Following revelations about inappropriate dealings with irrigators, the first of six inquiries finds a regulator captured by vested interests. By Mike Seccombe.

Proving political collusion in water buybacks

The Yes Minister rulebook holds that no politician should ever order an inquiry unless its outcome is known in advance. But sometimes, in moments of political desperation, the rulebook has to be thrown out the window.

On July 26 this year, Niall Blair, deputy leader of the New South Wales Nationals, minister for primary industries and regional water among other things, found himself in such circumstances.

Less than 48 hours previously, the ABC’s Four Corners program had aired allegations of massive water theft by politically connected farmers in the Barwon–Darling region of northern NSW. Worse, one of the alleged water thieves claimed to have been given the nod by former water minister, the Nationals’ Kevin Humphries. Worse yet, the program had acquired a tape recording of the state’s senior water bureaucrat, Gavin Hanlon, apparently conspiring with big irrigators to influence the provisions of the Murray–Darling Basin Plan so they could take more than their fair share of water from the vulnerable river system.

This was more than just a story about alleged water theft by big, greedy irrigators; it was about water theft aided and abetted by government. After 10 years of argument and the commitment of almost $13 billion of taxpayers’ money to a plan to try to “restore the balance” between the needs of farmers and the environment, this suggested the system was being gamed on a massive scale.

All hell broke loose. South Australian Premier Jay Weatherill, whose state suffers most from excessive water extraction upstream, wrote to the prime minister calling for an urgent meeting of the Council of Australian Governments to commission a judicial inquiry. South Australian Greens senator Sarah Hanson-Young announced she would seek a senate inquiry, at which whistleblowers would be accorded parliamentary privilege. Most ominously, NSW state Labor wanted an investigation of Humphries and Hanlon by the Independent Commission Against Corruption (ICAC).

Under the circumstances, there was nothing for it but to make a virtue of necessity. Better to get out in front of the issue and show concern by initiating an inquiry. Get it to report back quickly. Draw the poison.

Thus the minister announced the “Independent investigation into NSW water management and compliance”, led by Ken Matthews, AO, the former chairman and chief executive of the National Water Commission.

Despite his impressive credentials – before his retirement in 2010, Matthews headed two federal departments, was an expert in the economics of water, and grew up on an irrigated farm near Griffith – there were sceptics. Weatherill was prominent among them, predicting a whitewash.

The critics were wrong, however. When Matthews’ interim report dropped last week, it was devastating. Four days after its release, Hanlon, the deputy director general for water at the Department of Industry and the state’s most senior water bureaucrat, resigned.

Matthews found a regulator that was not independent, not transparent, that did not adequately monitor water use and was slack about pursuing wrongdoers.

The report found a culture of “expedience” that operated at “the expense of due and proper process”.

Matthews wrote: “I saw examples of possible failures to confront unethical behaviour. I heard public servants clearly deficient in their understanding of the Westminster conventions. I observed a group culture diverging from the best traditions of Australian public administration.”

So poor were the department’s practices, he said, that there was real concern they would reflect “on the reputation of the NSW public service as a whole”.

He did not say it in so many words, but Matthews made quite clear in his recommendations for reform that the water regulators in NSW had been entirely captured by the interests they were supposed to regulate, and by politics.

He called for legislation to establish an entirely new regulatory body, divorced from the Department of Primary Industries and “governed by a board … not subsequently subject to ministerial direction”.

The body of the report went through the various examples of alleged water theft raised by Four Corners, noting the lack of action by the department, recommending that urgent investigation now be taken with a view to prosecution, and also cautioning that departmental investigators should consult with ICAC first. On this last point, ICAC will not confirm what investigations it has in train.

But the big story here was not the alleged actions of the big irrigators – even if, as claimed, they involved the illegal pumping of a billion or more litres of water from the Murray–Darling system. It is the appearance of political and bureaucratic partisanship.

That brings us to Hanlon and his dealings with a select group of powerful vested interests, the so-called “key stakeholder group”.

The Matthews report portrays its activities thus: “Group membership was at the invitation of Mr Hanlon. There were a number of representatives of certain irrigator associations/bodies involved in the meetings. Certain DPI–Water staff members were usually present. The Investigation team is aware of the identities of participants. The group met by teleconference on at least four occasions.”

It was all very confidential. No minutes were prepared.

