1. What is the Victorian Food Bowl Modernisation Project agreement between the Victorian and Commonwealth Governments?

The Australian and Victorian Governments have signed an agreement for $1.216 billion to fund the complete modernisation of irrigation systems in northern Victoria’s food bowl to deliver 214 GL of water savings.

Under this agreement the Commonwealth will invest:

• $953 million towards Stage 2 of the Northern Victoria Irrigation Renewal Project (NVIRP2) to deliver 102 GL
• $219 million for the strategic water purchase from Victoria of 102 GL from NVIRP2 water savings previously intended to be shared among Goulburn-Murray Irrigation District (GMID) irrigators
• $43.7 million for an on-farm irrigation efficiency program to deliver 10 GL.

This investment builds on the $1 billion first stage of NVIRP, funded by the Victorian Government ($600 million), Melbourne water retailers ($300 million) and irrigators ($100 million).

The funding arrangements will avoid irrigators having to contribute $100 million to Stage 1 and $106 million to Stage 2 of NVIRP, which would have forced water prices up from 25 to 45 per cent.

Victoria will be responsible for all aspects of delivering the project and will guarantee the delivery of water shares for a fixed cost to the Commonwealth.

2. What does the agreement mean for Goulburn-Murray Irrigation District irrigators?

The funding arrangements will avoid irrigators having to contribute $206 million to Stage 1 and Stage 2 of the Northern Victoria Irrigation Renewal Project.

Water savings of 102 GL from modernisation works were originally destined for irrigators, but as a result of discussions between the Minister for Water and irrigation community, these water shares will be sold to the Commonwealth in place of Goulburn-Murray irrigators contributing to Stages 1 and 2.

Irrigators have indicated they preferred to avoid the price impacts from repaying the $206 million debt. It is estimated this would have forced water prices up from 25 to 45 per cent.

The deal guarantees the completion of the modernisation of the GMID.

It also means that irrigators with contracts for water sales to the Commonwealth, from previous tender rounds, will be able to complete water share trades, which had been prevented by the 4 per cent limit.

3. How does the agreement impact on the delivery of NVIRP1?

To ensure Victoria has the flexibility to deliver both stages of NVIRP and to provide the best outcome for the community, the timelines for the completion of NVIRP1 will be extended from June 2013 to June 2018. 

The Commonwealth is required to receive water savings up front for the funding it provides each year.  Given this requirement, irrigators’ water savings from NVIRP1 will be used, on a temporary basis, to make sure sufficient water is supplied to the Commonwealth to meet cash flow requirements of NVIRP each year. 

Irrigators will receive 75 GL of long-term cap equivalent (LTCE) of water shares at the end of the project as originally planned, but this will now occur in 2018.

4. How will the $1.216 billion in funding be used?

The funding provides investment for an integrated program of infrastructure works, on-farm works and strategic purchase to fully modernise the GMID.

5. How will Victoria benefit from this agreement?

The agreement will enable Victoria to get on with the job of delivering modern, efficient irrigation systems for a viable Victorian irrigation sector, based on sustainable pricing, helping to secure the prosperity of Victoria’s northern food bowl.

Moving northern Victoria’s irrigation sector to a fully modernised system will have economic benefits for regional, Victorian and Australian economies.  It will take less time to deliver water, irrigators will get a consistently high level of service and productivity will improve.

This agreement will also make a substantial contribution to meeting Victoria’s environmental watering requirements under the proposed Murray-Darling Basin Plan.

6. How will the Australian Government benefit?

When the Victorian Food Bowl Modernisation Project is complete it will provide 214 GL of water savings to be transferred to the Commonwealth to return to the environment for healthy working rivers in the Murray-Darling Basin.

The Commonwealth secures these water savings, with certainty about the volume and timing.

This water will make a significant contribution to meeting the proposed Murray-Darling Basin Plan’s new sustainable diversion limits for Vicotria.

The agreement delivers regional development outcomes, as well as water savings for the environment.

The Commonwealth will be meeting the 2008 Council of Australian Governments Agreement for funding infrastructure projects.

7. Why is Victoria selling water shares to the Commonwealth?

The Victorian Government will sell water shares to the Commonwealth Government as part of the agreement of $1.216 billion funding to modernise irrigation systems in northern Victoria, in return for 214 GL of water for the environment.

The Commonwealth Government will pay Victoria $219 million in exchange for the additional 102 GL.

8. Who owns these water shares?

Water shares will be created from water savings and transferred to the Commonwealth progressively as NVIRP2 works are carried out.  These savings will be made without impacting on existing water entitlements.

Half of the water savings from modernisation works was originally destined for irrigators, but as a result of discussions between the Minister and irrigation community, these water shares will be sold to the Commonwealth in place of Goulburn-Murray irrigators contributing $206 million to Stages 1 and 2 of the modernisation project.

Irrigators have indicated they preferred to avoid the price impacts which were estimated to have forced water prices up by 25 to 45 per cent.

9. How was the price decided?

Victoria will receive $219 million for 102 GL of LTCE water savings.  This will be provided as a combination of high and low-reliability water shares.  This represents a small premium on current market prices and is consistent with the Commonwealth’s guidelines for strategic water purchase.

10. How does water trade come into this agreement?

The Victorian Government has agreed to approve 88 GL of Commonwealth water purchases for:

• all water share trades submitted for the July 2011 ballot but not approved because of the 4 per cent limit
• all remaining trades from Commonwealth water purchase tenders in 2010-11 which would not have been approved because of the 4 per cent limit.

These trades will also go towards meeting the sustainable diversion limits proposed under the Murray-Darling Basin Plan.

This will allow trades for irrigators already contracted to sell water to the Commonwealth, including some who have been waiting for several years. It will give G-MW the opportunity to get a clear picture of the future irrigation footprint of the Goulburn-Murray Irrigation District.

The Commonwealth is required to submit these applications for approval to Goulburn-Murray Water by 28 February 2012.

The applications to sell will be predominantly from irrigators in the GMID, but there are expected to be a dozen or so applications from irrigators in the Lower Murray Water districts.

More information on these trade applications will be available from Goulburn-Murray Water and Lower Murray Water.

11. How will the draft Murray-Darling Basin Plan affect this agreement?

The draft Murray-Darling Basin Plan is expected to be released in mid-November 2011.  The water savings recovered through this Food Bowl Modernisation Project will contribute to water recovery from the GMID to meet the Plan’s proposed sustainable diversion limit volumes.

12. Will the Ombudsman’s Report impact on the Victorian Food Bowl Modernisation Project?

The Ombudsman will determine the report’s release date, and the report may recommend changes to processes in the modernisation project.

For the future of the Food Bowl Modernisation Project, the Victorian Government will take the community’s needs into account and focus on delivering a project that produces benefits for the Goulburn-Murray Irrigation District, the northern region and Victoria.