Wednesday 24 April 2019

The Trouble With Water: 'ghost' water begins to haunt the Liberal-Nationals election campaign


“It is well understood and agreed that water in the Murray-Darling Basin has been overallocated and extracted at rates that are unsustainable.” [The Australia Institute, February 2018]

Eastern Australia Agriculture Pty Ltd (EAA) owns water entitlements at two properties in the lower Balonne area of the Condamine-Balonne region The Kia-Ora property is situated approximately 7km south of St. George, Queensland, along the Balonne River. The Clyde property is located 10km south-west of Dirranbandi, Queensland.

"Kia Ora" reportedly totals 18,841 hectares and has water entitlements of 36,705 megalitres, while "Clyde" is said to total 18,743 hectares with water entitlements of 30,289 megalitres.

EAA also appears to hold Queensland water licences which allows it to harvest overland flows/flood waters from both properties.

 Questions have arisen with regard to the sale of some of this water.......

At various times prior to entering federal parliament in September 2013 Liberal MP for Hume and Australian Minister for Energy Angus Taylor was reportedly a co-founder and director of Eastern Australia Irrigation, a director of and company secretary for Eastern Australia Agriculture and was also a paid consultant for EAA.

The Minister for Energy Angus Taylor, former deputy-prime minister and federal agriculture and water resources minister, the current National Party MP for New England Barnaby Joyce, and the federal Dept. of Agriculture and Water Resources have all issued statements taking issue with concerns being expressed over this particular water sale and denying any wrong doing. Both ministers have threatened legal action for defamation.

 The Queensland Government denies being party to this water sale.

 The Morrison Government is now facing calls for an inquiry into the Murray-Darling plan water contracts signed off by former minister Joyce.

BACKGROUND

Ghost Water – licences for unreliable/unverifiable amounts of temporary water sold to government for use as environmental flow water.

Overland flow is “water that runs across the land after rainfall, either before it enters a watercourse, after it leaves a watercourse as floodwater, or after it rises to the surface naturally from underground…..You can take overland flow for any purpose unless there is a moratorium notice or a water plan that limits what can be taken.”  [Qld Government, Business Queensland. January 2019]

Applications can be made for a water licence for the capture of overland flow water.

“A water licence is an entitlement to take water which is attached to land therefore, unlike a water allocation, it is not an asset in its own right. Water licences cannot normally be sold independent of land unless there are management rules in place which allow permanent transfers (relocations) to occur…..The relocation of a water licence enables a licensee to transfer ownership of the entitlement, permanently moving the licence from the land to which it is attached, to another parcel of land within the confines of the rules. This process differs from permanent water allocation trading whereby water allocations are traded independently of land titles and have their own registrable title (i.e. water can be held by someone who does not own land).” [Qld Government, Business Queensland. February 2019]

At the time of the water sales EAA has 7 harvesting licences, of which 4 were for water extraction from the Balonne and Narran rivers, 2 were for collection of overland flow waters and 1 was for irrigation water draw on the Beardmore Dam.

Unsolicited offer by EAA to sell overflow water at 
https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22publications%2Ftabledpapers%2F59682649-2fa2-43b1-955f-ae16caecef45%22.

 Austender records of three EAA water sales to the Dept. of Agriculture and Water Resources - the first by transparent open tender and the remaining to by non-transparent limited tender:


At the time of the first water sale (1,980ML at est. $2,175 per megalitre) Barnaby Joyce was an elected senator on the Opposition benchs and Labor's Tony Burke was federal water minister, at the time of the second and third sales (totalling 27,960ML at $2,745 per megalitre) Joyce was the Australian Deputy Prime Minister as well as Minister for Agriculture and Water Resources. 

 The first sale under the Labour Government was a result of an open competitive tender, the second and third sales were by unadvertised limited tender which excluded a competitive tender process.

 NOTE: In 2008 it appears that EAA sold 10,433ML from its water storage to the Murray-Darling Basin Commission for an unknown amount.

