Offer Document Fairbairn Irrigation Network Pty Ltd /2
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Fairbairn Irrigation Network Pty Ltd
ACN 615 973 754
Offer Document
Fairbairn Irrigation Network Pty Ltd
Offer Document
Responsibility for information Customers are cautioned about relying on any such forward
The information in this Offer Document has been prepared looking statements. The forward looking statements in this
by the Company and is the responsibility of the Company. Offer Document reflect views held only as at the date of this
The Government Shareholder and the Department (and, as Offer Document.
applicable, their directors, officers, employees and advisers) do
Additionally, statements of the intentions of the Company and
not assume any responsibility for the accuracy or completeness
the Board reflect present intentions as at the date of this Offer
of any such information, subject to the following:
Document and may be subject to change.
(a). the Department has prepared and is responsible for To the maximum extent permitted by law, the Company, the
the Department Information. The Company and its Government Shareholder and the Department disclaim any
directors, officers and advisers: duty to update any forward-looking statements other than
(i). have not verified the Department Information; with respect to information of which they become aware
(ii). have relied on the Department to verify the prior to the Closing Date which is material to the decision of
Department Information; a Customer whether or not to support the Local Management
Proposal and apply for their Share Entitlement.
(iii). do not assume any responsibility for the accuracy
or completeness of the Department Information; Your decisions
and This Offer Document does not take into account the particular
(iv). accordingly, disclaim responsibility and liability for needs, objectives and financial circumstances of each
the Department Information. individual Customer or any other person. Before making any
(b). KPMG Transaction Services has prepared the decision in relation to whether or not to support the Local
Investigating Accountant’s Report (contained in Management Proposal or to apply for your Share Entitlement,
annexure A) and takes responsibility for that report. the Directors encourage you to consider whether that decision
None of the Company, the Government Shareholder, is appropriate in light of your particular needs, objectives and
the Department, or (as applicable) their directors, financial circumstances, and to consult your financial or legal
officers, employees and advisers assume any adviser.
responsibility for the accuracy or completeness of the
information contained in the Investigating Accountant’s Restrictions on distribution of this Offer Document
Report, except in relation to information given to This Offer Document does not constitute an offer or invitation
KPMG Transaction Services by them. KPMG Transaction in any place in which, or to any person to whom, it would not
Services does not assume any responsibility for the be lawful to make such an offer or invitation.
accuracy or completeness of the information contained The distribution of this Offer Document (including an
in this Offer Document other than that contained in the electronic copy) outside Australia may be restricted by law. If
Investigating Accountant’s Report. you are a Customer outside Australia and come into possession
(c). Jacobs has provided and is responsible for the Jacobs of this Offer Document, you should observe and seek your
Report (contained in annexure B). None of the Company, own advice on any restrictions. Any failure to comply with such
the Government Shareholder, the Department, or (as restrictions may contravene applicable laws. The Company
applicable) their directors, officers, employees and and the Government Shareholder disclaim all liabilities to such
advisers assume any responsibility for the accuracy or persons. Customers’ trustees or custodians for persons outside
completeness of the information contained in the Jacobs Australia are encouraged to seek independent advice as to how
Report, except in relation to information given to Jacobs they should proceed.
by them. Jacobs does not assume any responsibility No action has been taken to register or qualify the Shares
for the accuracy or completeness of the information or to otherwise permit a public offering of the Shares in any
contained in this Offer Document other than that jurisdiction other than in Australia.
contained in the Jacobs Report.
External websites
Forward looking statements and intentions Unless expressly stated otherwise, the content of the
Certain statements in this Offer Document relate to future
Company’s and the Department’s websites, including
matters.
www.fairbairnirrigation.com.au and www.lmairrigation.com.
