Home | Databases | WorldLII | Search | Feedback State Administrative Tribunal of Western Australia

You are here: 

ORD IRRIGATION COOPERATIVE LTD and DEPARTMENT OF WATER [2017] WASAT 85 (19 June 2017)

Last Updated: 20 June 2017

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

ACT :  RIGHTS IN WATER AND IRRIGATION ACT 1914  (WA)

CITATION : ORD IRRIGATION COOPERATIVE LTD and DEPARTMENT OF WATER [2017] WASAT 85

MEMBER : JUSTICE J C CURTHOYS (PRESIDENT)

HEARD : 21, 22, 23 AND 24 NOVEMBER 2016

DELIVERED : 19 JUNE 2017

FILE NO/S : DR 340 of 2015

BETWEEN : ORD IRRIGATION COOPERATIVE LTD

Applicant

AND

DEPARTMENT OF WATER

Respondent

Catchwords:
Water licence ­ Annual Water Entitlement ­ Renewal of licence

Legislation:
 Rights in Water and Irrigation Act 1914  (WA),  s 4 ,  s 5C ,  s 5C(1) ,  s 5C(3) ,  s 5D ,  s 26GG ,  s 26GG(1) ,  s 28 ,  s 28(1) , Pt III, Sch 1 cl 1, cl 6(2), cl 7, cl 12, cl 15, cl 22, cl 23, cl 24, cl 26
State Administrative Tribunal Act 2004 (WA), s 9, s 28
Water Services Act 2012 (WA)

Result:
Annual Water Entitlement for applicant set at 246.3 gigalitres

Summary of Tribunal's decision:
Between 2004 and 2014, the Ord Irrigation Cooperative Ltd (the OIC) held successive licences (Licence (1) and Licence (2)) from the Department of Water. The licences were for five years with an Annual Water Entitlement (AWE) of 335 gigalitres for each licence.
On 25 February 2014, the OIC applied to the Department for a further renewal of its water licence (Licence (3)) with an AWE of 335 gigalitres.
The Department renewed the licence but with a reduced AWE of 225 gigalitres (subsequently increased to 246.3 gigalitres). The primary basis for reducing the OIC's AWE was that the OIC had consistently failed to utilise its AWE of 335 gigalitres.
On 10 September 2015, the OIC applied to the Tribunal pursuant to  s 26GG(1)(c)  of the  Rights in Water and Irrigation Act 1914  (WA) for a review of the Department's decision.
In reaching the correct and preferable decision on the AWE, the Tribunal considered the requirements of the Rights in Water and Irrigation Act 1914 and the Department's policies.
The basis of the calculation of the AWE by the Department was the crop water use requirment. The parties disputed the proper calculation of the crop water use requirement. The Tribunal took into consideration the submissions and the evidence of a number of expert witnesses on behalf of the OIC and the Department as to the OIC's current and future crop water requirements. The Tribunal accepted the Department's calculation.
The OIC further submitted that it was entitled to a continuation of an AWE of 335 gigalitres because of its need for flexibility and security.
The fact that the OIC has had an AWE of 335 gigalitres since 30 September 2004 did not of itself confer any entitlement to a further AWE of 335 gigalitres. Both the legislation and the express terms of the licences made it clear that an AWE is not a permanent right.
The Tribunal determined that the AWE of 246.3 gigalitres granted by the Department for Licence (3) is appropriate and is consistent with the policies in the Allocation Plan. The Tribunal is satisfied that the policies contained in the Allocation Plan are lawful and do not produce an unjust decision in the circumstances of this case.
The correct and preferable decision was that the AWE for Licence (3) was 246.3 gigalitres.

Category: B

Representation:

Counsel:

Applicant : Ms F Ashworth

Respondent : Ms C Ide

Solicitors:

Applicant : Kingfisher Law

Respondent : State Solicitor's Office

Case(s) referred to in decision(s):

Kirwan and Department of Water [2011] WASAT 137

More and Water and Rivers Commission [2006] WASAT 112

Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634

REASONS FOR DECISION OF THE TRIBUNAL:

Introduction

1 The matter concerns the correct and preferable allocation of water by the Department of Water (the Department) to the Ord Irrigation Cooperative Ltd (the OIC).

2 On 30 September 2004, Licence SWL156287(1) (the Licence or Licence (1)) was granted to the OIC. The duration of the Licence was from 30 September 2004 to 31 August 2009 ­ a period of five years. The OIC's Annual Water Entitlement (AWE) under the Licence was 335 gigalitres (GL). One gigalitre equals one million kilolitres.

3 Licence (1) was renewed on 26 March 2010 (Licence (2)) from 1 April 2009 to 31 March 2014, again a period of five years, with the same AWE of 335GL.

4 On 25 February 2014, the OIC applied for a further renewal of the Licence with the same AWE of 335GL.

5 On 14 August 2014, the Department renewed the Licence for an extended period of 10 years (Licence (3)) but reduced the OIC's AWE from 335GL to 225GL.

6 During the proceedings, the Department increased the AWE that it was prepared to licence to 246.3GL (Exhibit 20 letter State Solicitor's Office to Tribunal 18 November 2016).

7 The OIC challenged the Department's calculation of the OIC's crop water requirements. It argued that on the basis of its calculation of the crop water requirements it was entitled to an AWE of at least 335GL.

8 In addition, much of the OIC's evidence was directed to a submission that it was entitled to a fixed AWE of at least 335GL irrespective of its crop water requirements. In her opening (T:30; 21.11.16) counsel for the Department succinctly stated that latter issue as whether it was appropriate to fix the AWE in accordance with the OIC's crop water requirements, the Department's primary case, or to provide the OIC members with an entitlement which would enable them to develop any crop at any time, the OIC's case. The Tribunal has concluded that the correct and preferable decision is that the OIC should be allocated an AWE of 246.3GL for the period of Licence (3) on the basis of the OIC's crop water requirements as calculated by the Department.

Application to the Tribunal

9 On 10 September 2015, the OIC applied to the Tribunal pursuant to  s 26GG(1)(c)  of the  Rights in Water and Irrigation Act 1914  (WA) (RIWI Act) for a review of condition 2 included in Licence (3). Condition 2 provided the licensee must not, in any water year, take more water than the annual water entitlement specified in the licence. The AWE specified in the licence was 225GL (Department's amended SIFC paragraph 5(a)).

10 The OIC's application stated:

... The purported decision of the Respondent to include the following terms, conditions and restrictions in licence SWL 156287(3) (Licence) granted to the Applicant (Licensee), notified under cover of a letter from the Respondent dated 14 August 2015 but received by the Licensee on 18 August 2015: 1. 'The licensee must not, in any water year, take more water than the annual water entitlement specified in this licence' (term, condition and restriction 2) and the specification of an Annual Water Entitlement of 225,000,000 kL. ...
The correct or preferable decision is that the terms, conditions and restrictions the subject of the Decision should not be included in the Licence but rather terms, conditions and restrictions to the following effect should instead be included: 1.'The licensee must not, in any water year, take more than the annual water entitlement specified in this licence' and the specification of an Annual Water Entitlement of 335,000,000 kL[.]

11 The Tribunal notes that the OIC and the Department resolved the balance of the issues raised in the OIC's application prior to the hearing. The Tribunal is grateful to the parties for resolving those issues.

Relevant procedural orders

12 The OIC's application was lodged on 10 September 2015. On 22 April 2016, the Tribunal relevantly ordered that:

...

4. By 20 May 2016 the applicant must file and give to the respondent a statement either confirming that the reasons on account of which it contends that there should not be a reduction in the applicant's annual water entitlement of 335,000,000 kL under the licence are restricted to the reasons in paragraphs (a) to (i) inclusive of paragraph 1 of the contentions in its statement of issues, facts and contentions filed on 19 February 2016 or setting out any further reasons on which it relies in this proceeding.
5. If a party engages an expert to attend a mediation or compulsory conference or to give evidence in the proceedings the party must give the expert within seven days of this order or of the engagement (whichever is the later):

(a) the Tribunal's pamphlet entitled 'A guide for experts giving evidence in the State Administrative Tribunal', unless the party has already given the expert a copy of the pamphlet; and

(b) a copy of these orders.

6. An expert witness must acknowledge in his or her evidence that he or she has read the Tribunal's pamphlet entitled 'A guide for experts giving evidence in the State Administrative Tribunal' and agrees to be bound by the expert's obligations stated in that document.
7. If any party proposes to give evidence or call any witness including any expert to give evidence at the hearing it must by 1 August 2016 file with the Tribunal a signed statement of the witness' evidence and give a copy of the statement to the other parties.
8. Any document referred to in a witness statement that is contained in a bundle of documents filed by any party must be identified by reference to the relevant bundle and page number in the bundle and must not be attached to the witness statement. Any document referred to in a witness statement that is not contained in a bundle of documents filed by any party must be attached to the witness statement.
9. If a party does not wish to ask any questions at the hearing of a witness whose witness statement has been given to the party, then it must advise the Tribunal and each other party in writing of that position at least 14 days prior to the hearing, and the witness does not then have to attend the hearing, unless required to do so by the Tribunal.
10. By 15 August 2016 the expert witnesses in each field of expertise must confer with one another in the absence of the parties and their representatives and must prepare a joint statement of:

(a) the issues arising in the proceeding which are within their expertise;

(b) the matters upon which they agree in relation to those issues;

(c) the matters upon which they disagree in relation to those issues; and

(d) the reasons for any disagreement.

11. The expert witnesses must each sign the joint statement at the conclusion of their conference. If the statement is in handwriting the expert witnesses must appoint one of them to generate a typed version of it and each must sign the typed document. The expert witnesses must file the joint statement with the Tribunal and gives copies of it to the parties by 16 August 2016.

13 On 10 August 2016, the Tribunal relevantly ordered that:

1. Orders 7 and orders 10­12 made by the Tribunal on 22 April 2016 be vacated.

...

3. If the Applicant proposes to give evidence or call any witness including any expert to give evidence at the hearing it must by 6 September 2016 file with the Tribunal a signed statement of the witness' evidence and give a copy of the statement to the Respondent.
4. By 20 September 2016 the parties must file with the Tribunal and give to the other party any responsive witness statements.
5. By 25 October 2016 the expert witnesses in each field of expertise must confer with one another in the absence of the parties and their representatives and must prepare a joint statement of:

(a) the issues arising in the proceeding which are within their expertise;

(b) the matters upon which they agree in relation to those issues;

(c) the matters upon which they disagree in relation to those issues; and

(d) the reasons for any disagreement.

6. The expert witnesses must each sign the joint statement at the conclusion of their conference. If the statement is in handwriting the expert witnesses must appoint one of them to generate a typed version of it and each must sign the typed document. The expert witnesses must file the joint statement with the Tribunal and give copies of it to the parties by 26 October 2016.

The matter is listed for a final hearing to commence at 10am on 21 November 2016 for a duration of 4 days at 565 Hay Street, Perth, Western Australia.

14 On 29 September 2016, the Tribunal relevantly ordered that:

1. The date for compliance with Order 4 made by the Tribunal on 10 August 2016 be extended to 7 October 2016.

15 The parties had more than adequate time to file any evidence from both experts and lay witnesses and for expert conferral to take place prior to the hearing.

16 Both the filing of witness statements and expert conferral are important aspects of the Tribunal's procedures directed to meeting the Tribunal's objectives under s 9 of the State Administrative Tribunal Act 2004 (WA) (SAT Act)

17 Compliance with orders for the filing of witness statements ensures that adequate notice is given to the parties of the facts upon which each party relies and the evidence in support of those facts. A failure to comply with the Tribunal's orders leads to a risk of parties being unprepared, adjournments and the loss of hearing dates. It is in the interests of the parties and the community that hearing dates, once set, are met. Unless a cogent reason is advanced explaining and excusing the late filing of witness statements, parties before this Tribunal should generally expect that late witness statements will not be admitted into evidence.

The 20 pages order

18 Prior to the hearing of this application, the Tribunal ordered that each party file a booklet comprising the 20 most relevant pages for the purposes of the hearing.

19 The Tribunal's experience is that often vast quantities of documents are filed most of which prove to be irrelevant for the purposes of determining the actual matters in issue at the hearing.

20 The aim of the 20 pages order is to focus the parties' minds on what documents are really relevant and to have those documents readily available to the parties and the Tribunal rather than wading through those vast quantities of largely irrelevant documents.

21 The Department complied with the 20 pages order. The Department's booklet (Exhibit 19) was a useful document that was frequently referred to in the course of the hearing. It thus served its purpose.

22 The OIC complied with the order in substance but not in form. The OIC's booklet (Exhibit 21) was barely referred to.

23 This Tribunal makes its orders for a reason and expects all parties to comply with them in substance and not merely in form. A failure to comply with the Tribunal's orders may have costs consequences for the defaulting party.

Onus

24 Since the OIC is the applicant, the onus is on the OIC to prove its case that the AWE should be 335GL. The standard of proof is on the balance of probabilities.

The relevant legislation

25 Section 4 of the RIWI Act provides:

(1) The objects of this Part are ­

(a) to provide for the management of water resources, and in particular ­

(i) for their sustainable use and development to meet the needs of current and future users; and

(ii) for the protection of their ecosystems and the environment in which water resources are situated, including by the regulation of activities detrimental to them;

and

(b) to promote the orderly, equitable and efficient use of water resources; and

(c) to foster consultation with members of local communities in the local administration of this Part, and to enable them to participate in that administration; and

(d) to assist the integration of the management of water resources with the management of other natural resources.

(2) The reference to use and development in subsection (1)(a)(i) includes use and development for domestic, commercial, recreational, cultural and navigational purposes.
(3) The Minister is to seek to ensure that the objects stated in subsection (1) are achieved, and other persons are to do so to the extent that they have relevant functions under this Part.

26 Section 5C(1) of the RIWI Act provides:

A person must not ­

(a) take water from any watercourse, wetland or underground water source to which this section applies; or
(b) cause or permit any of those things to be done,
except under and in accordance with ­
(c) a right conferred by ­

(i) section 9, 10, 20, 21, 22 or 25A; or

(ii) a local by law of the kind referred to in section 26L(3)(d); or

(iii) another written law;

or

(d) a licence under this section granted by the Minister in accordance with Schedule 1.

27 Section 5C(3) of the RIWI Act provides:

Schedule 1 has effect to make provision for and in relation to the licences referred to in subsection (1)(d).

28 Section 5D of the RIWI Act provides:

Rights cannot be acquired by length of use
A right ­

(a) to take and divert water; or
(b) to the diversion of water; or
(c) to the exclusive use of water,

cannot be acquired by any person, by length of time of use or otherwise, except under this Act or any other written law.
(Tribunal emphasis)

29 Section 28(1) of the RIWI Act provides:

The Governor may, on the recommendation of the Minister by Order in Council ­

(a) constitute any defined part of the State an Irrigation District for the purposes of this Act;
(b) specify the boundaries of such District;
(c) assign a name to such District;
(d) state the particulars of the scheme of local works for the service of such District;
(e) state the estimated cost of such scheme.

30 Schedule 1 of the RIWI Act provides:

1. Terms used

In this Schedule, unless the contrary intention appears ­

licence means a licence under section 5C;

public interest means public interest having regard to any economic, social or recreational benefits to the public, or to a section of the public.

...

7. Minister's discretion when deciding applications, exercise of

(1) The grant or refusal of an application for a licence and the terms, conditions and restrictions to be included in the licence are, subject to clause 8, at the discretion of the Minister.

(2) In exercising that discretion, the Minister is to have regard to all matters that the Minister considers relevant, including whether the proposed taking and use of water ­

(a) are in the public interest; or

(b) are ecologically sustainable; or

(c) are environmentally acceptable; or

(d) may prejudice other current and future needs for water; or

(e) would, in the opinion of the Minister, have a detrimental effect on another person; or

(f) could be provided for by another source; or

(g) are in keeping with ­

(i) local practices; or

(ii) a relevant local by law; or

(iii) a plan approved under Part III Division 3D Subdivision 2; or

(iv) relevant previous decisions of the Minister;

or

(h) are consistent with ­

(i) land use planning instruments; or

(ii) the requirements and policies of other government agencies; or

(iii) any intergovernmental agreement or arrangement.

(3) The Minister may refuse to grant a licence to a person on the ground that the person has been convicted of an offence against this Act.

(4) The Minister may refuse to grant a licence to a person if the Minister is not satisfied that the person has the resources, including the financial resources, to carry out the activities to which the licence relates.

(5) Without limiting subclause (1), terms, conditions and restrictions prescribed or imposed for the purposes of that subclause may relate to any matter provided for by the Appendix to this Schedule.

...

12. Duration of licence

(1) A licence may be granted or renewed for ­

(a) a fixed period; or

(b) an indefinite duration,

as stated in the licence or the renewal.

...

15. Terms etc. of licence

(1) The regulations may prescribe terms, conditions and restrictions that are to be taken to be included in ­

(a) all licences; or

(b) licences of a particular kind; or

(c) licences relating to a particular area; or

(d) licences of a particular kind relating to a particular area.

(2) The Minister may, at the Minister's discretion, include in a licence any term, condition or restriction additional to those referred to in subclause (1), but clause 7(2) applies to the exercise of that discretion.

(3) Without limiting subclause (1) or (2), terms, conditions and restrictions prescribed or imposed for the purposes of those subclauses may relate to any matter provided for by the Appendix to this Schedule.

...

22. Renewal

(1) An application for the renewal of a licence that is in force for a fixed period ­

(a) must be made in the form specified for the purpose by the Minister; and

(b) must be accompanied by the prescribed fee.

(2) On an application for renewal of a licence, the licence is to be renewed unless ­

(a) the renewal would be inconsistent with ­

(i) a relevant local by­law; or

(ii) a plan approved under Part III Division 3D Subdivision 2;

or

(b) the Minister is of the opinion that, if the application for renewal was an application for the grant of a licence, the Minister would exercise the discretion under clause 7(2) to refuse to grant the licence; or

(c) it is a term of the licence that it is not renewable; or

(d) a term, condition or restriction included in the licence has not been complied with; or

(e) in the opinion of the Minister there are sufficient grounds for the exercise of the power to cancel the licence under clause 25.

(3) Clause 6(2), (3) and (4) apply where the Minister proposes ­

(a) to refuse an application for renewal of a licence; or

(b) to renew a licence subject to the inclusion of a term, restriction or condition that the Minister considers is inconsistent with the terms of the application for renewal,

in the same way as they apply to an application for a licence.

(4) Clauses 8 and 10(2) apply to an application for renewal in the same way as they apply to an application for a licence.

(5) A licence which would otherwise expire after application has been made for its renewal but before the Minister has made a decision as to that renewal remains in force until that decision is made.

23. Amendment, application by licensee for

(1) A licensee may apply to the Minister at any time for amendment of the licence.

(2) Clauses 4, 6, 7, 10 and 12 and Division 3 apply, with all necessary modifications, to an application under subclause (1) as if it were an application for the grant of a licence.

(3) Despite subclause (2), a fee may be prescribed for an application under subclause (1) that is different from that prescribed for the purposes of clause 4(1)(d).

24. Amending licence, Minister's powers as to

(1) The Minister may, subject to this clause and clause 26, by notice in writing given to the licensee ­

(a) vary the duration of a licence; or

(b) vary, add to or remove any term, condition or restriction included in the licence; or

(c) include any new term, condition or restriction in the licence.

(2) The Minister may only exercise a power described in subclause (1) in relation to a licence if ­

(a) the licensee consents to the Minister doing so; or

(b) in the opinion of the Minister, the exercise of the power is necessary or desirable ­

(i) due to the detrimental effect of actions authorised by the licence on another person; or

(ii) to protect the water resource to which the licence relates from unacceptable damage; or

(iii) to protect the associated environment from unacceptable damage;

or

(c) in the opinion of the Minister, the exercise of the power is necessary to prevent serious damage to life or property; or

(d) in the opinion of the Minister, the quantity of water that may be taken under the licence has consistently not been taken; or

(e) in the opinion of the Minister, the exercise of the power is necessary or desirable ­

(i) in the public interest; or

(ii) because the water resource to which the licence relates is insufficient to meet demand or expected demand; or

(iii) otherwise to more effectively regulate the use of that water resource;

or

(f) in the opinion of the Minister, the exercise of the power is necessary to prevent a serious inconsistency arising as a result of ­

(i) the approval of a plan, or the alteration, revocation or substitution of a plan, under Part III Division 3D Subdivision 2; or

(ii) the making, amendment or repeal of relevant local by­laws;

or

(g) the licensee, or a person whose name is endorsed on the licence as a person with whom the licensee has an agreement referred to in clause 30, is convicted of an offence against this Act; or

(h) in the opinion of the Minister, the exercise of the power is necessary to comply with another written law of the State or a law of the Commonwealth; or

(i) the licensee has applied under clause 32 for approval of the transfer of the licence or a water entitlement under the licence or of an agreement referred to in clause 30, and the exercise of the power is necessary or desirable to give effect to the transfer or agreement; or

(j) the licence confers authority for the Minister to do so.

26. Licensee may make submissions in some cases before licence amended, suspended or cancelled

(1) Except as provided by subclauses (2) and (3), this clause applies where the Minister proposes to exercise a power conferred by clause 24 or 25.

(2) This clause does not apply to the proposed exercise of a power conferred by clause 24 or 25 ­

(a) if the Minister is of the opinion that the exercise of the power is necessary to prevent loss of life or property or serious injury to persons or property; or

(b) if the power is to be exercised in circumstances prescribed by the regulations.

(3) This clause does not apply to the proposed exercise of a power conferred by ­

(a) clause 24 in the circumstances mentioned in subclause (2)(a) of that clause; or

(b) clause 25 in the circumstances mentioned in subclause (2)(c)(i) of that clause.

(4) Where this clause applies, the Minister is to notify the licensee ­

(a) of the Minister's proposal; and

(b) that the licensee has a right to make written submissions to the Minister, or be heard by a person designated by the Minister for that purpose, before the Minister makes a decision to exercise the power.

(5) Written submissions may be made by the licensee, as mentioned in subclause (4)(b), within such period after the licensee is given notice under that subclause as is specified in the notice.

(6) The Minister is to have regard to any submissions made by the licensee under subclause (5) before the Minister makes a final decision.

The Tribunal's jurisdiction

31 Section 26GG of the RIWI Act provides:

(1) A person referred to in subsection (2) may apply to the State Administrative Tribunal for a review of the decision if the person is aggrieved by a decision of the Minister under Schedule 1 ­

(a) to refuse an application for the grant or renewal of a licence under section 5C (a licence); or

(b) as to the period for which a licence is granted or renewed; or

(c) as to any term, condition or restriction included in a licence; or

(d) to undertake to grant a licence, including as to any term, condition, or restriction undertaken to be included in the licence; or

(e) to amend, suspend or cancel a licence; or

(f) to refuse to approve the transfer of a licence or of a water entitlement under a licence, or an agreement referred to in clause 30 of Schedule 1.

(2) A person may apply under subsection (1) for a review only if the person is an applicant for the licence, the licensee or, if the application is made under subsection (1)(f), a person to whom the licence or water entitlement would be transferred or a person who is a party to the agreement.

Relevant authorities as to policy

32 As Brennan J noted in Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 (Re Drake) at 645:

When the [Administrative Appeals] Tribunal is reviewing the exercise of a discretionary power reposed in a Minister, and the Minister has adopted a general policy to guide him in the exercise of the power, the Tribunal will ordinarily apply that policy in reviewing the decision, unless the policy is unlawful or unless its application would produce an unjust decision in the circumstances of the particular case. Where the policy would ordinarily be applied, an argument against the policy itself or against its application in the particular case will be considered, but cogent reasons will have to be shown against its application, especially if the policy is shown to have been exposed to parliamentary scrutiny.

33 This approach was endorsed by the Tribunal in More and Water and Rivers Commission [2006] WASAT 112 and Kirwan and Department of Water [2011] WASAT 137.

34 In considering whether to apply a government policy, the Tribunal must determine the correct and preferable decision balancing the desirability of consistency in the treatment of citizens pursuant to the law and the ideal of justice in the individual case: Re Drake at 636.

The witnesses

35 The following witnesses gave evidence:

The OIC

• Elaine Gardiner, a former irrigator/farmer in the Ord River Irrigation Area (ORIA) and Chair of the Ord River Irrigation District Management Committee (the OIC's predecessor) from 1992 to 1994 and Chair of the OIC from 1996 until 2011. Ms Gardiner gave written evidence on behalf of the OIC (Exhibit 29).
• David Menzel, the Chair of the OIC. He filed a written statement on behalf of the OIC (Exhibit 31). He also filed a responsive statement (Exhibit 33). Although Mr Menzel was called as an expert witness, because he is a member of the OIC, he has a very direct interest in maintaining the OIC's AWE at a level similar to or higher than 335GL. He was leasing about 700 hectares for irrigation but proposed to reduce that to 170 hectares (T:66; 21.11.16). Understandably, his focus was on the OIC's requirements rather than the wider context of the ORIA.
• Robert Boshammer gave evidence on behalf of the OIC (Exhibit 28). He also filed a responsive statement (Exhibit 32). He has farmed in the Ord River since 1985. He is a member of the OIC. His experience and qualifications are set out at paragraphs 1 to 7 of Exhibit 28. As with Mr Menzel, although Mr Boshammer was called as an expert witness, because he is a member of the OIC, he has a very direct interest in maintaining the OIC's AWE at, or above, 335GL. He has 2000 hectares of agricultural land in the ORIA Stage 1 managed by his son (T:65; 21.11.16). Understandably, his focus was on the OIC's requirements, and the benefits to him, rather than the wider context of the ORIA.
• Matthew Dear, the general manager of the OIC filed a written statement (Exhibit 30). He also filed a responsive statement (Exhibit 34).
• Owen Peter Droop is a civil engineer and the director of OD Hydrology Pty Ltd, a water resource and hydrological consulting firm based in Brisbane. He filed a written statement on behalf of the OIC (Exhibit 27). He also filed a responsive witness statement (Exhibit 36). Mr Droop's expertise is set out at paragraphs 3 to 8 of Exhibit 27. His curriculum vitae also appears at pages 28 to 30 of Exhibit 27. Mr Droop carried out a review of the Department's Ord River hydrological modelling.
• Peter Jacob is an agricultural economist and financial and agricultural consultant. He is a director of Jacob Marsden Associates. He filed a written statement on behalf of the OIC (Exhibit 26). He also filed a responsive witness statement (Exhibit 35) and a supplementary witness statement (Exhibit 40). Mr Jacob's professional experience and expertise are set out at page 1 paragraphs 1 to 4 of Exhibit 26.

The Department

• Shaan Pawley is a senior engineer in the Department's Water Allocation Planning Branch. She filed a witness statement (Exhibit 4) and a responsive witness statement (Exhibit 12). Ms Pawley's qualifications and experience appear at paragraphs 1 to 9 of Exhibit 4. She holds a bachelor's degree in environmental engineering (UWA) and a Master's degree in water science policy and management (Oxon). She joined the Water Allocation Planning Branch of the Department in September 2013.

In cross­examination, the OIC challenged Ms Pawley's objectivity on the basis that as an employee of the Department she lacked objectivity (T:100­101; 21.11.16). Ms Pawley is a professional and an employed civil servant. The Tribunal does not accept that she lacked objectivity in her evidence.

• Jacqueline Durrant is the supervising engineer in the surface water assessment section of the Department's water resource assessment branch. She filed a witness statement (Exhibit 5) and a responsive witness statement (Exhibit 10). Ms Durrant's qualifications and experience appear at paragraphs 1 to 8 of Exhibit 5. She holds bachelor's degrees in environmental engineering and commerce (UWA). She joined the Department in December 2002.
• Rohan Taylor Prince, an employee of the Department of Agriculture and Food, Western Australia (DAFWA). He filed a witness statement on behalf of the Department (Exhibit 7). He also filed a responsive statement (Exhibit 11). His experience and expertise appear at paragraphs 2 to 8 of Exhibit 7.
• Roy Stone is the Manager of the Department's Water Supply Planning Branch. He filed a statement on behalf of the Department (Exhibit 6). He also filed a responsive statement (Exhibit 14). His experience and expertise appears at paragraphs 1 to 3 of Exhibit 6.
• Karis Tingey is the Program Manager Kimberley Licensing for the Department. She filed a witness statement on behalf of the Department (Exhibit 8). She also filed a responsive statement (Exhibit 13). Her experience and expertise appear at paragraphs 1 to 3 of Exhibit 8.
• Peter Stubbs, is the Director of Major Projects employed by the Department of Regional Development. He filed a written statement on behalf of the Department (Exhibit 9). He also filed a responsive statement (Exhibit 15). His experience and expertise appear at paragraphs 1 to 9 of Exhibit 9.

