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Contents
Introduction
1
Role for the Commonwealth in water infrastructure development
2
Potential projects for possible Commonwealth involvement
3
Options to accelerate development
9
Appendix A: Prime Minister’s Guidelines to the Water Infrastructure Ministerial Working Group
14
Appendix B: Summary of potential projects that have been identified for possible Commonwealth
involvement
16
Appendix C: Projects identified by state and territory governments and others for consideration
27
Appendix D: Indicative water infrastructure project development phases used by the Ministerial
Working Group (provided by the Department of Agriculture)
30
Appendix E: Consideration of funding and financing models for water infrastructure
32
Published: 29 October 2014
Photo credits
Cover – main image: Burrinjuck Dam (2009) Copyright © Murray Darling Basin Authority,
Photographer, Irene Dowdy
Introduction
The Government made an election commitment to start the detailed planning necessary to build new dams
– to secure the nation’s water supplies and deliver strong economic benefits for Australia, while protecting
the environment. This options paper will assist to progress water resource development and cement the
commitment to infrastructure and getting our nation moving efficiently and competitively. The paper has
been developed in accordance with the guidelines provided by the Prime Minister to identify how
investment in water infrastructure could be accelerated, priorities for investment in dams, opportunities in
groundwater, and how these approaches will improve the management of Australia’s water resources,
taking into account economic, social and environmental considerations (Appendix A). The options paper has
been developed so the government can consider its outcomes as part of the White Papers on Developing
Northern Australia and Agricultural Competitiveness.
Water resources development can encourage regional development and contribute to regional and national
economic and social benefits. Investment in water infrastructure can raise productivity and economic
activity, meeting critical needs for all Australians, including safe drinking water, sanitation and provide for
flood mitigation. Water infrastructure also supports expanding industries such as mining and irrigated
agriculture, particularly in rural and regional areas. Given the nature of our dry continent, it is critical
infrastructure.
Infrastructure development is complex, and water infrastructure has its own unique challenges.
Development has long lead-times, requires substantial capital and maintenance for many years due to its life
expectancy. Water infrastructure must be built to the right scale, at the right time, with sufficient demand
and with the right supporting infrastructure if full benefits of the investment are to be realised and
undesirable costs avoided. Water infrastructure also often requires significant supporting infrastructure,
such as roads. Early planning is necessary if major infrastructure proposals are to be properly considered to
meet future demands.
1
Role for the Commonwealth in water
infrastructure development
The Commonwealth can play an effective leadership role in facilitating the development of major water
infrastructure projects in several key areas, including by: supporting future planning; continuing to promote
national water management reform; providing or assisting with scientific and economic advice and analysis;
efficiently administering national environmental legislation; and, in some cases where there is a clear
national case for assistance, providing direct financial investment for construction.
Commonwealth involvement in water infrastructure development should be directed to activities that are in
the national interest, deliver net economic and social benefits and broader public benefits. It is also expected
that given the primary state and territory responsibility for water resources there must be strong state or
territory government support for projects.
To determine whether a water infrastructure project warrants Commonwealth involvement principles
addressing the above considerations should be applied.

Projects need to be nationally significant and in the national interest.

There must be strong state or territory government support with capital contribution and
involvement of the private sector and where appropriate local government.

The investment will provide the highest net benefit of all options available to increase access to
water, taking into account economic, social and environmental impacts.

Projects should address a market failure which cannot be addressed by proponents, state and
territory governments or other stakeholders and limits a project of national significance from being
delivered.

Projects should align with the Governments broader infrastructure agenda to promote economic
growth and productivity or provides a demonstrable public benefit and addresses a community
need.

Projects should align with the National Water Initiative principles including appropriate cost
recovery and where full cost recovery is not deemed feasible, any subsidies are fully transparent to
the community.

If providing capital, a consistent, robust analysis of costs and benefits and assessment is undertaken.
These principles have been based on transport infrastructure investment principles and the approaches
contained in the National Water Initiative.
2
Potential projects for possible
Commonwealth involvement
In preparing this paper, consultation was undertaken with state and territory jurisdictions through relevant
ministers and agencies as provision of water infrastructure is predominantly a state or territory government
responsibility. All governments were asked to provide a list of priority projects for consideration; explain
their processes for determining priority projects; identify any barriers to accelerate investment in water
infrastructure and consider the role water infrastructure plays in improving the management of water
resources.
With relatively few exceptions, the states and territories are not actively pursuing significant, large scale
water infrastructure development at present. A total of 63 projects have been identified by the states,
territories and others for further consideration. The overwhelming majority of these are similar in
preliminary concepts or in the very early stages of assessing feasibility. Only a small number have a
reasonable prospect of being construction ready within the next year or two. Most are at least several years
away from construction.
The analysis of projects took account of the principles identified above. The projects have been categorised
on the basis of when potential investment decisions may be necessary, the nature of activities for which
assistance is being requested, such as investigations of feasibility or a contribution to construction costs, and
whether more information is needed to enable an assessment of the project to be made.
Further information on all projects would be needed before decisions regarding possible Commonwealth
involvement could be recommended. In particular, although projects can be ranked in terms of stage of
development, there is insufficient information at present to confidently rank projects in terms of net benefit.
The categories of projects are:
1. Project already funded with existing Commonwealth assistance
2. Likely to be sufficiently developed to allow consideration of possible capital investment within the next
12 months
3. Could warrant future consideration of possible capital investment, but less advanced in stage of
development
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost
benefit analysis or design
5. Likely to occur without direct Commonwealth involvement
6. More information is required from state and territory government to inform categorisation
It should be noted that while a number of projects may eventually be developed to a point where the need
Commonwealth assistance could be determined, a commitment to fund either further studies or to invest
directly in construction should be subject to receipt of more detailed proposals from the states and the
Northern Territory and rigorous analysis. Many of the projects may be capable of proceeding without the
need for any Commonwealth Government assistance for construction.
Also, before any commitment to a project is made, particularly for investing directly in construction, a
comprehensive analysis of cost effectiveness and feasibility should be undertaken, noting that evaluation of
this analysis by Infrastructure Australia is required for project proposals involving at least $100 million of
Australian Government funding. With very few projects being close to construction ready, consideration
3
could be given encouraging the states and territories to accelerate the development of projects through
possible Commonwealth assistance for investigations and feasibility studies.
Based on the outcomes of consultation with state and territory governments, 31 projects have been
identified as having the potential for Commonwealth involvement. This involvement would not necessarily
be in the form of financial assistance for construction — as noted above, Commonwealth assistance for
construction costs would need to be determined rigorously following consideration of detailed business
cases from state governments and in light of the Government’s broader fiscal objectives. Map 1 shows the
potential project locations and they are outlined below.
1. Project already funded with existing Commonwealth assistance
a. The Commonwealth has already provided a financial commitment of $18 million to progress the
augmentation of Chaffey Dam in New South Wales, which has commenced construction in October
2014.
b. A sum of $180 million has been committed to improve the operation and efficiency of the Menindee
Lakes. Detailed project planning, stakeholder consultation and design work for the agreed scope of
works is currently underway.
c.
The Commonwealth provided $545 771 for a feasibility study for the Nimmitabel Lake Wallace
project. The project has been identified by the New South Wales Government as a high priority
project for funding under their Water Security for Regions Program.
d. The Great Artesian Basin Sustainability Initiative will be extended for a further three years in New
South Wales, Queensland and South Australia with the Commonwealth providing $15.9 million.
2. Likely to be sufficiently developed to allow consideration of possible capital investment within the next
12 months
a. Gippsland: Macalister Irrigation District / Southern Pipeline, Victoria
b. Tasmanian Irrigation Tranche II: Southern Highlands
c.
Tasmanian Irrigation Tranche II: Scottsdale
d. Tasmanian Irrigation Tranche II: Circular Head
e. Tasmanian Irrigation Tranche II: Swan Valley
f.

