1. SA Banker’s Briefing on the MDB Prof. Mike Young Research Chair, Water Economics and Management The University of Adelaide SA Banker’s Briefing, Friday 15th June 2007

2. 2 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.

3. 3 Total Murray-Darling Basin inflows Annual flows (year ending June) showing forecast for 2006/07 Source: Craik, MDBC

4. 4 Impacts of drought on average seasonal irrigation allocations Entitlement20062001-2005Long term NSW HS~ 60%~ 97%97% NSW GS0%~ 63%85% Vic WR Murray 95%~ 96%100% Vic Sales0%~ 45%76% SA~ 60%~ 70%>99% Source: Craik, MDBC

5. 5 River Murray inflows Average and Selected Years Source: Craik, MDBC

6. 6 River Murray System Cumulative Inflows 2007 to date compared to 2006 Source: Craik, MDBC

7. 7 Murray System Total Storage June 2000 to May 2007 with indicative outlook to end September 2007 Source: Craik, MDBC

8. 8 Modelled outlook Total 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 Total Storage (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

9. 9 Rainfall outlook 3 months June – August 2007 Source: Craik, MDBC

10. 10 Temperature Outlook 3 months June – August 2007 Source: Craik, MDBC

11. 11 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

12. 12 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 inoperable Source: Craik, MDBC

13. 13 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 GL A 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)

14. 14 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

15. Contact: Prof Mike Young Water Economics and Management Email: Mike.Young@adelaide.edu.au Phone: +61-8-8303.5279 Mobile: +61-408-488.538 www.myoung.net.auwww.myoung.net.au

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