Irrigation report muddies the waters

Rural Irrigation Price Investigation 2020-24 report proposes some increases

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Uncertainty remains around the irrigation price path for 2020 to 2024, with Natural Resources Minister Dr Anthony Lynham saying the decision will be made in time for new prices to commence from July 1 this year.

Uncertainty remains around the irrigation price path for 2020 to 2024, with Natural Resources Minister Dr Anthony Lynham saying the decision will be made in time for new prices to commence from July 1 this year.

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Uncertainty remains around the irrigation price path for 2020 to 2024, with Anthony Lynham saying the decision will be made in time for new prices to commence from July 1.

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Queensland irrigators will cop another kick in the guts on July 1, if the Queensland government heeds the recommendations of the Queensland Competition Authority's rural water pricing report.

Following more than 12 months of analysis, the Rural Irrigation Price Investigation 2020-24 report was submitted to the Queensland government on January 31 and will be used to set the price path for irrigation water from 2020 to 2024.

The recommended prices outlined in the report represent a mixed bag, with the fixed component of some tariff groups not changing, while others will "reflect the transitional path to the fixed component of the lower bound cost target".

"We have assessed the appropriate level of any volumetric price increase with reference to the maximum level of annual real price increases that have occurred over the previous price path periods of $2.38 per megalitre of WAE ($2020-2021)," the report reads.

"We have used our estimate of inflation over the price path period of 2.24 per cent in deriving the increases in recommended prices."

Cost-reflective

In recommending these prices, QCA have "emphasised the pricing principles set out in the referral (from the government), as these principles give effect to the government's water pricing policy".

"One of the key objectives of that policy is that prices should increase gradually until they reach a cost-reflective level, where they recover the irrigation share of the scheme's operating, maintenance and capital renewal costs but do not recover a return on, or of, the scheme's initial asset base (as at 1 July 2000).

"This report refers to this level of cost recovery, which underpins the pricing framework for our investigation, as 'the lower bound cost target'.

"It is important to note that while lower bound prices are referred to as being 'cost-reflective', they still involve a subsidy from taxpayers, as the water businesses are not earning a return on, or recovering the initial investment in the existing assets.

"The government has previously indicated that in setting this target and establishing a gradual transition path to this level, it has considered a range of matters, including historical/legacy issues, customers' capacity to pay and the benefits/costs arising from a subsidy targeting a particular sector or purpose."

Without the gradual-increase policy, cost-reflective prices would see tariff groups like those in the Callide Valley face a fixed cost increase of 281pc, from $18.50 per megalitre in 2019-20, to $70.53/ML in 2020-21.

Water users in the Three Moon Creek - Groundwater tariff group would see a fixed cost increase of 116pc, from $23.58/ML to $51/ML.

For tariff groups with fixed costs already above the cost-reflective price though, the principles set out in the government's water pricing policy may not have been of any benefit.

Under cost-reflective prices, water users in the Burdekin-Haughton tariff group should have seen their fixed cost decrease by 69pc from $12.71/ML in 2019-20, to $3.83/ML in 2020-21.

The Upper Condamine - North Branch tariff group should have seen fixed costs drop from $47.64/ML to $16.86 (-64pc).

However, one pricing option outlined in the recommended prices sees these fixed costs remain unchanged.

Dam improvement

In October 2018, the competition watchdog was directed to recommend two sets of irrigation prices - one that excludes all dam safety upgrade capital expenditure, and another that includes an appropriate allowance for prudent and efficient dam safety upgrade capex forecast to be incurred from July 1, 2020 onwards.

Stakeholders maintained dam safety upgrade capex should not be considered a normal cost of operation in supplying water to customers, but QCA has recommended dam safety upgrade capex be treated as a normal cost of operation in supplying water services to users, and be allocated to water users unless there was a justifiable basis for allocating some of the costs to other parties.

They did however recommend "only prudent and efficient dam safety upgrade capex that is required to meet dam safety obligations should be included in the dam safety upgrade cost category".

Queensland Farmers' Federation CEO Dr Georgina Davis said the report dismissed farmers' concerns and provided little clarity for farmers who will be hardest hit by the price recommendations.

"The inclusion of dam safety upgrades in the water pricing pathway... could leave irrigators contributing up to 80 per cent of what would be very large expenditures for these upgrades," Dr Davis said.

"QFF's policy on this unacceptable cost is clear - dam safety associated with government-owned and built infrastructure is a community responsibility and provides no additional benefit to farmers, therefore they should not be expected to contribute to dam safety upgrades.

"It runs the risk of making water so expensive that we see a wide-scale disconnection of farmers from irrigation schemes and a return to lower-productivity, dry-land farming in some areas.

"The QCA has chosen to ignore farmers' concerns about their ability to pay for water and the future productivity and profitability of their businesses by only raising more questions than answers."

The mudslinging between the Labor government and the LNP, which began with the announcement of the review, has continued since the release of the report.

Opposition Natural Resources spokesman Dale Last said the Labor government's cost-reflective pricing would "effectively kill-off a large number of irrigation schemes".

"Last year the LNP warned the Palaszczuk government that the final report would deliver unsustainable price increases, but at the time Minister Lynham accused the LNP of scaremongering," Mr Last said.

"Given the shocking price hikes delivered in the final report, Labor's great water rip-off has been confirmed."

But Natural Resources Minister Dr Anthony Lynham said the government does not seek to profit from irrigation water prices.

"In fact, we provide significant subsidies for irrigation water - including $4 million to reduce prices," Minister Lynham said.

"For tariff groups where supply costs have increased, the government also has a long-standing policy to moderate any increases.

"Any decision by government will involve careful consideration of the views of customers and stakeholders, as well as the QCA's recommendations."

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