Compliance audit prompts G-MW changes

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G-MW has responded to audit recommendations. Photo by Contributed

Goulburn-Murray Water has been required to improve its documentation on water trading after the first audit by the Inspector-General of Water Compliance under the Murray-Darling Basin Plan.

G-MW says it has agreed with the findings of the audit and has already made the changes required.

The authority was selected for this audit as it is an approval authority for water trades.

The inspector-general wanted to see a process that identified whether G-MW had a legal interest in a water access right or a commercial interest in the activities of a water market intermediary, and ensures that there is disclosure to other parties and the public as required under the Water Act.

G-MW said it was almost certain it would not have any legal or commercial interest in the transaction, given that G-MW is a single entity that has no subsidiaries, joint ventures or partnerships, is wholly Victorian Government owned and does not own or operate any brokering business or entity.

The inspector-general asked that arrangements with brokers should ensure that G-MW was able to verify that other parties were notified under the Water Act where they or a related party have a legal or equitable interest in the water access right subject of the proposed trade, or a commercial interest in the activities of water market intermediary involved in the proposed trade.

This change has been made by G-MW.

The inspector general also asked for better record keeping on trade documents, which G-MW has complied with.

Inspector-General of Water Compliance Troy Grant said this was the first audit report issued since the IGWC was established in August 2021.

“My office is also currently auditing aspects of SDL [sustainable diversion limit] compliance, Water Resource Plan compliance and overland flow compliance as part of an active audit program to support compliance with the basin plan,” Mr Grant said.

The audit found that although G-MW had systems and processes in place, further improvements were needed to ensure that all relevant interests were properly identified, and G-MW could verify that other parties were notified of these interests where they exist.

Mr Grant said there was room for improvement for the water authority.

“We were able to independently confirm that the number of trades and volume of water affected by G-MW’s dual role is proportionately quite low and not a significant risk to water markets. This helps build community trust and confidence,” he said.

“I was encouraged by G-MW’s response to this audit and its desire for strong compliance with its disclosure obligations under the basin plan.

“However, G-MW agrees with the inspector-general it is crucial to have written evidence of absolute transparency before a water trade occurs.

“The MDBA [Murray-Darling Basin Authority] identified that sections 12.37 and 12.38 of the basin plan do not consider the level of disclosure required in circumstances where an approval authority also has the role of an IIO [irrigation infrastructure operator].

“An IIO has access to sensitive water market information prior to public release, and an approval authority could use this information to determine the timing of their trading activity for financial gain.

“In order to improve the level of transparency provided by approval authorities on their trading activity and increase public confidence, section 12.38 of the basin plan could be amended to include the requirement for the approval authority to publish the date on which the contract price was agreed.

“This would assist in tracking whether there is a pattern of an approval authority’s contracts being created or amended prior to when IIOs have access to sensitive water market information.”

G-MW compliance and enforcement coordinator Chris Dalton said the inspector-general’s audit suggested minor administrative improvements to G-MW’s systems in three recommendations and G-MW had implemented them in September 2021.

“No-one has been disadvantaged in any water trading,” Mr Dalton said.

“G-MW’s brokers verbally communicated to external parties in G-MW water trades that it was G-MW they were transacting with.

“G-MW has established a written process to identify any G-MW conflicts of interest before it engages in water trades.

“It is very unlikely G-MW would ever have such a conflict of interest given it does not have any subsidiaries, joint ventures or related parties.

“However, G-MW agrees with the inspector-general it is crucial to have written evidence of absolute transparency before a water trade occurs.”