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Rural and Regional Affairs and Transport References Committee
10/09/2012
Management of the Murray-Darling Basin system

HARRISS, Mr David, Commissioner, New South Wales Office of Water

RAFT, Mr Stephen, Coordinator, State Priority Projects, New South Wales Office of Water

[18:11]

CHAIR: Welcome. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy. It does not preclude questions on explanations of policy or factual questions about how and when policies were adopted. Officers of a department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and shall be accompanied by a statement setting out the claim. Do you want to make an opening statement?

Mr Harriss : I have a short opening statement. Firstly, I acknowledge the traditional owners and pay my respects to the elders past and present.

CHAIR: By the way, in this instance who are the traditional owners?

Mr Harriss : The Ngunawal people. Thank you for asking me to speak at the inquiry into the management of the Murray-Darling Basin. Just by way of background, I have lived on the Murray River for the last 23 years and, despite what a lot of people think, I am South Australian. I do have a background in environmental science, so I have a fair understanding of the river and its management.

Over the past 25 years New South Wales has played a very active role in reforming water management and, to be quite frank, to ensure that there is a balance between production and the environment. I think it would be fair to say that the governments I have worked with want to continue production but at the same time do not want to see the river have its capacity to produce reduced. As part of the broad-ranging reforms we have undertaken in New South Wales we have already recovered over 860 gigalitres of surface water for the environment and that is for the environment, the Murray-Darling Basin and the Snowy River. Currently, we are adjusting our groundwater entitlements down by 942 gigalitres across the basin through this iteration of water-sharing plans and we have recovered 67,000 megalitres per annum in the Great Artesian Basin.

I point out that through our obligations under the Murray-Darling Basin cap we are also 3,500 gigalitres in credit of our cumulative cap. We manage salt interception schemes, which remove 240 tonnes of salt per day. Despite what many people would like to think, we collaborate very well with other states. We have got through various significant water management issues, including the most extended drought in European history. We have implemented The Living Murray program and we have introduced the Basin Salinity Management Strategy. Just by way of example, during the drought we contributed over 580 gigalitres of water to South Australia, which was coming down the Darling which we could have diverted into the Menindee Lakes for storage for consumptive use but, given the circumstances that were affecting the Lower Lakes, we made a conscious decision to push that water down into the Lower Lakes.

CHAIR: If we had gone one more year with the drought, mate, we would all be in trouble.

Mr Harriss : I do not dispute that. But I think the dams we have were not designed—

CHAIR: We got out of it by the skin of our teeth.

Mr Harriss : We did get by and in fact in New South Wales, despite having to cart water to a number of small towns, no town in New South Wales ran out of water during the drought. New South Wales reiterates its position that we always have supported a Basin Plan but that plan must meet triple bottom line and present equitable impacts and benefits across the basin.

The first issue for us in relation to the Basin Plan is the equitable apportionment of water recovery. We have to recover within valley, which we respect is the right of each jurisdiction to recover that water for their respective valleys but we also have to meet a shared downstream contribution. It is New South Wales's strong position that apportionment and the recovery of that water should be shared equally between the respective jurisdictions and it should be based on the baseline diversions. That will mean that there is no community or catchment at risk of being disproportionately targeted to water recovery. Plus it recognises that all communities must contribute to the recovery of water for the Murray-Darling Basin based on the levels of diversion.

A major issue for New South Wales is the groundwater sustainable diversion limits. The most recent altered plan sets out sustainable diversion limits for four New South Wales aquifers. These are deep aquifers that contain water that is brackish or saline at best. We believe that the sustainable diversion limits established by the Murray-Darling Basin are overly conservative and not based on the best available science. The four aquifers in particular have no or minimal connectivity to surface water and the sustainable diversion limits developed in New South Wales are already extremely conservative without another layer of conservation put over the top of them. Given that they are brackish or saline aquifers, it is not going to have any impact on the surface water diversions. The issue is how you dispose of that saline water.

In terms of state implementation costs, the MDBA has prepared a Basin Plan that is highly prescriptive and will become quite costly to deliver. The Commonwealth is yet to indicate how it will fulfil its commitment to the states.

CHAIR: I am sorry, we have to go to a division in the chamber.

Proceedings suspended from 18:17 to 18:26

Mr Harriss : I will finish the opening statement quickly.

CHAIR: Continue. You are here to assist and we are to help.

Mr Harriss : One of the further issues for New South Wales is that we believe strongly that there should be an SDL adjustment mechanism. New South Wales want to see the best environmental outcomes gained without taking much water out of production. We want to see the environmental outcomes achieved through infrastructure works, change for rules and change for operations which can deliver better environmental outcomes without taking substantial volumes of water out of production. In terms of water recovery, New South Wales want the gap between the current diversions and the sustainable diversion limits to be bridged before any further water recovery is set. If we cannot bridge that gap between the baseline diversion limit, now the sustainable diversion limits, then New South Wales also would like to see a transition arrangement whereby the recovery of water through water purchase should be limited to three per cent per water source per decade. That coincides with what was called the risk assignment model, which was included in the National Water Initiative, so that after the end of every 10-year period, communities and industries have confidence that we can only take another three per cent back from water users without compensation per 10-year period. We have a similar sort of approach to water recovery through purchase because we believe a three per cent per decade per water source will give industries and communities adequate time to adjust for a future with less water.

In terms of the numbers, we noted the 2,750 gigalitres. I personally do not believe that rivers should be managed by numbers; they should be managed by outcomes. The 2,750 does not include the 860-odd gigalitres that have been recovered in New South Wales over the past 20-odd years and it does not include 940 gigalitres we are recovering from groundwater entitlements, and it does not include any of the water—

CHAIR: That does include Rick Bull operation?

Mr Harriss : The?

CHAIR: Rick Bull's water?

Mr Harriss : No, I do not know that one. Our groundwater sustainable entitlements project which cost $135 million over the six major alluvial aquifers in New South Wales is going to recover 940 gigalitres over the 10-year period of this water sharing plan. That is not insignificant. We have not challenged the SDLs for those alluvial aquifers. We are challenging the SDLs for the brackish and saline aquifers. By way of example, we know we have a mineral sands proposal well west of the Darling River but within the Murray-Darling Basin. It will be intercepting saline groundwater, probably saltier than sea water. You have to ask yourself why they would have to go and get a surface water entitlement to offset that when there is little connection—in fact, probably no connection—with the fresh surface water.

