Penny Wong (SA, Australian Labor Party, Minister for Climate Change and Water) Share this | Hansard source

I thank Senator Nash for enabling me to arrive in the chamber. I apologise to the chamber; I was somewhat delayed. I think I went through yesterday the issue of where the government is currently proceeding in relation to the ACCC and other matters. I think it might be useful if I perhaps go through where those inquiries are at. First, in relation to termination fees, which I think Senator Nash talked about on the last occasion when this amendment was being debated, they are a legitimate mechanism to do with third-party impacts of irrigators terminating access to an operator’s irrigation network. Obviously, one of the discussions that have been raised with me on a number of occasions is the quantum. Unsurprisingly, depending on where people are in that commercial arrangement, they have different views about that. Currently the schedule E protocol to the Murray-Darling Basin agreement on access, exit and termination fees requires that the termination fees only be allowed when an irrigator terminates access to the operation network and that the termination fee be capped at 15 times the annual fixed access or shadow access fee. My advice is that the 15 times limit was a decision of the previous government.

I do not know whether I should wait until Senator Siewert is able to listen; I do not know whether she wants me to explain this or not. In terms of the termination fee, which obviously is a legitimate mechanism, as I said, to deal with third-party impacts, the current arrangements are that, under schedule E to the agreement, the termination fee is capped at 15 times the annual fixed access or shadow access fee. As I understand it, that was a decision of the previous government predicated on advice which had been provided, including by the ACCC.

The Water Act, which passed through this parliament under the previous government, requires the Commonwealth minister to obtain and have regard to advice from the Australian Competition and Consumer Commission in making the water market and water charge rules to apply in the basin. I am advised the ACCC is undertaking an exhaustive three-stage process of consultation to develop these rules. In July of this year, in response to stakeholder feedback—I emphasise also at the request of the ACCC—I extended the deadline for the ACCC to provide its advice in order to allow more time for stakeholder consultation. Currently the ACCC is due to provide its final advice on rules for termination fees and water market rules to me next month. The draft rules for termination fees provide for operators to levy termination fees but only when they choose to terminate access to the operator’s network and recommend that termination fees be capped at 10 times the annual fixed access fee. I am advised this provides 12 to 15 years of annual access fees. So that is the mechanism by which third-party impact is managed.

The draft rules also provide for the ACCC to approve the imposition of higher termination fees where contained in new or existing contracts. For those operators worried about security against irrigators transforming and trading out without paying termination fees or ongoing access fees, the draft water market rules provide for operators to obtain security. There is obviously no clear formula by which we can calculate the correct termination fee multiple. Setting the multiple is not a deterministic process but takes into account a range of competing objectives. In recommending in the draft rules the termination fee level be at 10 times the access fee, the ACCC has attempted to strike the right balance between providing, on the one hand, investment certainty for operators and irrigators and, on the other hand, incentives for rationalisation to promote the efficient delivery of required services and water trade.

I pause there to emphasise that point. I think Senator Siewert asked, if not yesterday, perhaps last night, about third-party impacts. As I said, a termination fee is one of the ways in which one manages that. It is important to recognise the countervailing policy considerations, and that is that an excessive termination fee—and I appreciate people may have different views as to what that will mean—clearly operates as a barrier to the sort of rationalisation or adjustment we know will be required in the industry. So there are balancing policy objectives here in terms of ensuring that you have a certain investment environment so as to provide an appropriate and sufficient level of investment certainty without, at the same time, creating barriers to the sort of adjustment that we know will need to occur and which irrigators may want.

The government believes it is prudent to monitor any new regulatory arrangements to ensure that they have the desired effect in terms of setting appropriate rules for the market and for market participants and do not have any unintended consequences. To this end, the draft rules recommend a review of the water charge rules, which would include termination fees, to commence by 2012 and conclude by 2013.

I trust that that assists the chamber in terms of some of the questions which arose yesterday in relation to this amendment. I suggest that a range of the issues that Senator Nash has raised concerns about are already being considered by government and I am certainly happy, if senators are seeking it, to provide further information after the ACCC has provided to me their final advice on termination fees and water market rules.

Question negatived.