 The Australia Institute, March 2018, "That's not how you haggle....Commonwealth water purchasing in the Condamine Balonne", excerpt:

EAAs original asking price was $2,200 per megalitre. DAWR displayed Pythonesque haggling skills and paid a final price of $2,745 per megalitre. DAWR paid 25% more per megalitre than originally requested by EAA, 139% higher than the Commonwealth had previously paid for the same type of licence and 85% higher than the average price for a more reliable type of water licence. The megalitre price was inflated because it included the cost of a storage that the vendor originally offered to transfer to the Commonwealth, but that offer was later withdrawn, without adjusting the price. The storage was used as a justification of the sale, but not as a condition of the sale.

The water purchased was for Over Land Flow (OLF) licences, which cannot be traded between irrigators, because they are attached to land. They have no legal status or any recognition at a location other than where they were originally purchased. That is, there appears to be no legal basis for the Commonwealth to ensure it gets to the places it is intended to be used.

 Austaxpolicy, 28 September 2018, excerpt:

First, tax havens siphon taxable profits away from jurisdictions like Australia. This means either increasing the tax burden on individuals and businesses, taking on more debt, or cutting social services.

These shenanigans are not always illegal. But what is legal is not always moral or economically sound. Australia’s fiscal foundations are threatened by the erosion of the tax base by tricky tax tactics.

Aggressive tax planning can erode public confidence in the tax system itself. After all, one reason most of us pay the taxes we owe is that we believe we live in a society where our fellow citizens do the same.

A fascinating new dataset released by the Australian Bureau of Statistics helps shed light on this problem. Across multinational firms operating in Australia, the bureau reports their operating profit and their taxable profit. What is unique about these data is that they are reported for firms with majority owners in different countries. So it is possible to compare across countries, and ask the question: which nation’s firms have the biggest gap between operating profits and taxable profits?

For the typical Australian firm, the gap between operating profits and taxable profits is 30 percent. The figure is pretty similar for multinationals whose owners reside in the United States (28.4 percent), United Kingdom (26.6 percent) and Japan (28.5 percent).

But for some nations, it’s a different story. If you’re a Bermuda-owned multinational operating in Australia, then on average the gap between operating profit and taxable profit is 88 percent. If you’re a British Virgin Islands owned multinational, the reduction is 92 percent.[3]

So if you start with ten dollars of operating profit, then Australian firms report about seven dollars of taxable profits. The same is true for American, British and Japanese-based multinationals – ten dollars of operating profit produces seven dollars of taxable profit.

But for firms based in Bermuda or the Virgin Islands, and operating in Australia, ten dollars of operating profit produces just one dollar of taxable profit. That’s a startling difference……..

Second, tax havens are the hiding ground..... 

Gabriel Zucman, an economist at University of California, Berkley, estimates that around four-fifths of money in offshore bank accounts is there in breach of other countries’ tax laws.[4] .......

A recent study in the journal Nature Ecology and Evolution found there are even egregious environmental vandals there too. Following the Panama Papers, the study found seventy percent of fishing vessels implicated in illegal, unreported and unregulated catches had been registered in Belize, Panama, or other tax havens at some point. [5]

Third, tax havens increase inequality. Offshore wealth held by Australians in tax havens was approximately 6 per cent of GDP, according to Zucman’s work in 2013. In today’s prices, that would mean over $100 billion in assets held offshore by wealthy Australians. [6]..........

Cayman Islands corporate tax rates appears to be zero.
Michaelwest.com.au, 21 April 2019:


During December 2016, the Tax Office required Eastern Australia Agriculture to enter into a Settlement Deed to reduce the interest charged by EAI on convertible notes issued by EAA.

The interest charges were required to be reduced from June 2011 when Taylor was still a director of EAI. The total amount of excessive interest charges was $14 million.
This from EAA’s 2016 annual report:


“Forgiveness of interest expense – parent entity


“Following a review by the Australian Taxation Office (ATO), the company entered into a Settlement Deed with the ATO on 9 December 2016 and the parent entity agreed to reduce the interest rate on the convertible note from 12 per cent to an average interest rate of 7.97 per cent effective from 29 June 2011, resulting in a forgiveness of interest expense accrued in 2016 and prior years."

The higher the interest rate charged by the parent, the more money flows from Australia to the Caribbean. In the parlance of the tax fraternity, this practice of charging excessive interest rates, in order to maximise the interest payments out of Australia to a tax haven, is called “debt-loading”.