CHAIR: We started a barramundi farm at Grong Grong, by the way, just out of Narrandera. That was out of groundwater.

Mr Harriss : We also believe that the delivery of environmental water is limited by constraints, and we believe that 2,750 is about the limit under the current arrangements. We are quite happy to look at what constraints can be removed, but I just say to the committee that that is not going to be easy, because if you remove one constraint then five kilometres down the river there is another constraint. There are some ways we can methodically look at that, but we have not started yet.

I would like to talk about New South Wales water management. We in New South Wales command 56 per cent of the Murray-Darling Basin. We typically use less than 53 per cent of the surface water, and we have institutional arrangements which mean we use less water in dry years and more water in wet years. We have a three-tiered system of water use. One is a high-security tier which dominates about 10 to 15 per cent of our total water use. That is typically used for town water supply, for industry such as feedlots, or for horticulture ventures where they have permanent plantings which need watering every year. Then, typically, 80 to 85 per cent of water is based on general security, which means that you use more water as a proportion of your entitlement in wet years than you do in dry years. For example, in the Murray Valley, general security allocations for the last four years of the drought were zero, zero, nine and 10 per cent of allocation. In those four years we used well less in the Murray Valley than South Australia used despite having a cap for the Murray Valley over double the water use in South Australia.

CHAIR: Tell me about the licences.

Mr Harriss : We have a system in New South Wales which is extremely well adapted for seasonable variability and for climate change. We also have a tier called supplementary licences. I note, Senator, that you are interested in some of that. That is water which is over and above regulated flow and which can be diverted through licensed infrastructure. It is not flood flows. It is not overland flows. It is water which exceeds regulated flows and cannot be reregulated or diverted. It can be used to offset another regulated flow downstream. That water can be diverted through licensed infrastructure. In the future—and in many areas already—it will incur a cost which is determined by the Independent Pricing and Regulatory Tribunal in New South Wales.

So, by and large, in New South Wales we have policy settings which look for a variable climate. We use water commensurately with the size of the state. In fact, we generate 65 per cent of the surface flows in the Murray-Darling Basin within New South Wales. We believe that we are pretty well advanced in water management in New South Wales in circumstances which suit our environment, our agricultural productivity and our agricultural businesses—so much so, in fact, that we have recently been invited to address the Food and Agriculture Organization in Rome in January to explain the—

CHAIR: A junket to Rome?

Mr Harriss : We have been invited. It is to explain the policy and institutional arrangements in New South Wales which have enabled us to get through the most recent drought.

CHAIR: Yes, that is fair enough. As you know, Mr Harriss, I follow it closely. We had this 'one more year' scenario, which was doomsday. I thought, 'Oh, my God! If we have one more year, everything's going to fall apart.' Mr Raft, are you going to Rome as well?

Mr Raft : No, I am not.

CHAIR: Oh, shucks! So what is your actual role? Are you the brains trust or the bodyguard?

Mr Raft : No, my role is in developing the state priority projects and seeing them through to implementation. State priority projects are the metering project, the Basin Pipe project, the irrigated farm modernisation project and the Healthy Floodplains Project. I also look after Menindee Lakes at the moment. So there are many major projects that we have on the books.

Mr Harriss : Mr Raft is an engineer and also a project manager.

CHAIR: That is sort of where I was going.

Mr Harriss : That is where we are going to, so he will make—

CHAIR: Okay. Thank you very much for that. Did you say, Mr Harriss, that 57 per cent of the Murray-Darling is—

Mr Harriss : Fifty-six per cent of the land area of the Murray-Darling Basin is New South Wales. Typically, New South Wales uses less than 53 per cent of the surface water diverted. We use more in wet years, such as this year, and we use less in dry years, such as the drought we are going through.

CHAIR: When you have a higher entitlement system. Culgoa—and, as you know, 1,200 gigs of mean annual flow, all the stuff that is spewed—used to deliver 25 per cent of its flow to the Darling. It now delivers how much?

Mr Harriss : I have no idea off the top of my head.

CHAIR: Four-and-one-half per cent.

Mr Harriss : I could possibly take it from off the top of my head.

CHAIR: No.

Mr Harriss : Quite frankly, the Murray-Darling Basin Authority would be the best institution to—

CHAIR: Yes, I know. It is 4½ per cent. With the calculation of modelling what sort of water is in the 2,700 gigs and the purchase—Tandau won the lottery when they sold—of the supplementary water. In the calculation of the 200, how many gigs was that—230?

Mr Harriss : I cannot recall off the top of my head. I think Tandau probably had closer to 200.

CHAIR: Yes, to 230, I think.

Mr Harriss : But the way that is modelled is on its recurrence.

CHAIR: It is 11 gigs at the Murray.

Mr Harriss : Possibly; I cannot recall off the top of my head.

CHAIR: These are the things that concern me: when the chief modeller says, 'I don't know what you're talking about'—that is, the Murray-Darling guy, nice bloke, young fella who was sitting over there—surely it would make a hell of a difference in the outcome, if the Nimmie-Caira—and you will no doubt explain to us why it does not include any floodwater. What is the bottom line so you convert 173 gigs of supplementary water, which can be artificially produced through the Redbank and Maude weirs? Even if it is not supplementary you can make it do it. What is the conversion? In the 2,700 gigs buyback, is that worth 0.06?

Mr Harriss : There is a conversion factor which has been published by the Murray-Darling Basin Authority in each of the respective river valleys about how often you would get that volume of supplementary water available in that particular year, which converts to what was under the Living Murray called a long-term cap equivalent or, under the return of water for the basin plan, the long-term average annual—

CHAIR: So you cannot tell us. I realise it is commercial-in-confidence—blink, blink, blink—the Nimmie-Caira thing.

Mr Harriss : On the Nimmie-Caira, they diverted during the peak year 381,000 megalitres in any particular year.

CHAIR: In those peak years that included—I was just wondering how—

Mr Harriss : No, that did not include any overland flows. This is the water that is backed up—

CHAIR: But how did you differentiate the water because there was overland flow.

Mr Harriss : No, it was not overland flows. This is the water that has backed up beyond the regulators and is diverted through the offtakes into the Nimmie-Caira area.