36 In general, the Tribunal preferred the evidence of the Department's witnesses because they considered the appropriate AWE in the broader context of all the users and potential users of water rather than in the narrow context of the OIC members.

Concurrent evidence

37 Messrs Boshammer, Menzel and Prince held a joint experts' conferral (Exhibit 38) and gave their evidence concurrently.

38 Mr Droop, Ms Pawley and Ms Durrant held a joint experts' conferral (Exhibit 37) and gave their evidence concurrently.

A brief explanation of the distribution of water in the Ord River Irrigation District (OID)

39 In order to understand the context of the reasons that follow, a brief explanation of the distribution of water in the Ord River system is helpful.

40 The OID was constituted pursuant to s 28 of the RIWI Act on 13 July 1962. The boundaries of the irrigation district include the Ord River and its tributaries in Western Australia.

41 The Ord River and its tributaries provide water for irrigated agriculture, including the OIC, mining industry, hydroelectricity generation and the local environment.

42 Water from the Upper Ord catchment is stored in Lake Argyle. The Water Corporation is licensed by the Department to store and release the water in Lake Argyle.

43 Pursuant to an agreement between the Water Corporation and Pacific Hydro Limited, water is released from Lake Argyle through a hydropower station to generate electricity. Water is also occasionally released from Lake Argyle through irrigation valves which bypass the power station.

44 Water released from Lake Argyle through the power station or irrigation valves flows down the Ord River and into Lake Kununurra.

45 The Ord River system is further explained in the written evidence (Exhibit 4) of Ms Pawley:

...

25. The Ord River System, including the water stored in Lake Argyle (by the Ord River Dam) and Lake Kununurra (by the Kununurra Diversion Dam) and its tributaries ... supports many important stakeholders. It provides water to a growing irrigation area, sustains a unique Kimberley environment, provides water for hydroelectricity generation and supports local indigenous, community, recreational and tourism values (Exhibit 2, Ord plan p.10; document 96, p 1059)
26. Water from the upper Ord River catchment (of which approximately one-fifth is located in the Northern Territory) is stored in Lake Argyle by the Ord River Dam.
27. Lake Argyle's current storage capacity (to full supply level) is 10,760 gigalitres, which is equivalent to about 2.5 times the mean annual flow. The water that is stored in Lake Argyle is a shared water resource that can be released to provide benefits for both irrigation and hydroelectric power generation (as well as to meet the downstream environmental, indigenous, community, recreational and tourism needs). The Ord River Dam is also used for flood protection of the downstream towns.
28. Argyle Diamond Mine is licensed to divert a small volume of surface water upstream of and directly from Lake Argyle for camp and processing purposes. This water is taken from a separate subarea to the OIC.
29. Water Corporation, which owns, operates and maintains the Ord River Dam, is licensed by the Department to store and release (but not divert) the water in Lake Argyle (and Lake Kununurra) under Surface Water Licence 55655(8) (document 100).
30. Pacific Hydro Limited, which owns and operates a 30 megawatt hydroelectric power station at the Ord River Dam, releases water through the power station to generate hydroelectricity power. Pacific Hydro Limited is not licensed by the Department, instead they operate under a 1994 Water Supply Agreement with Water Corporation.
31. The Water Corporation can also release water from Lake Argyle through the irrigation valves that bypass the power station. Water is released through the power station whenever possible. Currently releases via the irrigation valves usually only occur when the power station is shut down for maintenance (Exhibit 2 Ord plan, p. 12; document 96, p 1061). The Department's Kimberley Licensing Program Manager, Ms Karis Tingey, through her discussions with Water Corporation has informed me that in 2015 this happened three times for a total of ten days. Releases via the irrigation valves will likely increase in the future when there are greater water demands from irrigators than what there currently is.
32. The water that is released through the power station and/or irrigation valves at the Ord River Dam flows down the Ord River and into Lake Kununurra. Lake Kununurra also collects any overflow above the spillway (spills) from Lake Argyle via Spillway Creek and surface water runoff from the local catchment between the two dams.
33. Above the Kununurra Diversion Dam, water is diverted to Stage 1 of the Ord River Irrigation Area (ORIA) (to Packsaddle Plain and Ivanhoe Plain by OIC under Surface Water Licence 156287(2), that is, its licence it operates presently) and Stage 2 of the ORIA (presently the new M2 supply area). Self-supply water licensees in Stage 1 of the ORIA (colloquially referred to as riverside pumpers) take water directly from the Ord River above and below the Kununurra Diversion Dam.
34. Water Corporation releases any surplus water from Kununurra Diversion Dam, and when (necessary, any additional water required to meet the environmental water provisions for the lower Ord River at Tarrara Bar, under Surface Water Licence 55655(8) (document 100). This surplus water from Kununurra Diversion Dam is made up of spills from Lake Argyle, hydropower releases and local catchment inflows that are surplus to what irrigators divert from the river.
35. The Dunham River joins the Ord River just downstream of Kununurra Diversion Dam. This water, as well as surface water runoff from the local catchment, contributes to meeting the environmental water provisions for the lower Ord River at Tarrara Bar. There are a number of licensed diverters along the Dunham River upstream of the confluence with the Ord River[.]

Terminology used in the evidence

46 The more important terms used in the evidence of the various witnesses is explained below.

'Distribution efficiency' ­ the off take point to the farm gate

47 Ms Pawley explained the term 'distribution efficiency' at paragraphs 70 to 74 (Exhibit 4):

Distribution efficiency is the percentage of water diverted from the Ord River offtake (Ml offtake and Packsaddle pump station) that is delivered to the farm gate (the metered point at the farm). The water volume diverted from the Ord River will be greater than the volume delivered to the farms due to losses in the distribution network (main channels and smaller supply channels). These losses include evaporation, seepage from channels to groundwater, and supply water going directly to drains due to channel operational conditions. The greater the distribution efficiency, the greater the percentage of water diverted from the Ord River that is [actually] delivered to farms.
Efficiency of the distribution system is provided by OIC within its annual reports. OIC meters the volume of water diverted at its two extraction points (Ml offtake and Packsaddle pump station) and the volume of water delivered to farmers. OIC provides an account for the water that was not delivered to the farms, with estimates of its use or loss.

'On­farm efficiency'

48 Ms Pawley explained the term 'on­farm efficiency' at paragraphs 75 to 76 (Exhibit 4):

On-farm efficiency is the percentage of water delivered to the farm that [actually] reaches the root zone of the crop. Due to the flood irrigation method utilised in the ORIA, more water needs to be supplied to the paddock than what the plant requires. Most of the water that is in excess of plant requirements is discharged to the irrigation area drainage network.
On-farm water use efficiencies are not monitored by the Department or OIC, however, OIC does monitor the majority of drainage channels in the ORIA as part of its licence conditions and compares the volume of water diverted from the Ord to the volume of water returned back to the Ord via the drainage channels. As the drainage channel captures rainfall runoff, it may not be a direct measure of on-farm water use efficiency.

95% reliability

49 Ms Pawley explained the concept of 95% reliability at paragraph 56 (Exhibit 4):

The Department has set the annual reliability of the allocation limit in the Main Ord subarea at 95 per cent (DoW, 2012b, pp.77-79; document 99, Exhibit 2, p.1311-1313; Ord plan, Table 3, p.25; document 96, Exhibit 2). Reliability refers to the frequency with which a water licence holder can access their full annual licensed entitlement (Ord plan, p.78; document 96, Exhibit Licence holders can therefore expect irrigation supply to be restricted on average in five out of every 100 years, when water levels in Lake Argyle are low. This highly reliable (95 per cent) allocation limit is maintained through water release rules (which include restrictions on releases) for irrigation, hydroelectricity and environmental releases at the Ord River and Kununurra Diversion dams.

Water is a public resource

50 Water is a public resource. The management of the Ord River system requires a balancing of competing interests.

51 Those competing interests are explained in the evidence of Ms Pawley:

...

15. The Ord Irrigation Cooperative (OIC) is not the only user of water in the Ord. The 3 current irrigation industry consists of the OIC and about 80 separate individual self-supply licensees (riverside pumpers) in Stage 1 of the ORIA; and Kimberley Agricultural Investments (KAI) in Stage 2 of the ORIA. The future irrigation industry will include developers of new agricultural lands in Western Australia (Stages 1 and 2 in the ORIA) and the Northern Territory (Stage 3 in the ORIA). The Ord River also sustains a unique Kimberley environment and provides Pacific Hydro Limited with water for hydroelectricity generation and supports local indigenous, community, recreational and tourism values.
16. While secure and reliable water supplies for a strong and expanding irrigation industry is crucial, it is not the only outcome that the Department is trying to achieve with the Ord plan. The other outcomes are: a healthy lower Ord River environment; as much hydroelectricity production as possible, within the limits of the water needed by irrigators and the downstream environment; and traditional Indigenous access, water- based tourism and recreational opportunities that complement the irrigation, environmental and power outcomes (Ord plan, p.8; document 96, Exhibit 2, p.1057). These other outcomes predominantly reflect the Western Australia government's existing commitments to hydroelectricity generation and to maintaining the downstream environment as discussed at paragraph 41 in my witness statement (Exhibit 4 dated 2 August 2016)[.]

(Exhibit 12)

52 In assessing the correct and preferable decision as to the AWE it is important to bear in mind that the decision has to be made from the broader perspective of the users and potential users of water from the Ord River system, rather than simply that of the OIC. Understandably, the OIC's submissions were directed to the interests of the OIC. However, in focusing solely on the interests of the OIC (rather than placing the OIC interests in a broader context), its submissions were of limited value in assessing a decision in the broader context.

53 Further, although some of the ownership of the irrigation infrastructure of the Ord River system is vested in the OIC, it remains substantially in public ownership. Further, the OIC has not been the only party to contribute to the infrastructure ­ Pacific Power has also contributed, particularly to the increase in the spillway.

The priority of the RIWI Act over policy

54 The terms of an Act must always takes priority over any policies made under that Act.

55 In reaching the correct and preferable decision on the AWE, the first question is, what does the RIWI Act require? Policy is applied in the context of the RIWI Act.

56 Section 4 of the RIWI Act sets out the objects of Pt III of the RIWI Act. Section 4 underpins both the purpose of the RIWI Act and the considerations this Tribunal must take into account in reaching the correct and preferable decision.

57 It is important to note that the implication of s 5D of the RIWI Act and cl 24(2)(d) of Sch 1 to the RIWI Act is that utilisation of the AWE is a primary consideration in determining the AWE. The significance of this is that a licensee is not entitled to a permanent fixed AWE. Accordingly, a licensee cannot order its affairs on the basis that it has a permanent, fixed AWE.

58 In the context of the OIC's application, it is important to bear in mind that a licensee's historical utilisation of its AWE is a significant factor in determining an appropriate AWE. The importance of a licensee's utilisation of water is reflected in cl 24(2)(d) of Sch 1 to the RIWI Act which makes a failure to consistently take the quantity of water that may be taken under the licence, a ground for amending the licence.

59 It follows that the fact that the OIC has had an AWE of 335GL since 30 September 2004, does not of itself confer any entitlement to a further AWE of 335GL.

The RIWI Act and eastern states legislation

60 A very useful analysis of water law in Australia is found in Gardner, Bartlett & Gray's Water Resources Law (Lexis Nexis Butterworths Australia, 2009) (Water Resources Law). Although published in 2009, there have been no relevant changes to the RIWI Act since then and it continues to provide a very useful guide to water law in Australia.

61 The Council of Australian Governments, Intergovernmental Agreement on a National Water Initiative 2004 (NWI) at paragraph 37 provided:

Broadly, water planning by States and Territories will provide for:

(i) secure ecological outcomes by describing the environmental and other public benefit outcomes for water systems and defining the appropriate water management arrangements to achieve those outcomes; and
(ii) resource security outcomes by determining the shares in the consumptive pool and the rules to allocate water during the life of the plan.

(Water Resources Law at chapter 1.37)

62 However, in assessing what guidance, if any can be obtained from policies developed under legislation in the eastern states, it is important to be aware that Western Australia has a different legislative regime. Western Australia has largely not implemented the NWI (Water Resources Law at chapter 12.16).

63 As Water Resources Law notes at chapter 22.21, 'there is a notable variety between the different jurisdictions in the statutory expression and scope of the governmental powers to vary access entitlements by direction or by amendment of conditions'.

64 As Water Resources Law further explains at chapter 12.12:

The NWI requires that water access entitlements will 'only be able to be cancelled at Ministerial and agency discretion where the responsibilities and obligations of the entitlement holder have clearly been breached' and only 'be able to be varied, for example to change extraction conditions, where mutually agreed between the government and the entitlement holder'. The exercise of unilateral discretion to cancel a water entitlement or change conditions denies or discounts the possibility of any proprietary right arising.
Queensland affords an illustration of the application of these requirements. The traditional water licence in the state is the subject of discretionary cancellation and changes to terms and conditions. By contrast, water allocations, which are of course replacing the water licence, may only be forfeited in the event of a breach of conditions or of the Act. In the event of such forfeiture, any balance of proceeds arising from the sale of the water allocation is payable to the former allocation holder. There is no provision for unilateral discretionary changes in terms and conditions.
New South Wales has similar arrangements with respect to the cancellation of a water access license. Cancellation other than for breach of condition requires compulsory acquisition and the payment of compensation, as with any other proprietary right.
None of the jurisdictions allow for the discretionary cancellation of access entitlements, that is, for other than breach of condition, without the payment of compensation.
Nor do the jurisdictions generally allow discretionary changes after the grant of a water entitlement, except to ensure consistency with a water management plan. The exceptions are New South Wales, the Northern Territory and the Australian Capital Territory which have retained a unilateral discretion to bring about changes in terms and conditions after the grant of the water entitlement.
Not unexpectedly the Water Commission in Western Australia retains a discretionary power to suspend or cancel a water licence and vary terms and conditions under its unreformed legislation.
(Tribunal emphasis)

65 Given that Western Australia has largely not implemented the NWI in its legislation, policies and practices based on the relevant Acts in other states do not necessarily provide a useful guide to the application of policy under the RIWI Act. In particular, in so far as those policies are based on resource security/proprietary rights they are not of assistance in determining this application. Similarly in so far as the OIC's evidence and submissions rely on 'best practice' in the eastern states they are of limited value.

The OIC's misconception about its entitlement to a permanent AWE right

66 When the case presented by the OIC case is stripped back to its essentials, it is apparent that much of that case was directed to preserving the OIC's AWE under Licence (1) and Licence (2). The basis of this aspect of the OIC's case is that the OIC should have a fixed entitlement to water from the Ord River, that is, 335GL, because this provides the OIC irrigators with certainty and sufficient flexibility to respond to changing market conditions. In short, that the OIC should have resource security, effectively a 'right' to an AWE of not less than 335GL.

67 A letter from the OIC to the Department dated 1 July 2009 (Exhibit 2 page 30) stated:

It is important however to stress that, in relation to the duration of the licence, we are of the view that the licence is capable of being construed as one that is now of a permanent nature.

68 Mr Dear gave evidence that:

Allocation of the annual water entitlement under the licence is based is the minimum 17 ML of water per hectare of land owned by members, which figure was established in conjunction with the Water Authority at the commencement of OIC in 1996, plus conveyance losses. This is the basis on which people originally invested and continue to invest here.
(Exhibit 30 paragraph 28, see also Exhibit 34 paragraph 7)

69 Mr Menzel stated that 'during the period of privatisation of the irrigation scheme it was envisaged by OIC members that the water reform at that time would deliver the secure water titles necessary to underpin the financial security of the ORIA businesses' (Exhibit 31 paragraph 38).

70 Ms Gardiner gave evidence as to the negotiations between the OIC and the Department. She described the 335GL AWE as a 'mutual understanding' (Exhibit 29 paragraph 40). Her evidence, both in her written statement, paragraphs 37 and 38, and in her oral evidence (T:354­358; 23.11.16) and the documents attached to Exhibit 29, for example EG7 page 10, do not establish that there was any commitment to a permanent allocation of 335GL to the OIC by the Department.

71 It is important to note that, contrary to the statements above, the AWEs under Licence (1) and Licence (2) were not based on a permanent right. As Ms Pawley stated:

Contrary to common belief amongst OIC members that OIC was issued its first licensed water entitlement of 335 gigalitres per year based on 17 megalitres per hectare at the farm gate, it was in fact issued based on its projected crop types and areas for the licence period, average irrigation water required by the crop, an average on­farm water use efficiency of 70 per cent and a distribution efficiency of 80 per cent. ... OIC in turn administratively distributed its 335 gigalitres per year entitlement it to its members at an average rate of 17 megalitres per hectare at the farm gate.
(Exhibit 12 paragraph 74)

72 More importantly, both the legislation and the express terms of the licences make clear that the AWE is not a permanent right.

73 The OIC's case is heavily influenced by an approach that is appropriate under the eastern states' legislation ­ an approach that, as explained above, is not necessarily appropriate under the RIWI Act. Accordingly, much of the OIC's case was misguided.

The Department's policies

74 At this point, it is useful to set out the relevant Departmental policies. The Department uses strategic and operational policies that apply across the State, as well as local licensing policies.

75 The Department states that local licensing policies are adopted either because state wide policies do not address specific local issues, or because an alternative policy approach is needed to manage a particular local issue.

76 The Ord Surface Water Allocation Plan Report No 48 was published in September 2013 (the Ord Allocation Plan) (Exhibit 2 pages 1037 to 1130).

77 The Ord Allocation Plan applies to the OID and sets out how the Department allocates and licenses surface water from existing infrastructure in the Ord River area, in order to manage the demands of irrigation, hydroelectricity generation and the downstream environment of the Ord River.

78 The inflow of water to Lake Argyle is variable. Using recorded and estimated dam inflow for the period from 1906 to 2004, the Department modelled a variety of water allocation and restriction scenarios in order to maximise water for irrigation and hydroelectricity and meet ecological needs.

79 The Department's objectives under the Ord Allocation Plan are to ensure that water can be supplied to meet the needs of irrigators in 95% of years, while maintaining a healthy environment downstream of the Ord River dam and Kununurra Diversion dam.

80 Under the Ord Allocation Plan, the total volume of water that can be taken for consumptive use (including irrigation) from the Main Ord subarea, whilst meeting the objectives identified above, is 750GL per year.

81 The Ord Allocation Plan relevantly provides:

Changes to licensing as irrigation developments proceed
New irrigation developments around the current Stage 1 area and in the new M2 area will be drawing on the 750 GL/yr allocation limit for the Main Ord subarea. The department will assess and grant new licence entitlements in stages, as each new irrigation area proceeds. This will maximise access to water for further irrigation expansion within the allocation limit, and ensure power generation is not unnecessarily restricted before water is fully utilised for irrigation expansion.
For each new licence entitlement we will:

• grant annual water entitlements to match justified crop needs and efficient water use for the area under irrigation
• recoup unused water from existing licensees at times of their licence renewal, or if necessary when we grant new licences for new developments
• adjust water release rules and restrictions to maintain reliability.

Unused water entitlements will be recouped because maintaining reliability for unused entitlements would mean the storage level that triggers restrictions on electricity generation would be higher than it needs to be. We will make provision for reasonable changes in crop types from year to year, such as a move to higher-water- use crops. Also, savings made from efficiency gains above expected efficiency targets will not be recouped and can either be used to expand production or be traded.
...
Table 8
Local licensing policy specific to the Ord plan area

...

...

...

82 The Department's approach to licensing for large scale irrigation is set out at section 5.2 of the Ord Allocation Plan. The Ord Allocation Plan provides that for each new licence entitlement, the Department will:

(a) grant annual water entitlements to match justified crop needs and efficient water use for the area under irrigation;
(b) recoup unused water from existing licensees at times of their licence renewal, or if necessary when the [Department] grants new licences for new developments; and
(c) adjust water release rules and restrictions to maintain reliability.

83 The Ord Allocation Plan further states (Exhibit 23 page 1084):

Unused water entitlements will be recouped because maintaining reliability for unused entitlements would mean the [dam] storage level that triggers restrictions on electricity generation would be higher than it needs to be. We will make provision for reasonable changes in crop types from year to year, such as a move to higher water use crops. Also, savings made from efficiency gains above expected efficiency targets will not be recouped and can either be used to expand production or be traded.

84 Table 8 of the Ord Allocation Plan sets out specific local licensing policies for the area covered by the Ord Allocation Plan. Policy 4.7 states:

To ensure full and efficient use of the resource, maximise development and reduce hydropower restrictions, the department:

- aims to grant water entitlements to match justified crop needs and efficient water use for the area under irrigation
- will recoup water entitlements (part or full) that have never been used or have not been used for more than two consecutive years.

85 Policy 5.1 in Table 8 of the Ord Allocation Plan relates to monitoring and reporting for water service providers, and states:

5.1.1 Water service providers will be required to monitor water quality impacts on the Ord River and tributaries through licence conditions.
5.1.2 Water service providers must provide the following in their annual report to the department:

• Annual water diverted and delivered on-farm.
• Distribution efficiency.
• Surface water and groundwater quality monitoring results (required in Stage 1 areas, where no [Environmental Protection Act 1988 (WA)] or [Environment Protection and Biodiversity Conservation Act 1999 (Cth)] conditions apply).
• Drainage discharge figures and estimates of irrigation return flows.

86 Section 5.7 of the Ord Allocation Plan states that the local policies provide additional specific guidance for managing licences in the Ord area, and that where a local policy differs from a State­wide policy, the local policy in the Ord Allocation Plan is to be applied.

87 The Department's Statewide Policy No 11 ­ Management of Unused Licensed Water Entitlements (Policy 11) was approved by the Board of the Water and Rivers Commission (the predecessor of the Department) in November 2003.

88 The introduction to Policy 11 states:

This policy only applies to water entitlements that were granted by the Commission. It does not apply to:

• water entitlements that have been purchased (traded); or
• unused water entitlements that are a result of investment in water use efficiency.

89 Part 3 of Policy 11 states:

The Water and Rivers Commission will manage unused licensed water entitlements to ensure that entitlements are fully and effectively utilised. This will be achieved by seeking to reduce unused entitlements to a minimum, while ensuring that:

• the reasonable water requirements of the licensee are addressed;
• where possible, new applicants seeking access to a water resource are not unreasonably constrained in obtaining a water entitlement; and
• licensed water entitlements reflect actual water usages.

Where the licensee is able to clearly establish to the satisfaction of the Commission that genuine extenuating circumstances have resulted in part or all of the licensed water entitlement not being used, the unused component of the entitlement may be retained for an agreed period.

90 Part 4.12 of Policy 11 relates to the management of unused licensed water entitlements held by water service providers licensed under the Water Services Act 2012 (WA). Policy 11 relevantly states:

It is recognised that the circumstances for Water Service Providers (WSP) are unique compared to the average licence holder as they have the responsibility of delivering drinking water to households in our towns or irrigation water to our industries.
The Commission acknowledges these differences and will take them into consideration when managing unused licensed water entitlements along with the outcomes from the discussion paper on 'Reserving and protecting water resources for future use in Western Australia'.
...
The retention of the unused water entitlement by WSP that supply irrigation water, would not be allowed to remain unchecked for long periods, as water not immediately required could be made available to others [sic] users, possibly in the same industry. In these circumstances, any recouped water entitlements from water service providers will only be made available to other high beneficial uses.

91 The OIC is a water provider. However, ultimately that was not of significance in the Tribunal reaching its decision. The Tribunal also notes the broad definition of beneficial uses in the RIWI Act and the requirement to have regard to potential users.

92 The Tribunal notes that the Allocation Plan and Policy 11 are not statutory policies to which s 28 of the SAT Act applies and as a consequence, the Tribunal is not bound to have regard to them in its review of the Department's decision. However, they remain highly relevant.

The Department's approach to the application of the policies

93 Ms Pawley's statement (Exhibit 4 paragraphs 58 to 64) sets out the Department's approach to the application of the relevant policies:

The Department uses policies to guide its water licence assessments and decisions (under clause 7(2) of Schedule 1 of the RIWI Act). The Department has strategic and operational policies that apply across the state (statewide policies), as well as local licensing policies.
Under the RIWI Act the Department, as the Minister for Water's delegate, may vary any term, condition or restriction in a licence (Schedule 1, cl. 24) if, in the opinion of the Department, that the quantity of water that may be taken under the licence has consistently not been taken (Schedule 1, cl. 24(2)(d)).
The statewide policy relevant to recouping unused water entitlements is Statewide Policy No 11 Management of Unused Licensed Water Entitlements (Statewide Policy No 11) (WRC, 2003; document 94, Exhibit 2). The intent of Statewide Policy No 11: 'is to ensure that the water resources allocated are used effectively by:

1. reducing unused licensed water entitlements to a minimum;
2. ensuring that licensed water entitlements are fully utilised for the benefit of the licence holder, the community and the State;

100. reducing speculation in water allocations; and

4. ensuring that decisions on managing, and in some circumstances recouping, unused licensed water entitlements are fair and equitable (WRC, 2003, p 1). '

Clause 2.1 of Statewide Policy No 11 states that the Department considers that an unused water entitlement is that part or all of the licensed annual water entitlement that has not been taken (used) for more than three consecutive years (WRC, 2003, p.3; document 94, Exhibit 2, p. 1022). The Department will consider a lesser timeframe in circumstances that warrant it, such as where demands will exceed the allocation limit, when there is no clear intention to use the water, to prevent speculation or monopolies and to prevent anti­competitive behaviour (WRC, 2003, p.3; document 94, Exhibit 2, p. 1022).
Under clause 4.4 of Statewide Policy No 11 in systems where licensed water entitlements are greater than 30 per cent but less than 70 per cent of the allocation limit (as is in the Main Ord subarea) the Department's statewide approach is to not actively pursue (which I interpret to be during the term of the licence) the recovery of unused entitlements (WRC, 2003, cl.4.4, pp.6-7; document 94, Exhibit 2, 1025­1026). The percentage of the allocation limit that is licensed is a general indicator of the level of water demand and scarcity of a water resource. The higher the percentage the more scarce the water resource is. However, this is not a good indicator of water demand or water scarcity in the Main Ord subarea because the percentage of licensed entitlements (47 per cent) does not reflect all of the interest in the water resource. These include the 120 gigalitres per years that has been committed to KAI (bringing the percentage up to 62 per cent). It also does not reflect Pacific Hydro Limited's hydropower interest in the water stored in Lake Argyle as it is not a licensed user (refer to paragraph 96 in my witness statement). It also does not reflect the demand for licensed entitlements (assuming low­medium crop water demands) for new agricultural land developments in Western Australia and the Northern Territory (Stages 1, 2 and 3 of the ORIA), which will reach the allocation limit in about five years' time (i.e about 2021) (refer to paragraph 87 in my witness statement). As such this warrants a departure from clause 4.4 of Statewide Policy No 11. The Department has developed local licensing polices for the Ord plan that supplement the statewide policies. These local licensing policies provide additional specific guidance for managing licenses to deliver local water resource outcomes in the Ord plan area. Where a local policy differs from a statewide policy, the local policy in the Ord plan is applied.
The local licensing policy relevant to recouping unused water entitlements is local licensing policy 4.7 of the Ord plan, which states that: 'To ensure full and efficient use of the resource, maximise development and reduce hydropower restrictions, the department:

1. aims to grant water entitlements to match justified crop needs and efficient water use for the area under irrigation;
2. will recoup water entitlements (part or full) that have never been used or have not been used for more than two consecutive years' (Ord plan, Table 8, p.51; document 96, Exhibit 2, p. 1100).

Local licensing policy 4.7 clarifies the additional local water resource outcomes the Department is trying to achieve with the policy in the Ord area - that is full and efficient use of the resource, maximise development and reduce hydropower restrictions. The application of local licensing policy 4.7 is discussed below and in the section on hydropower outcomes of the Ord plan.

94 Ms Pawley's statement further explains the application of the policies at paragraphs 67 to 69:

An outcome that the Department is trying to achieve with the Ord plan is secure and reliable water supplies for a strong and expanding irrigation industry (Ord plan, p. 8; document 96, Exhibit 2, p 1058). With regards to local licensing policy 4.7 of the Ord plan (Ord plan, p.51; p. 10; document 96, Exhibit 2, p 1100), in my opinion 'full and efficient use of the resource' means all of the water that has been set aside to support irrigation expansion (through allocation limits) is being used to its fullest and is not being wasted through inefficient irrigation practices. This reflects the Department's responsibilities under the RIWI Act to provide for the sustainable management of water resources to meet the needs of current and future water users (s.4(l)(a)(i)), and to promote the orderly, equitable and efficient use of water resources (s.4(l)(b)).
To ensure that there is full and efficient use of the resource in the Ord the Department will grant licensed entitlements that match justified crop water needs and efficient water use for the area under irrigation and recoup water entitlements (in part or in full) that have never been used or have not been used for more than two consecutive years (Ord plan, local licensing policy 4.7, p.51; document 96, Exhibit 2, p 1100). This is good water resource management because it means licensees get the water they need to grow planned crops and ensures that water is not being wasted through inefficient irrigation practices.
The Department has local licensing policies for distribution and on-farm water use efficiencies (Ord plan, local licensing policies 2.1 and 2.3, pp. 48­49; document 96, Exhibit 2, p 1097-1098). If the Department issued or renewed licensed entitlements in excess of justified crop water needs, and/or without regard for efficiency, then there cannot be full and efficient use of all the water that has been set aside to support irrigation.

