SUMMIT's proposal to establish a water bank is nothing new in the water industry.

Irrigation corporations in NSW are already encouraging irrigators to sell and then lease back their water to deliver some on-farm liquidity and create a secure investment product.

 
In January, Murray Irrigation Ltd launched its Riverbank Holdings division, with offers to buy MIL irrigators' general security entitlements at $700 a megalitre.

Irrigators lease back the water for five years at a cost $58.40 a megalitre of entitlement, which delivers an 8.3 per cent rate of return to Riverbank Holdings.

Riverbank will then raise the lease fees at an annual rate equal to the consumer price index plus 1 per cent.

Under the Riverbank deal irrigators can buy back their water entitlements for the original sale price, plus CPI and 1 per cent annual increases compounded over the five years.

One Victorian water industry analyst argued leasing is an extremely attractive option for many irrigators, given it frees up much needed cash in the midst of drought.

But will Summit and other water bank operators be willing to offer such generous terms?

Fund managers are looking to maximise their returns, which means selling the water to the highest bidder.

But first they must bank the entitlement and then have the rights to trade allocation water from one season to the next.

Investing in Victorian entitlement is not without its regulatory problems for corporate players.

Firstly there is the 10 per cent cap on the total volume of entitlement that can be held by non-water users within Victoria.

This is by no means an onerous challenge, given there's at least 98,000 megalitres left to buy before the 10 per cent cap is reached.

However, it will eventually limit investment.

Any savvy investor in the Victorian water market would also be looking to buy unused entitlement, trade on the temporary market and carry over water into next season.

However, non-water users cannot buy allocation or temporary water and transfer it to their entitlement.

You have to own land in Victoria.

But there is a way around this problem.

Simply park the water with a large entitlement holder with land.

Given the drought there's plenty of room in the parking lot and plenty of large entitlement holders willing to charge a small parking fee.

There are plenty of irrigators looking to sell their entitlement to free up cash.