CHAIR: But some of this was over-bank water in the average—

Mr Harriss : No, Senator, we have not factored in the over-bank flows. In fact, we cannot—

CHAIR: What became of the floodwater that got mixed in with the supplementary water?

Mr Harriss : The floodwater did not go into it. This was specifically diverted through the Nimmie-Caira regulators and pumped through channels and then the appropriate floodway, but it does not include the over-bank flow.

CHAIR: Unfortunately, I will not tell you what I know. I do not want to get anyone into trouble. I can assure you that, at one stage of the game, a carton of beer worked wonders at the weir down there—to the right person. You know what I am talking about.

Mr Harriss : Not during my time.

CHAIR: It was absolutely corrupt. So, on the value of supplementary water, what is the scope of the value? You guys are buying the water, or wanting to sell the water. The Warrego water, I think, was $350 a meg.

Mr Harriss : There are two issues here. One is the outright value of water as a commodity separate from land for purchase. That is determined based on recent purchases, excluding the outliers—for example, if you wanted to sell water to your children for zero, that is excluded from the commercial rates; it is a normal statistical exercise. That is what the Commonwealth base their water purchase on.

CHAIR: But what determines the price of supplementary water?

Mr Harriss : Again, that is determined by the value of the supplementary water once people are prepared to pay for it. But the issue about some of this supplementary water is that the price of its worth at the particular site to which it is diverted is one thing but when that water can be used to get an environmental outcome further downstream it then commands a different price.

CHAIR: But when the water is diverted at the Redbank and Maude weirs, in a reasonably high river as the supplementary flows—four inches of rain up at Gundagai or somewhere—if you do not divert the supplementary water down the Lower Murrumbidgee, at what point does the river not cope with it if you want to send down further?

Mr Harriss : It stays in bank and there is a restriction—

CHAIR: What is that restriction?

Mr Harriss : There is about 9,000 megalitres a day at Balranald, but one of the issues about the reconfiguration is to be able to increase the capacity to bypass that choke by about 3,000 megalitres a day and that will enable the Commonwealth environmental water holder to deliver greater volumes—

CHAIR: Where are you going to deliver the 3,000 megs back to?

Mr Harriss : That will go back into the Murrumbidgee and the Murray downstream and then—

CHAIR: Having been through the Murrumbidgee floodplain and back through the back of Yanga?

Mr Harriss : I do not know off the top of my head. We are reconfiguring it so that it can go back into the river and then can be diverted further downstream for environmental purposes.

CHAIR: But you have not done the engineering, have you?

Mr Harriss : No, we have not done that detail.

CHAIR: How do you know you can do it?

Mr Harriss : We have done some early stuff, but we have not got to the stage where—

CHAIR: But you do not actually know because—

Senator STERLE: Chair, I am following. Just let him finish.

Mr Harriss : We have done some initial works to have a look at the existing infrastructure. There are a whole lot of irrigation channels. The way they do it is that they pond that water, they put it on this paddock this year and put it on that paddock the next year. You probably know pretty well how they do it.

CHAIR: I do.

Mr Harriss : The idea is to reconfigure it so you can get better environmental outcomes at that site but also to enable an additional 3,000 megalitres per day to pass through the channel system into the river downstream at the Balranald choke. That will enable the Commonwealth environmental water holder to say, 'Here's the supplementary water,'—which, as you quite correctly pointed out, is during periods of above-regulated flow, so it is higher flow and it is when the environment would probably get it naturally. The environmental water holder can ask, 'Do I divert it here for environmental purposes or do I allow it to travel downstream to maybe divert it at Chowler or Hatter Lakes or wherever further downstream?'

CHAIR: In diverting it from the Murrumbidgee floodplain, what did the environmental studies say about the impact?

Mr Harriss : We have identified that what is being used in Nimmie-Caira now is providing some environmental dividend, because they divert water through the regulator into a channel and then it passes down some parts of a floodway, which quite correctly provides some sort of environmental value. But, if you are an irrigator and you have a diversion point on the Murrumbidgee or the Laughlin River, if you divert it into a channel and it goes through to provide some environmental benefits, that is well and good, but you have the right to divert that, to pipeline it and to stop that happening.

CHAIR: I said this earlier—and you would be aware if you had been there, and these blokes have been to see you—how many acres are we talking about of formed-up bays?

Mr Harriss : I do not know off the top of my head. We can take that on notice.

CHAIR: What proportion of this is lifted water? How much of it is gravitated?

Mr Harriss : The water that we are talking about is all diverted through the channel system, by gravity.

CHAIR: But does it have to be lifted to get anywhere?

Mr Harriss : I do not think it is lifted. What happens is that, through high periods, the head builds up behind the regulators and then it is diverted downstream—

CHAIR: Yes, I understand that. But that means it is actually going down a natural floodplain.

Mr Harriss : It is being diverted through constructed channels and—

CHAIR: Yes, but if the channels were not there, it would be a floodplain.

Mr Harriss : There would have been creeks, but the channels are there and they have been there for over 50 or 60 years.

CHAIR: If you take the water off the floodplain to shepherd it—the 3,000 megalitres or whatever you are going to do—what impact will that have on the land that you have taken the water off, because it was originally a lignum floodplain, then it got levelled, then it got banked and then it got cropped—

Mr Harriss : And you are absolutely correct.

CHAIR: And if you reverse that, what is the environmental impact and are you going to do an environmental impact study on that land?

Mr Harriss : We will go through it and we will look at the reconfiguration of that area and that will, of course, involve some kind of environmental assessment. Every development in New South Wales requires a level of environmental assessment.

CHAIR: How can you sign up? You put the proposition to the Commonwealth not knowing the environmental outcome of you have proposed.

Mr Harriss : Senator, as you pointed out, I have been down there and had a book. Regarding the way that water is now ponded, outside of some specific areas in the floodway, on land and used effectively for irrigation, that is not providing an environmental outcome. What the proposal does is reconfigure that land so that, where it is used for the environment, it does provide a positive environmental outcome suitable for that area.

CHAIR: But a lot of the land was originally the flood plain and is artificially ponded now. If you take the artificial ponding off it, having removed the flood plain, what becomes of the land? I know what becomes of the land.

Mr Harriss : What becomes of the land? We are hoping to reinstate the natural values of that land.