95 Ms Pawley describes the application of the Department's water efficiency policy at paragraphs 72 to 74:

The Ord Plan indicates that the target distribution efficiency for the existing water service provider (OIC) is 80 per cent (Ord plan, local licensing policy 2.1, p.48; document 96, Exhibit 2, p 1097). The Department used an 80 per cent distribution efficiency to calculate the volume of OIC's renewed licensed entitlement. I agree with this approach.
In my view water savings made from efficiency gains above efficiency targets should not be recouped. This view is supported by the Ord plan (Ord plan, p.35; document 96, Exhibit 2, p 1084). This water could then be used to expand production or be traded.
Based on information collated from OIC's annual reports from 2008 to 2015 OIC distribution efficiency has remained fairly stable since 2008, but is currently just below the target level of 80 per cent during the dry season (Table 2). In my view OIC's distribution efficiency would need to be above the efficiency target for any water savings to be exempt from recoup.

96 Ms Pawley also describes the on­farm water use efficiency at paragraphs 77 and 78:

The Ord Plan indicates that for existing farm developments, at the time of licence renewal, water entitlements will be reviewed on the basis of achieving an on-farm water efficiency of at least 70 per cent, depending on the type of irrigation (Ord plan, local licensing policy 2.3.2, p.49; document 96, Exhibit 2, p 1098). The Ord plan does not specify the on-farm water use efficiency for the different types of irrigation, only that it needs to be better than 70 per cent. The Department used an 80 per cent on­farm water use efficiency to calculate the volume of OIC's renewed licensed entitlement.
In my view, it would be fair to apply the policy as written in the Ord plan, that is 80 per cent delivery efficiency and 70 per cent on-farm water use efficiency, unless there is a good reason for imposing different efficiencies. As such, I have reviewed the Department's calculation of the volume of water that OIC justifiably needs over the duration of the licence.

97 Ms Pawley explained at paragraphs 87 and 88:

There are only 281.5 gigalitres per year available in the Main Ord subarea over and above the current licenced water entitlements (OIC's 335 gigalitres per year plus riverside pumper's 13.5 gigalitres per year) and the quantity which has been committed to Kimberley Agricultural Investments (KAI) (120 gigalitres per year). I have been advised by Mr Roy Stone, from the Department, that the demand for licensed entitlements (assuming low-medium water use crops) from agricultural land developments in Western Australia and Northern Territory (Stages 1, 2 and 3 of the ORIA) is greater than the 281.5 gigalitres per year available. If these new land areas develop as the Department expects, the demand for licensed entitlements will reach the allocation limit in about five years' time (i.e. about 2021). There are three remaining land areas (Carlton Plain part 2 (Stage 2 expansion in Western Australia), Cockatoo Sands Carlton Hill Road (Stage 2 expansion in Western Australia); and Keep River North (Stage 3d expansion in the Northern Territory) that are constrained from release for development by the lack of water available for them within the allocation limit. Recouping 100 gigalitres per year of unused entitlement from OIC would mean that one of these three land areas could be issued a licensed entitlement, therefore maximising development in the region.
Under Surface Water Licence 156287(2) OIC is entitled to take water from the Main Ord subarea for the distribution and supply for irrigation use (and non-potable uses) on land in the Ord Irrigation District serviced by the Stage 1 channel system. In my view, recouping the unused component of OIC's licenced entitlement will not negatively affect Stages 2 and 3 of the ORIA as OIC's licence relates only to Stage 1 of the ORIA. I am aware that KAI is getting water from OIC while its legal access to land is sorted out, so in this way OIC's licence does impact on Stage 2. However, once KAI has resolved its land access issues out it will be issued a licensed entitlement in its own right. OIC continuing to hold unused water entitlements negatively impacts on Stages 2 and 3 of the ORIA by limiting how much water is available for these new agricultural lands.

98 At paragraphs 105 to 108, Ms Pawley explains:

Holding unused entitlements mean the Class 1 hydropower restriction trigger levels are higher than they need to be and hydroelectricity generation is unnecessarily restricted. The Department can therefore not achieve the outcome of the Ord plan which is to generate as much hydroelectricity production as possible, within the limits of the water needed by irrigators and the downstream environment (Ord plan, p.8; document 96, Exhibit 2, p. 1057).
The Department will therefore recoup unused licensed entitlements (Ord plan, local licensing policy 4.7, p.51; document 96, Exhibit 2, p. 1100) because maintaining the reliability for unused licensed entitlements means the water levels that trigger Class 1 hydropower restrictions are higher than they need to be and hydropower is unnecessarily restricted. Recouping unused entitlements will help to meet the outcome of the Ord plan to generate as much hydroelectricity production as possible, within the limits of the water needed by irrigators and the downstream environment.
In my view, hydropower constitutes a high beneficial and productive use for water. It is through Pacific Hydro Limited's investment in raising the spillway, that the water which would previously have just spilled from the dam (as originally constructed in 1972) during the wet season can now to be released in a controlled way to generate hydroelectricity. Pacific Hydro Limited permits the water to be productively used twice, and enables the generation of clean electricity to benefit the community, including irrigators.
Class 2 and Class 3 hydropower restriction trigger levels have been adopted from the 1994 Water Supply Agreement (Clause 8.2) and do not change with the volume of licensed entitlement. Holding onto unused entitlements does not impact Class 2 and/or Class 3 hydropower restriction trigger levels.

The operating strategy ­ its purpose and scope

99 Before turning to the grant and renewals of the OIC licence it is useful to explain the role of the operating strategy.

100 The general purpose and scope of an operating strategy is illustrated by clause 1.1 of the Operating Strategy for Licence (1):

This Operating Strategy describes how the Licensee is to divert water from the Ord River, as authorised by SWL 156287 issued by the Commission under Section 5C of the RIWI Act 1914 on 30th September 2004. In particular, the Operating Strategy defines commitments of the Licensee and specifies the actions to be undertaken by the Licensee as a condition of the Licence. The specific commitments of the Licensee as set out in this Operating Strategy appear in shaded boxes to distinguish them from the non-binding parts of this Operating Strategy.
The Operating Strategy also provides supporting information and background relating to the Licence conditions, including those incorporated into the Licence and set out in this Operating Strategy. Also included are Commission and Water Corporation responsibilities in relation to the Licence and the management of the Ord River resource more generally. These parts of the Operating Strategy are indicative of the way in which the Commission will deal with the Licence and the Licensee, but are not binding upon the State of Western Australia, the Commission or the Water Corporation.
The Operating Strategy covers the way water is to be diverted from the Ord River and distributed via the channel systems of Stage 1 of the Ord Irrigation Project to irrigators and other customers of the Licensee. The areas to be supplied are shown in Figure 1 and are collectively termed the Stage 1 Channel Systems Supply Area (Stage 1 CSSA), for the purposes of this document.
The Operating Strategy specifies targets for improved irrigation efficiency, drainage water quality, groundwater management and reduced irrigation return flows. The targets are to guide the development of a Water Use Improvement Plan, the preparation and implementation of which is also a condition of the Licence. By the end of the initial Licence period (July 2009) the Water Use Improvement Plan is expected to be implemented and major improvements in irrigation management practices attained. The Operating Strategy also describes the responsibility of the Licensee and its customers in relation to the implementation of the Water Use Improvement Plan.
(Exhibit 12 Attachment SP27 page 1)

The history of the preparation of the operating strategies

101 For Licence (1) and Licence (2) an operating strategy was jointly prepared by the OIC and the Department. The OIC submitted a draft operating strategy for Licence (3) but the OIC and the Department were unable to reach an agreement of its terms.

Licence (1)

102 Licence (1), which commenced from 30 September 2004, contained a condition that:

The Licensee shall comply with the Operating Strategy and the obligations set out in the Operating Strategy shall form part of the terms and conditions of this Licence[.]

103 The Operating Strategy for Licence (1) was dated September 2004 (Exhibit 12 Attachment SP27).

104 The OIC's original application for a licence sought an AWE of 365GL.

105 On 15 May 2003, the Department's predecessor, the Commission wrote to the OIC in response to its licence application. The letter relevantly stated:

The allocation volume
The Commission considers that your needs can be fully met by an average water allocation of 335 GL/yr. As indicated in previous correspondence, the Commission's proposed allocation is based on locally­developed crop water requirements, a provision for 9,000 ha of sugarcane and 6,000 ha of mixed crops and improved irrigation efficiencies considered achievable over the next 5 years. Current areas irrigated are well below this level and there will be time to improve irrigation efficiencies before the irrigated area approaches the 15,000 ha. I understand that the area of sugarcane has increased in recent years to 5,500 ha but remains well below the planned 9,000 ha.
Your application provided no supporting information to justify the allocation of 365 GL/yr. The Commission considers that to allocate 365 GL/yr, given the areas available for irrigation and expected crop types planned, would be inconsistent with local commitments made to meet goals of improved water distribution efficiency and implementation of best management practices on-farm.
...
Secondly, the major regulatory function of a licence is to define limits on the amount of water that can be diverted from the watercourse. This is to protect other licensees, the environment and, as discussed above, should be of benefit to the licensee and their customers. In surface water systems, where there are good reasons for the irrigation demand to vary from year to year, such as the Ord River case, it is necessary to define the water entitlement as an average annual amount. The average of the amount diverted over the duration of the licence is normally used to assess compliance relative to the average water entitlement. However, it is quite possible statistically that, over a 5 year licence period, the amount diverted could average more than the licensed water entitlement, but within each year the amount diverted could remain within each yearly diversion limit.
...
Table 3 - Target Improvements for determining actions in the WUIP

...

• The Annual Water Entitlement is the amount of water that can be diverted during a water year when the rainfall over the irrigated area in the water year is 770 mm.
• The term 'yearly diversion limit' is the upper limit of the water than can be diverted in any one year.

(Applicant's Supplementary Bundle pages 2, 3, 7 and 8)

106 Page 9 of the Operating Strategy for Licence (1) relevantly provided:

3. LICENSEE'S WATER ALLOCATION

Commitment (5)

3.1 Authorised actions under Surface Water Licence 156287

Surface water Licence 156287 (the Licence) authorises the Licensee to divert an average of 335 GL/yr, from the Ord River at the Packsaddle Pump Station and the Ml Channel Offtake. This annual average water allocation is termed the Annual Water Entitlement on the Licence and applies to the annual period between the 1st November and 31st October of the following year. It is to supply existing and proposed areas of development in the Stage 1 CSSA (see Figure 1) and be used for irrigation purposes.
The average Annual Water Entitlement (AWE), was based on providing sufficient water to meet the expected average water needs for the areas of crop listed in Table 1. The table includes the adopted crop water requirements, and irrigation requirements under average rainfall conditions for each crop type and each crop's contribution to the total water demand. Adopted rainfall and water distribution efficiencies are referred to in footnotes to the table.
The allocation makes provision for a significant increase in the area of sugarcane to be grown in the Stage 1 CSSA and in water efficiencies by the end of the five-year licence period. For the AWE to be sufficient to meet the water demand throughout the licence period, the water saved by improvements in water use efficiencies will need to match the growth in sugarcane crop water demand as plantation areas increase.
The annual irrigation water requirements of crops depend on their evapo­transpirative demands and the amount of rainfall that can contribute to these demands. As sugarcane grows throughout the year, wet season rainfall contributes significantly to its annual crop water demand. Annual irrigation requirements of sugarcane plantations therefore vary from year to year, depending on the wet season rainfall. The greater the wet-season rainfall the lesser the irrigation water requirement.
Provision has been made for expected variations in water demand between seasons by setting an Annual Allocation Limit (AAL) for each annual period. The AAL is set by the Commission during April each year. The amount of wet season rain is known at this time and the need to apply any water restrictions during the remainder of the annual period (the dry season) can be reliably assessed.
Commitment (6)
The Licensee shall not divert more than the Annual Allocation Limit (AAL), unless application is made to the Commission to amend the relevant Licence condition and Commission's approval in writing has been given.
For annual periods when Lake Argyle levels are expected to remain above 79.5 m AHD (most of the time - see section 3.2), there is sufficient water in storage to fully meet the water demand of the allocation. For each such period, the AAL can be set equal the 'unrestricted' water demand of the allocation. This Unrestricted Annual Allocation Limit (UAAL) can be determined for any annual period from the crop areas, water demands and efficiencies used to define the allocation and the wet season rainfall for each particular period. All factors other than the wet season rainfall remain constant between years as defined in this Operating Strategy. The range of wet season rainfalls recorded over the Stage 1 irrigation area, were used to determine the range of expected unrestricted water demands (UAAL values) of the allocation. These ranged from 285 GL/yr to 385 GL/yr or + 15% of the Annual Water Entitlement of 335 GL/yr.
Sections 4.2.1 and 4.2.2 describe how the Commission will calculate the UAAL, and seek input from licensees and other technical advice before setting the AAL each year.
(Exhibit 2 Tab 2 pages 9 and 10)

The grant of Licence (1)

107 Licence SWL156287(1) (Licence (1)) was granted to the OIC under s 5C of the RIWI Act on 30 September 2004 (Exhibit 19 Tab 2). The Licence authorised the taking of water from the Main Ord River at Lake Kununurra for distribution and supply to irrigators for irrigation use and distribution and supply for non­potable uses and irrigation uses. The duration of the Licence was from 30 September 2004 to 31 August 2009. The OIC's AWE under Licence (1) was 335GL.

108 Condition 2 of Licence (1) provided that the OIC:

... shall not divert more water than the Annual Allocation Limit set for a particular annual period during that annual period.

109 Condition 5 of Licence (1) provided:

The Commission may restrict the Annual Allocation Limit for a particular annual period to a quantity less than the Unrestricted Annual Allocation Limit where the Commission believes that water levels in Lake Argyle are expected to fall below 75.5mAHD within that annual period.

110 Condition 6 of Licence (1) provided:

The Commission may limit the Annual Allocation Limit for a particular annual period by more than 71% of the Unrestricted Annual Allocation Limit when water levels in Lake Argyle are expected to fall below 76mAHD within that annual period.

Licence (2)

111 On 11 May 2009, the OIC applied for a renewal of Licence (1) (Exhibit 2 pages 14 to 17).

112 The renewed application sought an estimated Annual Usage of 335GL.

113 In September 2009, the Department and the OIC agreed on an 'Operating Strategy' for the renewal of Licence (1) (Exhibit 1 pages 53 to 118).

114 Clause 3.1 of the 'Operating Rules' provided:

Calculating the annual water entitlement
Surface Water Licence 156287(2) (the Licence) authorises the Licensee to divert an average of 335 GL/year, from the Ord River at the Packsaddle Pump Station and the M1 Channel Offtake. The Annual Water Entitlement on the Licence applies for each calendar year (1 January to 31 December). It is to supply existing and proposed areas of development in the Stage 1 ORIA (see Figure 1) and be used for irrigation water supply, delivery, and system maintenance purposes, including construction water for roads and irrigation structures.
The Annual Water Entitlement (AWE) is based on providing sufficient water to supply and meet the predicted water needs for the variety of crops likely to be grown In the Stage 1 ORIA during the license period. The table includes the adopted crop water requirements, and irrigation requirements under average rainfall conditions for each crop type and each crop's contribution to the total water demand.
It should be noted that in some cases in the Stage 1 ORIA double and triple cropping within a season can occur. This practice has developed to improve the economic performance of cropping farms and is made possible by the production of crops with short growing cycles, such as melons and fresh beans. This results in a higher water use than is estimated in Table 1, which assumes a single crop is grown on each hectare.
The AWE was set for the original licensed period in 2004 and was based on the expected development of large areas of sugarcane within the Stage 1 ORIA. This demand was never fully reached and types and area of crops have varied from the original projections. Further assessment of the historical, current and future water demands for the Stage 1 ORIA will be undertaken prior to the next licence renewal In order to reassess the annual water entitlement of the licence for the future renewal date.
Commitment (4)
The Licensee shall not divert more than the Annual Water Entitlement (AWE) in a given calendar year, unless application is made to the Department of Water to amend the relevant Licence and the Department of Water's approval in writing has been given.
Commitment (5)
The licensee shall submit a report 6 months prior to the expiry, amendment or reassessment of SWL156287(2), which justifies and accounts for an ongoing entitlement for future licensed periods.
(Tribunal emphasis)

115 The August 2009 Operating Strategy for Licence (2) noted that:

3.7 Restriction Periods

Licensed irrigation water entitlements dependent on water stored in Lake Argyle are not guaranteed in all years. DoW may impose restrictions when water levels in Lake Argyle fall, or are expected to fall, below the levels shown in Table 2.
...
The reliability with which the licensed AWE can be provided each year is best defined as the probability that the AWE can be supplied in any one year. Reservoir simulations carried out using the hydrologic data for the period 1905 to 1990 indicated that 240 GL of the AWE could be supplied with a 95% probability and the remaining 95 GL with a 90% probability.
...
When water levels in Lake Argyle are very low, restrictions may be applied that limit the Annual Water Entitlement. Restrictions are expected when Lake Argyle levels are below, or are projected to fall below 79.4m AMD or the appropriate lower restriction levels for any month of the year as indicated in Table 2. Restrictions may be more severe than 72 % of the AWE (240 GL), when water levels in April are or are projected to fall below 76 m AMD. When required, the Department of Water will propose a restricted Annual Water Entitlement for the upcoming irrigation season. If levels are predicted to fall below 84m AHD in the current irrigation season, the OIC will be required to provide predicted water demand for the water year following the next wet season (12 months in the future) to aid with advance resource planning and restriction predictions.
...

The grant of Licence (2)

116 Licence (1) was renewed on 26 March 2010 for the period from 1 April 2010 to 31 March 2014 with the same AWE (Licence (2)).

117 Condition 2 of Licence (2) provided:

The Licensee must not, in any water year, take more water than the annual water entitlement specified in this licence.

118 Condition 5 of Licence (2) provided:

The Licensee shall comply with the commitments or requirements of the operating strategy, as prepared by the licensee and approved by the Department of Water on the 29 March 2010 including any modifications to the strategy as approved during the term of the licence.

119 Condition 6 of Licence (2) provided:

The Licensee shall comply with the Operating Strategy and the obligations set out in the Operating Strategy shall form part of the terms and conditions of this Licence. Where a term of this Licence is inconsistent with a term in the Operating Strategy the term in this Licence shall prevail.

120 The Department's covering letter dated 26 March 2010 stated:

The licence has been issued for a period of 5 years, to expire on the 31st March 2014. Prior to any renewal or amendment of this licence, the Ord Irrigation Cooperative will be required to submit a report justifying an ongoing allocation. This report will encompass a full account of historical, current and future water demands for reassessment of the ongoing annual water entitlement associated of the licence. Should it be determined that demands for water have been lower than the annual water entitlement, the entitlement will be reduced. The Department of Water will work with OIC to ensure annual reporting and data collection supports this assessment and other important components of the licence and Operating Strategy[.]
(Exhibit 2 Tab 3) (Tribunal emphasis)

Further notice of proposed reduction in AWE

121 A letter from the Department to the OIC dated 7 July 2011 stated:

The Ord Irrigation Cooperative is currently using only 47% of current licenced entitlements due to improved efficiencies. The OIC must provide justification for the full entitlement by 30 September 2013 being 6 months prior to the expiry of the existing licence.
(Exhibit 2 page 121)

122 In May 2012, an email from the Department to the OIC stated:

We would like to discuss with OIC at the meeting, the Department's policy on unused water entitlements considering water use since 2008 has been significantly under the annual water entitlement and predicted water use for 2012 will remain at those levels. Can the OIC provide information regarding how, if possible, the OIC plans to use the full annual water entitlement into the future?
(Exhibit 2 page 215)

123 On 5 July 2012, the Department sent the OIC an email attaching a document entitled 'Ord surface water allocation plan, 2012 licensing policies', which relevantly stated:

Adjusting water entitlements over time
This is in accordance with Schedule 1, clause 24(2) of the Rights in Water and irrigation Act 1914 which authorises the department to adjust entitlements to protect the water resource, protect the environment, prevent serious damage to life or property, when the water has been consistently unused, is in the public interest, insufficient water is available in the resource to meet demand and to effectively regulate use. This policy is also in accordance with Statewide policy 9 Water licensing - stage developments, 2003 and Statewide policy 11 Management of unused licensed water entitlements, 2003 which allow the department to recoup unused entitlements. The department does not support speculative water entitlements, and this position is outlined and supported within those two policies.
The intention is that while the overall allocation of the resources remains low, the restrictions and controls on Water Corporations water release requirements are minimal and as use intensifies, so too will the requirements on Water Corporations water release management. Release rules and triggers will provide for 95% reliability of supply to irrigators.
(Exhibit 2 page 233)

124 A letter dated 11 September 2012 from the Department to the OIC made clear the Department's position that the Licence did not confer a permanent entitlement (Exhibit 2 pages 237 to 238).

Communications between the OIC and the Department in relation to renewal of the Licence

125 On 6 November 2014, the Department formally advised the OIC of its proposal (proposed decision) to reduce the OIC annual water entitlement from 335GL to 225GL.

126 In accordance with cl 6(2) and cl 26(4) of the RIWI Act, the Department notified the OIC of its proposed decision and invited the OIC to make a written submission to the Department by 8 December 2014.

127 The OIC provided a written submission to the Department on 4 December 2014.

128 The Chairman of the Board of the OIC met with the Minister for Water on 22 December 2014 to discuss the renewal of the Licence, and the Acting Director­General of the Department met with the Board of the OIC on 4 March 2015.

129 The OIC provided further submissions dated 30 March 2015.

130 On 6 June 2015, the Department advised the OIC of an amendment to its proposed decision, which would require the OIC to comply with the Annexure instead of a revised operating strategy. In accordance with the RIWI Act, the Department invited the OIC to make a written submission in relation to the revised proposed decision by 6 July 2015.

131 The OIC provided further written submissions on 6 July 2015 and 15 July 2015.

Licence (3)

132 On 10 December 2013, as part of the process for the renewal of the licence, the OIC forwarded a draft Operating Strategy to the Department (Exhibit 2 page 295). Clause 3.5.1 of the draft Operating Strategy provided:

Annual Water Entitlement (AWE)
AWE is based on providing sufficient water to supply and meet the predicted water needs for the variety of crops likely to be grown in the Stage 1 ORIA during the License period.
The factors that impact on the estimates of water required In the Stage 1 ORIA include:

• Types of crops grown
• Area of land to be cropped or left fallow
• New land being developed
• Climate
• Double cropping and wet season cropping. These practices have been developed to improve the economic performance of cropping farms and are made possible by the production of crops with short growing cycles, such as melons and fresh beans and results in higher water use.

(Exhibit 2 page 301)

133 Clause 4.5 of the draft Operating Strategy provided:

Managing Annual Allocation within AWE
The Licence authorises the Licensee to divert a maximum of 335 GL/year, from the Ord River at the Packsaddle Pump Station and the M1 Channel Offtake. The Licensed AWE applies for each calendar year (1 January to 31 December). The entitlement's purpose Is to supply existing and proposed areas of development within the Stage 1 ORIA, overseen by the Licensee, for irrigation water supply, delivery, and system maintenance purposes, Including construction water for roads and Irrigation structures.
The amount of water diverted is to be progressively monitored through the dry season and corrective actions initiated by the Licensee if the AWE or restricted AWE is predicted to be exceeded by the end of the annual period.
(Exhibit 2 page 315)

134 Clause 4.8 of the draft Operating Strategy provided:

Restriction of AWE
Delivery of Licensed water entitlements is physically dependent on the amount of water stored in Lake Argyle and therefore cannot be guaranteed in all years. As part of its responsibility to conserve and manage water resources in Western Australia, the Department may impose restrictions. Restrictions may be imposed when water levels in Lake Argyle fall, or are expected to fall, below the levels shown in Table 3.
(Exhibit 2 page 315)

135 On 25 February 2014, the OIC formally applied for a further renewal of the Licence.

136 The AWE sought by the OIC in this application was based on the calculation that it would require 335GL in 2025, based on an average at the diversion point, farm off take, of 291GL plus 20% to allow for the possibility of a dry year (Exhibit 2 page 813).

137 On 6 November 2014, the Department wrote to the OIC in response to its application to renew Licence (2). The letter stated:

...
We have undertaken our assessment based on provisions in the  Rights in Water and Irrigation Act 1914  (RIWI Act), the Ord surface water allocation plan September 2013 (Ord plan), information from Department of Agriculture and Food (DAFWA) regarding crop water application rates in the Ord River area, information supplied by the OIC regarding past, current and future projected water demand and relevant department policies and processes.
The Department of Water's proposed decision is to:

1. Extend the licence tenure to 10 years (the maximum licence term available under the DoW's current water management objectives) to provide greater certainty to OIC for water planning and operations.
2. ...
3. Reduce the annual water entitlement from 335 GL/year to 225GL/year by recouping water entitlements that have not been taken for more than two consecutive years. The recouping of water entitlements is consistent with the DoW's Ord plan where the key water management objective is to match annual water entitlements with actual water use (as far as is practicable). Note: 1 GL = 1,000,000 kL.

The DoW proposes that 110 GL/year is recouped, reducing the OIC's annual water entitlement to 225 GL/year. This assessment is based on the assumptions that DAFWA crop application rates are adopted, fallow land receives no water entitlement and 80 per cent distribution and on­farm efficiencies set out in the Ord plan have been included to account for losses in an open channel system from the reservoir to the farm delivery point.
The OIC has not been using the full water entitlement since 2008 and in the most recent water year from 1 January 2013 to 31 December 2013, thetotal water diverted through the OIC's operations was 142.2 GL (42 per cent of the existing water entitlement).
The proposed water entitlement of 225 GL/year will provide the OIC with enough flexibility to diversify crop types during the next 10 years (i.e. 80 GL/year more than actual water use during 2013). The DoW considers this is fair and reasonable based on the OIC's current and future crop development needs for the licence duration (10 years).
As previously advised there is no water trading market for water entitlements in the Ord River area. There is no scarcity value on the granting of new licensed water entitlements as these can still be granted free of charge.
The DoW will implement the following provisions under the RIWI Act.

• Schedule 1 clause 22(2)(a)(ii) relating to the inconsistency with a plan (the Ord plan);
• Schedule 1 clause 22(3)(b) relating to the renewal of a licence subject to the inclusion of a term, restriction or condition that is inconsistent with the application for renewal; and
• Schedule 1 clause 24(2)(d) where the quantity of water taken under the licence has consistently not been taken.

