Snapshot: Federal funding

I hope you’ll all forgive me for a slighter longer blog than usual.  I’ve had quite a few questions about the money apparently allocated to Emu Swamp Dam in the March budget.  So let’s look at what the (former) Federal government actually did as regards funding for Emu Swamp Dam.  

Question 1:  Who is the recipient of the $173.5 million of Federal government funding?

It’s not Granite Belt Water Limited.  The Coalition’s pre-election March budget included $6.9bn in funding to the National Water Grid Fund.  Within this $6.9bn to the National Water Grid Fund, there is a bullet point list of proposed projects.  Emu Swamp Dam is one of these projects, for an (additional) amount of $126.5 million.  So money was budgeted to be provided to the Fund, it was not provided to individual projects.

This multi-year budgeted allocation to the Fund firstly needs to be confirmed by the new Federal government.  Then the Fund, after undertaking its processes, could provide this money to the Queensland Government for Emu Swamp Dam. 

The funding recipient for the $5 million under the Building Better Regions fund for roadworks associated with the dam is SDRC. 

Question 2:  Did the previous Federal government “commit” to this funding?

No it did not.  A line in a budget is not a binding financial commitment.  For the funding to be committed, the National Water Grid Fund would have needed to approve the new funding for the project, and then the Federal government would have had to amend its written agreement with the Queensland government on the funding for Emu Swamp Dam.  Only then would it be a binding obligation under a legal agreement to provide the money. 

It doesn’t look like this has happened. The current schedule to the agreement dated 22 February 2022 only has the original $42 million of Federal funding.  And even that only has $6 million allocated in preliminary milestones, with the agreement stating that:

Construction milestones for the remaining Australian Government funding of $36 million will be negotiated with the Queensland Government after the completion of all preconstruction activities.  Future milestones will be subject to successful completion of all milestones above and all necessary environmental approvals having been obtained.

Note that preconstruction activities and environmental approvals, including for environmental offsets, have not been completed by Granite Belt Water.

Question 3:  Will the new Federal government provide the funding?

That is certainly the big (in fact huge) question about this project right now.  I’d have to say that there are a lot of hurdles for any government to be able do this.

When recently questioned about the additional funding for Emu Swamp Dam, the Department of Infrastructure, Transport, Regional Development and Communications stated that "Under the National Water Grid Investment Framework the Australian Government can fund up to 50 per cent of the cost of construction."  The new funding announcement would take the Australian government to more than 80% of the cost of construction. 

Indeed, clauses 13 and 20 of the current agreement between the Federal government and the Queensland government require the State, Granite Belt Water and/or investors to provide 50% of the funding for the project.  So the new Federal government would need to amend these clauses.  This would require them to override the investment framework of the National Water Grid Fund which states that “Australian Government grant funding from all sources is capped at 50 per cent of the capital costs for delivery of a National Water Grid project.”  Is it likely that the new Government will do this?

Of course it’s possible, but let’s look at the Fund’s investment framework.  There are seven investment principles, and three of them in particular look hard for the Emu Swamp Dam project:

• The investment should provide the highest net benefit of all options available to increase access to or security of water, taking into account economic, social and environmental impacts.  In fact the proponent’s own business case now shows no net benefit.  And Emu Swamp Dam has not been compared to other available options by the National Water Grid Authority.  When it was compared by SDRC’s experts it failed this test both times.

• If providing capital, a consistent, robust analysis of costs and benefits is used and assessment of appropriate funding and financing arrangements is undertaken.  The Department of Infrastructure, Transport, Regional Development and Communications was also recently asked about whether the additional funding had been subject to any review, and it stated that "The National Water Grid Advisory Body was not asked to, and did not, review the additional funding." 

• Projects should align with the National Water Initiative principles including appropriate cost recovery, and where full cost recovery is not deemed feasible, any subsidies are fully transparent.  Appropriate cost recovery from the investors, at around $54,000 per ML, does not seem to be on the cards.

There’s also an additional problem now that that Granite Belt Water is seeking more than $100 million in Federal funding.  The investment principles also state that:

Proposed projects seeking more than $100 million in Australian Government funding will need to outline the process for considering alternative funding and/or financing opportunities and the outcome of the considerations (e.g. the capacity and appetite of the market to be able to deliver and support the proposal, opportunities for private sector contributions, etc.).

Perhaps this explains why the previous Federal government didn’t lock in this funding with an updated merits-based review or by amending its agreement with the State.  In the end it was just words.  The Coalition government had been accused of being “big on grand announcements but goes missing when it comes to delivering on promises and policies”.  Sound familiar?