Exclusive: Federal government ignored advice of its own research agency when it bought water rights of a NSW property

This article is more than 2 years old

This article is more than 2 years old

This article is more than 2 years old

The Australian government ignored a valuation provided by its own research agency when it bought back water from an agricultural company in the Lower Darling in June, and instead paid $78m – almost twice as much as the recommendation.

The Department of Agriculture and Water Resources, which manages the purchase of water for environmental flows in the Murray-Darling basin, sought the advice of the Australian Bureau of Agricultural and Resource Economics and Sciences (Abares) on the value of water entitlements held by Webster Limited for one of its properties, Tandou.

But it then rejected Abares’ advice and paid almost double its assessment of a fair price for the water rights. Instead it relied on a valuation prepared several months earlier by a private valuer for the New South Wales government.

The documents, obtained by the South Australian senator Nick Xenophon under an order for production of documents, raise serious questions about processes for buying environmental water under the Turnbull government and whether taxpayers are getting value for money.



“I think this just goes to show, yet again, that the government’s implementation of the Murray-Darling basin plan is being systematically undermined,” Xenophon said. “The concern I have is we have a government agency saying something different to a private valuer.”

The water purchase, ostensibly to boost environmental flows into the Menindee Lakes, followed an unsolicited approach from Webster and was not generally advertised.



It did not go to cabinet. Nor does it appear that advice was sought from other departments or agencies including the Commonwealth Environmental Water Holder, which manages the government’s portfolio of environmental water.

For its part Webster has booked a healthy $36m one-off profit from the sale, after just 18 months of owning the property.

As well as ignoring its own valuation, the department of agriculture proceeded on the basis that the property gets 100% of its water entitlement, even though the documents show that for many years Tandou, near Broken Hill, has been unable to grow irrigated crops because of a lack of water. This problem has become worse owing to irrigators drawing water from the Darling and its tributaries further up river.

Webster is one of those companies. It owns several large cotton properties upstream at Bourke and Moree, as well as properties in the Riverina and at Hay. It is also one of the country’s biggest water traders.

Its shareholders include the businessman Chris Corrigan and Australian Food and Fibre, which is controlled by the Robinson family, a major donor to the National party.

Webster was named in a Four Corners program as one of the major irrigators alleged to be taking water from environmental flows in the Barwon-Darling catchment. The company has strongly rejected the Four Corners allegations that it took more than its fair share of water.

Facebook Twitter Pinterest A satellite image shows land under cultivation at Tandou, in a dry lake at the lower left. Above it are the Menindee Lakes. Photograph: Google Earth

Now the spotlight has turned on another transaction involving the company.

The buyback of 22,000 megalitres of water from Tandou followed an unsolicited offer early in 2017 from the company to sell its water entitlements at the isolated, dry-lake property. Webster had been in discussions with the NSW Department of Primary Industry..

Before the approach, the minister for agriculture, Barnaby Joyce, declared the federal government no longer intended to buy back water entitlements and instead water savings would be made through farm-efficiency measures, such as improving irrigation channels and better farming methods. This was an acknowledgement of the impact that the withdrawal of water could have on rural economies.

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Webster took over the struggling company Tandou Limited, which owned the Tandou property and others, in June 2015. The takeover valued the entire company, including other assets, at $114m. Just 18 months later the government offered $78m for the water entitlements of one property alone. This was roughly one-quarter of the water rights that Webster had acquired as a result of its 2015 purchase.

Webster said it had received a fair price for the water. “We received a marginally satisfactory price for the combination of water rights and for giving up the future irrigation opportunities at Tandou,” the company secretary, Maurice Felizzi, told the Guardian.

The company has told the Australian Securities Exchange it would book a one-off $36m to $37m profit from the Tandou sale.

Documents tabled in the Senate reveal that there was significant disagreement between Abares and the private-sector valuer, Herron Todd White, over the value of Tandou’s water rights.

In 2017 Abares estimated the price of the total entitlements for Tandou at $24.79m based on trades in water. It put an upper value of $52m on the water but this assumed a hypothetical lifting of restraints on trading the property’s water.

But in making its offer to Webster the federal department appears to have relied on a 2016 valuation from HTW of the entire farm enterprise, commissioned by the NSW Department of Primary Industry’s water division.



The head of this division was Gavin Hanlon, now under investigation by the Independent Commission Against Corruption after a Four Corners program exposed him offering to share confidential information with irrigators. An independent investigation commissioned by the NSW government also criticised his actions and he has resigned.

