A shareholder update issued by Murray Irrigation (MIL) has left local farmers questioning the viability of irrigating and the competence of management at the water delivery company.
MIL said a “bottom-up” business review conducted by 16 of its employees had found 11 years of operating deficit and “underinvesting” has led to the company needing $400 million to support future investments.
“Based on our assets and the size of our footprint, MIL needs a fund of around $400 million to adequately support future investment in the infrastructure, expertise and technology that services our customers now and for generations to come,” CEO Ron McCalman said.
“As part of our business review process, we have been investigating various scenarios to reset our revenue model and ensure we can invest in infrastructure and technology.”
The review commenced in September last year.
Mr McCalman said MIL will engage with shareholders next month with shareholders making the final decision on a proposed business modernisation strategy at the end of August.
However, many local irrigators say they were not aware the review had taken place and that consultation had been poor.
Barooga farmer and Southern Riverina Irrigators (SRI) chair Chris Brooks described MIL shareholders as “furious”.
“(There was) absolutely zero communication with any shareholders at any stage,” he said.
“No consultation about what we want and no consideration for the cost to implement nice shiny things that we can’t afford. No economic consideration for long term viability.”
Mr Brooks said SRI and landholder association chairs had tried to consult and advise both MIL management and the board unsuccessfully, with only one meeting in the past year.
Deniliquin farmer Jon Gatacre agreed, saying local irrigators wanted to work with MIL to keep the company running efficiently, but had been unsuccessful.
“We were wanting answers to a whole range of issues and were promised input and consultation throughout the review process - with neither eventuating,” he said.
Poor communication is nothing new at MIL, according to several local farmers, with Mr Gatacre saying it had been a problem for “as long as I can remember.”
Farmers have questioned MIL’s ability to repair any long-standing financial difficulties in-house.
The yet to be released key modelling in the report was checked and validated by an external accounting firm, Mr McCalman said.
Blighty farmer and West Berriquin Landholders Association chair Micheal Clark said shareholder concerns had been falling on the “deaf ears” of Murray Irrigation’s senior management and board.
“PIIOP (Private Irrigation Infrastructure Operators Program) has created a cost structure that is becoming out of control, even unviable,” he said.
“Our fees and charges have gone up by about 25 per cent in the last two financial years, with no service level changes.
“They want a budget of $35 to $45 million which is unsustainable. The operational costs are simply too high.”
The shareholder update posed more questions than answers and had the potential for farmers to consider water buybacks rather than wait to see the outcome of the review, Mr Clark said.
“There has been little or no consultation or transparency coming from the board and management. We’re flying blind.”
Mr Gatacre and Mr Clark believe MIL is not performing as bad as the shareholder update has implied, leaving farmers to prepare for further bad news.
Murray Irrigation confirmed fees and charges had gone up and could not commit to further pricing changes.
“From July 1, 2022 an increase of all fixed and variable charges rose by CPI (5.1 per cent) with an additional increase of all fixed and variable charges by seven per cent,” the company said.
“From July 1, 2023, an increase of 10 per cent (of which seven per cent comprises CPI) to all fixed and variable charges (other than annual outlet fees) and an increase in outlet fees (other than stock and domestic outlets) will increase by 40 per cent.”1
Farmers say MIL has the cost structure and finances wrong.
“There has been absolutely no consideration for reducing total cost of MIL at any stage,” Mr Brooks claimed.
“The majority of what MIL claims are losses are simply accounting exercises, like depreciation or losses incurred from invested funds they are supposed to manage.
“These are funds previously collected from farmers that MIL management is responsible for investing wisely.
“They are poorly invested, and MIL now want us to pay more for their loss.
“In what world would we think about giving them $400 million to manage?”
Mr Gatacre said there are ways forward.
“With some internal cost cutting and executives shown the door, it would not be that hard to fix.
“(We) just need to restructure the company and bring management back to a basic water delivering company because it’s been morphed into this BHP-style run organisation,” Mr Gatacre said.
MIL’s perceived poor communication had affected not only confidence in the company but the quality of management and board representation, the farmers said.
“The board of MIL should be seeking independent advice on the company’s own failings within management,” Mr Gatacre said.
“The board need this independent advice to regain control rather than having management preserving uncontrolled influence over this company.”
Mr McCalman said the $400 million funds earmarked in the review would address underinvestment and increasing costs.
“Murray Irrigation operates more than $1 billion worth of assets. Our capital expenditure for the past five years is only half of what is required. In addition, we are underinvesting in operations by $4 million per annum,” he said.
Water buybacks had also affected the business, Mr McCalman said.
“Since the first round of buybacks after the millennial drought, the footprint has lost around 30 per cent of its productive water.
“At this stage, it hasn’t hindered our ability to service customers, however, if no action is taken to correct the financial structure of the company, Murray Irrigation cannot lower the risk of equipment failure, enhance the security of water delivery for customers or keep water fees as low as possible,” he said.
“We know more change is coming – and we may potentially lose another 30 per cent of water in the next round of buybacks.
“We know we must act to address the annual operating deficit, achieve financial security and secure water delivery into the future.
“Doing nothing is not a realistic or smart option.”