This letter is notifying you in accordance with Schedule 1 clauses 6(2) and 26(4) of the RIWI Act of the Department of Water's proposed decision and your right to make a written submission before we make a decision on your application.
Please note this is a proposed decision.
You now have the opportunity to comment and provide further information in support of your application. Your comments are important and will be considered by the DoW before a final decision is made.
In order to be considered you must submit written comments to the DoW's North West (Kimberley) regional office by 8th December 2014. If a written response is not received by the due date we will continue with the assessment process[.]
(Exhibit 2 pages 671 to 673)

138 On 4 December 2014, the OIC responded to that letter:

I am writing to you in response to your letter ('Letter') dated 6 November 2014, inviting our comments on the Minister's proposed decision on our application of 26 February 2014 to renew OIC's RIWI Act surface water licence. We also refer to discussions with Departmental staff arid the Department's written answers to questions dated 21 November 2014.
Purported Annual Water Entitlement reduction
We are deeply concerned with certain aspects of your proposal, which, if implemented, will impact severely and adversely on the interests of OIC members and on the functioning of Stage 1 of the Ord River development. Potentially, Goomig may also be prejudiced by such a decision, if Stage 1 crop production is inhibited.
The primary matter we take issue with is the proposal to reduce OIC's Annual Water Entitlement from 335 GL/ year to 225 GL/ year. This represents a 33% reduction of OIC's Entitlement
We query the bona fides of the Department in announcing such a serious and major reduction at this stage of the project and in particular so late in the year with such a short time to respond. OIC's Water Entitlement is foundational to the development of Ord irrigation. It is so essential to the purpose of Ord district development that reduction in Water Entitlement has never been suggested in the manner, or to the extent you have proposed. The question of Annual Water Entitlement has been effectively settled for at least a decade.
Reducing the Co-operative's Annual Water Entitlement by 110 GL per year will severely restrict the ability of Ord Stage 1 to grow over the next 10 ­ 20 years.
There is no reasonable purpose that would justify such a reduction. From the perspective of individual irrigators, such a reduction would impact adversely on their existing and future financing arrangements for their properties and businesses. These arrangements are legally binding and involve the property of private parties including individuals, corporations and financial institutions, which the proposed decision would disrupt. The reduction you propose would interfere with property rights and have the same negative effect on businesses and individuals as appropriation by the State of private property without compensation. Legal claims are the norm in such circumstances and should be anticipated if you proceed as indicated.
Crop choice and irrigation development
Removing water entitlements removes farmers' ability to pursue their livelihoods and to participate in and contribute to the prosperity of the region.
To illustrate, the State has expressly invested in and fostered the development of Goomig, the cornerstone of which is planned to be sugar production and processing.
Ord Stage 1 irrigators are experienced in growing sugar, but could not viably continue with this crop due to closure of the sugar mill in the absence of economies of scale for processing. This is set to change with, the development of Stage 2 and subsequently Knox Plain etc of Ord River Irrigation Area, where all Ord stages together can supply processing on an economic scale.
It would be unreasonable to curtail the development of Stage 1 just as it is becoming possible to increase sugar production.
Our co­operative model of irrigation management is founded on the principle of member choice about what to grow, when and where. We find it alarming that, as is evident from the terms of your Letter, the reduction proposal does not recognise basic elements of irrigation farming.
As well as having the right to choose which crops to grow, which may involve more or less water over any timeframe, best farming practice involves the use of water in ways not understood by the proposed decision.
For example, it is desirable to irrigate fallow (or cover crop land), which often bears interim crops, including Sorghum, Corn or Millet. The proposed decision removes farmers' choice and, for fallow land, would leave farmers without an important land management and cropping capacity, while degrading the land itself for productive use in later seasons.
Property rights
The proposed decision to limit radically OIC's Annual Water Entitlement would have far-reaching consequences for our members and the economy, which are reliant on confidence in and certainty surrounding property and financing arrangements.
Our Licence is the total of member irrigators' permanent entitlements plus an OIC conveyance allowance. The irrigator permanent entitlements are recorded in the OIC's Water Entitlements register under statute.
The level of uncertainty in relation to licence renewal this proposal creates impacts negatively on OIC's business planning and affects individual members, especially those trying to raise capital and to plant perennial crops with long growth cycles. Irrigator members are legally entitled to, and do, use their permanent water entitlement as security for bank loans. This security is registered on OIC's Water Entitlement Register as an encumbrance on the irrigator member's permanent water entitlements. Uncertainty in the licence renewal process ­ and now the erosion of irrigators' rights without compensation, affects the production capacity of the scheme, the productivity of members, the business of financiers, and operation of the land and water markets in the region.
Status of a decision adversely impacting OIC members
With respect to the way this proposed decision is being made, we have reviewed the Letter and the information provided in answers to our questions passed to Departmental officers on 19 November 2014. We consider that the basis on which the proposed decision is to be made is flawed.
Originally, your Letter stated that

The DoW will implement the following provisions under the RIWI Act:
Schedule 1 clause 22(2)(a)(ii) relating to the inconsistency with a plan (the Ord plan)
Schedule 1 clause 22(3)(b) relating to the renewal of a licence subject to the inclusion of a term, restriction of condition that is inconsistent with the application for renewal; and
Schedule 1 clause 24(2)(d) where the quantity of water taken under the licence has consistently not been taken.

We return to these provisions below.
In response to OIC's questions about the Letter's legal and policy basis, the Department has now elaborated on the intended decision, stating that clause 24(2)(d) RIWI Act is sufficient for a decision to reduce OIC's Water Entitlement (no other ground in clause 24 is cited).
Dealing with this point first, clause 24(2)(d) says the Minister may amend the conditions of a licence if:

in the opinion of the Minister the quantity of water that may be taken under the license has consistently not been taken.

We point out that the Minister's opinion cannot be formed contrary to the rules applying to making of administrative decisions, which include that decisions must take into account relevant matters, must discount irrelevant matters, and must be reasonable.
In the relevant circumstances, the decision by the Minister to reduce OIC's Water Entitlement is not being made in the manner required for it to be valid. The remainder of this part of our response explains why.
Regulation 12(1) of the regulations to the Act provides that the Minister may by written notice change the conditions of the licence. However, the Minister can only do this if the change is necessary to protect the Ord River and the Argyle Dam from unacceptable damage or to protect the associated environment from unacceptable damage; if the change is in the public interest; or to more effectively manage the use of the water resource.
The proposal does not bear any material connection to these matters. You have given no information that would indicate that the operation of the scheme has created unacceptable environmental or water resource damage, and you have not identified any public interest or how a cut would contribute to better utilisation of water.
Conversely, OIC has made clear to the Department (the Department should in any event be aware), and the Department must take into account that

1. OIC has legal obligations to customers, as a Water Services Provider, which it must continue to meet;
2. Water Service Providers are treated differently from general licensees where provisions allowing reductions to entitlements are exercised;
3. OIC has legal obligations to the members of the Co-operative, who in turn have legally enforceable water entitlements;
4. OIC has the ability and intention to engage in temporary water transfers with other licensees such as Pacific Hydro; and
5. development of the Ord River Irrigation Area Goomig and future developments of the Knox and Northern Territory will increase the commercial viability of sugar production for Stage 1, leading to a large increase in irrigation by OIC customers and members.

The RIWI Act Schedule 1 grounds on which the original Letter based the intended decision to reduce entitlement are dealt with below.
Clause 22(2)(a)(ii) Inconsistency with a plan
Your explanation of the proposed decision does not demonstrate why this provision of Schedule 1 has any relevance or gives the Department any power to reduce OIC's Annual Water Entitlement below 335 GL / year.
OIC does not consider the Department is correct in asserting that:

1. the Ord plan rules over Statewide Policy No. 11;
2. the content of the Ord plan is correct, in either the process undertaken with stakeholders to create that plan, or the way the Department is implementing it OIC as a major stakeholder in regional water planning has not agreed to the Ord plan as amended by the State to include the provision that the Ord plan overrides other policies, and any provisions that the Department believes allow unilateral reductions to OIC's Water Entitlement;

or that

3. the Department's internal corporate objectives have higher applicability than do published policy, the expressed development requirements of OIC members and their valuable private investments in Ord Stage 1.

OIC considers that there is no inconsistency with any relevant plan, which would justify use of this provision in the way the Department is proposing.
This ground is void and the Department cannot rely on it to reduce OIC's Water Entitlement
Clause 22(3)(b) Inclusion of a term, restriction of condition that is inconsistent with the application for renewal
There is no substantive basis for any inconsistency with the application for renewal. Inconsistency arises only because the Department proposes (without any reasonable basis for doing so) a reduction in the Annual Water Entitlement, which, necessarily, conflicts with OIC's application.
The proposal to reduce an entitlement cannot itself be the grounds for the reduction.
This ground is void and the Department cannot rely on clause 22(3)(b) Schedule 1 RIWI Act to reduce OIC's Water Entitlement.
Clause 24(2)(d) Where the quantity of water taken under the licence has consistently not been taken
There is no material policy or legal basis for the exercise of the purported decision making power under this provision.
The proposed decision ignores applicable State policy provisions covering recouping of unused water. The suggestion that powers said to be implicit in the local Ord plan justify reduction of our Annual Water Entitlement is contrary to Statewide Policy No. 11 and, further, ignores OIC's status as a Water Service Provider.
As a Water Service Provider, OIC has obligations to its customers. In turn, those customers rely on their Water Service Provider to be able to supply water including in satisfaction of individual customers' rights to exercise their own legal Water Entitlements.
OIC points out that the Department has not met the requirement in Statewide Policy No. 11 paragraph 4.12, which directly links the purpose of recouping water to other high beneficial uses. The Department repeatedly states elsewhere that there is no scarcity value in water entitlement in the Ord district; and so is unable to establish the required connection between reduction in entitlement and re-allocation to alternate 'high beneficial use'.
For these reasons the Department cannot rely on clause 24(2)(d) Schedule 1 RIWI Act to reduce OIC's Water Entitlement
Summary
It is evident that there is no substantive basis for a decision to reduce the entitlement.
As is clear from the Department's Letter and answers to our questions, there is no scarcity of water and no competing or alternative high beneficial use in contemplation.
Moreover, the Department has ignored relevant and positive reasons which would count against a decision to reduce entitlement. Those same reasons are reasons for maintaining the existing Water Entitlement at 335 GL / year.
Other proposed conditions
Our response to the other proposed conditions of licence is set out below.

4. The annual water year for water taken under this licence is defined as 1st January to 1st January twelve months later.

No comment.

5. The licensee must not; in any water year, take more water than the annual water entitlement specified in this licence.

No comment.
...

Please confirm by 15th February 2015 that the Department will resubmit to OIC revised conditions proposed for SWL156287(3), which are consistent with the comments set out in this letter.
OIC Board members, managers and staff will not be available during the period 15 December 2014 ­ 1 February 2015 and no notice or communication will be accepted during this period.
(Exhibit 2 pages 683 to 689)

139 On 4 June 2015, the Department wrote to the OIC. The letter relevantly stated:

...
We have assessed your final proposed Operating Strategy and confirm that it does not meet the DoW's requirements, as the OIC has not removed reference to

• the annual water entitlement (AWE) of 335GL/year,
• irrigation restrictions to the AWE in drought years, and
• Co-operative members having water entitlements (as these are not in the same context as water entitlements under the  Rights in Water and Irrigation Act 1914 )

The DoW is proposing to impose terms and conditions on your licence that are inconsistent with your application to renew your licence. We have already provided you with a proposed decision letter dated 6 November 2014 and acknowledge your submission dated 4 December 2014 in response to that letter and your subsequent submission addressed to the Minister for Water dated 30 March 2015.
We have undertaken our assessment based on provisions in the  Rights in Water and Irrigation Act 1914  (RIWI Act), the Old surface water allocation plan September 2013 (Ord plan), relevant department policies and processes, information from the Department of Agriculture and Food regarding crop water rates and the information supplied by the OIC.
Further, and in addition to, the proposed decision outlined in the DoW's letter dated 6 November 2014, the DoW's proposed decision is to:

• vary 'Attachment 1 Proposed licence conditions for SWL156287(3)' of the proposed decision letter dated 6 November 2014 (attached), and
• remove the Operating Strategy from the licence conditions and replace it with an 'Annexure to Licence to Take Water SWL156287(3)' (attached).

The DoW has prepared the Annexure based on information provided by the OIC in various Operating Strategy versions and Annual Reports. The Annexure does not contain any new requirements of the OIC.
The DoW proposes that the licence will contain the following conditions:

1. The annual water year for water taken under this licence is defined as 1 January to 31 December
2. The licensee must not, in any water year, take more water than the annual water entitlement specified in this licence
3. The licensee is to comply with 'Annexure to Licence to Take Water SWL186287(3)' and any amendments made by or with the approval of the Department
4. The licensee is to provide an annual report to the Department of Water by 31 March each year

...

The 'Annexure to Licence to Take Water SWL156287(3)' is referred to in Condition 3
This letter is notifying you in accordance with Schedule 1 clauses 6(2) and 26(4) of the RIWI Act of the DoW's proposed decision and your right to make a written submission before we make a decision on your application
Please note this is a proposed decision. This proposed decision is in addition to the proposed decision outlined in the DoW's letter dated 6 November 2014, for which you have already provided submissions.
You now have the opportunity to comment and provide further information in support of your application. Your comments are important and will be considered by the DoW before a final decision is made[.]
(Exhibit 2 pages 889 and 890)

140 On 14 August 2015, the Department again wrote to the OIC. The letter relevantly stated:

The Department of Water has finalised the assessment of the Ord Irrigation Cooperative's (OIC) application to renew SWL156287, received 26 February 2014. In conducting its assessment and before making this final decision, the department considered all relevant matters, including the submissions made by the OIC dated 4 December 2014, 30 March 2015,6 July 2015 and 15 July 2015.
The department has renewed SWL156287 subject to conditions which are inconsistent with the OIC's application for renewal. In particular, the department has recouped 110GL/year as originally proposed in our letter to you dated 6 November 2014.
The Annual Water Entitlement for SWL156287(3) is now 225GL/year.
Please find enclosed the following:

• Your licence to take water (SWL156287(3))
• Annexure to Licence to Take Water SWL156287(3)
• Reasons for the decision (Schedule 1 Clause 10(2)(b))

Please take time to read these documents as they contain important information about your rights and responsibilities.
As the OIC and the department were unable to reach an agreement regarding the content and commitments of the operating strategy, the department has included a condition on the licence requiring the OIC to comply with the Annexure to Licence to Take Water SWL156287(3) which outlines the monitoring, reporting and contingency requirements.
The department updated the annexure and licence after considering further information provided by the OIC on 15 July 2015. The licence condition requiring meter accuracy to be maintained within plus or minus 5% (in field conditions) was removed based on concerns with M1 channel meter accuracy at upper and lower flow thresholds. However, the department requires the OIC to make reasonable progress to upgrade the site as a priority and detail the measures taken to improve the M1 channel metering accuracy in the next annual report (due by 31 March 2016).
Please review the conditions of SWL156287(3) and the Annexure carefully to ensure you understand your obligations.
The OIC has the right to ask for information about the department's decision on this licence. In order to provide the OIC as much information as possible, the full Reasons for the decision under Schedule 1 Clause 10(2)(b) are enclosed with this letter. A summary statement of the department's reasons is provided below:

• the OIC has been drawing approximately 50% of the licensed water entitlement since 2008;
• the OIC's articles of association indicate that the OIC has considered the risk of a changed water entitlement;
• the department considers that the revised entitlement Is reasonable and notes that it is 80 GL/year more than the annual volume of water diverted for use in 2013, providing significant flexibility for crop change;
• the department aims to be consistent with the Ord plan and recoup water at renewal in order to match annual water entitlements with justified crop needs and efficient water;
• use for the area under irrigation, which optimises the use of the resource, maximises development and reduces hydropower restrictions;
• since 1996, the department has consistently advised the OIC that rights to water are recognised by a water licence with a limited term (up to 10 years by policy), which establishes a right to take and use water but does not grant ownership of the water;
• It is department policy that no water entitlement is granted In perpetuity and the RIWI Act has provision for the department (under delegation from the Minister for Water) to amend licences if the quantity of water under a licence has consistently not been taken[.]

(Tribunal emphasis) (Exhibit 2 pages 915 and 916)
...
Right of review
An applicant for a licence who is aggrieved by this decision may apply for a review of this decision by making application to the State Administrative Tribunal within 28 days of being given notice of this decision.
I, John Connolly, Director Regulation Division, Department of Water (department) being duly authorised hereby provide the following statement of reasons in accordance with section 21 of the State Administrative Tribunal Act 2004 (SAT Act) in relation to the following matter:
Applicant: Ord Irrigation Cooperative Ltd (OIC)
Date of Application: Received by the department on 26 February 2014
Nature of Application: Application to renew surface water licence SWL156287(2)
Land to which the Application relates: Land in the Ord Irrigation District (Stage 1) serviced by channel systems and Lake Kununurra, Ord River
Decision: Renew the licence inconsistent with the application by undertaking a department amendment to reduce the annual water entitlement from 335 GL/year to 225 GL/year
Date of Decision: 14 August 2015
I am required to make my decision to amend a licence in accordance with Division 6 of Schedule 1 of the Rights in Water and irrigation Act 1914 (RIWI Act) and in particular to act in accordance with clauses 24 and 26 of that Division. I am required to make my decision to renew a licence in accordance with Division 5 of Schedule 1 of the RIWI Act and where the decision is inconsistent with the terms of the application for renewal to act in accordance with clause 6 of Division 2 of Schedule 1 of the RIWI Act.
Statement of Material Facts
I have made the following findings of material fact in relation to my decision:

1. A requirement of the Council of Australian Governments (COAG) water reforms in the mid-1990s was the devolution of irrigation services from the government to private irrigation cooperatives. The transfer of the Ord Stage 1 irrigation distribution system requires the Ord Irrigation Cooperative (OIC) to hold a water licence granted under the RIWI Act. Negotiations commenced in 1996 relating to the water licence and the transfer of the irrigation distribution system. Since July 1996, the department has advised the OIC that the right to water is recognised by a licence granted under the RIWI Act, which establishes the right to take and use water under stated conditions but does not grant ownership of the water and that the licence tenure would not exceed 10 years by policy.
2. On 30 September 2004, the department granted surface water licence SWL156287(1) to the OIC with an annual water entitlement of 335GL/year. The original bulk water entitlement was determined on 9000 hectares cropped for sugarcane (a high water using crop), 6000 hectares for mixed crops and distribution efficiency of 80% for water delivered through the irrigation channel systems. Cropping in the Ord Stage 1 irrigation area diversified to lower water use crops since the sugar mill closed in 2007. With a change to lower water use crops, the OIC's water entitlement is not being fully used.
3. At the annual Ord meeting held in April 2009, the OIC requested a response from the department regarding a long term licence tenure on renewal of the licence. The department wrote to the OIC on 29 April 2009 advising it was not current policy to issue water licences for more than 10 years and the department's current position was that licence SWL156287(1) would be assessed for renewal and reissuing for a term of 5 years once an application had been submitted.
4. The department met with the OIC in May 2009 regarding the upcoming licence renewal and advised that an application to renew the licence was required. The department's stated position was that the 335GL/year entitlement would stand for the August 2009 renewal. However, water in excess of the crop water requirements and efficiency gains would be assessed by the department for a reduction of entitlement at the following renewal of the water licence (in 2014).
5. When the department issued water licence SWL156287(2), the covering letter dated 26 March 2010 advised that prior to any future renewal or amendment of the licence, the OIC would be required to submit a report justifying an ongoing entitlement and encompassing a full account of historical, current and future water demands for reassessment of the ongoing annual water entitlement. Should it be determined that demands for water have been lower than the annual water entitlement, the entitlement will be reduced. The expiry date of licence SWL156287(2) was 31 March 2014.
6. The department has provided consistent advice to the OIC on numerous occasions since 2010 when SWL156287(2) was issued, advising that the entitlement is not permanent and is subject to review based on water use. Recouping of unused water entitlements can occur at licence renewal and the licensed amount would be based on assessment of land use for the area under irrigation.
7. The department met with the OIC on 25 April 2012 and recouping of water was discussed. Both the department and the OIC recognised there was a need to consider expectations of water use and not overly constrain its use. The OIC asked about water trading and the department advised that trading would become important as water is fully allocated, but did not replace the requirement to ensure that licensed entitlements are reasonably related to land use and need. The department also advised the OIC that it could apply for additional water if land use changed and water demands increased.
8. The department met with the OIC on 6 July 2012 to discuss water entitlements, allocation and use. The OIC stated it would strongly oppose any reduction of its entitlement. The OIC considered the entitlement was permanent and it was obliged to provide each landowner with up to 17ML per hectare. The OIC stated it wanted to trade the difference between the water it used and the licensed entitlement and saw this was worth up to $11 million assuming 56GL was not used. The department advised the OIC that the entitlement was not permanent and would be subject to review based on water use. Each land area would get a licensed amount based on an assessment of the application and proposed land use.
9. Further to the meeting on 6 July 2012, the department advised the OIC on 12 July 2012 that in Western Australia, the RIWI Act and the associated licensing system provide the rights to take water for a defined period specified on the licence and the RIWI Act has provisions to renew and amend licences. The OIC viewed its water entitlement as an important financial asset worth millions of dollars. The department advised the OIC that the water entitlement effectively had no value as all licensed water entitlements had been granted free of charge and there was no scarcity value on the granting of new water entitlements. The department noted that the Ord-East Kimberley area had not reached the stage where water markets are considered appropriate.
10. On 11 September 2012, the department gave written advice to the OIC that perpetual water entitlements had not been granted in Western Australia as a matter of policy. The department reiterated that the covering letter on licence SWL156287(2) stated that the water entitlement may be reduced in the future should it be determined that demands for water have been lower than the licensed water entitlement. The same message had been communicated at the OIC's Board meeting on 25 April 2012. The importance of recouping unused water to enable future economic development was a key objective communicated to the OIC. The department wrote that it was surprised at the OIC's comments that the department had made representations on the permanency of the OIC's water entitlement and would appreciate more information from the OIC that supported the claim that the department had made representations for a permanent entitlement.
11. On 9 October 2012, the department file noted that a significant discussion was held with the OIC that day. The OIC advised it would not be responding to the department's letter (11 September 2012) as the OIC felt it had made its point and to provide further information from its lawyer would be costly and wasteful. The OIC considered it would be better to wait until a definitive position was taken by the department on the amount of the recoup in two years' time. The OIC reiterated the view that it has a perpetual right to the water and would fight to retain it.
12. In May and July 2013, the department and the OIC held discussions on the OIC's licence renewal and the operating strategy review. The department required the operating strategy to include an updated list of bores in the monitoring network, including the bores handed over to the OIC for ongoing responsibility, management and maintenance. The operating strategy needed to clarify the data to be collected and its frequency. The steps taken towards achieving 80% distribution efficiency needed to be explained. The department also requested the OIC to improve surface water quality triggers and identify water management practices to bring water quality back to normal levels, where relevant. The department required the draft operating strategy to be submitted by October 2013.
13. The Ord surface water allocation plan 2013 was finalised in September 2013. This plan identifies water availability in the management area and the rules under which water may be taken.
14. The Ord plan notes where a local policy differs from statewide policy, the local policy in the allocation plan is applied. A key management strategy of the Ord plan is to optimise the water available for new development and power generation by recouping unused water entitlements. Recouping can occur at licence renewal, irrespective of whether the water resource is fully allocated or not.
15. The OIC submitted a draft version of its operating strategy to the department on 1 October 2013. The department replied on 11 October 2013 noting that the information provided was insufficient to enable assessment of the OIC's water requirements. The operating strategy needed to justify entitlements and show how proposed land and water use would change over the term of the licence. Crop water use requirements would need to relate to Department of Agriculture and Food (DAFWA) guidelines and water use would need to account for efficiency targets. Based on the Ord plan, the department would ensure water entitlements match justified crop needs through efficient water use.
16. On 10 December 2013, the OIC submitted its Operating Strategy for Licence No. SWL156287(3) dated October 2013. This operating strategy is referenced by the OIC in its SAT application.
17. The department considered that the operating strategy dated October 2013 had some significant issues that needed to be addressed and contacted DAFWA on 11 December 2013 requesting advice on appropriate water requirements for different crop types.
18. On 19 December 2013, DAFWA provided information on crop water use and areas of crops in the Ord Stage 1 irrigation area, including a list of crop irrigation water requirements for furrow irrigation on Kununurra clays. The department and DAFWA also met on 20 December 2013 to discuss crop water application rates and expected crop demands.
19. Further to the December discussion, DAFWA provided the department with advice on 2 January 2014. DAFWA considered that some crop water requirements differed from the information it had regarding crop water use and some crop areas also appeared to be inaccurate. DAFWA advised that the fallow land areas would have no water requirement. Based on annual rainfall data, DAFWA considered that most years have been average to above average and the long term outlook for the area is increased rainfall. DAFWA noted it will be difficult to predict crop areas for the future as these could change from year to year depending on what growers believe will provide the best return.
20. On 28 January 2014, the department wrote to the OIC noting that a condition of the water licence requires an annual report to be submitted. The OIC was reminded to submit its annual report to the department by 28 February 2014.
21. On 6 February 2014, the department provided the OIC with written comments on the required improvements to be made to the operating strategy. The department indicated that comments relating to terminology, commitments and the development plan were in addition to other changes highlighted in the draft operating strategy emailed to the OIC. The department stated that advice from DAFWA identified inconsistencies with the cropping data in the draft development plan. The OIC would need to consult with DAFWA and provide an amended development plan with detailed justification for crop and water use requirements. The department advised the OIC that the amended operating strategy and the application to renew the water licence needed to be submitted by 4 March 2014. The OIC was reminded it was imperative that the application is made prior to licence expiry.
22. On 26 February 2014, the department received an application8 from the OIC to renew surface water licence SWL156287(2) relating to the take of water from the Main Ord River water resource at Lake Kununurra for the distribution and supply of water for Irrigation use and non-potable uses.
23. On 4 March 2014, the OIC submitted its annual report for the period from 1 January 2013 to 31 December 2013 relating to operational and monitoring commitments for licence SWL156287. The total water diverted for the reporting year was 142GL, which is approximately 42% of the original bulk water entitlement. The total area supplied by the OIC was 15,032 hectares. The OIC reported that 6 hectares of sugarcane was planted in the Ord irrigation area in the 2013 water year. The OIC has been taking approximately 50% or less of the 335GL/year water entitlement since 2008.
24. On 11 April 2014, the OIC submitted its updated operating strategy relating to water licence SWL156287(3). The document noted that the OIC is responsible for diversion of water from the Ord River and the distribution of water to irrigate farms in accordance with licence conditions and the operating strategy. The OIC is also responsible to promote efficient use of irrigation water and guide its members to achieve improved on-farm irrigation practices to meet water quality and drainage efficiency targets for water used and discharged from the system. Appendix D (Table 35) of that document provided the proposed water use prediction tables.
25. The department wrote to DAFWA on 22 April 2014 requesting advice on water use predictions in the operating strategy. The department noted that in accordance with the Ord plan, the operating strategy needed to justify the annual water entitlement against crop type and land area and how proposed land and water use would change over the term of the licence. The request for advice related to crop areas and crop water requirements, the proposed development schedule and likelihood of implementation, the scale of expected double and wet season cropping and specific irrigation water requirements. Clarification on the additional 20% irrigation water entitlement during dry years was requested, noting that the crop water requirements developed by DAFWA are an average specific to the Ord irrigation area and reflect potential seasonal variability.
26. On 15 May 2014, the department received comments from DAFWA dated 5 May 2014 regarding the OIC's operating strategy. DAFWA advised that while information on crop water use requirements was the same as that provided to industry, there was no information on how irrigation efficiency was calculated by the OIC and how this had been used to calculate average irrigation water required at the farm gate. DAFWA considered it was important that current information is accurate to ensure following years are also accurate. DAFWA noted it was difficult to predict into the future regarding what the cropping mix will be as producers try to get the best return per hectare and may change crops to achieve this.
27. On 15 July 2014, the OIC contacted the department requesting confirmation of its annual water entitlement for 2014/15 as the Water Corporation (responsible for operating the dams that regulate water levels in Lake Kununurra) requested information on the OIC's authorised water licence volume. The department acknowledged that as the water licence renewal application had been submitted prior to the licence expiry date, the water entitlement of 335GL/year is valid while the department undertakes an assessment of the licence application and operating strategy.
28. In October 2014, the department attended an OIC strategic planning meeting at the OIC's invitation. The department indicated that the assessment of the OIC's current and future water needs was likely to result in the department proposing to recoup water. The OIC saw the licence renewal as a major priority and was concerned about the potential loss of entitlement. As part of the risk planning, the department encouraged the OIC to consider a scenario that had a reduced water entitlement.
29. The OIC contacted the department in October 2014 and enquired how the water licence assessment was progressing. The department advised there were delays due to staff changes, but as discussed at the recent planning meeting, the department would send a letter outlining the proposed decision regarding the licence application. The letter was expected to be issued in November 2014.
30. On 6 November 2014, the department made its proposed decision regarding the OIC's application, proposing to extend the licence tenure from 5 to 10 years and reduce the annual water entitlement from 335GL/year to 225GL/year by recouping water entitlements that have not been taken consistent with the Ord plan and the RIWI Act. The 2013 annual report provided the most current information on water use when the proposed decision was notified. The reduced entitlement is 80GL/year more than actual water diverted for use during 2013. The department considered this fair and reasonable based on the OIC's current and future crop needs. The proposed decision letter addressed to the OIC provided advice on licensee rights to make a written submission to the department and if a response was not received by the due date of 8 December 2014, the department would continue with the assessment process. The department advised that the OIC's comments would be considered before the department finalised the decision.
31. The OIC contacted the department on 13 November 2014 and requested a meeting to discuss the basis for the revised water entitlement. A spreadsheet prepared by the department comparing DAFWA and OIC crop water estimates and the proposed annual water entitlement for the renewed licence was provided to the OIC at a meeting on 18 November 2014. It was unclear how the OIC had calculated irrigation efficiency and total water requirements. For example, there was a significant difference between actual water diverted for the 2013 water year and predicted water demand as determined by the OIC for the same water year. The department asked the OIC to explain why there was such a significant difference. The OIC indicated it did not receive 100% of crop surveys from its members so allowances needed to be made. The OIC then stated it had a list of questions for the department and would email the list after the meeting.
32. The OIC requested the department to provide answers to a list of questions regarding the policy for reducing water entitlements, reallocating recouped water, trading, water licensing program objectives and water service providers. The department responded to the OIC's questions on 21 November 2014.
33. The OIC made a written submission on 4 December 2014. The OIC expressed various concerns relating to impacts on crop choice, irrigation development, property rights and the impact on its members. The OIC questioned the grounds for the decision under the RIWI Act, in particular the use of Schedule 1 clauses 22(2)(a)(ii) inconsistency with a plan, 22(3)(b) inconsistency with an application for renewal and 24(2)(d) quantity of water has consistently not been taken.
34. The Chairman of the OIC Board met with the Minister for Water on 22 December 2014 to discuss the renewal of the OIC's water licence. The Minister wrote to the OIC on 14 January 2015 advising that the department would arrange a meeting with the OIC and its Board to provide an opportunity for discussion on the licence renewal process and other water related matters.
35. On 9 February 2015, the department received the OIC's water meter results providing the annual water extraction totals for the 2014 water year. This is a reporting requirement under SWL156287(2). The OIC appreciated the department's understanding for providing a required extension to submit data relating to the volumes of irrigation water diverted for the Ivanhoe and Packsaddle areas.
36. The department met with the OIC on 19 February 2015 to discuss changes to the operating strategy that were previously requested on 6 February 2014 and were still outstanding in the operating strategy submitted by the OIC in April 2014. The main changes required to the operating strategy related to the annual water entitlement, licensee commitments, how restrictions would be applied in drought years and the terminology for the OIC member's water entitlements (as members do not hold entitlements under the RIWI Act).
37. The OIC submitted its annual report for the 2014 water year on 27 February 2015. The report noted that the total water diverted for the reporting year was 146.9GL (or 44%) of the original bulk water entitlement. The total area supplied by the OIC was 15,059 hectares. This data confirmed that the OIC is still taking 50% or less of the 335GL/year water entitlement since 2008.
38. The department's A/Director General met with the OIC and its Board on 4 March 2015. An issue for discussion was the implication of a reduced annual water entitlement and the OIC's ability to adhere to the OIC's articles of association. The department requested the OIC to provide further information including the original water agreement between the OIC and the Water Corporation, the OIC's articles of association and relevant constitution documents or information for consideration by the department (such as rules of operation, details of rated areas, members and water shares). The due date for providing further information and expressing related concerns was 31 March 2015.
39. On 26 March 2015, the OIC submitted the Rules of the Ord Irrigation Co­operative Limited and a sample of a water entitlement search of the National Irrigation Corporations Water Entitlement Register (NICWER) to the department.
40. The OIC submitted a letter dated 30 March 2015 to the Minister for Water expressing concerns at the proposed decision to amend the annual water entitlement. This submission was received by the department on 1 April 2015. The other requested information from the March meeting was not provided by the OIC (e.g. original water agreement, rated areas, members and water shares).
41. The department wrote to the OIC on 1 April 2015 acknowledging the discussions held with the OIC on 19 February 2015 and providing comments regarding the final changes required to the operating strategy. The OIC was requested to address all the changes and resubmit the operating strategy to the department by 1 May 2015.
42. On 4 May 2015, the OIC submitted its final version of the operating strategy relating to water licence SWL156287(3). The department reviewed the document and noted that the OIC had not made all the required changes. In particular, the OIC had not removed references to the annual water entitlement of 335GL/year, irrigation restrictions to the water entitlement in drought years and the OIC member's water entitlements.
43. On 6 June 2015, the department provided the OIC with a second proposed decision letter confirming that the final proposed operating strategy did not meet the department's requirements. The department advised that the first proposed decision letter dated 6 November 2014 was being amended by varying proposed licence conditions. In particular, removing the operating strategy and replacing it with an Annexure to Licence to take Water SWL156287(3). This annexure provided the OIC's monitoring, reporting and contingency requirements. The OIC's earlier submissions dated 4 December 2014 and 30 March 2015 were acknowledged. The letter notified the OIC of its right to comment. The due date to make a written submission was 6 July 2015.
44. The OIC made its written submission on 6 July 2015, submitting it to the Minister for Water and the department. The OIC indicated it had some concerns with the proposed annexure to the water licence. In particular, the OIC considered trigger levels and pollution response for diuron and trifluralin were not relevant and the OIC could not agree to 5% accuracy on the M1 channel, delivery efficiency contingencies and the responsibility for damage to monitoring infrastructure.
45. The department contacted the OIC on 10 July 2015 regarding the concerns that the OIC had raised with the proposed annexure. The department required clarification, particularly as the items had been taken directly from the latest operating strategy submitted by the OIC on 4 May 2015. Additional information to clarify these matters was required by 15 July 2015.
46. The OIC made a further submission on 15 July 2015 providing the context for its concerns with the proposed annexure. The department subsequently made some amendments to the annexure and the water licence in response to the OIC's submission, as described in the department's reasons for the decision.
47. The department had regard to the OIC's four submissions in its reasons for the decision prepared under Schedule 1 clause 10(2)(b) of the RIWI Act.
48. The department made its final decision on 14 August 2015, reducing the annual water entitlement to 225GL/year. The reasons for the decision were sent to the OIC with the renewed water licence and the Annexure to Licence to take Water SWL156287(3). The department advised the OIC of its right to apply to the State Administrative Tribunal for a review of the department's decision. The department also advised the OIC of its right to apply to amend the licence should the OIC have a demonstrated need for more water during the 10-year licence term.