4
Tasmanian Irrigation Tranche II: North Esk
Project identified by the Water Infrastructure Ministerial Working Group
3. Could warrant future consideration of possible capital investment, but less advanced in stage of
development
a. Gippsland: Lindenow Valley Water Security Project, Victoria
b. Emu Swamp Dam – Severn River, Stanthorpe, Queensland
c.
Nathan Dam, Dawson River, Queensland
d. Wellington Dam Revival Project, Western Australia
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost
benefit analysis or design
a. Apsley Dam – Walcha, New South Wales
b. Lostock Dam enlargement – Hunter Valley, New South Wales
c.
Mole River Dam, New South Wales
d. Needles Gap, New South Wales
e. Burdekin Falls Dam (including Water for Bowen), Queensland
f.
Connors River Dam – Sarina, Queensland
g. Fitzroy Agricultural Corridor – construction of Rookwood Weir and raising Eden Bann Weir
h. Mitchell River System, Far North Queensland
i.
North Queensland Irrigated Agriculture Strategy: Flinders-Gilbert, large scale infrastructure
proposals (e.g. IFED) and on-farm developments
j.
Nullinga Dam – Cairns, Queensland
k.
Urannah Dam – Collinsville, Queensland
l.
Ord Irrigation Stage III (water infrastructure components), Northern Territory and Western Australia
m. Pilbara and/or Kimberley irrigated water pipeline system, Western Australia
n. Expanded Horticulture Production on the Northern Adelaide Plains - Waste Water Re-use, South
Australia
o. Intensive Livestock and Horticulture Expansion – Northern Dams Upgrade – Clare Valley, South
Australia

5
Project identified by the Water Infrastructure Ministerial Working Group
p. Exploring off-stream storage opportunities to increase water availability for agricultural
development, Northern Territory
q. Upper Adelaide River Dam / off stream storage, Northern Territory
A summary of each of the 31 projects listed above is at Appendix B.
The remaining 32 projects have been categorised as likely to occur without direct Commonwealth
involvement or more information is required from state and territory governments to inform categorisation
(Appendix C).
A number of small scale flood mitigation projects were suggested by the states. On the basis of scale and
capacity for costs to be recovered from future developments these were not considered as requiring
Commonwealth involvement. However, both Queensland and New South Wales are currently investigating
flood mitigation options in south east Queensland and the Hawkesbury-Nepean area respectively, and may
come forward with related project priorities in the next year or two.
Managed aquifer recharge was also identified by some states, including Western Australia and the Northern
Territory as worthy of further investigation, particularly in Northern Australia.
6
Map 1: Potential water infrastructure projects for possible Commonwealth involvement
7
8
Options to accelerate development
Leading future planning
The Commonwealth has a role in identifying and assessing infrastructure that is nationally significant.
Infrastructure Australia is responsible for identifying current and future infrastructure assets of national
significance as part of its infrastructure audit currently underway. Infrastructure Australia is also responsible
for evaluating infrastructure project proposals seeking at least $100 million of Commonwealth funding.

Infrastructure Australia is developing a 15 year infrastructure plan covering water, transport, energy
and communications, to be completed by the end of this year. Infrastructure Australia is also
conducting an audit of infrastructure needs for Northern Australia.
Project development
Where a project is in the development pipeline it can be described in four stages:
1. assessing demand and general feasibility, including location
2. assessing economic feasibility through benefit cost analysis
3. gaining approvals and assessments
4. seeking finance for capital and establishing cost recovery for ongoing maintenance.
Appendix D provides further information on the stages of development for water infrastructure.
To fast track investment in water infrastructure the Commonwealth would mainly be involved in stages 1
and 4 of project development. Assessing economic feasibility is predominately the proponent’s role, noting
that a lack of a well developed economic case is a major barrier to development. Seeking capital is also
predominantly the proponent’s role.
Stage 1: assessing demand and general feasibility, including location (early
scoping)
In this stage, proponents undertake preliminary scoping; establishing the demand for water, undertake
water planning considerations, assess water resources and infrastructure options and fund preliminary
studies of these. New infrastructure must address a forecast water supply requirement or provide a
substantiated opportunity for economic growth.
9

Options to accelerate investment could include funding pre-commercial pre-feasibility assessments,
such as for groundwater, opportunities in hydro-generation or providing base-line information
assessing water availability and sustainable extraction rates. Some work would draw on the
expertise of agencies such as CSIRO and Geoscience Australia. These agencies already provide a level
of assistance, but special projects could also be funded.

Funding could be through development of a modest program that would provide matching funding
to incentivise state and territory governments to focus on ensuring the feasibility studies, economic
analyses and more detailed assessment and design is undertaken for projects in the early stages of
development.
Stage 2: Assessing feasibility through benefit cost analysis (assessing
feasibility)
In this stage, proponents have primary responsibility for determining the economic viability and complete
benefit cost analysis.

Potential Commonwealth involvement in this area is limited. Any possible assistance can be guided
by the Commonwealth’s response to the Productivity Commission’s inquiry into public
infrastructure, including to the recommendation that all public infrastructure investment proposals
above $50 million are subject to a rigorous cost–benefit analysis. The Commonwealth is considering
the recommendations made by the Productivity Commission and will formally respond to the inquiry
in late 2014. The current government support for the analysis of base line information assists
proponents and Infrastructure Australia, or other experts, to undertake analysis.
Stage 3: Gaining approvals and assessments (decision to proceed)
During this stage the Commonwealth plays a role in undertaking environmental approvals and assessments
in relation to matters of national environmental significance which may be impacted by water infrastructure
developments. Broader Commonwealth legislation and policies, particularly in the areas of competition
policy, investment and taxation may also affect delivery of water infrastructure and influence investment
decisions made by other governments and the private sector.

The Commonwealth’s implementation of a one stop shop for environmental approvals will
contribute to fast tracking approvals.

