dilwyn infrastructure ownership study · proposed use irrigation irrigation irrigation increased...

Dilwyn Infrastructure Ownership Study

Southern Rural Water

Final Report

24 April 2017

R6234

Dilwyn Infr astructure Ownership Study

Souther n R ural Water


i


Project No: IS183100

Document Title: Dilwyn Infrastructure Ownership Study

Document No.: Final Report

Revision: V3

Date: 24 April 2017

Client Name: Southern Rural Water

Client No: R6234

Project Manager: Jane Branson

Author: Jane Branson

File Name: J:\IE\Projects\03_Southern\IS183100\21 Deliverables\Final\Dilwyn Infrastructure

Ownership Study Final Report_V3.docx

Jacobs Group (Australia) Pty Limited

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Melbourne VIC 3000

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© Copyright 2017 Jacobs Group (Australia) Pty Limited. The concepts and information contained in this document are the property of Jacobs.

Use or copying of this document in whole or in part without the written permission of Jacobs constitutes an infringement of copyright.

Limitation: This document has been prepared on behalf of, and for the exclusive use of Jacobs’ client, and is subject to, and issued in accordance with, the

provisions of the contract between Jacobs and the client. Jacobs accepts no liability or responsibility whatsoever for, or in respect of, any use of, or reliance

upon, this document by any third party.

Document history and status

Revision Date Description By Review Approved

1 17-02-17 Preliminary Draft Branson,

Nelson,

Freund

Tingay Tingay

2 03-04-17 Draft Final Freund,

Branson

Taylor Tingay

3 19-04-17 Final Branson Taylor Tingay

4 24-04-17 Final Branson Taylor Tingay


ii

Contents

Executive Summary ............................................................................................................................................... 1

1. Introduction ................................................................................................................................................ 8

1.1 Overview ...................................................................................................................................................... 8

1.2 Project Scope .............................................................................................................................................. 8

1.3 Purpose of this report .................................................................................................................................. 9

2. Background .............................................................................................................................................. 10

2.1 About Dilwyn Formation ............................................................................................................................ 10

2.2 Current land and water use in south west Victoria .................................................................................... 11

2.3 Groundwater management ........................................................................................................................ 13

3. Strategic context ..................................................................................................................................... 15

3.1 Introduction ................................................................................................................................................ 15

3.2 Policy drivers ............................................................................................................................................. 15

3.3 Project context ........................................................................................................................................... 17

3.4 The project need ........................................................................................................................................ 18

4. Groundwater demand ............................................................................................................................. 19

4.1 Introduction ................................................................................................................................................ 19

4.2 Willingness to pay for groundwater ........................................................................................................... 20

4.3 Market segments ....................................................................................................................................... 20

4.4 Water demand scenarios........................................................................................................................... 21

5. Groundwater Infrastructure .................................................................................................................... 23

5.1 Introduction ................................................................................................................................................ 23

5.2 Assumptions .............................................................................................................................................. 24

5.3 Concept designs ........................................................................................................................................ 25

5.4 Concept design costs ................................................................................................................................ 26

6. Commercial analyses of concept designs ............................................................................................ 27

6.1 Introduction ................................................................................................................................................ 27

6.2 Cost Benefit Analysis ................................................................................................................................. 27

6.3 Water price implications ............................................................................................................................ 29

6.4 Regional economic impacts ...................................................................................................................... 30

6.5 Concluding comments ............................................................................................................................... 31

7. Infrastructure ownership ........................................................................................................................ 32

7.1 Introduction ................................................................................................................................................ 32

7.2 Definition of ownership models ................................................................................................................. 32

8. Appraisal of ownership models ............................................................................................................. 34

8.1 Approach ................................................................................................................................................... 34

8.2 Legal and regulatory obligations ............................................................................................................... 34

8.3 Taxation obligations ................................................................................................................................... 37

8.4 Infrastructure risks ..................................................................................................................................... 37

8.5 Economic principles ................................................................................................................................... 40

8.6 Economic viability ...................................................................................................................................... 41

8.7 Summary of results .................................................................................................................................... 42


iii

9. Conclusions ............................................................................................................................................. 44

10. References ............................................................................................................................................... 45

Appendix A. Groundwater availability and use within the OLA GMA ............................................................ 46

Appendix B. Water quality .................................................................................................................................. 48

Appendix C. Groundwater assessment ............................................................................................................. 49

Appendix D. Cost Plans ...................................................................................................................................... 55

Appendix E. On-farm costs and benefits .......................................................................................................... 58

Appendix F. Appraisal of legal and regulatory obligations ............................................................................. 60

Appendix G. Risk assessment for ownership models considered ................................................................ 83

Tables

Table ES.1 : Water demand scenarios ....................................................................................................................2 Table ES.2 : CBA results for the three demand scenarios assuming water corporation ownership .......................3 Table ES.3 : Economic viability for different ownership models. .............................................................................5 Table ES.4 : Summary of advantages and disadvantges of each infrastructure ownership model ........................6 Table 2.1 : Summary of Dilwyn aquifer characteristics in the Otway Basin ......................................................... 11 Table 2.2 : Water entitlements and use in south west Victoria (2014-15) ............................................................ 13 Table 4.1 : Market segments for groundwater ...................................................................................................... 20 Table 4.2 : Water demand for scenarios .............................................................................................................. 21 Table 5.1 : Concept design assumptions ............................................................................................................. 24 Table 5.2 : Cost summary ($ real) ........................................................................................................................ 26 Table 6.1 : CBA assumptions ............................................................................................................................... 28 Table 6.2 : CBA results for the demand scenarios (discounted at 4.7% over 25 years) ...................................... 28 Table 6.3 : Indicative water prices for each design concept under varying government contribution scenarios

($/ML pumped) ..................................................................................................................................................... 29 Table 6.4 : Summary of direct, indirect and induced regional impacts associated with the demand scenarios .. 30 Table 7.1 : Proposed ownership models .............................................................................................................. 32 Table 8.1 : Key requirements in establishing a new ownership model ................................................................ 34 Table 8.2 : Risk assessment summary ................................................................................................................. 38 Table 8.3 : Economic viability for different ownership models. ............................................................................. 41 Table 8.4 : Additional factors influencing economic viability of the four ownership models ................................. 41 Table 8.5: Summary of advantages and disadvantges of each infrastructure ownership model ......................... 42 Table A.1 : Groundwater allocations and usage by zone within the OLA GMA ................................................... 47 Table B.1 : Salt tolerance of a range of forage species to applied irrigation water .............................................. 48 Table C.1 : Estimated properties of the Dilwyn formation near Nullawarreand Heytesbury ................................ 49 Table C.2 : Data from water measurement information system (WMIS) database surrounding Nulawarre ........ 50 Table C.3 : Data from water measurement information system (WMIS) database surrounding Heytesbury ...... 53 Table E.1 : Water demand scenarios ................................................................................................................... 58 Table E.2 : On-farm lifecycle costs ....................................................................................................................... 58 Table E.3 : On-farm productivity benefits ............................................................................................................. 59

Figures

Figure ES.1 : Location of groundwater demand from the Dilwyn ............................................................................2 Figure 2.1 Sub basins of the Otway Basin (Bush, 2009) ...................................................................................... 10 Figure 2.2 : Geographical land use by type in the GSC region ............................................................................ 12 Figure 4.1 : Zone 2 of the Otway’s Lower Aquifer with irrigation demand ............................................................ 19 Figure A.1 : Zones and licensed volumes by aquifer type .................................................................................... 46 Figure C.1 : Bore locations for Nullawarre............................................................................................................ 52 Figure C.2 : Bore locations for Heytesbury........................................................................................................... 54 Figure F.1 : Key permissions and regulatory approvals required: ........................................................................ 62 Figure F.2 : The Dilwyn Formation ....................................................................................................................... 72


Final Report iv

Acronyms

BCR Benefit cost ratio

BE Bulk entitlement

CBA Cost benefit analysis

DELWP Department of Environment, Land, Water and Planning

D&S Stock and domestic

EOI Expression of interest

GL Gigalitres

GMA Groundwater management area

LTA Lower Tertiary Aquifer

ML Megalitres

NWIDF National Water Infrastructure Development Fund

NPV Net present value

OLA Otways Lower Aquifer

PPP Public Private Partnership

PV Present value

RWC Rural water corporation

SRW Southern Rural Water

TDS Total Dissolved solids

TUL Take and use licence

UWC Urban water corporation

WACC Weighted average cost of capital

WSPA Water Supply Protection Area


Final Report 1

Executive Summary

Introduction

Southern Rural Water (SRW) has engaged Jacobs to assess the feasibility and economics associated with four

potential infrastructure ownership models to develop the deep aquifers of south west Victoria (principally the

Dilwyn Formation). The four models that were proposed to own and operate infrastructure to access

groundwater are:

Rural Water Corporation (RWC)

Urban Water Corporation (UWC)

Large business (e.g. dairy processing factory)

Small irrigator syndicate

For all models, the owner is assumed responsible for planning, designing, constructing, funding,

operating/maintaining and decommissioning infrastructure.

For each model of ownership, the project scope addressed four objectives:

1. Appraisal of Victorian and Federal regulatory, legal and taxation obligations, including identification of

existing barriers in fact or interpretation of regulation (including taxation and water regulation)

2. Analyses of demand, sales, distribution and marketing arrangements in order to identify the end users that

will purchase the water for various uses, and at what price, in southern Victoria

3. Cost estimations and cost benefit analyses of infrastructure, inclusive of ongoing operational and

maintenance costs, and end-of-life decommissioning costs

4. Risk analyses related to the water access and distribution infrastructure (i.e. bores and pipelines).

Strategic Context

Within south-west Victoria there is a desire to expand irrigated agricultural production, particularly in areas

where current water resources are fully committed. In some areas around Warrnambool, water entitlements are

largely allocated and water supply is constrained.

The deep aquifers of south west Victoria (principally the Dilwyn Formation) are recognised as a significant water

resource that have the potential to support future economic growth across the region. In zone 2 of the Otways

Lower Aquifer (OLA) groundwater management area (GMA), 15GL of unallocated groundwater entitlements

presently exist.

The feasibility of accessing groundwater in the Dilwyn Formation is being hindered by a lack of information

regarding:

The demand for deep groundwater water resources

The complexity of regulatory and legal framework governing water entitlements and use

The cost to access the Dilwyn aquifer due to its depth

Broader economic costs and benefits.

Demand for groundwater resources in the Dilwyn

The demand for groundwater resources in the Dilwyn aquifer was investigated through an expression of interest

(EOI) that was released in December 2016. The EOI found that while demand for water from the Dilwyn exists,

it is not likely to exceed the unallocated permissible consumptive volume (PCV) in the OLA GMA (i.e. 15 GL).


Final Report 2

The area where demand is greatest is within 30km east of Warrnambool and includes Nullawarre, Nirranda and

Naringal. In this area, the demand for groundwater entitlement by dairy farmers approximates 4,000 ML (Figure

ES.1).

Figure ES.1 : Location of groundwater demand from the Dilwyn

In investigating the infrastructure required to access the Dilwyn, three demand scenarios were developed; one

for 3, 10 and 50 properties. Each of these scenarios could be developed for any ownership model; however the

50 property development is more likely for a RWC or UWC ownership model, while the 3 property development

is more likely for the small irrigator syndicate.

Table ES.1 : Water demand scenarios

3 properties 10 properties 50 properties

Proposed use Irrigation Irrigation Irrigation

Increased area irrigated (ha) 100 350 1,500

Annual demand (ML) 700 2,450 10,500

Peak daily demand (ML) 8.61 30

1 128.6

Note: It is assumed that water would be rationed on a three day ordering period.

Of these three demand scenarios, there is evidence that demand may exists for the 3 and 10 property

scenarios. The 50 property scenario is included to demonstrate whether economies of scale can be realised

with a larger investment.


Final Report 3

For each demand scenario a concept design was developed to deliver the required level of service. The

demand scenarios assume that properties are contiguous. The minimum pressure rating of the pipe is PN10

and SN10000.

For the 3 property development – one bore and bore pump station is estimated to have sufficient yield to

supply water through 450 metres of 250 mm internal diameter pipe.

For the 10 property development – Four bores and bore pump stations are estimated to have sufficient

yield to supply water through 1,500 metres of 250 mm internal diameter pipe.

For the 50 property development – Fifteen bores and bore pump stations separated by approximately 400

m and located on each side of the road along the pipeline route, are estimated to have sufficient yield to

supply and distribute water through 7,500 metres of 250 mm internal diameter pipe.

Commercial analysis

In assessing the attractiveness of the three demand scenarios, cost benefit analysis (CBA) was used to

compare the costs and benefits in a discounted cash flow framework using a discount rate of 4.7%. This

discount rate represents the weighted average cost of capital as adopted by the ESC in the 2013-2018 price

review for water corporations. The results are summarised in Table ES.2.

Table ES.2 : CBA results for the three demand scenarios assuming water corporation ownership


Costs

Capital costs $2,320,000 $8,570,000 $32,000,000

Operating cost $900,000 $3,590,000 $13,450,000

On farm cost $760,000 $2,630,000 $12,110,000

Total costs $3,980,000 $14,790,000 $57,560,000

Benefits

Productivity benefits (on-farm benefits) $4,420,000 $15,470,000 $66,310,000

Total Benefits $4,420,000 $15,470,000 $66,310,000

NPV $440,000 $680,000 $8,750,000

BCR 1.1 1.0 1.2

Notes: (1) Costs and benefits are discounted at 4.7% over 25 years.

(2) The discount rate of 4.7% represents the weighted average cost of capital as adopted by the ESC in the 2013-2018 price review for water

corporations.

(3) The discount rate is analogous to the required return on investment or the cost of capital (i.e. interest rate).

The results in Table ES.2 demonstrate that where infrastructure is owned and operated by a water corporation

(either RWC or UWC); the three design concepts (3, 10 and 50 properties) are economically viable. Differences

in the results are driven by the assumed number of bores for each design concept (i.e. 1 bore for three

properties, 4 bores for 10 properties etc.) and cost economies for the larger investments.

The benefits quantified are the on-farm productivity improvements from using groundwater. The benefits are

entirely private in that they are fully captured by the individual landholder. These private benefits will contribute

to some regional flow-on benefits, but negligible public benefits1.

Given the ‘beneficiary-pays’ principle2, there is a strong argument that the capital costs to access groundwater

from the Dilwyn should be met privately (i.e. by landholders). However, assuming that these costs are fully met

by landholders, the water price is between $300-$340/ML pumped for the three demand scenarios. This is

1 Public benefits are defined as benefits accruing to everyone other than the private land holder. 2 The beneficiary pays principle states that the ‘user’ or ‘beneficiary’ of some service pays for that service. By paying prices that reflect the social

value of these goods and services, an economically efficient allocation of resources can be ensured.


Final Report 4

substantially higher than preliminary estimates of landholder willingness to pay, which approximate $150-$200

per ML pumped based on the price of water allocation trades and limited stakeholder consultation.

Appraisal of ownership models

An appraisal of ownership models was undertaken to identify the relative advantages and disadvantages of

each model. Specifically for each ownership model, the appraisal considered:

Legal and regulatory obligations

Taxation obligations

Infrastructure risk

Economic viability

The findings of the appraisal are summarised below.

Legal and regulatory obligations

The legal and regulatory obligations were reviewed for each of the following phases of establishing and

implementing a new ownership model:

Construction, operation and withdrawal works (i.e. bores)

Construction operation of storage and distribution works

Supplying water to end users.

The appraisal of legal and regulatory obligations found that all ownership models can be implemented within the

current legal/regulatory framework; however there are key differences in access to water. Further the appraisal

found that:

Water authorities (RWCs or UWCs) will face additional compliance requirements (and cost) associated with

existing economic regulation

Large businesses will face greater uncertainty than RWCs and UWCs and are less likely to have in-house

skills to navigate approvals, which could lead to higher delivery and compliance costs

The irrigator syndicate would need to become a legal entity and would face higher regulatory costs to

address water supply complexities.

Historically, privatisation of certain water services has been prohibited (see Section 97 of the Victorian

Constitution Act 1975). This does not appear to apply to new supply, but does highlight Government’s general

concern for private ownership of water supply services. Between the ownership models considered here, this

concern is substantially lower for the irrigator syndicate model compared with the large business model. The

policy concern related to the large business model can be significantly reduced by ensuring that end users of

water hold their own take and use licences (and thus only pay the large business for their use of infrastructure).

In all cases, licence holders should be legal entities to ensure clear accountabilities for compliance.

Taxation obligations

The appraisal found that tax obligations do not favour or disadvantage a particular ownership model. The

appraisal found that:

Water authorities do not pay tax and therefore have no opportunity to depreciate infrastructure and claim a

tax advantage

Large businesses can offset water revenues by depreciating water infrastructure and claiming a tax

advantage across their other business income

The newly formed legal entity is unlikely to return a profit and therefore claim a tax advantage from

depreciating infrastructure.


Final Report 5

Infrastructure risks

The UWC and RWC ownership models pose the lowest risk, followed by the large business owner and the small

irrigator syndicate ownership model. Key risks associated with the large business and irrigator syndicate models

include:

Stranded assets and/or increase in water prices (e.g. due to changes in land ownership, irrigators opting

out, or bankruptcy of owner)

Asset failure due to inadequate maintenance

Decommissioning costs having to be met by Government.

Economic viability

An assessment was undertaken to determine which ownership model was more economically viable. The main

difference between each ownership model is the cost of capital, or discount rate. To test the impact of discount

rate on the commercial attractiveness of each ownership model, the following discount rates were tested:

4.7% for water authorities which, represents the weighted average cost of capital as adopted by the ESC in

the 2013-2018 price review for water corporations

7% for a large business ownership model: This is the average discount rate in Infrastructure Australia’s

guidelines

10% for the irrigator syndicate ownership model: It is expected that irrigators will face the highest borrowing

costs, and 10% is on the higher end of the range recommended for testing by Infrastructure Australia.

The results are presented in Table ES.3.

Table ES.3 : Economic viability for different ownership models.

Water Corporation (RWC

/UWC)

Large Business Irrigator Syndicate

NPV BCR NPV BCR NPV BCR

3 property 440,000 1.1 (190,000), 0.9 (760,000), 0.8

10 property 680,000 1.0 (1,430,000) 0.9 (3,310,000) 0.7

50 Property 8,750,000 1.2 (670,000) 1.0 (9,090,000) 0.8

The water corporation models (RWC or UWC) are the only models that are economically viable for each

demand scenario.

A summary of the key advantages and disadvantages of different ownership models are summarised in Table

ES.4.


Final Report 6

Table ES.4 : Summary of advantages and disadvantges of each infrastructure ownership model

Ownership

model

Advantages Disadvantages Appraisal

RWC RWC has the legal status and

mandate to own water distribution

infrastructure

RWC has in-house skills and

experience to manage delivery of new

groundwater infrastructure

Low infrastructure risk profile

Economically viable for all demand

scenarios

Some uncertainty about the water

supply arrangements available under

the governing Water Act.

RWC may not have the revenue base

to shoulder the liabilities and risks

associated with new infrastructure.

Additional ESC regulatory compliance

requirements

Legal and regulatory ■

Taxation obligations ■

Infrastructure risks ■

Economic viability ■

UWC UWC has the financial backing to

shoulder liabilities and risks of a new


UWC has experience in managing

water supply projects, with the

necessary government approvals



scenarios



the governing Water Act

UWC does not have direct experience

in irrigation water supply and

infrastructure

Lack of oversight infrastructure and

personnel for its infrastructure, which is

in a rural jurisdiction





Large business A large business has commercial

incentives to keep costs as low as

possible

An unregulated entity with different

experience can bring new innovation

to the process

Legal and regulatory requirements are

more complex and less certain

Lack of in-house skills and experience

to deliver and operate water supply

infrastructure

There may be some complications if

landowners change and new

landowners are not bound by the

agreement

Risk of asset failure due to inadequate

maintenance

Only economically viable for the 50

property scenario





Irrigator

syndicate

The users face the costs of the

infrastructure reflecting the true cost of

water supply

Low overheads and operating on a

cost recovery model means that water

prices can be kept as low as possible

All water users can have input into the

contractual agreement, with agreed

accountabilities for capital costs,

operation and maintenance

Policy requires that an individual or

incorporated body apply for a TUL and

obtain a works approval to construct a

bore. This is an additional

administrative burden


maintenance

Risks of syndicate member changes

and conflicts

Not economically viable for any

demand scenario





Table note: ■ = good, ■ = moderate and ■ = poor

The appraisal indicated that on balance, the best ownership models are the water corporation models (either

RWC or UWC). The water corporation models are the only economically viable ownership models for all

demand scenarios. Furthermore these ownership models have the lowest risk profile because they are

regulated industries with established requirements, protocols and community expectations for the responsible

management of assets, water resources and the environment.


Final Report 7

Conclusions and recommendations

There is presently unallocated water in the Dilwyn aquifer, although the depth of this aquifer means that

accessing the water requires expensive infrastructure. The purpose of this study was to investigate four different

ownership models to determine whether there is any merit in sharing infrastructure to access this water

resource.

The key findings of this investigation were that:

Demand for groundwater in the Dilwyn is low and sufficient for the smaller demand scenarios (3-10

properties) only

All ownership models comply with overarching principles of strategic alignment, economic efficiency, and

equitable access

All ownership models are technically feasible within the existing legal and regulatory framework

Private ownership models present higher risks, but most of these risks could be mitigated to acceptable

levels

The water corporation models (RWC or UWC) are the only economically viable models across all demand

scenarios

Landholder willingness to pay for water is substantially lower, ($150-$200 per ML pumped) than the cost of

water supplied from the Dilwyn ($300-$340 per ML pumped).

Based on the assessment results, applying a water corporation ownership model to a smaller scaled

infrastructure solution (3-10 properties) may be the optimal solution given current demand in the region.

It is recommended that future project proponents:

Seek clarity from DELWP on the level of policy concern relating to private water supply services at the time

a specific project is being scoped, to account for any potential future changes in policy

Develop specific costs and benefits for water supply that consider local conditions and alignments, and the

likely productivity improvement at the farm level

Revise the cost benefit analysis to incorporate new costs and benefits, and the hurdle rate (discount rate)

required for the investment and/or business case

Investigate approaches to dealing with the high iron content of groundwater in the Dilwyn.


Final Report 8

1. Introduction

1.1 Overview

Southern Rural Water’s (SRW’s) long term strategy is to “boost Southern Victoria’s food, fibre and regional

productivity through outstanding rural water management”. It aims to boost this productivity through making

more water available and accessible for production. Greater agricultural production will create more jobs and

economic activity (SRW 2016).

The deep aquifers of south west Victoria (principally the Dilwyn Formation) are recognised as a significant water

resource that have the potential to support future economic growth across south west Victoria. Due to the depth

of these aquifers, the cost for an individual business to construct a bore to access the aquifers is prohibitive,

except for large water users such as urban water corporations or large industrial firms (Victorian Government,

2016).

A number of infrastructure ownership models are already in existence for accessing and distributing

groundwater in the deep aquifers of south west Victoria. For example:

Wannon Water holds licences and infrastructure to supply groundwater for town water supply

Individual landholders hold licences and infrastructure to access groundwater for their own use.

It is not the intention of this project to assess the feasibility of these existing models. Rather, the intention of this

project is to investigate new alternative infrastructure ownership models.

SRW has engaged Jacobs to consider and appraise the merits of four infrastructure ownership models to

develop the deep aquifers of south west Victoria. The four ownership models proposed by SRW to provide

groundwater to multiple users (joint use) include:

1) Rural Water Corporation (e.g. SRW)

2) Urban Water Corporation (e.g. Wannon Water)

3) Large business (e.g. dairy processing factory)

4) Small irrigator syndicate.

1.2 Project Scope

For each model of ownership, the project scope involves four objectives:

1. Appraisal of Victorian and Federal regulatory, legal and taxation obligations, including identification of

existing barriers in fact or interpretation of regulation (including taxation and water regulation)

2. Analyses of demand, sales, distribution and marketing arrangements in order to identify the end users that

will purchase the water for various uses and at what price in southern Victoria

3. Cost estimations and cost benefit analyses of infrastructure, including of ongoing operational and

maintenance costs, and end-of-life decommissioning costs

4. Risk analyses related to the water access and distribution infrastructure (i.e. bores and pipelines).

Our approach for delivering these objectives involved three phases of work:

Phase 1 – Initiation and project planning

Phase 2 – Appraising obligations for infrastructure ownership and markets

Phase 3 – Assessing the commercial aspects of infrastructure ownership.

For Phase 1, the project involved a series of teleconferences with key project stakeholders involving the water

sector, regional development and agriculture. The deliverable for this phase of work was a teleconference


Final Report 9

report, which confirmed the ownership models that are to be considered and identified project drivers and

barriers to investment.

For Phase 2, the project appraised obligations for infrastructure ownership and markets. The deliverable for this

phase of work was the Preliminary Draft report, which reported on the preliminary findings of the regulatory,

legal and taxation appraisal (objective one), and the analysis of demand (objective two).

1.3 Purpose of this report

This report is the deliverable for Phase 3, which incorporates all previous deliverables. This report has been

developed in consultation with key stakeholders and potential water users, and incorporates the findings from

teleconference discussions (Phase 1) and comments on the Preliminary Draft report (Phase 2).


Final Report 10

2. Background

Within this section, we provide background information on the Dilwyn groundwater resource, current land and

groundwater use in south west Victoria, and governance arrangements for groundwater.

