Chinese state-owned enterprises have acquired water entitlements in Australia and some foreign water investors face limited scrutiny by the Foreign Investment Review Board.
- There are concerns about the level of oversight of foreign investment in water assets in Australia
- Private foreign investors buying into Australian water are largely exempt from restrictions put in place during the coronavirus pandemic
- Mick Keelty says foreign investment in water needs greater scrutiny
Water ownership in Australia is an increasingly lucrative investment for both domestic and overseas buyers. The reduction of water available in key river systems has seen the price of water steadily rise.
Water has been a tradable commodity since water rights were “unbundled” from agriculture and property interests. Since 2014, restrictions on trading water allocations were also relaxed in the Murray-Darling Basin.
Despite water’s essential value, there are increasing concerns about the amountof oversight of water markets compared to financial or property markets.
“It is a commodity and yet it doesn’t have the same governance and due diligence around it as other commodities like gold or minerals, and I think that’s what’s of concern to people,” Mick Keelty,former Australian Federal Police commissioner and nowthe interim inspector general of Murray-Darling Basin Water Resources, told 7.30.
7.30 has been investigating how water entitlements held by foreign investors are regulated in Australia and has identified at least two Chinese state-owned enterprises that own water entitlements.
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Unibale Pty Ltd is listed as an Australian subsidiary of the state-owned COFCO Corporation, one of China’s major agriculture companies.
Unibale Pty Ltd owns more than 7,000 megalitres of water entitlements in the Gwydir River system in the northern end of the Murry-Darling Basin in New South Wales.
The conduct of another COFCO subsidiary, Chinatex Australia, has been criticised in Federal Parliament over its failure to pay a sizeable Federal Court order to compensate a local beef provider.
COFCO and Unibale Pty Ltd did not respond to questions from 7.30.
Private foreign investors not subject to oversight
Water should be subject to the same level of scrutiny as “other foreign investments”, Mick Keelty said.(ABC News)
7.30 can also reveal that private foreign investors buying into Australia’s water markets are largely exempt from investment restrictions put in place to prevent a fire sale takeover of Australian assets during the coronavirus pandemic.
Duncan Bedford, a partner at law firm McCullough Robertson, told 7.30 that water purchases by private foreign investors will generally not be scrutinised by the Foreign Investment Review Board (FIRB).
That is despite new restrictions being imposed by Treasurer Josh Frydenberg that require the FIRB to review essentially all foreign purchases in Australia for assets such as land and real estate.
The restrictions were announced due to concerns that large foreign investors would try to capitalise on the economic uncertainty created by the COVID-19 pandemic.
While the measures imposed by the Government effectively apply to all land purchases, Mr Bedford says water assets largely fall outside the review board’s oversight, with the exception of direct purchases by foreign governments.
“The acquisition of water entitlements is treated as the acquisition of a business asset and doesn’t fall within any of the categories that require compulsory FIRB approval,” Mr Bedford said.
“FIRB approval may be required for the acquisition of water assets when it forms part of a broader business acquisition. But on their own, water entitlements do not require FIRB approval.”
Treasurer Josh Frydenberg told 7.30 in a statement: “The foreign investment review framework balances the need to ensure Australia remains an attractive destination for foreign investment while also ensuring individual foreign investments are not contrary to the national interest.
“The Government also recognises the importance of transparency around foreign ownership of agricultural land and water. For this reason, the Government introduced public registers covering foreign investment into these asset classes.”
Concerns about the acquisition of water assets by foreign investors are primarily around the level of oversight.
“Why does water escape the same sort of scrutiny that other foreign investments have to put themselves through?” Mr Keelty said.
“I think the more we treat it the same as other high-value commodities in the market, the less concerned the community will be about it.”
Foreign investment register ‘an honour system’
Former AFP commissioner Mick Keelty is now interim inspector-general of Murray-Darling Basin Water Resources.(ABC News)
The most significant attempt to gain a greater understanding of foreign ownership of water was made in 2017, when the Federal Government passed new laws creating a foreign ownership register.
The register, which is managed by the Australian Tax Office, is a self-reporting regime where entities that own water are required to declare their interests.