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HTW put the total value of Tandou’s water portfolio at $38m, much higher than the $24.8m Abares came up with. It was also much higher than a third valuation from Opteon for Lower Darling water entitlements.

HTW then included an additional $40m in compensation in its estimate, though it noted the value of Tandou was highly dependent on water reliability. In coming to a total purchase price, HTW said the value of Tandou as a property was $86m if Tandou had access to 100% of its water rights but just $4.1m if it had none. With 80% of its water available, HTW put the value at $60m.

The reason for preferring the HTW estimates, and choosing the highest figure, is not explained by the departmental officers. But the amount paid was almost identical to the amount Webster was seeking.

Abares was highly critical of the HTW valuation. “The HTW valuation of Tandau [sic] entitlements uses prices of $3,500 per ML for lower Darling high security and $1,500 for general,” a Abares document says. “These values are greatly inflated relative to current prices in the Lower Darling.”

Timeline Water rights Show Hide Webster takes over Tandou Limited, paying the equivalent of $114m for the shares in the struggling listed company. Assets include Tandou property in the Lower Darling, properties at Hay and 84,000ML of water entitlements. Opteon provides a valuation to the commonwealth of Lower Darling water rights. The valuation is for “financial reporting purposes”. Herron Todd White does a “market valuation” of Tandou station for the NSW government. The valuation is for a full purchase of the land and water rights. Former head of NSW DPI water Gavin Hanlon writes to the federal department of agriculture suggesting it buy Tandou. Abares values the water rights for the commonwealth as part of the due diligence process. Minister authorises negotiations. Two days later, there is in-principle agreement on terms. Commonwealth uses the NSW valuation, even though it is now only buying the water entitlements, not the farm. Webster formally offers to sell the water entitlements for $78m, after “recent discussions of our sale and decommissioning proposal”. Barnaby Joyce signs agreement to pay $78m for 22,000ML of water entitlements from Webster. Webster agrees to close its irrigation operations at Tandou.

It said HTW’s figures were nearly double the figure high-security water was trading at. “The argument given for these inflated prices … doesn’t make sense,” it said.

HTW’s higher valuations were based on Tandou’s right to trade water between the Lower Darling and the Murrumbidgee. Because of this, the valuer said, it was relevant to use the prices for Murrumbidgee entitlements. Abares dismissed this argument, saying in practice the trade usually resulted in water being exported, not imported, into the Lower Darling basin.

But departmental officers made much of HTW’s reasoning in justifying the huge price tag to Joyce, who signed off on the purchase in June.

Abares also dismissed the $40m compensation figure proposed by HTW, saying it had not undertaken any work on the impact on land value.

Another rationale put to Joyce for paying more was that this purchase would avoid the need to spend $72m to upgrade the Penellco channel – under a yet-to-be-agreed plan by NSW for the Menindee Lakes.

The upgrade of this channel had been identified by the state as necessary to keep water flowing to Tandou. Now that the water rights have been surrendered there is no need to upgrade it.

The $72m would have be spent by NSW government but the federal department enthusiastically advised Joyce that the saving was a relevant consideration.

“The Commonwealth may consider acquiring the Tandou entitlements at a premium as the enhanced project would not require upgrade to the Penellco Channel,” one document said.

Documents also show that the departmental officers justified not having an open tender, as required under commonwealth procurement rules, and dealing exclusively with Webster by relying on an exception that allows such deals “under exceptionally advantageous conditions that arise only in the short term”.

The department acknowledged there was another proposal on the table – the name of the potential seller is redacted – but said it was “unaware of any other entitlement holders that have indicated a willingness to sell their water entitlements”.

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It also argued that it was more cost-effective to buy from a big water rights holder such as Tandou. Acquiring water rights from multiple small owners “would have higher transaction costs and would not represent value for money to the level offered by the Tandou agreement”.

A spokesman for the department of agriculture said the Australian government remained committed to ensuring that the water recovery required under the Murray–Darling basin plan was managed in a way that minimised socioeconomic impacts on basin communities.

“The government continues to focus on investment in water saving infrastructure but will consider, in consultation with Basin states, strategic water purchases in areas where a gap remains to be bridged to the Sustainable Diversion Limit,” the spokesman said. “The Tandau [sic] purchase was one such purchase.”



The idea of acquiring the water rights appears to have come from the NSW Department of Industry.

A spokesman for the department said the NSW government “assisted in obtaining a valuation of the ‘Tandou’ property to help in the facilitation of this strategic purchase of water entitlements by the Commonwealth, as part of meeting NSW’s commitments to recover water for the environment under the Murray Darling Basin Plan.”

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