Background information on significant Commonwealth strategic water purchases in 2017
- As part of its commitment to delivering the Murray Darling Basin Plan on time and in full, the Government is committed to ensuring that the water recovery targets under the Plan are achieved. While the preference is to recover water through investment in irrigation infrastructure, the Government has also engaged in strategic water purchases where these would provide significant benefit while minimising social and economic impacts.
- Three large strategic water purchases undertaken in 2017 have been the subject of particular public interest. This paper provides further detail on each of the purchases. Information in the box below describes the general approach to strategic purchases.
Approach to strategic purchases
Delivering the Murray Darling Basin Plan requires the recovery of water entitlements from licence holders for the purpose of improving environmental outcomes in the Basin, while taking account of the social and economic impacts of recovery efforts.
While open public tenders would be the cheapest way to recover water, this approach is widely recognised as having significant negative social and economic consequences.
Therefore, the Government would prefer to recover water through infrastructure programs – which costs more money per megalitre than open tenders, but has lower social and economic impacts and contributes to a more modern and efficient irrigation system.
The Government considers strategic purchases in circumstances where these would provide significant benefit, while minimising negative social and economic impacts.
Strategic purchases generally result in water being recovered at a lower cost than infrastructure programs, but may not be as cheap as open public tenders. This is because they are aimed at achieving multiple objectives, not just the lowest price.
Factors considered in a strategic purchase include achieving a fair market price; meeting a local or shared water recovery target; contributing to a wider environmental benefit; and uniqueness in size for the location, or representing an otherwise unique opportunity. The purchases should also lead to economic or social benefits beyond the actual financial transaction, such as supporting state government policies and programs; or reducing the need for purchasing that would have greater social and economic impacts.
The department always seeks expert valuation advice before entering a purchase negotiation.
- For simple purchases, such as part of the water holdings for a property, there is a focus on the market value of water in a region and the type and quantity of water being purchased.
- For larger or more complex purchases, commercial valuers consider a range of factors, such as the value of the products that the water can produce; the opportunity cost of lost productivity; and the diminished value of the remaining assets.
- Larger parcels of water occur infrequently in the market. They tend to be associated with significant on-farm infrastructure which then diminishes in value after the sale of the water. Commercial valuers recognise this loss and have advised that the department should be prepared to pay a higher price to encourage the sale of large volumes.
Lower Darling (Tandou)
- In June 2017 the department entered into an agreement with Websters Ltd for the transfer of permanent water entitlements, decommissioning of infrastructure and cancellation of all irrigation work orders at the property.
- The transaction was publicly announced by the department on 21 June 2017. All key documents related to the sale were tabled in the Senate on 16 October 2017 and made publically available.
- The overall cost the Commonwealth was $78 million, comprising $38 million for the water entitlements and a further $40 million to compensate for the transformation of the property to dryland farming, including cancellation of works approvals and the decommissioning of irrigation infrastructure servicing the property.
- The amount paid for the water entitlements was in the middle of the range of values provided by ABARES (between $25 million and $52 million).
- In addition to the purchase of all the irrigation water from Tandou, the transaction involved compensation for the transformation of the property to dryland farming, cancellation of works approvals and the decommissioning of irrigation infrastructure servicing the property. The agreed price was based on an independent valuation.
- This agreement represented a unique opportunity to acquire a major parcel of water entitlements in a highly strategic location in a single transaction. The department undertook all usual due diligence before proceeding with the purchase and considers the transaction price for the Tandou agreement to be good value for money.
- The water purchased directly contributes to the 2750 GL water recovery target under the Basin Plan.
- This purchase is considered highly valuable to the southern Basin outcomes, particularly because it will enhance the outcomes from the Menindee Lakes Water Savings sustainable diversion limit adjustment project by enabling better, more efficient operation of the Menindee Lakes.
- The transaction enables the Government to avoid the estimated $72 million cost of having to upgrade Penellco Channel as part of the Menindee project.
- The contract price finalised in 2017 did not include water allocations for that year, this is common practice in the purchase of permanent entitlements.
- The department closely examined the potential impacts of this water acquisition and is confident that the socio-economic impacts on the local community, including in terms of employment and local business impacts, will be minimal.
