CHAIR —I would like to welcome Mr Ian McPhee, the Auditor-General, and officers. Mr McPhee, do you have an opening statement?

Mr McPhee —No.

Senator BERNARDI —I have four minutes for my interrogation of you. You have responded to a letter to which I was a co-signatory. It was a formal request for an audit of the Bureau of Meteorology and CSIRO climate data and a justification thereof. I understand you have responded to that saying you are considering the request. Can you tell me the status of that?

Mr McPhee —We received that correspondence and in the light of it I have written to the Director of the Bureau of Meteorology, Dr Ayers, asking him for his perspective on the issues raised in the correspondence. Dr Ayers has replied to me just this last Friday and spoken to me, so I expect to be in a position to be able to consider our position and reply in the next week or so.

Senator BERNARDI —When you say ‘reply’, to whom do you mean?

Mr McPhee —Reply to the signatories to the letter.

Senator BERNARDI —When will the ANAO be announcing its strategic obligations for the year?

Mr McPhee —We generally do that in a formal way in July, but if you are particularly interested in this matter I would be happy to write to you directly on my decision on this matter.

Senator BERNARDI —That eases up our time. I would just stress upon you what I would regard as the significance of this, given the taxpayer dollars and policy decisions that are at stake. I think about $3 billion a year has been spent on greenhouse gas abatement already. We owe something in the order of $870 million or $900 million as a result of the Kyoto protocol. I see that you are nodding, Ms Cass, which I hope is in agreement? That means I am right with my figures.

We have got a renewable energy scheme which is estimated to cost $1.1 billion per annum. There is a significant policy agenda that is based on this research, so I cannot overstate the importance of making sure that it is entirely accurate not only for the government’s decisions but for taxpayer dollars, which is what we are here to be the custodians of. I look forward to hearing from you directly if that is okay.

Senator HEFFERNAN —Likewise tonight we have only got limited time, so before I start I would like to invite your office to come to the Senate inquiry which I am chairing into the Murray-Darling Basin to provide some back-up. From Audit report No. 27, which is into the purchasing of water, it seems to me—to read what is behind the report—that there is a lot of tidying up that can be done in water purchasing. It raises a whole range of questions.

On the question of Toorale, it seems to me that the government of the day and Senator Penny Wong, as the minister of the day, had the hard wood put on them by the New South Wales government in that the national parks decided to buy the place and then decided to flick the water to alleviate the costs. As I understand it from the manager of the station at the time, where I had cattle on agistment many years ago, there was only one visit by the New South Wales departmental people, who went out there after they had agreed to buy the place as a national park to inspect the goods and chattels for sale. No-one understood—so the Commonwealth did not understand, I do not think, when it was put upon them—that the water was actually still tied to the land, so you have the complication of buying the land to get the water and you have 8,000 gigalitres or 9,000 gigalitres up the Warrego and 8,000 gigalitres or 9,000 gigalitres up the Darling. As soon as this happened a family further up the river bought a whole lot of sleepers which would probably cut off the water that was going to get down to this place anyhow. In terms of an efficient, transparent process, do you think that there are lessons that the National Audit Office could teach government in terms of getting it tidier than this particular purchase?

Mr McPhee —Let me answer the high level issues then I will ask Ms Cass to help us with some of the details. Firstly we would be happy to appear before your committee. Secondly, one of the great benefits of our work is to encourage agencies to improve their own administration, so I have no doubt that there are opportunities for the department to improve its performance here. We have made a number of suggestions in the report to that effect. I will ask Ms Cass if she would like to add to the detail of the question.

Ms Cass —The department was aware that the land and the water came as a package. One of the things that we did note is that they recognised this as being quite a severe and high risk, so they have put in place strategies to attempt to deal with it. The first one is the fact that—as you may or not be aware—there is still not a water sharing plan in place. That probably will not come into play until about 2014.

The second one, as I just said before, was that they could not be separated legally. To try to mitigate these risks the department has agreed with the New South Wales government that all water entitlements will be transferred to the Commonwealth as soon as practical but, again, that will not be until 2014. New South Wales has agreed to implement the necessary action to protect environmental flows into the Darling River.

To back this up a little bit further, they have actually entered into a memorandum of understanding with the New South Wales government. I think it is fair to say, as we have said in here, that, yes, there are lessons that can be learnt. I think the department would be the first to recognise that.

Senator HEFFERNAN —Rather than get into the technical side of things—I presume you would not be up tonight for a shot at it—if the New South Wales government had not decided to buy this place—which is a beautiful property, I might say—for a national park then the water that has been acquired from the Commonwealth probably would not have been acquired in any other circumstance. Their hand was forced a little by the New South Wales government purchasing the property?

Ms Cass —I think it would be fair to say that the Commonwealth contributed to this because they saw it as an opportunity to purchase this station.

Senator HEFFERNAN —I can assure you the Commonwealth did not know about it until the New South Wales government put it upon them. In your summary and also in your report you say that all the water purchased from Twynam was by the tender system but it actually was not, was it? The $303 million worth of water from Twynam was decided over a couple of meetings over two weekends. There does not seem to be any real due process other than the failed tender. We will go into that technical detail at another time and another place. There was a tender price—and obviously the allocation water was discounted at $8.5 million—and then there was a 10 per cent premium able to be paid, which was $25 million. Without going into commercial-in-confidence, was that added onto or already in the price? If we need to, at the other committee we can go in camera, but was that 10 per cent a way of getting what was the failed tender to an agreeable position with the government?

Ms Cass —I think we would be better off to discuss that in the other committee.

Senator HEFFERNAN —Okay. Did you get a feel for what is a benchmark in the water market?

Ms Cass —When it came to the way they sort of looked at it, the department put in place a number of strategies to actually get an idea of the valuation of the market out there. In terms of benchmarking, the department actually puts the average prices that have been paid up on their website. Obviously, for commercial-in-confidence reasons, they can only put the average up there. That is their way of giving some indication of what the pricing strategies are likely to be.

Senator HEFFERNAN —This is a market that really could do with some regulation because there is no real supervision of the water market. There are no registered agents. Some are real cowboys. Others are decent operators. As to the benchmark, to give you an idea of the vagaries and the fact that we are likeable rogues in the bush—and I declare an interest in being a likeable rogue—for tax purposes when someone sells the property there is often a serious variation to what they sell the homestead, the stock and the water for, for a tax benefit. To give you an idea of what we are up against in the present market to establish a benchmark, on the Lachlan River—and I declare a further interest; I have a property with water licences on the Lachlan River so I do not need a brief to understand this—on 6 July 2010 someone, not the government, purchased 1,000 megalitres of high-security water and paid $1,600 a megalitre, which is a good price. On 4 August someone sold low-security water for $1,648 a megalitre. In between those two dates, on 7 July, someone sold general-security water for $675. So that gives you an idea of the chaos in the water market for which you are trying to establish a benchmark.

I would be interested to know something else, and you may not be able to tell me today—I can only say that my summary of your report in gentle language is a well constructed report that says to me that the process needs a lot of improvement. I note that you say there was no letter on file to show that Twynam’s original application tendered for the tender had been rejected, so my concerns that will go to another place and another meeting were whether the decision to negotiate with Twynam was taken before the decision to cancel the tender, which I do not think you have articulated in the report. It seems to me that dealing with $303 million worth of water over a couple of beers in two meetings is a strange way to conduct business, given the vagaries and the lack of supervision of the water market.

CHAIR —I apologise for the delay and I thank you and your officers for appearing before us tonight. We now call the Department of the Prime Minister and Cabinet back to the table.

[9.46 pm]