The agribusiness company Webster was allowed to retain 22 gigalitres of water entitlements, purchased by the commonwealth for environmental flows, for an extra year so that it could grow another cotton crop – but the water was transferred within weeks to other properties owned by the company.
The $78m purchase of water from the property Tandou, on the lower Darling near Menindee Lakes in far-western New South Wales, has come under intense scrutiny in the Senate after reporting by the Guardian on the sale. The water transfers raise further questions about whether the deal was good value for taxpayers.
Despite ruling out strategic purchases of water, the commonwealth made Webster an offer for the Tandou water in June without an open process.
Webster was allowed to keep the water for another year because, as bureaucrats told the then agriculture minister, Barnaby Joyce, it was needed to complete growing a cotton crop in 2017-18. There was no attempt to value the extra year of water in the negotiations, though in one document the department said a cotton crop could be worth $20m in a good year.
The secretary of the agriculture department, Daryl Quinlivan, repeated the explanation for giving Webster an extra year of water at a Senate inquiry last month. He said it was normal practice in rural sales to allow the farmer to complete growing their crop.
But this is not what has occurred.
An analysis of water trades by the Australia Institute shows that within weeks of the sale being completed, Webster transferred 20GL of the water allocation for Tandou to the Murrumbidgee, where it also owns farms. Webster says it was simply transferring water back following an earlier transfer into the lower Darling in expectation that it would grow a larger cotton crop at Tandou.
“In the event, the availability of water in Lake Cawndilla was insufficient to grow the scale of crop previously anticipated, the water was transferred back to where it can be accessed,” said Webster’s company secretary, Maurice Felizzi,.
“It is untrue that Webster has sold any of that water. It is earmarked for use, by us, elsewhere in the connected basin.”
Water trading is entirely legal and commonplace. It is not suggested that Webster is breaking the law or is even in breach of its contract, which makes no mention of what the 2017 water should be used for.
But the apparent transfers raise questions about why the commonwealth agreed to valuable water rights being held for a further year without taking it into account in the sale price.
A spokesman for the department said it stood by the answers it had given to the Senate and its view that the purchase achieved value for money for taxpayers.
“The 2017 water allocations were not part of the assets transferred under the transaction agreement … Use of those allocations is a business decision for Tandou,” a spokesman for the department said.
“During 2017 substantial volumes of water allocations were transferred by Tandou into the Lower Darling from elsewhere and some were subsequently back-traded to the Murrumbidgee. We have been advised that a cotton crop is being grown at Lake Tandou using water allocations stored in Lake Cawndilla.”
Several water experts have questioned the value of purchasing water rights from Tandou, and the extent to which it will improve environmental flows, because flows in the Lower Darling have become so unreliable.
Documents also reveal that the government ignored its own valuation, done by the Australian Bureau of Agricultural and Resource Economics, instead opting for a higher private sector valuation prepared for the NSW government. The private valuer, Herron Todd White, also added an extra $40m in compensation for loss of value in the property that would no longer be irrigated.
Webster says it was paid a fair price for its water and for closing down its irrigation operations.
This is the third water purchase from Tandou by the commonwealth. In 2008, the Rudd government and the NSW government paid $34m to Tandou’s previous owners, the listed company Tandou Ltd, for “supplementary” water licences. These licences allowed Tandou to harvest water only after intermittent flood events, and had not been used since 2002-03.
At the time, the Liberal state MP Michael Richardson described the purchase as “blue moon water” available only every 10 years or so.
The commonwealth bought a further 14GL of water from Tandou Ltd in 2010 for $19m. Announcing the sale, the company made no secret of its ambition to become the biggest water rights company in Australia. It continued to buy and sell water rights and to grow cotton at Lake Tandou, but struggled to convince investors of the merits of its strategy. Its share price declined sharply, leading to a takeover by Webster in 2015.
The sale of the remaining 22GL of entitlements associated with the property comes with the added requirement that Webster decommission the irrigation works at Tandou, which should prevent a repeat of what has happened in the past. Having owned the property for just two years, Webster has booked a $36m profit from the sale.
At the same time as it bought Tandou, Webster also invested in several cotton farms upstream at Bourke.