EXPLANATORY STATEMENT
Water Act 2007
Water Charge (Termination Fees) Amendment Rules 2012
The Water Charge (Termination Fees) Rules 2009 (the termination fee rules), made under the Water Act 2007 (the Water Act) and applicable in the Murray-Darling Basin, were made in June 2009.
The termination fee rules generally cap termination fees at 10 times the annual fixed access charges paid by an irrigator. The rules were amended by the Water Charge (Termination Fees) Amendment Rules 2011 to allow operators to add goods and services tax (GST) to termination fees. The termination fee rules apply to all irrigation infrastructure operators in the Murray-Darling Basin.
Some technical issues have arisen since the rules were made which have required amendments to the rules.
Purpose of the Amendment Rules
Water charge rules must contribute to achieving the Murray-Darling Basin water charging objectives and principles set out in Schedule 2 of the Water Act, which are based on commitments to best practice water pricing made under the National Water Initiative. Water charging objectives broadly seek to:
a) promote the economically efficient and sustainable use of water resources, water infrastructure assets and government resources devoted to the management of water resources;
b) ensure sufficient revenue streams to allow efficient delivery of the required services;
c) facilitate the efficient functioning of water markets;
d) give effect to the principle of user-pays and achieve pricing transparency in respect of water storage and delivery in irrigation systems and cost recovery for water planning and management; and
e) avoid perverse or unintended pricing outcomes.
The amendments to the rules will address technical issues that have arisen during implementation and clarify how the rules operate. The amendments will contribute to the water charging objectives by clarifying that an irrigation infrastructure operator cannot charge any fee for the terminated right to an irrigator who has paid termination fees, that an irrigation infrastructure operator cannot require irrigators to terminate when selling water outside the network, and the time period for which termination fees should be calculated. This provides a reasonable balance between ongoing cost recovery for operators and flexibility for irrigators.
Authority
Subsection 92(1) of the Water Act provides that the Minister may make water charge rules, which relate to regulated water charges. Regulated water charges include charges for termination fees.
The Water Charge (Termination Fees) Amendment Rules 2012 relate only to regulated water charges for termination fees, and do not apply to charges in respect of urban water supply activities beyond the point at which the water has been removed from a Murray-Darling Basin water resource.
Process and consultation
The process for making rule amendments is set out in section 98 of the Water Act. In particular, the Minister must ask the Australian Competition and Consumer Commission (the ACCC) for advice about rule amendments the Minister proposes to make and have regard to that advice. The Water Regulations 2008 (the Regulations) set out the detailed process the Minister must follow in making rule amendments.
The former Minister for Climate Change, Energy Efficiency and Water, Senator the Hon Penny Wong, requested the ACCC’s advice, including draft amendments, in September 2009. The ACCC provided its advice to the former Minister in March 2010. The rule amendments are, in the Minister’s opinion, substantially the same as the draft amendments which the ACCC provided to the former Minister.
The ACCC received seven written submissions in response to a web notice announcing the Minister’s request for advice and seeking information from stakeholders in October 2009.
The ACCC wrote to Murray-Darling Basin State Ministers on 10 December 2009 seeking comments on the ACCC draft advice and draft amendment rules. The ACCC also issued a public notice inviting written submissions, and published its draft advice and the draft rule amendments on the ACCC website. The ACCC received ten written submissions in response.
The Department of Sustainability, Environment, Water, Population and Communities also conducted targeted consultation to discuss specific issues with stakeholders.
The ACCC’s consultation outlined above satisfies the requirements set out in regulation 4.18 of the Regulations. There was therefore no requirement for the Minister to undertake further consultation.
The Minister for Sustainability, Environment, Water, Population and Communities, the Hon Tony Burke MP, published a notice on the Department of Sustainability, Environment, Water, Population and Communities internet site on 12 July 2012 which included a statement that the Minister proposes to amend the water market rules, a copy of the proposed amendments, a summary of the proposed amendments, and a copy of the advice provided by the ACCC. Notices were also published in The Australian and a newspaper with an agri-business focus circulating in each Murray-Darling Basin State between 7 July 2012 and 12 July 2012.