CHAIR: But if you do not put water over it as a natural flood plain—

Mr Harriss : The proposal includes reconfiguring it so it goes back to what it was naturally in those areas of wetland significance. Other areas where the water does not get to will remain as—

CHAIR: But, getting to the areas of significance, it has to pass over a lot of flood plain.

Mr Harriss : No, it does not. It is passed through channels and it is passed through flood runners—

CHAIR: Forget the channels. In its natural state it had to flood a lot of country to get to this—

Mr Harriss : It did, but that has not been its natural state for over 60 years. This is typical of a lot of places right through the Murray-Darling Basin.

CHAIR: My point is that it was originally flood plain. If you take it off the flood plain, I would like to know what the environmental study says you are going to do with a dewatered flood plain, which is the problem up at Cubbie. The Betts and those people had to pack up and leave. They had flood plain country. I actually took photos of the bulldozer breaking the bank.

Mr Harriss : We will probably invite you to come down and take photos of the bulldozer breaking the banks there so the water will actually now go from being held within channels to distributing over a very flat flood plain.

CHAIR: If it is going to naturally distribute over the flood plain, why do you have to buy the water? If it is going to go back—

Mr Harriss : Because it does not do that now, because the users have every right not to. The Lowbidgee flood plain and irrigation district was originally set up in the forties and fifties to reconfigure the land for irrigation and to divert the water for productive use. Like in many areas, they have taken a whole lot of wetland area out for cropping, and this proposal is to reconfigure that area to allow water to get an environmental outcome—

CHAIR: The water itself is unlicensed, unmetered and unregulated.

Mr Harriss : The water itself has been diverted there since the 1940s and 1950s.

CHAIR: Yes, but that does not get away from the fact that it is authorised use but not licensed use.

Mr Harriss : It is. It has been licensed under the respective legislation and they have been able to divert the water for irrigation—

CHAIR: It is not licensed.

Mr Harriss : for which they have paid a fee.

CHAIR: Yes, per acre.

Mr Harriss : Per acre, wetted area.

CHAIR: That is why a lot of them want to sell—

Mr Harriss : Under the National Water Initiative—

CHAIR: It is because they—

Senator STERLE: Chair, we are starting to sound like one of those horrible Sky News things in the morning with Kelly O'Dwyer and co, where they scream over each other. Can we hear both sides?

Mr Harriss : For a lot of areas in New South Wales, consistent with the National Water Initiative, we have been returning area based licences to volumetric entitlements. That has been a commitment we have undertaken as part of the COAG water reform policy and the National Water Initiative. We have done it for all unregulated streams, which are typically above water storages, which all had area based licences. In fact, in the eighties we did it for all of the regulated areas. This is one of the last areas of area based entitlements that we are converting to volumetric entitlements and it is covering the three areas of Nimmie-Caira, Redbank North and Redbank South, after which IPART will determine the price per megalitre that the users will have to pay. It will be based on supplementary water and it will be based on the volume diverted, not a fixed charge.

CHAIR: But the proposed price that has been to the Commonwealth now, which is commercial-in-confidence, has already been decided.

Mr Harriss : We have put together a package which includes the cost of reconfiguration. It includes—

CHAIR: Which is included in the price of water?

Mr Harriss : Sorry?

CHAIR: Is that why you said 2¼ times the commercial value of the water to pay for the—

Mr Harriss : We have put together a comprehensive package which includes the strategic land, water and infrastructure purchase; the cost of reconfiguration of that to deliver environmental outcomes; the costs of the future land management arrangements, which will be returning the areas of wetland significant to wetlands to maintain them—

CHAIR: What is the cost of all of that?

Mr Harriss : and then for the remaining dryland area to be managed as dryland area, so we will be putting in a pipe to supplement the domestic supply. Then we will be looking at future land management arrangements, which include Aboriginal involvement, and we will be looking at offset projects because we have negotiated with the councils to minimise the potential impact of lost production.

CHAIR: As to the land that you take out of production, which is not in its natural state and does not have any natural part left—they have completely destroyed it—

Mr Harriss : I am glad you said that.

CHAIR: That is how they did it: 'weed control'; they would just flood it. What are you going to grow on that land? You said you were going to return it to its natural state. You will sow it with something, will you?

Mr Harriss : No, we will not sow it with something; it will come back to its natural wetland values of lignum areas. Those areas will be, if you like, put in some sort of covenant with the rest of the area being able to be farmed for dryland. As the point was made earlier, I do not think this government are interested in turning it into a national park; rather, they will be looking at future land management arrangements which reflect the conservation values of the wetland areas but enable ongoing dryland farming of the other areas.

CHAIR: And unknown use for the other land. I guess you understand that, having been farmed for ages and having no seed base, it will return to just nothing. Sure, a few sprouts of lignum will grow. We have that problem naturally in some parts of the Hay shire because we have had five or six years where everything germinated but did not seed. We have a hell of a problem getting the seed base back. That country will be as bare as a bird's backside for many, many years after you take away the cropping. You understand that, I guess.

Mr Harriss : Yes, I do understand that, but I think the Australian environment is remarkably resilient and I think it will come back over time. We will be looking after those areas of high conservation value now and increasing those, but at the same time we will be able to have land managers of the dryland areas.

CHAIR: On behalf of Australia's taxpayers, let's get down to the sums. I was very much involved in what was going to be the alleged original buyback of the lower Lachlan, if you recall—Juanbung and Boyong and that—which was a con job where the Commonwealth, with Robert Hill as the minister, said no because the remedial cost of all of that was outrageous. What is the remedial cost approximation of this country?

Mr Harriss : I do not think we have really set aside a cost for physical remedial works, but we have set aside the costs of the reconfiguration works, which will facilitate the better distribution of water for environmental purposes.

CHAIR: But what is that cost?

Mr Harriss : I am not prepared to divulge the costs today because we have put a—

CHAIR: On behalf of Australia's taxpayers, what is wrong with telling us what the costs are?

Mr Harriss : We have put together a business case for the Commonwealth which considers a whole lot of things within—

CHAIR: Are you too scared to tell the public? Is it another BER disaster?

Mr Harriss : No, we are not concerned, but I would like to enable the business case to be assessed without too much pressure on it, provided it comes under the requirements of the Commonwealth—

CHAIR: For the one on the Lachlan the remediation cost was more than the cost of the acquisition of the asset.