Customers should be aware that there are risks (both au, do not form part of this Offer Document and Customers
known and unknown), uncertainties, assumptions and other should not rely on any such content.
important factors that could cause the actual conduct, results,
performance or achievements of the Company to be materially Glossary and defined terms
different from the future conduct, results, performance or Capitalised terms used in this Offer Document are defined in
achievements expressed or implied by such statements or the Glossary in Section 10 of this Offer Document. Section 10
that could cause the future conduct, results, performance or also sets out rules of interpretation which apply to this Offer
achievements to be materially different from historical conduct, Document.
results, performance or achievements.
The calculation of figures, amounts, percentages, prices,
These risks, uncertainties, assumptions and other important estimates, calculations of value and fractions in this Offer
factors include the risks set out in Sections 4 and 7 of this Offer Document are subject to the effects of rounding. Accordingly,
Document. their actual calculation may differ from the calculations set out
in this Offer Document.
None of the Company, the Government Shareholder, the
Department, their respective directors, officers or advisers,
Date of the Offer Document
or any other person, gives any representation, assurance
This Offer Document is dated 14 January 2019.
or guarantee that the occurrence of the events expressed
or implied in any forward looking statements in this Offer
Document will actually occur.
ii
Fairbairn Irrigation Network Pty Ltd ACN 615 973 754
Offer Document
If you are in any doubt as to how to deal with this document, please consult your financial or
legal adviser, or call the LMA Information Line on 0468 960 538 or email admin@lmairrigation.
com.au. You can also obtain more information about the Local Management Proposal from the
Directors of the Company. Their contact details are included at page iv.
This Offer Document is not a prospectus within the meaning of the Corporations Act and may
not contain all of the information that would be required to be in a prospectus.
IMPORTANT DATES AND EXPECTED TIMETABLE
Event Date and time
Customer information session Wednesday 6 February
at 6.30pm at the Mayfair,
Emerald
Date by which the Support and Acceptance Form must be received in 1 March 2019
Brisbane
Anticipated transition to Local Management 30 June 2019
These dates are indicative only and subject to change. Any changes will be notified on the Company’s
website.Fairbairn Irrigation Network Pty Ltd
Offer Document
If I have a question about this document who should I contact?
For further information on the Local Management Proposal and the Offer, please contact the LMA
Information Line or a member of the Board. Contact details are provided below.
Name Position Contact
Anne Marie O’Callaghan Chair 0428 582 852
Ross Burnett Director 0427 336 340
Peter Galea Director 0417 636 881
David McDougall Director 0419 782 419
Emma McCullagh Director 0438 789 488
Hamish Millar Director 0418 741 553
LMA Information Line 0468 960 538 or admin@lmairrigation.com.au
ivFairbairn Irrigation Network Pty Ltd
Offer Document
Contents
OVERVIEW OF THE OFFER DOCUMENT............................................................... 6
1. LOCAL MANAGEMENT PROPOSAL ................................................................7
2. FAIRBAIRN IRRIGATION’S BUSINESS PROPOSAL ...................................... 8
3. REASONS TO ACCEPT OR NOT ACCEPT THE OFFER ..............................13
4. KEY QUESTIONS AND ANSWERS ...................................................................15
5. FINANCIAL INFORMATION ............................................................................. 23
6. THE COMPANY’S PRICING POLICY AND
COMPARISONS WITH SUNWATER ............................................................... 29
7. RISK FACTORS .................................................................................................... 33
8. DETAILS OF THE OFFER ..................................................................................40
9. ADDITIONAL INFORMATION .........................................................................44
10. GLOSSARY .......................................................................................................... 58
Annexure A: Investigating Accountant’s Report ............................................... 63
Annexure B: Jacobs Report..................................................................................... 72
vFairbairn Irrigation Network Pty Ltd
Offer Document
OVERVIEW OF THE OFFER What you need to do?
DOCUMENT You should read this Offer Document carefully
before deciding whether or not to support the
Local Management Proposal. You must be an
Introduction ‘Eligible Customer’ to be able to complete and
This Offer Document is important and requires return the Support and Acceptance Form. You are
your immediate attention, as you are being an Eligible Customer if you:
asked to decide whether you support the Local
Management Proposal and agree to become a • are registered as a holder1 of a Water
Shareholder of Fairbairn Irrigation Network Pty Allocation (which is delivered to you via
the Irrigation Scheme) on the Initial Record
Ltd (referred to in this Document as either ‘the
Date; and
Company’ or ‘FIN’).