Relevant legislative provisions and statements of policy

49.  Rights in Water and Irrigation Act 1914  (RIWI Act)

This Act relates to rights in water resources, to make provision for the regulation, management, use and protection of water resources, to provide for irrigation schemes, and for related purposes. Relevant legislative provisions relating to this decision are described in this document.

50. Ord Surface Water Allocation Plan (2013) (Ord plan)

This plan is an operational document that identifies how much water is available in the Ord surface water management area and the rules under which it may be taken. The Ord plan is used to assess and make decisions about water licence applications, and provide water management at a collective scale for the whole management area, not just for individuals. The Ord plan states that where a local policy in the allocation plan differs from a statewide policy, the local policy in the allocation plan is applied.
The Ord plan provides the water licensing approach with specific focus on large scale irrigation in the Ord. It requires the granting of annual water entitlements to match justified crop needs and efficient water use for the area under irrigation. It also recommends recouping unused water from existing licensees at times of licence renewal, or if necessary when granting new licences for new developments. To ensure full and efficient use of the resource, maximise development and reduce hydropower restrictions, the Ord plan advises that the department will recoup water entitlements (part or full) that have never been used or have not been used for more than two consecutive years.

51. Statewide Policy No.11- Management of Unused Licensed Water Entitlements

This policy provides a consistent approach in managing unused licensed water entitlements. It establishes a set of principles that guide the department when making decisions on licensed water entitlements that have consistently not been taken and used and under what conditions these entitlements may be recouped for possible redistribution.
The department's Statewide Policy No. 11 aims to ensure water is fully and effectively used and seeks to ensure reasonable water requirements of the licensee are addressed and that licensed water entitlements reflect actual water usages. Management of unused licensed water entitlements occurs in accordance with Schedule 1 clause 24(2)(d) of the RIWI Act. The policy also has provisions relating to irrigation water service providers.

Reasons for decision

52. The department is required under clause 7 of Schedule 1 of the RIWI Act to have regard to all relevant matters, including the matters set out in clause 7(2) of Schedule 1.
53. In making this decision, the department had regard to current State legislation, policies (e.g. Statewide Policy No.11), the Ord plan and information provided by the Ord Irrigation Cooperative (OIC) on current and future water demands (including proposed crop types and areas and actual current and historical water take and use). The department also obtained and had regard to advice from the Department of Agriculture and Food Western Australia (DAFWA) on crop water requirements. To consider the rights of stakeholders, irrigator members and customers, the department asked the OIC to provide further information on the operation of the Ord Irrigation scheme and its constitution or articles of association (including rated areas, members' water shares, and the water supply agreement between the OIC and the Water Corporation). After consideration of the OIC's submissions, together with all other relevant factors, the department has made a final decision to recoup unused water entitlements and amend the annual water entitlement to 225GL/year. The department considers the reduced entitlement to be reasonable and notes that it is 80GL/year more than the annual volume of water diverted for use in 2013, enabling significant flexibility for diversification of crops.
54. SWL156287(1) was originally granted in 2004 and when it was being considered for renewal in 2009/10, the department advised the OIC that the entitlement will be reduced if demands for water have been lower than the annual water entitlement. The department has maintained this advice since 2010 when SWL156287(2) was granted (and the covering letter provided with the licence clarified this position). The OIC has not used its full water entitlement since the licence was originally granted in 2004. The original water entitlement was based on a significant area being cropped for sugarcane, a high water using crop. When the sugar mill closed in 2007, farmers needed to diversify to other crop types. Since 2008, the OIC has been taking approximately 50% or less of the 335GL/year water entitlement. Records of the OIC's operations provided in annual reports indicate that even when sugar was being grown prior to 2008 the on-farm water use has been relatively constant. The biggest variation in water delivery appears to have been from the OIC's conveyance losses (distribution efficiencies). The OIC committed to a distribution efficiency target level of 80% when the original 335GL/year entitlement was granted in 2004. The OIC's distribution efficiency has improved, but is currently just below the target level.
55. The OIC requested the department to address water scarcity and show that other water users in the same resource area have a credible right that competes with the OIC's entitlement. The department notes that the Ord plan does not require a water resource to be fully allocated for water to be recouped. Under the Ord plan, water may be recouped where it has not been used for more than two consecutive years. The department has noted the OIC's claims that its water entitlement is permanent, has financial value and can be traded. The department notes that there is currently no water trading market in the Ord River area (as the area is not yet fully allocated), but that, in any event, water entitlements are not permanent and are not granted for the purpose of trade. Where water has not been used for more than two consecutive years, it is the department's policy to recoup that water consistent with the Ord plan. The department has previously advised the OIC that there was no scarcity value on the granting of new licensed water entitlements as these could still be granted free of charge. The department notes that all licensees and new applicants are required to clearly state business cases and justify development water needs. This is consistent across the whole State. Accuracy of water demand information is achieved by matching water taken from a source with the water used for irrigation as far as is practicable. This is the intent of Statewide Policy No.11 on managing unused licensed water entitlements.
56. In its submission, the OIC referred to comments in the department's position paper on reforming water resource management (2013) that barriers to trade exist and preclude water markets. The OIC has stated it should not be subject to restrictive trade rules and suggested permitting trade between licence categories would encourage innovation and maintain security over water entitlements. The department advises that non-consumptive uses (such as hydropower or the environment) cannot be traded, consistent with the Ord plan. Proposed water reform will consider ways to streamline administrative processes but is unlikely to change this fundamental policy position. In any event, the department notes that at this stage, a trading market does not exist in the Ord River. The department also notes that water entitlements are not granted for the purpose of trade and licensees are not able to hold water as a contingency or for speculation. If a trading market did exist in the Ord River area, and the OIC traded its entitlement, the department notes that this would permanently reduce the OIC's water entitlement (in the same way as recouping).
57. The OIC objects to the reduction in water entitlement and notes there is significant water in Lake Argyle (dam); the OIC's Stage 1 Ord River irrigation area is 3% of the total water storage; and that hydropower and the environment are more dominant users. The department notes that the Ord plan does not consider hydropower and the environment as consumptive uses, but does consider irrigation as a consumptive use (as it is diverted for crop watering and is licensed). Allocation limits are published in the Ord plan. The allocation limit, not the total storage, is the basis of assessment for providing 95% reliability of water for licensed water entitlements. Prior to the final decision on 14 August 2015, the OIC had been licensed for 335GL/year (45%) of the 750GL/year allocation limit for the Main Ord River water resource. Actual water diversion by the OIC is less than 50% of that original water entitlement. A key management strategy of the Ord plan is to optimise the water available for new development and power generation by recouping unused water entitlements. This is consistent with the intent of Statewide Policy No. 11 which advises that the effective management of licensed water entitlements is essential, if the use of water resources is to be optimised.
58. Recouping is a mechanism that assists in the management of water resources to align water entitlements with actual water use as far as is practicable. The Ord plan states that the department aims to grant water entitlements to match justified crop needs and efficient water use for the area under irrigation and will recoup water entitlements that have not been used for more than two consecutive years. Recouping of unused water entitlements is necessary as it reduces the likelihood of restrictions on hydropower generation, environmental flow requirements and irrigation supply at 95% reliability. Recouping may occur at the time of licence renewal and the OIC was advised when SWL156287(2) was granted that the entitlement will be reduced if demands for water have been lower than the annual water entitlement. Statewide Policy No. 11 aims to ensure that water resources are used effectively by reducing unused water entitlements to a minimum and ensuring that licensed water entitlements are fully used for the benefit of the licence holder, the community and the State.
59. The OIC submitted that it is an irrigation water service provider and that the Ord irrigation scheme was established for irrigation. While this is acknowledged, the right to the use and flow, and the control of water is vested in the Crown under the RIWI Act. Consequently, the department must consider water management at a collective scale for the whole management area, not just for individual licensees. Responsible water management requires optimisation of available water resources to enable development to occur and ensures that water is being effectively and efficiently used for the benefit of the Ord horticultural industry. This is consistent with the key management strategy of the Ord plan. Department policies support opportunities to access water while also considering the reasonable water needs of existing water users. Statewide Policy No. 11 notes that retention of unused water entitlements by water service providers supplying irrigation water should not be allowed to remain unchecked for long periods, as water not immediately required could be made available to others users, possibly in the same industry.
60. The OIC has stated that crop choice should be a matter for private discretion and should not be inhibited or regulated by reduction of entitlement. In terms of crop choice, irrigation development and the role of the regulator, the department has based its decision on information the OIC provided regarding planned crop types and areas for the term of the licence. Advice was obtained from the DAFWA regarding crop water requirements. The OIC requested a pre-irrigation allowance for 2000 hectares and a double cropping allowance for 227 hectares which the department considered an off­set for fallow land receiving no water entitlement. In making the decision, the department considered the reasonable future water needs of the OIC and is allowing the OIC to retain an entitlement that is SOGL/year more than the annual volume of water diverted for use in 2013 to enable flexibility of crop choice. Records of the OIC's operations provided in the OIC's annual reports indicated that even when sugar was being grown prior to 2008 on-farm water use has been relatively constant. The biggest variation in water delivery appears to have been from the OIC's conveyance losses (distribution efficiencies). The OIC's distribution efficiency has improved but is currently below the target level of 80%. Improvements in metering accuracy have also contributed to variations in water delivery. The department notes that the OIC is entitled to submit an application if water needs increase in future and this is the same process for any other licensee in the State.
61. The OIC has indicated that the decision will impact property rights and have far reaching consequences for its members and the economy. In the Ord district, the State's response to the Council of Australian Governments (COAG) initiatives following the Kilmer report on competition (1993) led to responsibility for agriculture devolving to growers and the establishment of the irrigator representative organisations OIC and the Ord Irrigation Asset Mutual Co-operative (OIAMC). The COAG agreed to adopt a national competition policy in 1995. The department notes that the Kilmer report and the COAG's competition principles agreement were silent on property rights flowing from the competition reforms. The department acknowledges that risks and returns of irrigation agricultural businesses may have the potential to affect land and business values. This risk applies to all licensees who have licences amended to recoup unused water and is a factor considered by the department. In this case, there is no clear indication that the decision to recoup unused water will actually affect values or cause loss or damage. As the revised entitlement is SOGL/year more than the annual volume of water diverted for use in 2013, the department considers the risk of notable devaluation or loss to be unlikely. The department also notes that in 1996, when negotiations first commenced with the OIC, the department advised that rights to water were recognised by a water licence with a limited term (maximum of 10 years by policy), which established a right to take and use water but did not grant ownership of the water.
62. The OIC has submitted that it is not the proper role of water regulators to increase sovereign or avoidable risk for irrigators and since privatisation of the Ord irrigation scheme began in the 1990s, irrigators have assumed increasing levels of commercial risk. It may be reasonable to argue that unexpected decisions may increase risks for business and that the perception of increased risk can provide a disincentive to invest. The department has assumed that this submission was made in the context of consequences for business due to a change in Government regulation, in particular, the introduction of the Ord plan's management strategy of optimising water use by recouping unused water entitlements. The department notes that this position on recouping unused water is consistent with the intent of Statewide Policy No. 11. With a change in cropping to lower water use crops, the OIC's water entitlement is not being fully used and is unlikely to be used within the next 10­year licence term. In making its decision, the department considered the reasonable future water needs of the OIC and is allowing the OIC to retain an entitlement that is 80GL/year more than the annual volume of water diverted for use in 2013 to enable flexibility of crop diversification. On this basis, the department is of the view that it is unclear how the proposed decision would increase perceptions of risk or actual risk. The recouping of unused water as set out in the RIWI Act, the Ord plan and Statewide Policy No. 11 is an element of the department's water management practice for ensuring that water is fully and effectively used. Both the recouping of unused water and this specific decision are within the proper role of the department.
63. The OIC has submitted that in the absence of being able to trade, the unused portion of its licensed water entitlement benefits stakeholders by making water available for non-consumptive use. The department notes that the Ord plan provides the basis for how water resources within the Ord River area will be managed, which makes provision for consumptive and non-consumptive uses and the recouping of unused water entitlements.
64. The OIC also has submitted it agreed to the Water Corporation's annual 'pay in full' requirement, including the unused licensed water entitlement on the original entitlement volume of 335GL/year, granted under the surface water licence by the department. The department notes that the current bulk water charges (paid by the OIC to the Water Corporation) are less than that paid by other cooperatives on a per megalitre basis. The department also notes that the OIC's bulk water charges do not include a contribution to the capital costs associated with the provision of the bulk water, which were incurred prior to the creation of the OIC.
65. The OIC has advised it has legal obligations to its members, who in turn have legally enforceable permanent water entitlements that are listed on the National Irrigation Corporations Water Entitlement Register (NICWER). The department advises that water entitlements are not granted on a permanent basis in Western Australia. Further, the OIC was advised as early as 1996 that licensed water entitlements under the RIWI Act do not grant ownership of the water. In any event, the department notes there is no principle that prevents the State of Western Australia from varying statutory rights where that would lead to a breach of contract. For this reason, contracts are generally drafted to be subject to the continuing existence of statutory rights. If the OIC takes the view that water is a 'permanent entitlement' and has not made provision for the possibility of a reduction in its contracts, then that is ultimately a matter for the OIC. The department notes that the OIC's articles of association provided to the department in March 2015 indicate that the OIC has made provisions for risk of changed water entitlement and that clause 75.3 (preconditions to supply of water) and clauses 83.2 and 83.4 (Cooperative's obligations and liabilities) of that document go towards addressing this risk. The department also notes that members' entitlements may be recorded in the OIC's constitution, but that does not provide any statutory right to receive those entitlements. Registration of water rights on the NICWER website does not appear to have any statutory status and it is a register maintained by a number of private irrigation schemes.
66. The OIC has submitted that the department's decision is flawed due to the reliance on RIWI Act provisions. Western Australia's water resources are vested in the Crown under the RIWI Act and the Minister has delegated her authority to consider licence renewal applications and amendments to specific department officers. The department is applying the provisions of Schedule 1 clause 24(2)(d) to amend the licence and recoup unused water (which is consistent with Statewide Policy No.11) and notified the OIC of its right to comment in accordance with Schedule 1 clause 26(4). As the decision to recoup was being undertaken at the time of renewal (which is a management strategy of the Ord plan), the department also referred to the provisions of Schedule 1 clauses 22(2)(a)(ii) and 22(3)(b). Under the Ord plan, recouping unused water entitlements is necessary as it reduces the likelihood of restrictions on hydropower generation, environmental flow requirements and irrigation supply as irrigation expansion occurs. The OIC's unused water entitlement does not optimise the use of water in the Ord area and has the potential to influence restrictions on other water uses including hydropower. As the decision is inconsistent with the application for renewal, the department notified the OIC of its right to comment in accordance with Schedule 1 clause 6(2). The department notified the licensee of its rights under the required clauses of the RIWI Act and considered the OIC's comments in accordance with Schedule 1 clauses 6(4) and 26(6) before making its final decision.
67. The OIC has submitted that the department's decision is flawed due to the reliance on the Ord plan and that the OIC was not afforded the opportunity to comment on the plan. The department advises that the water allocation planning process used in Western Australia meets the standards of transparency, evaluation and accountability originally set by the National Water Commission (NWC) and the COAG. The planning process includes opportunities for stakeholders to comment on the plan through information sharing or by written submission. When preparing the Ord plan, the department consulted with relevant stakeholders including the OIC. The department notes that the OIC also submitted written comments on the draft Ord plan during the public comment period. The department considered all comments received and made the final decision on the Ord plan based on the best outcomes for all competing interests within the Ord plan area. The Ord plan states that where a local policy differs from a statewide policy, the local policy in the allocation plan is applied. This is accepted policy practice to meet the management objectives specific to the local area. The licensing rules and objectives provided in the Ord plan are relevant considerations in the department's assessment of a water licence application.
68. In terms of Water for Food, the OIC noted that the Ord area had been excluded from this program. The OIC submitted that the department's proposed decision contradicts the key State Government aim to expand and diversify agriculture, which is a vision of the White Paper on Developing Northern Australia (2015). The department notes that the OIC's crop choice during the next 10 years includes an area of sugarcane and also some double­cropping. The department supports the whole of Government approach for developing the Ord-East Kimberley area and does not consider that the reduction in the OIC's water entitlement conflicts with the Government's initiatives for Developing Northern Australia or Water for Food. The department aims to optimise water available for development in the Ord East Kimberley area and does not consider holding unused water to be consistent with further development opportunities in the State's north. The principles underpinning water allocation and management in Western Australia including the issue of water licences are set out in relevant water allocation plans (e.g. Ord plan) and the RIWI Act for the benefit of current and future users of the water resource.
69. In summary, the OIC has been drawing approximately 50% of the 335GL/year water entitlement since 2008. The OIC's articles of association indicate that the OIC has considered the risk of a changed water entitlement. The department considers that the revised entitlement is reasonable and notes that it is 80 GL/year more than the annual volume of water diverted for use in 2013, providing significant flexibility for crop change. The department alms to be consistent with the Ord plan and recoup water at renewal in order to-match annual water entitlements with justified crop needs and efficient water use for the area under irrigation. This optimises the use of the resource, maximises development and reduces hydropower restrictions. Since 1996, the department has consistently advised the OIC that rights to water are recognised by a water licence with a limited term (up to 10 years by policy), which establishes a right to take and use water but does not grant ownership of the water. It is department policy that no water entitlement is granted in perpetuity and the RIWI Act has provision for the department (under delegation from the Minister for Water) to amend licences if the quantity of water under a licence has consistently not been taken.
70. The OIC requested that the department's decision to reduce the water entitlement be implemented 12 months after the decision is notified due to fairness and crop selections for the seasonal cycle that were made on the basis of the current entitlement. The department has considered this request and does not see a need to delay the decision by one year as the OIC is significantly underusing the entitlement and the reduced entitlement still provides the OIC with the flexibility in crop choice it seeks.
71. The OIC has forewarned it will apply for an increased entitlement if the current water entitlement is reduced. The OIC notes it will continue ventilation of the current disagreement in water entitlement and states two stages of intervention in terms of the decision to recoup. The department notes that the 'two stages of intervention' are consistent with a licensee's rights under the RIWI Act. This is the same for any other licensee in the State. The OIC is entitled to apply to the State Administrative Tribunal if aggrieved by the department's decision. The OIC is also entitled to make an application to amend a water licence if its water needs increase in future. However, a licensee must provide the department with any required further information (e.g. clearly justify development water needs) to support that application as required by the RIWI Act.

Review of licence conditions

72. The review of licence conditions was communicated to the OIC in the department's proposed decision letters dated 6 November 2014 and 4 June 2015. The OIC provided written submissions dated 4 December 2014, 30 March 2015, 6 July 2015 and 15 July 2015 in response to the proposed decision. The department has updated the licence conditions by:
    • removing the requirement for an operating strategy (as the OIC and department were unable to reach an agreement) and replacing it with an Annexure to Licence to take water SWL156287(3)[.]
73. The department is of the view that the above amendments are administrative in nature and do not change the intent of commitments on the OIC.
74. Condition 3 of SWL156287(3) replaces previous conditions on SWL156287(2) which required the OIC to comply with an 'operating strategy'. The operating strategy included a number of commitments, including OIC's monitoring program. In its submissions, the OIC noted that the operating strategy was negotiated and agreed in 2013. The reference to the operating strategy was removed from the conditions of SWL156287(3) after the OIC and the department were unable to agree on amendments to the content and commitments relating to the annual water entitlement, the restrictions in drought years and removing reference to OIC members' water entitlements. The requirement to comply with the operating strategy was replaced with the requirement to comply with the Annexure. The department advises that ongoing monitoring, reporting and contingencies are a significant licensing requirement and, for this reason, these commitments were included in the Annexure.

...

83. For the reasons set out above, I have determined that the water licence is renewed inconsistent with the application for renewal. The annual water entitlement for SWL156287(3) granted on 14 August 2015 is reduced to 225GL/year[.]

The OIC's utilisation of its AWE under Licence (1) and Licence (2)

141 According to annual reports submitted by the OIC from 2008 to 2014, the volume of water used on farm by the OIC's members has not exceeded 200GL.

142 Ms Pawley states (Exhibit 4, paragraph 66):

Based on information collated from OIC's annual reports from 2008 to 2015 (OIC, 2008 [Attachment SP 7]; 2009 [Attachment SP 6]; 2010 [Attachment SP 8], 2011 [Attachment SP 9]; 2012 [Attachment SP 10]; 2013 (document 56, Exhibit 2), 2014 (document 74, Exhibit 2); 2015 [Attachment SP 11]) there has not been full use of OIC's 335 gigalitres per year licensed entitlement which triggers a recoup under Local Licensing Policy 4.7 (Table 2). The OIC has reported the volumes of water diverted from Lake Kununurra at the M1.

143 The OIC's water usage for each water year from 2008 to 2014, based on the OIC's annual reports, is as set out in the following table:

144 The Tribunal finds that the data in the table is accurate and that it establishes conclusively that the OIC has consistently underused its AWE since 2008.

Calculating the required AWE

145 The approach taken by both the OIC and the Department in calculating the appropriate AWE for Licence (1) and Licence (2) was to predict the water usage by reference to a table in the operating strategy which set out the predicted types of crops to be grown and the predicted water required for each of those crops.

146 Table 1 of the Operating Strategy for Licence (1) is set out below:

147 Table 1 of the Operating Strategy for Licence (2) is set out below:

(Exhibit 2 page 64)

148 The draft Operating Strategy prepared by the OIC as part of its application for Licence (3) also adopted this approach. Table 1 in the draft Operating Strategy was almost identical to Table 1 in the Operating Strategy for Licence (2).

149 In addition the draft Operating Strategy contained a projected water use over 15 years from 2013 to 2027 (Exhibit 2 Table 2 pages 819 to 823). This table showed a stepped increase in water demand from 2013 to 2027.

The parties' approach to calculating the AWE

150 The crop water requirement approach was adopted by both parties in presenting their case as to the AWE for Licence (3).

151 Whilst the OIC was critical of using the predicted types of crop grown and the predicted water use as a basis for calculating the AWE it failed to provide any alternative basis for the calculation. For example, Mr Menzel was critical of the use of predicted crops to predict water use (Exhibit 31 paragraph 20). Further, in Mr Menzel's responsive statement (Exhibit 33), he gave evidence that the crop type water requirements are of limited utility in that 'there are simply too many variables in the farming system in the Ord River Irrigation Area for these figures to be accurate' (Exhibit 31 paragraph 33). However, Mr Menzel has not advanced any alternative means of calculating the AWE.

152 Mr Jacob (Exhibit 26 executive summary paragraphs 26 to 27) points to the difficulty of forecasting crop demand over a long term period and the lack of robust research. The Tribunal accepts that there are difficulties in forecasting. However, difficulties in forecasting do not mean that the crop water requirements should be abandoned in the absence of any viable alternative. One of the unaddressed problems in both Mr Jacob's evidence and Mr Droop's evidence is a logical basis on which to determine the OIC's AWE other than crop forecasts. Why not an AWE of 16 ML/ha? Why not 18 ML/ha?