Mr Harriss : We have put out a couple of public documents which said that we have put to the Commonwealth under the proposed plan, which includes significant infrastructure components, that the value of that works is at the market value of the water recovered for the Commonwealth times a correction factor. That recognises, and New South Wales completely supports, that the investment in infrastructure works generates a sound environmental-social outcome and you do not get that from recovering water

CHAIR: I'm the cocky, right? Good luck to them if they get away with it. I understand that you are prepared to pay two and a quarter times the market value of the water. We do not know what the market value of the water is, so that could be a figure that is completely distorted depending on what you value the water at.

Mr Harriss : But, as I said, the Commonwealth have a formula for valuing the water and for valuing the different products.

CHAIR: But you must know, because the sellers know what that value is. I think the taxpayers are entitled to know.

Mr Raft : The active trades of supplementary water are recorded on our website.

CHAIR: But what is it? You are the guys in charge, for God's sake.

Mr Harriss : I do not know what the last trades were and, quite frankly, Senator—

CHAIR: Can you take all that on notice?

Mr Harriss : We can take it on notice and provide that stuff, but we typically try to avoid—

CHAIR: Thank you. So two and a quarter times the market value of supplementary water.

Mr Harriss : What has been proposed, and it is only a draft agreement, is that where an infrastructure project can generate water savings it will be considered at about 2.25 times.

CHAIR: I am trying to work out the deal for the cocky. I have the water, I am just now being issued the licence for nothing and I am about to sell it back to you for two and a quarter times the value. Does that include me remediating or do I just get that as a cheque in the mail?

Mr Harriss : At the moment, that is the price for the infrastructure that you own, which includes regulators, it is for the land that you own and it is for the water entitlement you will own.

CHAIR: So at two and a quarter times the value of the water I walk away and have nothing left there that I own?

Mr Harriss : That is correct. You will be selling the land and water and the infrastructure.

CHAIR: So two and a quarter times the value of the water includes the windmills, the troughs, the gates, the land and the water.

Mr Harriss : That is part of the deal, yes, the land, the water and the infrastructure. We have been upfront about that. And the broader project includes all the other components I have already talked about.

CHAIR: So how do you value flood plain? Maybe this is how you do it: you attach the value to the water. What is the value of a flood plain that gets a natural flood and a floodplain that has a natural flood continually shepherded off it? It is valueless, more or less.

Mr Harriss : In many areas floods have been excluded from the flood plain, and that is one of the reasons we are going through this whole Murray-Darling Basin plan.

Senator XENOPHON: The Australian National Audit Office June 2012 report was critical of the $650 million private irrigation infrastructure operators program in New South Wales. It made some comments about a lack of appropriate assessment of economic and social criteria, environmental criteria and the project's cost-benefit analysis. I take it you are familiar with that?

Mr Harriss : No, I am not off the top of my head.

Senator XENOPHON: I put it to you that the ANAO was critical of that $650 million worth of Commonwealth funds being spent in terms of not having an appropriate cost-benefit, economic and social criteria and environmental criteria analysis. I would urge you to take this on notice: to what extent are you taking into account all those criteria in terms of this particular area that has been the subject of Senator Heffernan's questioning? In other words, how do you assess the cost-benefit analysis and benchmark it against other projects? How do you assess the environmental criteria and the economic and social criteria? What effective benchmarks are there? Folding into that, Senator Heffernan's line of questioning led to an answer that it is potentially about two and a quarter times the market value. It is based on what criteria and what formula?

Mr Harriss : It has not been signed off yet but it has been based on negotiations between the jurisdictions and the Commonwealth. One of the considerations is that people believe it is not just the value of the water when it is purchased but when it is used for production there is a flow-on effect of about a three times factor. That has obviously been considered in the value of infrastructure projects and the benefits you get out of that as opposed to just water purchase and taking water out of productive areas. I would like to stress that some of the things we typically overlook are some of the social values you get out of infrastructure works. I will give you an example. We are currently doing a $70 million project for the Perricoota-Koondrook as part of the Living Murray works program. We have employed over 60 Indigenous people during the course of that project of which 40 now have certificate III or certificate IV in land management and 40 of them have been trained in first aid, which you would imagine is a fantastic outcome in some of those communities. So we believe that the economic stimulus which is caused during the construction plus the social outcomes you get for the future mean that it is far better than having water taking out of production.

Senator XENOPHON: Okay, although I note that the Wentworth Group of Concerned Scientists did table a report from the Centre of Policy Studies at Monash University by Glyn Wittwer and Janine Dixon about the upgrading of irrigation infrastructure in the Murray-Darling Basin. I do not know whether you are familiar with that report.

Mr Harriss : I have read a lot of the reports that have them produced by the Murray Darling Basin Authority or for the authority as part of the Basin Plan process—

Senator XENOPHON: No, this is produced by Monash University.

Mr Harriss : I stress that some of the issues they are talking about is upgrading infrastructure on farm. We are talking about broader infrastructure main supply such as Menindee Lakes, such as the broader area like Menindee-Caira, such as Perricoota-Koondrook.

Senator XENOPHON: I am concerned about time and do not want to get into a debate with you. I commend to you to consider that and ask you to take on notice whether you would agree or disagree with the underlying premise out of that paper that has now been tabled, which is one of the documents that will be considered by this committee. If we can go back to the issue that Senator Heffernan was focusing on, what benchmark is there to ensure that this potential buyback meets reasonable benchmark criteria for cost-benefit analysis, environmental, social and economic impacts?

In other words, is there a point of comparison for the money that is likely to be spent on this buyback with respect to other projects in the basin?

Mr Harriss : As part of our preparation for the business case, we have addressed a lot of those issues. This project is unique inasmuch as it is at the bottom—

Senator XENOPHON: Sorry—because it is unique that means that there is no benchmark.

Mr Harriss : The benchmark being used as the value of water is based on the realistic price that has been paid for that water.

Senator XENOPHON: But there are different types of water—high security, low security, flood plain—

Mr Harriss : Yes. The way we have presented this to the Commonwealth is that there are a number of ways of assessing the value of that water, but it includes the value of the price as given there. We have also ring-fenced that in the water sharing plan, which is about to be gazetted, to say that if there is any growth in use that access to supplementary water will not be diminished, so that what the Commonwealth is purchasing stays.