The Local Management Proposal is the proposal • you are a SunWater Customer with a
channel and pipeline contract for the Water
to transfer the Emerald Channel Irrigation
Allocation delivered in the area of the
Scheme from SunWater to FIN. The transfer Irrigation Scheme; and
is targeted for 30 June 2019. Under the terms
of the transfer the Department will pay FIN a • are located in Australia.
Separation Payment of $2.5 million. FIN will also
If you are not a registered holder of a Water
receive a further $350,000 (part related to exit
Allocation (which is delivered to you via the
fees previously paid to SunWater, and part in lieu
Irrigation Scheme) on the Initial Record Date
of SunWater upgrading the bulk meters for the
(29 November 2018) you are not eligible to be a
Scheme).
Shareholder of the Company.
The Local Management Proposal will only
If you support the Local Management Proposal
proceed if customers representing at least 70% of
you must complete and return the Support and
Water Allocations by nominal volume support the
Acceptance Form which must be received by no
proposal and accept the Offer of Shares in the
later than 5.00 pm (Brisbane time) on 1 March
Company or the Board and Government agree to
2019.
waive that requirement.
If you do not return your Support and
Acceptance Form, you will be taken not to
Supported by the Board of FIN
support the Local Management Proposal and will
The current Board of FIN has carefully considered
not receive Shares in the Company.
the Local Management Proposal and the
Directors unanimously recommend that you The terms and conditions associated with
SUPPORT the Local Management Proposal. In becoming a Shareholder in the Company can
addition, the Directors on the Board who are be found in Section 8 and 9.7. You will only
eligible to vote and accept Shares in FIN intend to receive Shares if the Local Management Proposal
support the Local Management Proposal. proceeds. You do not have to pay any cash
amount to accept the Offer of Shares. Further
details are set out in Section 8.1.
When making your decision, you should consider
the risks associated with the Local Management
Proposal, some of which are set out in Sections 3,
4 and 7.
1 A holder of a Water Allocation is either the person whose details are stated on the water allocations register as the person who holds the
water allocation or if a lease of the water allocation is registered on the register—the lessee of the lease.
6Fairbairn Irrigation Network Pty Ltd
Offer Document
1. LOCAL MANAGEMENT Summary of the Local Management
PROPOSAL Proposal
1.1 Background • Assets: Selma and Weemah channel
In late 2016, the Queensland Government set up and pipeline systems and related drains
(excluding part of the LN1 drain) to be
FIN and appointed the Board to negotiate and
transferred to FIN
investigate the local management proposal with
the Queensland Government and ultimately, if • Employees: Existing local SunWater staff to
accepted by the Board and the Customers, to transfer to FIN, on the same employment
become the owner and operator of the Irrigation conditions and with any accrued leave
Scheme. entitlements preserved (and with FIN to
receive a cash payment for certain accrued
The move toward local management of the leave entitlements)
Irrigation Scheme has been discussed and
considered by customers of the Irrigation • Separation Payment: Government to pay
Scheme and the Queensland Government for FIN a Separation Payment of $2.5 million
over 20 years. This document is the culmination
• Cash Assets: SunWater will transfer cash
of work commenced in 2012 when Government assets representing exit fees previously paid
began detailed investigations into the feasibility by Customers to SunWater (at this stage
of Local Management for SunWater’s irrigation approximately $81,000), $276,000 in lieu
schemes.2 It was that process that resulted in the of SunWater replacing the Parshall flumes
formation of the Company and the appointment with new bulk meters3, an amount for any
of the Board (see Section 2.2 for details of the non-routine works in the 2018/19 network
Board). service plan that are not undertaken by
SunWater prior to the Transfer Day, and
The Board has assessed the offer from the amounts to cover certain leave entitlements
Government and negotiated the terms of the for the transferring employees.
proposed transfer of the Irrigation Scheme to
the Company. As part of this process, risk-based • Winton Creek: SunWater will be required to
enquiries supported by external experts, including undertake works on Winton Creek
legal, accounting and engineering assessments, • Customers: Existing SunWater customers
into the transferring assets and liabilities have in the Scheme to transfer to FIN, including
been undertaken and the Board has examined Water Allocation holders who will become
various financial models to assist it to understand customers of FIN under a new Customer
the prospects of the Company should the Local Contract
Management Proposal proceed.