There could also be opportunities for broader policies through existing Commonwealth processes
including a review of environmental offset policies, the White Papers on Developing Northern
Australia and Agricultural Competitiveness, the COAG regulation agenda, the Commonwealth’s
response to the Productivity Commission’s inquiry into public infrastructure, and the Productivity
Commission’s report into major project assessment processes.
Stage 4: seeking finance for capital and establishing cost recovery for ongoing
maintenance (ready to go)
This stage includes finalising designs and securing investment. Capital investment is a key barrier given the
expense of water infrastructure.

10
Funding for capital (and pre-commercial feasibility studies) could possibly be through some
Commonwealth programmes but the quantum of these funds is likely to be limited, particularly for
capital. Potential projects that include a hydroelectricity component (e.g. Nullinga Dam, Urannah
Dam, Apsley Dam) may be eligible for funding through new or existing energy initiatives. Capital
funding for some smaller projects may be eligible through the National Stronger Regions Fund,
which is a competitive grants programme available to local governments and not-for- profit
organisations. It may be appropriate to develop a new type of funding model in the style of the New
Zealand Irrigation Acceleration Fund or an augmentation of the existing Australian Government
Sustainable Rural Water Use and Infrastructure Program.

Commencing in 2011, the New Zealand Irrigation Acceleration Fund has been allocated
$35 million over five years and includes three components to target the delivery of investment
ready rural infrastructure proposals: 1) regional rural water infrastructure, 2) strategic water
management studies, and 3) community irrigation schemes.

Additionally, New Zealand Crown Irrigation Investments Ltd acts on behalf of the New Zealand
Government as a bridging investor for regional water infrastructure developments by making
targeted investments into schemes, alongside other partners, that would not otherwise be
developed. Schemes have to be technically feasible, have appropriate allocation of risks, sound
management and governance (including arrangements that do not create competition policy
issues), have consents in place, be of an optimal size and be commercially viable in the mediumterm. The New Zealand Government has signalled that it plans to invest up to $400 million, with
$80 million provided in the 2013 budget and $40 million in the 2014 budget.

The current white paper processes for Northern Australia and agricultural competitiveness will
provide an opportunity to consider funding for investing in priority water infrastructure
developments relative to other infrastructure opportunities.
It would be expected in all cases the relevant state or territory government, and/or project proponent,
contributes funding to the projects. Given the respective responsibilities of the state and territories and the
potential flow of private benefits it would not be expected that the Commonwealth would fund more than
50 per cent of a proposal or ever exceed the state or territory contribution where a private sector capital
contribution is obtained.
Private sector participation, including foreign investors, can act as a driver in water infrastructure
development. It encourages emphasis on a sound economic and financial case for the proposed
development, as investors will require a return on investment. This should ensure that demand and
willingness to pay are investigated, and that a user pays model is implemented. Foreign investment has been
welcomed for Ord Stage II.
In other cases private sector investment can be in partnership with government to deliver essential services,
where private sector involvement can bring about efficiencies in the delivery of water infrastructure
(examples include urban water development or flood mitigation where costs can be fully recovered). The
recent report by the Productivity Commission inquiry into public infrastructure noted the efficiencies that
private sector involvement can bring.
Previous Tasmanian Irrigation projects had a public private partnership and have been successfully
implemented. There is also potential to attract mining investment to allow the further development of
mining resources.
Financing models
In addition to Commonwealth direct funding for capital, there are a range of alternative mechanisms to raise
money, such as charges on users or beneficiaries of the infrastructure. Additional alternative financing
mechanisms available to governments include concessional loans, government guarantees, equity injections
and phased grants (availability payments).
The use of alternative financing mechanisms can also remove some impediments to private sector financing,
providing governments with greater flexibility to reduce budget outlays and improve opportunities to share
risk with private sector investors. It is important that private sector co-investment in water infrastructure
does not come at the expense of transferring unacceptable risk to governments. It should only be
undertaken following a careful case-by-case analysis of the attribution of benefits and costs and risks.
The ability to attract private investment in water infrastructure projects or implement alternative financing
arrangements will be limited if a project is not economically viable or if it does not align to the guiding
principles.
11
Options relating to financing include:

Continue to promote and reinforce the commitment to asset recycling with state and territory
governments as it provides an extra incentive to partner with the Commonwealth and private
investors.

The Commonwealth could further explore opportunities to facilitate private sector-led development
of future water infrastructure projects, particularly in the agricultural and resources sectors. There
are substantial benefits for these sectors developing projects that are built for a specific purpose,
particularly where they alleviate supply pressures on existing water infrastructure assets. Most
water infrastructure delivers multiple benefits such as domestic and urban water supplies,
agriculture irrigated or mining water, flood mitigation and potentially electricity, so partnerships are
most likely.

Further work beyond the recent Productivity Commission inquiry into public infrastructure is likely to
be required to identify those mechanisms that can be successfully applied to water infrastructure
without transferring an unacceptable risk. This is particularly important for water infrastructure
developed for agricultural purposes, which typically involve a high up front capital cost and generate
economic returns over many decades into the future. The Treasury, the Department of
Infrastructure and Regional Development and Infrastructure Australia have expertise in these areas
and could be supported by portfolios that are related to major users of water such as agriculture and
mining.
It should be noted that in the current fiscal environment, the Commonwealth cannot be expected to be a
guarantor for all large projects proposed by the states and territories. Appendix E provides further
information on alternative funding models.
12
13
Appendix A: Prime Minister’s Guidelines
to the Water Infrastructure Ministerial
Working Group
The members of the Ministerial Working Group include:

Minister for Agriculture, the Hon. Barnaby Joyce MP, Chair

Deputy Prime Minister, the Hon. Warren Truss MP

Minister for the Environment, the Hon. Greg Hunt MP

Assistant Minister for Infrastructure and Regional Development, the Hon. Jamie Briggs MP