2.1 About Dilwyn Formation

The Otway Basin is a regional sedimentary basin in western Victoria. The basin can be further subdivided into

four sub-basins. From west to east these include the Gambier Embayment, Tyrendarra Embayment, Port

Campbell Embayment and Barwon Downs Embayment (Figure 2.1).

Figure 2.1 Sub basins of the Otway Basin (Bush, 2009)

The geological history of each of these sub basins differs slightly from one another, and as such, so does the

exact type and thickness of the geological materials found in each sub-basin. Such materials range from basalt

and limestone, to clay, sands and gravels. These geological materials are often termed members. For

simplification, when a sequence of these members occur regionally and exhibit similar characteristics, they are

often grouped into formations, such as the Dilwyn Formation.

The Dilwyn Formation consists of interlayered sands, clays and gravels and occurs regionally across all of the

sub-basins. However, the depth at which it occurs, its thickness, the quality of the water it holds, and the rate at

which water can be extracted from it varies from sub-basin to sub-basin. Additionally, these characteristics also

tend to vary in a roughly north to south direction as the basins thicken towards the coastline.

These characteristics and the way in which they vary across each sub-basin has been summarised in Table 2.1,

as well as the current management areas and the Otway Lower Aquifers (OLA) plan zones for each sub-

division3.

3 Additional information regarding the characteristics and management of the OLA is provided in the draft LMP and associated technical documents.


Final Report 11

Table 2.1 : Summary of Dilwyn aquifer characteristics in the Otway Basin

Sub-basin Sub-

region

Depth

(m)1

Thickness

(m)2

Groundwater

level (mAHD)3

Hydraulic

conductivity

(m/day)4

Salinity

(mg/L)5

Groundwater

management

areas (GMA’s)

OLA zone

Gambier

Embayment

North 0-100 0-200 25-75

1-50

500-1500 -West Wimmera Zone 1

Central 100-200 200-400 25-75 500-1500 -West Wimmera Zone 1

South 200-300 400-800 0-25 500-1000 N/A Zone 1

Tyrendarra

Embayment

North 50-150 0-100 125-75

1-25

2000-3000 N/A Zone 1

Central 150-400 100-400 75-25 50-1500 N/A Zone 1 +

Zone 2

South 400-800 400-800 25-0 250-1500 -Portland

-Hawksdale

Zone 2

Port Campbell

Embayment

North east 300-400 50-100 150-75

5-10

2000-6000 N/A Zone 2 +

Zone 3

South

west 400-800 100-300 75-0 150-750

-Glenormiston

-Colongulac

-Paaratte

-Newlingrook

Zone 2 +

Zone 3

Barwon Downs

Embayment

West 0-100 25-75 200-100 1-10

250-500 -Gellibrand

-Gerangamete

Zone 3

East 250-400 100-150 150-100 100-250 -Gerangamete Nil

Source: Physical and chemical hydrogeology of the Otway Basin, southeast Australia (Bush 2009)

Notes: (1) Adapted from Fig 2.13, (2) Adapted from Fig 2.12, (3) Adapted from Fig 4.14, (4)

Adapted from Table 4.1, (5)

Adapted from Fig 6.16 and

conversion factor of 0.63 from EC to Total Dissolved Solids (TDS). (6) The groundwater in the Dilwyn aquifer is not connected to shallow

limestone aquifers.

2.2 Current land and water use in south west Victoria

2.2.1 Land use

Land use in the south west Victoria is dominated by agricultural production (including forestry), the majority of

which is dedicated to mixed farming and grazing4:

Mixed farming and grazing – 48%

Livestock production (including dairying)– 16%

Reserves lakes and rivers – 18%

Forestry plantations and production areas – 8%

Other non-agricultural land uses – 10%

In the southern areas, dairying is the predominant agricultural industry, with increasing mixed farming and

grazing in the north, and significant forestry in the west (see Figure 2.2).

4 Great South Coast Group Food & Fibre Strategy & Action Plan, 2015


Final Report 12

Source: Great South Coast Group Food & Fibre Strategy & Action Plan, 2015

Figure 2.2 : Geographical land use by type in the GSC region

The Great South Coast Regional Growth Plan (2014) states the region is well placed to develop a more

“diversified agricultural economy” and that “changes in climate may create rural land use opportunities as well

as challenges for the region”. Dairy delivers a third of the economic activity in the Great South Coast region.

2.2.2 Water use

Overview

Available water resources in the south west Victoria include both surface and groundwater. Water is used by

agriculture (irrigation, and stock and domestic), urban communities, and large-scale water users, ranging from

food processors to gas-fired power plants and mineral sands processing.

In determining the volume of water available and used in south west Victoria, an analysis was undertaken of

water resources presented in the Victorian Water Accounts (DELWP 2016). Data was analysed for the 2014-15

season, and is summarised in Table 2.2.


Final Report 13

Table 2.2 : Water entitlements and use in south west Victoria (2014-15)

Surface Water1 Groundwater Total

Basin

Entitlement

(ML)

Volume

used

(ML) % Used2

Entitlement

(ML)

Volume

used

(ML) % Used

Entitlement

(ML)

Volume

used

(ML) % Used

Otway Coast 39,054 26,330 67% 18,399 3,936 21% 57,453 30,266 53%

Hopkins 76,577 67,457 88% 102,330 38,933 38% 178,907 106,390 59%

Portland 17,214 16,137 94% 73,965 29,180 39% 91,179 45,317 50%

Glenelg 61,085 56,996 93% 38,636 10,460 27% 99,721 67,456 68%

Total 193,930 166,920 86% 233,330 82,509 35% 427,260 249,429 58%

Source: Victorian Water Accounts (DELWP 2016)

Note: (1) Volumes for water entitlements and use include estimated volumes for bulk entitlements, licences and stock and domestic.

(2) The % used for surface water includes 100% of stock and domestic water. This assumption inflates the % use numbers substantially.

The analysis found that in the four basins analysed, there were entitlements to 193.9 GL of surface water and

233.3 GL of groundwater, totalling 427.3 GL. Of these entitlements, the average use in 2014-15 was:

86 per cent (166.9 GL) of surface water entitlements

35 per cent (88.8 GL) of groundwater entitlements.

The majority of the surface and shallow groundwater resources in the Great South Coast region are fully

allocated, and therefore any future regional development relying on water resources will need to access the

water market to trade water entitlements.

Lower Tertiary Aquifer

According to the Otway Lower Aquifers Land Management Plan (SRW 2016b), there are presently 102 licences

comprising 21.6 GL of groundwater that is allocated from the lower tertiary aquifers (LTA). The allocations are

held for:

Urban – 59%

Irrigation – 35%

Other – 6%

The largest of these groundwater bores are metered; however, stock and domestic bores are not metered, and

their use has been estimated. According to metered statistics, only an estimated 27% of the currently allocated

water is presently used5.

For more information on groundwater allocation and use in the LTA refer to Appendix A.

2.3 Groundwater management

The Water Act 1989 is the key piece of legislation that governs groundwater management in Victoria. Under the

Act 1989, groundwater management has three levels of administration in Victoria (DELWP 2016b, SRW 2015,

and SRW 2015b).

Key tools in managing Victorian groundwater are through:

5 Note that that while it is possible to trade in allocation, it will not occur because of unallocated entitlements, and the need to have access to a deep

groundwater bore


Final Report 14

Water licences - a ‘take and use’ licence (TUL) is required for using groundwater for purposes other than

domestic and stock use on privately owned land and a works licence is required to drill a bore. Water

licences are for a fixed annual volume and compliance is checked through metering usage and field

inspections.

Groundwater management units and permissible consumptive volume (PCV) - a cap set by the Minister for

Water on water that can be allocated in a groundwater management unit.

Statutory management plans and local management plans - used to manage individual groundwater

resources according to their respective risks. Local Management Plans explain how caps, rules and restrictions apply to particular groundwater management units. Over time all of Victoria is planned to be

covered by groundwater management plans.

Monitoring and metering to track groundwater use and resource condition.

SRW issues licences and monitors the extraction and use of groundwater from aquifers, applies rules such as

caps on allocation, trading rules and restrictions to protect environmental outcomes and administers transfers of

licences (water trading) and amendments. In 2016-17 there were 7,900 groundwater TULs managed by SRW,

with a total entitlement of 555,000 ML (Southern Rural Water, 2016; Southern Rural Water 2015b).


Final Report 15

3. Strategic context

3.1 Introduction

Within this section, we explore the strategic context for developing the Dilwyn aquifer by exploring current policy

drivers and specific project drivers.

3.2 Policy drivers

Policy drivers are discussed at the three levels of government – Federal, State and Local.

3.2.1 Federal Government

National Water Infrastructure Development Fund (NWIDF)

The Commonwealth Government established the NWIDF to start the detailed planning necessary to build or

augment existing water infrastructure, including dams, pipelines or managed aquifer recharge. This fund follows

the release of the Water Infrastructure Options Paper which identified that the Commonwealth has a role in the

following areas of water infrastructure development:

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

In some cases where there is a clear national case for assistance, providing direct financial investment for

construction.

Funding was secured from the NWIDF for this feasibility assessment. Applications for the capital component of

the fund ($440 million) will close when all funding is exhausted.

Projects eligible for potential support must:

Have strong state support

Be in the national interest

Deliver net economic and social benefits and broader public benefits

Have at least 50% of the total project cost co-funded by sources other than the Commonwealth.

3.2.2 State Government

Water for Victoria

Water for Victoria articulates the Victorian Government’s current vision and strategy for managing the State’s

water resources (DELWP 2016c). Building on the previous Our Water, Our Future reform agenda, Water for

Victoria outlines the Government’s plan for a future in which availability of water resources are likely to be

impacted by climate change, while maintaining its continuing commitment to improvements in agricultural water

use and support for regional development. This includes a commitment to invest $81 million, in partnership with

the community, in infrastructure to support water security. Investments are to be guided by key principles:

Long term viability - incorporating a range of water availability scenarios, demonstrating user demand

and support including a commitment by water users to meet future operation and maintenance costs, while

maintaining consistency with relevant regional strategic plans and strategies, and land use plans and

agricultural policies


Final Report 16

Net public benefit - investments should not impinge on reliability and capacity to deliver existing water

entitlements, and must demonstrate that the health of the environment will be maintained or improved, with

net public benefits the Victorian economy and community

Value for money - investments should demonstrate a positive cost benefit analysis including social,

cultural, economic and environmental outcomes, illustrating appropriate cost share with proponents for

construction that is proportional to the level of private and public benefit expected.

Water for Victoria recognises that rural water infrastructure is vital to support agriculture and its future growth

and specifically refers to private investment in private irrigation schemes (DELWP 2016c, p66).

Western Region Sustainable Water Strategy

Between 2006 and 2011, the State Government initiated four regional Sustainable Water Strategies (SWSs) to

provide water security to the regions by identifying threats to water availability, and identifying policies and

actions to enable water users, water corporations and catchment management authorities to manage these

threats over the next 50 years. Groundwater resources in the Dilwyn Formation are relevant to the Western

Region Sustainable Water Strategy.

The management of groundwater is an integral component of the Western Region SWS6. Groundwater supplies

about 50 percent of the total water used by towns, farms and industry. To protect and enhance these uses, and

promote sustainable growth in groundwater use where beneficial, the following policies were articulated in the

Western Region SWS:

An improved approach to groundwater through:

- Providing greater certainty to users through transparent, cost-effective and adaptive local

management

- Promoting the sustainable development of the State’s groundwater resources

- Protecting the health of groundwater resources for current and future users, and the environment.

Clarifying responsibilities for groundwater monitoring

A risk-based approach to managing groundwater dependent ecosystems

Managing the impact of new extractive industry projects on water resources.

Otway Lower Aquifers Local Management Plan

As part of a Government initiative to improve groundwater management, Groundwater Management Areas

(GMAs) were recently defined across the State to better align groundwater management with hydrogeological

characteristics of groundwater systems. The Dilwyn Formation is contained within the Otway Lower Aquifers

Groundwater Management Area (OLA GMA). Once approved, the OLA GMA will replace a number of

management areas and previously unincorporated areas including:

Portland GMA

Condah Water Supply Protection Area (WSPA)

Paaratte GMA

Newlingrook GMA

Lower Tertiary Aquifer (LTA) portion of the Glenelg WSPA (although remainder of the WSPA is under

review).

Water corporations responsible for licensing unregulated surface water and groundwater are required to

develop, approve, and implement Local Management Plans for GMAs. The draft Otway Lower Aquifers Local

Management Plan (OLA LMP) was developed by SRW to manage the lower aquifers within the Otway Basin

and the Highlands around Cape Otway.

6 A review of the Western Region SWS is expected to commence in 2017-18.


Final Report 17

The draft OLA LMP outlines the current data and rules associated with groundwater extraction and use,

including allocation, new bores, licensing, trading rules, metering, carry over and monitoring.

3.2.3 Regional industry

Food and Fibre Strategy Great South West Strategic Plan

In February 2016, the Great South Coast Group, a peak body representing the region, released its Food and

Fibre Strategy and Action Plan. The strategy is composed of three key documents (Project Summary, Food &

Fibre Strategy & Independent Analysis, and Action Plan) that identify issues limiting agricultural development

and possible solutions. The Food & Fibre Strategy was commissioned by the Great South Coast Group as a

priority project in the economic development pillar of The Great South Coast Regional Strategic Plan, with the

following aims:

To identify major issues and opportunities that are shared across Food & Fibre sectors in the Great South

Coast region

To articulate broad strategies (and pathways for implementation) to deal with those issues and

opportunities

To identify specific actions that lead to measurable outcomes

To drive greater cohesion and coordination of the Food & Fibre sector’s efforts into the future.

The Food & Fibre Strategy outlines strategy platforms, programs and rationale for a five-year strategic plan.

Two key platforms articulated in this document are of relevance to this project:

‘Drive investment and business transition’ – with the intent of attracting capital and expertise required to

enable business transition, adapt business models and support new entrants to the sector

‘Realise the water opportunity’ – with the intent of sustainably capturing the full potential of the GSC’s

underutilised water resource.

‘Realising the water opportunity’ specifically addresses groundwater as providing potential to “sustainably

increase regional productivity and value by tapping in to the under-utilised components of underground water

reserves”.

3.3 Project context

Stakeholders were engaged via a series of teleconferences to better understand the key drivers for this project

to investigate ownership models for infrastructure to access groundwater in the Dilwyn Formation. The key

drivers that led to the recent interest in developing this groundwater resource included:

Dairy industry expansion in areas where water resources are fully committed

Improved knowledge of the groundwater resource and the availability of unallocated water

Recent dry weather and the need to improve the region’s water security

Opportunities for regional economic development (e.g. agriculture, food processing and tourism)

Government priorities and the availability of funding for regional infrastructure.

A key driver for this project is the desire to expand irrigated agricultural production, particularly in areas where

current water resources are fully committed. The areas identified for expansion are likely to involve coastal

areas in proximity to Warrnambool, where groundwater levels (i.e. the level required for pumping) are

reasonable (e.g. between 25-75 m) and water quality is good.

A key project driver is improved knowledge of the Dilwyn Formation and the availability of unallocated water

resources. Recent technical studies have demonstrated that from mid-2017 (as per the draft Otway Lower

Aquifers Local Management Plan) there is 15GL of unallocated water in zone 2 and there is the potential for


Final Report 18

further water to become available in zone 1 and zone 3 (approximately 10GL) as additional technical studies are

undertaken.

Water security has become increasingly important with recent cyclical dry weather conditions and the warmer

and drier conditions arising from climate change. Recent dry weather conditions resulted in water shortages in

un-serviced areas such as the Simpson / Heytesbury region. The majority of dairy farmers in the area use farm

dams to meet their stock watering needs and either dams or tanks (filled from roof runoff) to meet the “in dairy”

needs. Therefore, in dry years, catchment run-off is low, dam yields are low and water shortages occur. These

cyclical water shortages are typically infrequent and anecdotally occur once every ten years.

3.4 The project need

The Great South Coast region is a significant contributor to Victoria’s prosperity and liveability. Agriculture,

manufacturing and healthcare contribute around 40 per cent of the gross regional product of more than $4

billion a year. Within the Great South region there is a desire to expand irrigated agricultural production,

particularly in areas where current water resources are fully committed.

In areas around Warrnambool, water entitlements are largely allocated and water supply is constrained as

follows:

Surface water entitlements are fully allocated and used

Groundwater in the shallow limestone aquifers is fully allocated. Although less than 40 per cent of this

water is used in a typical year, trading is under-developed in the limestone aquifer

Unallocated groundwater is available in the lower tertiary aquifers, particularly within Zone 2 of the Dilwyn

Formation; however the constraints and opportunities associated with accessing this water are not fully

understood.

The current policy drivers (see Section 3.2) support economic development, regional investment in agriculture

and expanding groundwater use. Furthermore, the Federal Government’s NWIDF provides a potential funding

mechanism for infrastructure to access unallocated groundwater in the Dilwyn Formation.

The feasibility of accessing groundwater in the Dilwyn Formation is being hindered by a lack of information

regarding:

Unknown demand for deep groundwater water resources

The complexity of regulatory and legal framework governing water entitlements and use

The cost to access the Dilwyn aquifer due to its depth

The ability to spread risks that arise from the large costs, technical risks and other risks such as the quality

of water, in accessing deep aquifers

The ability to reduce costs through economies of scale and co-ordinated procurement and knowledge

sharing

Viable investment models that accurately reflect the risks and benefits associated with accessing Dilwyn

groundwater

Broader economic costs and benefits.

These aspects of accessing groundwater in the Dilwyn are explored for different infrastructure ownership

models in the following sections of this report.


Final Report 19

4. Groundwater demand

4.1 Introduction

Within this section, we discuss the demand for groundwater resulting from the project drivers discussed in Section 3. In assessing groundwater demand, we have focussed on zone 2 of the OLA where 15GL of unallocated groundwater entitlements presently exist.

An expression of interest (EOI) was recently released to assess demand for unallocated groundwater in the

Dilwyn. The EOI demonstrated that while demand does exist, it does not exceed supply. The areas where

demand is most likely are within 30km east of Warrnambool and include Nullawarre, Nirranda and Naringal. Half

of the roughly 5,000 ML of demand identified in the region is interested in shared infrastructure.

Figure 4.1 : Zone 2 of the Otway’s Lower Aquifer with irrigation demand

Water availability in and around Nullawarre is limited to groundwater and catchment run-off. In the former

Nullawarre Water Supply Protection Area (WSPA), the volume of TULs were capped at 22,240 ML, and this

volume was fully allocated. Over the 10 years preceding 2014-15, the average volume of groundwater used in

the Nullawarre WSPA was 52 per cent. Use was as high as 74 per cent during the peak of the drought and as

low as 19 per cent in 2010-11 when the drought broke (SRW water use data for Nullawarre WSPA).

The area commonly referred to as “Heytesbury” has previously expressed a demand for water. This area is

roughly between Simpson, Princetown and Port Campbell, on the western flank of the Otways and east of the

“Heytesbury Lower”.


Final Report 20

4.2 Willingness to pay for groundwater

A key barrier to groundwater development is users’ “willingness to pay”7 for water resources. In discussions with

stakeholders, they thought that farmers are reluctant to pay for domestic and stock (D&S) water annually that is

delivered “just in case” – they would prefer to deal with a drought scenario every 10 years. They believed that

this reluctance is partly psychological given that there is so much rain in winter.

Where a water market exists8, the price at which water is traded the market price tells us the minimum amount

that people who buy the good are willing to pay for it. The Victorian Water Register9 provides a register of

temporary water sales by trading zone and year; however, water price is often not documented for trades. Of

the prices that have been documented, the average price for TUL allocation (temporary) trade in the former

Nullawarre WSPA in 2014-15 was between $100 and $140 per ML10. No prices for trades in TUL entitlement

(permanent) have been documented in this WSPA, although it is typically 10 or more times greater than the

allocation price. The allocation price is consistent with stakeholder views that they would be prepared to pay

$100 per ML pumped, but that $200 per ML would be “dicey”.

Wannon Water recently commissioned a project to conceptually look at D&S and dairy wash supply to

Heytesbury. The consultants estimated demand and prepared a cost estimate to supply an area of 100km2 (or

10,000 hectares) with D&S water from the LTA. Water demand was estimated at 1 ML/day (365 ML/annum), the

capital cost was estimated at $26 million and the annual operating cost was estimated at $0.55 million. The

“levelised” or annualised cost of water is therefore over $7,000 /ML or $1,500 /ML for just the operating costs.

4.3 Market segments

There are many possible uses of groundwater including agriculture (e.g. stock and domestic [D&S], and

irrigation of crops), commercial and industrial uses (e.g. dairy processing, meat processing, and eco-tourism)

and domestic uses.

In assessing groundwater demand, we have segmented the market into defined customer groups where end

users: are constrained by water availability (i.e. demand exists); are prepared to consider joint groundwater

schemes, and have a reasonable ability to pay for water resources.

Table 4.1 : Market segments for groundwater

Market segments

Present in the

study area

Constrained by

water availability

Ability to pay (High,

Medium, Low)

Amenable to joint

groundwater

schemes1

Agriculture (D&S) Yes Yes Medium Yes

Agriculture (dairy) Yes Yes Medium Yes

Agriculture (horticulture) No N/A High Potentially3

Commercial and

industrial

Yes Yes High No

Domestic Yes Yes High No

Note: (1) Joint schemes are those involving 2 or more groundwater licence holders.

(2) The EOI specifically asked whether customers would be amenable to joint schemes, and this column reflects their responses.

(3) Responses to the EOI did not include any horticultural landholders and therefore we assessed this accordingly.

In selecting a market to assess demand for groundwater, our appraisal of the market found that:

7 Willingness to pay is the maximum amount an individual is willing to sacrifice to procure a good (or avoid something undesirable). 8 Willingness to pay is typically higher than the market price. It reflects the marginal value of production and is therefore higher for more intensive

land uses (i.e. horticulture) compared with dryland grazing. 9 http://waterregister.vic.gov.au/ 10 Note that this cost does not incorporate pumping costs, which could add $20 - $30 per ML to the cost for allocation. Also it does not include any

costs for infrastructure that may be required to access entitlement.


Final Report 21

Demand for D&S water is likely to exist, but the cost to supply water is considerably higher than their

assumed willingness to pay for water, particularly given that water shortages are infrequent

There exists demand for water in the dairy sector (see Figure 4.1), although compared with more intensive

industries (e.g. horticulture), their willingness to pay for water is unlikely to be high

The existence of horticultural land uses in Zone 2 is negligible, and therefore the demand for water is also

negligible

Commercial, industrial and domestic customers are not amenable to joint groundwater schemes.

Therefore in assessing groundwater demand, it was decided to focus on the supply of irrigation water to the

agriculture (dairy) market segment, which has demonstrated that demand for water exists, particularly in areas

proximate to Nullawarre.

4.4 Water demand scenarios

As described previously, the demand for water in the Dilwyn is limited (refer to Figure 4.1). However, in order to

explore possible economies of scale associated with infrastructure, three scenarios were developed one for 3,

10 and 50 properties. It is assumed that all properties are presently irrigated to some extent, and that additional

water would be used to expand the area irrigated and therefore the stocking rate of the properties11.

Based on long term weather records, the maximum annual water requirement to fully irrigate perennial ryegrass

based pasture in south west Victoria is estimated to be 6 - 7 ML/ha in the southern parts12. In years of higher

summer rainfall or lower temperatures, the requirement will be less. Similarly, above average spring rainfall will

often result in later optimum irrigation startup times, reducing water requirements for the season, as will early

autumn breaks.

With climate change, rainfall in south west Victoria is expected to decline and temperatures are expected to

increase. This will lead to an overall increase in evaporative demand (i.e. the water required to fully irrigate

pastures will increase).

In designing water demand scenarios, we considered water use in extreme evaporative conditions (which would

become increasingly more common with climate change). Over the peak December to March period, the

average weekly irrigation water requirements for perennial pasture are typically around 35 mm/week. However,

in weeks with extreme evaporation conditions, this requirement can increase to around 50 mm/week.

Allowing for distribution losses of 20 percent for a centre pivot irrigator, we estimated peak demand assuming

extreme evaporative conditions at 60 mm/week, or 8.6 mm/daily.

Water demands for the three scenarios are outlined in Table 4.2.

Table 4.2 : Water demand for scenarios


Proposed use Irrigation Irrigation Irrigation


Annual demand (ML) 700 2,450 10,500

Peak daily demand (ML) 8.61 30

1 128.6

Note: (1) It is assumed that water would be rationed on a three day ordering period.

(2) The 3 property scenario reflects current demand for groundwater, and the 50 property scenario reflects the current unallocated volume of

groundwater in Zone 2 of the draft OLA LMP

11 This assumes that the properties already have base irrigation infrastructure in place, which would lower on-farm costs for expanding irrigation. 12 Ward et.al. 2006


Final Report 22

Of these three scenarios, there is evidence that demand may exists for the 3 and 10 property scenarios. The 50

property scenario is included to demonstrate whether economies of scale can be realised with a larger

investment.


Final Report 23

5. Groundwater Infrastructure

5.1 Introduction

Following on from Section 4, groundwater infrastructure concepts have been developed for the three

groundwater demand scenarios.

Groundwater extraction has been broadly considered for the characteristics of the Dilwyn Formation around

both Nullawarre and Heytesbury. These areas have been considered in order to illustrate the different depths of

the Dilwyn formation across the Otway region, and the associated differences in groundwater extraction costs.