• Shareholders: Water Allocation holders can
elect to become Shareholders of FIN
1.2 Local Management Proposal
The Local Management Proposal is the proposal
• Bulk Water: SunWater will continue to
operate the Fairbairn Dam and collect bulk
by the Government to transfer the Irrigation water charges (Part A and B charges)
Scheme and its associated business and certain
liabilities from SunWater to FIN. A Transfer Deed • Transfer Date: Transfer scheduled for 30
has been executed by FIN under which the June 2019
Department has agreed to transfer the Irrigation
• Conditions need to be met: Transfer
Scheme to the Company. The box below conditional on sufficient customer support
summarises key aspects of the proposal. Further and other conditions being met.
details of the terms of the transfer are provided in
Section 9.2.
2 More information on the history of the Local Management Project is available at http://lmairrigation.com.au/overview/history/
3 FIN has no current plans to upgrade these bulk meters. More information can be found in Section 4 below.
7Fairbairn Irrigation Network Pty Ltd
Offer Document
The transfer is conditional on: 2. FAIRBAIRN IRRIGATION’S
• customers representing 70% of Allocations BUSINESS PROPOSAL
by nominal volume of Water Allocations in
the Scheme supporting the proposal and 2.1 Board’s vision for FIN
accepting the Offer of Shares in FIN. The Board’s vision for FIN is a locally owned
entity, working with irrigators to create
• FIN entering agreements with SunWater
related to: sustainable water access solutions for the
Irrigation Scheme. Its core business principles will
» the provision of pumping services from be:
the Selma pump station,
• Sustainability and growth: The Board
» the supply of distribution loss intends to take a long-term view of
allocations to be transferred to FIN, management of the business, to ensure the
Irrigation Scheme remains financially viable
» a service level agreement between the and is able to support future generations of
parties, farmers in the district, while also having the
potential to grow over time.
» the release of water into the section of
the LN1 drain that will be retained by • Local accountability: The Board, which
SunWater, and currently includes several local irrigators,
will be directly accountable to its customer
» the Channel Lining Project.
Shareholders.
• Term sheets which set out the main terms • Efficient and cost-effective services: The
to be included in the final agreements have
Board’s goal is to provide cost effective
already been agreed for the Selma pump
water services to its customers through
station and LN1 drain agreements, as have
efficient and effective management of its
the principles for the Channel Lining Project.
physical and human resources.
These conditions can be varied or waived by
• Working with customers: The Board
agreement between FIN and the Department. intends to work closely with customers,
If FIN is unable to agree satisfactory terms with with the goal of building their trust and
SunWater, then the Board intends to consult with understanding their needs.
Current Customers prior to making a decision on
how to proceed under the Transfer Deed. • Revenue stays in the scheme: All revenue
from distribution and drainage charges
will be accounted for, and spent, in
operating and maintaining the Irrigation
Scheme. There will be no dividends or
other distributions paid to Shareholders.
Customers will be able to track the
performance of FIN as a standalone entity.
Further detail on key elements of the Board’s
proposal for FIN are set out below.
Pricing. After the Transfer Date, the Board will
be responsible for setting prices (as opposed to
Government, based on recommendations from
the Queensland Competition Authority (QCA)).
The Board will be able to set prices annually
by giving customers at least six months’ notice
before the start of each financial year.
The Board has determined the distribution prices
to apply from the Transfer Date for the 2019/20
financial year. These are shown in Table 1.