153 The closest that any evidence came to an alternative solution was Mr Boshammer's proposal that a 'water market should be developed if the Ord River Dam water resource is reaching a state of higher allocation' (Exhibit 28 paragraph 25). However, there is no evidence that such a system has been utilised to date despite the available framework for water trading. Ms Pawley's evidence is:

Trading of licensed water entitlements between licensees is supported by the Ord plan. Since 2011 (earliest record available) there have been no water trades between licensees in the Main Ord subarea because the allocation limit has not yet been reached. Recouping unused water entitlements ensures that the scarcity of the resource is not distorted and future potential water users do not have to unnecessarily pay for water. There have been no water trades amongst OIC members because they have access to more water than what they need.

The crop water requirements as a basis for the AWE

154 The parties largely agreed the crop water use requirements (Exhibit 38). The exceptions were sandalwood (silviculture), sugarcane and double cropping.

155 Mr Prince's calculation of how much water various crops require each year, based on historical climate conditions in the Ord Irrigation District, appeared in the table at page 15 and at paragraphs 15 to 34 of his evidence (Exhibit 7). Mr Prince's table was used as the basis for the experts' conferral. DAFWA produced a crop water guide for crops using furrow irrigation on cununurra clay in the Ord including sandalwood (the DAFWA Guide) (Exhibit 9 PS 3). Mr Prince's table was largely based on the DAFWA Guide.

Sandalwood/Silviculture

156 Sandalwood is listed as 'silviculture' in the various tables prepared by the parties.

157 Sandalwood occupies over 40% of the cropped area of Stage 1 (T:16; 21.11.16).

158 Surprisingly, given its importance, the quality of the evidence directed to the crop water use requirement for sandalwood was unsatisfactory.

159 The DAFWA Guide provided that the 'in paddock crop irrigation requirement' for sandalwood is 9.4ML/ha. The note to that figure is 'preliminary estimate; further work required. Forest Products Commission may have more reliable data'. This was the figure relied upon by the Department (Exhibit 17).

160 In Mr Prince's witness statement, Mr Prince stated that he lacked the experience to comment on the crop water requirements for sandalwood (Exhibit 7 paragraph 51). Although Mr Prince made some comments on the water use requirements for sandalwood in his responsive statement (Exhibit 11 paragraph 6.11), having regard to his earlier statement, the Tribunal has not taken those comments into account in determining the crop water use requirements for sandalwood. The Tribunal relied on the DAFWA Guide.

161 The OIC's closing submissions were critical of the DAFWA Guide on the basis that that it dated from 1983 and it was a preliminary estimate.

162 The OIC submitted that the silviculture/sandalwood 'crop water requirements' were a low of 13.5ML/ha and a high of 15.6ML/ha. This figure was largely based on Mr Jacob's expert report.

163 In his expert report (Exhibit 26), Mr Jacob stated:

79. Given the importance of the sandalwood industry to the Ord - it currently accounts for around 42% of the total irrigable areas of Ord Stage 1 - I provide below my understanding of this crop's water requirements and management risks associated with a reduction in the licensed allocation from 335 GL to 225 GL (which equates to around 12.0 ML/ha assuming 15,000 ha and operational water required of 45,000 ML).
80. Discussions held with senior representatives from TPS during the preparation of this Report have confirmed:
    1. water use in sandalwood plantations is a developing science and is dependent on a number of factors including soil type, climate (rainfall and evapotranspiration), species composition and plantation age;
    2. water requirement during the establishment year is high (16 to 20 ML/ha) due to the need to ensure that the root ball which comprises porous potting mix does not dry out to maximise survival rates of planted trees. Pre-irrigation can add a further 2 to 5 ML/ha depending on climatic conditions (for example, the quality of the preceding wet season);
    100. post-establishment (years 2 to 10) water use remains high due to the water requirement of the three species of host trees (sandalwood is a parasitic tree and effectively lives off other species planted concurrently with sandalwood). Water use during this period is estimated at between 14 ML and 16 ML per ha; and
    4. in years 11 to harvest (around years 15/16), water applications are restricted to aid the development of the heartwood, from which the essential oil is derived. Water requirements during this period are estimated at between 8 ML and 10 ML per ha.
81. Based on this advice, the average water use for a sandalwood plantation over its lifecycle is estimated at between 13.5 ML and 15.6 ML per ha, excluding the need for pre- irrigation, although as noted in paragraph 80.b. above, the water requirement of up to 24 ML per ha (including pre-irrigation) for establishment years is critical.
82. A reduction in the effective licence volume from 17 ML to 12.0 ML per ha would, in my opinion, increase the commercial risks associated with growing sandalwood, especially the ability to manage variations in water use requirements due to climate and varying demand requirements throughout the life-cycle.
83. In order to illustrate this increased risk, I have examined likely water use on large areas of land that TPS is scheduled to harvest from 2021 through to 2025 i.e., project areas planted between 2006 and 2009. (These project areas account for around 55% of the total area of plantations under TPS control.) During this period it is estimated that around 2,636 ha are scheduled to be harvested. Assuming that the harvested areas are subsequently re-planted, the weighted average water requirement is illustrated in Figure 4.
84. It is estimated that the weighted average water use requirement for the designated areas would increase from around 11 ML/ha (reflecting the majority of the area is either being harvested or nearing harvest when water use is low) to over 15 ML/ha (reflecting the higher water use requirement during establishment and early development).
85. As noted by TPS, 'the availability of water plays a major role in our due diligence when deciding on any new plantations. Without adequate water supply we just don't plant'
86. However, while TPS has the ability to manage the development of new plantations, the hydrologic risk associated with newly planted areas would increase significantly if licensed allocations were reduced from 17 to 12.0 ML per ha, as I understand would occur under OIC Rules if the OIC licence was reduced to 225GL/yr. This is because the margin between actual crop water requirement and the volume set by the Annual Allocation Limit is reduced. Expressed another way, the ability of TFS to manage its water requirements during periods when licensed volumes are constrained due to climate would be severely restricted.

164 Mr Jacob's evidence as to the requirements for sandalwood relied on a number of attachments to his statement (Exhibit 26) including annexures PJ3, PJ10 and PJ12 which comprised emails from third parties. The Department objected to those emails on the basis that they constituted hearsay and that the evidence was expert evidence for which proper notification had not been given in accordance with the Tribunal's orders. The OIC's counsel conceded that the emails were hearsay (T:321­323; 23.11.16).

165 The Tribunal is not bound by the rules of evidence. However, it is bound by the rules of procedural fairness. Compliance with the Tribunal's orders is an important part of procedural fairness. Orders in relation to witness statements and expert conferral are made to ensure that all parties have advance notice of the evidence and a proper opportunity to meet it.

166 Further, where a factual issue is as central to the determination of a matter as the water crop requirements for sandalwood, the Tribunal expects that proper supporting evidence will be provided before the evidence can be given substantial weight.

167 Evidence from the senior representatives of TFS Corporation as to the crop water requirements referred to in Mr Jacob's statement was not provided in accordance with the procedural directions outlined above. No satisfactory explanation was offered for the failure to do so.

168 The Tribunal upheld the Department's objections to the annexures identified above and on a similar basis to paragraphs 22 and 78 of Mr Jacob's statement. The effect of this is that there was no supporting evidence for Mr Jacob's statements as to the crop water use requirements for sandalwood.

169 On 21 November 2016, during the hearing, the OIC sought leave to lead telephone evidence from Mr Barnes, the author of the emails. The Department objected to leave being granted on the basis of the OIC's failure to comply with the expert evidence orders (T:91­96: 21.11.16.). Mr Barnes should have attended the expert conferral. The Tribunal denied leave to lead the evidence on the basis of the OIC's failure to comply with the expert evidence procedure and that by not giving proper notice the opportunity for expert conferral had been lost.

170 The OIC's closing submissions relied heavily on Exhibit 26 Annexure PJ3 (T:454­456; 24.11.16). However, PJ3 was not in evidence.

171 Neither Mr Boshammer nor Mr Menzel gave evidence in their witness statements or in their responsive witness statements as to the crop water requirements for sandalwood. Mr Boshammer stated that 'I have limited experience with sandalwood' (Exhibit 32 paragraph 18).

172 The Tribunal was therefore left in the position that the only evidence to which any weight could be given as to the crop water requirements for sandalwood was the DAFWA Guide.

173 In her calculations Ms Pawley allowed for 13.4ML/ha at the farm gate for sandalwood (T:114; 22.11.16). This was based on the DAFWA Guide of 9.4ML/ha factoring in 70% efficiency (T:125; 22.11.16).

174 Ms Pawley also noted that a figure of 13.5ML/ha appears in the attachments to Annexure PJ3.1 to the statement of Mr Jacob - the email of Mr Barnes dated 13 July 2016. Again, that exhibit is not in evidence. However, the last attachment to that email states that 'irrigation requirements are assumed to be at the farm­offtake' (that is, at the farm gate). An excel spreadsheet is attached to the email of 13 July 2016. The figure 13.5 on average appears in that spreadsheet (T:123­124; 22.11.16). Counsel for the OIC sought to establish in cross­examination that the excel spreadsheet which Mr Barnes referred to was not the one attached to the email. The logical inference to be drawn from its position in the bundle is that the email of 13 July 2016 referred to the documents attached, including that excel spreadsheet. Had it been necessary to make a finding the Tribunal would have found that the figure was at the farm gate rather than the crop use water requirement.

175 While there may be some force in the OIC's submissions as to the age of the DAFWA Guide, in the absence of any other evidence of any weight, the Tribunal finds that the appropriate allowance for the crop water requirement for sandalwood is 9.4ML/ha.

Sugar cane

176 In his witness statement (Exhibit 7) Mr Prince stated:

I have assumed that sugarcane is harvested in July, and that ratoon is managed.
The crop coefficients for calculating crop water requirements were sourced from the Crop Water Use Sugar Cane Information Sheet IS13023, published by Sugar Research Australia (2014) (Attachment RTP7).
The calculated water requirement is 14.3ML/ha. The figure suggested in table 2 of attachment RTP1 [by the OIC] is 15.96ML/ha, which is above the calculated requirement and the figures recently published in 'Irrigation water requirements of sugar cane in the Ord River Irrigation Area' (Webster and Thornton 2016) (Attachment RTP8). An older publication (Holden and McGuire 2010) publish in 1998 and updated in 2010 (Attachment RTP9) suggested irrigation requirements after rain were 1410mm (14.1ML/ha) for the Ord, similar to my calculation.
1 suggest that 15.96ML/ha is slightly high, and 14ML/ha is more appropriate for sugar cane in the Ord.
(Exhibit 7 paragraphs 56 to 59)

177 Attachment RTP7 to Exhibit 7 was published by BSES Ltd for the Government of Queensland. On the face of it, it is a properly researched scientifically based report.

178 Attachment RTP8 to Exhibit 7 was published by the CSIRO as a detailed report for the Government of Western Australia. On the face of it, it is a properly researched scientifically based report.

179 Mr Boshammer did not give evidence in his witness statement or his responsive witness statements as to the crop water requirements for sugarcane.

180 In his witness statement Mr Boshammer stated that 'over the years he had farmed a variety of crops including chia, legumes, sweet sorghum, maize, hybrid seed and soy beans'. He also stated that he grew fodder for the local cattle market (Exhibit 28 paragraph [3]). It became apparent in the course of Mr Boshammer's evidence that he had grown sugarcane (for example, T:82; 21.11.16).

181 In the joint statement of Messrs Boshammer, Menzel and Prince, it was agreed that 'based on crop water use only the figures presented by RP (Mr Prince) are reasonable' - this includes a figure of 14.3ML/ha for sugarcane (Exhibit 38).

182 In the course of Mr Boshammer's oral evidence he stated that based on his experience the water use requirement for sugarcane at the diversion point was 16­22ML/ha (T:61; 21.11.16). A figure of 16ML/ha was closer on an average (T:63; 21.11.16). Mr Boshammer subsequently resiled from that position to say that his figure of 16ML/ha was the 'water requirement for the crop (T:64; 21.11.16). One of the problems with Mr Boshammer's evidence is that in the absence of any scientific or data based evidence, it is difficult to give Mr Boshammer's evidence much weight. Mr Boshammer's evidence was essentially based on intuition and estimation rather than actual data based evidence.

183 In the course of his oral evidence, Mr Boshammer gave evidence that a further allowance was required for crop management of sugarcane. He identified this as the difference between his position of 16ML/ha and Mr Prince's position of 14.3ML/ha (T:38; 21.11.16). That conflicts with his evidence that 16ML/ha was the crop water requirement. If that was Mr Boshammer's position it should have been made clear at the experts' conferral so that the issue could be addressed. The Tribunal does not accept Mr Boshammer's evidence as to the additional crop management water requirement for sugarcane.

184 Mr Menzel stated that he has grown sugarcane but he did not provide any evidence as to the acreage or the length of time over which he had grown sugarcane. It would appear that he stopped growing sugarcane in 2004 or 2005 (T:40; 21.11.16). He estimated that sugarcane requires about 22ML/ha based on his experience. He did not give evidence as to the point at which that volume of water is required nor as to the basis for his calculation (Exhibit 31 paragraph 22).

185 A problem with both Mr Boshammer's and Mr Menzel's evidence is that their statements about crop water requirements are very general with little supporting explanation as to how they reach a particular figure.

186 Mr Prince's evidence is supported by the two reports referred to above, which are annexed to his statement, and his analysis. Mr Prince's evidence is supported by a scientific rigour which is completely lacking in Mr Boshammer's and Mr Menzel's evidence.

187 Mr Prince's final conclusion in relation to a reasonable crop water requirement for sugarcane was 14.3ML/ha (Exhibit 7 page 15).

188 The Tribunal accepts Mr Prince's evidence that a reasonable crop water requirement for sugarcane was 14.3ML/ha. A fundamental problem for the OIC is that in order to grow sugarcane, a mill will need to be established.

189 In his witness statement (Exhibit 9) Mr Stubbs stated:

20. My knowledge of the sugar industry and irrigated agriculture generally is based on my experience as an officer of the Department of Agriculture and Food and Agriculture Protection Board, including a period stationed in Kununurra in the late 1990s.
21. Sugar cane was grown commercially between 1996 and 2007, with high yields and quality, so the region knows it grows well in the Ord. The Ord has limited options for crops which will grow across the periods when soil are wet from rainfall.
22. Sugarcane grows year around, and thrives in the wet season while many other crops do not. It is simple to grow, yields (tonnes of produce per hectare) are good by global standards, and sugar content in the sugarcane is high. The Ord is as good an environment as any other in Australia in which to grow sugarcane.
23. Sugar is not a commodity like wheat which can be trucked elsewhere in order to be processed. It has a high water content, so when it is harvested it needs to be processed within 24 hours; otherwise, there is a risk that the crop will be wasted.
24. Therefore, in order for a viable sugar industry to exist, it is necessary for a processing plant (sugar mill) to be built in the area.
25. The sugar industry in the Ord was established in the late 1996 on the understanding that the Ord farming district would be expanded. A sugar mill was constructed by CSR as a pilot plant in 1995. At the time, there was uncertainty as to how big the sugar industry would become, so it was decided to start with a small mill, with a capacity of around 500,000 tonnes per year.
26. Sugar cane production ceased because insufficient land was in production to sugar cane or could be put into production. That is, the arable area of Ord then was too small to sustain a viable industry. Confidence that expansion of area would occur evaporated after the 2006 Request for Proposals process did not result in an appointed developer.
27. The sugar mill closed in 2007 because it had been operating for 10 years at sub optimal industry scale in the Ord due to the limited amount of developed service farm land available. Between 1996 and 2007, 14,000 hectares of potential arable land was available in the Ord. Around 2006, the State government sought to underwrite the sugar industry in the Ord by releasing more land specifically for the purpose of growing sugar.
28. At this time, I was the CEO of the Shire of Wyndham ­ East Kimberley and was appointed to a panel to review proposals for developing land in the Ord and produce a report to the government. When the owners of the sugar mill, a Korean company called CJ Corporation, saw that the land release in 2006 did not proceed, they lost heart in the viability of sugar production in the Ord and decided to exit the industry.
29. In order to support the investment of $250 million to $400 million to construct a new sugar mill, depending on its size and capacity, the industry needs to be producing between 200 and 400 million tonnes of sugarcane per year. This requires a minimum of 20,000 hectares of land to be used for sugarcane production and preferably more. If 40,000 hectares of sugarcane was grown, this would lower the overheads and make growing of sugarcane much more profitable.
30. There is still a plan that at some point sugar will be viable in the Ord and KAI, the preferred developer selected in 2012, focused on sugarcane in their 2012 proposal to the government.
31. Large scale sugar production is unlikely to occur within 10 years, as it will take time for KAI to obtain title to land and start to develop it for farming. At the moment, KAI is developing around 2000 hectares of new land each year and it is growing annual grain crops. KAI will have in the order of 20,000 ha in production in around 10 years time. The decision to grow sugar cane or not is a commercial decision for KAI to make at that time. It may or may not chose do grow sugar cane. I should note that 20,000 ha of sugar would not be planted at once. Sugar cane is planted from cuttings and has to be gradually increased in area planted each year in what is known in the industry as a bulk up phase. It would take several years once sugar cane is first planted to bulk up enough area for the scale needed to support processing (i.e a sugar mill).
32. At present, there is one member of the OIC who farms approximately 2 hectares of sugarcane in order to produce rum.
33. 1 do not believe that there will be any significant escalation in the area of sugarcane grown by OIC members for the next 10 years, due to the uncertainty as to whether a sugar mill will be constructed. I think it is very unlikely that the OIC or any other irrigator would build a sugar mill if KAI decided against building one. It would take at least 18 months to build a sugar mill.
34. If KAI decides to grow sugar cane on the new lands which are currently being developed through the Ord expansion project, this is likely to precipitate a decision by some other growers to do likewise.

In his responsive statement (Exhibit 32), Mr Boshammer stated:

4. Mr Stubbs states that cropping sugar cane has a long lead time and will not happen without investment from Kimberly Agricultural Investment (KAI) (PS [31]). In my opinion, sugar cane will not be viable unless and until the State Government (State) has granted appropriate land and water licence rights to KAI, which to my knowledge continue to be substantially delayed. Furthermore, taking so much of OIC's water entitlement (that is, 100GL/ year as proposed) can and very likely will effectively lock me and other irrigators out of growing sugar cane, and contribute to preventing the re-emergence of a sugar industry.

(See also Mr Boshammer T:83; 21.11.16)

190 The Tribunal notes the implication of Mr Boshammer's evidence at paragraph 4 is that if unused water is locked away then it will be more difficult for KAI to receive an appropriate water licence.

191 It is very clear that the viability of sugarcane depends on a local mill. Sugarcane was discontinued as a result of the closure of the local sugar mill.

192 An AWE of 246.3GL makes a very substantial allowance for sugarcane a high water use crop when in fact it is unlikely that a sugar mill will be built within the period of Licence (3). In these circumstances the figure of 246.3GL which is substantially based on sugar cane is more than generous.

Double cropping

193 In his witness statement (Exhibit 7), Mr Prince stated:

75. Double cropping is when two annual crops are grown within the year or growing period.
76. There are multiple combinations of theoretical double cropping combination. Generally it would be more practical to double crop vegetables in the dry season, such as an early pumpkin crop followed by a melon crop. DAFWA staff at Kununurra, Tara Slaven and Noel Wilson, suggest that double cropping is rarely practiced, because the harvest period over laps with more southern growing regions and returns are not good for the domestic market for many vegetables. This makes sense as the cost of production and transport in regional areas such as Carnarvon and Kununuarra is higher and profitability would rely on great returns.
77. There is significant risk in growing crops that require dry weather to harvest, such as cotton. If there is late rain and the crop cannot be harvested when intended, this may delay the preparation required to remove or break down the previous crop residue and plant the vegetable crop in time for the most favorable market window. There is also increase risk of carry over virus disease that will affect the profitability of the second crop.
78. To provide an indication, without stating these combinations would be grown or be profitable, two possible double cropping scenarios are wet season cotton followed by rock melons, or an early pumpkin crop followed by a melon crop.

Scenario 1

79. Cotton will be planted in early October and harvested at the end of March, followed by a melon crop planted in May and harvested in August. The wet season cotton water requirement would be 3ML/ha. Between crops, approximately 1 ML/ha water would be required for land management. The rock melon crop would require approximately 4 ML/ha. The total water required for this double cropping scenario is therefore approximately 9ML/ha.

Scenario 2

80. Under this scenario, an early pumpkin crop would be followed by a rock melon crop. The pumpkin crop would require approximately 3.5ML/ha. Between crops 1 ML/ha would be required for land management. The rock melon crop would require approximately 4 ML/ha. The total water required for this double cropping scenario is therefore approximately 8.5 ML/ha.
81. Based on these two scenarios, and assuming that there is we are not double accounting the second half of the double cropping including between crop management would be approximately 4.5ML/ha to 5ML/ha, which is similar to that presented in table 2 of Attachment RTP1.

194 Mr Prince's final conclusion in relation to a reasonable crop water requirement for double cropping was 4.550ML/ha.

195 In the joint statement of Mr Boshammer, Mr Menzel and Mr Prince, Mr Boshammer and Mr Menzel suggested that the most likely double cropping opportunities involve a maize­soybean, grain­forage or cotton­forage. They stated that these crops are all relatively high water users compared with double cropping scenarios presented by Mr­Prince.

196 Mr Boshammer's evidence was that although this is not a traditional cropping scenario the opportunity for these rotations has risen from the increase return in the beef market and are currently being trialled. Mr Prince acknowledged this statement but could not comment (Exhibit 38).

197 In his responsive statement (Exhibit 33 paragraph 23), Mr Boshammer stated:

Finally, I would further note that Mr Prince's assumption that the 'Mixed horticulture' crop type in the table referred to at RP[82] includes crops such as tomatoes is incorrect (RP[60]). Tomatoes are not grown in Stage 1 or indeed the ORIA more generally on a significant commercial scale.

198 Mr Boshammer, Mr Prince and Mr Menzel accepted that the proposed double cropping regime while this crop mix is unlikely, it is an acceptable indicator of upper limits required for double cropping for the OIC (Exhibit 38 paragraph 23).

199 Mr Boshammer gave evidence that:

43. Water requirements for these crops are much higher than for annual grain crops, as they are actively growing for most of the year. Growing crops for fodder requires 20ML/ hectare of water/year in order to maximise annual production. Growing fodder at the scale required to exploit this market will not be supported by reductions in water availability in Stage 1. I am involved in current discussions to develop an intensive feeding industry here. Reduced water availability for OIC members, and therefore doubt over adequate water for this type of production, would cause these discussions to stop because people are investing time and money on this opportunity, which is based on access to water. That is, an active market opportunity would be lost at great commercial loss to Ord Stage 1 farmers.

...

46. The most appropriate time to grow a second crop for fodder and silage is between September and March, which is outside the dry irrigation season. However, irrigation is still required due to the heat and despite the rainfall from the wet season because this growing season has high evapotranspiration levels. Irrigation water requirements for a crop are based on how actively it is growing, environmental evaporation rates, and rainfall. During the hot spring and early summer of the Ord, evapotranspiration rates often approach 10mm/day. This means that farmers have to irrigate to grow a crop almost regardless of rainfall. The necessity of irrigating a second crop increases in a 'dry wet season' when larger volumes of water are required.
47. To be clear, the use of 20ML/ hectare is for either a second crop grown in the wet season for fodder or silage, or on the same type of crop grown perennially. There are a range of crop options that can be used to grow fodder and silage; some are suited to wet season growth (for example, sweet sorghum and forage maize) and others are perennial (for example, Rhodes grass or lablab). Under either scenario, the ML/ hectare water requirement to meet the cattle feed market opportunity would be similar to what we used growing sugar cane in the area. This would substantially increase OIC's active use of its water entitlement. In such circumstances, the figure of 225GL/ year proposed by the Department for OIC's entitlement will be significantly lower than required to complete this innovation. My calculations for the ML/ hectare figure are based on my thirty years' experience growing various crops on an annual or perennial basis. I understand the environment and the volume of water required to grow in either a dry or wet season or on a perennial basis. My recent double cropping experience has confirmed this understanding and my calculations.

200 In his oral examination Mr Boshammer gave evidence that Attachment 4 to Mr Jacob's report dated 20 November 2016, (Exhibit 40) gave reliable evidence as to the amount of water that would be required for forage (T:40­43; 21.11.16). Mr Boshammer later resiled from that evidence in cross­examination when he said that he did not rely on Attachment 4 (T:60­61; 21.11.16). The basis of Mr Boshammer's evidence is contradictory.

201 Mr Menzel gave evidence that crops grown for fodder require between 12 and 22ML/ha (Exhibit 31 paragraph 3). However, it appears that Mr Menzel has not in fact grown crops for fodder. The basis for his opinion is not clear. He gave evidence that he is considering cropping options including hay and silage (Exhibit 33 paragraph 32).

202 Mr Boshammer gave extensive evidence as to opportunities that would arise from double cropping to supply forage and silage for 'new market opportunities' arising as a result of the increase in cattle prices. Mr Boshammer made it clear that he has no knowledge as to whether that will be a long term trend (T:47; 21.11.16). It is clear from Mr Boshammer's statement that there is presently not a market for forage and silage for the cattle industry. Mr Boshmammer stated that 'Ord Stage 1 (and the ORIA more broadly) has not been sufficiently considered as a location for cattle fodder production and feeding' (Exhibit 28 paragraphs 33 to 62). Whilst Mr Boshammer is clearly optimistic about the potential market, and has invested heavily in developing a market, it remains just that, a potential market.

203 In his responsive statement, Mr Stubbs stated:

21. At paragraph 15 of his statement, Mr Boshammer states that the government decision making process in relation to the proposal for cattle feeding in the East Kimberley has been very slow. However, one reason for this is that until this point there has not been a well­structured business plan to encourage government decision making on the proposal.
22. In this case, the Minister for Lands will be asked to make Crown land available for use as a feedlot. A business plan is necessary in order to justify why Crown land should be made available for this purpose.
23. I prepared the first draft of a business case for the Ord Irrigation Cooperative's proposal to create a feedlot on Crown land north of Kununurra about three months ago in collaboration with Mr Boshammer, but I am unsure whether a final version of the business case has now been prepared.
24. In my opinion, the proposal for a cattle feeding facility on the preferred site (the best site) faces the usual approval challenges, particularly the need to obtain approval from the Department of Environment Regulation to clear vegetation on the land, and the need to obtain approval from the Minister for Lands to use Crown land for the purpose of a feedlot.
25. The land identified for the feedlot proposal is gravelly and well drained, which make it suitable for this use. However, gravel is also in demand for other purposes (such as road construction) and the Minister may decide that the land in question should not be used for a feedlot. Extraction of gravel and use of the land for cattle feeding are not mutually exclusive.
26. Mr Boshammer acknowledges that there has been a recent spike in beef prices to around $3.50/kg, which makes growing fodder for cattle more viable. However, like other commodity prices, the beef price is likely to fluctuate over the next 10 years and it is not possible to predict whether the current price will be sustained, and therefore difficult to predict whether the growing of crops for fodder and silage will be attractive in the medium to long term.

...

28. ... Historically, after harvest of the annual crops, fields are left fallow because of the difficulty in accessing soils which are wet, and the limited crop options available which can perform profitably over the hot, wet months (November to March).
29. These are significant risks for farmers in the Ord, and for this reason it is not a practice which has been widely adopted to date.
30. Mr Boshammer's proposal involves growing fodder or silage crop during the wet season of the year. However, if a large rainfall event occurs (as occurred in March 2014, when about 270mm fell over a day or two), the crop could be lost. The risk of large weather event is much higher during March. When the ground is drier (between October to December) the soil has a greater capacity to absorb moisture from a rainfall event. However, by the end of the wet season (March), the soil profile is wet and cannot soak up as much water. This increases the risk of flooding, which could lead to the damage or loss of the crop.

...

32. In relation to paragraph 36 of Mr Boshammer's statement, it is for the market to determine whether the Ord becomes a viable location for cattle fodder production and feeding. To date, the market has not responded in any substantial way, apart from a period in the late 1980s and early 1990s when leucaena was grown to fatten cattle.
33. Therefore, in my view there remains quite a deal of uncertainty about whether Mr Boshammer's proposal regarding fodder will be adopted by farmers in the Ord.
34. The reason it has not proceeded to date is because of the significant risks for the farmer associated with double cropping. Because of the of these risks I consider it unlikely that more than 20% of land within the Ord stage 1 area will be double cropped, even if beef prices remain at their current levels,
35. It is difficult to estimate the amount of feed which would be required to supply the feedlot proposed by Mr Boshammer, as this depends on a number of factors such as the type of crops grown and fed to cattle, and the number of cattle involved.
36. However, in my opinion it is unlikely that more than 1000 hectares will be required in order to supply crops for the feedlot. It is very unlikely that there will be sufficient demand for silage for all of the Ord stage 1 area to be used for double cropping.
37. Mr Boshammer is a particularly innovative irrigator, and often is more willing than other irrigators to experiment with new crops and irrigation techniques. Where he is successful, other irrigators tend to follow suit.

