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Joint Select Committee on Northern Australia
08/04/2016

McLOUGHLIN, Mr Richard, Assistant Secretary, Water Resources, Department of Agriculture and Water Resources

SLATYER, Mr Anthony James, First Assistant Secretary, Department of Agriculture and Water Resources

[09:56]

CHAIR: Welcome. I am aware that you were in the back of the room, so I am not going to go through all the preamble. You heard it and understood it, I am sure. I invite you to make a short opening statement, and then we can fire off some questions.

Mr Slatyer : Perhaps I will just make a very short context statement. Our department is responsible for national water policy matters, broadly speaking, including the implementation of the National Water Initiative as a matter of national policy. We also administer the National Water Infrastructure Development Fund, which was featured in the northern Australia white paper. We are able to assist the committee in matters relating to those types of responsibilities.

CHAIR: Thank you. Gary Gray?

Mr GRAY: Can I just get a quick overview of the applicability of the National Water Initiative to water infrastructure funded through this vehicle? My understanding is that the keystone of the National Water Initiative is that the pricing of water, the cost recovery of water, must reflect the cost of impoundment, transportation and delivery of water. How is that expected to work within this context and into the future in the context of other investments in water infrastructure in northern Australia?

Mr Slatyer : Your characterisation is broadly correct of one important cornerstone of the National Water Initiative. There are several, including, for example, how water planning ought to be conducted. I can explain that too. The detailed criteria and specifications for the infrastructure facility are yet to be determined by the government, as you would have heard. The public information in the Northern Australia white paper makes clear that the government is expecting states that wish to avail themselves of Commonwealth assistance will be implementing National Water Initiative principles. The reason that is important is that, in terms of the 'entitlementisation' of water and the cost recovery arrangements for water that you alluded to, that is the single best signal that the demand for the infrastructure is real, enduring and sustainable. So it is a very important indicator of sustainability that the users are in a position to pay the ongoing costs associated with that infrastructure. It has always been a key objective of the National Water Initiative that those running costs can be met by users.

The other cornerstone is that the water security, if you like, that is enabled through the development of new infrastructure has real value, and it is really important that that value can be maximised and liberated and used to generate more benefit. Under the National Water Initiative concepts and principles, the way that is done is through the issuance of rights in the access to that more secure water that can then have a value in and of themselves, separate from just the value of the farm itself. So those water rights and the capacity for states to establish those rights and ensure that their value can be maximised is another important feedback loop in testing the quality and sustainability of new water infrastructure. They are a couple of examples. There are many other features of the National Water Initiative which are also important.

Mr GRAY: Mr Slatyer, one of the issues that becomes relevant in this context is where, for instance, a water resource crosses a border. Where we have a highly successful model is in the operation of the Murray-Darling commission—a highly successful model. One of the complexities in other areas where water resources cross jurisdictions is the different pricing regimes that take place for water in those jurisdictions. I simply flag that in the context of the National Water Initiative. In the way in which water is priced there are complex issues that should not be lost amidst the principal and most important policy stream, which is to ensure a proper payment structure and economic structure for water rights and the recovery of costs for investment in the creation of empowerment to water transportation.

Mr Slatyer : I think that was more a statement than a question.

Mr GRAY: It was.

Mr SNOWDON: He is like that.

CHAIR: On the phones, has anybody got a question?

Senator McLUCAS: I am fine, thank you.

Senator SIEWERT: I don't have any questions.

Senator IAN MACDONALD: On the issue of the biosecurity that we were discussing with your colleagues, do either of you—and hello both of you—want to make any comment on that?

Mr Slatyer : It is not within the remit of our responsibility in the water division, but my colleague may be able to pass something on; otherwise, we will take any question on notice and make sure you get a quick response.

Mr McLoughlin : Senator, as you know from my background knowing something about seafood, I think the project Sea Dragon comments about broader public access to that facility are probably right when it comes to biosecurity; but, in terms of specific questions around biosecurity, we would have to take that on notice for the more expert people in our department to deal with.

Senator IAN MACDONALD: All right.

CHAIR: I think that is appropriate because, while we are making reference in this case clearly to a submission that was put in by Sea Dragon, for any similar types of projects where there is a biosecurity issue which may require them to have a single-user or exclusive access to a part of publicly funded infrastructure, whether that is going to be an impediment to accessing that fund I think is very, very relevant and very important. I think it is something that we need to be aware of because, I suppose, at the end of the day, it is in the national interest for biosecurity reasons that they have that exclusive access to a component of it. But at the same time I think there would be serious concerns if that then negated their opportunity to access it to accelerate or to realise their project. Gary?

