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Tas Irrigation – Water Management and Pricing

Cassy O'Connor MP

Cassy O'Connor MP  -  Tuesday, 30 November 2021

Tags: Irrigation

Ms O'CONNOR - Minister, of the irrigation schemes that are currently operational and the schemes that are planned under tranche 3, how many are within areas that have statutory water management plans and how many are outside statutory plan areas?

Mr BARNETT - For the tranche 3 projects?

Ms O'CONNOR - Yes, irrigation schemes that are currently operational and those that are planned.

Mr BARNETT - So, let's just see if -

Mr KNEEBONE - No, I'll have to take that one on notice, thank you.

Ms O'CONNOR - Thank you, Mr Kneebone. What's the process undertaken to decide where new schemes will be located? Is this decision driven by Tas Irrigation, by scientific advice, or is it a policy decision from government?

Mr BARNETT - Thank you for the question. I think that's best answered by the CEO. Tasmania has some key ingredients to success in terms of agriculture - our cool climate, our fertile soil, access to reliable water, our enterprising farmers and agribusinesses backed-up by our research and our investment in the Tasmanian brand. So, there's a range of factors that are taken into account in terms of where best this is to occur. The CEO might wish to add to that.

Ms HOGG - I think a thorough review was done, and I'm not going to get the year right, I'm going to say 2018 - 2016 - in developing tranche 3. Contributing to that review was demand and interest from irrigators, as well as the parties you're talking to. We needed to find a sustainable water source. We needed to have a rough idea of how our scheme would work and there needed to be interest in the concept. We then go through a much longer process, but that determined the tranche 3 projects that we are now pursuing. We're not locked and loaded and we're always open to additional input into schemes that we might pursue. The Fingal situation is an example of that. A big part of it is interest and demand from potential irrigators and an ability to deliver a scheme that provides economic benefit.

Ms O'CONNOR - Thank you Ms Hogg.

Mr KNEEBONE - If I may, my understanding of the process that we went through for the future irrigation project was Tasmanian Irrigation, at the time, looked at sites where there was potential for the application of irrigation water. We then sought community input. We also had examples like the Don project where we responded to demand from the irrigators of the area. The Don project was not part of the original tranche 3 arrangement. It was added prior to the Pipeline to Prosperity application being put in because we were approached by a group of irrigators who said, 'We think there's demand in this region and we've done our own expressions of interest and this is what it says'. It's not driven by policy at all. It's driven by identifying areas where there is potential. It also has to be backed up by irrigator demand.

There's a three-part test that we apply when we develop them. It must be environmentally sustainable, it must be economically viable, and it must have community support. If we don't reach any of those three legs they don't proceed.

Ms O'CONNOR - How many irrigators on farm water access plans are metered?

Mr KNEEBONE - To my understanding all our irrigators are metered, including those who take water from rivers. They are required to have a meter. All our irrigators are metered.

Ms O'CONNOR - Thank you. My understanding is that for those irrigators who are operating outside of the Tasmanian Irrigation Scheme there isn't the same level of metering. There's also a difference in costs that are charged against irrigators. If someone is participating in a Tasmanian Irrigation Scheme they've agreed to pay a certain cost, but if you have a look at an irrigator like Van Dairy up in the north-west they are paying one cent for 38 000 litres of water out of the Wey River. With a five cent coin they could pay for the average household's entire annual water consumption.

This is a question for the minister. Minister, when will the Government move on bringing equity into water allocations and management so that meters are put on irrigators who are operating outside of the Tasmanian Irrigation Scheme? When will the Government move to ensure that irrigators outside the Tasmanian Irrigation Scheme are paying a fair price for their water?

Mr BARNETT - Thanks for the question. It's a very comprehensive question, so I'd like the opportunity to respond to that.

CHAIR - Marginally relevant -

Ms O'CONNOR - It's entirely relevant.

CHAIR - Well, you're asking about irrigators outside of Tasmanian Irrigation which is what we're here for, Ms O'Connor. I'm going to let the minister answer as he sees fit.

Ms O'CONNOR - I'll challenge that because in time, Chair, Tasmanian Irrigation schemes will probably cover most of the state, so many of these irrigators will be within an irrigation scheme.

Mr BARNETT - First of all, we take a risk-based approach in terms of metering requirements. We have a policy called the Tasmanian Water Accountability and Reporting policy and it sets about accountability and reporting obligations for all water licence holders. The principles that underpin that policy are as follows - •

All water taken from the state's water resources under a water allocation must be accounted for in relation to that allocation and any conditions it may be subject to. •

The method used to account for water taken should be fit for purpose, cost-effective and based on a risk management approach.

