National register of ‘Water Access Rights’ – Background from Treasury Consultation Document

Introduction to the register of foreign ownership of water access entitlements

1.1.  On 25 November 2015 the Australian Government passed reforms to strengthen the integrity of Australia’s foreign investment framework.

1.2.  The reforms represent the most significant changes to Australia’s foreign investment framework in 40 years. They modernise the framework and provide greater certainty and transparency for investors and the Australian community.1

1.3.  As part of the foreign investment framework reform package, the Government agreed to introduce legislation for the establishment of a register of foreign ownership of water access entitlements before 1 December 2016.

Australia’s foreign investment framework

1.10.  Notwithstanding the benefits of foreign investment to the economy in general, there is a need to review foreign investment proposals to ensure proposals are consistent with Australia’s interests.

1.11.  The Government reviews foreign investment proposals against the national interest on a case-by-case basis. This flexible approach maximises investment flows, while protecting Australia’s interests and providing assurance to the community.

1.12.  The foreign investment review framework is set by the legislative framework and supported by Australia’s Foreign Investment Policy (the Policy) and Guidance Notes on the specific application of the law.

1.13.  The legislative framework includes the Foreign Acquisitions and Takeovers Act 1975 (FATA) and the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 and their associated regulations. The legislation defines the term ‘foreign persons’ as per Box 1.

1.14.  FATA allows the Treasurer to review foreign investment proposals that meet certain criteria. The Treasurer has the power to block foreign investment proposals or apply conditions to the way proposals are implemented to ensure they are not contrary to the national interest.

1.15.  The Policy outlines the Government’s approach to administering the foreign investment framework, including national interest considerations.

1.16.  The Foreign Investment Review Board (FIRB), a non-statutory advisory body, is responsiblefor examining proposals and advising on the national interest implications of investment proposals. The Treasurer retains responsibility for making decisions.

1.17.  Factors typically considered in assessing the national interest for business acquisitions include: national security, competition and other government policies such as taxation; the impact on the economy and the community; and the investor’s character

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1.21.  Currently, foreign acquisitions of interests in water are not directly screened under Australia’s foreign investment screening framework, but may be part of screening other types of investments. As interests in water can be attached to land, or are assets of Australian businesses, such acquisitions may be screened through the agricultural land screening requirements, or through the acquisition of securities or business assets.

1.22.  When assessing the national interest in relation to the agricultural sector, the Government typically considers a range of specific factors including the quality and availability of Australia’s agricultural resources including water; land access and use; agricultural production and productivity; Australia’s capacity to remain a reliable supplier of agricultural production, both to the Australian community and our trading partners; biodiversity; and employment prosperity in Australia’s local and regional communities.

Existing data on foreign investment in water resources

1.28.  Water resources are a necessary input for most sectors of the economy. The agriculture sector consumes the greatest proportion of water resources and is expected to account for the highest proportion of foreign owned water access entitlements (WAEs). There is also significant water use by the mining, manufacturing, energy sectors and households. These sectors, or the water utilities that service them, may have some WAEs and to the extent that they do, they may use water obtained through access entitlement and/or allocation trades.

1.29.  The only official source of national data on foreign investment in water resources is the ABS Agricultural Land and Water Ownership Survey (ALWOS).

1.30.  The June 2014 release of ALWOS found that as at 30 June 2013 there had been an increase of 55 per cent or 0.6 million megalitres from the previous ALWOS of 2010 in the amount of water entitlements with some level of foreign ownership, to a total of 1.8 million megalitres. This equated to an increase over three years from 9 per cent to 14 per cent of total water entitlements with some level of foreign ownership. However, the survey only captures foreign interests in water entitlements for agricultural purposes and excludes other industry sectors such as mining, manufacturing and energy sectors where it is likely foreign investors also hold water entitlements.

1.31.  The FIRB collects data on approvals given by the Australian Government for proposed foreign investments that require FIRB scrutiny according to relevant thresholds, however, foreign investment in water entitlements is not specifically captured and measured by the Government’s foreign investment screening regime.