By 2016, Angus Taylor was no longer a director of EAI. He had stepped down from the board of the Cayman Islands company in 2013, the year he entered Parliament. He was a director however when the financing arrangement was established.
London Stock Exchange, EF Realisation Company Limited (EFR) Annual Financial Report, released 22 January 2018, excerpt:

Compulsory Redemption Mechanism

EF Realisation monetised various portfolio assets between February and August 2017 which, in aggregate,  comprised approximately 24% of the NAV as at 30 September 2017. The total net proceeds raised were approximately £4.36 million, made up of £4.26 million in realised proceeds (including £0.1 million from a corporate action involving the Company's holding in Energy Future Holdings) and £0.1 million of investment income (net of expenses). The Company realised its investment in Menhaden Capital plc in February 2017 which raised £1.2 million, equal to 2.3p per Ordinary Share. EF Realisation sold a bond holding in Integradoro de Servicios Petroleros Oro Negro SAPI de CV ("Oro Negro") which raised approximately £0.5m, and it received approximately £2.5 million from Eastern Australia Irrigation Limited which had sold certain of its water entitlements to the Australian Government and distributed a majority of the proceeds to its shareholders, including EF Realisation. On 4 September 2017, the Company announced its intention to implement the Company's first capital distribution, returning £3.0 million to Shareholders of the approximately £4.36 million in total net proceeds; the balance of the net proceeds from asset realisations was retained for working capital purposes…..
All the other investments in EF Realisation are unlisted and valued by the Directors at their estimated realisation values and, with one exception, changes in these valuations have been small. The exception is an upgrade to the valuation of the Company's minority shareholding in Eastern Australia Irrigation Limited following that company's sale of water rights to the Australian Government authorities in August 2017 and the expectations for the amount of proceeds that can now be realised from the sale of its farms…..

Eastern Australia Irrigation Limited ("EAI") is an Australian based company which owns and operates two farms in Queensland, whose main crop is cotton, along with various water extraction rights from the Murray Darling River Basin. During the summer of 2017, Australian Government authorities approached EAI with an offer to acquire some of its water entitlements. EAI was able to negotiate the price for the water entitlements to the highest level ever paid, and in August 2017 it completed the largest ever sale of water entitlements in the Murray Darling River Basin. EF Realisation owns 9.6% of EAI's shares and, along with other holders, supported the sale of the water rights. EAI used the majority of the sale proceeds to return capital to its shareholders, and passed £2.5 million to EF Realisation. This represented a gain on that part of the EAI holding of £0.34 million or 16.0%. We comment below on the plans to dispose of EAI's farms……

EAI was in the process of selling its farms prior to the sale of water rights. Proceeds received for the sale of water rights were attractive compared to the offers received in the farm sale process so the farm sale process was suspended in order to complete negotiations with the Australian Government authorities over the sale of water rights.  EAI has now resumed the farm sale process with the intention of using sale proceeds to repay debt and redeem its shares. Having sold some of the water rights, the effective size of the irrigable land that can be used for cotton farming has been reduced by approximately one-third and it is expected that this, and the decision to sell the farms separately rather than as a package as last summer, will make the farms attractive to a broader range of potential buyers. Cotton prices are supported by low crop harvests in cotton growing regions outside Australia and, at the time of writing, local rainfall on EAI's farms has prevented a return of drought conditions. However, until binding bids are received for the farms, the timing for EF Realisation to redeem or sell its shareholding in EAI and the proceeds from such a redemption or sale are uncertain.

EF Realisation carries its remaining investment in EAI at a conservative estimate of the proceeds that would be received assuming EAI's farms are sold and its shares are redeemed. In particular, the implied valuation of the farms is less than the value of the farms used to secure EAI's loan from the Commonwealth Bank of Australia, a valuation point that has been a floor for proceeds in farm sales. [my yellow highlighting]

In the 2012-13 financial year Eastern Australia Agriculture Pty Limited made a political donation of $20,000 to the Liberal Party of Australia (NSW) and on 29 August 2013 the company made a second political donation of $35,000.

 After the September 2013 federal election Barnaby Joyce became the Minister for Agriculture and in September 2015 Water Resources was added to his ministerial portfolio.
Posted by clarencegirl at 00:15
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