The report records that Hanlon and other members of this elite group defended it as a legitimate forum for “a frank and confidential exchange of views” that enabled the big irrigators to “offer insights and perspectives before policy was irreversibly locked in”.

In reality, the meetings gave these “key stakeholders” the inside running on negotiations with the Commonwealth about water resource regulation and offered the chance to influence them. They also, Matthews notes, excluded other stakeholders, including other irrigators, “especially environmental and community groups with strong and legitimate interest in Murray–Darling Basin issues”.

The very existence of the group showed poor judgement. More serious, though, was the sharing with the group of some “sensitive, security-classified government information”, and the offer by Hanlon – caught on a recording made by someone at one of the meetings – to share more “de-badged” government information, possibly via a specially created Dropbox.

The inquiry failed to identify the person who made the recording, and there is some dispute about which meeting was recorded. Maybe it was October 12, 2016, or maybe November 1. Whoever did it, they were possibly in breach of anti-surveillance laws and, if they were a public servant, also relevant public service codes.

Nonetheless, they appear to have acted in the public interest. Matthews concluded that “a sufficient case may exist to warrant the Secretary initiating procedures under the Government Sector Employment Act 2013 …”

He stressed, however, that there should be consultation with ICAC before any departmental investigations were launched.

The existence of the secretive stakeholder group of irrigator interests points to a wider concern that there is a concerted political effort to defeat the whole intent of the Murray–Darling water plan: to re-establish a balance between the needs of agriculture and the environment.

A little background is necessary to show why this is important. Back in 1991, a bloom of toxic blue-green algae affected more than 1000 kilometres of the Daring River. It was the first recorded instance of such an event in Australia and an environmental disaster that also killed large numbers of stock and polluted town water supplies. There have since been several similar blooms on the Murray, in 2007, 2009, 2010 and 2016.

The causes are the subject of ongoing study, but low water flows and high water temperatures have been implicated.

Climate science suggests such events are becoming more likely. Bureau of Meteorology data shows temperatures across Australia have risen about one degree on average. For the south-east of the continent, rainfall for the period 1996 to 2015 was down about 11 per cent compared with the long-term average since national rainfall records began in 1900. The predictions are that rainfall will continue to decline across the southern part of the Murray–Darling Basin, and will likely become more extreme and irregular in northern parts.

In 2007, during the catastrophic “millennium drought”, with an election coming up and caught between the demands of both farmers and conservationists, the Howard government announced a “national plan for water security” promising $10 billion funding to restore environmental flows and also assist farmers to better manage water.

That became $12.9 billion under the Rudd government. Subsequently a new water act came in and the Murray–Darling Basin Authority was set up, getting the federal government involved for the first time in what had previously been a state responsibility. The necessity of a federal approach was clear, to stop those in the upstream states from starving those downstream of water.

Big fights followed as various interests jockeyed for advantage, but ultimately broad agreement was reached to put more water back into the river system.

“Critical to the success of the Murray–Darling plan is what they called sustainable diversion limits,” says Professor Quentin Grafton, a water economist at the Australian National University’s Crawford School.

“They were supposed to reduce diversions in the system by 2750 gigalitres, on average, per year. South Australia was concerned that was insufficient, so at the last minute, in 2012, there was agreement to add another 450 gigalitres.”

The remediation plan came down to essentially two things: buying back water entitlements from farmers to improve environmental flows in the river system, and handing out money to farmers and other water users to improve the efficiency of their water use.

Grafton has no problem with the idea of buying back water extraction rights from farmers, but is a long-time critic of the “water efficiency” component of the plan.

His contention, in simplified terms, is that even as less water is extracted from the rivers, less is returned, because irrigators are funded to retain it.

Over the past five years, he says, the government has sent some $3 billion subsidising farmers to capture and use water that formerly would have leaked back into the river system.

“In the forward estimates, we have about another $1.7 billion that is targeted specifically at farmers for water use efficiencies. Add it all up and we’re talking about $5 billion in subsidies in some form or other.”

Grafton and his Crawford School colleague Dr John Williams, a former chief of CSIRO land and water and founding member of the Wentworth group of concerned scientists, believe
the subsidies for water efficiency are actually making the plight of the Murray–Darling worse.

“When you increase irrigation efficiency you reduce return flows to the river system,” he says.

But there has been no work put into measuring that reduced flow.