CHAIR: Surely you can tell us what the base price of supplementary water is.

Mr Raft : Around $300-plus a megalitre.

CHAIR: Yes, it was 350 on the Warrego. What you are doing there is paying $800-something for the water. Could we do this in camera?

Mr Harriss : I still will not reveal the cabinet-in-confidence, rather the commercial-in-confidence.

CHAIR: Did you say that is the first time that that has been mentioned today; that it was cabinet-in-confidence?

Mr Harriss : No, not cabinet-in-confidence, I meant commercial-in-confidence.

Senator XENOPHON: What is our reporting date, Chair?

CHAIR: November.

Senator XENOPHON: Okay, a couple of months. Are you saying that those commercial documents will never be provided? Will they eventually be provided to this committee?

CHAIR: How do we know it is not a rort?

Senator XENOPHON: No, my question is will we see this proposal—

Mr Harriss : I do not know what the Commonwealth policies are about providing them. On New South Wales's part, we have provided them to SEWPaC for their assessment under their criteria.

Senator XENOPHON: Sure, but eventually, whether or not there is a deal, it will not be commercially sensitive for the New South Wales government and therefore those documents can be released.

Mr Harriss : At the moment, I have been requested by the Nimmie-Caira people to maintain confidentiality of their negotiations about the price of the land and water.

Senator XENOPHON: Okay. But if a deal goes through, does that mean that those documents can be released so they can be subject to scrutiny?

Mr Harriss : I do not know. You would have to ask the Commonwealth department that is assessing it.

CHAIR: The 173 megalitres that you say is the average from the 390 peak, is it 173 megs of supplementary water at 2¼ times the value of what we are talking about?

Mr Harriss : We are talking 381,000 megalitres of supplementary water which converts to a long-term average annual yield of 173,000 megalitres.

CHAIR: What are you buying, the 380 or the 173?

Mr Harriss : You buying an entitlement to divert water at 381,000 megalitres—

CHAIR: We are talking about 380—divided into how many acres?

Mr Harriss : About 81,000 hectares, from memory.

CHAIR: 200,000 acres. So we are about talking two megs per acre, so about $830 an acre—to buy the land, the infrastructure and the water. That is good for farming land where you can plant wheat crops and things given the rainfall. But it ain't out there, mate. If you take the water off that country, it is $20, and we are paying about $830.

Mr Harriss : We are talking about the value of the water for—

CHAIR: Yes, we are converting it to acres because you said that is what it was going to involve. If you buy a farm, I presume you know you do not value the windmills and the troughs; you get them when you buy the land. You do not buy them separately—unless you are doing a tax fiddle. We are talking about 2¼ times—say, $300 or so a meg divided into 200,000 acres. That is roughly two megs an acre. We are talking about a bloody lot of money per acre. Senator Rhiannon. There's no need to whisper.

Senator STERLE: Yes, there is.

Mr Harriss : I don't think so.

Senator STERLE: You whisper. You do whatever you need to.

CHAIR: Senator Rhiannon.

Senator RHIANNON: Mr Harriss, you spoke earlier about the policy settings: do your policy settings run to the impact of coal seam gas on the aquifers and the surface water?

Mr Harriss : We have a draft aquifer interference policy, which is due to be released very soon. One of the issues we do have about any activity in New South Wales is that your intake of water, whether that be incidental to interception or whether it be consciously diverted, is required to be licensed. In fact, a regulation was introduced in June last year as the first part of the aquifer interference. It required that any investigations for coal seam gas which extract more than three megalitres a year would have to be licensed.

We also have a policy that water cannot be disposed of within an evaporation basin when it comes to production, and that other attempts will have to be made to purify that water so that it can be returned to the river, re-injected into the aquifer or used for another productive use.

Senator RHIANNON: But it sounds, from the way you have described it, that there will be no limits; you are not going to say 'no' to the water being extracted from the aquifer?

Mr Harriss : Absolutely there will be limits. Every water source in New South Wales will be limited by a long-term average annual extraction limit.

Senator RHIANNON: But considering the various chemicals used, and the controversy and developing body of evidence around the impact of coal seam gas, is this report considering actually banning coal seam gas mining that penetrates the aquifer—

Mr Harriss : No. That would be a decision of government. We are looking at the impacts on aquifers and are out to minimise the impacts on aquifers and surrounding land.

Senator RHIANNON: Considering that there are 12.7 million hectares in New South Wales that are within the Murray-Darling Basin and under petroleum exploration licences, how extensive is this report that is being undertaken? Could you tell us more about what the status of the report will be? Is it just a discussion? Will it have recommendations?

Mr Harriss : It is a policy that we have distributed broadly for consultation earlier this year. It is now being considered by the New South Wales cabinet, having received numerous submissions.

Senator RHIANNON: When will be released?

Mr Harriss : That is up to cabinet.

Senator RHIANNON: What was your input into this, considering that there have already been so many documented cases where we have seen the salt scalds that are often associated with this type of mining, the contaminated water and other problems associated? Did you give advice yourself on this?

Mr Harriss : Certainly, the Office of Water has given advice and has been very much part and parcel of developing the aquifer interference strategy and developing the strategic lands policy in New South Wales. We do have a moratorium on the use of fracking chemicals at the present stage and, as I said before, there was a policy of the government that meant that the water intercepted by coal seam gas should not be disposed of in evaporation ponds, which overcomes some of the issues that you have alluded to. Instead, it should be reinjected or it should be treated to a stage where it can be used for other productive uses.

CHAIR: The difficulty with the reinjecting is that it does not work in most aquifers. You understand that, I guess?

Mr Harriss : We have had a lot of success in reinjecting water from some of the aquifers that are currently under—

CHAIR: Very few. Whereabouts in particular—

Mr Harriss : Around Mallee Cliffs—the salt interception scheme. We are reinjecting water into the Mallee Cliffs. There has been reinjection of water into Perth aquifers.

CHAIR: What sort of level of water? If you go out to Camden, with the coal-seam gas it is 1,000 litres a week per well. If you go somewhere else it is several megalitres a day.

Mr Harriss : We are talking about megalitres. We are reinjecting to aquifers down around Mallee Cliffs, east of Buronga—we have seven pumps intercepting salt water. The evaporation basins do not cater for that, so we have to reinject it into the aquifer and this has been done very successfully.