Regulation Impact Statement
The Office of Best Practice Regulation advised that a Regulation Impact Statement was not necessary for these amendments.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Water Charge (Terminations Fees) Amendment Rules 2012
This legislative instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the legislative instrument
The Water Act 2007 provides for the making of water market and charge rules, to ensure that ensuring that the water market in the Basin works efficiently and that there are no inappropriate barriers to trade.
The Water Charge (Termination Fees) Rules 2009 set an upper limit on the fees that irrigation infrastructure operators can charge irrigators that no longer wish to maintain water delivery services to their property. This strikes a reasonable balance between ensuring that termination fees are not set too high, forming a barrier to termination and trade, and promoting efficient investment in irrigation and on-farm infrastructure.
The Water Charge (Termination Fees) Amendment Rules 2012 address technical issues that have arisen during implementation of the Water Charge (Termination Fees) Rules 2009. The rule amendments clarify:
- that an irrigation infrastructure operator cannot charge any fee for the terminated right to an irrigator who has paid termination fees;
- that an irrigation infrastructure operator cannot require irrigators to terminate when selling water outside the network; and
- the time period for which termination fees should be calculated.
Human rights implications
The right to an adequate standard of living and the right to physical and mental health is protected the International Covenant on Economic, Social and Cultural Rights (ICESCR) (Articles 11 and 12). The Committee on Economic, Social and Cultural Rights, established to oversee the implementation of the ICESCR, has interpreted these articles as including a human right to water which encompasses an entitlement to ‘sufficient, safe, acceptable, physically accessible and affordable water for personal and domestic uses’.[1]
The human rights implications of the legislative instrument must be considered in the context of the Water Charge (Termination Fees) Rules 2009. These rules regulate one aspect of the relationship between irrigators and irrigation infrastructure operators ‑ the levying of fees on termination of water delivery services. The rules deal with administrative processes and do not impact on entitlements to water.
The legislative instrument makes amendments to the rules which are of a technical nature and clarify these administrative process requirements. The legislative instrument does not engage any of the applicable rights or freedoms.
Conclusion
The legislative instrument is compatible with human rights as it does not raise any human rights issues.
Details of the Water Market Amendment Rules 2012
The process and consultation conditions specified in the Water Act and the Regulations that need to be satisfied before the power to make the Amendment Rules may be exercised have been satisfied, as described above.
The Amendment Rules are a legislative instrument for the purpose of the Legislative Instruments Act 2003.
The Amendment Rules commence on the day after registration on the Federal Register of Legislative Instruments.
Details of the Amendment Rules are set out below.
Further explanatory material is available in the ACCC’s final advice on proposed amendments to the Water Market Rules 2009 and Water Charge (Termination Fees) Rules 2009, March 2010 which is available at www.environment.gov.au/water.
Part 1 Preliminary
- Name of Rules
Rule 1 provides that the title of the Rules is the Water Charge (Termination Fees) Amendment Rules 2012.
2. Commencement
Rule 2 provides that the Rules commence on the day after registration.
3. Amendment of the Water Charge (Termination Fees) Rules 2009
Rule 3 sets out the schedule to amend the Water Charge (Termination Fees) Rules 2009.
Schedule Amendments
Item 1 – Part 1, Rule 3
This item amends the definition of ‘total network access charge’ to mean the total amount that would have been payable to the operator in respect of a full financial year by a terminating irrigator, if termination or surrender had not occurred.
Item 2 – Part 2, Subrule 5(3)
This item inserts a new subrule 5(3). Subrule 5(3) prohibits operators from charging or receiving any fees that relate to the access (and services provided in relation to that access) that has been terminated or surrendered by an irrigator, in respect of a financial year commencing after the termination or surrender.
Subrule 5(3) is a civil penalty provision. The Water Act 2007 provides that water charge rules may include civil penalty provisions, the penalty for contravention of which is 200 penalty units (s92(8) and s92(9) of the Water Act).
Item 3 - Paragraph 6(1)(b)
This item amends paragraph 6(1)(b) to prohibit operators from imposing termination fees where the operator seeks to terminate access for breach of contractual obligations associated with the act of trading the whole or a part of a water access right.
Item 4 - Paragraph 7(a)
This item amends paragraph 7(a) to ensure that the maximum termination fee permitted under rule 7 is calculated based on the total network access charge applicable at the date the notice of termination is given, or the date specified in the notice for termination to take effect, whichever is later.
[1] CESCR General Comment No. 15: The Right to Water E/C 12/2002/11.