8Fairbairn Irrigation Network Pty Ltd
Offer Document
Table 1: FIN prices 2019/20 and comparison with SunWater
Fixed (per ML) Variable (per ML) FIN Total SunWater Total4
(Part C) (Part D)
Medium Priority Allocation $25 $6.71 $31.71 $34.15
High Priority Allocation $36.27 $6.71 $42.98 $46.74
Fixed distribution prices for medium priority expenditure through the savings in operating
water will be 8% lower in 2019/20 under FIN expenses described above. (Note that if the Board
compared with SunWater. were to adopt the SunWater capital profile, this
would mean that the modelled prices under FIN
The lower prices under FIN reflect the Board’s
would increase by only 2.4% per annum over the
estimate of operating expenses, which is more
29-year period, rather than 3.7%.)
than $400,000 lower than SunWater’s estimate.
The Board’s intention is to operate under a lower One of the Board’s goals is to bring more water
cost base than currently exists under SunWater into the network, for example, where feasible by
and to continue to look for ways to reduce the making any surplus distribution loss allocation
cost of supplying water to customers. The Board available for productive use. (Since 2008,
is targeting long-term price increases of 3.7%5. between 11,900 ML and 23,500 ML of surplus
This compares with since 2007: distribution loss water has been available at the
end of each water year.) While not included in
• an average annual increase in SunWater’s
prices of 4.9%, and the current Asset Refurbishment and Renewal
Strategy, the Board also intends to look at options
• an average annual increase in SunWater’s for modernising the scheme, as well as funding
costs of 8.4%.6 options (including government grants) to support
modernisation, to ensure the scheme can provide
Drainage charges in 2019/20 will be the same
services that respond to irrigator demands.
as the 2018/2019 year but escalated by inflation.
The 2018/2019 rates are $28.10 per hectare for Meeting service standards, with a view to
irrigable land and $6.85 per hectare for non- improvement. The existing service levels, as
irrigable land. Drainage charges will increase in described in the current distribution rules under
line with inflation each financial year thereafter. SunWater, will be adopted by the Company. The
Board’s intention is to target an improvement
Maintaining, growing and modernising the
in service standards over time through its local
scheme for the benefit of customers. The Board
focus and capacity for independent decision-
intends to manage the network to enhance its
making. The Board intends to set service
capacity to support and promote agriculture
standards, based on customer needs, and then
in the region. The Board’s Asset Refurbishment
meet those standards. Concerns raised during the
and Renewal Strategy provides for $19.5 million
Local Management process have already resulted
of capital expenditure over 29 years, which is
in SunWater agreeing to spend additional funds
fully funded under the proposed price path. This
improving drainage through Winton Creek. The
compares with $7.9 million planned by SunWater
Board is committed to continuing to fund such
over the same period7. The Board’s intention
maintenance activities.
is to meet the cost of the additional capital
4 SunWater prices are currently only set until 30 June 2019. The prices shown here are based on the 2018/19 prices increased by 2.5%.
5 This target has been developed for the total price that is the fixed and variable and applies to both the Medium and High Allocations.
These are targets developed by the Board using information available to the Board. The actual prices will be set by the Company over
time and will be subject to the information available to the Company at that time. There are inherent risks associated with the operation
of the business, which may impact the price of water which are discussed in more detail at Section 7.
6 Based on SunWater’s total actual prices and total cost-reflective price for medium priority allocations. For further detail see section 6.4.
7 Both the FIN and SunWater capital expenditure values exclude costs associated with the Selma pump station. The SunWater values
also exclude any SunWater overheads. This is to allow for a like-for-like comparison, given that any overhead costs for FIN are already
captured in their operating costs.