Parliamentary Secretary to the Minister for the Environment, Senator the Hon. Simon Birmingham.
The ministerial working group will:
14

identify how investment in water infrastructure, such as dams, could be accelerated, including
methods for assessing feasibility and cost benefit analysis of particular proposals, the role of
Infrastructure Australia, and financing

identify priorities for investment in new or existing dams, including the merit of proposals already
well-developed and the productivity and/or economic benefits of new or existing dams

outline how proposed approaches will improve the management of Australia’s water resources to
support economic development, flood mitigation and respond to community and industry needs

consider opportunities for ground water storage (aquifers), water reuse and water efficiency to
ensure investment in dams occurs where it is the most suitable solution

take account of economic, social and environmental considerations, including consistency with
National Water Initiative principles.
15
Appendix B: Summary of potential
projects that have been identified for
possible Commonwealth involvement
The 31 projects have been identified through consultation with the state and territory governments and
from the Water Infrastructure Ministerial Working Group.
1. Project already funded with existing Commonwealth assistance
#
Project Name
State
Description of Project
1
Chaffey Dam
(MDB)
NSW
Stage of development: Construction
Raising dam wall, from 62 GL to 100 GL, modifying related infrastructure,
and relocating/realigning some roads, bridges and recreational facilities. It
will secure future water needs for communities and Peel Valley irrigators,
and improve ability to withstand extreme floods. Project agreement
signed. Contract for construction has been awarded to John Holland.
Construction commenced in October 2014 and anticipated completion is
June 2016.
Funding secured, including Commonwealth investment of $18.145
million, New South Wales Government investment of $9.668 million and
Tamworth Regional council investment of $3.968 million (total $31.781
million).
Proposed dam would be located in the Murray–Darling Basin. Any water
use associated with the new infrastructure would need to comply with
long term sustainable diversion limits (SDL) described in Schedule 2 of the
Basin Plan. If the dam were to create new entitlements in a catchment
that already uses its full SDL these would need to be offset elsewhere in
the catchment. Dam design would need to meet environmental objectives
and impacts on downstream flows would need to be considered by the
state.
The NSW Government has indicated the potential for further works to
Chaffey Dam to increase storage capacity to 200 GL (correspondence
from Minister Humphries, 16 July 2014).
2
Menindee Lakes
NSW
Stage of development: Assessing Feasibility (Stage 2)
New regulators between lakes, an outlet regulator at Lake Menindee and
the Darling Anabranch and drainage channels to access dead storage. It
will reduce large evaporative losses and contribute to the Murray Darling
Basin Plan.
The NSW government is currently undertaking detailed project planning,
stakeholder consultation and design work for the agreed scope of work.
The Commonwealth provided $800 000 to deliver this preliminary
assessment work.
The Commonwealth has approved $180 million to assess the feasibility of
the project and undertake infrastructure works if necessary (to end of
2018-19 financial year).
16
1. Project already funded with existing Commonwealth assistance
#
Project Name
State
Description of Project
3
Nimmitabel Lake
Wallace
NSW
Stage of development: Seeking finance for capital and establishing cost
recovery for ongoing maintenance (ready to go)
Construction of a new dam to increase water security for the village of
Nimmitabel, New South Wales. A 2010 feasibility study (led by the
Nimmitabel Advancement Group with financial support from the
Commonwealth) identified a 200 ML dam on Pigring Creek as a feasible
option to reduce the impact of drought and secure Nimmitabel's water
supply. Cooma Monaro Shire Council accepted the recommendations of
the feasibility study and has committed to construct a dam, to be known
as Lake Wallace.
Cooma Monaro Shire Council has completed pre-construction activities
such as completion of the detailed design and environmental assessments
required for planning and Commonwealth environmental approval was
granted on 30 June 2014. The Commonwealth contributed $545,771
financial support for the feasibility study and pre-construction activities.
The project has been identified by New South Wales Deputy Premier, the
Hon. Andrew Stoner MP as a high priority project for funding, subject to
final business case approval, under the New South Wales Government’s
Water Security for Regions program. $5.3 million has been committed by
the New South Wales Government to progress the project. Additional
Commonwealth assistance has not been requested.
4
Great Artesian
Basin
Sustainability
Initiative
Multi
(NSW,
QLD, SA)
The programme replaces old bores and pipe networks legally operating in
an uncontrolled state with controlled bores and efficient watering
systems which generates benefits to water users and the environment.
The estimated cost of completing the programme is in the order of
$199 million across the jurisdictions of New South Wales, Queensland and
South Australia. The programme commenced in 1999 and ended on
30 June 2014.
The Commonwealth announced on 16 October 2014 it will provide
$15.9 million to extend the initiative for a further 3 years. The
Commonwealth will work with the New South Wales, South Australian
and Queensland Governments on their provision of matched funding. The
Commonwealth will also work with the relevant state governments and
the Great Artesian Basin Coordinating Committee to develop a new
strategic management plan for the basin.