Mr GRAY: I am good.

CHAIR: Warren, are you good?

Mr SNOWDON: I am done.

CHAIR: He is done, actually! I have to say that!

Mr SNOWDON: Tony knows that I am done!

CHAIR: I thank you for that. A lot of the questions we had were to the witnesses before you, and you know that what we are looking at here is quite specific. Thank you for taking the time.

Mr GRAY: Actually, I apologise for this—

CHAIR: Have you seen that fellow? What is his name—Columbo? 'One more'!

Mr GRAY: because I do appreciate you being here. I appreciate that the point I made in my last statement is one that may well be better fleshed out by you responding to that as a question. Do you have models in mind for how you would deal with the cross-jurisdictional water-pricing issues?

Mr Slatyer : The short answer is yes. The National Water Initiative does not require that all jurisdictions adopt precisely the same approach. That was considered in the framing of the National Water Initiative, but the decision was taken that it was not necessary to get, if you like, a uniform pricing regime in place. However, there are principles that are embodied in the National Water Initiative about how water pricing ought to be done by each state, and the states are expected to observe and generally are observing those principles.

We do know that there can be tensions when, with cross-border resources, different jurisdictions apply different metrics and regulatory arrangements to setting prices, but by and large they have not erupted as significant problems in Australia. We have, I think, enough consistency of approach, thanks to the National Water Initiative, that that has largely addressed concerns.

Of course, with cross-border water, ordinarily, if it is a significant resource, there will be an agreement of some sort between the adjoining governments around the access to those resources and any cross-border issues. It would be unusual for those agreements to venture into the pricing space, but if there were a significant difference of approach between the two adjoining states then it would be quite reasonable for them to agree on more consistency around pricing arrangements.

Mr GRAY: I am sure you know exactly where those differential pricing structures are, the different philosophical bases for the pricing of subsurface water and other water resources and the potential uses to which they might be put—water gathered in one jurisdiction and utilised in another and how that is priced and properly dealt with through the NAF but also consistently with the principles of the National Water Initiative.

Mr Slatyer : Yes.

Mr SNOWDON: And potentially water out of the same aquifer being dealt with on one side of the border differently from the other.

Mr Slatyer : Indeed. In those circumstances we would expect that the adjoining states would come to terms in the sensible sharing of that aquifer resource. Under the planning principles of the National Water Initiative, of course, each state is obliged to ensure that water diversions that it authorises are based on scientific assessment of future water availability and, in the case of groundwater, the sustainability of that resource. So if states are doing what they have agreed to do—and, by and large, we consider they are—in terms of implementing National Water Initiative principles, then these problems that are great problems in other parts of the world should largely be abated in Australia.

Mr SNOWDON: In terms of describing the regulatory arrangements that are used across the north—in Western Australia, the Northern Territory and Queensland—how differential are they? Are they vastly different?

Mr Slatyer : They are very, very, very different arrangements.

Mr SNOWDON: In terms of potential investors, how does that militate either for or against attracting investment into those various jurisdictions?

Mr Slatyer : I am probably not equipped to answer that particular question. We have not surveyed investors ourselves as to that question. Our concern would be if those differences impacted on wise decisions about the capacity to access the resource as a whole and we were not in a world where there was essentially competition between the states over the resource. So, at this point, even though there are considerable differences in the legal regimes that apply in the three states, that would become a concern to us only if it appeared that it was jeopardising the sustainable use of the resource.

Mr SNOWDON: So, in terms of regulatory arrangements, if one of the jurisdictions has an arrangement where they grant a licence which has an economic benefit but does not recoup a payment for that licence, how would you describe it?

Mr Slatyer : That would not be fully compatible with the National Water Initiative principles.

Mr SNOWDON: So that means the Northern Territory government has not been fully compatible with those arrangements?