Senator RHIANNON: When you say 'successful', how are you judging that?

Mr Harriss : Because we are not having to increase the size of the evaporation basins to cope with the intercepted water. At Mallee Cliffs it is salt water from a natural aquifer. It comes to a geological point where it is lifted up and forces itself into the Murray River. So we have a series of seven bores where we intercept that and pump that water 15 kilometres out to disposal basins. The disposal basins have been filled, and so we reinject that water into the aquifers. So, effectively, it is recycling over a 60-year period and we are re-injecting it.

Senator RHIANNON: Just going back to the advice that I assume you have given to this report that will shortly come down: you have spoken about various measures more of the remediation type. Did you actually make a judgement on the impact of coal seam gas mining and if it should penetrate the aquifers? Or did you just accept that that is going to happen and that you would deal with some of the problems?

Mr Harriss : No, as part of the conditions of consent, we will be looking at safeguards to prevent the interconnectivity of aquifers, making sure that we have appropriate kinds of wells and casing, including in those wells.

CHAIR: But with great respect, Mr Harriss, the difficulty with that proposition is not the well. It is the changed behaviour at the low geological fault lines between the aquifers, which we have no control over and which is what happened with Walloon Coal Measures and Springbok. As I said earlier, there is a natural balance in the pressures that control the behaviour and movement of an aquifer. If you depressure one—and there are geological low points, fault lines, in all of them; it is just part of Mother Nature—you can alter the behaviour of all the balancing pressures, like two fat blokes leaning against a thin wall, and there is nothing you can do about. I hear what you are saying about having better concrete, and triple-this in the wells, but that does not overcome the low geological fault lines.

Mr Harriss : What it does do is try to minimise the impacts of any drilling that goes down.

CHAIR: With great respect, I am thinking of the experience in Queensland. I realise New South Wales is being a bit more careful. Barry O'Farrell is pretty wise on that. He was my state director when I was his president. In Queensland, they said, 'We will make good.' The legal liability for the miner ends when the well is sealed. There is no bond system for what happens in 50 years time. My point is that we do not want to go where they have gone, which is that several aquifers have just gone—disappeared—because they have leaked at a low geological fault line. The cattle do not drink cash remediation; they need water. How do you make good a contaminated aquifer?

Mr Harriss : We are trying to treat prevention at the start, rather than remediation.

CHAIR: With great respect, not even the CSIRO knows what is going to happen. You do not know. I can assure you, if you think you do, you do not, because we do not understand the geological fault lines until they appear.

Mr Harriss : The New South Wales Office of Water is trying to establish a policy setting which minimises or prevents any impact on the aquifers, and that is included in the policy.

CHAIR: What does that mean? When you drill the line—

Mr Harriss : We have standards for construction, we have standards for use and we have standards for disposal.

CHAIR: It has nothing to do with construction. It is the natural geology. How do you fix that?

Mr Harriss : We do not fix the natural geology.

CHAIR: You just let it happen!

Senator RHIANNON: So you would have at no time recommended there should be no coal seam gas mining in certain areas? Have you even gone to that point?

Mr Harriss : What is being considered by the government is where areas should be excluded or considered, and that is part of the land use debate which does not include—

Senator RHIANNON: Did your office recommend that that should be the case for this current study?

Mr Harriss : No, the Office of Water did not do that. That was part of the broader Department of Primary Industries. The New South Wales Office of Water focuses on the impact on water sources, and prevention and remediation.

Senator RHIANNON: Going back to the chair's point, are you looking to the future, considering there is such enormous uncertainty about what will be happening with these areas in 50 years time? Did you make any recommendations around that?

Mr Harriss : We have a very wide system of piezometers and monitoring networks for our groundwater right throughout New South Wales. In fact, with our surface water gauging stations and our groundwater monitoring stations, we are probably the biggest hydrometric network in Australia. That provides the information from which we can assess the impacts of specific developments no matter what they are, whether they are coal seam gas, open cut mines or what have you, and that is the role of the Office of Water—not to pass judgement on any particular development, but to look at everything in particular and ask: what are the kinds of impacts that they can potentially have and what can we do to mitigate those impacts ever eventuating?

CHAIR: But this is a sort of 'make good' policy, isn't it? It is not prevention?

Mr Harriss : No, it is not 'make good' at all. It is starting off and saying, 'Let's not create the issue in the first place.'

CHAIR: But if you do it, it is going to happen anyhow. That is why the CSIRO has told this committee, 'We don't know.' Some of these aquifers are going to take 400 years to rebalance. But they do not really know.

Senator RHIANNON: Yes, they do not know.

CHAIR: And you do not know.

Mr Harriss : No, that is exactly right: we do not know if they are damaged. So what we are doing is starting at the point and saying, 'Before you go into this we want to have the appropriate level of safeguards.'

CHAIR: Just say you are the decision maker—you are the government—and you say to the miner, 'Be careful.' At what point does the miner's legal responsibility end under your plan?

Mr Harriss : Off the top of my head I do not know the long-term requirements of the mine post closure.

CHAIR: There are none.

Mr Harriss : There are in different areas. We certainly have some post closure arrangements in New South Wales for open-cut mines and others.

Senator RHIANNON: Have you made any proposals that the exploration stage should also be covered? Often I find it said, 'It's just exploration, so the various conditions will only apply when there's full-scale mining.' Is that something that you have given attention to?

Mr Harriss : We have looked at the issues of exploration as part of that, and making sure that standards applied by drillers are appropriate. In fact, the standards required by drillers for under energy far exceed the standards required for drillers for water. We want to make sure that during the course of that exploration the appropriate standards of casing and pumping are met. As I said before, we introduced a regulation where, if you are taking more than three megalitres per year you need to be licensed, and before that goes into production you will have to license every bit of that water that is being extracted.

Senator RHIANNON: When it comes to coal seam gas, considering exploration is effectively the same as when they go into full-scale production in terms of the drilling et cetera, are the conditions that apply when you go into full-scale drilling the same conditions that apply at the exploration stage, or are they looser?

Mr Harriss : The conditions for coal seam gas and other state-significant projects would have been determined by the New South Wales Department of Planning. The New South Wales Office of Water will put in its recommendations and they will be lodged by the Minister for Primary Industries for consideration by the Minister for Planning.