Project identified by the Water Infrastructure Ministerial Working Group
17
2. Likely to be sufficiently developed to allow consideration of possible capital investment within the next 12
months
#
Project Name
State
Description of Project
5
Gippsland:
Macalister
Irrigation District /
Southern Pipeline
– Sale - Maffra
VIC
Stage of development: Assessing Feasibility (Stage 2)
Conversion of 85 km open channel to pipeline to increase agricultural
production and generate environmental benefits (reduced nutrient flows
into local waterways and the Gippsland Lakes).
Business case prepared and pipeline design is underway. Expected to be
construction ready late 2015.
Estimated cost is $80 million.
6
Tasmanian
Irrigation Tranche
II: Southern
Highlands
TAS
Stage of development: Assessing Feasibility (Stage 2)
6500 ML dam and 49.6 km pipeline. For irrigation for cropping, grazing
and potential new dairy conversions, and supplying reliable drinking
water for the community.
Business case being approved by Tasmanian Government. Expected to
commence construction from March 2015-March 2016.
Estimated total capital cost is $28.5 million. Estimated Commonwealth
requested contribution is $19.8 million.
7
Tasmanian
Irrigation Tranche
II: Scottsdale
TAS
Stage of development: Assessing Feasibility (Stage 2)
9300 ML dam on Camden Rivulet to deliver 8600 ML a year for dairying,
cropping, vegetable production and some livestock finishing, with a
2000 KW mini-hydro power station.
Business case to be finalised June 2014. Construction estimated from
March 2015-September 2016.
Estimated total capital cost is $46 million. Estimated Commonwealth
requested contribution is $31.9 million.
8
Tasmanian
Irrigation Tranche
II: Circular Head
TAS
Stage of development: Early Scoping (Stage 1)
15 000 ML off stream storage, 100 km pipeline and 7 pump stations to
supply 20 000 ML high surety summer irrigation water for dairy
production.
Early scoping stage with preliminary information being sought on demand
for water. A preferred option was submitted to Tasmanian Irrigation
Board in June 2014. Investigations into engineering design, environmental
and economic assessments underway. Construction time estimated June
2015 and December 2017.
Estimated total capital cost is $60.7 million. Estimated Commonwealth
requested contribution is $41.8 million.
9
Tasmanian
Irrigation Tranche
II: Swan Valley
TAS
Stage of development: Assessing Feasibility (Stage 2)
Dam and 38 km pipeline to deliver 2000 ML from Swan River to high value
irrigated agriculture, including viticulture, grazing, irrigated cropping and
walnut production.
Business case expected to be completed in 2014.
Estimated total capital cost of $12 million. Estimated Commonwealth
requested contribution is $7.7 million.
18
2. Likely to be sufficiently developed to allow consideration of possible capital investment within the next 12
months
#
Project Name
State
Description of Project
10
Tasmanian
Irrigation Tranche
II: North Esk
TAS
Stage of development: Early Scoping (Stage 1)
3150 ML dam and pipelines. To provide water security for existing and
expanded high value irrigated agriculture.
Pre-feasibility studies underway with analysis of preferred option
expected to be completed in September 2014. Construction expected
from December 2014 to December 2016.
Estimated total capital cost is $13 million. Estimated Commonwealth
requested contribution is $8.8 million.
19
3. Could warrant future consideration of possible capital investment, but less advanced in stage of development
#
Project Name
State
Description of Project
11
Gippsland: Lindenow
Valley Water
Security Project
(Mitchell River)
VIC
Stage of development: Early Scoping (Stage 1)
Construction of a 17 GL dam and mitigation works. To enable winter
flows for use during the summer irrigation months and expand area.
Mitigation works to offset dam in Nicholas River.
Business case to be developed. Could commence in 2014/15.
Estimated cost $50-100 million. Including capital $40-87 million,
$2.5 million for development of business case and completion of
necessary approvals, and $9 million for mitigation works.
Cost of entitlements would depend on funding arrangements and level of
government support.
12
Emu Swamp Dam –
Severn River,
Stanthorpe (MDB)
QLD
Stage of development: Decision to Proceed (Stage 3)
Two options: 1. A 10 500 ML urban and irrigation supply dam, with the
potential to support growing demand for horticultural water in the
Stanthorpe Shire. Associated inundation area of 196 ha. 2. A 5000 ML
urban water supply dam with pipelines linking the dam to the Mt Marlay
Water Treatment Plant.
Environmental Impact Assessment is being completed.
Expected to cost $76 million. Construction will take 15-18 months.
Proposed dam would be located in the Murray–Darling Basin. Any water
use associated with the new infrastructure would need to comply with
long term sustainable diversion limits (SDL) described in Schedule 2 of the
Basin Plan. If the dam were to create new entitlements in a catchment
that already uses its full SDL these would need to be offset elsewhere in
the catchment. Dam design would need to meet environmental
objectives and impacts on downstream flows would need to be
considered by the state.
13
Nathan Dam,
Dawson River
QLD
Further information is required on the current demands by water users to
determine if warrants further consideration by the Commonwealth.
Stage of development: Assessing Feasibility (Stage 2) and Decision to
Proceed (Stage 3)
Dam 888 312 ML and 149 km pipeline. To deliver water to Dalby and
Surat Basin to support industrial and mining development, power and
irrigated agriculture.
Business case on demands and locations under development and
obtaining environmental approvals.
Estimated cost $1.4 billion (2012).
14
Wellington Dam
Revival Project
WA
Stage of development: Decision to Proceed (Stage 3)
New channels and pipelines to divert hyper-saline flows away from
Wellington Dam to secure improve water quality (saline) and increase
irrigation.
Business case developed 2014.
Estimated cost of $110 million.
20
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost
benefit analysis or design
#
Project Name
State
Description of Project
15
Apsley Dam Walcha
NSW
More information is required on initial investigations to determine
feasibility.
Stage of development: Early Scoping (Stage 1)
Originally proposed in 1970s to supply water for hydro electrical
generation and would have included provisions to pump water over the
Great Dividing Range to the McDonald River (which flows into the Namoi
River), in the Murray Darling Basin.
New South Wales Government abandoned the project in 1986 when the
area was designated part of the Oxley Wild Rivers National Park, due to
the significant natural and cultural values of the area. Elements of the
national park including Apsley Gorge were inscribed on the Register of
World Heritage Sites in 1994.
Estimated cost in 1984 was $1063 million. In 2014 terms this translates to
approximately $3267 million.
16
Lostock Dam
enlargement –
Hunter Valley
NSW
Stage of development: Assessing Feasibility (Stage 2)
Enlargement of the Lostock Dam to increase capacity to secure Lower
Hunter’s water needs. Capacity could be increased by adding spillway
gates, or augmented further by enlarging the embankment. Project would
deliver increased water security for Hunter region including urban users
and power and mining sectors. Options to couple the dam augmentation
with a water transfer schemes downstream have also been raised.
Estimated cost of $130 million (NSW State Water).