9Fairbairn Irrigation Network Pty Ltd
Offer Document
Corporate structure. FIN will be a public company operations of bulk water supply. SunWater will
limited by shares.8 Holders of a water allocation also continue to own and operate the Selma
distributed under the distribution operations Pump Station (with relevant costs passed on
licence for the Irrigation Scheme will be eligible to to FIN) and the section of the LN1 drain within
become Shareholders in FIN. Shareholders will be the town of Emerald. In addition, SunWater will
eligible to stand for election as a Director of the be responsible for implementing the Channel
Company and attend meetings of the Company. Lining Project. The Company and SunWater are
A customer’s Share Entitlement will reflect the working towards agreements to govern these
nominal volume held under Allocation. There is arrangements prior to the Transfer Date. Term
a restriction in the Constitution to ensure that sheets have already been agreed for the Selma
a person together with their Associates cannot pump station and LN1 drain agreements, as have
hold more than 25% of the Shares in FIN9. The the principles for the Channel Lining Project.
Company will prepare annual financial reports
which will be publicly available.
2.2 Board
Continuity of operation. From the Transfer Date, The Constitution provides that the Board will
FIN will operate out of the existing SunWater consist of a minimum of five and a maximum of
office and depot at Esmond Street, Emerald seven Directors, with at least two Independent
and the current local SunWater employees will Directors and at least two Shareholder Directors.
transfer to FIN. The current SunWater employees At the first general meeting after the Transfer
between them have significant experience Day, and each year thereafter, at least two of the
working in the Irrigation Scheme and the Board Directors will retire. The Constitution provides
recognises the importance of retaining their local that Directors may not serve for longer than a
knowledge and skills. Staff will transfer with their three-year term, without re-election. Directors
existing entitlements and SunWater’s existing will be entitled to be paid for their role on the
enterprise agreement. Board. The Directors are currently paid based on
rates that have been determined by Government
Funding to support the transition. The $2.5
in accordance with the Government’s general
million separation payment from the Government
policy for remuneration for board members
will assist FIN with its initial set up costs and to
on an entity of this type and size. Those rates
replace systems and equipment that are currently
will initially, subject to review by the Board,
provided centrally by SunWater. Allowance
continue to apply after the transition to Local
for these costs has been factored into the
Management. The Board intends to adopt higher
Company’s business plan. There is also separate
rates for Independent Directors, as a means for
funding available from Government to meet
attracting suitably qualified individuals.
certain transitional costs incurred prior to the
Transfer Day. The Board will have the power to manage the
business of the Company except for those
A local approach to business. The Board’s
matters reserved for the Shareholders. The Board
intention is to operate with a preference towards
may delegate any of its powers to a committee
engaging local suppliers and contractors.
of the Board, a Director or an employee of the
Insurance to manage risks. The Board intends Company.
taking out insurance to mitigate key risks to the
Details of the current Directors are set out below.
business. In addition, the Board proposes to rely
on its operating budget and funding set aside for Chair Anne Marie O’Callaghan, Independent
capital costs to manage uninsurable risks such as director
floods and insurance deductibles. Anne Marie is an experienced director and
finance professional with over 20 years’
A new relationship with SunWater. FIN will
experience in executive leadership and on
have a close relationship with SunWater given
company boards throughout rural and regional
SunWater’s ongoing role in management and
Queensland. She is a former partner of a regional
chartered accounting practice with excellent
8 FIN is currently a proprietary limited company. FIN will be
converted to a public company prior to the Transfer Date.
business acumen and financial skills, including
extensive expertise in business advisory, financial
9 Article 8(c)(ii)B1) of the Constitution
10Fairbairn Irrigation Network Pty Ltd
Offer Document
modelling, taxation and audit. She is also Director Emma and her husband manage a family farming
and Chair of Finance on the board of Suncare enterprise on the river system at Emerald. During
Community Services Limited, a healthcare Stage 2 Emma was the project co-ordinator
company. A strong advocate for agribusiness for the Emerald interim board, gaining direct
and community development, Anne Marie experience of the Local Management governance
was a director of the Emerald Stage 2 Local and stakeholder engagement processes, in
Management Arrangements Interim Board. addition to an understanding of the entire
Emerald distribution scheme.
