Speculators and water an uneasy mix

By Rob Taylor

CANBERRA (Reuters) - On the cracked grey clay of an ancient lake bed on the edge of Australia's outback, Guy Kingwill is at the frontier of a global rush to commercialize water.

Despite a long-running drought, Kingwill, who runs the vast Tandou farm, 142km southeast of the mining town of Broken Hill, has just sold his property's critical water on a national market rather than pump it into irrigated cereal crops.

"The return on the water is higher," Kingwill told Reuters. "Where we are it's broadacre cropping. But the market now is driving significantly more per megaliter from horticulture than you can get a profit margin out of wheat and barley," he says.

Across the world, speculators are increasingly looking to water as a new profit engine as supplies dwindle, caught between booming populations demanding more access and climate warming threatening its very availability.

Australia, the most parched inhabited continent, has for 25 years had an internationally unique water market to better share supplies among farmers and reverse years of allocating more water than the country's rivers and dams could spare.

That market last year traded $1.1 billion in permanent and seasonal water rights, according to Mark Siebentritt, the Operations Manager for national water broker Waterfind, who says business last year grew by 20 percent.

But Kingwill, whose corporatized farm lists on the Australian Stock Exchange, says prices are being pushed up by a metaphorical gold rush, luring bankers and speculators both at home and internationally to a new and waterlogged Elysian field.

With drought gripping some areas for a decade, prices for one megaliter of seasonal water -- enough for an Olympic-size pool -- are peaking at A$600 ($517), while permanent water entitlements are less volatile, but still pricey at up to A$2,500 a megaliter.

"You've got from the biggest financial institutions down to aunty Jane buying 10 megaliters of water ... It's now an asset, just like a block of land, and people are buying on a daily basis," Kingwill says.

ARGUMENT FOREVER

While Australia has the most mature water market, it is stunningly complex, drowning in around 10,000 rules and the regulation of four states spreading over the huge food bowl Murray-Darling river basin in the continent's southeast.

The country's consumer watchdog, the Australian Competition and Consumer Commission, or ACCC, has been asked by the centre-left Labor national government to develop new and uniform rules for how water should be charged and traded.

State governments agreed in 1993 to establish a free market underpinned by a national register of water entitlements. Development has so far been hobbled by political rivalries and water over-allocation problems in some regions.

"What we want to do is to see water trading freed up so it can trade not only across regions, but also across state borders," says ACCC Chairman Graeme Samuel.

But some farmers are wary of intervention by the nation's powerful regulator, fearing it will further push up prices when drought is already evaporating supplies and even major cities are enforcing tough water-saving measures like no car washing.