Project identified by the Water Infrastructure Ministerial Working Group
21
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost
benefit analysis or design
#
Project Name
State
Description of Project
17
Mole River Dam
(MDB)
NSW
Stage of development: Early Scoping (Stage 1)
A dam on Mole River 300 GL near the confluence of the Dumaresq/Severn
and Mole Rivers, approximately 50km west of Tenterfield. To restore
environmental flows into the Murray Darling Basin System and improve
regional water security to the community and primary industries.
Early scoping stage with potential recognised and limited investigations.
10 years to operation.
The estimated cost is $500 million.
Proposed dam would be located in the Murray–Darling Basin. Any water
use associated with the new infrastructure would need to comply with
long term sustainable diversion limits (SDL) described in Schedule 2 of the
Basin Plan. If the dam were to create new entitlements in a catchment
that already uses its full SDL these would need to be offset elsewhere in
the catchment. Dam design would need to consistent with meeting
environmental objectives and impacts on downstream flows would need
to be considered by the basin state.
18
Needles Gap (MDB)
NSW
Stage of development: Early Scoping (Stage 1)
A dam 600GL storage on Belubula River (Needles Gap).To enhance water
security in the Lachlan and throughout the Central West of NSW.
Under the Murray Darling Basin Plan a new dam in the Lachlan can only
be built for water security and not increased water extractions.
Cost estimates from State Water are $700 million for large dam
(660-700GL).
Proposed dam would be located in the Murray–Darling Basin. Any water
use associated with the new infrastructure would need to comply with
long term sustainable diversion limits (SDL) described in Schedule 2 of the
Basin Plan. If the dam were to create new entitlements in a catchment
that already uses its full SDL these would need to be offset elsewhere in
the catchment. Dam design would need to meet environmental objectives
and impacts on downstream flows would need to be considered by the
basin state.
On 13 June 2014, Deputy Premier the Hon. Andrew Stoner made an
announcement at the NSW Nationals Annual General Conference
committing the NSW Government to delivering the Needles Gap Dam,
including committing $1 million for a feasibility study, with more than
$100 million expected to be spent on building the dam.
22
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost
benefit analysis or design
#
Project Name
State
Description of Project
19
Burdekin Falls Dam
(including Water for
Bowen)
QLD
Further information on demand for water is required to determine if
warrants further consideration by the Commonwealth.
Stage of development: Assessing Feasibility (Stage 2)
2 m raising of the dam to increase capacity by 590 000 ML to a total
capacity of 2 445 000 ML. Would provide additional water supply security
for the Burdekin region.
SunWater has delayed further work until economically viable demand for
more water in the region is demonstrated. Existing entitlements are
currently not fully utilised.
20
Connors River Dam Sarina
QLD
Further information on demand for water is required to determine if
warrants further consideration by the Commonwealth.
Stage of development: Assessing Feasibility (Stage 2)
A 373 662 ML dam and a 133 km pipeline (1.5 m diameter) to transport
water to Moranbah. Expected to yield 49 500 high priority supply of which
46 500 would be available for commercial users and rest for town water,
stock and domestic uses.
Federal Government EIS approval was granted in 2012. Recommendations
(including obtaining additional permits) are yet to be implemented.
Estimated cost is $1.17 billion.
21
Fitzroy Agricultural
Corridor –
construction
Rookwood weir and
raising Eden Bann
Weir
QLD
Further information is required on this project to determine if warrants
further consideration by the Commonwealth.
Stage of development: Decision to Proceed (Stage 3)
Potential construction of a new weir (Rockwood) and/or raising of existing
weir (Eden Bann) to capture and store unallocated water resources
available in the system. This water would meet identified short-tomedium term urban and industrial water resource needs of the Lower
Mackenzie-Fitzroy sub-region that cannot be met by water trading and/or
efficiency measures alone.
Total cost is estimated at $434 million.
23
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost
benefit analysis or design
#
Project Name
State
Description of Project
22
Mitchell River
System
QLD
Stage of development: Unknown
Located in far North Queensland.
The Department of Natural Resources and Water (now DERM)
investigated the potential of installing a dam at the Pinnacles on the
Mitchell River which could store up to 158 000 ML. Following a rigorous
assessment the proposed dam site was deemed unsuitable due to
“potential cultural and environmental issues, remoteness of the site”
(Northern Australia Land and Water Taskforce, 2010).
The current Water Resource Plan does not make allowances for future
agricultural expansion and there is little development in the river system.
A CSIRO investigation could be undertaken, similar to that undertaken for
the Flinders and Gilbert Rivers. A general lack of scientific information
exists for many of these remoter regions and any decisions on major
developments would require significant investment in a broad range of
studies including environmental flows, overland flows and flood patterns,
impacts on biodiversity, strategies to reduce land use degradation, soils
surveys and Indigenous protected areas (Northern Australia Land and
Water Taskforce, 2010).
The most intense development in the upper Mitchell River includes the
relatively large water storage, Southedge Dam, also known as Lake
Mitchell. This can hold up to 129 000 ML of water, and has remained
unused since its construction (Northern Australia Land and Water
Taskforce, 2010).
23
24
North Queensland
Irrigated Agriculture
Strategy: FlindersGilbert, large scale
infrastructure
proposals (e.g. IFED)
and on-farm
development
QLD
Stage of development: Early Scoping (Stage 1)
Potential projects include:
 The Etheridge Integrated Agricultural Project involving off-river water
storage in constructed lakes (combined capacity of 2 million
megalitres) in the Gilbert River valley. Overland gravity channels
supplying water to pumping stations for trickle-tape irrigation. Or Instream dams on the Gilbert River – two potential in-stream dams
(Dagworth and Green Hills) to support a potential irrigation
development of 20 000 to 30 000 ha supporting year round mixed
irrigation and dryland cropping (CSIRO report)
 Off-stream storage in the Flinders River catchment – off stream
storages such as farm dams to potentially deliver an irrigation
development totalling 10 000 to 20 000 ha supporting year round
mixed irrigation and dryland cropping (CSIRO report)
 The Flinders River Agricultural Precinct – A pathway for expansion and
diversification in the development of new and existing agricultural
industries using available water allocations in the Flinders River. This
proposal is seeking investment to integrate intensive irrigation farming
into existing grazing systems.
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost
benefit analysis or design
#
Project Name
State
Description of Project
24
Nullinga Dam Cairns
QLD
Further information is required on best option to supply future water
demands to determine if warrants further consideration by the
Commonwealth.
Stage of development: Early Scoping (Stage 1)
A 364 000 ML dam. To provide water for urban growth around Cairns,
expansion of agriculture and power generation. It is estimated the dam is
unlikely to be required before 2020.
The economic viability of the dam against other options for water supply
is being investigated by a water advisory committee (established May
2014). SunWater commenced a feasibility study in 2009 to be completed
in 2012.
Cost estimates range from $274.5 million to $442.7 million depending on
the size of the dam.
25
Urannah Dam –
Collinsville
QLD
Further information is required on the feasibility of the project to
determine if warrants further consideration by the Commonwealth as
undertaken more than 10 years ago.
Stage of development: Early Scoping (Stage 1)
New Dam in two stages – 863 000 ML and 1,500,000 ML
Large scale irrigated agriculture (30 000 ha), coal mining in the Bowen and
Galilee Basins and future power generation at Collinsville.
Desk top study completed more than 10 years ago.
Estimated cost $215 million (2014 dollars).
26
Ord Irrigation Stage
III (water
infrastructure
components)
WA, NT
Stage of development: Early Scoping (Stage 1)
Raise the Lake Argyle spillway and upgrade and extend the existing
irrigation channels to deliver water to the Northern Territory (M2
channel).
To expand the Ord River Irrigation Scheme north east of Kununurra into
the Northern Territory, potentially increasing irrigable land in the region
by around 14,500 ha.
Estimated cost of $80 million to raise the spillway and $50 million for M2
channel.
Thorough land-use suitability of analysis of the proposed development
area is required to clarify the scope and coverage of suitable soils and the
nature and extent of key production risks.
If the stage III is fully realised, significant infrastructure and public works
will be required, at an estimated cost of over $425 million (not including a
new sugar mill), much of which is likely to involve Commonwealth funding
(partially or fully).
25
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost
benefit analysis or design
#
Project Name
State
Description of Project
27
Pilbara and/or
Kimberley irrigated
water pipeline
system
WA
Stage of development: Early Scoping (Stage 1)
The Western Australian Government is investigating the potential for
irrigated water pipelines systems in the Pilbara and Kimberley to underpin
large-scale irrigated agriculture in these regions. The project will
investigate the potential to pipe an estimated 200 GL/yr of surplus fresh
water from mines in the Pilbara.
The Western Australian Government’s follow up letter of 9 July 2014
(Maree De Lacy, Director General, Department of Water) outlines a
Pilbara Mine Dewatering – water for agriculture project. The project
would develop new agriculture nodes to optimise over 160 GL/yr of water
available for mine dewatering.
An investment of $100 million would support land development and
piping to agricultural precincts, enhancing diversification and exports.
28
29
30
31
Expanded
Horticulture
Production on the
Northern Adelaide
Plains - Waste Water
Re-use
Intensive Livestock
and Horticulture
Expansion –
Northern Dams
Upgrade – Clare
Valley
Exploring off-stream
storage
opportunities to
increase water
availability for
agricultural
development
SA
Upper Adelaide
River Dam / off
stream storage
NT
Stage of development: Assessing Feasibility (Stage 2)
Expansion of horticulture production through an upgrade of the Bolivar
treatment plant to provide an additional 20 GL of reclaimed water.
Estimated capital cost $170 million.
SA
Stage of development: Early Scoping (Stage 1)
Upgrading Bundaleer, Baroota and Beetaloo dams to Australian National
Committee of Large Dams (ANCOLD) Standards. To support 1200 ha of
new horticulture, dairy and broiler chicken activities.
Estimated capital cost $75 million.
NT
Stage of development: Early Scoping (Stage 1)
Significant post peak flood flows to be harvested and stored off-stream to
facilitate agricultural and regional development. The drainage basins with
the most potential (in order of decreasing order of potential) are in the
Top End and include Daly, McArthur, Roper, Victoria, Moyle, Adelaide,
Mary, Baines and Blythe (Arnhem Land).
A surface water assessment is required to define the quantity of water
flowing from river basins that is divertible at strategically located sites
close to soils of agricultural potential and other strategic uses. Assessing
land suitability for irrigated agriculture is also required. The cost of the
project is unknown.
Stage of development: Early Scoping (Stage 1)
Two options: Upper Adelaide River Dam or Upper Adelaide River offstream storage
Very early scoping of physical and economic feasibility.
Estimated cost of $500-1000 million for the dam or $200 million for the
off-stream storage.
26
Appendix C: Potential projects identified
by state and territory governments and
others for consideration
In total, 63 projects have been identified through consultation with the state and territory governments and
others.
1. Project already funded with existing Commonwealth assistance
1
Chaffey Dam (MDB)
NSW
2
Menindee Lakes
NSW
3
Nimmitabel Lake Wallace
NSW
4
Great Artesian Basin Sustainability Initiative
NSW, QLD, SA
2. Likely to be sufficiently developed to allow consideration of possible capital investment within the next 12 months
5
Gippsland: Macalister Irrigation District / Southern Pipeline – Sale - Maffra
VIC
6
Tasmanian Irrigation Tranche II: Southern Highlands
TAS
7
Tasmanian Irrigation Tranche II: Scottsdale
TAS
8
Tasmanian Irrigation Tranche II: Circular Head
TAS
9
Tasmanian Irrigation Tranche II: Swan Valley
TAS
10
Tasmanian Irrigation Tranche II: North Esk
TAS
3. Could warrant future consideration of possible capital investment, but less advanced in stage of development
11
Gippsland: Lindenow Valley Water Security Project (Mitchell River)
VIC
12
Emu Swamp Dam – Severn River, Stanthorpe (MDB)
QLD
13
Nathan Dam, Dawson River
QLD
14
Wellington Dam Revival Project
WA
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost benefit
analysis or design

