Business Review

Murray Irrigation is a public company.  The company's Board is elected by its shareholders to represent their voice and to make decisions that are in their best interest. The Board must also operate in the best interest of the company. In terms of the business review process, the Board used comprehensive modelling and data, provided by Management and independent consultants, to make an informed decision that was within the best interest of both shareholders and the company as a whole. 

Murray Irrigation was bound by a commercial in confidence agreement with the Federal Government. 

Prior to analysing the different options for securing the company's long term financial sustainability, a Steering Committee, which comprised of 16 staff and external consultants with specialist skill sets including water economy, finance and engineering, took a deep dive into the business’s financial structure. The findings from this exercise revealed that the company has been underinvesting in operations by around $4 million per annum and needs to make provision for $12.8 million of CAPEX each year to maintain the company’s $1 billion asset base. It concluded that further investment, as opposed to cutting costs, is the solution to Murray Irrigation’s operating deficit. 

The review process went on to analyse in detail a number of different options that would achieve the above goal to secure long term financial sustainability. These included the sale of permanent conveyance entitlements, the sale of temporary water, changing fees and charges - and a combination of these. 

The decision made by the Board to increase the volume of water sales annually from an average $6-7m to an annual average of $10.8 million will allow Murray Irrigation to lower the risk of equipment failure, enhance the security of future water delivery and keep fees as low as possible for future generations.

Yes. The Board and Management have undergone many months of due diligence to decide on a strategy to achieve long term financial sustainability for the company. The Board unanimously agreed the annual sale of temporary water will achieve this. This strategy will commence in July 2024 and be reviewed in 2029. 

Yes. The Board and Management have undergone many months of due diligence to decide on a strategy to achieve long term financial sustainability for the company. The Board unanimously agreed the annual sale of temporary water will achieve this.

The review process analysed a number of different options for securing the company's long term financial sustainability. These included the sale of permanent conveyance entitlements, the sale of temporary water, changing fees and charges - and a combination of these. 

One of the most potentially beneficial models for shareholders, customers and the company was the permanent sale of conveyance entitlements to the Commonwealth Department of Climate Change, Energy, the Environment and Water (DCCEEW). Following a complex and lengthy negotiation period, DCCEEW made an offer. However, the Board unanimously rejected the offer, as it believes it was significantly undervalued.

By progressing with the annual temporary sale of water, the company is able to address the deficit in Murray Irrigation's annual operating budget, and gradually build the capital reserves required to invest in infrastructure and technology that lowers the risk of equipment failure, enhances the security of future water delivery and keeps fees as low as possible.

No, the modelling does not take into account farmer exits and the termination of DEs. It assumes the number of DEs will remain the same. However, the proceeds from any termination of delivery entitlements will be added to the investment fund. 

The Murray Irrigation Board has set a target to achieve $54m in water sales by 30 June 2029. This equates to an average of $10.8m per year. Once the five-year target has been met, no further temporary water sales will take place within that five-year period. The specific value per year will vary depending on the water market.  

In determining the required investment fund size at future dates, the business review modelling accounted for inflation, and that money loses value and purchasing power over time. While the required fund size in future dollars (which includes for inflation) can seem quite large at $400m in 2064, in today’s dollars this would be a fund size of $142m (net present value).

The purpose of the fund is to replace or extend the life of the capital assets. At present, the fund does not make provisions for: 

• Outlets, both mechanical and civil, which equate to ~10% of total company liability.
• Minor assets, such as drainage inlets, which equate to ~4.5% of total company liability.
• Major assets such as Edward River Escape, Lawson Syphons, The Drop and Main offtakes. 

Supply and drainage channels and main canals are provisioned for, but not adequately enough to complete life extension or refurbishment works. Condition assessments will be completed on these assets (and all other assets) to develop more accurate life extension costs. 

Murray Irrigation assets are assessed using condition-based monitoring and are repaired and replaced based on actual condition, not on their end-of-life calculation. The current strategy is to spend up to 20% of replacement value to achieve a 50% increase in life expectancy. This is particularly relevant for concrete structures such as bridges. This strategy keeps downward pressure on depreciation. 

We would expect the asset life cycle can be extended, in most cases, beyond their useful life as deemed by the manufacturers. However, when dealing with new technology that no one has yet taken all the way to ‘end of life’, it is prudent to ensure we are able to meet the manufacturers' recommendations so we can continue to lower the risk of equipment failure, enhance the security of future water delivery and keep fees as low as possible for future generations.