Around Nullawarre, the top of the Dilwyn Formation is generally around 700 m below ground level, whereas

around Heytesbury the top of Dilwyn formation is generally around 300 m below ground level (Table 5.1). In

both of these areas the Dilwyn formation is around 200 m thick (Table 5.1).

The salinity of groundwater from the Dilwyn formation around both Nullawarre and Heytesbury is typically low

(TDS 400 to 500 mg/L) (see Appendix C), however iron concentrations of around 10 mg/L and greater have

been recorded. The complications caused by high iron input may include soil contamination, damage to

irrigation equipment and clogging of on-farm pipelines.

Additionally, while little data is available regarding the presence of H2S in groundwater in the area, the likely

reduced nature of the groundwater would suggest its presence. As such, there may be some H2S odour

associated with groundwater use at its point of discharge from the distribution system. The temperature of

groundwater in Heytesbury and Nullawarre is estimated at 20 to 40 °C. Water at this temperature is unlikely to

impact on yield (see Appendix C).

The infrastructure requirements to use groundwater from the Dilwyn in this location can be grouped as:

Extraction infrastructure

Distribution infrastructure

‘Other’ infrastructure.

5.1.1 Extraction infrastructure

The main infrastructure required to extract groundwater include a production bore and associated pump. In the

Nullawarre area, bore construction depths are likely to be in the order to 900 m below ground level. In the

Heytesbury area, bore construction depths are likely to be in the order of 500 m below ground level. Production

bores will have pumps with submersible motors set around 65 m below ground or 10 m below the maximum

drawdown level. Three phase power supply will be extended to each bore site to operate the bore pump. The

static water level in the Dilwyn Formation in the area is typically around 15 to 20 m below ground level.

The maximum groundwater extraction rate for a production bore in the Dilwyn Formation has been estimated at

10 ML/day. This is considered to be an upper estimate and is based on peak extraction rates of ~10 ML/day in

the Dilwyn formation in the Barwon Downs Graben (Jacobs, 2016) and upper yield estimates of 140 L/s (~12

ML/day) from the Dilwyn formation in Port Fairy (SKM, 2004).

This rate is intended to represent peak demand periods over several weeks of an irrigation season without

material interference from neighbouring bores. This is an upper estimate and yields with sustained use could be

much lower than this. During periods of peak extraction (10 ML/day per bore), drawdown may reach around 40

meters. At lower extraction rates (1 ML/day per bore) drawdown is likely to be much lower, and may be as little

as 5 meters.

The bore site is assumed to be located on private land with an access track including alignments for the power

supply and pipeline. Where multiple bores are to be installed a minimum separation of at least 400 m is

assumed, so that these can operate without interference from the drawdown of the next bore.


Final Report 24

5.1.2 Distribution infrastructure

The groundwater pumped from each bore will be distributed through buried pipelines to customers’ point of

supply which will typically be an isolation valve, pressure reduction (flow control valve) and flow meter.

Pipelines will generally follow road alignments but usually be located on adjacent private land in easements to

avoid remnant vegetation, services (telecommunication and power), and costly construction obstructions.

By inspection the most cost effective scheme is likely to be located along a road where property frontages are

closely spaced, and on opposite sides of the road. In this area it appears possible to distribute water to

individual properties spaced at an average of three hundred metres on opposite sides of the road or an average

length of 150 m of distribution pipeline per property.

5.1.3 Other infrastructure

It is assumed that the groundwater will be delivered to an existing irrigation dam on each property from where

the owner will irrigate their property. Alternatively it may be possible for the owner to pump from the distribution

pipeline with a balance tank or dam at a high point. In either case the property owner will need to manage

power supply, pumping and water quality on their property.

The farm dam will function as a balancing storage, a site to aerate water and precipitate iron, and a cooling

pond to reduce the temperature of water prior to irrigation. The alternative would be to treat the water centrally

to remove iron with an aerator and storage dam at each bore. A distribution pump station would then be

required to supply settled water to customers.

5.2 Assumptions

In investigating the infrastructure required to access the Dilwyn, three concept designs were developed to

supply the demand scenarios associated with 3, 10 and 50 properties. Assumptions were developed for each

concept design based on:

1) Available bore data for the area around Nullawarre and Heytesbury

2) Characterisation of the Dilwyn Formation in the Otway Basin after Bush (2009)

3) Jacobs experience of borefield operation in the Dilwyn Formation by Barwon Water.

These assumptions are summarised in Table 5.1 and are presented in more detail in Appendix C, which

includes detailed data for nine specific bore locations around Nullawarre and seven specific bore locations

around Heytesbury.

Table 5.1 : Concept design assumptions


Peak demand ML/day 8.61 30

1 130

Annual demand ML/annum 700 2,450 10,500

Number of production bores 1 4 15

Distribution Pipeline Length (m) 450 1500 7500

Bore depth (below ground) 500 or 900 m

Peak demand drawdown below

ground level

60 m

Salinity 400 to 500 mg/L

Iron 10 mg/L


Final Report 25


Bore pump power 120 kW (typical)

Maximum elevation difference

between bore and property

5 m

Pressure delivered at property

boundary ( m head)

3 m

Volume of irrigation dam 5-8 ML

5.3 Concept designs

For each of the defined demand scenario we developed a concept design that will deliver the required level of

service described above (i.e. each concept includes a groundwater borefield and an irrigation distribution

network). Significant variations in scheme outcomes and costs could occur depending on where in the region

these scenarios are implemented, given that:

No specific locations for bores, pipeline routes or properties supplied have been identified

No site investigation of ground conditions, statutory planning requirements, cultural heritage or

environmental impacts have been undertaken

Limited stakeholder consultation has been undertaken, which will need to be done before these concepts

are further developed

No on-farm designs or works are included in these concepts and if these were included in the scheme

costs could increase significantly. On-farm costs are captured in the cost-benefit analysis (see Section 6.2).

To account for these uncertainties the distribution infrastructure we have included a nominal 40 percent

contingency allowance, the bore infrastructure includes a 15 percent contingency and operating costs a nominal

25 percent contingency allowance for uncertainty13.

5.3.1 3 properties

One bore and bore pump station is estimated to have sufficient yield to supply this 3-property scheme and

distribute water through 450 metres of 250 mm internal diameter pipe, minimum pressure rating PN10 and

SN10000. The power supply would be a three phase supply with capacity to operate 150 kW reliably.

5.3.2 10 properties

Four bores and bore pump stations are estimated to have sufficient yield to supply this 10-property scheme and

distribute water through 1,500 metres of 250 mm internal diameter pipe, minimum pressure rating PN10 and

SN10000. Each site would require a three phase power supply with capacity to operate 150 kW reliably; and the

scheme supply from the region to have capacity to supply at least 600 kW.

5.3.3 50 properties

Fifteen bores and bore pump stations separated by approximately 400 m and located on each side of the road

along the pipeline route, are estimated to have sufficient yield to supply this 50-property scheme and distribute

water through 7,500 metres of 250 mm internal diameter pipe, minimum pressure rating PN10 and SN10000.

Each site would require a three phase power supply with capacity to operate 150 kW reliably; and the scheme

supply from the region to have capacity to supply at least 2500 kW.

13 The contingency for the distribution infrastructure is highest given that the associated design uncertainties can lead to the greatest variation in

pipeline sizing, location and length. The bore design is less likely to vary as much.


Final Report 26

5.4 Concept design costs

A summary of the lifecycle costs for each of the three concept designs is provided in Table 5.2. The more

detailed cost plans are provided in Appendix D.

Table 5.2 : Cost summary ($ real)14


Project establishment costs $230,000 $620,000 $2,060,000

Capital cost $2,090,000 $7,950,000 $29,940,000

Operation and maintenance cost

($/annum) $60,000 $250,000 $930,000

Decommissioning15 $20,500 $82,000 $307,500

Notes: (1) Construction costs may be higher than those presented if aeration tanks are included in scope to treat the high iron content in the water. (2) Where a

central dam or aeration tanks used to treat iron, the costs may include purchasing land, capital costs to purchase tanks and costs to build a central dam.

14 Costs presented are high-level and apply only to the hypothetical concept designs. An allowance for a nominal 1km overhead electrical line

extension per borehole has been included. Land acquisition costs and easement costs have been excluded. It is expected that these won’t be needed (particularly for the smaller scale scenarios).

15 The costs include the potential end of life decommissioning of the infrastructure. This includes decommissioning of the pump stations (~$500 per pump station) and decommissioning of the bores (~$20,000 per bore for mobilisation and decommissioning).


Final Report 27

6. Commercial analyses of concept designs

6.1 Introduction

The commercial analyses of the three demand scenarios includes the following:

Cost-benefit analysis (CBA). A CBA compares the discounted costs and benefits relative to a base case

(i.e. status quo). If the Benefit Cost Ratio (BCR) is greater than 1, the option is economically viable,

meaning that the benefits outweigh the costs. The option with the highest Net Present Value16 (NPV) is the

concept design which offers the greatest benefit to society. For this assessment, the economic costs and

benefits considered are all financial in nature.

Assessment of water price impacts. This assessment considers how each concept design impacts water

prices assuming varying scenarios of government funding contribution for the infrastructure. The purpose

of this assessment is to assess whether the water price required to recover the balance of the costs is

within irrigators’ expected willingness to pay.

A regional impact assessment. This assessment calculates the direct impacts associated with changes

in economic activity expected from construction and operation of the concept designs.

Further detail on the approaches and results from each of the commercial analyses is provided below.

6.2 Cost Benefit Analysis

The CBA quantifies the costs and benefits from the perspective of society as whole, irrespective of the

distribution of the costs and benefits between the government, industry, water users or the public.

All costs and benefits are considered relative to the base case, which assumes that all properties are presently

irrigated to some extent, and that additional water would be used to expand the area irrigated and therefore the

stocking rate of the properties.

6.2.1 Costs and benefits

The costs and benefits captured in the analysis include the following:

Capital costs. These are based on preliminary cost plans which include the project establishment costs

(planning, investigation, design, administration etc.), bore construction costs, and distribution infrastructure

construction costs.

Operating and maintenance costs. These include the recurrent costs associated with operating the

infrastructure (predominantly electricity costs) and the cost of maintaining the infrastructure. Estimated

maintenance costs also include the renewal or replacement of infrastructure.

On farm costs. These include the costs associated with any on-farm investment needed to enable the

supplied water to be used for irrigation. This includes the costs of pipes, pumps, the centre pivot, electrical

power unit, and installation. The calculation of on-farm costs are provided in Appendix E.

Production benefits – the only benefits captured in the analysis are the production benefits to landowners

with access to additional water. The benefits are equivalent to the improved stocking rates associated with

converting existing dryland farming area to irrigation. The calculation of production benefits is provided in

Appendix E.

6.2.2 Key assumptions

The key assumptions underpinning the assessment, in addition to those outlined for the lifecycle costs in

Section 5.4 are summarised in Table 6.1.

16 NPV is calculated as discounted benefits less discounted costs.


Final Report 28

Table 6.1 : CBA assumptions

Assumption Description

Assessment period 25 years of operation

Asset life Distribution infrastructure: 25 years

Bores: >25 years

Discount rate (real) The discount rate used is 4.7% which represents the weighted average

cost of capital as adopted by the ESC in the 2013-2018 price review for

water corporations. A 7% discount rate and 10% discount rate will be

tested in Section 8.6, representing the assumed discount rates for a

large business owner and irrigator syndicate respectively.

Construction period 1 year

Additional irrigated area 100 Ha for the three property scenario, 350 Ha for the 10 property

scenario and 1,500 Ha for the 50 property scenario. Assumptions for

this are outlined in Section 4.4.

Infrastructure location The assessment was undertaken assuming the bores were located

nearby Nullawarre where demand presently exists. At Nullawarre, the

bore depths are assumed to be approximately 800m.

An NPV is also estimated for an alternative location in Heytesbury

where bore depths are approximately 500m.

Ramp up of dryland farming to

irrigation

It is assumed that the full benefits are achieved in the first two years of

operation.

Relative gross margin improvement

between dryland and irrigation

$310,000 for the three property scenario, $1,100,000 for the 10

property scenario and $4,700,000 for the 50 property scenario.

Assumptions for this are outlined in Appendix E.

On farm capital costs $300,000 for the three property scenario, $1,000,000 for the 10

property scenario and $5,000,000 for the 50 property scenario.

Assumptions for this are outlined in Appendix E.

On-farm O&M costs $30,500 for the three property scenario, $106,000 for the 10 property

scenario and $467,000 for the 50 property scenario. Assumptions for

this are outlined in Appendix E.

6.2.3 Summary of results

The CBA results are summarised in Table 6.2.

Table 6.2 : CBA results for the demand scenarios (discounted at 4.7% over 25 years)


Nullawarre design concepts

Capital costs $2,320,000 $8,570,000 $32,000,000

Operating cost $900,000 $3,590,000 $13,450,000

On farm cost $760,000 $2,630,000 $12,110,000

Total costs $3,980,000 $14,790,000 $57,560,000


Final Report 29


Productivity benefits (on-farm

benefits) $4,420,000 $15,470,000 $66,310,000

Total Benefits $4,420,000 $15,470,000 $66,310,000

NPV $440,000 $680,000 $8,750,000

BCR 1.1 1.0 1.2

Heytesbury design concepts

NPV $930,661 $2,630,000 $16,052,466

BCR 1.3 1.2 1.3

Notes: (1) Costs and benefits are discounted at 4.7% over 25 years.

(2) The discount rate of 4.7% represents the weighted average cost of capital as adopted by the ESC in the 2013-2018 price review for water

corporations.

(3) The discount rate is analogous to the required return on investment or the cost of capital (i.e. interest rate).

The results demonstrate that where infrastructure is owned and operated by a water corporation (either RWC or

UWC); the three design concepts (3, 10 and 50 properties) are economically viable. Differences in the results

are driven by the assumed number of bores for each design concept (i.e. 1 bore for three properties, 4 bores for

10 properties etc.) and cost economies for the larger investments.

If the infrastructure is located at Heytesbury, the NPV results improve significantly for each demand scenario.

This demonstrates the sensitivity of the results to bore depth.

6.3 Water price implications

An indicative assessment of water prices was undertaken to see how the water price would need to vary for

each concept design under three hypothetical options for government funding contribution:

No government funding

Government funding contributes to 50% of the capital and establishment costs (with no contribution to

ongoing operation and maintenance, or on-farm costs)

Government funding contributes to 100% of the capital and establishment costs (with no contribution to

ongoing operation and maintenance or on-farm costs).

The purpose of this assessment was to assess whether the water price is within irrigators’ expected willingness

to pay (discussed in Section 4.2). The findings are presented in Table 6.3.

Table 6.3 : Indicative water prices for each design concept under varying government contribution scenarios ($/ML pumped)

% of capex and

establishment costs

funded


0% $320/ML $340/ML $300/ML

50% $190/ML $220/ML $190/ML

100% $80/ML $100/ML $90/ML

As shown in Table 6.3, the water price is only expected to be within irrigators’ willingness to pay ($150 -

$200/ML) if between 50% and 100% of the capital and establishment costs are funded by government.


Final Report 30

6.4 Regional economic impacts

Economic impact analysis was used to assess the potential economic impacts of the project on expenditure and

employment within south west Victoria. Our assessment involved an analysis of direct expenditure within the

region and then an assessment of how this direct expenditure resulted in further regional activity (i.e. indirect

impacts).

Indirect economic impacts can be assessed by conducting simulations of changes in the regional economy

using general equilibrium methods or by means of multipliers derived from an input-output model. Type I

multipliers capture the indirect effects within the regional economy, while Type II multipliers incorporate indirect

production and induced consumption effects.

Due to time constraints, we transferred multipliers that had been developed for similar project types in similar

regions. The results of this analysis should therefore be interpreted with care since the assumptions upon which

our approach is based may not hold in practice. Our approach involved the following tasks:

An estimation of direct regional expenditure/value of production associated with construction, operations

and maintenance and increased agricultural production

An estimation of the direct employment associated with these direct expenditures

A review of other studies to select appropriate output and employment multipliers to apply to the local

region

The application of Type II regional multipliers to calculate indirect and induced output and indirect

employment.

A summary of the direct, indirect and induced regional impacts by year is shown in Table 6.4. Year 0 refers to

on-farm and off-farm construction and Year 1 refers to agricultural production.

Table 6.4 : Summary of direct, indirect and induced regional impacts associated with the demand scenarios

3 property 10 property 50 property

Gross regional output $M

Year 01, 2

$110,000 $370,000 $1,600,000

Year 1 onwards3 $790,000 $2,800,000 $12,000,000

Regional employment

Year 04 0 1 6

Year 1 onwards5 1 4 15

Notes (1) The assumed local expenditure for capital expenditure is 10 percent, which is the estimated labour component

(2) The Type II output multiplier is estimated at 1.628

(3) The type II output multiplier is estimated at 2.5 for agricultural production

(4) One direct job is estimated per $269,000 of capital expenditure

(5) Type II employment multiplier is estimated at 1.615


Final Report 31

6.5 Concluding comments

The benefits quantified in the CBA are the on-farm productivity improvements from using groundwater. The

benefits are entirely private in that they are fully captured by the individual landholder. These private benefits

will contribute to some regional flow-on benefits, but negligible public benefits17.

Given the ‘beneficiary-pays’ principle18, there is a strong argument that the capital costs to access groundwater

from the Dilwyn should be met privately (i.e. by landholders). However, assuming that these costs are fully met

by landholders, the water price is between $300-$340/ML for the three demand scenarios. This is substantially

higher than preliminary estimates of landholder willingness to pay, which approximate $150-$200 per ML

pumped based on the price of water allocation trades and limited stakeholder consultation.

17 Public benefits are defined as benefits accruing to everyone other than the private land holder. 18 The beneficiary pays principle states that the ‘user’ or ‘beneficiary’ of some service pays for that service. By paying prices that reflect the social

value of these goods and services, an economically efficient allocation of resources can be ensured.


Final Report 32

7. Infrastructure ownership

7.1 Introduction

The four infrastructure ownership models investigated in this report are:

Rural Water Corporation (RWC)

Urban Water Corporation (UWC)

Large businesses

Small irrigator syndicate

These four models are summarised in Table 7.1 and broadly defined below.

Table 7.1 : Proposed ownership models

Model Ownership models Who holds

right to

extract?

Who owns extraction

infrastructure? Who owns distribution

infrastructure?

Who uses the water?

1 RWC (e.g. SRW) RWC RWC RWC Agricultural users

2 UWC (e.g. Wannon

Water)

UWC UWC UWC Agricultural users

3 Large businesses (e.g.

dairy processing factory)

Large business Large business Large business Large business for own

purpose and/or to supply

agricultural users

4 Small irrigator syndicate Irrigator

syndicate

Irrigator syndicate Irrigator syndicate Members of the Irrigator

syndicate

It is important to note that any of the ownership models could apply to any of the demand scenarios discussed

in Section 4.4; however a small irrigation syndicate would likely only be applicable to a 3 property demand

scenario, where neighbouring properties with similar objectives could reach an agreed investment solution. A

business would likely be more interested in a medium scale investment (e.g. 10 – 50 properties). It is expected

that a RWC or UWC would be most interested in a larger scale investment (50+ properties) to justify the

additional liability and regulatory burden.

7.2 Definition of ownership models

For all models, the owner is assumed responsible for planning, designing, constructing, funding, operating/maintaining and decommissioning infrastructure.

For the RWC and UWC models, it is likely that a public private partnership (PPP) could be used where ownership of infrastructure is separated from delivery and operation of the infrastructure. However, any investigations of PPPs would be undertaken as part of a business case for the preferred ownership model.

7.2.1 RWC or UWC

The RWC or UWC will own the infrastructure to both extract and distribute groundwater. Under this model, the

water corporation would also hold the licence to extract groundwater on behalf of end users. The water

corporation is responsible for all capital and on-going costs associated with the infrastructure throughout the

assets lifecycle.

For this model:

The use of groundwater will be agricultural and could include irrigation and/or stock and domestic


Final Report 33

The capital and operating costs of the infrastructure would be recouped under a commercial agreement

with agricultural users

Where available, infrastructure would be located on easements, but where this is not available, new

easements would need to be created.

7.2.2 Large businesses

Under this infrastructure ownership model, the large business would own both the extraction and distribution

infrastructure. The large business would also hold the licence to extract groundwater on behalf of end users (or

would hold one licence to extract groundwater, and other end users would each hold their own licences) and be

responsible for all capital and on-going costs associated with the infrastructure throughout the asset’s lifecycle.

For this model:

Depending on where the infrastructure is located, the use of groundwater could be by the business itself,

but most probably will be agricultural only

The capital and operating costs of the infrastructure would be recouped under a commercial agreement

with agricultural users

Where available, infrastructure would be located on easements, but where this is not available, new

easements would need to be created.

7.2.3 Irrigator syndicate

Under this ownership model, the irrigator syndicate would own the infrastructure to extract and distribute

groundwater. They would be responsible for all capital and on-going costs throughout the infrastructure’s

lifecycle.

The syndicate would be formed from the users of the distributed water.

For this model:

The use of groundwater will be by the syndicate for agricultural purposes

Infrastructure would be located on a member of the syndicate’s private land.


Final Report 34

8. Appraisal of ownership models

8.1 Approach

An appraisal of ownership models was undertaken to consider:

Legal and regulatory obligations –the feasibility of each ownership model given the current legal and

regulatory framework (based on the law as at March 2017)

Taxation obligations –obligations which would favour or disadvantage a particular ownership model

Infrastructure risk – assessment of risks faced by each ownership model throughout the infrastructure

lifecycle

Economic principles – assessment of each ownership model’s adherence to strategic alignment, economic

efficiency, and equitable access.

Economic viability – the commercial attractiveness of demand scenarios under different ownership models.

8.2 Legal and regulatory obligations

A review of the legal and regulatory obligations impacting the infrastructure delivery, pumping and supply of

Dilwyn Aquifer groundwater was undertaken, giving consideration to the unique requirements under the four

ownership models. The assessment has been based on the law as at March 2017, recognising that Victoria’s

water legislation, in particular, may be amended based on the recent state government Water for Victoria (2016)

strategy. The full review of the obligations is provided in Appendix F.

The legal and regulatory obligations take into consideration many pieces of legislation and legislative

instruments, including the Water Act 1989 (Vic) (‘Water Act’), the Water Industry Act 2004 (Vic), the Water

(Resource Management) Regulations 2007 (Vic), the Water Industry Regulatory Order 2014, formal water

policies that bind the exercise of delegated powers under the Water Act, the Planning and Environment Act

1987 (Vic), and the Land Acquisition and Compensation Act 1986 (Vic).

The legal and regulatory obligations were reviewed for each of the following phases of establishing and

implementing a new ownership model:

Construction, operation and withdrawal works (i.e. bores)

Construction operation of storage and distribution works

Supplying water to end users.

Table 8.1 provides a summary of the legal requirements and key findings relevant to each step in establishing

any of the four ownership models being considered.

Table 8.1 : Key requirements in establishing a new ownership model

Requirements key findings

Relevance to

ownership models

1 2 3 4

Stage: Constructing and operating withdrawal works and withdrawing water

Authorisations to

construct a bore

A works licence is required to construct the bore for any ownership model.

One bore may be used by multiple water users and the Water Act provides for

metering requirements that accommodate and facilitate this.

Authorisations to

withdraw and use

groundwater

A groundwater TUL is required and can be applied for by any individual or legal entity.

Any TUL is subject to the provisions of PCVs, LMPs and S40 of the Water Act in

determining whether or not a TUL would be granted.

The Water Act is flexible on whether there are multiple TULs per works licence or a


Final Report 35

Requirements key findings

Relevance to

ownership models

1 2 3 4

single TUL supplying more than one water user.

A RWC or UWC can apply for a bulk entitlement (BE) or a TUL.

Construction operation of storage and distribution works19

Asset management

obligations for

Authorities

A RWC and an UWC would be subject to asset management obligations for any new

groundwater supply/distribution infrastructure.

Planning permits Planning permits for storage and distribution infrastructure may be required under the

applicable planning scheme.

Arrangements for

access to land

The construction of distribution infrastructure will require access to install and operate

the infrastructure over the relevant land.

Options available to all ‘owners’ include agreeing a private easement with the relevant

landowner(s), or purchasing the land.

As well as being able to purchase land, RWCs and UWCs may compulsorily acquire

land or an easement over land (a ‘regulatory easement’).

A private party can negotiate or have granted an ‘access by agreement’ through the

Water Act.

Supplying water to end users

Options for water

authorities

There are currently no declared water systems that include groundwater. A water

authority (urban or rural) can apply to the Minister for a new irrigation district, though

this is unusual for non-declared water systems.

The Water Act enables water authorities to make commercial agreements with one or

more end users to supply them with water outside an irrigation district.

Under either of the above options, water supplied would be categorised as retail water

service and therefore subject to economic regulation by the Essential Services

Commission.

Options for private

entities and

irrigators

The Water Act does not prohibit an entity that is not a water authority from owning

water infrastructure (‘works’) and using this to supply water to other parties. However,

the Water Act does not provide a special legal entity structure for doing this.

A private entity (business or irrigator syndicate) could implement water supply

arrangements using the community water supply scheme provision in the Water Act.

An alternative to using the community water supply scheme structure would be to

simply establish private contractual arrangements between project participants.

From the assessment undertaken, all ownership models are possible; however, the requirements for some

ownership models are more onerous than others.

Historically, privatisation of water delivery has been prohibited (see Section 97 of the Victorian Constitution Act

1975). This does not appear to apply to new infrastructure, but does highlight Government’s general concern for

private ownership of water infrastructure and the associated risks of a private monopoly water services.