Mr Slatyer : You are drawing me into a matter that really would need a detailed analysis of just what the particulars are of that—

Mr SNOWDON: The reason I am asking—well, I will not go into the real reason I am asking the question! But it is just to expose the fact that the Northern Territory government has granted licences over the last period to individuals and corporations without receiving any financial benefit back, directly—that is, for a payment for the licence—

CHAIR: A zero approach—

Mr SNOWDON: but allowing those licences then to be sold on. In one particular instance, a pastoral lease lessee was provided with a huge allocation of water from a particular aquifer and then said that that water was going to be used for a particular agricultural purpose, for which it was never used, and then onsold the property—and that water licence became a key feature of the sale. That raises real issues in my mind about how we are actually managing the water and the rights of individuals as opposed to the rights of the state to oversee and properly regulate water and the development of infrastructure, both economic and public, and its use. So I would like to know how the National Water Initiative deals with these issues and what the Commonwealth's role is in trying to make sure that there is some sort of standardisation of the way in which state and territory governments actually use the water.

Mr Slatyer : The National Water Initiative deals with these issues at a level of principle and good practice. It is not black-letter law. The only black-letter law is the state water law which is adopted in each state. So the National Water Initiative basically says: 'If you want to get the best economic, social and environmental outcomes from water resources, then these are the best practice tools to adopt.' So that is how it works. The Commonwealth undertakes a triennial assessment of the implementation of the National Water Initiative. The next assessment will be undertaken in 2017 by the Productivity Commission. It is at that juncture that the Commonwealth and all governments and the general public can take stock of how well the state governments are doing. The National Water Initiative is an agreement of principles. It is not something which the Commonwealth enforces. It was never set up in that manner but, because it is a statement of principles, it can be quite comprehensive and wide-ranging. It provides guidance to states on how they should go about water resource policy and management if they want to get the very best economic, social and environmental outcomes from the resource.

Senator IAN MACDONALD: I do not want to put you in a difficult position, but can you give us any indication when announcements are likely to be made on the national water fund in the broad? In relation to this bill, is there an interconnection between the allocation of money under the national water fund—what is it called?—anyhow, the fund that was announced in the northern Australia white paper. How will that interact with the ability to provide this sort of financing for a privately-funded water facility that might have also received some money under the feasibility study program? Can you take me through the connection between the water fund and funds that might flow to water storage facilities under this initiative?

Mr Slatyer : The government has not made any statement, to our knowledge, about the timing of the announcement of the outcome of the feasibility round of the National Water Infrastructure Development Fund, so we cannot respond to your first question. I will ask my colleague to explain how the feasibility fund process under the National Water Infrastructure Development Fund works, and how that does not confound or conflict, in our judgement, in any way with the facility that you are reviewing here.

Mr McLoughlin : The Water Infrastructure Development Fund has these two components: a feasibility component and a capital component. A capital component is available from 1 July 2017—so next year—and the important difference is that the Water Infrastructure Development Fund is available to deal through states and the territories. Unlike the NAIF—which can deal under its board and its legislation, as we understand it, with business cases and proposals, but in consultation with jurisdictions—the Water Infrastructure Development Fund will be a fund that is available in partnership with states on business cases that meet the criteria in government decision-making. There is no statutory link between the two; however, there are good levels of communication between ourselves and the Department of Infrastructure. Because under the white paper we will be spending approximately $200 million in northern Australia on water infrastructure, there will be a requirement, operationally, to stay in good contact with them.

Senator IAN MACDONALD: This is obviously all very hypothetical, which should not be allowed as a question—well, not in estimates, anyhow. But is it feasible that someone—a state or a private developer through a state—could get capital funds under the water infrastructure fund and then apply to the NAIF for some additional funding, then put in their own sources of money?

Mr McLoughlin : Hypotheticals are always dangerous, but the key point here is that the full criteria for access to capital funding have not yet been developed and announced. We are in that process of developing those. So even on a hypothetical I cannot answer your question, because we have not developed those criteria yet for capital funding. We are in the feasibility phase at present.

Senator IAN MACDONALD: And that is always the problem with hypotheticals—and thank you for that—but it is just something that you might keep in mind in your involvement with both that and this facility. It would be interesting for someone to think about it.

Mr McLoughlin : Certainly, there has been some thinking already, but we are in the design phase rather than anything else.

Senator IAN MACDONALD: All right, thank you.

CHAIR: Consider it thought about, Senator Macdonald.

Senator IAN MACDONALD: I hope it is going to get more thought than that.

CHAIR: Thank you very much indeed for your participation. It has been greatly appreciated.