“At the moment, the Australian government considers that it’s increased stream flows – in terms of the water entitlements that it holds – by over 700 gigalitres. But according to our work, it’s not a plus 700 – it’s probably minus 300,” Grafton says.

Grafton believes the billions spent on so-called water efficiency is worse than wasted money; it’s counterproductive spending.

And who are the big advocates in government of spending on “efficiency” rather than buybacks? Members of the National Party. In particular, Deputy Prime Minister Barnaby Joyce, who as part of the Coalition agreement in 2016 insisted on being given the water portfolio in addition to primary industries.

Immediately after the Four Corners report on water theft, Joyce was recorded telling a group of farmers in Shepparton that he had pushed for the job to prevent more water going to environmental flows under the Murray–Darling Plan.

The “greenies”, he told his audience, were “trying to take more water off you…”

“We’ve taken water and put it back into agriculture so we can look after you and make sure we don’t have the greenies running the show, basically sending you out the back door,” he said.

“It’s about them trying to take more water off you…”

Joyce ridiculed the Four Corners allegations and resisted the calls for a federal inquiry. No wonder, given accumulating evidence that, under his administration, federal regulators are no more interested in enforcing the rules than the NSW government has been shown to be.

In NSW, in 2012, following two damning reports by the state ombudsman about the failure to enforce breaches of the relevant acts relating to water use, a new “strategic investigations unit” was set up within DPI Water.

Matthews notes that at its peak in 2015, when it had 12 officers, it proposed an intensive compliance campaign in the Barwon–Darling region. It didn’t happen. The report is inconclusive about why this was the case, but the compliance group was disbanded shortly afterwards.

The report cites “several different interpretations of events” surrounding the disbandment of the unit, but its “preliminary conclusion” echoes the claims of former staff that it was symptomatic of a lack of interest in and commitment to enforcement on the part of senior management.

As to why management was not interested in enforcing the law, one can only speculate. But further information that has come out since the Four Corners report suggests there was a lot of political pressure in the system, from National Party members seeking favours for irrigators.

At the federal level, we now find a similar story. A former program director for the Murray–Darling Basin Authority (MDBA) tells The Saturday Paper it, too, had a compliance unit before the election of the Coalition government.

“It had a director and five or six staff with compliance backgrounds, enforcement backgrounds,” says the source, who cannot be named.

“They got downsized – disbanded, really. That function was then given to one single lawyer in MDBA.”

Under Barnaby Joyce, he says, the authority has lost interest in compliance and enforcement.

“Life has been made difficult for people who were trying to do the right thing.”

It is understood the source has provided details and questions to Senator Hanson-Young, for the upcoming senate inquiry into the operations of the MDBA – which, incidentally, is but one of a half-dozen inquiries now in train into aspects of the water-use scandal.

The source suggests the MDBA is being stripped of competency and resources at the very time it needs them.

“The states have to do water resource plans that have to be accredited by the Murray–Darling Basin Authority,” he says.

“Most of these still haven’t come into effect, and they have to be done by 2019, so there’s not much time to go.

“These are very detailed things which take years to develop, as they work out where water goes, what entitlements different stakeholders have, the rules and regulations in each catchment, who can use how much water in what circumstances.

“And there’s no way the MDBA has the resources to scrutinise these plans – to do more than a superficial tick-and-flick approach.”

The former director further claims that the MDBA board is being progressively stacked.

“Little by little Barnaby is trying to get irrigators on it. There is one there now, and there was a second about to be appointed when this blew up.”

He refers to Perin Davey, formerly a lobbyist for Murray Irrigation, who had been nominated by Joyce to join the board, but who withdrew after it was revealed she was among the group of “key stakeholders” offered confidential documents by Gavin Hanlon.

Hanson-Young suspects conflicts of interest at the federal level could yet prove as glaring as those at the state level.

“But no one’s really turned their attention yet to the authority and how they are failing to enforce,” she says.

“From what I’ve seen, I gather all those inside who were involved in compliance have long known this stuff has been going on, and a blind eye has been turned.”

Six inquiries, including hers, might open a few eyes about the attempts to nobble the Murray–Daring Basin Plan.

And if they don’t, warns Quentin Grafton, “We’ll know come the next drought.”

This article was first published in the print edition of The Saturday Paper on September 23, 2017 as "Proving political collusion in water buybacks".

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Mike Seccombe is The Saturday Paper’s national correspondent.

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