15
Apsley Dam – Walcha*
NSW
16
Lostock Dam enlargement – Hunter Valley
NSW
17
Mole River Dam (MDB)
NSW
18
Needles Gap (MDB)
NSW
19
Burdekin Falls Dam (including Water for Bowen)
QLD
20
Connors River Dam – Sarina
QLD
21
Fitzroy Agricultural Corridor – construction of Rookwood Weir and raising Eden Bann Weir
QLD
22
Mitchell River System, Far North Queensland
QLD
Project identified by the Water Infrastructure Ministerial Working Group
27
4. Likely to be suitable for further consideration for possible assistance to accelerate feasibility studies, cost benefit
analysis or design
23
North Queensland Irrigated Agriculture Strategy: Flinders-Gilbert, large scale infrastructure
proposals (e.g. IFED) and on-farm developments
QLD
24
Nullinga Dam – Cairns
QLD
25
Urannah Dam – Collinsville
QLD
26
Ord Irrigation Stage III (water infrastructure components)
WA, NT
27
Pilbara and/or Kimberley irrigated water pipeline system
WA
28
Expanded Horticulture Production on the Northern Adelaide Plains - Waste Water Re-use
SA
29
Intensive Livestock and Horticulture Expansion – Northern Dams Upgrade – Clare Valley
Exploring off-stream storage opportunities to increase water availability for agricultural
development
Upper Adelaide River Dam / off stream storage
SA
30
31
NT
NT
5. Likely to occur without direct Commonwealth involvement
32
Cobar water supply (MDB)
NSW
33
Forbes water supply (MDB)
NSW
34
Menindee Road Bore (MDB)
NSW
35
Walken Bore $2.5M (MDB)
NSW
36
Bendigo Northern Growth Area Flood Protection Scheme
VIC
Expansion Of Intensive Horticulture And Livestock – Murray Bridge to Onkaparinga Pipeline
Off-Take and Storage
Upgrading under-capacity drain system to avoid flood damage - Port Road Stormwater
Management (Water Proofing the West Stage 2)
SA
37
38
SA
6. More information is required from state and territory government to inform categorisation
39
Gwydir River including Horton River storage (MDB)
NSW
40
Macquarie River (MDB)
NSW
41
Pindari Dam
NSW
42
Refurbishment of monitoring assets including for groundwater and surface water gauges
NSW
43
Works and measures of weirs and locks in NSW, with a particular focus on the Murray
NSW
44
Bunyip Irrigated Agriculture Project – SE Melbourne
VIC
45
Northern Program
VIC
46
Werribee Irrigation District
VIC
47
Borumba Dam raising
QLD
48
East Normanby River Dam
QLD
49
QLD
52
Hells Gate Dam and Mount Foxton, Burdekin River
Integrated Food and Energy Developments (IFED)/ Etheridge Integrated Agricultural Project Georgetown
Other dams (Battle Creek Dam, Blackfort Dam, Cameron Creek Dam, Cave Hill Dam, Chinaman
Creek Dam, Corella Dam (raising), Corella River Dam, Gunpowder Creek Dam, Leichardt River
Dam)
Raising the Fairbairn Dam wall – Emerald
53
South East Queensland flood mitigation infrastructure investigation
QLD
54
Tully Millstream Dam
QLD
55
Gascoyne Food Bowl Initiative (Carnarvon Trunk main irrigation water delivery)
WA
56
Investigatory work in the Manjimup area (capture and store run-off/potential dam sites)
WA
57
Reviving Rural Dams
WA
50
51
28
QLD
QLD
QLD
6. More information is required from state and territory government to inform categorisation
58