Senator RHIANNON: So your recommendation would be that they should, considering how serious this is?

Mr Harriss : Our recommendations will be based on the proposal and the site-specific aspects of the proposal and the development.

Senator RHIANNON: At any stage have you recommended that the conditions for exploration drilling should be the same as for full-scale drilling?

Mr Harriss : The recommendations for production will probably be tighter inasmuch as the developer will have to have a licence for every bit of water that is extracted. Currently, under the regulation, exploration can take up to three megalitres per annum, but that is a lot of water and it is typically—

CHAIR: Three megs is not much water.

Mr Harriss : It is for coal seam gas exploration. They do not use much water.

Senator RHIANNON: They do.

CHAIR: It depends where you are. Can I go to something else. One of the mistakes the Queensland government made against their own advice—when they gave the third licence out there having got the advice, because they had given the two earlier licences and thought, 'Oh shit, we'd better give them one too,'—was the accumulative impact that Senator Rhiannon is referring to. I have heard all the garbage about how we have been at Roma Santos for so many years for only a few wells, but when dealing with thousands of wells the Queensland government was advised by its own scientific advice that the impact is completely different. It is seriously more of a problem. What is in the back of your heads about the accumulation impact of going from exploration to mining?

Mr Harriss : As I said to Senator Rhiannon, the state-significant projects will be assessed by the Department of Planning and the Minister for Planning, and under the Environmental Planning and Assessment Act in New South Wales there is provision for assessing the accumulative impacts of developments.

CHAIR: Who is going to actually do that? The CSIRO does not have the answer; has New South Wales found someone who does?

Mr Harriss : No, the New South Wales Office of Water, which I represent, will be providing information to the Department of Planning based on science—

CHAIR: But if you know as much as I know you know you do not know anything about the accumulative impact and the interconnectivity, which extenuates itself once you start to have several wells on a 400- or 800-metre grid. This low geological fault line becomes a serious issue. You do not understand it, the CSIRO does not understand it, I do not understand it. So there's: 'Make good after the event,' or, 'We're not too sure who will carry the legal liability.'

Senator EDWARDS: There is compensation.

CHAIR: Thank you. Compensation will not give you a drink of water. This is pretty scary stuff.

Senator EDWARDS: I have a quick question. Where are you up to with the Menindee Lakes?

Mr Harriss : At the moment, as you would be aware, the Commonwealth has undertaken investigations into an option preferred by the Commonwealth, which was effectively to take two of the Lower Lakes offline. That did not meet New South Wales's requirements. We had three specific requirements. One was that there be no reduction in water reliability for downstream users, and that was clearly not the case, particularly in dry sequences. That includes South Australia, by the way. We said there should be no reduction in the environmental values of the Menindee Lakes in their own right, and it did not meet that, because the water was going to be stored preferentially in the upstream lakes, which would have killed the vegetation, particularly of Lake Wetherell, which was where a lot of the biodiversity was. Finally, there had to be an acceptable alternative water supply for Broken Hill, and what was proposed was clearly not cost effective. So we said that there were a couple of other options, which have been investigated through what was called the Darling River part B savings study, which is on our website. We have asked the Commonwealth to investigate some infrastructure works there. If the infrastructure works come out then we might be able to choose the current rules where water comes back into New South Wales's control. We believe that can probably generate about 70 gigalitres. We have done a bit of initial modelling, and it is now time for us to sit down with the Commonwealth and work out how to progress looking at a preferred option.

Senator EDWARDS: When do you reckon you will have your powder dry and be ready to go to the Commonwealth on that one?

Mr Harriss : I think we have now pretty well got to the stage where we can go back to the Commonwealth and say: 'Here are the initial modelling results. Why don't we focus on this one or this one? This one's offensive to you. This one's offensive to us.' I think we are probably ready to do that within a couple of weeks.

Senator EDWARDS: Okay. That is fine. We will wait with interest.

CHAIR: Thank you very much. Congratulations on avoiding most of the questions that we asked in answering them. It is a great unknown. I wish you well in working out who is going to have legal responsibility for the damage that has been identified in Queensland, which will inevitably happen here. What is your plan to deal with the salt accumulation?

Mr Harriss : As I said, the policy of this government is not to allow evaporation basins to occur. It should be treated.

CHAIR: Which delivers you the granulated salt, yes.

Mr Harriss : Yes.

CHAIR: What do you do with the salt?

Mr Harriss : It is up to the developer to demonstrate how they are going to handle that salt, and that will be part of the conditions of consent.

CHAIR: Hang on. How can you give an environmental tick-off to the thing if you do not know how they are going to manage it? There is no known safe storage for granulated salt.

Mr Harriss : With due respect, we just said we would ask the developer to demonstrate how they are going to meet their environmental requirements with issues like the one you have just raised.

Senator RHIANNON: But the implication of that answer is that you do not yourself have any standards for the developer.

CHAIR: That is right.

Senator RHIANNON: You are just handing it totally over to the developer to say something, but there are no standards or responsibilities.

Mr Harriss : We have a lot of standards in terms of the drilling and the disposal, and part of that point is how you are going to address the disposal of the salt that you intercept.

CHAIR: Can I give you some guidance. We have been through the whole thing up in Queensland. They originally said to us, 'We've stopped them from putting in evaporation ponds.' They are storage ponds. They are actually the same ponds, but they have just put a new name on them; they are storage ponds instead of evaporation ponds. They still evaporate. But they do not know who is legally responsible. They do not have any commercial use or known safe storage method for the 700,000 tonnes of granulated salt per annum for the known tenements up there—20 million tonnes for the life of them. You are going to run into the same problem. The good part for New South Wales is that your salt extraction in most of them is going to be a lot lower, but you are saying to the industry, 'You find how to store that safely,' and if you do not have a commercial purpose for it then it just becomes the salt mountain.

Mr Harriss : We ask them how they are going to dispose of the salt, and that is part of the assessment process.

CHAIR: And what have they said? 'We'll get back to you'?

Mr Harriss : It then becomes the role of the Minister for Planning to say that is not acceptable, or otherwise.

CHAIR: Righto. Thank you for your patience in putting up with us, and the people up behind the glass there for doing the same and deleting all the swearwords, and the Senate staff for their patience as well, and Senator Sterle for his endurance. Thank you very much.

Committee adjourned at 19:24