The following sections summarise some of the key differentiating legal and regulatory complexities relevant to

the different ownership models being considered.

19It is assumed that any cooling or storage dam exists and therefore will not need a works licence. Similarly, distribution infrastructure (pipes and pipelines) will not require works approvals. Therefore, works approvals have been excluded from this section of the table.


Final Report 36

8.2.1 RWC or UWC

The two potential avenues available to a RWC or UWC to supply groundwater are complex and uncertain

to differing degrees:

- The irrigation district provisions of the current version of the Water Act only apply to declared water

systems (which do not currently cover groundwater). Instead, older provisions of the Water Act (from

2005) would apply to the approval and operation of a new irrigation district using groundwater. While

this approach has advantages over individual commercial arrangements, there is no guarantee that

the Minister will make the necessary approvals under these old provisions.

- As an alternative, a RWC and UWC could make individual commercial agreements with end users

outside an irrigation district. Whilst this option is definitely possible, it may expose the authority to

higher liability risks if water from its infrastructure causes any damage to others’ property.

A RWC or UWC would face costs in terms of compliance with economic regulation requirements that do

not apply to large businesses or irrigation syndicates.

8.2.2 Large business

Large businesses face a greater need to negotiate legal arrangements, and greater uncertainty than RWCs and

UWCs. Larger businesses are also less likely to have in-house skills and capabilities to navigate the complex

requirements for approvals, which would in turn lead to higher delivery and compliance costs.

The large business ownership model is only feasible if it can generate a net profit. Therefore, the higher

regulatory costs would need to be offset by higher revenue (or water charges). If the charges increase beyond

water users’ willingness to pay, this model becomes unviable.

Some of the specific complexities that may be a disincentive for investment include the following:

The Water Act provisions for the supply of water by a private entity are not very detailed. For example,

whilst they provide some guidance on rights of access and maintenance obligations, they are silent on

other matters such as water supply procedures and enforcement. This gives rise to some uncertainties

which would need to be addressed through separate contractual arrangements.

The duration of a works licence (between 12 months and 20 years) can be short, which poses additional

risks for private parties, and may act as a disincentive for investment.

Private entities do not have guaranteed access to easements for access to land for storage and distribution

infrastructure, though a special dispute resolution procedure can result in the compulsory grant of an

easement. However, having to negotiate and resolve disputes about private easements with individual

landowners can result in higher planning, legal, and construction costs, as well as potential construction

delays. This is especially challenging if negotiations with more than one landowner are required.

Ambiguity about current and/or future legality of private water infrastructure ownership20 and the impact on

approvals may be a disincentive for private investors.

Private entities would generally be liable for damage caused by ‘unreasonable’ flows of water (e.g. caused

by infrastructure failure).

8.2.3 Small irrigator syndicate

Small irrigator syndicates face similar issues to the large business operating model. The key difference is that

the syndicate would operate on a cost-recovery model.

In addition to the five complexities listed above for large businesses, the only additional complexity is that the

syndicate would need to become a legal entity. This could be in the form of an incorporated association,

company, or body corporate.

20For example, under the current Constitution Act 1975 and potential future changes to water legislation.


Final Report 37

8.3 Taxation obligations

The taxation obligations will depend on the legal structure of the entity owning and operating the infrastructure. Apart from the small irrigator syndicate model where a new legal entity is formed, the taxation obligations under the other three ownership models are an extension of their existing obligations. These are discussed below.

8.3.1 RWCs and UWC

RWCs and UWCs have no tax obligations as they fall under the National Equivalents Regime. This tax

framework establishes that state owned enterprises do not pay taxes.

The ownership and operation of a groundwater bore would not alter this arrangement as RWC or UWCs have

the mandate to own and operate water distribution infrastructure, such as a groundwater bores. Water

authorities do not pay tax and therefore have no opportunity to depreciate infrastructure and claim a tax

advantage.

8.3.2 Large businesses

A large business would operate the infrastructure under a works licence. If this legal entity is a corporation, the

relevant corporate tax rate would apply to any profits. In addition, the business is entitled to claim a deduction

for capital expenditure incurred on water infrastructure. Large businesses can offset water revenues by

depreciating water infrastructure and claiming a tax advantage across their other business income.


As discussed above, a small irrigator syndicate would need to form a legal entity. As the legal entity is likely to

be an irrigator provider, corporate taxes will apply to any profits. The legal entity may claim a deduction for the

capital expenditure of the infrastructure. Only the water syndicate entity would be eligible for this deduction. This

right would not extend to the legal entities that form the syndicate, as these are separate legal entities. The

newly formed legal entity is unlikely to return a profit and therefore claim a tax advantage from depreciating

infrastructure.

If the syndicate has revenue of less than $2m, it would also be eligible for all tax concessions that apply to small

businesses.

In the event that the syndicate is formed as an incorporated association, the syndicate may not be subject to a

corporate tax.

8.4 Infrastructure risks

A risk assessment of the four ownership models has been undertaken to provide a comparative assessment of

the varying risks across the project lifecycle.

A full risk register which outlines the risks, a risk rating and proposed mitigation measure is provided in

Appendix G. Table 8.2 summarises these results, with the most significant risks and associated ownership

models discussed in the sections below.


Final Report 38

Table 8.2 : Risk assessment summary

RWC

ownership

UWC

ownership

Large business

ownership

Small

irrigator

syndicate

ownership

Planning stage

1. Access to easements

2. Planning approvals

3. Works and licence approvals

4. Conflict of interest

Delivery Stage

5. Health and safety during construction

6. Construction quality

Operation phase

7. Environmental damage from not maintaining assets

8. Inadequate maintenance of assets leads to infrastructure

failure

9. Inadequate management of iron content in water

10. Risk posed by change in property ownership and/or

Irrigators opting out

11. Financial sustainability of infrastructure owner

12. Lack of regulation leads to higher prices

End of asset life

13. Inadequate standards for decommissioning

Note: Green for low, amber for medium and red for high.

8.4.1 RWC or UWC

As can be seen in Table 8.2, the risk profile for an RWC or SRW ownership model is relatively low, with 12 of

the 13 risks ranked as ‘low’ and one ranked as ‘medium’. There are no ‘high’ risks identified for these ownership

models. This favourable risk profile is mostly attributed to these industries:

Being regulated

Having the necessary experience to deliver projects of this type and scale

Having established requirements, protocols and community expectations for the responsible management

of their assets, water resources and the environment

Providing long term financial sustainability.

Key risks

There were no ‘high’ ranking risks for this ownership model. The most significant risk was ranked as ‘medium’:

Inability to negotiate the required access to easements, leading to scheduling delays or increased

construction costs due to forced design amendments. This risk is higher for the 50 property concept, and

would reduce if the RWC or UWC ownership model applied to the smaller infrastructure concepts (Risk 1).


Final Report 39

Key mitigations

To mitigate the key risks identified, it is recommended that:

A contingency allowance is included in the planning and design schedule, with sufficient design

contingency to accommodate minor amendments as a result of easement negotiations (e.g. realignment of

pipeline route).

The project schedule and scope should allow for a community consultation and engagement plan early on

in the process to manage key stakeholders needs and expectations.

8.4.2 Large business

As can be seen in Table 8.2, the risk profile for a large business ownership model is higher than for a RWC or

UWC, with four risks ranked as ‘high’, 5 ranked as ‘medium’ and 4 ranked as ‘low’. The higher risks are spread

equally between the planning and operations phases of the project lifecycle.

Key risks

The highest ranking risks include:

Inability to negotiate the required access to easements, leading to scheduling delays or increased

construction costs due to forced design amendments (Risk 1).

Legal ambiguity in the Constitution Act and potential changes to Government policy and/or legislation

triggered by requests for private ownership leading to approvals (works and/or licences) not being issued

or being delayed (Risk 3).

Change in ownership and/or irrigators opting out of the scheme lead to an increase in water prices for other

water users. This may also lead to stranded assets with Government potentially bearing the cost of

decommissioning (Risk 10).

Bankruptcy of owner could put pressure on Government to step in to supply water or to decommission

stranded assets (Risk 11).

Key mitigations


The owner could engage a community engagement advisor/consultant to facilitate access to easements. In

addition, a contingency allowance should be included in the planning and design schedule, sufficient to

accommodate easement negotiations (e.g. realignment of pipeline route).

Each landowner should hold its own TUL to mitigate some of the uncertainty around policy concerns

relating to private water supply services. Although some or all of the TUL holders may use infrastructure

owned by another entity, this may allay some of the concerns about a monopoly water entitlement holder.

Agreements between the owner and participants should outline the approach to managing irrigators opting

out of the scheme.


The small irrigator syndicate ownership model has the most significant risks prior to mitigation, with 6 risks

ranked as ‘high’, 3 ranked as ‘medium’ and only 4 ranked as ‘low’. The higher risks impact the planning, delivery

and operations phases.

Key risks

The highest ranking risks include:

Inability to negotiate access to easements, leading to scheduling delays or increased construction costs

due to forced design amendments (Risk 1).


Final Report 40

Legal ambiguity in the Constitution Act and potential changes to Government policy and/or legislation

triggered by requests for private ownership leading to approvals (works and/or licences) not being issued

or being delayed (Risk 3).

Non-compliance with OH&S legislative requirements (Risk 5).

There is a risk that an irrigation syndicate will not maintain infrastructure as needed, (particularly in years of

lower yields/returns) (Risk 8).

Change in ownership and/or irrigators opting out of the scheme will lead to an increase in water prices

(Risk 10 and 11).

Key mitigations


The syndicate should be formed of neighbouring properties to avoid third party involvement and reduce the

need for access to easements.

Each landowner should hold its own TUL to mitigate some of the uncertainty around policy concerns

relating to private water supply services.

Any government involvement (e.g. through funding contribution) should establish standards for construction

and on-going maintenance.

Agreements between the participants should outline the approach to any exits from the scheme (e.g.

termination payments).

8.5 Economic principles

Any ownership model will need to facilitate, or at the very least not obstruct, the following economic principles:

Strategic alignment - Alignment with the Government’s existing and planned policies and strategies for

the water sector. This includes alignment with the principles of the Western Region SWS and the draft OLA

LMP, as well as Government’s current and future support for private water supply arrangements.

Economic efficiency - Facilitating water to be used where it is valued most. This includes enabling a

competitive water allocation process and removing barriers to entry and trade.

Equitable access - Delivering equitable and fair access to the release of new water through a transparent

process.

Victoria’s policy currently appears to hold concerns about private water supply arrangements21. It is expected

that there may be some Government concern about strategic alignment regarding private water supply

schemes, particularly ownership model 3 which involves a private business and a larger number of customers,

and to a lesser extent, ownership model 4 (irrigator syndicate). Although there is currently no policy or

legislation explicitly preventing private water supply services, a proposal for significant private supply services

may raise concerns about monopoly supply arrangements and in turn trigger a more definite Government

response (e.g. policy change or legislative barriers).

Economic efficiency is impacted by the manner in which new entitlements are issued. Based on analysis

undertaken by Aither (2014), tenders may form the most appropriate sales mechanism, as it reveals tenderers’

willingness to pay and also incurs low transaction costs. However, economic efficiency can also be achieved

with the current approach of ongoing water sales, particularly if a reserve price reflects the opportunity cost of

releasing that water.

Equitable access and the manner in which new entitlements are issued are most important in fully allocated

systems. In under-allocated system such as the Dilwyn, where supply is much greater than demand, the way in

21 As discussed in more detail in Section 8.2 and Appendix F, Government’s concerns regarding private ownership are shown in section 97 of the

Victorian Constitution Act 1975, which prohibits the privatisation of the delivery of a water service by a public authority responsible for delivering that service as of 2003.


Final Report 41

which the new licenses are issues or sold has less of an impact on equity. The ongoing sales or application

process already in place would provide a fair process.

8.6 Economic viability

An assessment was undertaken to determine which ownership model was more economically viable. The main

difference between each ownership model is the cost of capital (i.e. the discount rate). To test the impact of

discount rate on the commercial attractiveness of each ownership model, the following discount rates were

tested:

4.7% for water authorities which, represents the weighted average cost of capital as adopted by the ESC in

the 2013-2018 price review for water corporations

7% for a large business ownership model: This is the average discount rate in Infrastructure Australia’s

guidelines

10% for the irrigator syndicate ownership model: It is expected that irrigators will face the highest borrowing

costs, and 10% is on the higher end of the range recommended for testing by Infrastructure Australia.

The results are presented in Table 8.3.

Table 8.3 : Economic viability for different ownership models.

Water Corporation (RWC

/UWC)

Large Business Irrigator Syndicate

NPV BCR NPV BCR NPV BCR

3 property 440,000 1.1 (190,000), 0.9 (760,000), 0.8

10 property 680,000 1.0 (1,430,000) 0.9 (3,310,000) 0.7

50 Property 8,750,000 1.2 (670,000) 1.0 (9,090,000) 0.8

As can be seen above, the results are very sensitive to the discount rate and therefore the ownership model.

Economic viability (i.e. BCR>1 and NPV>0) is only achieved for the water corporation ownership model.

The economic viability of each ownership model will also vary as a result of other factors which were not

assessed (Table 8.4).

Table 8.4 : Additional factors influencing economic viability of the four ownership models

Project stage RWC UWC Large business Irrigator syndicate

Economic viability

Construction Construction costs may be higher than those captured

in Section 5.4 if aeration tanks are included in scope

to treat the high iron content in the water.

Potentially lower

construction costs as

private business

prioritises low cost over

other criteria which are

important to regulated

businesses.

Construction costs are

expected to be lowest for

irrigator syndicate model

as irrigators spend more

time seeking lower

quotes.

Operation and

maintenance

Water corporations will likely face higher operation

costs due to:

More frequent maintenance of assets in line with

regulatory requirements, existing protocols, and

community expectations

Greater regulatory compliance costs

Private owners are not

regulated and therefore

their administration and

maintenance costs are

lower.

Irrigators are likely to

adopt a ‘do minimum

approach’ to lower costs.

Irrigators will also likely

do their own maintenance

to lower costs


Final Report 42

8.7 Summary of results

A summary of the key advantages and disadvantages of different ownership models are summarised in Table

8.5.

Table 8.5: Summary of advantages and disadvantges of each infrastructure ownership model

Ownership

model

Advantages Disadvantages Appraisal

RWC RWC has the legal status and

mandate to own water distribution

infrastructure

RWC has in-house skills and

experience to manage delivery of new




scenarios



the governing Water Act.

RWC may not have the revenue base

to shoulder the liabilities and risks

associated with new infrastructure.

Additional ESC regulatory compliance

requirements




Economic principles ■


UWC UWC has the financial backing to

shoulder liabilities and risks of a new


UWC has experience in managing

water supply projects, with the

necessary government approvals



scenarios



the governing Water Act

UWC does not have direct experience

in irrigation water supply and

infrastructure

Lack of oversight infrastructure and

personnel for its infrastructure, which is

in a rural jurisdiction






Large business A large business has commercial

incentives to keep costs as low as

possible

An unregulated entity with different

experience can bring new innovation

to the process

Legal and regulatory requirements are

more complex and less certain

Lack of in-house skills and experience

to deliver and operate water supply

infrastructure

There may be some complications if

landowners change and new

landowners are not bound by the

agreement


maintenance

Only economically viable for the 50

property scenario






Irrigator

syndicate

The users face the costs of the

infrastructure reflecting the true cost of

water supply

Low overheads and operating on a

cost recovery model means that water

prices can be kept as low as possible

All water users can have input into the

contractual agreement, with agreed

accountabilities for capital costs,

operation and maintenance

Policy requires that an individual or

incorporated body apply for a TUL and

obtain a works approval to construct a

bore. This is an additional

administrative burden


maintenance

Risks of syndicate member changes

and conflicts

Not economically viable for any

demand scenario






Table note: ■ = good, ■ = moderate and ■ = poor


Final Report 43

The appraisal indicated that on balance, the best ownership models are the water corporation models (either

RWC or UWC). The water corporation models are the only economically viable ownership models for all

demand scenarios. Furthermore these ownership models have the lowest risk profile. This is primarily due to

water corporations:

Being regulated industries with established requirements, protocols and community expectations for the

responsible management of their assets, water resources and the environment

Having the necessary experience to deliver projects of this type and scale

Having lower costs of capital compared with other potential owners.



However, it should be noted that the economic viability of such a small option is only marginal.


Final Report 44

9. Conclusions

There is presently unallocated water in the Dilwyn aquifer, although the depth of this aquifer means that

accessing water in this aquifer requires expensive infrastructure. The purpose of this study was to investigate

four different ownership models to determine whether there is any merit in sharing infrastructure to access this

water resource.

The key findings of this investigation were that:

Demand for groundwater in the Dilwyn is low and sufficient for the smaller demand scenarios (3-10

properties) only

All ownership models comply with overarching principles of strategic alignment, economic efficiency, and

equitable access

All ownership models are technically feasible within the existing legal and regulatory framework

Private ownership models present higher risks, but most of these risks could be mitigated to acceptable

levels

The water corporation models (RWC or UWC) are the only economically viable models across all demand

scenarios

Landholder willingness to pay for water is substantially lower, ($150-$200 per ML pumped) than the cost of

water supplied from the Dilwyn ($300-$340 per ML pumped).



It is recommended that future project proponents:

Seek clarity from DELWP on the level of policy concern relating to private water supply services at the time

a specific project is being scoped, to account for any potential future changes in policy

Develop specific costs and benefits for water supply that consider local conditions and alignments, and the

likely productivity improvement at the farm level

Revise the cost benefit analysis to incorporate new costs and benefits, and the hurdle rate (discount rate)

required for the investment and/or business case

Investigate approaches to dealing with the high iron content of groundwater in the Dilwyn.


Final Report 45

10. References

Aither (2014) Sales of unallocated water: advice on water sales in unregulated surface and groundwater

systems in Victoria

Bush, A.L. (2009) Physical and chemical hydrogeology of the Otway Basin, southeast Australia. Submitted in

total fulfilment of the requirements of the degree of Doctor of Philosophy December 2009 School of Earth

Sciences The University of Melbourne.

Department of Environment, Land, Water and Planning (2016) Victorian Water Accounts

http://waterregister.vic.gov.au/water-availability-and-use/victorian-water-accounts [Accessed 2 February 2017]

Department of Environment, Land, Water and Planning (2016b) Managing groundwater

http://www.depi.vic.gov.au/water/groundwater/managing-groundwater [Accessed 24 January 2017]

Department of Environment, Land, Water and Planning (2016c) Water Plan Summary

http://haveyoursay.delwp.vic.gov.au/water-for-victoria [Accessed 24 January 2017]

Department of Environment, Land, Water and Planning (2016d) Water entitlements and trade

http://www.depi.vic.gov.au/water/governing-water-resources/water-entitlements-and-trade [Accessed 24

January 2017]

Department of Sustainability and Environment (2011) Western Region Sustainable Water Strategy

http://www.depi.vic.gov.au/water/governing-water-resources/sustainable-water-strategies/western-region-

sustainable-water-strategy November 2011 [Accessed 21 January 2017]

Jacobs (2016) Barwon Downs Technical Works Program – Integration Report. Final Draft. December 2016

SKM (2004) Portland Coast Water – Port Fairy Replacement bore No. 4 completion report [October 2004].

Southern Rural Water (2015) Groundwater Hub of Southern Victoria: Who manages groundwater?

http://gwhub.srw.com.au/who-manages-groundwater-0 [Accessed 24 January 2017]

Southern Rural Water (2015b) How is groundwater managed? http://gwhub.srw.com.au/how-groundwater-

managed-1 [Accessed 24 January 2017]

Southern Rural Water (2016) Corporate Plan 2016-17.

Southern Rural Water (2016b) Otway Lower Aquifers Local Management Plan

Victorian Government (2014a) Great South Coast Regional Growth Plan

http://www.dtpli.vic.gov.au/planning/plans-and-policies/rural-and-regional-planning/regional-growth-plans/great-

south-coast-regional-growth-plan [Accessed 6 February 2017]

Victorian Government (2016) Great South Coast Regional Growth Plan Document 2: Strategic Plan

Independent Analysis http://www.greatsouthcoast.com.au/news/blog/item/129-food-fibre-strategy-action-plan-

document-2-strategic-plan-independent-analysis [Accessed 6 February 2017]

Victorian Government (2016b) Great South Coast Regional Growth Plan Document 3: Action Plan

http://www.greatsouthcoast.com.au/contact-us/item/130-food-fibre-strategy-action-plan-document-3-action-plan

[Accessed 6 February 2017]

http://waterregister.vic.gov.au/water-availability-and-use/victorian-water-accounts

http://www.depi.vic.gov.au/water/groundwater/managing-groundwater

http://haveyoursay.delwp.vic.gov.au/water-for-victoria

http://www.depi.vic.gov.au/water/governing-water-resources/water-entitlements-and-trade

http://www.depi.vic.gov.au/water/governing-water-resources/sustainable-water-strategies/western-region-sustainable-water-strategy

http://www.depi.vic.gov.au/water/governing-water-resources/sustainable-water-strategies/western-region-sustainable-water-strategy

http://gwhub.srw.com.au/who-manages-groundwater-0

http://gwhub.srw.com.au/how-groundwater-managed-1

http://gwhub.srw.com.au/how-groundwater-managed-1


Final Report 46

Appendix A. Groundwater availability and use within the OLA GMA

The proposed permissible consumptive volume for the OLA GMA is 62 GL per year, which includes current and

projected allocations, but not Domestic & Stock (D&S) use (OLA LMP, 2016).

There are three key zones that make up the OLA GMA, as presented in Figure A.1.

Figure A.1 : Zones and licensed volumes by aquifer type

Groundwater licensing and metered groundwater usage data for different water use categories are presented in

Table A.1. Irrigation is the major driver of groundwater use in Zone 1, with urban uses dominating allocations

(and use) in Zones 2 and 3.


Final Report 47

Table A.1 : Groundwater allocations and usage by zone within the OLA GMA

Zone Unit

Allocations Usage

Irrigation Dairy Urban Other Total Metered D&S

Zone 1

No. of

licences 34 4 1 1 40 134

Volume (ML) 7,077 46 130 79 7,332 3323 268

Zone 2

No. of

licences 6 10 4 3 23 5

Volume (ML) 273 54 9,731 1,162 11,220 2,932 10

Zone 3

No. of

licences 1 6 3 3 13 27

Volume (ML) 121 26 2,829 38 3,014 1,077 54

Total

No. of

licences 66 20 8 8 102

Volume (ML) 18,540 126 12,690 1,284 32,640 8,486 332

Source: Otway Lower Aquifers Land Management Plan, 2016


Final Report 48

Appendix B. Water quality

The attributes of water quality that are most important with respect to irrigation water are salinity, sodicity and

pH.

Salinity – the salinity of irrigation water can influence the yield of crops. Water that is less than 500 mg/L is

considered good quality and suitable for use with all crops. Water that is between 500 and 1000 mg/L will

reduce the yield of moderately salt sensitive crops including clover and lucerne. Water above 1000 mg/L

will increasingly reduce the yield of moderately salt tolerant crops including perennial ryegrass.

Sodicity or the Sodium Adsorption Ratio (SAR) – is the ratio of sodium to calcium and magnesium in the

water. Medium and high sodicity water can cause a breakdown in soil structure, reducing water infiltration

rates, aeration and root growth. Further concentration of salt in the root zone is likely to occur. Periodic

applications of gypsum may be required if soils turn sodic and lose structure.

pH – Water with a pH of 6.0 to 8.5 is generally suitable for irrigation. Alkaline water with a pH greater than

8.5 can result in plant nutrition problems by making some nutrients and trace elements less available.

Fouling problems in pumps, pipes and other irrigation equipment can also occur. Routine monitoring of soil

pH is recommended if high pH water is used.

The Dilwyn in the south west sub-region of the Port Campbell Embayment can be variable with salinity between

150 and 750 mg/L. Where salinity is greater than 500 mg/L and where sodicity is high, potential impacts on crop

yields could occur and resulting soil salinity and losses in soil structure should be monitored.

Another attribute of the water quality in the Dilwyn is water temperature. The deeper the groundwater, the

warmer it is (40 °C at 600m and 60 °C at 1000m). Crop yields are potentially impacted with temperatures

greater than 40 °C, and a cooling tank or dam may be necessary to cool the water prior to its use for irrigation.

Table B.1 : Salt tolerance of a range of forage species to applied irrigation water

Salinity of irrigation

water

Comment Forage Species

0-750 µS/cm

(0-500 ppm)

Suitable for use with all crops on moderately to well-drained

soil.

Sensitive plants:

Subterranean clover, white clover.

750-1,500 µS/cm

(500-1,000 ppm)

Sensitive plants have increasingly reduced growth.

Moderately-sensitive plants suffer little or no yield decline.

Care is needed where used on soil that is poorly drained.

Moderately-sensitive plants:

Balansa clover, Persian clover, strawberry

clover, lucerne, maize, millet, sorghum,

turnip, rape.

1,500-3,000 µS/cm

(1,000-2,000 ppm)

Moderately-sensitive plants will suffer increasing yield loss.

Moderately tolerant plants should suffer little yield loss with

good management at the lower end of this range. At the upper

end, some yield loss will occur.

Moderately-tolerant plants:

Perennial ryegrass, tall fescue, berseem

clover, paspalum, barley, oats, wheat.

3,000-5,000 µS/cm

(2,000-3,300 ppm)

Moderately-tolerant plants will suffer increasing yield decline.

Ideally, only tolerant plants should be grown with sustained use

of this water.