WA
Underground dams – climate resilience through small scale aquifer recharge

WA
59
Fitzroy Dam (Northern Australia Integrated Irrigation Industry Development)
60
Brown Hill and Keswick Creeks flood mitigation scheme - Adelaide
SA
61
Sustaining Irrigated Agriculture in the Eastern Mount Lofty Ranges - Bypassing Low Flows
SA
62
Exploring potential dam opportunities in Victoria, Baines River and Katherine/Daly region
NT
63
Managed aquifer recharge - various locations
NT
Project identified by the Water Infrastructure Ministerial Working Group
29
Appendix D: Indicative water
infrastructure project development
phases used by the Ministerial Working
Group (provided by the Department of Agriculture)
30
31
Appendix E: Consideration of funding and
financing models for water infrastructure
Alternative financing mechanisms can increase private sector participation in water infrastructure
development by removing impediments. This can provide governments with greater flexibility to reduce
budget outlays and improve opportunities to share risk with private sector investors.
Effective infrastructure planning, prioritisation and selection processes are critical, not only in considering
these mechanisms, but to attract private sector investment in the first instance. Implementing an effective
financing model cannot overcome the costs of delivering a poorly planned or selected project.
Funding and financing requirements (and whose responsibility they should be) should be considered across
the full lifecycle costs of infrastructure, including operational and ongoing costs for maintenance. The
preferred funding and financing model is likely to vary depending on the specific characteristics of each
water infrastructure project. A range of potential options to leverage private investment is canvassed below.
Further work is likely to be required for specific projects of merit to identify the most appropriate model that
balances private sector involvement against risks to the Commonwealth.
Public Private Partnerships
A public private partnership (PPP) is an arrangement between a government and the private sector to
design, build, finance, and, in some cases, operate and/or maintain an infrastructure project such as a road,
school or hospital. These arrangements leverage private investment and potentially capture efficiencies
resulting from private sector involvement.
Under PPP arrangements, new infrastructure is typically partially or wholly financed by the private sector.
This finance is repaid either through user charges, such as water entitlements, or availability payments from
the Government. In an availability payment arrangement, the private partner in the PPP finances all or part
of the project’s construction costs, assuming the risk involved, and recoups these costs over time through
availability payments made by the Government, that may be partly sourced from the project’s revenues.
Generally the private partner will also be responsible for operations and maintenance of the infrastructure
and receive their payments only on the condition the asset is available for use to a set of required standards.
Tasmanian Irrigation’s schemes are an example of a water infrastructure public private partnership and a
potential model for future water projects.
Concessional Loans
A concessional loan is an arrangement where a project proponent receives a loan with a reduced interest or
‘concessional’ rate for an agreed period. Concessional loans offer a lower cost of capital to project
proponents compared to the market rate. Concessional loans effectively leverage the Commonwealth
Government’s lower cost of debt to reduce overall financing costs for the private sector and the project as a
whole. A concessional loan places a considerable level of risk on the Commonwealth, with a great deal of
legal and financial due diligence required, as well as a high level of comfort in the ability of the ongoing
revenue streams of the project to be able to meet debt obligations.
The Commonwealth has recently announced it will provide a concessional loan to accelerate the delivery of
the WestConnex road project in Sydney. The revenue stream for the WestConnex project will build on the
strong, established patronage on the existing M4 and M5 corridors, minimising the repayment risk to the
Commonwealth. The application of this mechanism to finance water infrastructure would require
investigation of whether or not the revenue stream generated by the project is capable of repaying the
32
principle and interest of a Commonwealth concessional loan, without impeding the project’s financial
viability.
Debt guarantees
A Commonwealth debt guarantee ensures repayment of debt, should the project not be able to service its
debt obligations. The guarantee enhances a project’s credit worthiness and reduces the project’s borrowing
costs, as the guaranteed debt will be priced close to the rate of Commonwealth Government debt and not as
debt exposed to project risks. This means credit becomes more easily available, increasing the number of
entities eligible to compete for tender.
Debt guarantees effectively transfer project risk onto the Commonwealth, meaning a high level of detailed
due diligence needs to be undertaken. Given this considerable exposure to project risk, the Commonwealth
is yet to provide a debt guarantee to a road project despite many having established brown field revenue
streams. Water revenues would appear significantly more risky.
Demand guarantees
Guarantees can also be structured to reduce demand risk for the private sector, facilitating greater potential
for investment and competition for tender. Guarantees may be offered over aspects such as minimum take
out of water for a water infrastructure project. Should a project’s demand fall below the guaranteed
benchmark, the Commonwealth would step in to make up the difference in revenues to that minimum
benchmark. A variation on this guarantee floor is a cap and collar approach, where the Commonwealth tops
up revenues when demand falls below the guaranteed floor, but also conversely steps in and collects project
revenues above a designated threshold. In order to offer a guarantee, the Commonwealth must have a
robust understanding of expected project demand and revenue, more so than when demand risk lies solely
with the private sector.
Contingent loans (income or other measure)
Income contingent loans are loans where repayment is dependent on future income or revenue streams
(such as the Higher Education Contribution Scheme)*. The feasibility of applying this to water users, rather
than developers, may be questionable given the significant variability in climate and associated farm income.
To date, this mechanism has not been used in the agricultural sector (for example, as an alternative to
grants-based drought policy). Further work would be required to understand how such an initiative would
interact with other policies and taxation arrangement currently available to farmers to manage variability in
farm income.
Betterment levies
Betterment levies (or taxes) attempt to capture the increased value of private land arising from new public
infrastructure or re-zoning and are used to reduce the required capital contributions of governments. The
levy is designed to capture part of the increase in value relating to the zoning or new infrastructure, rather
*
Chapman, B 2006, Income contingent loans as public policy, Occasional paper 2/2006, Academy of the
Social Sciences in Australia, Canberra.
33
than the general land price increases which would have occurred regardless†. These levies have been
criticised overseas as a form of infrastructure finance because of the high rates imposed, combined with the
uncertainty in accurately pricing the land-value gain associated with the public infrastructure.‡
Betterment levies can be used when conditions for landowners have been improved as a result of
infrastructure being built. A transport example may be if land in commercial precincts becomes more
accessible, say through a light rail line being built nearby, thus increasing the overall value of the land. In the
case of water infrastructure it is not clear that there would be these “secondary benefits”. It may be
beneficial for a farmer requiring irrigation to have water infrastructure built nearby, thus increasing the
overall value. However, in paying for the water they use, the value they receive is being captured. A
betterment levy could be viewed as double charging in this instance.
Alternatively, a betterment levy could be applied to residents of a region should the value of their property
increase from the development of water infrastructure.
Debt financing
A government can issue bonds/debt securities through its central borrowing agencies to raise general funds.
The central borrowing agencies do not undertake purpose-specific borrowing: while project-specific
infrastructure bonds were once used in Australia, this practice ended with the financial reforms in the 1980s
and 1990s.§
Debt financing is the method the Commonwealth currently uses to raise grant funding. It isn’t considered
practical to develop new instruments, such as water bonds specifically for water infrastructure as they would
attract an extra element of risk when viewed by the market. It would essentially lower the effectiveness of
debt financing by renaming a Commonwealth Government security.
†
Commonwealth of Australia 2010, Australia's future tax system, report to the Treasurer,
www.taxreview.treasury.govl.au/
‡
Peterson, G E 2009, Unlocking land values to finance urban infrastructure, The World Bank, Washington,
DC.
§
Productivity Commission 2014, Public infrastructure, Draft Inquiry Report, Canberra.
34