- The Lake Tandou property will continue in Webster Limited ownership. While the property will no longer be used for irrigation purposes, Webster has advised it will continue to be used for productive agriculture for its expanding organic Dorper lamb business.
- In June 2017, the department purchased 10,611 ML of unsupplemented water at a cost of $16.9 million in the Queensland Warrego catchment.
- The transaction was publicly announced by the government on 18 June 2017. All key documents related to the sale were tabled in the Senate on 12 February 2018 and made publicly available.
- The department undertook due diligence in investigating the proposal, including checking the validity of the licences on offer, obtaining commercial water valuation advice, and obtaining advice from the State Government, the MDBA and the Commonwealth Environmental Water Holder.
- The water purchase was consistent with Commonwealth Procurement Rules and paid at a fair market rate, within the price range recommended by an independent market valuation.
- This purchase represented a significant step in meeting the shared water recovery targets in Queensland. By definition, shared recoveries for Queensland can come from any Murray-Darling Basin water resource area within Queensland, as they will provide close to equivalent environmental benefits. The MDBA re-confirmed this as part of the due diligence process.
- The benefit from the purchase was not affected by the disallowance of the Northern Basin amendment on 14 February 2018.
- The Warrego purchase is considered highly environmentally valuable. This catchment supports one of the largest areas of wetland of all catchments in the Murray Darling Basin, supporting lignum swamps, flood channels, black box, claypans, lakes and other features. Several wetlands are of national importance.
- This water will contribute to more naturally variable flow regimes and ecological processes that are dependent on hydrologic connectivity both longitudinally along watercourses; and laterally between watercourses and their floodplains.
- The department believes the purchase of water in the Warrego will have little to no impact on communities in the area.
- State data on water use in the Warrego region shows that over the last several years, only a small proportion of the available water in the Warrego has actually been used by water entitlement holders.
- The purchase will also deliver significant flow-on benefits by avoiding the need for water recovery elsewhere, where it could have had greater socio-economic impacts.
Condamine-Balonne (Eastern Australia Agriculture)
- In August 2017, the department purchased 28.7 gigalitres of overland flow water from two Eastern Australia Agriculture (EAA) properties, Clyde and Kia Ora, in the Queensland Condamine-Balonne at a cost of $78.9 million.
- The transaction was publicly announced by the government on 15 August 2017. All key documents related to the sale were tabled in the Senate on 12 February 2018 and made publicly available.
- The department undertook due diligence activities in investigating the proposal, including checking the validity of the licences on offer; and obtaining commercial water valuation advice, independent advice on the possible socio-economic impacts, and advice from the State Government, the MDBA and the Commonwealth Environmental Water Holder.
- The water purchase was consistent with Commonwealth Procurement Rules and paid at a fair market rate, as informed by independent market valuation.
- This acquisition has clear and significant environmental benefits for the Lower Balonne, including the Culgoa and the Narran Lakes - a Ramsar-listed wetland of international importance.
- The Narran Lakes Nature Reserve provides important breeding habitat for waterbirds; regular bank-full flow events, which provide movement, feeding and breeding opportunities for many native fish species; and regular overbank flows which connect the river to the mid-floodplain areas, which are critical in supporting healthy woodland vegetation communities.
- The Reserve supports 40 migratory bird species, including 19 listed under international agreements. The Wetland is internationally important because of its rarity and naturalness; its significance for waterbirds, supporting large colonial waterbird breeding events of ibis, spoonbills and cormorants; and its importance as a drought refuge for waterbirds.
- This water will also be used to enhance the Culgoa Floodplain. This is an important local environmental target, with Coolibahs, black box, and grasses flourishing of the floodplains and brigalow, mulga, western bloodwood and Aboriginal cultural sites also preserved in the Culgoa Floodplain National Park. The park is has more than 150 bird species including 10 honeyeater species, Australia's six species of woodswallow and a number of parrot species.
- This acquisition means a large portion of the remaining water recovery required for the Condamine–Balonne has been achieved with minimal impacts on employment and production – this was independently verified. This single purchase enabled us to avoid the need to recover the same volume of water from many other smaller businesses in the catchment—such as family farms—which would have had a much greater socio-economic impact. In addition, the town of St George has gained important flood mitigation benefits, as the company has modified structures on its property to enable future flood waters to be better managed.