PUBLIC SUBMISSION TO CHARGE RULES ISSUES PAPER FOR
IRRIGATION INFRASTRUCTURE OPERATORS BY CENTRAL
IRRIGATION TRUST ON 14 JULY 2008
1. PREFACE
The following response to the ACCC issues paper on Charge Rules presents the
combined view of the CIT group of irrigation infrastructure operators. Our group fully
supports the objectives in the National Water Plan because the State of South
Australia, including our irrigation industry, cannot aspire to a secure water future
without first achieving healthy rivers in our basin.
Although CIT has general concerns about the level of consultation with irrigation
infrastructure operators, the extent of involvement by the ACCC in regulated water
charges and the additional unknown costs to be borne by us from the process, our
submission primarily concentrates on two detailed issues that are very important to our
water business in the longer term.
The two issues concerning us most are termination fees and the requirement for our
districts to move from consumption based pricing to fixed and variable cost charging.
2. INTRODUCTION
Central Irrigation Trust is a company that manages and operates water delivery
systems for the Berri, Cadell, Chaffey, Cobdogla, Kingston, Loxton, Lyrup, Moorook,
Mypolonga and Waikerie Irrigation Trusts in South Australia. Our submission also
includes the Pyap Irrigation Trust which we provide management services to under
contract.
The eleven Irrigation Trusts we represent pump water from the River Murray in South
Australia and deliver it through modern irrigation systems to 1,500 mostly family
owned farms producing high value horticultural crops in the highland irrigation
districts adjacent to the river.
The water delivery systems include fully automated pumping stations, closed pipeline
delivery networks and fully metered water supplies to every farm, household and
factory.
The Trusts are 90% of the way through an $8million program to replace 2,300 in-line
mechanical water meters with solar powered electronic meters, and 25% of the way
through a $2million program to install radios on the meters to download flow and
consumption data back to irrigators via the web every 15 minutes.
Of the 14,000 hectares of mostly vineyards and orchards irrigated by our 1500 family
farms, over 95% is watered through sprinkler, micro or drip irrigation systems.
3. BACKGROUND
Most of the eleven Trusts that make up the group managed and operated by CIT were
State or Commonwealth owned government irrigation districts until 1 July 1997 when
privatisation occurred as part of the rehabilitation projects to replace open channel
systems with modern pipeline systems.
Prior to becoming Irrigation Trusts owned by the member irrigators in 1997, irrigators
in the Government districts paid base charges of 50% or 60% (depending on crop
types used to determine volumetric water allocations). Whilst not directly related to
fixed costs at the time, the base charges produced a similar financial result by
providing a revenue base that was not dependent on water sales.
Historic reasons for using base charges related more to the inability of the
Government districts to measure water flows to farms and the end result was
inevitably over supply and wastage of water.
When CIT was formed to manage and operate the group, consumption based pricing
was introduced, firstly because it was the policy of the 1994 COAG Water Agenda
and secondly because we had the ability to measure accurately and charge farmers for
actual water used. Over the decade since it was introduced, consumption based pricing
has proven to be a strong incentive to improve water efficiency and has been well
accepted by farmers.
Because the main crops in our districts are permanent plantings to vines, citrus and
deciduous fruits and we are located in low rainfall areas, water sales have always been
fairly constant until restrictions were imposed due to drought in recent years. Also our
water business is not subject to the fluctuations in water sales that most of the larger
upstream irrigation regions have due to seasonal variations in the areas planted to
annual crops.
As a result of these differences the CIT districts have made a success of consumption
based pricing whereas most irrigation regions need high base charges because of wider
fluctuations in water sales.
4. SUBMISSION DETAILS
As stated earlier in our submission, the two issues causing the most concern to CIT are
the requirement to move from consumption based pricing to fixed and variable cost
charging and termination fees as detailed below :
4.1 CONSUMPTION BASED PRICING
The current split of access charges and consumption charges in the CIT districts is
around 18% and 82%. The current split of shadow fixed costs and shadow variable
costs is around 51% and 49%. These figures vary slightly from year to year.
Water sales in the CIT districts since privatisation in 1997 have ranged from a high
of 81% to a low of 61% of entitlement in the nine years of full allocation.
Although consumption based pricing has been a successful strategy to improve
water use efficiency in irrigation districts with permanent plantings and relatively
constant water sales, the constant aspect of sales will change in the future if the
current trend of water restrictions due to drought continues or worsens.
Most importantly, any sudden change to fixed and variable cost charging will
outrage the 1500 farmers who own the water delivery systems in our irrigation
districts. They have particularly benefited from our low access charges during the
last two years of water restrictions and given the poor outlook for water
availability in both the short and long term, farmers will resist any change to their
water pricing system.
Not withstanding our decade of strong belief in the principles and success of
consumption based pricing, CIT recognises that the principle no longer aligns with
the new Commonwealth direction for water charge rules and that we are probably
one of very few, if not the only water authority, with this problem.
CIT believes a strong case exists to allow irrigation infrastructure operators
currently using consumption based pricing a period of transition to introduce fixed
and variable cost charging.
We would be prepared to support and promote the change if we can introduce it
incrementally over an approved 10 year period including permitting any individual
irrigator who chooses to make the change sooner to convert to fixed and variable
cost charging.
Our group of Trusts also need to be assured that the auditing and reporting
obligations under the new water charge rules will also be applied to all irrigation
“trusts” including corporate and management investment schemes where members
also own the water delivery schemes. We also fail to understand why State owned
urban water authorities are exempt from the new water charge rules.
CIT would like the opportunity to further explore an arrangement for our group of
Trusts to move to incremental introduction of fixed and variable cost charging
with you.
4.2 TERMINATION FEES
CIT supports the National Water Plan objectives of open water trade and water
buyback (provided that it does not involve compulsory acquisition) throughout the
Murray Darling Basin.
The one aspect of trade and buyback that we do not support is that when an
irrigator in a “community owned” water delivery system permanently sells part or
all of their water entitlement outside the scheme they should not meet their
financial obligations to the remaining farmer members up front and in full.
CIT has complied with the requirement to move from exit fees to termination fees
and although unconvinced of the need, is prepared to introduce delivery
entitlements by July 2010 as required.
However, we will not willingly accept any move to reduce the basis of termination
fees to a lesser multiple than the 15 times the shadow access fee. Nor will we
willingly accept the option for continued charging of access fees on land
abandoned from irrigation in lieu of up front payment of termination fees.
CIT will pursue every means available to prevent these two changes. We believe
that the ACCC has not thought through the long term implications for future
generations of landowners who are obligated to pay substantial access fees for
water services they do not receive. This unhappy circumstance will have been
created only because a previous landowner was permitted to maximise their return
on a water sale by leaving successive new owners with a legacy of unwelcome and
unexpected charges.
This situation will become untenable for infrastructure operators and landowners
in the future, all because the ACCC wants to remove every perceived impediment
to trade out of irrigation districts as well the real impediments.
This is one situation where the Government needs to listen to the advice from the
water industry.
Jeff Parish
Chief Executive Officer
14 July 2008
Copies to:.
Senator Penny Wong
Malcolm Turnbull MP
Senator Nick Xenophon
Patrick Secker MP
Hon Karlene Maywald MP
Mitch Williams MP