(Exhibit 15 paragraphs 21 to 37)

In his responsive statement, Mr Boshammer stated:

6. With respect to double cropping, Mr Stubbs states that attempts by OIC to justify a water allocation of 335GLV year will be based on members commencing double cropping, but that the local clay soils are likely to prevent this possibility (PS [35], [38]). This remark ignores the fact that OIC members, including myself, are actively pursuing double cropping as a strategy for supplying fodder for the beef market, something that I discuss in detail at paragraphs [33]­[62] of my Statement.
7. Furthermore, soil conditions are not uniform throughout the ORIA and, in my opinion, the impact of soil type on double cropping is not well understood by the State or Department. Soil behaviour depends on crop choice and the method and purpose for which crops are harvested, for example, whether food or fodder.
8. Additionally, through my various roles across agriculture in Australia (described at [1H6] of my Statement), I know that clay soils are commonly used for double cropping around Australia, for example in northern New South Wales and Queensland, in the sub­tropical regions.
9. I note also that physical access to land is quite feasible with certain fodder crops, for example hay, as described at [41]­[43] of my Statement.
10. I am a successful innovator in the Stage 1 sugar, chia and fodder industries. Claims by Mr Stubbs about double cropping are not based on on-ground farming knowledge or experience and are at odds with my own experience in this area. My comments here are derived from on-ground observations obtained through conducting my business and the farming initiatives that I have undertaken, and those of other farmers. Market demand and resulting price drives crop choice in the area. This crop choice will lead to double cropping when it is believed to be commercially viable, as is presently emerging.
11. To illustrate, in the past (around the 1990s) soybean was double cropped in Stage 1 with maize or seed forage sorghum; however, lack of demand and thus price for soybean meant this did not continue. As indicated in my Statement, the rise in beef cattle prices at present is changing this demand and is an example of the crucial relationship between market demand and crop choice that Stage 1 farming is based on.

(Exhibit 32)

204 In his responsive statement, Mr Menzel stated:

Mr Stubbs' statement is dismissive of double cropping (PS [35]­[39]). In contrast, my business survives on the basis of my understanding of the need to constantly evolve farming techniques, markets and crop mix. My experience is that as markets for particular crops mature, gross returns per tonne of produce drop, while production costs stay the same or increase. This is the reason farmers move into new crops and develop new farming methods.
Double cropping is being keenly investigated by ORIA farmers, as a means of increasing productivity and also amortising the very high fixed costs associated with ORIA farming, over two or more crops rather than one. Accessing farmland during the wet season is greatly enhanced by double cropping as soil drying is accelerated through crop water use and evaporation rather than just evaporation in the current bare fallow regime. For this reason, I do not accept Mr Stubbs' assertion that Stage 1 farmers are reluctant to venture onto land other than in the dry season.
Further, the type of wet season crops currently being explored (for example, hay and silage) are well suited to absorbing water rapidly, which makes accessing land during this period easier (as the crops rather than the soil retain the moisture). A more time-flexible crop, based on fodder production, is actively being investigated by some farmers in Stage 1.
(Exhibit 33 paragraphs 9 to 11)

205 Mr Boshammer appears to accept that there are problems in accessing land for double cropping and that the type of crops that could be grown are limited.

206 Mr Stubbs gave evidence as to the problems with the development of a feedlot as contemplated by Mr Boshammer (Exhibit 15 paragraphs 21 to 26 and 33 to 36).

207 In the absence of any market double cropping for hay fodder and silage is speculative.

208 The Tribunal accepts the Department's submission that a figure of 5ML/ha is an appropriate crop water requirement for double cropping.

Summary of crop water requirements

209 The Tribunal accepts that the appropriate crop water requirements for Licence (3) are as set out in Exhibit 17 prepared by Ms Pawley. These figures establish an AWE of 246.3GL.

The 70% on farm water efficiency target

210 The parties agreed that 70% is a suitable allowance for the on farm water efficiency target (T:450; 26.11.16). This is consistent with the Ord Irrigation Plan target (Exhibit 2 page 1098 paragraph 2.3.2).

The accuracy at the farm gate off take points

211 Mr Jacob identified a problem with the accuracy of the measuring devices at the farm­gate off­take points (Exhibit 26):

28. When estimating on-farm water use at the farm-gate off-take, the accuracy of the measuring device at the off-take needs to be considered. In Ord Stage 1 the typical measuring device is the Dethridge wheel. However, Dethridge wheels over time have been shown to have substantial recording errors, with studies generally finding that meters under-read by 7.5% to 18%.
29. OIC has identified the need to replace all 237 supply points (meter outlets) with ATS4747 compliant meters by a target date of 2040. An implication of the replacement program, apart from the cost, is that the actual volume of water measured at the farm-gate off-take will likely be higher than currently measured resulting in an improvement in the effective measured efficiency of the distribution system[.]

212 Ms Pawley's further evidence was that the data relied on by Mr Jacob's came from a very small sample (0.4%) and was not necessarily representative of the performance of Dethridge wheels (Exhibit 12 paragraphs 57 to 61). The Tribunal accepts Ms Pawley's evidence.

213 Mr Stone's response is that the Department measures the AWEs at the M1 Channel take off and Packsaddle Pump station from the Kununarra Diversion Dam and that this is within the 5% permissible error under the Australian Standard for open channel. He goes on to state that any significant under­reading of the farm­gate meters would mean that the distribution/channel losses are significantly less than the currently estimated 20% (Exhibit 4 paragraphs 14 to 15).

214 Ms Pawley's evidence is

61. As indicated in my witness statement dated 2 August 2016 (para 65, p.22), OIC is required to report on the annual total volume of water delivered on-farm (OIC, 2009, clause 4, ppl7-18) and distribution efficiencies against the target of 80 per cent (OIC, 2009, Commitment 13, p.28) in its annual reports as part of meeting condition 5 of its SWL156287(2) to comply with the commitments or requirements of its operating strategy (as prepared by OIC and approved by the Department on 29 March 2010) (OIC, 2009) [Attachment SP 20]. In the absence of any further information (testing of Dethridge wheels in Ord Stage 1 to establish the degree of inaccuracy or completion of OIC's replacement program), I think it is appropriate to rely on the figures reported on in OIC's annual report as part of meeting the conditions of its licence.

(Exhibit 12)

215 The Tribunal accepts Ms Pawley's and Mr Stone's evidence.

216 The obligation is on the OIC to report water use. If the OIC wished to rely on the inaccuracy of the data then it should have gathered accurate data and led such evidence.

217 In any event, even if there are deficiencies in the measuring devices, the OIC's use has never been close to its AWE of 335GL.

The 80% efficiency distribution target at the diversion points

218 The Operating Strategy for Licence (2) contained 'Commitment (13)':

The Licensee will achieve water delivery efficiency during the irrigation system (May ­ October, inclusive) of 80% of the water diverted into the irrigation system.
(Exhibit 2 page 80)

219 Mr Dear's evidence notes the commitment of the OIC to reach 80% delivery efficiency (Exhibit 30 paragraph 28). His evidence was that it is a target (Exhibit 34 paragraph 16) and that to reach the 80% figure would be prohibitive. That statement is difficult to reconcile with OIC's commitment to reach an 80% target.

220 In its calculations as to an appropriate AWE the OIC used a distribution efficiency figure of 78% - on the basis that the system is currently operating at 78% efficiency (T:451; 26.11.16).

221 In effect, in submitting a target of 78%, the OIC is arguing that it should not have to reach the 80% target even after 10 years.

222 A distribution efficiency target of 80% has been long standing. There is no basis for using a lower figure of 78%. A policy that encourages water efficiency is to be preferred.

223 The Tribunal notes that the Department has recognised the fact that the OIC infrastructure is dated in setting a target of 80%. Higher targets of 85% and 90% are set in new areas (Exhibit 2 page 1097 paragraph 2.1). Accordingly, the OIC has already had the benefit of a lower target to reflect the technology installed by OIC members.

A 'dry year'

224 Mr Droop accepted that the term 'dry year' as he had used it in his report was not a data defined term but rather a conceptual term used to help with the understanding of variability (T:106­107; 22.11.16). Mr Droop accepted that a 'dry year' would need to be quantified in order to define it. Mr Droop further accepted that he was not able to advise how often a 'dry year' arises (T:108; 22.11.16).

225 Mr Droop's oral evidence was that an allowance of 10% ­ 20% would be appropriate in a dry year (T: 122; 22.11.16). However, since Mr Droop has not defined a dry year and does not have the expertise to determine the effect of a shortage of water on crop yield this evidence does not assist the Tribunal in resolving the appropriate AWE.

226 In paragraph 43 of Exhibit 27, Mr Droop stated:

Of note in Figure 9 is the annual variability in total crop demand due to differences in rainfall/evapotranspiration from year to year, and the number of years (23 out of 100) in which estimated demand exceeds the proposed 225,000 ML licence volume (shown as a red line on Figure 9). This would mean that under the reduced licence irrigators were not entitled to take water (i.e. would be 'cut-off') even though water was flowing past due to releases for power generation.

227 Subsequent to Mr Droop preparing his report the Department increased OIC's proposed AWE to 246.3GL.

228 Ms Pawley's evidence was:

39. I reject Mr Droop's estimate of OIC's demand for irrigation supply at the diversion point(s) based on 2014 crop types and areas (para 42(b) & Figure 9, pp.23 - 24) on the basis that under similar climate conditions to 2014, Mr Droop has estimated that OIC would require between 192.5 and 234.6 gigalitres per year which is between 45.6 and 87.7 gigalitres more than the 146.9 gigalitres OIC reported that it diverted from the diversion point(s) in 2014. Figure 3 shows [of Ms Pawley’s report] very clearly that OIC's 2014 reported diversion (shown as a green triangle) is an extreme outlier to Mr Droop's estimates (shown as blue diamonds) which gives me no confidence in his assessment. Figure 3 also shows OIC's 2008 to 2013 reported diversions of between 142.2 and 184 gigalitres per year with respect to climate conditions. Figure 3 shows that OIC's reported diversions (shown as red squares) are consistently lower than Mr Droop's estimates (shown as blue diamonds) under similar climate conditions. As such I am of the opinion that what OIC has reported in its annual reports represents the real demand for irrigation water at the diversion point(s) under historical climate conditions.

(Exhibit 12)

In his oral evidence, Mr Droop conceded that an allowance of 246GL would result in all the demand in Figure 9 in his witness statement (Exhibit 27 page 24) being met (T:101­102; 22.11.16). Mr Droop's figure is based on historical crops not on the anticipated demand in 2025 (T:121; 22.11.16).

229 Mr Droop's evidence was that it was not within his area of expertise to define the impact that a shortfall in the crop water requirement would have on a particular crop in a year (T:110; 22.11.16).

230 Mr Droop accepted that the irrigators use their intuition or experience to judge the amount of water their crop might need in a particular year because there is very little crop water monitoring undertaken in the Ord (T:111; 22.11.16). Mr Droop accepted that a rational response to a reduction in water availability would be to take additional water efficiencies in the management of the crop (T:111­112; 22.11.16).

231 In the course of his oral evidence, Mr Prince was cross­examined by counsel for the OIC as to the consequences of a dry year. His evidence was that even in an extreme dry year the farmers would still be at 95% maximum yield which means that the OIC irrigators could still produce a crop (T:53; 21.11.16).

232 Beyond Mr Prince's evidence, no evidence was led as to the actual impact a dry year would have on crop yield.

233 In the circumstances there is no evidentiary basis for a finding by the Tribunal that a further allowance of 20% should be made as claimed by the OIC. The Tribunal finds that a further 20% allowance for dry years, as claimed by the OIC, should not be made.

Appropriate AWE for Licence (3)

234 The Tribunal accepts that the appropriate AWE for Licence (3) is as set out in Exhibit 17 prepared by Ms Pawley. That figure is an AWE of 246.3GL for Licence (3).

The reliability of OIC's predicted water use

235 The table below sets out a comparison of the predicted use in Table 4 of the OIC's draft Operating Strategy for Licence (3), the predicted use in the OIC's annual reports, where available, and the actual use (Exhibit 2).

236 The table above demonstrates that the OIC has continued to over­estimate its water use. This evidence suggests that an AWE of 246.3GL provides a significant margin in favour of the OIC in the event of a 'dry year' and that it provides flexibility to the OIC.

Amendment of AWE

237 The Department submitted that if the AWE proved in time to be insufficient then it could apply for an amendment of the licence. The OIC witnesses sought to argue that the Department's power to amend the AWE in the course of the licence would take too long by reference to applications to amend in other contexts. The Tribunal did not find those comparisons useful. In fact, the speed with which an amendment of an AWE might take place has never been tested. The OIC pointed to the time it took to resolve this matter. However, the OIC has kept its existing AWE throughout the period. The period within which it was resolved might have been much quicker had the OIC not kept its entitlement.

238 In any event it would be inappropriate for the Tribunal to ignore the statutory power to amend simply because the OIC does not believe it will be quick enough.

17 ML/ha

239 The Tribunal notes at this point that a figure of 17ML/ha was often used by the OIC witnesses. This figure is derived from the original AWE of 335GL divided by the OIC acreage.

Reduced flexibility

240 One of the principal submissions made by the OIC was that that it should have flexibility in its cropping from year to year.

241 For example, Mr Jacob's evidence (Exhibit 26 paragraph 25) was:

Irrigated agriculture in Ord Stage 1 has survived due to its ability to be flexible and adapt rapidly to changing market and growing conditions. This adaptability is reflected in the diversity of crops grown and the changes in crop mix overtime.

242 Mr Boshammer gave evidence that the crop requirement mechanism is not appropriate 'because in order to succeed here farmers have to look to market opportunities and innovation where necessary. Constraining water on the artificial basis of "use" is not conducive to permitting the flexibility required to succeed in this environment' (Exhibit 28 paragraph 20, see also Exhibit 26 paragraphs 23 to 24). The Tribunal finds it is difficult to understand how the water the crops use can be said to be 'artificial'.

243 Mr Menzel's evidence was essentially to the effect that farming in the Ord River requires a minimum water entitlement of 17ML/ha to provide flexibility.

244 Mr Menzel's evidence was that 17ML/ha would allow sufficient flexibility to maximise business resilience and growth opportunities (Exhibit 31 paragraph 17). Mr Menzel offered no rational basis, or data, to support 17ML/ha. The only explanation apparent from his evidence is that 17ML/ha is the historical figure.

245 Mr Menzel stated that it is demonstrated through historical and research data that 17ML/ha is not enough to ensure continuous year round cropping of Ord Stage 1. However, continuous year round cropping of the entire acreage has not been the practice of the OIC members ­ a number of crops are grown to meet seasonal demand. Further, access to crops may be restricted during the wet season due to 'waterlogging'. This is confirmed by the fact that Mr Menzel's evidence was that he had grown very little in the wet season (T:67; 21.11.16).

246 A fundamental problem with Mr Menzel's evidence is that although he asserts that 17ML/ha is required, the historical evidence simply does not support that statement because the OIC has consistently and significantly underutilised its AWE, particularly since 2008.

247 Mr Boshammer's basic position was that 'all farms are better placed when water is not an issue because the logistics of farming in the Ord River Irrigation Area are already so complicated' (Exhibit 28 paragraph 17). That may be so, however, water will always be an issue because the water supply is limited.

248 Mr Droop also concluded that a decrease in OIC's AWE would lead to an increased risk to irrigators by reducing their flexibility (Exhibit 27, paragraph 2(c), (f) and 49).

249 Ms Gardiner gave evidence that 'irrigators, as the on­ground cultivators whose livelihoods depend on sustainable and optimal farming practices, are better placed than the government to make decisions such as appropriate crop water requirements and optimal crops' (Exhibit 29 paragraph 48). Mr Menzel (Exhibit 31 paragraph 34) and Mr Boshammer (Exhibit 28 paragraph 15) also expressed similar views.

250 The reality is that the Department has to consider a wide range of interests under the legislation. Members of the OIC, who are essentially, and understandably, self-interested, are not in a position to make decisions in accordance with the broader requirements of the legislation. They are not better placed than government to make overall decisions whatever expertise they may possess in relation to particular irrigation practices.

251 In Exhibit 26, paragraphs 87 to 88, Mr Jacob states that the there is a need for flexibility and the ability to respond to changing condition. Mr Droop is of a very similar opinion. Mr Jacob states that this is illustrated by Figure 5 in his report showing the change in crop areas over time. He also notes that these crops have quite different water demands.

252 Clearly there have been changes in the type of crops grown over the period 2005 to 20 15. However, what is also clear is that throughout that period the AWE proposed by the Department was more than sufficient to allow the OIC the flexibility to alter its crop mix.

253 It is also important to bear in mind that once an AWE has been set irrigators in the OIC are free to plant such crops as they choose. There is a high degree of flexibility in that there are no constrictions on the type of crops they plant. Mr Dear's evidence that 'it is inappropriate ... to lock farmers into a particular crop' (Exhibit 34 paragraph 8) is based on a false premise, namely, that the fixing of the AWE based on crop water use requires those crops to be planted.

254 In his oral evidence Mr Droop conceded that the real question is what degree of flexibility should be allowed. He accepted that there has to be some sort of constraint (T:35; 22.11.16).

255 Mr Droop accepted that the degree of constraint is ultimately a subjective position (T:36­37; 22.11.16).

'Loss' of Water security and increased risk

256 Mr Droop explained his opinion in relation to increased risk in oral examination as follows:

What we've got to be careful, though, is making decisions for the businesses without fully understanding the implications of those decisions and, in terms of - I would suggest that - yes - if we don't supply that amount to finish off a crop, absolutely there will be a yield reduction and what I can say is from experience with crop (indistinct) of various types it's about five, 10 per cent yield in the end that makes all the difference because it's pure profit.
That is past when you've covered your costs. It is into the point where you're actually trying to make your benefit to cover yourself over that varying business opportunity that happens and so I totally agree with everything you've just said in terms of its impact but I think that we really need to be careful about then deciding that that's an acceptable impact for the irrigators where, in fact, that actually has a really significant effect on their - I guess, their risks, their behaviours and their long-term sustainability.
(T:34; 22.11.16)

257 Mr Droop's evidence was that:

... my personal opinion about this in general, and whether it be for hydro power, whatever sort of businesses that rely on water, and I work for a range of clients across a range of industries. And what it's about is just understanding those constraints and the impacts that they then have, or potentially have, and what the businesses then do is, they arrange their behaviour and their plan within those constraints.
So what it's about, in my mind, is understanding and well, okay, what are the plans going forward? What are credible, realistic, reasonable plans going forward over the next, say, 10 years? And I think there hasn't been a great deal of disagreement about the types of crop areas that they've planned for. And then understanding; well, okay, to allow them to do that, to not constrain them too much. So if things are beyond, you know, far beyond normal, and we really need to maintain flows in the river etcetera, that's already incorporated within the plan.
So we're still protecting that. What we're saying is; look, we're going to allow that flexibility up to this level, because we understand that that could happen over the next period and we want to - don't want to add another constraint on to the constraints that you get in terms of the natural variability climate-wise, the amount of area you have available. Things like market prices etcetera and the risk that you're willing to take ...
(T:36; 22.11.16)

258 Mr Droop further gave oral evidence that:

... it's normal that there is long term less use, often significantly less use. What I would say is that a - in my opinion, a fully utilised system is around about that probably 70 to 80 per cent long-term average mark.
And that allow them both that climatic risk element, that flexibility in climate. And it also allows them - often you will see irrigators - what they will have is they will have their own risk mitigation strategies where, as that allocation level drops down from 100 per cent to 90 per cent to 80 per cent, it means that they can maintain their core crop, so they're annuals, they're, you know, really high value crops. They can divert their resources to that and maintain their - the highest profit margin type crops and minimise their impacts in that respect.
(T:38-39; 22.11.16)

259 Similarly, Mr Jacob (Exhibit 26) gave evidence that:

15. A reduction in the licence volume to 225 GL, as proposed by the Department of Water (Department), would result in increased commercial risks associated with irrigated agriculture in Ord Stage 1 and restrict the flexibility of growers to adapt to changing conditions be they climate, market or growing conditions.
16. OIC's water-use behaviour represents normal practice, not an exception, when compared against other Australian irrigation schemes.
17. There are numerous explanations for this behaviour, including that
    1. the marginal return from a megalitre of water is not constant over time, in fact it can vary significantly depending on timing in cropping cycle, prevailing growing conditions and the relative scarcity of the water itself; and
    2. irrigators plan over a multi-year time horizon and 'banking of water' for future years can be a rational response to market conditions and climatic outlooks. Irrigators cannot forecast precisely what the weather conditions will be at the start of the season and the uncertainty can be increased by artificial hydrological restrictions

260 However, as Ms Pawley noted in her oral evidence there is no evidence that an AWE of 335GL is required. There is no historical evidence that an AWE of 246.3GL is not sufficient to reduce the risk, or to allow flexibility. As Ms Pawley notes the OIC had historically used between 42% and 60% of its AWE. She also notes that, based on the data in Exhibit 3 page 14 figure 3 (T:39­40; 22.11.16), the water utilisation does not appear to vary a great deal with climate. Mr Droop appeared to accept that the data did not show any change (T:41; 22.11.16).

261 Ms Pawley's evidence was:

42. As outlined in my witness statement dated 2 August 2016 (para 79 - 81, pp.27 - 28 & Table 3, p.29), I have calculated that OIC needs 235 gigalitres per year to grow its planned crop types and areas in 2025 (10 years from the licence renewal date) and efficient irrigation practices. As stated in my witness statement dated 2 August 2016 (para 17, p.5 & para 83, p.28) a licence of 235 gigalitres per year will enable OIC to increase its average water use (2008 - 2015) by 72 gigalitres. This would allow OIC's shareholders reasonable operational flexibility to adjust their crop production choice to respond to changing conditions (for example market or growing conditions) within the 10 years of OIC's licence.

...

49. Based on information collated from OIC's annual reports from 2008 to 2015 (OIC, 2008 [Attachment SP 7]; 2009 [Attachment SP 6]; 2010 [Attachment SP 8], 2011 [Attachment SP 9]; 2012 [Attachment SP 10]; 2013 (document 56, Exhibit 2), 2014 (document 74, Exhibit 2); 2015 [Attachment SP 11]) OIC's has diverted a minimum of 142 (in 2013) and a maximum of 202 (in 2015) gigalitres per year at the M1 offtake and Packsaddle pump station diversion points at Lake Kununurra. This is equivalent to 7.2 to 10.5 megalitres per year at the farm gate(s) (Table 1). A licensed water entitlement of 235 gigalitres per year (equivalent to an average of approximately 12.8 megalitres per hectare at the farm gate) provides OIC members with sufficiency flexibility to increase its current water use.

...

72. A licenced water entitlement of 235 gigalitres per year enables OIC to increase its average water use (2008 - 2015) by 72 gigalitres. This would allow OIC's shareholders reasonable operational flexibility to adjust their crop production choice to respond to changing conditions (for example market conditions or crop choice) within the 10 years of OIC's licence. Year-to-year climate variability is a low risk to OIC's demand based on the fact that it is likely to be similar to that experienced in the past.

...

75. A licensed water entitlement of 235 gigalitres per year (equivalent to approximately 12.8 megalitres per hectare at the farm gate) provides OIC members with sufficiency flexibility to increase its recent water use (which is in the order of 7.2 to 10.5 megalitres per hectare at the farm gate), and is sufficient to grow sandalwood when compared to the volumes licensed to other sandalwood growers in the Ord region (in the order of 7 to 10 megalitres per hectare at the farm gate).

262 In effect, on the basis of Ms Pawley's analysis of the OIC's water use a figure of 246.3GL provides flexibility. In addition, as noted above, given that the evidence establishes that it is unlikely that sugarcane, a relatively high water use crop, will be grown in the term of Licence (3) there is even more flexibility. It is also important to note that Licence (3) was for a period of 10 years, twice the period of the previous licence. This extended period must provide a greater degree of certainty.

Alleged investment decisions

263 Mr Jacob comments that the lack of certainty over the ownership and tenure of the water savings is in marked contrast to similar polices applying in the eastern states (Exhibit 26 executive summary paragraphs 19 to 21).

264 Both Mr Jacob's and Mr Droop's justification for 17ML/ha is because that was the basis for the original AWE figure and it provides certainty. Mr Jacob and Mr Droop both place considerable emphasis upon certainty in their reports. However, that is not a satisfactory basis upon which to calculate an AWE under the RIWI Act. Mr Jacob and Mr Droop have based their opinions on a policy which operates under a different statutory regime.

265 Mr Jacob (Exhibit 26) further gave evidence:

21. The lack of certainty over the ownership and tenure of the water savings under the Western Australian policy framework is in marked contrast to similar policies applying in the eastern states. For example, the Australian Government has been delivering a range of programs across of the Murray­Darling Basin that are improving both on-farm and off­farm water efficiency. These programs have in place water sharing arrangements where, because the Australian Government and irrigators are joint funding the efficiency initiatives, the water savings are 'shared' across the participating entities[.]

266 Mr Jacob further deals with lack of certainty at paragraphs 111 to 123 of his report. He notes that the RIWI Act is not compliant with the NWI. At paragraph 123 he states:

In other words, whereas the NWI actions stipulate water entitlements that have legal attributes that allow these to be traded, leased and mortgageable, this is not the case with water licences in Western Australia. Moreover, water entitlements as proposed under NWI-complaint legislation are not able to be recouped without some form of compensation which again reflects a major difference with the current position in Western Australia.

267 In determining the correct and preferable decision as to OIC's AWE the Tribunal is bound by the RIWI Act and not by the NWI.

268 The OIC was aware of the possibility of recoupment of unused water allocated under the AWE under Western Australian law from at least 2000 (Mr Menzel T:73; 21.11.16). Any investment decisions would have been, or should have been made on that basis. An erroneous assumption by the OIC that it was entitled to a permanent fixed AWE of 335GL cannot provide a basis for orderly decision making.

269 It is and always has been clear from the terms of the Licence and the RIWI Act that the AWE is subject to change, particularly for non­use. The members of the OIC and investors in Tropical Forestry Services would have been, or should have been, aware of this. If they in fact invested on the basis of a permanent AWE of 17ML/ha then that error cannot bind the Tribunal in its determination of what is the correct and preferable AWE.

The recoupment policy - 'Use it or lose it'

270 As noted above, section 5.2 of the Ord Allocation Plan provides that for each new licence entitlement, the Department will:

(a) grant annual water entitlements to match justified crop needs and efficient water use for the area under irrigation;
(b) recoup unused water from existing licensees at times of their licence renewal, or if necessary when the [Department] grants new licences for new developments; and
(c) adjust water release rules and restrictions to maintain reliability.

271 Mr Jacob notes that the recoupment 'use it or lose it' policy reflects a significant divergence from water policy in other states (see Exhibit 26 paragraphs 133 to 137).

272 The basis for a different policy under the Ord Allocation Plan is explained in Ms Pawley's evidence (Exhibit 4 paragraphs 58 to 64).

273 Mr Jacob does not address the particular condition in the Ord Region that led to the Department's policy in the Ord Water Allocation plan in his report.

274 The Tribunal accepts Ms Pawley's evidence and finds that there is a proper basis for applying a different policy under the Ord Allocation Plan to Policy 11.

275 As explained above, Mr Jacob's evidence on this point fails to take into account the fact that there is a different statutory regime in the eastern states. Policies under legislation which implements the NWI offer little guidance to the policies which are appropriate under the RIWI Act. As noted above, those aspects of the NWI have not been implemented in the RIWI Act.

276 Mr Stone notes the different approach between New South Wales and Queensland, where rights are 'unbundled', under the relevant legislation and Western Australia, where rights are 'bundled' (see Exhibit 4 paragraphs 16 to 20).

277 Ms Pawley's evidence was:

53. I have reviewed information collated from OIC's annual reports from 2008 to 2015 to determine if there are any water savings made from efficiency gains (resulting in distribution losses less than the acceptable distribution loss) that should be exempt from recoupment (Table 3). Between 2008 and 2015 OIC's average distribution loss was 43.3 gigalitres per year, which represents 26 per cent the volume diverted from the diversion point(s). In my view OIC would need to reduce its distribution losses below the acceptable level (20 per cent of the volume diverted) for any water savings to be exempt from recoupment.
54. As a more recent example (Table 3), based on information collated from OIC's 2015 annual report, OIC diverted a total of 202.4 gigalitres from Lake Kununurra at the Ml offtake and Packsaddle pump station and delivered 147.3 gigalitres to the farms gate(s) in 2015. This represents a distribution loss of 55.1 gigalitres, or 27 per cent of the total water diverted. The acceptable distribution loss for that year was 40.5 gigalitres (20 per cent of the diverted 202.4 gigalitres). OIC's distribution loss in 2015 was 14.6 gigalitres above what the Department considers an acceptable distribution loss for that year based on what they diverted. Again, in my view OIC's would need to reduce its distribution losses below the acceptable level (20 per cent of the volume diverted) for any water savings to be exempt from recoupment.