The asset management strategy is aligned to ISO 55000 standards which is an international best practice asset management framework. The forecast expenditure is based on the most up to date inspections. 

Murray Irrigation is planning to inspect all assets over the coming year. As more assets are assessed, the level of certainty on forecasts will increase. We do not expect material change in the Asset Management forecast due to these inspections, apart from the excluded assets outlined below. 

 At present, the fund does not make provisions for: 

• Outlets, both mechanical and civil, which equate to ~10% of total company liability.
• Minor assets, such as  drainage inlets, which equate to ~4.5% of total company liability.
• Major assets such as Edward River Escape, Lawson Syphon, The Drop, and Main offtakes.

Supply and drainage channels and main canals are provisioned for, but not adequately enough to complete life extension or refurbishment works. Condition assessments will be completed on these assets (and all other assets) to develop more accurate life extension costs. 

The company currently has a strategy to maximise water volumes in the footprint. A more commercial approach to water sales would reduce the volume required to be sold overall. The Board will continue to assess which strategy is in the best interest of the company on an annual basis. 

No, the Resource Management Strategy will continue to be set by the Board annually, and will be communicated with customers annually in June. The volume and timing of a Resource Distribution will continue to be dependent upon savings made in operational efficiency.

No, the WaterWell product will continue. The Resource Management Strategy will continue to be set by the Board annually and will be communicated with customers annually in June. The volume, timing and trigger for any product will continue to be communicated annually. 

The Board will continue to approve the Resource Management Strategy annually for communication annually in June. Further updates will be provided periodically as triggers to release each product are met.

The CEO accepts and acknowledges the company could have communicated the expression of interest (EOI) process more effectively this year. Moving forward we will ensure communications surrounding this will be simple and easy to understand. 

Murray Irrigation holds 279GL of conveyance water. The characteristics are set out in the Water Sharing Plan. 

The company's annual report shows how many entitlements Murray Irrigation holds and of which type.

Allocation account holders are entitled to participate in the expression of interest (EOI) stage for the Sustainability Product. In the event that the product volume is over-subscribed, the volume available to each customer is attributed pro rata against delivery entitlements. Customers with allocation accounts may, or may not, hold delivery entitlements. 

Murray Irrigation is unable to place restrictions on who can participate in WaterWell initiatives based on Australia Competition and Consumer Commission (ACCC) rules.

As part of the due diligence undertaken by the Board and Management, company water was independently assessed in January 2023 and valued at $6,975 per conveyance entitlement ex GST. 

This value did not come from, and is not related to, any of the discussions with the Commonwealth Government. 

Murray Irrigation will continue to maximise the volume of water attributed to DE holders through the resource management strategy. The 'on average' reduction is likely to be the equivalent of a 3% Resource Distribution.

The Board values the contribution DE holders provide to the company’s bottom line and MIL will continue to maximise the volume of water attributed to DE holders through the resource management strategy. As the company seeks to expand its external commercial arrangements, ie MDBA optimisation, this will allow the company to return additional water to the DE holders. 

The design capacity of the Mulwala Canal is 6,500ML/day. The physical capacity is 10,000ML/day. 

Running above capacity is typical for all Murray Irrigation channels and reflects historical water delivery practices.

Murray Irrigation is in the early stages of scoping and planning our ICT transformation project which seeks to reduce the number of IT systems (currently 27) and adopt a best practice model. The ICT transformation project will underpin the platform for our control system, which automatically operates our regulators and outlets and is currently undergoing an upgrade.     

The control system upgrade project has a two-year timeline with multiple milestones throughout. As milestones are completed, customers will experience more consistent levels of service in water delivery. An example of this will be operators being able to contact customers when there is a problem with their outlet before the problem is visible to the customer. 

The CPI % change of 7% applied to the Murray Irrigation Fees and Charges increase for 2023/24 is correct.  

The above CPI % change has been determined as follows:

• Murray Irrigation use the percentage change between the quarter ending immediately prior to the adjustment date (the fees and prices increase effective date), and the corresponding quarter of the previous year; March 2023 and March 2022,
• Murray Irrigation use the Australian Bureau of Statistics data https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/mar-quarter-2023,
• using the all groups CPI Australia index numbers,
• the March 2023 Index Number divided by the March 2022 Index Number, 132.6/123.9 = 7.0%.