Local management in Australia

Local management of irrigation distribution systems has been a policy option under consideration in Queensland for more than 20 years.  Under the 1994 Council of Australian Governments (COAG) Water Reform Framework, signatory States, including Queensland, agreed to the principle that Customers:

“be given a greater degree of responsibility in the management of irrigation areas, for example, through operational responsibility being devolved to local bodies…”

Local management was implemented in several other Australian jurisdictions approximately 20 years ago.  An independent review undertaken as part of the current process assessed the results of the move to local management of irrigation distribution systems in New South Wales, Western Australia, and South Australia.  Based on a literature review and interviews with 25 individuals involved in public and private irrigation distribution systems across Australia, the report concluded that:

• Irrigators are benefiting from greater involvement in decision making, and the management and operation of distribution systems.
• Privatised distribution systems have made a range of efficiency improvements, such as reducing costs and driving innovation.
• Innovations introduced include upgraded water metering, on demand water services, on-line ordering, water trade and trading platforms, and other service level improvements.
• Regional economies have benefited directly through employment and indirectly from more viable water delivery services.

The report also noted several challenges for local management:

• Irrigation distribution systems face a considerable challenge in collecting sufficient revenue from water charges to meet water delivery and infrastructure costs. In many cases, the costs of water services provision are only just met, or in some cases are not met, and the businesses have diversified into non-core business areas to generate additional revenue.
• Related to the above, asset management and pricing present a major ongoing challenge for irrigation distribution systems, including accurately determining the condition and value of individual assets over their lifecycle and optimising maintenance, renewals and pricing.
• Commercial decisions that need to be taken by irrigation companies are sometimes at odds with local expectations for the companies to fulfil a community obligation.
• Changes in water policy can impact on the viability of irrigators and irrigation companies.

Local management in Queensland

The eight distribution systems being considered for Local Management were all owned and operated by government owned company, SunWater.

During a SunWater irrigation price review, completed by the QCA in 2012, the Queensland Farmer’s Federation and CANEGROWERS Queensland, together with local irrigation groups expressed concerns over the long-term sustainability of the irrigation sector, especially in SunWater’s Distribution Systems, and called for change.  They proposed that Local Management could potentially deliver increased efficiencies (including reduced costs) in the channel systems by ensuring that services and capital investment were more closely aligned with irrigators’ needs and wants.

Stages 1 and 2

Since 2012, the Queensland government has worked with SunWater and irrigation distribution system customers to investigate whether there is a business case for transferring the schemes from SunWater ownership to new entities owned and controlled by their customers.  On 5 July 2012, the Queensland Minister for Energy and Water Supply as stage 1 of the process, announced the establishment of a working group to investigate the potential to transfer SunWater’s eight distribution systems to Local Management.  The working group report to government in October 2012 indicated a high level of interest and support from the irrigation sector to move to Local Management. This was stage 1 of the process.

Following this work, the Queensland government initiated Stage 2 of the process.  This stage included an independent review of the feasibility, costs, and benefits of Local Management.

Stage 2 involved:

• The establishment of eight Interim Boards, one for each of SunWater’s eight Distribution Systems, made up of local irrigators and other representatives, who prepared business proposals for a transition to Local Management.
• Appointment of an Independent Chair, supported by an independent project team, to provide advice to Government and the interim boards, and to facilitate the due diligence.
• Due diligence activities to support decision-making by the Interim Boards, including the engagement of experts to review and advise on legal, financial, engineering, policy and other issues related to a move to Local Management.
• Preparation by the interim board of a business proposal, setting out its proposed approach to implementing Local Management in the distribution system, including its preferred corporate form and governance arrangements, and financial projections.
• Consultation by the interim board with customers and a voting process to assess customer support for the business proposal.
• Submission of the business proposal to the Independent Chair in 2014.
• Assessment by the Independent Chair of the costs and benefits of Local Management and submission of the Independent Chair’s report to Government in September 2014.

The report found that it was in the long-term interests of Queensland and the irrigation customers to transition ownership and management of SunWater’s irrigation Distribution Systems to irrigator-owned entities.  Key reasons put forward included:

• A move to Local Management would provide around 3,000 irrigators across Queensland an opportunity to control their own destiny, manage costs, and modernise/expand the distribution systems.
• Queenslanders would benefit from an increase in productivity of the distribution system and removal of an ongoing subsidy to irrigators.

On 1 October 2015, the Queensland government announced its decision to support the transition of four of the eight irrigation Distribution Systems (Eton, Emerald, St George and Theodore) to Local Management, subject to agreement between the State and relevant Distribution System Customers on the final terms of transfer and sufficient support from customers for the implementation of Local Management.

Stage 3

To facilitate the implementation of local management the Queensland government introduced legislation providing for the establishment of a service company LMA Support Services Pty Ltd, owned and funded by government, to assist the transition and investigation schemes. Boards were appointed for each of the schemes to represent the scheme customers and to either prepare updated business proposals or support the transition schemes negotiate terms of the transfer and to prepare an offer to be made to water users to become members of the new Local Management entity.

The board of LMA Support Services Pty Ltd was made up of the chairs from the eight scheme entities and chaired by agribusiness expert, Mr John Storie. A project team was engaged by LMA Support Services to support the irrigation boards.

As a result of investigations Bundaberg, Lower Mary Burdekin-Haughton and Mareeba-Dimbulah boards opted not to proceed with LMA and the irrigation assets continue to be managed by SunWater.

A majority of irrigators in Eton, Emerald, St George and Emerald voted to accept a LMA offer from Governments. Independent irrigators now own the schcmes, with all asset transfers to be finalised by March 2020.

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