(Exhibit 12)

278 The OIC submitted that having spent over $4,000,000 in upgrading the infrastructure associated with its delivery system in order to improve water use efficiency, it should retain the benefit of those savings (T:16­17; 21.11.16).

279 Mr Jacob's executive summary from his expert report (Exhibit 26) stated:

18. The recoupment 'use it or lose it' policy set out in Statewide Policy No. 11 reflects a significant divergence from water policy in other states. In most, if not all, irrigation schemes in NSW and Queensland, the volume used in any one year reflects only a proportion of the total entitlement of water able to be used and neither government is permitted to recoup unused water.
19. Distributional losses (i.e., the difference between bulk delivery volumes and on-farm delivery volumes) have declined from an average of 123,000 ML (2004 to 2007) to 41,400 ML (2008 to 2015), representing a reduction of around 81,600 ML. This has been able to be achieved largely as a result of OIC investment in system efficiency measures and consequential changes to system operations.
20. Statewide Policy No. 11 states: 'The Commission will not recoup unused water entitlements that are a result of investment in water use efficiency.' Against the 80,000 ML initially allocated to, or provided for, operational water, the average efficiency savings resulting from investments and operational changes implemented by OIC over the period 2008 to 2015 is estimated at 36,700 ML. Alternatively, if the volume set aside for operational purposes is 67,000 ML (i.e., 20% of 335,000 ML), then the savings achieved by OIC would be 25,600 ML. In my opinion, it is not appropriate to recoup the volume of water that has been saved through investment and management changes that have resulted in improvements in system efficiency and is not considered consistent with Statewide Policy No. 11 to do so. Moreover, it marks a distinct departure from practices and policies applied in other states (refer paragraph 140).

280 Ms Pawley's evidence was:

68. The primary outcome that the Department is trying to achieve with the Ord plan is secure and reliable water supplies for a strong and expanding irrigation industry. This is in addition to environmental, hydropower and social outcomes.
69. In order to prioritise irrigation supply over hydropower and the environment the Department manages releases at the Ord River through water release rules. The Department adjusts the water release rules as irrigation development proceeds to ensure that licensed entitlements for irrigation continue to be highly reliable (95 per cent).
70. Mr Droop's modelling shows how irrigation reliability is less than 95 per cent without Department intervention - that is if the Department issued licensed entitlement above the allocation limit and did not adjust water release rules as irrigation development proceeds. Issuing licensed entitlements that match justified crop water needs and efficient water use for the area under irrigation ensures that the resource does not become over­allocated.
71. Holding onto unused entitlements means that hydropower would need to be unnecessarily restricted (in the order of 2 meters higher in the reservoir) in order to maintain the high reliability of all licensed entitlements (including unused licensed entitlements). Holding onto unused licensed entitlements also means that other irrigation developments in the region cannot proceed.
76. OIC would need to reduce its distribution losses below the acceptable level (20 per cent of the volume diverted) for any water savings to be exempt from recoupment. It is appropriate to rely upon the accuracy of OIC's reported amount of water in making this assessment.

281 Ms Pawley's evidence in Exhibit 4 was:

18. The OIC is not the only user of water in the Ord. The Ord River supports many important water users which must be considered by the Department in this matter. The Ord River provides water to a growing irrigation area, sustains a unique Kimberley environment, provides water for hydroelectricity generation and supports local indigenous, community, recreational and tourism values.
19. Secondly, it was also only through the development of the hydroelectric power station at the Ord River Dam and subsequent raising of the spillway that Lake Argyle is able to store almost double what it did when the dam was originally built to supply irrigation water. As such the water that is stored in Lake Argyle is a shared water resource that can be released to provide benefits for both irrigation and hydroelectric power generation (as well as to meet the downstream environmental, indigenous, community, recreational and tourism needs).
20. The Department's decision to recoup the unused (and un­needed) component of OIC's entitlements is consistent with the outcomes, objectives, strategies and local licensing polices in the Ord plan.
21. Recouping the unused (and un-needed) component of OIC's entitlement ensures that the Department can continue to deliver the outcomes of the Ord plan - specifically secure reliable water supplies for a strong and expanding irrigation industry, and as much hydroelectricity production as possible, within the limits of the water needed by irrigators and the downstream environment.
22. The Western Australian and Commonwealth governments are committed to developing a strong and expanding irrigation industry in the Ord Region. This evidenced through significant government investment in the area over the years, including the development of the Ord River Dam, new irrigation supply channels and road infrastructure to new irrigation areas. The Western Australian and Northern Territory governments have released or requested proposals for new agricultural land (in Stages 1, 2 and 3 in the Ord River Irrigation Area (ORIA)) for large scale irrigation developments. Based on the advice of Mr Roy Stone, from the Department, there is not enough water within the allocation limit (given the volumes currently licensed and committed) to issue licenced entitlements (assuming low­medium water use crops) to all new agricultural land developments in Western Australia and the Northern Territory (Stages 1, 2 and 3 of the ORIA). If these new land areas develop as the Department expects, the demand for licensed entitlements will reach the allocation limit in about five years' time (i.e. about 2021). There are three remaining land areas that are constrained from release for development by the lack of water available for them within the allocation limit. Recouping 100 gigalitres per year of unused entitlement from OIC would mean that one of these three land areas could be issued a licensed entitlement, therefore maximising development in the region.
23. Hydroelectric power generation is an important and sustainable source of energy for the towns of Kununurra and Wyndham, and Argyle Diamond Mines. Hydroelectric power generation constitutes a high beneficial and productive use of water in the Ord. The importance of this industry is evidenced by a state development agreement and a water supply agreement. If the Department issued OIC a licensed entitlement with a volume more than what it justifiably needs then the Department would have to restrict hydropower unnecessarily to maintain the high reliability of the unused (and un­needed) licensed entitlement.
24. As such, OIC should only be issued with a licenced entitlement for the water that it justifiably needs.

282 The Tribunal does not accept that the OIC should be entitled to the benefit of savings efficiencies achieved by the OIC's investment where the efficiencies are below 80%. The OIC started off a low base. As noted above, an 80% target already reflects a lower target than any new developments. The OIC agreed to a target of 80%. The OIC should only be entitled to any savings efficiencies above 80%. The Tribunal does not accept that the benefit is redirected elsewhere. What the policy requires is that the OIC should reach a minimum level of efficiency as part of the overall system.

283 The fact that achieving a target of 80% may require significant investment on the part of the OIC is not of itself a reason to reduce the target. In effect, the OIC seems to be arguing that it should never have to reach the target it agreed to.

284 The OIC has not advanced any cogent reason to depart from the Ord Allocation Plan and to prefer Policy 11.

Average or maximum?

285 The Department's calculation of the AWE for the period of the licence was based on a stepped up annual crop water requirement over the 10 years of the licence. The AWE has been calculated on the basis on the peak crop water requirement, that is, the requirement in year 10 of Licence (3). The peak demand was based on the average crop water requirement in year 10 (Ms Pawley T:105; 21.11.16).

286 The OIC's case was that the AWE should be based on the maximum crop water requirement rather than the average water requirement, that is, that the AWE should be calculated on the basis of a low rainfall 'dry' year rather than an average rainfall year. Mr Droop explained that 'an average crop water requirement represents the average that a crop may require over a range of climatic conditions' (T:106; 21.11.16).

287 Mr Droop's evidence was that there were two implications of using an average:

1. a greater risk in the event that it was a dry year that farmers would not be able to finish the crop, leading to a reduction in yield or quality, or
2. that the farmers would plant a crop with a lower water demand or a smaller area.

(T:108-109, 115; 21.11.16)

288 In effect, Mr Droop's evidence is premised on the basis that the primary policy consideration should be the security of the OIC farmers and that therefore the maximum approach should be adopted.

289 Mr Droop's opinion was that an allowance should be made of between 285 and 325GL per year (T:118; 21.11.16). Mr Droop stated that it was very hard to put an exact number on it. His evidence was that 'I would need to have a greater deal of direct knowledge and experience and discussions, etcetera, with people that are - because of the process of the tribunal, I'm not in a position to speak to you during that, yes' (T:120­121; 21.11.16).

290 One of the problems with the OIC approach is that although reference is made to the 'risk', the extent of that risk is nowhere articulated. It is therefore not possible to conclude from the OIC's case how the general risk identified by Mr Droop should be balanced against other policy considerations, even if the Tribunal were to accept that the maximum approach should be adopted.

291 The OIC can always apply for an increase in the event that demand eventuates. The Department's proposed AWE more than allows for the amount required for irrigation.

The terminology used in the licences

292 The Department's witnesses were cross­examined about the difference between the terms Annual Allocation and Annual Water Entitlement and the fact that there had been a change in the terminology from a maximum to an average (T:41­58; 22.11.16). Ultimately, nothing really turned on the expression because in determining the licence there was little dispute that the Department has used an average figure for the peak use in year 10 of the licence rather than the maximum figure.

293 The standard form of a 'Licence To Take Water' issued under s 5C of the RIWI Act refers to an 'Annual Water Entitlement' and identifies a figure.

294 However, Conditions 2 and 6 of the Licence refer to an 'Annual Allocation Limit' (Exhibit 2 page 18).

295 Clause 8.5 of Appendix E 'Glossary of Terms and Acronyms' to the 2009 Operating Strategy stated:

'Annual Water Entitlement' or 'AWE' as defined in this Licence to be the maximum volume of water able to be diverted under the provisions of this Licence within an annual period.
and
'annual period' defined in the Licence to be from 1 January to 31 December in the same calendar year.
(Exhibit 2 page 112)

296 On 1 August 2012, the Department sent an email to the OIC enclosing an attachment 'clarifying terminology around water entitlements/allocation'. The attachment relevant stated:

It has been common practice for DoW to use 'allocation' and 'entitlement' interchangeably when we strictly mean 'entitlement'. Both terms are used in the OIC's current operating strategy in the [Ord Surface Water Allocation Plan: for Public Comment] Plan.
(Exhibit 2 page 230)

Is irrigation being prioritised?

297 One of the submissions made by the OIC, based on the evidence of Mr Droop, was that irrigation was not being prioritised.

298 Mr Droop concluded that there is a disconnect between the stated objectives of the Allocation Plan - 'This Ord surface water allocation plan supports, first and foremost, water for irrigation' (Exhibit 2 Allocation Plan, Page iii, Document 96) and the proposed reduction in OIC's AWE (Exhibit 27 paragraph 2(a)).

299 The document to which Mr Droop refers in Exhibit 27 paragraph 2 appears in Exhibit 2 Tab 96 page 1040. The document is entitled 'Message from the Minister' and is signed by the then Minister for Water.

300 The Message from the Minister does state 'This Ord surface water allocation plan supports, first and foremost, water for irrigation'. However, that document is a ministerial statement and is not the surface water allocation plan itself. The statement in the Message from the Minister is not the basis on which to assess the policy. However, as explained below it is an accurate statement.

301 The proper basis on which to assess the policy is the text of the policy itself. What the Ord Allocation Plan in fact said at page 1048 is:

We will adjust water entitlements to match water use (as far as is practicable) to maximise the amount of water available for irrigation and hydroelectricity production at each stage of irrigation development. To achieve this, we will review and adjust existing licences (Water Corporation and OIC) when applications for more than 30 GL/yr of new entitlements are made and/or electricity demands change. This will ensure that future irrigation expansions can access secure, reliable water while maximising hydroelectricity production while irrigation expands.

302 Mr Droop further submitted that:

Power generation and EWP requirements are effectively prioritised above irrigation supply (Exhibit 27 paragraph 2(d)). Power generation targets are the single largest driver of ORD storage levels and subsequent system performance. Release to meet power generation targets represents the significant majority of demand-driven release (> 90% of all releases). Release for power generation in excess of irrigation/EWP requirements represents some 18% to 35% of total release from ORD (Exhibit 27 paragraph 48(c)).

303 Mr Droop's report is based on an incorrect premise in so far as it is based on priority being given to hydroelectric power.

304 Ms Pawley's evidence is:

The Department is aware that releases for hydropower and the environment are the largest releases from the Ord River Dam and have the greatest impact on water levels in Lake Argyle (in addition to inflows and climate). In order to prioritise irrigation supply over hydropower and the environment, the Department manages releases at the Ord River Dam through water release rules, which restrict hydropower at very high [low?] lake levels. If lake levels continue to drop further hydropower restriction, environmental restrictions and irrigation restrictions are also applied. The Department adjusts the water release rules as irrigation development proceeds to ensure that licensed entitlements for irrigation continue to be highly reliable (95 per cent).
(Exhibit 12 paragraph 3)

Ms Pawley further explained:

13. Mr Droop (para 2(a), p. 3) is incorrect in saying the message from the Minister for Water accompanying the Ord plan which states 'This Ord surface water allocation plan supports, first and foremost, water for irrigation (Ord plan, p. iii; document 96, Exhibit 2, p. 1040)' is an objective of the Ord plan. The specific outcomes and water resource objectives of the Ord plan are outlined in my witness statement dated 2 August 2016 (paras 39 - 40, p.11).
14. Nonetheless, I agree that the primary outcome that the Department is trying to achieve) with the Ord plan is secure and reliable water supplies for a strong and expanding irrigation industry (Ord plan, p. 8; document 96, Exhibit 2, p. 1057). I understand this outcome to mean that the Department will manage the water in the Ord River to maximise development of the current and future irrigation industry in Stages 1, 2 and 3 in the Ord River Irrigation Area (ORIA) by providing it with the water that it needs to grow planned crops using efficient irrigation practice. This outcome reflects the Department's responsibilities under the  Rights in Water and Irrigation Act 1914  (WA) (RIWI Act) to provide for the sustainable management of water resources to meet the needs of both current and future water users (s. 4(l)(a)(i)), and to promote the orderly, equitable and efficient use of water resources (s.4(l)(b)).

...

21. As shown in Figure 1 under the current water release rules (at 350 gigalitres per year) Class 1 hydropower restrictions for hydropower are applied first to reduce the total demand on Lake Argyle before storage levels become very low. If lake levels continue to drop, Class 2 and 3 hydropower restrictions, environmental restrictions and irrigation restrictions are also applied. It is through these water release rules that irrigation supply is prioritised over hydropower and the environment and the 95 per cent irrigation reliability objective is achieved.

(Exhibit 12)

305 The Tribunal accepts Ms Pawley's evidence that priority is not given to hydroelectric power and that irrigation supply is prioritised. The Tribunal does not accept that there is a disconnect as submitted by Mr Droop.

The significance of the modelling

306 Although evidence was directed to the Department's modelling for the Ord River the actual modelling was largely irrelevant. It was agreed at the experts' conferral that modelling does not in itself represent a central issue in these proceedings (Exhibit 37 paragraph 6(b)). The decision as to OIC's AWE is not directly based on a modelling decision. As Ms Pawley stated in her oral evidence no hydrology modelling was directed to the decision on the OIC's application for the licence (T:101; 21.111.16). As Ms Durrant explained 'it's about how much water is available in the system and what they [OIC] legitimately meet' (T:32; 22.11.16).

307 Mr Droop identified a number of elements that are relevant to the modelling outcome including 'the hydrology, the storage characteristics, the behaviours etc'. Mr Droop's concern with the Department's modelling was that it was 'plugged in without that real understanding of how it all fits together' (T:11; 22.11.16, see also T:21; 22.11.16).

308 Mr Droop went on to explain that his approach is 'to really understand the system and to understand the trade­offs and impacts of certain decisions on all users and on all parties in the catchment. One of the concerns - and so my conclusions were based on that understanding of the behaviour and the impacts in the system' (T:22­23; 22.11.16). There was little or no evidence that Mr Droop had carried out the inquiries necessary to understand the trade­offs and impacts of certain decisions on all users and on all parties in the catchment area.

309 In assessing the understanding of the behaviour and impacts of the systems the officers of the Department have a far better understanding of the behaviour and impacts of the system and how it all fits together because they regularly work with the system and the model.

310 Mr Droop concluded in his expert report that:

There are inconsistencies between stated modelling outcomes within the Allocation Plan and outcomes obtained through independent modelling of identical conditions undertaken by me (paragraph 2(a), 29).

311 At paragraph 10 (Exhibit 36), Mr Droop states:

1. I note that Ms Durrant's statement is a purely descriptive overview of how the Ord water supply system model should run and should be applied in the ORIA, based on a review of certain relevant documents.
2. In my opinion, there is a substantial disconnect between the modelling and how its results are applied to planning decisions and the setting of operational rules, such as power restrictions. Specifically, my conclusions are summarised as follows:
   1. Allocation Plan development and operational rules for the power station and irrigators rely heavily on modelling and model results.
   2. It is therefore imperative that any modelling approach, set-up, understanding and communication of results is specifically applicable to these purposes.
   3. Review of modelling reporting and independent modelling assessment indicates significant errors and/or deficiencies when considered as being directly relied upon to define real-world operating rules, including AWEs.
   4. While the model is useful as a guide to the high-level, long-term average hydrological, water supply and power generation outcomes of the scheme, it is not sufficiently accurate or precise, to appropriately support the definition of very specific power rules, or the conclusions reached regarding the impact of OIC AWE reduction on real-world power generation outcomes.

312 Ms Durrant was critical of Mr Droop's evidence. She sets out her criticisms of paragraphs 18 to 28 of Exhibit 10; since the modelling is not directly in issue it is not necessary to set out passages from her evidence. The Tribunal notes Ms Durrant's criticisms of Mr Droop's evidence and accepts them.

313 Mr Droop's evidence was that the modelling showed a reliability of only 90% (T;5; 22.11.16). MrDroop accepted that the change in reliability calculations occurred as a result of changing the water year to April to March. His evidence was that the modelling depended on subjective assumptions. Although he was not saying that any assumption was more or less appropriate (T:5­10; 22.11.16).

314 In cross­examination Mr Droop conceded that if the April to March accounting water year was adopted then the model did meet the 95% reliability criteria (T:81; 22.11.16).

315 Mr Droop accepted that his modelling did not extend to 2014 and that he failed to calibrate the model against the actual data for 2014 (T:101­103; 22.11.16). Mr Droop explained that he did not use actual data because it was not necessary to understand the behaviours (T:105; 22.11.16).

316 Ms Pawley's evidence was that since the peak demand for water would not be needed till year 10 of the licence the 10 per cent allowance suggested by Mr Droop only presents itself in the final year of the licence. The full amount of the AWE is available 95% per cent of the time, that is, 9.5 years out of 10 (T:128­129; 22.11.16).

317 Ms Durrant maintained her position that the Department model was correct because of Mr Droop's incorrect assumptions as identified by her (T:10; 22.11.16).

318 The Tribunal accepts Ms Durrant's analysis.

Power generation and environmental water provision

319 Mr Droop's conclusion was that keeping 335GL would not impact power generation (T:25­26; 22.11.16).

320 Mr Droop submitted that a decrease in the OIC's AWE from 335GL per annum to 225GL per annum would not lead to any material improvement in the water available for power generation or environmental water provision (EWP) (Exhibit 27 paragraphs 2(e), (f) and 48(a), (b)).

321 Mr Droop's evidence was that there was no change to EWP and hydropower if OIC's AWE was reduced and that 'if there's not a great deal of benefit to it then we're best to maintain that flexibility rather than constrain too much' (T:41; 22.11.16).

322 Mr Droop's approach would lock water away from other users irrespective of whether it was being used. That is not a proper approach.

323 Mr Droop accepted that demand might outstrip supply even on the terms of the Ord Allocation Plan as drafted. Mr Droop agreed with the proposition that licensing authorities need to make decisions as to what kind of developments might proceed in the future (T:89; 22.11.16).

324 Ultimately Mr Droop accepted that although the impact of the reduction over 99 years was 2% the impact in a particular year on hydropower levels would be much higher if the 335GL figure was retained.

325 Even if Mr Droop were correct in his conclusion that OIC's retention of an AWE of 335GL would have no impact on hydroelectricity power generation, that is, of itself, no reason for the OIC to retain an AWE at that level.

The economic value of water for irrigation

326 Mr Jacob's executive summary from his expert report (Exhibit 26) stated:

12. The economic value derived from irrigation use per ML of water is substantially higher than the value derived from the generation of hydro­electricity. This conclusion holds even under very conservative assumptions regarding the valuation of water used for irrigation.
13. The current annual value of water in the Ord is estimated to be consistent with prices observed in active water markets in the major irrigation areas in the eastern states i.e., annual values being in the range of $50 to $150/ML. However, results from analyses undertaken in the preparation of this Report suggest that the average value of water in the Ord could be substantially higher given the unique circumstances surrounding sandalwood production and its dominant position in Ord Stage 1 in terms of the area irrigated and volume of water entitlements held or leased in connection therewith.
14. The economic value of water used for hydro-generation is estimated to be equivalent to around $28/ML.

327 Mr Jacob's opinion as to the value of irrigation water is set out at part 6, paragraphs 45 to 76 and 111 to 115 of his report (Exhibit 26). His conclusion at paragraph 76 is that 'the value derived from the assessments is that the value derived from irrigation use is substantially higher that the value derived from the generation of hydro­electricity even under very conservative assumptions regarding the valuation of water used from irrigation'.

328 Ms Pawley's evidence was:

63. Mr Jacob (para 12, p.2 and para 115, p.24) has stated that the economic value derived from using Ord River water for irrigation is higher that the economic value derived from using Ord River water to generate hydroelectricity. I assume OIC has asked Mr Jacob to quantify and compare the economic value of using Ord River water for irrigation to that to generate hydroelectricity in an attempt show that hydropower is a lower beneficial use than irrigation. I am of the opinion that this assessment is irrelevant to the case at hand for the following reasons:
    1. The recouped 100 gigalitres per year of unused (and un­needed) entitlement from OIC will return to the allocation limit for the Main Ord subarea. This water will then be made available to other consumptive users in the irrigation industry. As such the water will be re-allocated to a high beneficial use. I note though that OIC is deriving no benefit from a recouped 100 gigalitres because it is not using it.
    2. The recouped 100 gigalitres per year of unused (and un­needed) entitlement from OIC is not being re-allocated to hydropower. The benefit of recouping unused water entitlements to hydropower is that hydropower is not being unnecessarily restricted to maintain the high reliability of the unused (and un­needed) licensed entitlement.
    100. Water held up in unused licensed entitlement does not represent any benefit to the irrigation industry.
    4. The economic value for hydropower cannot be compared to the economic value of irrigation as though it was a choice between supply hydropower only or irrigation only. The reality is that releasing water for hydropower has a dual benefit for both hydropower and the downstream irrigators and environment.
    5. The greatest economic value is obtained when water is used for both irrigation and hydropower. The combined economic benefit of irrigation and hydropower is greater than the economic benefit of either use alone.
    6. Mr Jacob has not attempted to quantify the benefit of releases for the environment, which for the most part arise when a release is made for hydropower (and the 100 gigalitres is not being re-allocated to hydropower).

329 Further, in Ms Pawley's responsive statement she stated:

11. Mr Jacob's economic valuation of using Ord River water for irrigation relative to hydropower is irrelevant in this matter. OIC derives no economic benefit from unused water entitlements. Recouped unused water entitlements are returned to the allocation limit where they are made available to other irrigators for high beneficial use. Recouped unused water entitlements are not re­allocated to hydropower, rather the benefit to hydropower is that hydropower is not being unnecessarily restricted to maintain the high reliability of the unused licensed entitlement. Releasing water for hydropower also has a dual benefit for both hydropower and the downstream irrigators and environment.

330 The Tribunal rejects Mr Jacob's evidence for the reasons stated by Ms Pawley. Mr Jacob's focus is too narrow and he has failed to take relevant considerations into account.

Potential development

331 A significant amount of time was taken in the hearing in determining whether particular extensions of irrigated areas are likely to proceed.

332 The OIC's position was typified by Mr Boshammer's evidence that 'Stage 1 should not be sacrificed for the benefit of proposed future development, and particularly given that there is no clear proximate timeframe for this development, and particularly given that reducing OIC's entitlement by 100 GL/year would substantially hinder continued development and irrigation success in stage 1' (Exhibit 32 paragraph 34).

333 Mr Dear gave evidence that, in his opinion, a number of proposed developments are unlikely to proceed during the term of Licence (3) (Exhibit 30 paragraphs 9 to 12).

334 The evidence of Mr Stubbs, Director of Major Projects for the Department of Regional Development, was that he expects significant development over the next 10 to 12 years (Exhibit 9 paragraphs 52 to 71). Mr Stone (Exhibit 6) also gave evidence as to the needs of potential developments. The Tribunal prefers the evidence of Mr Stubbs and Mr Stone who are far better placed to be aware of potential developments.

335 The evidence does not support Mr Boshammer's proposition that Stage 1 would be 'sacrificed'. To the contrary, the clear evidence is that the OIC is not utilising its AWE and to allow it to continue with an AWE of 335GL would artificially restrict planning for other potential developments (Mr Stubbs Exhibit 9 paragraphs 86 to 87, Mr Stone Exhibit 6 paragraphs 6 to 7). It was common ground that land in the area requires a water allocation in order to be released. The water is from the Ord River and Lake Argyle is the ultimate source of water for all potential developments be they within the Ord Stage 1 or not.

Jurisdiction

336 On 15 November 2016, the Tribunal heard the OIC's application for orders that the Tribunal had no jurisdiction to hear the original application. A somewhat strange application given that the original application had been brought by the OIC. The Tribunal reserved its decision to the substantive hearing.

337 The Minister's powers under Sch 1 of the RIWI Act have been delegated to the Department. No issue arises as to the Department's authority to exercise those powers.

338 Clause 22(2) of the RIWI Act relevantly provides that an application for renewal of a licence is to be renewed. Clause 22 does not specify that the licence must be renewed on the same terms. Indeed, it is implicit in cl 22(3)(b) that the Minister may renew a licence subject to the inclusion of a term, restriction or condition that the Minister considers is inconsistent with the terms of the application for renewal. The Minister plainly had power to renew the licence on different terms, restrictions or conditions.

339 The proposed renewal of the licence by the Department plainly included a term, restriction or condition that was inconsistent with the terms of the application for renewal in that the application for renewal did not seek an extension of the term or a reduction in the AWE.

340 Under Sch 1 cl 24(1) of the RIWI Act the Minister has power to:

(a) vary the duration of a licence; or
(b) vary, add to or remove any term, condition or restriction included in the licence[.]

341 The OIC argued that the power under cl 22(3)(b) 'to renew a licence subject to the inclusion of a term, restriction or condition that the Minister considers is inconsistent with the terms of the application for renewal', does not include a power to amend or remove any term condition or restriction. The OIC argued that the words of cl 24(1)(b) 'vary, add to or remove', are to be contrasted with the words of cl 22(3)(b) 'the inclusion of'.

342 Obviously, the words used in the two clauses are different. However, the Tribunal does not accept that the there is any difference in substance. If the words used in cl 22(3)(b) were to 'vary' but not to 'add or remove', the OIC's argument might have some substance. However, the term 'inclusion' in cl 22(3)(b) is to be read with the word 'inconsistent' in the same sub­clause. It is an inconsistency that gives the Minister the power to include different terms, conditions and restrictions.

343 The Tribunal finds that cl 22(3)(b) permits the Minister to renew a licence and to include a term that is inconsistent with the terms of the application for renewal.

344 The terms proposed by the renewal are plainly inconsistent with the OIC's application, as is evidenced by the terms of the OIC's application to this Tribunal. The Minister had jurisdiction to include the proposed terms altering the AWE in the grant of Licence (3).

Conclusion

345 The Ord Allocation Plan is a very detailed policy that takes into account a wider range of relevant factors.

346 The AWE of 246.3GL granted by the Department for Licence (3) is appropriate and is consistent with the policies in the Allocation Plan. The Tribunal is satisfied that the policies contained in the Allocation Plan are lawful and do not produce an unjust decision in the circumstances of this case.

347 The correct and preferable decision is that the AWE for Licence (3) is 246.3GL.

Orders

1. The application is dismissed.
2. The Annual Water Entitlement for SWL156287(3) for the Ord River Cooperative Ltd is fixed at 246.3 gigalitres.
   

I certify that this and the preceding [347] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

___________________________________

JUSTICE J C CURTHOYS, PRESIDENT