Ross Burnett, Shareholder director
For more than 14 years Ross has successfully David McDougall, Independent director
owned, operated and expanded his cropping David has over 35 years’ experience providing
business in the Emerald Irrigation Area. He strategic, financial and economic advice to
has been a pro-active advocate for Emerald Government and the private sector. He was
agribusiness on local and national industry previously a partner of KPMG leading the
organisations, serving in various executive roles on Infrastructure & Projects Group in Queensland
the Central Highland Cotton Growers & Irrigators and PNG, a Director of a major Australian
Association since 2006 and as President from investment bank in Australia and the USA and a
2011-2014. He has been the Emerald Member senior manager at Westpac specialising in Project
Representative on Cotton Australia from 2015- Finance. David has expertise in project evaluation
2018. He is currently the grower representative on and procurement, transaction structuring, project
Cotton Australia’s Sustainability Working Group and structured finance, mergers and acquisitions,
and is a director on the Queensland Farmers valuations, capital raising and strategic advice.
Federation board. His understanding of corporate He was previously a Director of Water Secure
governance and stakeholder engagement has and Seqwater and a number of public and private
been gained through involvement in operating his companies and is currently a Director of Mineral
own business and past board and executive roles. Resources Lihir Pty Ltd the manager of the
Ross has been involved in the LMA process since Australian assets of the Lihirian Equity Trust, a
its inception in 2012. PNG based investment fund.
Peter Galea, Shareholder director Hamish Millar, Shareholder director
Peter has practical and in-field agribusiness Hamish is the Managing Director of Cowal
experience spanning more than 35 years Agriculture, a large scale agribusiness based
including irrigation farms in Mackay, Burdekin in Emerald, producing predominately irrigated
and Emerald, in addition to dryland farming in the cotton and grain. He is a graduate of the
Clermont district. An active representative of the Memphis Exchange International Cotton School,
local community, Peter served as a director on and has experience in classing and marketing.
Stage 2 of the Local Management process. Hamish has extensive knowledge of production
and agribusiness within the cotton industry,
Emma McCullagh, Independent director including roles requiring strategic planning,
Emma has been actively involved in advocating business management and trading commodities.
for Emerald’s community and agribusiness for He has had extensive experience in several
many years. She is the former president of the cotton industry organisations, including the
Central Highlands Cotton Growers and Irrigators Chair of the Australian Cotton Growers Research
Association and has held various executive Association, Director of Cotton Australia, Director
positions in the organisation over the past seven of the Cotton Industry Council, Director of the
years. Emma is a representative on the people’s Cotton Research & Development Corporation,
panel of the Cotton Research and Development Chair of Cotton Industry Development in
Corporation. She is employed as a project Northern Australia and is a fellow of the
officer for Central Queensland Rural Health Australian Institute of Company Directors.
where her role includes conducting stakeholder Hamish is committed to the benefits of well-
engagement across the primary health sector. targeted research and development to underpin
She also supports the governance process and the overall performance of Australian agriculture.
procedures within the organisation.
11Fairbairn Irrigation Network Pty Ltd
Offer Document
2.3 Operations team
The day-to-day management of the Company will be overseen by a general manager, Jason Smith,
who will report directly to the Board. In addition to the general manager, the staff of the Company will
comprise an additional eight staff. All the positions are expected to be filled by staff who transfer from
SunWater. The proposed organisational structure is set out in the diagram below. In addition, the Board is
proposing to engage a bookkeeper.
Board of Directors
General Manager
Administration Water distribution Maintenance
1x administrator 1x operations supervisor 1x operations supervisor
4x operator maintainer 1x operator maintainer
12Fairbairn Irrigation Network Pty Ltd
Offer Document
3. REASONS TO ACCEPT OR NOT ACCEPT THE OFFER
3.1 Introduction
Given the significant resources committed by the Department to investigating and supporting a move
to Local Management since 2012, if the Local Management Proposal is rejected by Current Customers,
further resources to facilitate a move to Local Management may not be made available for some time, if
at all. As such, you should carefully consider the reasons for and against a transition to Local Management
before responding to this Offer Document.