Tolerant plants:

Tall wheat grass, barley, couch grass.

Source: Adapted from Ward et.al. 200622

22 Ward, G, Jacobs, J and McKenzie, F. (2006) Making the most of irrigation water in south west Victoria. A guide to improving irrigation water use

efficiency on dairy farms. A report prepared by the Department of Primary Industries, Warrnambool, January.


Final Report 49

Appendix C. Groundwater assessment

Table C.1 : Estimated properties of the Dilwyn formation near Nullawarreand Heytesbury

Parameter

Nullawarre Heytesbury

Source

Estimate Range Estimate Range

Depth to top of Dilwyn Formation

(mBGL) 700 610 to 860 315 150 to 420

DELWP (see Table C.2

and Table C.3)

Depth to top of Dilwyn formation

(mAHD) -735 -555 to -802 -250

-100 to -

340


and Table C.3)

Yield (L/s) 50 5 to 140 50 1 to 140


and Table C.3)

Jacobs (2016)23

SKM (2004)

Thickness (m) 200 100 to 250 200 100 to 250

Bush 2009


and Table C.3)

Hydraulic conductivity (m/day) 2.5 0.13 to 42 2.5 0.13 to 42 Bush 200924

Transmissivity (m2/day) 500 64 to 1,600 500

64 to

1,600 Bush 2009

Static water level (mAHD) 25 10 to 50 30 10 to 50

Bush 2009


and Table C.3)

Static water level (mBGL) 18 10 to 24 15 7 to 23 DELWP (see Table C.2)

Salinity (TDS - mg/L) 492 452 to 552 400 290 to 570 DELWP (see Table C.2

and Table C.3)

Temperature (°C)1 18.9 20 to 40 30 20 to 40


and Table C.3)

Iron concentration (mg/L) 8.6 2.8 to 14.3 9 0.2 to 13 DELWP (see Table C.2

and Table C.3)

Drawdown and water level after

180 days extraction at 1 ML/day

(drawdown / mbgl)

5 / 23 2 to 8

17 to 23 5 / 20

2 to 8

17 to 23 Jacobs (2016)

SKM (2004) Drawdown and water level after

180 days extraction at 10 ML/day

(drawdown / mbgl)2

40 / 58 20 to 80

38 to 98 40 / 55

20 to 80

35 to 95

Notes: (1) Estimate based on regional geothermal gradient (Bush, 2009) (2) Extraction rate of 10ML/day expected to represent an upper estimate bore

extraction rate, based on pumping rates from Dilwyn Aquifer in Barwon Downs' borefield.

23 Jacobs (2016) Barwon Downs Technical Works Program – Integration Report. Final Draft. December 2016

24 Bush, A.L. (2009) Physical and chemical hydrogeology of the Otway Basin, southeast Australia. Submitted in total fulfilment of the requirements of the degree of Doctor of Philosophy December 2009 School of Earth Sciences The University of Melbourne.


Final Report 50

Table C.2 : Data from water measurement information system (WMIS) database surrounding Nulawarre

Bore ID

Bore Depth

Screen Top

Screen Bottom

Dilwyn depth Dilwyn

thickness SWL SWL Yield TDS Temp Fe Mn DO

mbgl mbgl mbgl mbgl mAHD m mbgl mAHD L/s mg/L (°C) mg/L mg/L mg/L

84288 1049.1 580.2 595.02 613 -576.37 205 10 26.03 594 9.9

84290 825.74 769.46 813.15 613 -575.78 210 13 24 61.6

84291 907.21 841.37 847.63 645 -596.95 213 24 22.76 18.94 452 18.6 14.3 1.1

85937 1685.54 782.11 822.65 747 -696.9 237 20 29.35 7.17 471 19.1 2.8 0.35

85942 990 981 987 790 -746.01 237 23 20.45 13.41 552

325821 1673.35 792 -708.48 128

325822 1798 804 -735.65 126

325823 2100 860 -802.32 143

325824 1800 631 -555 245

Source: DELWP (2017)25

Data extracted from the Visualising Victoria’s Groundwater (VVG) portal was not assumed to be inherently reliable, but was rationalised against data available in previous

reports produced by Jacobs (2016), Bush (2009) and SKM (2004).

The information provided by the VVG can be separated in four categories:

1) Geological information (such as depth and thickness of the Dilwyn formation)

2) Groundwater level data (such as the depth of groundwater below surface or the elevation of groundwater)

3) Water chemistry data (such as salinity and iron concentrations)

4) The yield of the Dilwyn formation

Geological (stratigraphic) data was checked against previous interpretations from Bush (2009), the current conceptual understanding of the basin and available GEDIS

(Geological Exploration and Development Information System) logs. The data were found to be reliable and of high quality. Similarly, the limited groundwater level data

available was assessed in conjunction with Bush (2009) and found to be consistent and reliable.

25 Department of Environment Land Water and Planning (2017) Water measurement information system, last accessed 2017. Available at <http://data.water.vic.gov.au/monitoring.htm>


Final Report 51

Groundwater chemistry data were also assessed against previously reported trends from Bush (2009) and SKM (2004). In many of the bores, numerous readings were

available and an average reported to improve the representativeness of the data. Despite this - these parameters have a great potential to vary spatially and are the most

difficult to assess reliably. For, this reason, these data have been presented as a range in table C.1.

The yields provided by the VVG are unlikely to be of high value to the assessment as details regarding the development of the yield estimate are not provided. They are likely

to be based on short term tests informed by air lifting water from the bores during development. Further, in most cases the tests represent bores with short screens and

narrow diameters (in comparison with potential production bores). As such, the estimates reported in text have been developed in accordance with results from other known

production bores screened in the Dillwyn Formation as reported by Jacobs (2016) and SKM (2004).

The location of bores in Nullawarre are shown in Figure C.1.


Final Report 52

Figure C.1 : Bore locations for Nullawarre


Final Report 53

Table C.3 : Data from water measurement information system (WMIS) database surrounding Heytesbury

Bore ID MZ Easting Northing

Distance

from

point

Total

depth

Ground

elevation

Screen

top

Screen

bottom

Dilwyn

depth

Elevation

of Dilwyn SWL SWL Yield TDS Temp Fe Mn

DO

m M mAHD m m m mAHD mbgl mAHD L/s mg/L °C mg/L mg/L mg/L

115872 54 674370 5739971 7288 440 36.33 410 416 262 -225.67 7.3 29.1 7.58 400 0.24 0.03 1.72

329401 54 673575 5737857 8010 1150 110 378 -268 21

56802 54 679355 5742493 4405 1154.3 23 363 -340 570

87250 54 675650 5730880 9798 658.5 49.93 435 461 289 -239.07 23 27 10 470 70 13 0.12

95127 54 672150 5738312 9397 734.26 107 723.59 734.26 335 -228 1.92 325.33 12

95130 54 672893 5738477 8650 1124.7 96 709.7 756.7 424 -328 300 9

97982 54 680946 5731943 6786 1141.5 49 238.35 583.69 151 -102 0.38 291.44

Source: DELWP (2017)26

The location of bores is shown in Figure C.2.

26 Department of Environment Land Water and Planning (2017) Water measurement information system, last accessed 2017. Available at <http://data.water.vic.gov.au/monitoring.htm>


Final Report 54

Figure C.2 : Bore locations for Heytesbury


Final Report 55

Appendix D. Cost Plans

D.1 Bore construction costs – for Nullawarre scenario

10 Properties 50 Properties

No. of Bores 1 4 15

Unit Qty Rate Amount Qty Rate Amount Qty Rate Amount

Preliminaries $97,000 $348,000 $1,215,000

Mobilisation Lump sum 1 $20,000 $20,000 $2 $20,000 $40,000 $3 $20,000 $60,000

Establish access track and pad for drilling rig Lump sum 1 $40,000 $40,000 $4 $40,000 $160,000 $15 $40,000 $600,000

Construct mud pits for drilling fluids Lump sum 1 $12,000 $12,000 $4 $12,000 $48,000 $15 $12,000 $180,000

Preparation of drill fluids Lump sum 1 $25,000 $25,000 $4 $25,000 $100,000 $15 $25,000 $375,000

Pump housing $120,905 $483,620 $1,813,575

Drill 20" hole to a nominal depth of 100 m Per m 100 $525 $52,500 $400 $525 $210,000 $1,500 $525 $787,500

Install 16" casing Per m 100 $50 $5,000 $400 $50 $20,000 $1,500 $50 $75,000

Grout 16" casing Per m 100 $50 $5,000 $400 $50 $20,000 $1,500 $50 $75,000

Supply 16" Stainless Steel casing Per m 100 $580 $58,000 $400 $580 $232,000 $1,500 $580 $870,000

Centralisers Each 9 $45 $405 $36 $45 $1,620 $135 $45 $6,075

Pilot hole $158,500 $634,000 $2,377,500

Drill 150 mm pilot hole Per m 800 $180 $144,000 $3,200 $180 $576,000 $12,000 $180 $2,160,000

Geophysical logging Lump sum 1 $10,000 $10,000 $4 $10,000 $40,000 $15 $10,000 $150,000

Rig standby Hrs 10 $450 $4,500 $40 $450 $18,000 $150 $450 $67,500

Transmission casing $527,250 $2,109,000 $7,908,750

Ream bore to 14" to a nominal depth of 700 m Per m 600 $325 $195,000 $2,400 $325 $780,000 $9,000 $325 $2,925,000

Install 10" casing Per m 600 $50 $30,000 $2,400 $50 $120,000 $9,000 $50 $450,000

Grout 10" casing Per m 600 $50 $30,000 $2,400 $50 $120,000 $9,000 $50 $450,000

Supply 10" Stainless Steel casing Per m 600 $450 $270,000 $2,400 $450 $1,080,000 $9,000 $450 $4,050,000

Centralisers Each 50 $45 $2,250 $200 $45 $9,000 $750 $45 $33,750

Screen $156,000 $624,000 $2,340,000

Ream bore to 12" to a nominal depth of 900 m Per m 200 $200 $40,000 $800 $200 $160,000 $3,000 $200 $600,000

Install 8" screens Per m 200 $50 $10,000 $800 $50 $40,000 $3,000 $50 $150,000

Supply 8" screens Per m 200 $500 $100,000 $800 $500 $400,000 $3,000 $500 $1,500,000

Supply packer/lowering assembly or alternative Unit 1 $6,000 $6,000 $4 $6,000 $24,000 $15 $6,000 $90,000

Bore development $15,000 $60,000 $225,000

Develope and surge as necessary Per hr 24 $625 $15,000 $96 $625 $60,000 $360 $625 $225,000

Pump test $25,000 $60,000 $225,000

Initial 3 step test and 24 hr pump test Unit 1 $25,000 $25,000 $4 $15,000 $60,000 $15 $15,000 $225,000

Miscellaneous $60,000 $240,000 $900,000

Accomodation + meals Unit 1 $35,000 $35,000 $4 $35,000 $140,000 $15 $35,000 $525,000

Materials, disposal of fluids Units 1 $25,000 $25,000 $4 $25,000 $100,000 $15 $25,000 $375,000

Hydrogeological supervision, screen selection, PSD Fee 1 $100,000 $100,000 $4 $50,000 $200,000 $15 $33,333 $500,000

Scheme total Total excl GST $1,259,655 $4,758,620 $17,504,825

3 Properties


Final Report 56

D.2 Bore construction costs – for Heytesbury scenario


No. of Bores 1 4 15


Preliminaries $97,000 $348,000 $1,215,000

Mobilisation Lump sum 1 $20,000 $20,000 $2 $20,000 $40,000 $3 $20,000 $60,000

Establish access track and pad for drilling rig Lump sum 1 $40,000 $40,000 $4 $40,000 $160,000 $15 $40,000 $600,000

Construct mud pits for drilling fluids Lump sum 1 $12,000 $12,000 $4 $12,000 $48,000 $15 $12,000 $180,000

Preparation of drill fluids Lump sum 1 $25,000 $25,000 $4 $25,000 $100,000 $15 $25,000 $375,000

Pump housing $120,905 $483,620 $1,813,575

Drill 20" hole to a nominal depth of 100 m Per m 100 $525 $52,500 $400 $525 $210,000 $1,500 $525 $787,500



Supply 16" Stainless Steel casing Per m 100 $580 $58,000 $400 $580 $232,000 $1,500 $580 $870,000

Centralisers Each 9 $45 $405 $36 $45 $1,620 $135 $45 $6,075

Pilot hole $86,500 $346,000 $1,297,500

Drill 150 mm pilot hole Per m 400 $180 $72,000 $1,600 $180 $288,000 $6,000 $180 $1,080,000

Geophysical logging Lump sum 1 $10,000 $10,000 $4 $10,000 $40,000 $15 $10,000 $150,000

Rig standby Hrs 10 $450 $4,500 $40 $450 $18,000 $150 $450 $67,500

Transmission casing $175,750 $703,000 $2,636,250




Supply 10" Stainless Steel casing Per m 200 $450 $90,000 $800 $450 $360,000 $3,000 $450 $1,350,000

Centralisers Each 16.7 $45 $750 $67 $45 $3,000 $250 $45 $11,250

Screen $156,000 $624,000 $2,340,000


Install 8" screens Per m 200 $50 $10,000 $800 $50 $40,000 $3,000 $50 $150,000

Supply 8" screens Per m 200 $500 $100,000 $800 $500 $400,000 $3,000 $500 $1,500,000

Supply packer/lowering assembly or alternative Unit 1 $6,000 $6,000 $4 $6,000 $24,000 $15 $6,000 $90,000

Bore development $15,000 $60,000 $225,000

Develope and surge as necessary Per hr 24 $625 $15,000 $96 $625 $60,000 $360 $625 $225,000

Pump test $25,000 $60,000 $225,000

Initial 3 step test and 24 hr pump test Unit 1 $25,000 $25,000 $4 $15,000 $60,000 $15 $15,000 $225,000

Miscellaneous $60,000 $240,000 $900,000

Accomodation + meals Unit 1 $35,000 $35,000 $4 $35,000 $140,000 $15 $35,000 $525,000

Materials, disposal of fluids Units 1 $25,000 $25,000 $4 $25,000 $100,000 $15 $25,000 $375,000

Hydrogeological supervision, screen selection, PSD Fee 1 $100,000 $100,000 $4 $50,000 $200,000 $15 $33,333 $500,000

Scheme total Total excl GST $836,155 $3,064,620 $11,152,325

3 Properties


Final Report 57

D.3 Distribution construction and O&M costs

Engineering Cost Estimate

Project No. IS183100 File

Dilwyn Infrastructure Ownership Study SHEET No. 1 of 1

PREPARED BY LH Date 16.03.2017

CHECKED BY BL Date 16.03.2017


No. of Bores 1 4 15


Indirect Costs $227,433.47 $618,676.31 $2,062,694.54

Heritage & Ecological Desktop $10,000.00 $10,000.00 $10,000.00

Heritage Assessment (Detailed) $25,000.00 $30,000.00 $45,000.00

Ecological Assessment (Detailed) $25,000.00 $30,000.00 $45,000.00

Engineering, Survey, Geotech % 16 $102,452.48 15 $371,911.65 14 $1,373,353.24

Easements Ha

Land Acquisition No

Sub-total $162,452.48 $441,911.65 $1,473,353.24

Contingency 40% $64,980.99 $176,764.66 $589,341.30

Construction Costs $640,328.00 $2,479,411.00 $9,809,666.00

Mechanical & Electrical Components $292,936.95 $1,171,747.80 $4,394,054.25

Pump & Motor - Supply Only 1 $26,730.00 $26,730.00 4 $26,730.00 $106,920.00 15 $26,730.00 $400,950.00

Installation 1 $25,000.00 $25,000.00 4 $25,000.00 $100,000.00 15 $25,000.00 $375,000.00

Switchgear 1 $83,950.00 $83,950.00 4 $83,950.00 $335,800.00 15 $83,950.00 $1,259,250.00

Electrical Supply & Installation 1 $114,120.00 $114,120.00 4 $114,120.00 $456,480.00 15 $114,120.00 $1,711,800.00

Testing & commissioning 1 $25,000.00 $25,000.00 4 $25,000.00 $100,000.00 15 $25,000.00 $375,000.00

Flexibore couplings 2 $2,370.00 $4,740.00 8 $2,370.00 $18,960.00 30 $2,370.00 $71,100.00

Riser - Flexibore 8" 63 $212.65 $13,396.95 252 $212.65 $53,587.80 945 $212.65 $200,954.25

Civils $76,690.00 $306,760.00 $1,150,350.00

Concrete Apron Slab 1 $2,500.00 $2,500.00 4 $2,500.00 $10,000.00 15 $2,500.00 $37,500.00

Security fencing 1 $19,190.00 $19,190.00 4 $19,190.00 $76,760.00 15 $19,190.00 $287,850.00

Pump Station Building 1 $55,000.00 $55,000.00 4 $55,000.00 $220,000.00 15 $55,000.00 $825,000.00

Distribution Network $87,750.00 $292,500.00 $1,462,500.00

Material & Class

Installation per m $130.00 $130.00 $130.00

Pipe Only per m $65.00 $65.00 $65.00

Unit Rate m 450 $195.00 $87,750.00 1500 $195.00 $292,500.00 7500 $195.00 $1,462,500.00

Sub-total $457,376.95 $1,771,007.80 $7,006,904.25

Contingency 40% $182,950.78 $708,403.12 $2,802,761.70

Operation & Maintenance

Energy per annum kWh 166,295 166,295 166,295

Assumed cost of energy c/kWh 20 20 20

Operational Cost per annum 1 $33,259.00 4 $133,036.00 15 $498,885.00

Maintenance Cost per annum 1 $16,114.00 4 $64,456.00 15 $241,710.00

Sub-total $49,373.00 $197,492.00 $740,595.00

Contingency 25% $12,343.25 $49,373.00 $185,148.75

Iron sludge removal (expressed per

annum but removed every 5 years)t 1.2 $1,920.00 $2,304.00 4.8 $1,920.00 $9,216.00 18 $1,920.00 $34,560.00

3 Properties

DN250 GRP - PN10, SN10000 DN250 GRP - PN10, SN10000DN250 GRP - PN10, SN10000


Final Report 58

Appendix E. On-farm costs and benefits

Within this appendix, we explore the on-farm costs and benefits associated with a number of demand scenarios,

as defined in

Table E.1 : Water demand scenarios



Annual water demand (ML) 700 2,450 10,500

Area/property (ha) 33.3 35 30

E.1 On-farm costs

The area irrigated per property will require an on-farm investment involving equipment purchase and installation

costs. The capital costs include the costs of pipes, pumps, centre pivot, the electrical power unit, and

installation.

In estimating on-farm costs, we have assumed:

1 centre pivot per property operating at 21 m (30 psi) head, with two 213 mm (8&5/8") and five 162 mm

(6&5/8") spans

Capital costs of $100,00027 per property for the main system and pump station

Annual pumping costs of $3527 per ML of water

Maintenance costs of 2%27 capital costs

The on-farm lifecycle costs for the three scenarios are summarised in Table E.2.

Table E.2 : On-farm lifecycle costs


Capital costs $300,000 $1,000,000 $5,000,000

Pumping costs (PV) $24,500 $87,500 $367,000

Maintenance (PV) $6,000 $20,000 $100,000

Note: Specific costs for water entitlement have not been included, but are assumed included in the $100,000 per property capital costs.

E.2 Productivity benefits

In estimating the productivity benefits from additional irrigation, we have based on a ‘rule of thumb’ that irrigated

land has double the stocking rate of dryland. Therefore, on the additional area irrigated, we have assumed an

additional stocking rate of 1.5 cows per hectare (i.e.3 cows\ha for irrigated and 1.5 cows \ha for dryland).

The value of this increased stocking rate has been estimated using farm productivity information provided for

south west Victoria.28

In estimating productivity benefits, we assumed:

Milk solids (MS) of 503 kg/cow

27 DEDJTR (formerly DEPI) 2013, Centre pivot system: is it a good investment? Published on the Murray Dairy website at

www.murraydairy.com.au/LiteratureRetrieve.aspx?ID=138616 28 DEDJTR, 2014, Dairy Industry Profile December 2014, located at http://agriculture.vic.gov.au/agriculture/dairy

http://www.murraydairy.com.au/LiteratureRetrieve.aspx?ID=138616

http://agriculture.vic.gov.au/agriculture/dairy


Final Report 59

Gross margin income of $7.54/kg MS

Total variable costs of $3.37/kg MS

Gross margin of $4.17/kg MS

The productivity benefits for the three demand scenarios are shown in Table E.3.

Table E.3 : On-farm productivity benefits


Gross margin (dryland) $310,000 $1,100,000 $4,700,000

Gross margin (with irrigation) $630,000 $2,200,000 $9,400,000

Annual benefit $310,000 $1,100,000 $4,700,000

This approach to calculating the annual benefit between dryland and irrigation is crude in that it does not

account for relative increases in variable costs for feed costs on irrigated pasture (e.g. fertiliser, grain, and other

supplements). However, it is considered appropriate given the conceptual nature of the cost estimates used in

the cost benefit analysis.


Final Report 60

Appendix F. Appraisal of legal and regulatory obligations

Contents

F.1 Introduction .............................................................................................................................................. 61

F.1.1 Summary ................................................................................................................................................... 61

F.1.2 Assumptions and limitations ...................................................................................................................... 62

F.1.3 Glossary .................................................................................................................................................... 63

F.2 Constructing and operating withdrawal works and withdrawing water ............................................ 64

F.2.1 Authorisations to construct a bore ............................................................................................................. 64

F.2.2 Authorisations to withdraw and use groundwater ..................................................................................... 65

F.2.3 Authorisation to take and use water from the storage/treatment dam ...................................................... 70

F.3 Constructing and operating storage and distribution works ............................................................. 71

F.3.1 Works licences to construct certain dams required under the Water Act ................................................. 71

F.3.2 Asset management obligations for Authorities .......................................................................................... 71

F.3.3 Planning permits may be required to construct dams and pipelines under the applicable planning scheme in all Models ................................................................................................................................. 72

F.3.4 Arrangements for access to land for infrastructure are required in all Models .......................................... 73

F.3.5 Notification of construction of a private dam (Models 3 and 4) ................................................................. 75

F.4 Supplying water to end users ................................................................................................................ 75

F.4.1 Supply by Authorities (Models 1 and 2) ..................................................................................................... 75

F.4.2 Supply by private entities (Models 3 and 4) .............................................................................................. 77


Final Report 61

F.1 Introduction

Legal obligations attach to each of the following elements of a hypothetical project to pump and supply

groundwater from the Dilwyn Aquifer for primarily agricultural purposes (the ‘Project’):

Constructing and operating withdrawal works: this includes access to land for the extraction infrastructure

(bore and pump), and authorisations to construct the bore;

Withdrawing groundwater: this involves an authorisation to withdraw groundwater;

Constructing and operating treatment and distribution infrastructure (dam and pipelines): this includes

access to land for the infrastructure, and authorisations to construct it; and

Supplying water to end users: agreements to supply water to end users if the end user is different from the

extractor.

This report adopts these categories in discussing legal obligations and legal structures relevant to the Project.

The precise type of legal arrangements required for each of these elements differs in some respects between

infrastructure ownership models.

Model 1: A rural water corporation (‘RWC’) owns the infrastructure to both extract and distribute

groundwater. It holds licences to construct works and extract groundwater, which it would supply to end

users.

Model 2: As above, with a Regional Urban Water Corporation (‘UWC’) substituted for the RWC.

Model 3: A large business would own both the extraction and distribution infrastructure, and hold the

licence to construct works. It may also hold the single licence to extract groundwater, which it would supply

to end users, or it could hold one of a small number of licences to extract groundwater, the others being

held by the other individual end users.

Model 4: A small irrigator syndicate, organised as an incorporated entity (i.e. a separate legal person to the

participants) (‘Private Project Entity’), owns the infrastructure to extract and distribute water. It holds the

licence to construct works. It may also hold the single licence to extract groundwater, which it would supply

to end users, or many end users could hold individual licences to extract groundwater.

Note that where the legal entity applying for an approval under the Water Act 1989 (Vic) (‘Water Act’) is a RWC,

and the Minister has delegated that same RWC to assess an application for this type of approval (e.g. under the

‘Delegation by the Minister for Water under section 306 of the Water Act 1989 to Gippsland and Southern Rural

Water Corporation and certain employees’ dated 19 September 2016 (‘SRW delegation’)), probity requires that

RWC should instead apply to the Minister for the approval. This is expressly required by clause 3 of the SRW

delegation.

Many pieces of legislation and legislative instruments give rise to relevant obligations, including the Constitution

Act 1975 (Vic), the Water Act, the Water Industry Act 2004 (Vic), the Water (Resource Management)

Regulations 2007 (Vic), the Water Industry Regulatory Order 2014, formal water policies that bind the exercise

of delegated powers under the Water Act, the Planning and Environment Act 1987 (Vic), and the Land

Acquisition and Compensation Act 1986 (Vic). References to sections numbers in this Appendix are to section

of the Water Act, unless otherwise specified.

F.1.1 Summary

A summary of this Appendix is presented in the main report (Section 8.2), and is given in table form here, listing

the key permissions and regulatory approvals required. Note that the internal stage of deciding and establishing

a corporate structure for the syndicate in Model 4 is not shown separately.

Finally, note that while there is not possible to confirm absolutely that the Victorian Constitutional prohibition on

privatising water authorities’ responsibility for delivering water services would not affect Models 3 and 4, this is

considered highly unlikely, and the underlying policy concerns are discussed as such (rather than as a legal

prohibition) at section F.2.2.2.


