A Cayman Islands company, which in the past counted the Australian Energy Minister Angus Taylor among its directors, is at the centre of a contentious $80 million water rights sale to the Australian government after it received most of the $52 million profit on the deal.
The sale raised eyebrows in part because it is claimed the seller, Eastern Australia Agriculture (EAA), a subsidiary of Cayman-based Eastern Australia Irrigation, originally insisted on a price of $2,200 per megalitre of water, but the government ultimately paid a higher price of $2,745 per megalitre.
The Australia Institute public policy think tank issued a report in March outlining several other problems with the transaction.
Eastern Australia Agriculture is one of the largest holders of water rights in Australia, backed by global institutional investors and private equity funds. The company owns, among others, two properties in the Queensland Lower Balonne in the Condamine-Balonne valley.
In the region, a Sustainable Diversion Limits (SDL) plan regulates the amount of water that can be legally extracted from the valleys by irrigators, as well as the volume of water needed to maintain the health of the river system.
The amount of available water is subject to great fluctuations from year to year, but typically water is scarce. The Department of Agriculture and Water Resources, therefore, has the ability to acquire water from irrigators to meet the water targets of the plan.
In this context, the government bought nearly 29 gigalitres of Over Land Flow licences for about $80 million from the EAA farm properties.
The deal concerned the right to use floodwater that crosses the flat farm land, including the right to divert the water using levees or pumping it into dams for storage.
Between February 2016 and May 2017, the parties negotiated over different volumes and prices of water rights, but government ended up paying a 25% higher price per megalitre than initially demanded by the vendor.
The Australia Institute report said one problem with the deal was that Over Land Flow licences legally apply only to a specific property. Once the water has left the property, adjacent property owners have the right to divert and use the taxpayer-bought water. The deal did not include any water storage.
In addition, the report stated the Commonwealth paid $80 million for water licences that were part of a parcel of properties valued at $107 million. The purchase did not include any other assets, property or other licences, including 31.6 gigalitres of additional water licences retained by EAA.
These licences should be more valuable than the Over Land Flow licences sold to the Commonwealth, the Australia Institute report noted, because of their higher yield. “On this basis alone, the Government has paid tens of millions of dollars too much.”
The deal, dubbed “#watergate” by Twitter users, put pressure on former Agriculture Minister Barnaby Joyce, who approved it in 2017.
Eastern Australia Agriculture was founded in 2007 by Energy Minister Angus Taylor, who was an investment banker at the time.
Taylor said he has no current involvement in the company, has received no benefit from the transaction, and was not aware of it until after it happened.
While acknowledging that Taylor had resigned as director of EAA and Eastern Australia Irrigation in Cayman before he entered public office, Australian media has criticised the use of a Cayman Islands entity in the deal involving local Australian water rights as opaque.
Calling Cayman “a tax haven” and “secrecy jurisdiction”, the Guardian newspaper noted that details on the directors and shareholders of Eastern Australia Irrigation are not publicly available.
Speaking to ABC Radio National on Thursday, Taylor said he did not set up the Cayman company but pointed out it is a commonly used structure.
“This structure and domicile is common practice. It’s used by many Australian super funds: CBus, Rest, Australian Super and the Future Fund,” he said. “The reason for this structure is very simple: it’s to ensure that taxpayers pay tax, as they must, where they live.
“It’s widely used by super funds and many, many of your listeners will be invested in these structures,” Taylor added.