The 2018 report shows that across each state and territory, about 10 per cent of all water assets are held by foreign entities. The largest investors are from the United States and China, followed by the United Kingdom.
But the register itself is not public, so there is no information about individual owners or even the water holdings of state-owned enterprises.
“I think what is of concern is that it is a voluntary scheme to identify yourself to the Tax Office and register yourself with the Tax Office, that you are a foreign investor in water it’s an honour system,” Mr Keelty told 7.30.
There has also been limited enforcement by the ATO to ensure that all foreign water owners have registered their interests.
“As I say in the report that I delivered to the Government towards the end of last year, there is no compliance action taken by the Australian Tax Office,” Mr Keelty said.
Farmers Federation chief executive Tony Maher also said the register currently does not offer enough information about the extent of foreign investment.
“It’s out of date and there isn’t enough detail about who owns what water and what they’re doing with it,” he said.
“Particularly off the back of the driest period this country’s ever seen, we need more transparency and more data on what is happening in the water market right now.”
A spokeswoman for the ATO said the agency has had “limited opportunities” for compliance activity since the register was established.
She added that it was unable to publish more detailed information about foreign investments.
“There are no exceptions allowing protected information to be disclosed publicly,” she said.
“We have worked to establish the register and produce the first report and there has been limited opportunity for compliance action. To date, no penalties have been issued.”
Water management a fraught issue
The NSW water registry is not freely accessible.(ABC News)
Each state and territory administers its own water register, but there are complex overlaps between different levels of government and even between government agencies.
Issues like foreign ownership would generally be considered a matter for the federal government.
In NSW, more than 38,000 water licences have been issued but individual ownership is difficult to determine. The register itself is not freely accessible and a fee must be paid for every search.
In order to conduct a search for the owners of water licences currently issued in NSW, it would cost approximately $558,600 to search the entire register.
A spokeswoman for NSW Water Minister Melinda Pavey said: “The NSW Government is already working to improve the transparency of trades in NSW by publishing an online trade dashboard that provides allocation and entitlement trade volumes and a weighted average price.
“The extent of domestic and foreign ownership in the Murray-Darling Basin water market is currently the subject of an extensive review being conducted by both the ACCC [Australian Competition and Consumer Commission] and the MDBA [MurrayDarling Basin Authority]. We look forward to both reports being finalised and made public.”
A spokesman for Water NSW told 7.30 it processed water licence applications in strict accordance with Government regulations, including whether an applicant had a legal entitlement to hold a licence.
“The public water register is administered on behalf of the NSW Government by the office of NSW Land Registry Services,” he said.
“With respect to the public availability of customer information, Water NSW operates within the legislative framework as required, and otherwise seeks to balance transparency with the right to privacy.”
‘There needs to be more transparency’
Mick Keelty recently completed a report on the Murray-Darling Basin.(ABC News)
There has been substantial discussion in recent months about the future of the Murray-Darling Basin Agreement and the management of water assets across the country.
Mr Keelty has recently completed a report that found a significant reduction in the amount of water flowing into the river system.
He spent several months visiting community groups and consistently heard accounts from farmers and irrigators frustrated with the complexities of the system.
The boundary of the MurrayDarling Basin, including the boundaries of the northern and southern basins.(Supplied: Murray-Darling Basin Authority)
“There needs to be more transparency around how this Murray-Darling Basin is governed,” he said.
The ownership and trading of water is a divisive issue within many communities.
“There is a segment of the community who says, ‘why should people own water who don’t have any interest in agriculture?'” Mr Keelty said.
“Equally, there’s a section of the community that says, ‘well, the Government made this decision that gave us some options to trade in water and we have actually invested in that trade’.”
The ACCC is currently undertaking a major report into water trading markets in the Murray-Darling Basin.
A spokeswoman for the Murray-Darling Basin Authority said that water markets and licences are the responsibility of each state government.
“The MDBA supports greater transparency in the water market in order to build public confidence, which is essential,” she said.
“MDBA’s main task is to ensure that water extraction in the Basin is sustainable and that compliance by the states is robust. Both the ACCC and MDBA have a role in regulating water markets, but this doesn’t extend to the ownership of water.”