Final Report 62

Permission to access land

to build infrastructure (if

required)

Permission to build

extraction, storage and

distribution

infrastructure

Permission to

extract

groundwater

Supply arrangements

with end users

ANY ONE OR MORE OF:

Private easement(s);

Purchased land;

Regulatory easements (Models

1 and 2);

Access by agreement (Models

3 and 4).

Works licence(s) for bore

and some types of storage

dams; AND

Planning permission (if

planning scheme requires)

NB: asset management

obligations apply to Models

1 and 2.

Take and use

licence(s); OR

Bulk entitlement

(Models 1 and 2).

New irrigation district

(Models 1 and 2) OR

Supply by agreement

(Models 1 and 2); OR

Community water supply

scheme (Models 3 and 4);

OR

Private contractual

arrangements

NB: Regulation by ESC

applies to Models 1 and 2.

See Appendix F.3.4 See Appendix F.2.1, F.2.2,

F.3.1, F.3.3, F.3.5.

See Appendix F.2.2,

F.2.3.

See Appendix F.4.1, F.4.2

Figure F.1 : Key permissions and regulatory approvals required:

F.1.2 Assumptions and limitations

This report is intended to provide general information in summary form about key legal obligations of relevance

to the hypothetical Project. The contents do not constitute legal advice and should not be relied upon as such.

Formal legal advice should be sought in relation to any proposed project, tailored to the specific circumstances

of the proposed project and its proposed location (acknowledging that the Dilwyn aquifer is particularly

extensive, and different local environmental, administrative and other conditions will influence the applicable

legal obligations). This report does not discuss legal obligations exhaustively. For example, this report does not

discuss:

Environmental approvals that may be required under Victorian or federal legislation;

Water quality obligations that apply to the supply of drinking water;

Special area plans under the Catchment and Land Protection Act 1994 (Vic), which may affect how land

uses in declared (typically local-scale) special areas are undertaken to minimise any adverse effects on

water-related values;

Geothermal Energy Resources Act 2005 (Vic); and

Fees required to apply for the authorisations discussed, which are generally provided for in the Water

(Resource Management) Regulations 2007 (Vic).

The report is based on the law as at March 2017, recognising that Victoria’s water legislation, in particular, may

be amended based on the recent State Government Water for Victoria (2016) strategy. It should also be

explicitly noted that the apparent lack of previous proposals to develop a scheme for private supply of

groundwater may raise policy barriers that ultimately mature into proposals for legal change in response to such

a proposal. That is, government may enact further safeguards (barriers, from the perspective of project

operators) in relation to a proposal for a private scheme, which are touched on in this report.


Final Report 63

F.1.3 Glossary

BE Bulk entitlement granted under section 34A of the Water Act

ESC Essential Services Commission

PE Act Planning and Environment Act 1987 (Vic)

PMTUL Policies for Managing Take and Use Licences (2 February 2014)

PMWL Policies for Managing Works Licences (2 September 2016)

RWC Rural Water Corporation (e.g. SRW)

SRW Gippsland and Southern Rural Water Corporation

TUL Take and use licence, granted under section 51 of the Water Act

UWC Regional Urban Water Corporation (e.g. Wannon Water)

Water Act Water Act 1989 (Vic)

WIRO Water Industry Regulatory Order 2014 made under the Water Industry Act 1994 (Vic)

WMA Water Management Act 2000 (NSW)

works licence Licence to construct, alter, operate, etc. a bore under section 67 of the Water Act


Final Report 64

F.2 Constructing and operating withdrawal works and withdrawing water

F.2.1 Authorisations to construct a bore

A withdrawal of groundwater from the Dilwyn aquifer will require the construction of a deep bore. ‘An Authority

or any other person’ may apply to the Minister for a licence to ‘construct, alter, operate, remove or

decommission’ a bore (s 67(1)(b) Water Act) (a ‘works licence’). The definition of ‘person’ includes an

individual, incorporated or unincorporated body, partnership or association (s 4).

SRW, Wannon Water, and a single large business (assumed a company) are each legal persons, meeting this

eligibility requirement in s 67(1)(b). While it is legally possible for an unincorporated association to hold a works

licence, there are important disadvantages and risks associated with this arrangement. The lack of a single

legal ‘person’ can lead to:

unclear accountabilities, e.g. in the event of a breach of the licence; and

administrative burdens when a transaction occurs, due to the need to obtain the signatures of all licence

holders.

For this reason, it is recommended (and for the remainder of this report, assumed) that in each Model, the

holder of each required authorisation will be a legal entity (i.e. in Model 3, the large business is assumed to take

a corporate form, and in Model 4, the syndicate would form a single legal entity for the purposes of the Project).

This could take the form of an incorporated association, company, or body corporate, for example.

The Policies for Managing Works Licences (‘PMWL’) specifies bore construction requirements (cl 18) and

standard conditions (cl 19, Sch 1), and sets out a process for works licences to be decided (part 3).

The Water Act clearly contemplates that a person who does not own the land on which the works will be

situated, may apply for a works licence. Section 67(2)(c) provides that an application for a works licence must

be accompanied by the written consent of the occupier if the land is not occupied by the applicant. The PMWL

sets out detailed requirements for providing information about the approval of the landowner where the works or

associated works are to be built on land not owned by the applicant, including Crown land (cl 25). It is important

to note that this requirement applies not just to the bore, but also to the associated works, which is defined to

mean ‘works that are related to the diversion, extraction, conveyance or storage of water taken through works

that require a works licence’ (cl 6).

If the bore is proposed to be constructed on land not owned by the applicant for a works licence, it would also

be highly desirable for the applicant to formalise access arrangements to ensure access for ongoing operation

and maintenance purposes. This could be done in a variety of ways, which are outlined in detail in Part 3

(Constructing and operating storage and distribution works), since it seems more likely that this issue would

occur in relation to the more substantial infrastructure required by that element of the Project.

Implications #1: Requirement for a works licence: A works licence is required in all Models. The entity

applying for the works licence (who would be responsible for those works) need not own the land on which the

bore is to be located, provided the occupier gives their written consent. The required evidence of consent of the

landowner or occupier applies not only to the bore, but also the distribution infrastructure, and dams that are

used for cooling and storage. The applicant for the works licence should also formalise access arrangements to

any land that they do not own, which is required for this infrastructure, as set out in Part 3 of this Appendix.

Works licences are issued for a period between 12 months and 20 years, and in determining a duration for the

licence, the delegate must consider the time of expiry of other works licences with geographical similarities, and

the time of the related take and use licence (‘TUL’), discussed below (cl 11, PMWL). Works licences are

renewable (s 72).

Implications #2: Term of a works licence: The potentially short duration of a works licence may be of concern,

particularly to private Project infrastructure owners (Models 3 and 4). This issue should be the subject of

negotiation with the Minister or Minister’s delegate to ensure there is sufficient certainty to invest in the Project.


Final Report 65

Works licences may specify a maximum extraction rate, representing the peak capacity of the works to extract

water from the aquifer; a maximum daily volume; and a maximum annual volume (cl 14, PMWL). Works

licences also specify conditions, including as to metering (cl 15, PMWL). The PMWL applies special metering

arrangements where water extracted by the works ‘is intended for use by more than one separately managed

enterprise’, a delegate must (cl 15(6) PMWL):

a) include a condition requiring the installation, upkeep and use of meters approved by the delegate to

measure the volume of water delivered to each enterprise (referred to as the ‘child’ meters); and

b) include a condition outlining how transmission losses, if any, which occur between the parent meter

and the child meters will be assigned.

Implications #3: Use of a bore by multiple enterprises: The Water Act clearly contemplates that one bore

may be used by multiple enterprises, and provides for metering requirements that accommodate and facilitate

this. These requirements for child meters will also assist in administering the internal commercial arrangements

of the syndicate entity in Model 4, reducing risks of disputes in relation to quantity of water supplied and

responsibilities for transmission losses (e.g. leaks).

Given the similarities between the considerations that apply to considering an application to construct works,

and an application to withdraw and use groundwater, these are discussed together below.

Implications #4: Entity that should apply for the works licence: In Models 1 and 2, the RWC and UWC

would apply for the works licence, respectively. In Model 3, the large business that intends to own the

infrastructure should apply for the works licence. In Model 4, the legal entity formed to own and operate the

Project infrastructure should apply for the works licence. Although in general, it would be assumed that the

applicant for a works licence would occupy the land on which the works are to be located, if this is not the case,

access agreements should be formalised (see sections 2.2 in relation to public land, and 3.4, below).

F.2.2 Authorisations to withdraw and use groundwater

The Water Act grants a person the right to take and use groundwater for stock and domestic purposes free of

charge and without a licence, provided they have access to the bore because ‘that person occupies the land on

which the water flows or occurs’ (s8(1)(b)).

Implications #5: Private rights to stock and domestic water: If the bore is proposed to be located on land

occupied by a Project participant who requires stock and domestic water, they would not be required to hold a

licence in respect of the take and use of that water.

The major part of the water use for the Project is expected to be agricultural. The Water Act provides for two

types of rights to withdraw groundwater for non-stock and domestic purposes:

A licence to take and use groundwater (‘TUL’), which is issued by the Minister or a delegate of the Minister

(e.g. SRW) (s 51(1)(b)); and

A bulk entitlement (‘BE’) to water, which authorises the holder to take and use water in accordance with the

terms of the entitlement (ss 34B, 36(1)(b)), which may be granted by the Minister.

A TUL may be held by ‘a person’ (s 51, Water Act), which is defined to mean ‘an individual, a body or an

association (incorporated or unincorporated) or a partnership’ (s 3(1), Water Act – definition applying to Div 2, Pt

4). As described above in relation to works licences, it is assumed that in each Model, a legal entity would apply

for the TUL, meeting this eligibility requirement.

A TUL may include the authority to enter most types of Crown land and to install and operate works on that land

‘for the purposes of raising water to be taken and used under the licence’ (section 51(3)). This provision could

allow access to public land in all Models. (Note that although the substance of this provision relates to works, it

is part of the TUL arrangements.)

Only an ‘Authority’ may apply for a BE. For the purposes of the BE provisions, section 34 defines the term

‘Authority’ to mean, in relevant part: ‘a water corporation empowered to carry out any function under this Act in


Final Report 66

relation to water supply or irrigation’ or ‘a person holding a water licence or a water and sewerage licence

issued under Division 1 of Part 2 of the Water Industry Act 1994’. Accordingly, a RWC or UWC may apply for a

BE to take and use groundwater.

Implications #6: Authorisations to withdraw and use groundwater: The Project will require that an

authorisation be held to withdraw and use water from the bore for the majority of the water for the Project (i.e.

for uses other than stock and domestic uses on the land on which the bore is located). A private entity may only

apply for a TUL, whereas a RWC or UWC may apply for a TUL or BE. A TUL may include the authority to enter

public land to install and operate works.

F.2.2.1 Models of relationships between works licences and authorisations to withdraw and use

groundwater

The Water Act does not prohibit multiple TULs relating to a single works licence (see implications #3). Nor does

it prohibit water that is withdrawn under a single TUL being supplied to others and used on land that is not

owned or occupied by the holder of the TUL. However, clause 16 of the Policies for the Management of Take

and Use Licences (‘PMTUL’) states that ‘a delegate may not issue, renew, or approve the transfer of a licence

to a person who does not own or occupy land specified in the licence where the water taken under the licence is

to be used’ unless ‘agreed to in writing by the Secretary of the Department’.

Implications #7: Structural options for connecting works licences and a BE or TUL(s): In Models 1 and 2,

the RWC or UWC, respectively, would hold both the works licence and the BE or TUL. Two broad structural

options are available for connecting works licences and TULs in Models 3 and 4:

(1) Single works licence, single TUL, held by same entity (requiring consent of Secretary to use water on land

not owned or occupied by the TUL applicant):

- In Model 3, the large business could hold both the works licence and a TUL, and supply water that it withdraws

under its TUL to itself and other end users under agreements (this latter element is discussed in Part 4). Note

that it would be possible for a different entity to hold the TUL to the works licence, but this would appear to hold

no particular advantage for the Project.

- Similarly, in Model 4, the Private Project Entity could hold the works licence and a TUL, and supply water that

it withdraws under its TUL to the end users under contracts.

Note that the next option is described for completeness, but falls outside the models defined as the focus of this

report in Table 6.1 (since in this option, the holders of the rights to extract are different from the holders of the

rights in relation to the bore).

(2) Single works licence, multiple TULs (e.g. one TUL for each participant using water – no consent of Secretary

required):

- In Model 3, the large business could hold both the works licence and a TUL, with other TULs held by other end

users, who themselves operate the works to take the water, or request the large business to operate the works

under standing arrangements or more ad hoc arrangements. This would require the TUL holders to have

arrangements with the works licence holder and the landowner/occupier on which the bore is situated (if these

are different) to access the works or make the necessary requests.

- In Model 4, the Private Project Entity could hold the works licence, and each end user could hold a TUL and

individually operate the works to take the water, or request the large business to operate the works under

standing arrangements or more ad hoc arrangements.

Note that if the RWC or UWC in Model 1 and 2 applies for a TUL rather than a BE, they would also need to

obtain the written consent of the Secretary of the Department for the water to be used on the land of the end

users.

A key difference between the one TUL and multiple TULs options is that the latter avoids establishing a private

‘supplier’ of water in models 3 and 4 (since the users each hold their own licences), thus reducing potential

government concern over monopoly supply arrangements. The multiple TUL option is therefore likely to strike

fewer policy barriers than the one TUL option.


Final Report 67

A further key difference between the one TUL and multiple TULs options is compliance arrangements: in each

case the licence holder is responsible for compliance with the licence, but in the single TUL option, there are

multiple end users over whom the TUL holder may not exercise absolute control. It is easier to align

responsibility for compliance with end users if each holds a TUL (i.e. the multiple TUL model), although the

‘child meter’ requirements make this volumetric aspect of compliance less problematic under the one TUL

model. Differences also arise in respect of transaction costs associated with changing arrangements, as

discussed below.

F.2.2.2 Considerations that apply to an application for the grant of a works licence, TUL or BE

The Minister, or Minister’s delegate, must consider a variety of matters in the grant of TULs, works licences, and

bulk entitlements, with many overlapping requirements. To avoid duplication, these are presented together in

the table below, summarising the relevant provisions.

Perhaps most important consideration in this context is Victoria’s policy concern surrounding private water

supply arrangements. This is shown clearly in section 97 of the Victorian Constitution Act 1975, which prohibits

the privatisation of the delivery of a water service by a public authority responsible for delivering that service as

of 2003. More specifically, it provides that:

(1) If at any time on or after [12 June 2003] a public authority has responsibility for ensuring the delivery of

a water service, that or another public authority must continue to have that responsibility.

(2) A public authority that, at any time on or after [12 June 2003], has responsibility for ensuring the

delivery of a water service must, while it has that responsibility, be accountable to a responsible

Minister of the Crown for ensuring the delivery of that service.

The provision allows for public-private partnerships in the following terms (noting that services related to

irrigation are ‘water services’):

(3) Nothing in this section prevents a public authority that has responsibility for ensuring the delivery of a

water service entering into an arrangement of any kind with a person or body (including an

independent contractor) relating to the delivery of that service while itself retaining that responsibility

and remaining accountable to a responsible Minister of the Crown for ensuring the delivery of that

service (s97(3)).

While, on its face, section 97 may not prevent the establishment of a new water service by a private operator

(rather than a transfer of responsibility from an existing public authority), there may be some legal ambiguity

about this point.29 That is, there is some low level of risk that Model 3 or 4 may contravene the Victorian

Constitution, in which case they would be unlawful. In the much more likely situation that Model 3 or 4 would not

offend section 97, it at least suggests that the Minister may think fit to ‘have regard to’ policy concern about

private operators delivering water services more broadly. This may pose a barrier to a successful application for

a works licence or TUL by a private operator if that operator would be considered to provide a water service if

the relevant authorisation were granted.

29 For example, it may be argued that ‘water service’ includes reference to irrigation-related services in general, rather than specific irrigation

schemes (eg irrigation districts). If the former interpretation is taken, the provision would prohibit any new private irrigation scheme where a water authority had responsibility for irrigation as at 2003. While this report does not finally resolve this interpretive question, it notes that the former interpretation seems unlikely, given the existence of statutory support for ‘community water supply schemes’ described further below, and given the emphasis during the passage of the bill on the privatisation of existing authorities and infrastructure. Furthermore, the former interpretation would have the absurd consequence of preventing the delivery of new water services (other than self-supply) in areas outside declared districts, where a water authority refused to deliver services desired by a community in that area. It seems unlikely that Parliament can have intended this consequence. These factors make a general interpretation of the term ‘water service’ unlikely, such that section 97 should not be read as prohibiting new (ie post-2003) private delivery of water services, at least outside a water authority’s declared districts.


Final Report 68

The best way of addressing this concern and successfully applying for works licences, TULs and BEs, would be

to:

adopt Model 1 or 2, or

adopt a form of Model 3 or 4 under which each user of water directly holds its own TUL, although some or

all of the TUL holders may use infrastructure owned by another entity – this may deal with a large part of

the concern around the private delivery of water services insofar as the service is water supply,30 or

investigate a public-private partnership, whereby a water authority would retain ultimate responsibility for

the scheme. Investigating this final option is beyond the scope of this report.

In addition, a model with more users may be more likely to raise concerns about private monopoly water

services than a model with fewer users.

Consideration/type of authorisation Works

licence: s68

Take and

use licence:

s53

Bulk

entitlement:

s40

Report of any panel appointed: s40(1)(a), s53(1)(a), s68(a) ✔ ✔ ✔

Submissions made after notice given: s40(1)(ab), s53(1)(ab),

s68(ab) ✔ (for

dams)

✔ ✔

Adverse effects that exercise of rights under the licence is likely to

have on (relevantly) the drainage regime, on the aquifer, or on the

implementation of the conservation policy of the government:

s68(b)

✔ ✘ ✘

Existing and Project availability of water in the area: s40(1)(b) ✔ ✔ ✔

Permissible consumptive volume, if any, for the area: s40(1)(ba) ✔ ✔ ✔

Existing and Projected quality of water in the area: s40(1)(c) ✔ ✔ ✔

Adverse effects on existing authorised uses of water, or a waterway

or aquifer, or the drainage regime, or the maintenance of the

environmental water reserve: s40(1)(d)

✔ ✔ ✔

Any water to which the applicant is already entitled: s40(1)(e) ✔ ✔ ✔

The need to protect the environment: s40(1)(g) ✔ ✔ ✔

The conservation policy of the government: s40(1)(i) ✔ ✔ ✔

Government policies concerning the preferred allocation or use of

water resources: s40(1)(j) ✔ ✔ ✔

An applicable heritage river area: s40(1)(ja) ✔ ✔ ✔

If appropriate, the proper management of the aquifer: s40(1)(k) ✔ ✔ ✔

The purposes for which the water is to be used: s40(1)(l) ✔ ✔ ✔

The needs of other potential applicants: s40(1)(m) ✔ ✔ ✔

Any relevant report or statement prepared under any Act, or certain

government investigations or inquiries: s40(1)(n) ✔ ✘ ✔

Any other matter that the Minister thinks fit to have regard to:

s40(1)(o), s53(1)(e), s68(e) ✔ ✔ ✔

30 Note that if the ‘general’ interpretation set out in note 29 is correct, the multiple-TUL model may still fall foul of section 97 of the Victorian

Constitution Act 1975 if operating a bore and pipelines could be construed as ‘a service relating to … water supply; or … irrigation; or … water collection and storage’.


Final Report 69

Consideration/type of authorisation Works

licence: s68

Take and

use licence:

s53

Bulk

entitlement:

s40

Give effect to an approved management plan for a water supply

protection area: s40(2), s53(2)(e), 68(bb) ✔ ✔ ✔

The likely effects of the escape of water from the works: s68(c) ✔ ✘ ✘

Orders/prescriptions under the Groundwater Act 1969 (Vic)

specifying annual reserve volume of groundwater, or declaring

groundwater conservation areas

✘ ✔ ✘

Implications #8: Matters relevant to a decision to grant an authorisation: There are no substantial

differences in the considerations that apply to the grant of works licences, TULs, and BEs, so these factors do

not influence the desirability of an Authority applying for a BE as opposed to a TUL, or of any particular legal

entity applying for an authorisation over any other type of legal entity.

The Minister may consider policy concerns about private operation of water services in relation to all

authorisation types under the provision relating to ‘any other matter that the Minister thinks fit to have regard to’.

These concerns are best addressed under Models 1 and 2, a multiple-TUL version of Model 3 or 4, or a public-

private partnership (not further investigated here). Conditions of authorisations (discussed below) that result in a

relatively high degree of oversight of operations may also address these concerns.

Policy considerations such as the financial or maintenance risks posed by the particular type of legal entity

applying for an authorisation (e.g. availability of limitations on liability, arrangements on the event of bankruptcy,

etc.) may also be relevant factors for consideration. If such issues are of concern to the Minister, it may

influence the likelihood of obtaining authorisations under the different models to differing extents, depending on

the financial standing and structure of the legal entity making the application.

F.2.2.3 Conditions of authorisations

A TUL is subject to conditions that can relate to, among other things, the purpose for which the water may be

used, the maximum amounts of water that may be taken, payment for the amount of water used, protection of

the environment, the efficient use of water resources, the installation and use of meters, keeping the works

associated with the licence in a safe and operable condition, and any other condition the Minister thinks fit (s 56,

Sch 2, PMTUL). The PMTUL sets out standard conditions (Schedule 2).

For present purposes, the most notable issues in relation to conditions are:

the requirement (cl 21(1), Sch 2 PMTUL) of a condition specifying the purposes for which the water may be

used; and

unless waived by written agreement of the Secretary of the Department (cl 16 – see discussion above),

specification of the land on which the water may be used.

A delegate considering an application for a TUL may require an irrigation and drainage plan if irrigation is to be

conducted (cl 18 PMTUL). The delegate may modify or waive this requirement if, ‘in the delegate’s view, any

adverse impact from the use of water under the licence is likely to be minor’ (cl 18(4) PMTUL). If the delegate

resolves to require an irrigation and drainage plan, this may pose a risk to the operational flexibility of the

Project (e.g. possibility of easily changing crop types) if the plan is not drafted in a flexible way. For example,

such plans are required to ‘clearly identify areas to be irrigated; [and] type and location of crops to be planted’

and included detailed irrigation designs (Sch 3, PMTUL). The same lack of flexibility may arise in relation to very

detailed conditions of licences. This may arise as a particular issue in Model 4 where the fact of large numbers

of participants may increase the likelihood that an individual covered by the arrangement will wish to change

their use of water over time.


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Implications #9: To ensure operational flexibility of the Project, particularly under the single works licence-

single TUL-multiple end users model, the requirement for an irrigation and drainage plan (cl 18, Sch 3, PMTUL)

should either be requested to be waived, or should be negotiated using broad language that will accommodate

changes in water use among the participants that do not result in a requirement to amend the TUL. Similarly, if

Model 4 involves a large number of users (for example under the 10 user situation), administrative efficiency

could be improved under a single works licence-single TUL-multiple end users model. If the conditions are

drafted sufficiently broadly, this model avoids the need to seek approval from the Minister or Minister’s delegate

for changes in how water is allocation and used as between end users. In the ‘single TUL, multiple end users’

model, it would be advisable to negotiate TUL conditions that are specified with enough flexibility to allow

changes in the amounts and purposes of water used in particular places. This will enable the participants

essentially to ‘trade’ their water between themselves, without needing to request an amendment of the TUL.

A TUL has a limited term, up to a maximum of 15 years, and is only renewable for periods not exceeding 15

years (ss 56(3), 58). The PMTUL states that:

In deciding on the term of a licence a delegate should have regard to the degree of uncertainty about

the water resource and about the impacts of taking water, and should set a relatively short term where

this uncertainty is relatively extensive (cl 19(2) PMTUL).

In addition, in relation to licences for groundwater where the aquifer yield is uncertain, the delegate should

consider:

a) Setting a term no greater than three years; and

b) Including conditions relating to monitoring, protection of the environment, reporting and

compensation; and

c) Including conditions relating to provision of information prior to renewal (cl 15 PMTUL).

While there is a good degree of certainty about the water contained in the Dilwyn, these considerations may be

relevant if there is uncertainty about the long term sustainable yield of the bores. This should be the subject of

discussion with the decision maker.

Implications #10: Duration of TUL and investment security: The potentially short duration of a TUL may be

of concern, particularly to private Project participants. This issue should be the subject of negotiation with the

Authority to ensure there is sufficient certainty to invest in the Project.

F.2.3 Authorisation to take and use water from the storage/treatment dam

The Water Act requires that a person hold a TUL to take and use water from a dam for non-stock and domestic

use, to the extent that it is not water supplied to the dam from a bore (among other things): s 51(1)(ba).

However, if the dam captures water from the catchment, and this is to be used for a use other than stock and

domestic use, this would require a separate TUL, since the PMTUL prohibits issuing a licence that allows the

licence holder to take water from more than one type of water system or using more than one method of taking

(cl 13).

Implications #11: Authorisation to withdraw water from storage/treatment dam: No separate authorisation

would be required to take and use water that has been withdrawn from the bore and placed into the dam to cool

or store it, provided that:

- the dam does not also capture water from the catchment, that is, it is constructed in such a way that it cannot

receive water from the catchment (e.g. using bunds for this purpose), OR

- if the dam does capture water from the catchment, an accounting system records the water captured by the

dam from the catchment, and the operator ensures that this water is not withdrawn or is otherwise not used for

anything other than stock and domestic use.