The water accountability and reporting policy is supported by the rural water meter policy, the rural water meter decision framework and the Tasmanian meter standards. The metering policy and framework set out a risk-based approach to decisions about whether meters are required. In catchments where the department has assessed that the risks associated with water use are elevated, metering and the taking of water has been required on licences.

As of 1 June 2020, there were 2876 water licences and 9220 primary allocations. Of those allocations, 1538 have conditions that refer to a water meter.

Of course, there's always more work to do. We can always improve in terms of the Tasmanian water accountability policy. That's why we have a Rural Water Use Strategy, that's why we have a Rural Water Roundtable, and they will provide opportunities to do that.

Tasmania has also recently agreed to a national meteorological assurance framework, which provides rules and guidelines for the use and regulation of non-urban water rules.

Ms O'CONNOR - Minister, what's the average price per litre or megalitre that Tas Irrigation charges irrigators and are there different set prices? Is it seasonal? I'm presuming if there's a farm water access plan, there's some measure of a clear understanding in the irrigator's mind what they're paying per litre or per megalitre?

Mr BARNETT - Thank you for the question and of course, it depends on the scheme; but I'll pass to the CEO to add to that.

Mr KNEEBONE - Thank you, minister. We set our prices under the act and under the by laws annually. The structure of those prices are fixed price and variable price and they're individual for every scheme. Each scheme is done on an independent basis. The only operational costs that are shared between schemes are overhead costs of TI - running corporate services, the board, rental - those sorts of costs that can't be directly attributed to a scheme. The price is worked with and consulted with each irrigator committee every year.

We have 18 separate irrigator committee meetings every year where we consult on what their future budget looks like and what those implications for price are. Part of the consideration of price is also their asset replacement levy - the costs of replacing assets as they wear out. We recover that upfront as part of our fixed charging. For instance, some of our schemes have a zero variable price and just a fixed price because there's no actual pumping required or we don't have to purchase the water; but there is a range.

We can provide those on notice; but the variable prices range from zero - I think the highest is $213 a megalitre; it depends on the source - and it's everywhere between. The fixed charges range from $34 per megalitre to $176. There is a wide range, but they are completely dependent on the costs of operating those schemes. The fixed costs are recovered through fixed charges, the variable costs are associated with the actual delivery of water. The fixed charges are charged on the basis of the number of megalitres of allocations sold within the scheme, not the total capacity.

There may be unsold water with any scheme, so it's divided by the number of megalitres or entitlements that are actually sold. In a given year, if we sell more water allocations, then the price next year may well go down because the fixed charges in total won't have increased.

Ms O'CONNOR - Thank you, Mr Kneebone. The Productivity Commission recommended that the Office of the Economic Regulator be involved in the setting of prices for water allocations. Why isn't the Office of the Economic Regulator involved?

Mr KNEEBONE - I know the theory of the answer to your question. The Office of the Economic Regulator is normally used to set scrutiny on prices where monopoly rents or monopoly returns are able to be applied. They are profits. The likes of TasWater would be subject to independent economic regulation and scrutiny and therefore, the setting of price and service plans for their services. Because Tasmanian Irrigation only operates on the basis of cost recovery, and we have full transparency of our annual budgets and of the budgetary performance that's applied to the irrigator committees on an annual basis. There is no profit generated so there's no economic rent or monopoly profits being generated.

There's no real role for a regulator because what they're interested in is, what are you doing with your asset value? All our assets are written off. What are you doing in terms of generating a weighted average cost of capital or a return on equity? Because we're not getting a return on equity, there's nothing to scrutinise.

Ms O'CONNOR - That's interesting. I wasn't privy to that, but the Productivity Commission obviously saw it differently and thought there was a case for the Economic Regulator to be involved in the setting of water price charges.

Mr BARNETT - I am not sure if that is relevant to Tasmanian Irrigation, but I will clarify.

Mr KNEEBONE - It was, but that was a different time when we didn't have the level of openness. I believe that related to a finding back in about 2017, 2018. If I can be frank, that was a very different time for Tasmanian Irrigation and we would not have had the transparency in terms of the financial information we currently provide. There's not now been a push to ever proceed with that because we've upped our game, absolutely improved the level of transparency of information in the budgetary performance of every scheme and what the maintenance plans are, what the asset replacement levy is based on. All of that level of information is now absolutely available to irrigator committees on an annual basis.

In the last 12 months we've seen the level of engagement by those irrigator committees. As I said, we had 18 of those meetings between May and August where we go through with a fine tooth comb every dollar that's spent and every budget item that's allocated for each of those schemes on an individual basis.