framework and perpetual property rights that were the building blocks of a durable settlement. The Fisheries and Water Regimes It is fruitful to unpack the critical elements of the fisheries settlement and to consider the similarities and differences with water. Similarities predominate: 1. The Government recognised Maori fishing rights but these were considered to be nonproprietary and minor. 2. The Government acted as owner, was solely responsible for fisheries management and declared that it exercised management for the benefit of all New Zealanders. 3. The Government authorised fishing beyond what was sustainable in many fisheries. 4. The Government failed to preserve sensitive fisheries habitats such as estuaries with particularly adverse effects on fisheries of special interest to Maori such as shellfish and eels. 5. The Government issued private property rights to fishers in the form of permits and licences. 6. The Government decided to strengthen these property rights into the form of Individual Transferable Quota (ITQ) and to make ITQ tradable to encourage more efficient utilisation of fisheries. It was a High Court injunction (rather than a Waitangi Tribunal finding) that encouraged the Crown to enter into negotiations with Maori. 7. The allocation of ITQ by the Government was associated with the introduction of a royalty regime to compensate for the use of a public resource and to prevent right holders making super profits from quota. However, the QMS introduced some excellent resource management concepts that have so far been missing from water discussions. ITQ rights were subject to an overarching management limit (the Total Allowable Commercial Catch or TACC) and were proportional rights that would rise and fall with that limit. In other words, extractive rights were subject to a prior non-extraction limit (the fish that have to be left in the sea). This limit is a not just an environmental limit but also includes allowances for non-commercial catch (customary and recreational fishing). Effectively, environmental and non-commercial considerations take priority over the TACC and when the TACC is reduced (or increased) all commercial right holders are affected proportionally. In the case of a river, or aquifer, the parallel non-extractive limit would be the maintenance of a designated minimum in-stream flow. As with a TACC, this in-stream flow would accommodate both environmental and non-commercial water uses. If this was a hard volumetric limit, it follows that the total scale of the market in extractive rights would have to be a variable residual amount. Commercial extractive rights would not be designated in cumecs but as a fixed percentage of the

4 4 cumecs available for extraction at any time. In the case of water, the TACC concept could also be expanded to include qualitative as well as quantitative parameters to the in-stream flow. The implementation of these parameters would address many Maori concerns about water management as many customary Maori uses of water relied upon the maintenance of excellent water quality and the preservation of an adequate in-stream flow volume. The Fisheries Settlement introduced two enhancements to the QMS. Having over-subscribed proprietary rights in the fishery to non-maori, the Government was obliged to enter the market it had created to buy back an agreed proportion of those rights (10%) for allocation to Maori. In the case of water, it is likely that existing water right holders would have to be grand fathered into any new regime of tradable water rights. This leaves the Government the same three broad alternatives available in the fisheries settlement: 1. Buy back sufficient water rights in over-subscribed water bodies on the open market in order to transfer an agreed volume to Maori. 2. Wait until the rights expire in over-subscribed water bodies and transfer an agreed volume to Maori. 3. Where there is sufficient headroom in a water body, allocate an agreed volume directly to Maori and tender the balance. Note that only options 1 and 3 were used in the fisheries settlement. The problem with option 2 is that there can be a substantial delay (up to 30 years) before rights recognition/redress is provided to Maori. Also, with any property right of limited duration, the incentives for responsible resource use by right holders diminish as the term approaches expiry. This can result in the running-down of associated capital investments dependent upon access to the water. Royalties and Water Rights Royalties are collected in a number of water regimes internationally and the remittance of some or all of mooted water royalties in New Zealand could form a part of a possible water settlement. Like shares plus however, there are some strong fundamental reasons to avoid a royalty regime for water. First, it is bizarre for the Crown as practical owner to collect royalties only to then remit them to the true owner. However, stronger general objections emerge as the ramifications are explored of having a monopolistic supplier of a factor essential to all life forms and virtually all industrial processes empowered to impose a royalty on the use of that factor. These implications are unsettling. The right to impose a water royalty is ultimately underwritten by a right to withhold water from those who do not pay. A water royalty is a special tax. The question is what is the basis for determining who pays the tax and at what rate or rates? Rationale for a Water Royalty It provides a return for the use of a public resource It could be used to fund compensation to water right holders for the adverse impacts of extraction/pollution. Problem Water is not owned by the public These rights (if they exist)have not been defined, the right holders not identified, the adverse impacts not estimated

5 5 A price on water will encourage conservation Royalty could simply tax super profits and therefore has no general economic downside A single price will be either too low (allow superprofits to be made no conservation) or too high (will expropriate value of sunk investment and reduce economic activity in New Zealand for no benefit) This requires the ability to accurately apportion profit to all factors of production (impossible and unique for every firm) OK, it is just cash then. No need to introduce a bad tax. OK, the royalty is just a special tax to fund the Maori Settlement If the Government does not have the information and capacity to operate an intelligent royalty regime, it should probably not operate one at all. Conclusion This brief analysis suggests that Maori need not have any fundamental objection to tradable private water rights (At least any more than ITQ is objectionable). There are some important provisos to this position: The framework for any water market would have to make adequate provision for the protection of water quality and non-commercial in-stream water uses and values important to Maori that provided a context and limit to private water rights. In short, Maori endorsement of an overarching framework of water management is a pre-condition of any robust settlement. Within this endorsed framework, an adequate proportion of private water rights would have to be set aside for Maori in recognition of traditional residuary proprietary rights in water or as compensation for their earlier practical expropriation. Where the delivery/recognition of such rights was not immediately possible because of grand-fathering of existing water right holders, additional redress will be required. The best form of this redress is cash. One source of cash could be any revenue received by the Crown from the tendering of surplus water rights. Note that this revenue is simply a byproduct of the water rights allocation method employed (tender or auction). By its own admission, the Crown has no claim on this revenue as owner. Shares plus is not a preferred form of redress. The minimum allocation of ordinary shares that would be satisfactory would be 50% (as in the case of Sealord) if the restoration/recognition of control over water use activities was part of any settlement. Below 50%, the shares are essentially a proxy for cash. A share of any future Crown water royalty revenues is not a preferred form of redress, especially if Maori were right holders subject to such royalties. Apart from general concerns over any monopolistic royalty regime, this arrangement would affirm the status of the Crown as the actual owner of water just not the legitimate owner.