Final Report 71

F.3 Constructing and operating storage and distribution works

F.3.1 Works licences to construct certain dams required under the Water Act

As discussed above, the Water Act requires a person to hold a works licence to construct a bore (s 67(1)(b)). It

also requires a works licence to construct a dam if the dam is located on a waterway (s 67(1)(a)) (which it is

assumed will not be the case here) or if it meets certain size criteria (s 67(1A)), namely:

A wall that is 5m or more high above ground level at the downstream end of the dam and a capacity of

50ML or more;

A wall that is 10m or more high above ground level at the downstream end of the dam and a capacity of

20ML or more; or

A wall that is 15m or more high above ground level at the downstream end of the dam, regardless of

capacity.

It is assumed that the required cooling and storage dam would not meet these criteria, but for completeness, it

is noted that the PMWL also applies specific requirements to works licences in respect of dams that are

required to be licensed (cl 17).

Section 10 of the Water Act authorises the construction and operation of storage and distribution works in the

following terms:

1) An Authority or any other person may, in accordance with this Act, construct or operate works for,

or which may result in the collection, storage, taking, use or distribution of any water…

2) The right conferred by subsection (1) is limited only to the extent to which an intention to limit it is

expressly (and not merely impliedly) provided in—

a) this Act; or

b) any other Act; or

c) the provisions of a licence issued, or entitlement granted, under this or any other Act

Implications #12: Authorisation to construct a dam: Since the Water Act does not expressly require any

authorisation for a dam that is not on a waterway and that falls below the size criteria set out in s 67(1A), or for

distribution infrastructure such as pipelines and pumps, there is no requirement to obtain any specific licence to

undertake these storage and distribution works under the Water Act.

F.3.2 Asset management obligations for Authorities

An Authority (whether a RWC or UWC) would be subject to asset management obligations in relation to the

infrastructure that it owns. For example, clause 7-1 of the legally binding Statement of Obligations (issued under

s4I(2) of the Water Industry Act 2004 (Vic), current Statement version dated 20 December 2015), which applies

to both Wannon Water and SRW, imposes particular requirements in relation to plans, systems and processes

for managing assets. Clause 7-2, which is expressed to apply only to RWCs, imposes particular requirements

about delivering water efficiently, maintaining standards of service, minimising whole of life costs, etc., in

relation to assets used to provide irrigation services. Corporations must monitor their compliance with these

obligations, which are auditable. If an UWC were to deliver the Project for irrigation purposes, Clause 7-2 of the

Statement of Obligations would likely need to be updated to apply to that Authority.

Although private entities are not subject to any particular asset management obligations, under the Water Act, a

person is generally liable to pay damages if an ‘unreasonable’ flow of water flows from that person’s land onto

other land, causing damage or injury (section 16). As described in Part 4, Authorities have some protection from

this provision.


Final Report 72

Implications #13: Asset management obligations of Authorities in Models 1 and 2: In Models 1 and 2,

asset management obligations would apply to the RWC or UWC, respectively, enforceable under their

Statement of Obligations (which may need to be updated for the UWC under Model 2). This would apply to all

infrastructure works of the relevant Authority. No equivalent obligations would apply to private entities in Models

3 and 4, but they would generally be liable for damage caused by ‘unreasonable’ flows of water from their land

(e.g. caused by infrastructure failure).

F.3.3 Planning permits may be required to construct dams and pipelines under the applicable

planning scheme in all Models

Authorisations for storage and distribution infrastructure may be required under the applicable planning scheme.

Planning schemes may regulate or prohibit the use or development of any land (s 6(2)(b) Planning and

Environment Act 1987 (Vic) (‘PE Act’). Precise planning controls differ by planning scheme, and by the zone

and overlays that apply to a particular parcel of land. Planning laws must be complied with in all of the models

under consideration here. As shown by the figure below, 6 local council areas cover the OLA GMA area (OLA

LMP 2016), each of which has its own planning scheme. In each case, the Project proponent must identify the

correct planning scheme and planning controls, and ensure that they obtain a planning permit to undertake the

works (which are likely to be classified as a ‘utility installation’), if required by the applicable planning scheme for

a particular parcel of land.

Figure F.2 : The Dilwyn Formation

If the applicant for the planning permit is not the owner of the land for which the permit is needed, the

application must be signed by the owner of the land or include a declaration by the applicant that the applicant

has notified the owner about the application: s 48 PE Act.

As an example, if land occurs within the Farming Zone of the Colac Otway Planning Scheme, a planning permit

will be required for a ‘utility installation’ that is not a ‘minor utility installation’, and a permit will be required for a


Final Report 73

building or works associated with a utility installation (clause 35.07-1). Any land that is ‘used to collect, treat,

transmit, store, or distribute water’ falls within the definition of a utility installation (clause 74). Although ‘water

mains’ are exempt from this requirement because they fall into the category of a ‘minor utility installation’ (clause

74), the Project would likely involve works that go beyond this, but this would need to be confirmed when the

precise scope of works for the Project is clear. Note that in the December 2016 case of Stanley Rural

Community Inc v Stanley Pastoral Pty Ltd, the Victorian Supreme Court clarified that no planning permit is

required for the extraction of bulk groundwater (as distinct from the infrastructure for the collection, transmission,

etc. of groundwater) unless the applicable planning scheme expressly requires this.

In considering whether to grant a planning permit, the relevant authority must consider the decision guidelines

set out in the relevant clause of the planning scheme. In the case of the Colac Otway Planning Scheme’s

Farming Zone, this involves a long list of matters that include: the applicable Regional Catchment Strategy, any

integrated land management plan prepared for the site, and whether the proposal is compatible with adjoining

and nearby land uses (cl 35.07-6).

It is also important to note that some zones may prohibit the development and use of land for utility installations

or minor utility installations. A planning scheme amendment would be required to allow this use in such

locations.

Implications #14: Authorisations required under the PE Act: Planning permits for storage and distribution

infrastructure may be required under the applicable planning scheme, depending on the precise proposed

location of the infrastructure and the zones and overlays that apply to that location. If a planning permit is

required, the Project will involve the risk that the Council will refuse to grant the permit, or that a Council’s

decision to grant a permit may be challenged by local landowners who consider that they would be affected by

the permit (section 57, P&E Act). An applicant for a permit may apply to the Victorian Civil and Administrative

Tribunal for review of a decision to refuse to grant a permit (section 77, P&E Act). There have been past

examples of litigation over a decision to grant a planning permit for a pipeline under a water ‘supply by

agreement’ arrangement (detailed below): Victorian National Parks Association Inc v Iluka Resources Limited

[2004] VCAT 20 (5 January 2004).

F.3.4 Arrangements for access to land for infrastructure are required in all Models

Any model that involves the construction of storage and distribution infrastructure over the land of a person that

does not propose to own and operate the infrastructure will require access to install and operate the

infrastructure over that land. The methods available for obtaining this right differ depending on whether the

entity seeking the right is an Authority or a private entity. Although it is theoretically possible to gain access to

the land through other methods, for example a licence, this is undesirable, since this would not run with the title

to the land (i.e. if the land is sold, the agreement would not bind the subsequent landowner). Accordingly, only

easements (which run with the land) or purchase (including through compulsory acquisition) are discussed here.

F.3.4.1 Private easements (available in all models)

An easement is a right to make use of someone else’s land without occupying it. An easement may be used to

provide land with permanent access to storage and distribution infrastructure passing over or under

neighbouring land. There are many ways in which easements can be created, including expressly, by deed or

transfer under the Transfer of Land Act 1958 (Vic), and in some cases by implication. An express, registered

easement would provide much greater ongoing certainty of access than informal arrangements, and would

reduce the potential for disputes. Easements are property rights that relate to parcels of land, being the ‘servient

land’, which is burdened by the easement, and the ‘dominant land’, which has the benefit of the easement. In

other words, they are not ‘owned’ by a person or legal entity (unlike regulatory easements, which are held by an

Authority). Easements run with the land, meaning that even if the dominant land or the servient land is sold, the

burden and benefit, respectively, continue. An easement cannot exclude the owner from the land.

An easement requires negotiation to set its terms (which may not be successful, in which case there can be no

private easement), and can be costly to register because of the land surveys required.


Final Report 74

F.3.4.2 Models 1 and 2: Regulatory easements

In addition to the potential to use private easements as is open to private entities described below, a RWC or

UWC in Models 1 and 2 may create a regulatory easement in favour of the Authority (rather than for the benefit

of particular land, as is the case for private easements) for the purpose of providing water. Section 130 of the

Water Act empowers water Authorities to purchase or compulsorily acquire land, or an easement, to undertake

their functions (which include water supply). In the event of compulsory acquisition, they must follow the

procedures for notification and compensation set out in the Land Acquisition and Compensation Act 1986 (Vic).

Regulatory easements have the advantage of a certain outcome to the process of acquiring the easement. By

contrast, private easements must be successfully negotiated, and ‘access by agreement’ arrangements that

apply in Models 3 and 4 (see below) are subject to the discretion of the deciding authority in cases where the

landowner disagrees with the easement, with no criteria to guide that discretion. Accordingly, if the Project is

likely to require land for water supply infrastructure, and if the relevant landowners are unlikely to agree, or

unlikely to agree on reasonable terms, the availability of regulatory easements under Models 1 and 2 may be an

important consideration in favour of these models.

F.3.4.3 Models 3 and 4: Access by agreement under the Water Act

Part 12 of the Water Act sets out a process for a landowner (not including an Authority: section 233(4)) to seek

access to land owned by another person (including public land) for drainage, water supply or salinity mitigation

purposes. This process involves serving a notice seeking access, reaching agreement about compensation,

undergoing a dispute resolution procedure if agreement cannot be reached (which can result in compulsory

acquisition of the access sought), and recording the agreement on the Titles Register so that it binds

successors in title. The person who has the right of access has the right to enter the relevant land to install,

remove, alter or maintain any works on the land that are necessary for the use of the right of access (section

238). Penalties apply for obstructing a person carrying out such works (section 240).

Compared to easements, access by agreement arrangements have the advantage of processes that apply in

the event of disagreement about access (so that the right can be granted even if the landowner disagrees),

arrangements to deal with damage to the burdened land, and enforcement arrangements. However, since the

Water Act does not set out any criteria for assessing the need for the right of access or considering detriment to

the landowner, it is uncertain how a deciding authority (in the event of a disagreement about access) would

decide the issue in a given case.

Implications #15: Access for storage and distribution infrastructure: Access to land for storage and

distribution infrastructure may be arranged in several ways, and the available options differ by the Model. A

RWC, UWC or private entity could negotiate and agree a private easement with the relevant landowner(s), or

purchase the land. A RWC or UWC could compulsorily acquire an easement (a regulatory easement) over the

relevant land using s130 Water Act. A private party could use Part 12 of the Water Act to negotiate or have

granted an ‘access by agreement’. The most certain avenue for obtaining access to land is a regulatory

easement, only available to a RWC or UWC, since this can be done compulsorily. Access by agreement is

slightly less certain, since although it can be secured without the landowner’s agreement, it may not be granted

by the decision maker.


Final Report 75

F.3.5 Notification of construction of a private dam (Models 3 and 4)

Even though a dam that is not on a waterway and is below the applicable size requirements does not require

authorisation under the Water Act, the Water (Resource Management) Regulations 2007 (Vic) impose relevant

notification requirements under some circumstances if the occupier of the land is a private person. The

Regulations require a person who occupies land located within a rural residential area to give written notice to

the Minister before constructing a new private dam or altering an existing private dam on that land (reg 31). The

notice must include specified information, including geographical location, estimated capacity and wall height. A

‘rural residential area’ is defined as land that is (reg4):

within particular zones of the applicable planning scheme, being the Rural Living Zone, Green Wedge Zone

or a residential zone within the meaning of the Victoria Planning Provisions; and

8 hectares or smaller in size.

Implications #16: Notification requirements regarding private dams: Notice of the construction of a private

dam (Models 3 and 4) must be given to the Minister if the dam is to be located within certain rural residential

zones, on land less than 8 hectares.

F.4 Supplying water to end users

This section discusses the arrangements that would apply to the supply of water by an entity holding a TUL or

BE, and end users who do not directly hold rights to withdraw groundwater. The available arrangements differ

by Model.

F.4.1 Supply by Authorities (Models 1 and 2)

F.4.1.1 Irrigation district

Part 11 of the Water Act sets out arrangements for ‘Authorities’ that have irrigation districts. It is important to

note that the version of Part 11 (ss 220-231) that appears in the current Water Act does not apply to non-

declared water systems: cl 2, Schedule 15. There are currently no declared water systems that include

groundwater. For a non-declared system, the irrigation district provisions that apply are those that were in force

immediately before the amendment of Part 11 by the Water (Resource Management) Act 2005 (referred to here

as the Old Part 11, and the whole Act at that date as the Old Act). The Old Part 11 is that found in version No

078 of the Water Act, incorporating amendments as at 25 August 2005.31

An Authority may be given a new irrigation district if it applies to the Minister, and the Minister publishes the

relevant declaration in the Government Gazette (s 122J). The Water Act does not impose any restriction on the

type of Authority that may apply to the Minister for an irrigation district. Both SRW and Wannon Water fall within

the definition of an ‘Authority’ under both the Old Act and the current Water Act (ss 4, 85, Schedule 1), though

the definitions are different. Accordingly, it would be open to both Wannon Water and SRW to apply to the

Minister for a new irrigation district. In what may be a legislative oversight, the Water Act does not explicitly

require any particular form of proposal to establish a new irrigation district, nor does it require a particular public

notice and submissions procedure for establishing a new irrigation district. A proposal to expand an existing

irrigation district is subject to these requirements (Div 3, Part 6A).

The Old Part 11, which applies to non-declared water systems, gives Authorities with irrigation districts

particular functions, including ‘to provide, manage and operate systems for the supply of water to irrigable lands

and for the appropriate drainage and protection of those lands’ (s 221(1)(a)). Under section 222(1) of the Old

Part 11, an Authority:

a) must make available for supply, to the owner or occupier of each holding in its irrigation district in

respect of which a domestic and stock charge is levied, water for domestic and stock use on a

scale of quantities fixed by the Authority; and

31 Available at this link:

http://www.legislation.vic.gov.au/Domino/Web_Notes/LDMS/LTObject_Store/LTObjSt3.nsf/DDE300B846EED9C7CA257616000A3571/704C9911FC05DD99CA257761002D8189/$FILE/89-80a078.pdf




Final Report 76

b) must make available for supply, to the owner or occupier of each holding in its irrigation district,

the amount of water for irrigation that is specified in the register in relation to that holding; and

c) may sell additional water to any owner or occupier to whom it supplies water under paragraph (a)

or (b); and

d) may sell water to the owner or occupier of any land, whether within or outside its irrigation district.

An Authority is prohibited from selling water under paragraphs (c) or (d) until it has made provision for the

supply of all water to which owners and occupiers are entitled under paragraphs (a) or (b).

There are differences between the Old Part 11 (which applies to non-declared water systems) and the current

version (which applies to declared water systems), particularly in relation to transfers (discussed below). The

impact of the 12 years of water trading-focused water reforms that separates the two versions is apparent in the

significantly simpler current version. This difference, as well as the inevitable confusion and complexity that

would arise for the relevant Authority and customers of the Project with an irrigation district operating under a

12-year old piece of legislation, may lead the Minister to be reluctant to approve an irrigation district that would

operate in this way.

The Water for Victoria Strategy foreshadows that DELWP will investigate the merits of unbundling in relation to

groundwater (Action 8.2). This would presumably involve making at least some groundwater systems declared

water systems. If groundwater were unbundled in relation to an irrigation district for the Project, this would

remove the potential for confusion and anachronistic arrangements outlined above. There is precedent for water

systems to be declared with reference to irrigation districts, rather than only physical water systems. For

example, the ‘Werribee water system’ is defined to include various particular reservoirs and waterways, as well

as ‘Bacchus Marsh irrigation district’ and ‘Werribee irrigation district’ (Order Declaring Water Systems in

Southern Victoria 2008, 24 June 2008). The Werribee irrigation district of SRW uses a combination of surface

water and groundwater, though presumably the relevant groundwater is held under a take and use licence and

the groundwater source is not considered unbundled.

While there may be future declarations of water systems that include groundwater, given the uncertainty about

this point, this report covers only the law as it applies to non-declared systems (all groundwater at present).

F.4.1.2 ‘Supply by agreement’

Section 124(7) gives Authorities the function of supplying water ‘from its works to any person by agreement’. An

Authority is required to have regard to the matters specified in section 40(1)(b) to (m) (see Table above), and

any other matter it thinks fit (s124(8)). Accordingly, a RWC or UWC could make commercial agreements with

one or more end users to supply them with water outside an irrigation district. As noted below, however,

because this would constitute a ‘retail water service’ for the purposes of the Water Industry Regulatory Order

2014 (‘WIRO’), it would still be a service subject to economic regulation.

F.4.1.3 Economic regulation of retail water services

Both Rural Water Authorities (such as SRW) and Regional Urban Water Authorities (such as Wannon Water)

are ‘regulated entities’ for the purposes of the Water Industry Act 1994 (Vic) (s4A). The Essential Services

Commission (‘ESC’) has the power to regulate:

standards and conditions of service and supply; and

prices,

in relation to water supplied by the Project, because this activity falls within the meaning of ‘retail water

services’32, which involve the supply of water by a regulated entity to another person (cl 7, WIRO). ESC

regulation would apply regardless of the legal arrangements used to facilitate the Project (i.e. irrigation district or

supply by agreement), because the WIRO defines ‘retail water service’ broadly. Efficiency and financial viability

are the key concerns of the ESC in undertaking these functions (cl 8, WIRO).

32 ‘Retail water service’ is defined as ‘a service provided by a regulated entity in connection with the provision of a supply of water to a person other

than a regulated entity’ (cl 6, WIRO).


Final Report 77

Both Wannon Water and SRW are already subject to regulation by the ESC in relation to their activities, for

example supplying urban water (which is also a ‘retail water service’) and supplying ‘diversion services’, which

are services ‘in connection with the management, extraction or use of groundwater or surface water’ (cl 6,

WIRO). Accordingly, this report does not discuss regulation by the ESC in detail, but notes that it involves the

following:

The ESC makes a price determination that sets maximum prices that the regulated entity may charge for

retail water services, or the manner in which the prices are to be calculated, determined or otherwise

regulated (cl 10, WIRO). In making the determination, the ESC considers, among other things, the interests

of customers, the efficient costs of providing the services and the need to avoid price shocks (cl 11, WIRO).

The process of making a price determination is a lengthy one, involving the ESC providing detailed

guidance to the regulated entity, undertaking consultation with the regulated entity, issuing a draft decision

(cll 12-16, WIRO).

The ESC evaluates the performance of regulated entities and carries out audits in relation to their

compliance with standards and conditions of service and supply, and their compliance with asset

management obligations set out in their Statement of Obligations (cl 19 WIRO).

The ESC also has the power to make Codes of Practice in relation to regulated entities, for example Codes of

Practice that relate to customer-related standards, procedures and policies (s 47, ESC Act 2001 (Vic)), for

example the current Rural Water Customer Service Code (July 2016).

The Australian Competition and Consumer Commission and the Federal Water Minister have powers in relation

to water charges and water market rules, but by default, these powers only apply to the water resources of the

Murray-Darling Basin (sections 91 and 100, Water Act 2007 (Cth)). However, Part 4A of the Water Act 2007

(Cth) provides for the extended operation of these rules outside the Murray-Darling Basin if a State law and

federal regulations state that they apply in this way. It appears that this Part has not yet been used.

F.4.1.4 Liability in relation to damage caused by flows of water from infrastructure

Under the Water Act, a person is generally liable to pay damages if an ‘unreasonable’ flow of water flows from

that person’s land onto other land, causing damage or injury (section 16). The Water Act does not impose this

liability on an Authority exercising a function related to irrigation districts (section 17(2)) unless the situation

arises because of intentional or negligent conduct (section 157). However, it is unclear whether this protection

would apply to supply by agreement outside irrigation districts. This would be relevant if water flowing from

infrastructure for the Project (e.g. cooling dam or pipeline) inadvertently caused damage.

Implications #17: Options for supply arrangements for Authorities (Models 1 and 2): In Models 1 and 2, a

RWC or UWC could supply groundwater to end users using an irrigation district, which would need to operate

under an old version of Part 11 of the Water Act on account of the groundwater system not being a declared

water system. On this basis, it may be unlikely to gain Departmental approval. As an alternative, a RWC or

UWC could supply groundwater using ‘supply by agreement’ arrangements under section 124(7) of the Water

Act. ESC regulation would apply regardless of which arrangement is used to facilitate the Project (i.e. irrigation

district or supply by agreement), because ESC regulation covers ‘retail water services’ broadly. There is more

certainty about protection of the Authority from liability for damage caused by flows of water from its

infrastructure in the case of irrigation districts, compared to supply by agreement arrangements.

F.4.2 Supply by private entities (Models 3 and 4)

The Water Act provides that: ‘A person has the right to use … (b) water lawfully taken or received from that

person from the works of an Authority or of any other person’ (section 8(4)(b)). The term ‘works’ is defined to

include dams, bores, channels, pipes and conduits, whether above or under land (section 4). Accordingly, the

Water Act clearly contemplates that ‘a person’ other than an Authority may have works, from which that person

supplies water to others, and the relevant definitions clearly include works that are used to source groundwater.

However, the Water Act provides sparse provisions that offer legal structures for doing this.


Final Report 78

F.4.2.1 Community water supply scheme

Early in Victoria’s history, some 30 private irrigation trusts operated under early irrigation legislation, but they

were characterised by significant economic failures and debt write-offs.33 These economic difficulties led to a

policy preference for public irrigation schemes and may create policy concern that any ownership model for the

Project should minimise risks associated with economic unviability.

The only provisions in the present Water Act that could provide a special structure for private irrigation schemes

are the Act’s sparse provisions (ss244-247) for ‘community water supply schemes’, whose primary purpose is to

supply water to farms (s244(1)(b)). Community water supply schemes operate under a ‘community agreement’

which must (s244(2)):

describe in detail the works to be constructed, altered or maintained and their location; and

clearly identify the land affected by the scheme; and

provide for the establishment of a committee, which acts on behalf of participating landowners.

Community agreements should also make provision for other matters, such as meetings of participants, rights of

access over land, obligations regarding maintenance, etc.

Community agreements take effect when they are registered under the Transfer of Land Act 1958 (Vic), and

bind successors in title (e.g. a person who purchases the land from the landowner who originally initiated

participation in the scheme) (s244(3), (4)). The committee set up under the agreement must lodge a copy of the

agreement with any Authority in whose district and Council in whose area the land affected by the scheme is

located (s244(7)). There is no minimum or maximum number of participants in a committee or community

agreement.

A committee set up under a community agreement has special powers (s245):

To request access, for water supply purposes, over land owned by another person, under the procedures

in ss234-243 of the Water Act;

To collect levies, in accordance with the community agreement, from participating landowners (s245(1));

To act as the agent of the participating landowners to seek access over land owned by others; and

negotiate variation (e.g. adding or removing land or a landowner) or revocation of the community

agreement (provided it is authorised to do these things by the participating landowners) (s245(2));

To take out insurance for damage resulting from the community water supply scheme (s245(5)); and

To request that an Authority or Council, in whose district the scheme is situated, exercise the powers and

perform the functions of the committee (s246).

The key benefit of the community water supply provisions is the nature of the community agreement as binding

on the title of the participating landowners. This gives some security and stability to the arrangements beyond

what could be achieved through contracts between participants (which would not bind successive landowners).

However, this stability could also prove problematic if the Project participants anticipate frequent changes in the

arrangements, since any change would have to be lodged for registration under the Transfer of Land Act 1958

(Vic) to be effective.

Note that the Water Bill of 2014 proposed to retain and expand the community water supply provisions, but this

did not become law, and it is uncertainty how any reforms to these provisions would proceed in future. It is

recommended that a final decision on the form of any private irrigation scheme should consider experience in

practice operating under these provisions for community water supply schemes in Victoria. An inquiry with the

Registrar of Titles, or with Authorities or municipal councils (which are required to be notified of the schemes

within their districts) may provide details of existing schemes.

33 Sandford D Clark and Ian A Renard, ‘The Riparian Doctrine and Australian Legislation’ (1970) 7(4) Melbourne University Law Review 475.


Final Report 79

It is important to underscore the brief nature of these provisions, which could give rise to uncertainty and

ambiguity if they are relied on without otherwise clarifying legal arrangements to deliver the Project. Notably, the

Water Act does not specify the precise legal nature of a committee, which should be formally established using

an appropriate legal form (see section 4.2.3 below). The community water supply scheme provisions are also

silent on many other matters that it would be desirable to have explicit between Project participants, such as

committee voting arrangements, procedures for supplying water, procedures for enforcing the agreement if

necessary, etc. Any community agreement must be cognisant of the potential risks that arise in operating an

irrigation scheme, and include measures to deal with those risks.

The legal issues addressed by legislation for private irrigation schemes in other jurisdictions provide a good

guide to the kinds of issues that a community agreement, or independent private irrigation scheme (see below)

should address. The following section provides an overview in relation to the legislation in NSW, which is also

presented as a guide to one potential option for introducing such a structure, should the Minister and

Department wish to consider this. Additionally, the recent legislative changes to enable the transfer to private

ownership of the distribution assets of SunWater in Queensland are described briefly, highlighting the potential

need for financial support from Government in the case of presently uneconomic irrigation schemes.

