Report

That’s not how you haggle

Commonwealth water purchasing in the Condamine Balonne

20 Mar 2018
Description

The Department of Agriculture and Water Resources (DAWR) is responsible for purchasing water to restore water use in the Murray-Darling Basin to sustainable limits. Achieving that target in the Condamine Balonne Valley in Southern Queensland has been difficult. In July 2017, DAWR purchased nearly 29 gigalitres of water for nearly $80m. There are a number of issues with the purchase.

The purchase was well above the value recognised by the vendor, Eastern Australia Agriculture Pty Ltd (EAA), who recorded a $52m profit on the transaction. EAA’s entire properties, including the water licences were valued at $107m in total, just $27m more than DAWR paid, despite that EAA retained more water than they sold - 31.6 gigalitres. On this basis alone, it appears that DAWR have paid tens of millions of dollars too much.

EAAs original asking price was $2,200 per megalitre. DAWR displayed Pythonesque haggling skills and paid a final price of $2,745 per megalitre. DAWR paid 25% more per megalitre than originally requested by EAA, 139% higher than the Commonwealth had previously paid for the same type of licence and 85% higher than the average price for a more reliable type of water licence. The megalitre price was inflated because it included the cost of a storage that the vendor originally offered to transfer to the Commonwealth, but that offer was later withdrawn, without adjusting the price. The storage was used as a justification of the sale, but not as a condition of the sale.

The water purchased was for Over Land Flow (OLF) licences, which cannot be traded between irrigators, because they are attached to land. They have no legal status or any recognition at a location other than where they were originally purchased. That is, there appears to be no legal basis for the Commonwealth to ensure it gets to the places it is intended to be used.

More importantly, OLF licences should not be treated as equivalent to river flows when meeting the water recovery target. Because one gigalitre of water on the floodplain is not equivalent to one gigalitre of water in a river, it is a flaw to count the two as equivalent. That is, it is at best an error to count OLF volumes towards a water recovery target that was determined based on river flows.

The purchase appears to be in breach of the Commonwealth Procurement Rules because it was not made available to all licence holders in the valley.

This report was based on documents made available under an Order for Production of documents requested by Senator Rex Patrick. Those documents were heavily redacted, which is inconsistent with information under an OPD relating to a similar water purchase in the Lower Darling that has been subject critical media attention and scrutiny through Senate Estimates.

The Australia Institute recommends an independent audit of the Commonwealth Environmental Water Holder’s portfolio and a review of the governance arrangements for the management of the Murray-Darling Basin. A serious change of culture in Australia’s water management agencies is overdue.

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2018
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