The Water Management Act 2000 (NSW) (WMA) provides for ‘private irrigation districts’, which are corporations

managed by a board of management known as a ‘private irrigation board’ (Chapter 4, Part 2). A new private

irrigation district may be established by a petition to the Minister of the landholders of 3 or more holdings to

establish those lands as a private water supply district or as a private water supply and irrigation district (s143).

The Act provides for the following processes in relation to such districts (non-exhaustively), which present

issues that a Private Project Entity should also consider in structuring its internal arrangements:

Adding new land to the district (s144)

Altering the boundaries of the district (s145)

Excising a holding from the district, with attention to continued rights to works on the land for the purposes

of the private irrigation board (s146)

Electing and removing members to the private irrigation board (ss149, 150)

Elements of government control over private irrigation boards, e.g. a proclamation of the Governor

removing members of a private irrigation board from office if the board has failed to levy required rates or

charges or to exercise its functions (s150); and an order of the Governor to wind up a private irrigation

board that has ‘ceased to function satisfactorily’ (s152)

Powers of entry onto land for the purpose of constructing or maintaining water supply works (s161)

Fixing and levying of rates and charges for water, including procedures for recovering charges not paid,

and accountability requirements by way of an ‘assessment book’ that records holdings, water allocations

and charges (ss167-175)

Procedures for supplying water, including determining the quantity of water to be allocated for irrigation to

each holding, circumstances under which a private irrigation board may refuse to deliver water (ss176-181)

Effects of new subdivisions of land on the supply of water and requirements for additional works (ss182-

184)

Procedures for meetings of landholders and voting rights (ss185-186)

Finance requirements (ss187-190)

Transformation of water entitlements, that is, determining a particular landholder’s water entitlement and

transforming that entitlement into a tradeable access licence under the WMA (ss190A-190B)

Miscellaneous other procedures and powers, including powers to delegate powers of the private irrigation

board, and powers to make by-laws for various purposes (e.g. methods of measuring water, selling water,

preventing waste of water, circumstances in which charges can be written off, etc.) (ss191-196).

Other parts of the Water Act also provide important powers:

- A right to charge interest on overdue rates and charges, liability for unpaid rates and charges,

including whether an estate or interest is transferred (Ch 7 Pt 4)


Final Report 80

- Offences that apply to destroying, damaging or interfering with works owned by a private irrigation

board (s342), or taking water from those works without the Authority of the private irrigation board

(s343)

- A power of the state government to compulsorily acquire land to transfer to a private irrigation

board (s375)

- Exclusion of personal liability for an act or omission of a private irrigation board if they acted in

good faith for the purpose of executing the Act (s397)

Note that the WMA also provides for other private water supply entities as a historical measure, but does not

allow creation of new instances of these entities (e.g. private water trusts, irrigation corporations).

Some Authorities also have template community agreements and supporting agreements to detail some of

these issues.

Other states use a variety of other legal mechanisms associated with private ownership of irrigation schemes.

Notably, the channel irrigation schemes owned by SunWater, a government-owned corporation in Queensland,

have recently been the subject of legislative change to enable them to be transferred to private ownership

through a complex process that includes creating interim ‘special purpose vehicles’ as companies to hold the

assets. This is described briefly here (though it is outside the scope of this report to describe in detail the

detailed arrangements for legal transfer of assets to private irrigation entities). Detailed information about the

local management transfer arrangements is available at: http://www.lmairrigation.com.au/home.

SunWater is a government owned corporation (GOC) which was established under the Government Owned

Corporations Act 1993 (Qld) and transitioned to a company GOC under the Corporations Act 2001 (Cth) in

2008. SunWater manages a regional network of bulk water supply infrastructure that supplies water to more

than 5000 customers in the mining, power generation, industrial, local government and irrigated agriculture

sectors. Currently, it owns and operates eight channel irrigation schemes located in regional areas of

Queensland. The channel irrigation schemes vary in size and complexity, amount of water distributed, crops

grown and the number of customers. Channel irrigation infrastructure consists of mostly linear infrastructure -

pipelines and channels located on a range of land tenures, including perpetual leases and freehold land.

SunWater also holds various easements, licences, approvals and authorities necessary for carrying on the

business of supplying an irrigation service.

The Water (Local Management Arrangements) Amendment Act 2017 (assented to on 27 February 2017) (‘Local

Management Amendment Act’) provides for the transfer of SunWater’s channel irrigation schemes to local

management arrangements, where this is viable (i.e. transfer to new legal entities, ultimately owned and

controlled by the irrigators in each scheme). The local management arrangements only relate to the transfer of

assets associated with SunWater’s distribution schemes, such as channels, pipes and drains, rather than the

dams. The Explanatory Notes to the Water (Local Management Arrangements) Amendment Bill 2016 indicate

that in addition, the Queensland Government is providing for a staged ownership model to transition additional

SunWater channel irrigation schemes to local ownership. This will be done by first creating ‘special purpose

vehicles’ as new legal entities, established as companies under the Corporations Act 2001 (Cth). These will

initially be owned by the Queensland Government, to be transferred to private ownership if this is demonstrated

to be feasible. A noted challenge to the overall local management transfer process is that the current irrigation

revenues from the schemes do not cover the cost of operating them (i.e. they are loss-making), so the process

of transferring to local ownership will involve transfer from the state with a ‘separation payment’, i.e. sufficient

capital to allow the scheme to continue to operate while it makes a loss, and before it is able to increase

revenue and reduce costs. Section 721 of the Water Act 2000 (Qld), introduced by the Local Management

Amendment Act, makes clear that the new irrigation entities will be provided financial support by the State,

under a funding arrangement for the corporation to undertake the project. The terms of transfer from the

Government to the special purpose vehicles will also include precedent conditions to require them to

demonstrate that they are operationally ready to take over operation of the scheme. Local arrangements are

anticipated to be completed in around mid-2018.34

34 http://www.lmairrigation.com.au/content/faqs

http://www.lmairrigation.com.au/home


Final Report 81

F.4.2.2 Independent private irrigation scheme

An alternative to using the community water supply scheme structure would be to simply establish private

contractual arrangements between Project participants. These contracts would have different purposes

depending on whether the single works licence-multiple TUL model or the single works licence-single TUL

model is selected (see Part II):

Single works licence-multiple TUL model: contracts would deal with issues including access to

infrastructure, such as shares of the capacity of the pipelines. The TULs themselves make each holder

accountable for compliance with the terms of the licence.

Single works licence-single TUL model: contracts would deal with issues including the share of the TUL

available to each participant, obligations to act in accordance with the terms of the licence, and liability for

failing to act in accordance with the licence (for which the holder of the TUL is ultimately responsible).

An independent private irrigation scheme that relies on contractual arrangements alone would lack the

advantages of a community water supply scheme conferred by the Water Act in relation to powers to collect

levies, request access to land, etc. Perhaps the most important relative disadvantage is that the scheme details

would not be registered on the title to the relevant land, and so would not bind future owners of any land that is

sold by a participant.

Implications #18: Options for supply arrangements for private entities (Models 3 and 4): A private entity in

Model 3 or 4 may conclude water supply arrangements with end users using either the community water supply

scheme provisions under the Water Act, supported by contractual arrangements, or contractual arrangements

alone. The former is preferable due to the security offered by having the relevant agreement registered on the

title to the relevant land, and therefore binding on future landowners, as well as due to the special powers that

the Water Act bestows on community water supply scheme committees.

F.4.2.3 Issues relating to the internal arrangements of the Private Project Entity

From the perspective of the legal obligations that would apply to the Project, the precise legal form of the private

entity holding the relevant authorisations is not relevant, provided that it is a legal person. This then complies

with the Department’s policy preference for readily enforceable licensing arrangements. Rather, the focus of this

report is the nature of the legal obligations that apply, and different possible ownership models in terms of

division of ownership and legal responsibility for different parts of the Project (e.g. extraction, distribution, etc.).

Accordingly, this report will not discuss in detail the different possible internal arrangements of a Private Project

Entity, other than to note that there are various ways that it could be structured, for example:

Incorporated association under the Associations Incorporation Reform Act 2012 (Vic) (requires at least 5

members, so would likely be unsuitable for small number of participants in Model 3 or 4);

Co-operative under the Co-operatives National Law Application Act 2013 (Vic);

Owners corporation under the Owners Corporations Act 2006 (Vic); and

Company under the Corporations Act 2001 (Cth).

Implications #19: Creation of a Private Project Entity (Model 4): in order to be a separate legal person, the

Private Project Entity will need to take a legal form such as a company, incorporated association, owners

corporation, etc. The form which is appropriate for a given situation will depend on the precise circumstances,

for example, the appetite for complying with reporting requirements, acceptance of establishment fees, tax

benefits, advantages in terms of limited liability, etc.

F.4.2.4 Economic regulation of services

The relevant regulatory powers of the ESC presently only apply to water authorities. They do not apply to

private entities. Accordingly, the private entities in Models 3 and 4 are not required to comply with the WIRO.


Final Report 82

As described above, the powers of the Australian Competition and Consumer Commission and the Federal

Water Minister in relation to water charges do not apply to water resources outside the Murray-Darling Basin (ss

91 and 100, Water Act 2007 (Cth)), though they do apply to private infrastructure operators within the Basin.

This is relevant to note, since, as noted above, the legislation sets out a procedure for applying the same rules

outside the Basin (though it appears this provision has not yet been used).

Accordingly, there is presently no legislative structure that would apply economic regulation to a private

irrigation scheme in southern Victoria. There may theoretically be a possibility of extending economic regulation

to private infrastructure operators in southern Victoria by, for example, amending the Water Industry Act 1994

(Vic) to expand the definitions of ‘regulated water entity’ and ‘regulated water industry’.

Implications #20: Economic regulation of private entities: A private entity under Models 3 and 4 will not be

subject to economic regulation by the Essential Services Commission without amendments to current

legislation. However, an application by a private entity for a substantial water entitlement to be used to supply

water services may trigger such legislative change. A private model with more users may be more likely to raise

concerns about private monopoly water services than a model with fewer users. A model in which all end users

hold their own TULs may be less likely to cause concern about monopoly water services than one in which

water is supplied under contractual mechanisms to end users who do not hold water rights.


Final Report 83

Appendix G. Risk assessment for ownership models considered

Risk #

Risk description (cause and

effect) Mitigation measure



Risk description (cause

and effect) Mitigation measure



1

Access to easements Inability to negotiate access to

easements delays delivery and

increases cost.

(Although SRW can always

access easements through

compulsory acquisitions, this is

not SRW's preferred approach).

Allow for some contingency

in planning and design

schedule and cost.

Allow a community

consultation and

engagement plan early on in

the process.

Inability to negotiate access to

easements delays delivery and

increases cost

(Although WW can always

access easements through

compulsory acquisitions, this is

not WW's preferred approach).

Allow for some

contingency in planning

and design schedule and

cost.

Allow a community

consultation and

engagement plan early on

in the process.

Inability to negotiate access

to easements delays delivery

and increases cost.

(Large business does not

have the backup option of

compulsory acquisition).


in planning and design

schedule and cost.

Engage a community

engagement

advisor/consultant.

Seek support or advice from

Government or SRW.

Inability to negotiate access

to easements delays

delivery and increases cost.

(Syndicate does not have

the backup option of

compulsory acquisition).

The syndicate should be

formed of neighbouring

properties to avoid third party

involvement and reduce the

need for access to easements.

Allow for some contingency in

planning and design schedule

and cost.

2(a)

Planning approval Planning approvals are delayed

or have onerous requirements.

(Not expecting significant works

on public land, therefore low

likelihood and consequence).


in planning schedule.

Planning approvals are delayed

or have onerous requirements.

(Not expecting significant

works on public land, therefore

low likelihood and

consequence).

Allow for some


schedule.

Planning approvals are

delayed or have onerous

requirements.


works on public land,

therefore low likelihood and

consequence).



Planning approvals are

delayed or have onerous

requirements.


works on public land,

therefore low likelihood and

consequence).


planning schedule.

2(b)

Works approval and

approval for take and

use licence

Approval delay lead to a delay

in the overall schedule.

(The scale of the scheme is not

expected to impact the approval

timeline. Approval will be

delayed if the technical

information is more

complicated, but the level of

complexity is expected to be

relatively consistent across all

bores).

Including sufficient cost

allowance for all approvals.

Engage independent

hydrogeological consultant.



Approval delays lead to a delay

in the overall schedule.

(The scale of the scheme is not

expected to impact the

approval timeline. Approval will

be delayed if the technical

information is more

complicated, but the level of

complexity is expected to be

relatively consistent across all

bores).


allowance for all

approvals.

Engage independent

hydrogeological

consultant.

Allow for some


schedule.

Approval are delayed or not

issued.

The most significant

approvals risk relates

Government's current policy

concern for private water

supply services. This

includes the legal ambiguity

in the Constitution Act and

potential changes to

Government policy and/or

legislation triggered by

requests for private water

supply schemes.

Also, preparation for

approval process could be

sub-standard if business

owner does not have

experience in this area.



A potential way to mitigate

some of the uncertainty

around government position

(or legal status) of private

ownership would be for each

landowner to hold its own

TUL. Although some or all of

the TUL holders may use

infrastructure owned by

another entity, this may allay

some of the concerns about a

monopoly water entitlement

holder.

Engage independent




Approval are delayed or not

issued.

The most significant

approvals risk relates

Government's current policy

concern for private water

supply services. This

includes the legal ambiguity

in the Constitution Act and

potential changes to

Government policy and/or

legislation triggered by

requests for private water

supply schemes.

Also, preparation for

approval process could be

sub-standard if syndicate

does not have experience in

this area.



Each landowner should hold its

own TUL. Although some or all

of the TUL holders may use

infrastructure owned by

another entity, this may allay

some of the concerns about a

monopoly water entitlement

holder.

Engage independent



planning schedule.

3

Conflict of interest SRW is the regulator for works

approvals and licence approvals

which poses a conflict of

interest risk if SRW is also the

applicant and/or if the viability

of SRW's project is dependent

on its own approval.

SRW would need to arrange

for the Department/Minister

to be the regulator for all

relevant approvals. This is

consistent with the

requirement outlined in the

'Delegation by the Minister

for Water under section 306

of the Water Act 1989 to

Gippsland and Southern

Rural Water Corporation and

certain employees’ dated 19

September 2016'

No risk NA No risk NA No risk NA

SRW Wannon Water Large business Irrigator syndicate

Planning Stage

Risk #










Planning Stage

4

Health and safety during

construction

Non-compliance with OH&S

legislative requirements leads

to injury or worse during

construction

(Noting that risk is already

relatively low for Government

owned enterprises that have

high HSE standards built into

contract)

Include H&S requirements in

the contract

Engage reputable

contractors with strong H&S

record


legislative requirements leads

to injury or worse during

construction

(Noting that risk is already

relatively low for Government

owned enterprises that have

high HSE standards built into

contract)

Include H&S requirements

in the contract

Engage reputable

contractors with strong

H&S record


legislative requirements

leads to injury or worse

during construction

(Noting risk is higher than

for water corporation as

there are varying standards

within private sector. A

registered business is likely

to have more professional

(legal and procurement)

advice during the

procurement stage than an

irrigator syndicate which will

help manage this risk)

Any government involvement

(eg through funding

contribution) would need to

be subject to compliance with

OH&S legislative

requirements


legislative requirements

leads to injury or worse

during construction.

(Noting risk is highest for

the irrigation syndicate as

they are least likely to seek

professional/legal advice

during contract stage and

their selection of contractor

may be most price sensitive

(which can lead to some

compromises on H&S

management)


(eg through funding

contribution) would need to be

subject to compliance with

OH&S legislative requirements

5

Construction quality Some (minimal) risk of poor

quality impacting functionality,

design life or maintenance

requirements/costs.

(Note SRW has established

project management and

procurement protocols in place,

which reduces this risk).

Minimal mitigation required

beyond existing controls.

SRW has experience with

relevant works and in the

region, meaning that

contractual arrangements

will largely protect SRW from

significant financial risk.

In terms of scheduling risks,

allow for some contingency

in delivery timelines to

accommodate unplanned

delays.

Some risk of poor construction

quality impacting functionality,

design life or maintenance

requirements/costs due to lack

of experience in rural water

sector.

WW would have established

project management and

procurement protocols in place,

but unlike SRW may not have

the specific experience related

to rural water supply works. As

such, more of the expertise

may need to be outsourced and

there is a slightly greater

likelihood (still considered to be

low) that construction quality

may be compromised.

Minimal mitigation

required beyond existing

controls. There may be

merit in seeking external

expertise as part of

tendering process to

reduce risk.

Being profit driven, a

business will have incentives

to keep costs down, but will

similarly have incentives to

deliver to the required

quality. Construction

contracts will therefore likely

address this risk.


(eg through funding



procurement/contractual

standards.

Irrigator syndicate will be

the most price sensitive of

the four ownership models

and therefore have more

incentives to select the

lowest cost quote which can

sometimes lead to a

compromise on quality. This

could impact the

functionality, design life or

maintenance requirements/

costs.


(eg through funding



procurement/contractual

standards.

6

Environmental damage

from not maintaining

assets

Some (minimal) risk of

environmental damage from

lack of maintenance of bores

(eg contamination risk).

Likelihood and consequence of

damage is considered to be low

across all options, noting that it

is even lower for SRW and WW

ownership due to established

requirements, protocols and

community expectations of a

regulated industry)

Period maintenance and

monitoring of infrastructure

built into management plan

and cost estimate.

Some (minimal) risk of

environmental damage from

lack of maintenance of bores

(eg contamination risk).

(Noting that this is a low risk

due to established

requirements, protocols and

community expectations of a

regulated industry)


monitoring of

infrastructure built into

management plan and

cost estimate.

Likelihood and consequence

of damage is considered to

be low across all options.

The risk is only marginally

higher (but still low) than

the UWC or RWC ownership

models as it has the

incentive of reducing the

frequency and/or extent of

maintenance of the

infrastructure. This can lead

to environmental

contamination of the aquifer.


(eg through funding



an approved environmental

management plan. This may

already be required if the

EPBC Act is triggered, or

through the planning

approval process. If not, SRW

could impose this

requirement as part of the

works approval process.

Likelihood and consequence

of damage is considered to

be low across all options.

The risk is only marginally

higher (but still low) than

the UWC or RWC ownership

models. A syndicate may

not maintain infrastructure

as needed, particularly in

years of lower

yields/returns. There is also

a greater likelihood that

maintenance is not

coordinated across the

scheme, and left up to

individual landholders. The

quality of any maintenance

undertaken may be

inconsistent and more

difficult to monitor.


(eg through funding


subject to compliance with an

approved environmental

management plan. This may

already be required if the EPBC

Act is triggered, or through the

planning approval process. If

not, SRW could impose this

requirement as part of the

works approval process.

Operations Stage

Delivery Stage

Risk #










Planning Stage

7

Inadequate maintenance

of assets leads to

infrastructure failure

There is some (minimal) risk of

poor maintenance resulting in

failure of assets prior to

reaching end of design life, with

higher costs of repair and/or

replacement.

(Noting that this is lower risk

than for syndicate model or

business model due to

established requirements,

protocols and community

expectations of a regulated

industry)


monitoring of infrastructure

built into management plan

and cost estimate.

There is some (minimal) risk of

poor maintenance resulting in

failure of assets prior to

reaching end of design life,

with higher costs of repair

and/or replacement.

(Noting that this is lower risk

than for syndicate model or

business model due to

established requirements,

protocols and community

expectations of a regulated

industry)


monitoring of

infrastructure built into

management plan and

cost estimate.

As above, there is a risk that

a business owner may seek

opportunities to reduce costs

and increase the profit

margin by reducing the

frequency and/or extent of

maintenance of the

infrastructure.

This could result in failure of

assets prior to reaching end

of design life, with higher

costs of repair and/or

replacement.

There is an increased risk

that the financial costs

would be borne by

Government or SRW if not

planned for by the business

owner.


(eg through funding



agreed maintenance

program.

As above, there is a risk

that an irrigation syndicate

will not maintain

infrastructure as needed,

particularly in years of lower

yields/returns. There is also

a greater likelihood that

maintenance is not

coordinated or monitored

across the scheme, and left

up to individual landholders.

If maintained, it is also likely

that landowners will do the

work themselves. The

quality of any maintenance

undertaken may not be

consistent and more difficult

to monitor.

This could result in failure of

assets prior to reaching end

of design life, with higher

costs of repair and/or

replacement. There is an

increased risk that the

financial costs would be

borne by Government or

SRW if not planned for by

the syndicate.


(eg through funding



agreed maintenance program.

8

Inadequate

management of iron

content in water

NA - it is expected that SRW

would treat the water at the

bore site to protect its assets

from this risk

NA NA - it is expected that WW

would treat the water at the

bore site to protect its assets

from this risk

NA Given the importance of

trying to keep costs down, it

is unlikely that a business

owner will treat the iron

content in the water at the

bore location. This will

increase the likelihood of the

pipes and pumps becoming

clogged over time and the

cost of repair and

maintenance will be high. If

not maintained properly, the

assets may reach the end of

the useful life much earlier

than the design life, bringing

forward replacement costs.

If not managed properly, the

costs may become

prohibitive and there may be

pressure on Government or

SRW to replace/repair the

infrastructure.


(eg through funding



an approved iron treatment

plan. If this does not include

treatment of the pumped

water at the bore site, the

maintenance program and

maintenance cost allowance

will need to factor in the high

iron content of the water.

The agreed approach to iron

management could be

captured in an approved

management plan as part of

approval process.

If the iron content in the

water is not treated at the

bore location, the pipes and

pumps can become clogged

over time and the cost of

repair and maintenance will

be high. If not maintained

properly, the assets may

reach the end of the useful

life much earlier than the

design life, bringing forward

replacement costs.

If not managed properly,

the costs may become

prohibitive and there may

be pressure on Government

or SRW to replace/repair

the infrastructure.


(eg through funding


subject to compliance with an

approved iron treatment plan.

If this does not include

treatment of the pumped water

at the bore site, the

maintenance program and

maintenance cost allowance

will need to factor in the high

iron content of the water.

The agreed approach to iron

management could be captured

in an approved management

plan as part of approval

process

Risk #










Planning Stage

9

Risk posed by change in

property ownership

and/or irrigators opting

out

Change in ownership and/or

irrigators opting out of the

scheme will lead to increase

water prices for other water

users, may reduce demand and

lead to stranded assets

(Note that this is less of a risk

relative to business or syndicate

ownership models due to the

larger number of properties.

The consequence of one

irrigator opting out will be less

significant).

Prices will be regulated to

recover the fixed and

variable costs of supply.

Changes in demand will

impact prices, but the larger

asset base and customer

base will offset some of

these risks and help smooth

out prices.



scheme will lead to an increase

in water prices for other water

users. This may reduce

demand and lead to stranded

assets.

Note that this is less of a risk

relative to business or

syndicate ownership models

due to the larger number of

properties. The consequence of

one irrigator opting out will be

less significant).

Prices will be regulated to

recover the fixed and

variable costs of supply.

Changes in demand will

impact prices, but the

larger asset base and

customer base will offset

some of these risks and

help smooth out prices.



scheme will lead to an

increase in water prices for

other water users. This may

also lead to stranded assets

with SRW or Government

potentially bearing the cost

of decommissioning

The approach to handling this

risk would need to be

addressed in the agreements

between the participants. For

example, this could be

addressed through an agreed

termination payment.


irrigators oping out of the

scheme will lead to increase

water prices for other water

user. This may also lead to

stranded assets with SRW

or Government potentially

bearing the cost of

decommissioning

The approach to handling this

risk would need to be

addressed in the agreements

between the participants. For

example, this could be

addressed through an agreed

termination payment.

10

Financial sustainability

of infrastructure owner

NA NA NA NA Bankruptcy of owner could

put pressure on RWC or

Government to step in to

supply water or to

decommission stranded

assets

The supplier would need to

go through a tender process

which involves a commercial

viability assessment to

reduce the risk a selected

supplier going bankrupt.

This is equivalent Risk 9 See Risk 9

11

Lack of regulation leads

to higher prices

NA (SRW is regulated) NA NA (WW is regulated) NA Water prices will not be

regulated. A large business

could therefore impose

higher prices with little

notice or justification to

increase their profit margin.

The agreed contract between

parties would need to specify

the allowable changes in

prices within an agreed

period, and outline any

exceptions.

Although unregulated, risk

of price increases is low.

Irrigation syndicate will

operate on a cost recovery

model, and will aim to keep

their costs low.

NA

12

Inadequate standards

for decommissioning

NA - SRW would build in the

cost for responsible

decommissioning into its water

prices

NA NA - WW would build in the

cost for responsible

decommissioning into its water

prices

NA There is a higher risk that a

large business would not

include the cost of

decommissioning into its

water prices, and would not

set aside the funds to do this

at the end of the asset life.

This could lead to safety and

environmental risks, and

potentially force SRW

and/or Government to bear

the costs of

decommissioning in the

future.

Any government funding

agreement could be subject

to a works approval condition

that requires responsible

decommissioning at the end

of the bore's life or use.

There is a higher risk that a

syndicate would not set

aside the funds to do this at

the end of the asset life.

This could lead to safety

and environmental risks,

and potentially force SRW

and/or Government to bear

the costs of

decommissioning in the

future

Any government funding

agreement could be subject to

a works approval condition that

requires responsible

decommissioning (eg a make

good provision) at the end of

the bore's life or use.

End of asset life

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