If this Local Management Proposal does not proceed, the Department has indicated that the Irrigation
Scheme will remain within SunWater. Comparisons between FIN and SunWater are shown in section 6.
3.2 Reasons to support the Local Management Proposal
Reasons why you may wish to support the Local Management Proposal include:
P A more flexible and responsive business controlled by a customer-elected Board
Local Management would mean that the Irrigation Scheme will be owned and run by a company
with a Shareholder elected Board. A locally owned Irrigation Scheme will mean greater flexibility
and control in how the network is operated, including scope to vary service standards to meet
local conditions or distribution pricing structures to respond to local demands, or to modernise
the network.
P Transparency and local accountability, with all revenue staying in the scheme
With a more accessible management team and a Board that is directly accountable to
Shareholders, you are likely to benefit from greater transparency relating to the operation,
decision-making and finances of the Company and the Irrigation Scheme. The Company will
be a not-for-profit entity and all revenue earned by the Company will stay in the scheme and
all costs accounted for within a local standalone entity. There will be no dividends or other
distributions paid to Shareholders.
P Greater control over distribution prices
Under Local Management, the Board will be responsible for future pricing policy.10 This is
different to SunWater which is subject to pricing recommendations from the QCA and subject to
the risk that Government policy in relation to pricing may change. Based on the Board’s proposal,
the fixed prices paid by Customers in 2019/20 will be lower under Local Management than they
will be under SunWater. There is a detailed discussion of pricing issues in section 6.
P More say over maintenance and replacement/refurbishment of key assets
Local Management will give Shareholders more involvement in decisions on the refurbishment
or replacement of assets including critical infrastructure. Decisions will be driven by the needs of
the scheme and no longer influenced by SunWater’s corporate or state-wide policies. The Board
is proposing a capital expenditure program that is significantly more than SunWater’s, while still
targeting lower prices.
P Capacity to realise benefits from distribution loss allocations
If there is surplus water available under FIN’s distribution loss allocations in any given year, then
the Company may be able to trade water on the temporary market. Such revenue could be used
to improve service standards or to reduce water prices. This would also increase the amount of
water available for productive use within the Irrigation Scheme.
10 Bulk water prices will continue to be set in accordance with legislative and regulatory processes, which currently includes review by the
QCA with prices set by the Government based on QCA recommendations.
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P Scheme assets transferred at no cost, and money from the Government paid up front
As part of the transition to Local Management, the Company will receive, at no cost, assets with
a replacement value of $162 million. In addition, the Department has agreed to pay the Company
a Separation Payment of $2.5 million and SunWater will transfer certain cash assets including
approximately $81,000 for exit fees previously paid to SunWater and $276,000 in lieu of SunWater
upgrading certain bulk meters. The Board will be able to determine how those funds are best
spent. Government has advised that there will be no future subsidies paid to the Company.
P Other benefits:
Local economy: Local Management of the Irrigation Scheme may result in more of the work
related to the scheme being undertaken locally, rather than (as currently) in SunWater’s regional
centres or in the Brisbane head office. This may provide local economic benefits.
A voice for Customers: FIN will be a platform to raise issues with the Government on your behalf,
for example during bulk water pricing reviews or water planning processes, such as changes to
the water plan.
Potential to access alternative funding: FIN may be able to access a range of funding sources,
including Federal or State funds that are only available to private entities. The Company may be
more flexible and have greater incentives to apply for funding.
3.3 Reasons not to support the Local Management Proposal
Reasons not to support the Local Management Proposal:
O Maintain the status quo and avoid risks associated with Local Management
There is a risk that the operation of the Irrigation Scheme will not be a financially viable
business or that distribution prices will need to increase by more than anticipated to ensure
its viability. As a small, stand-alone, privately owned entity, FIN may have less capacity to
withstand unexpected events, including events that increase operating costs or capital
requirements or adversely affect customer viability. To mitigate these risks the Board intends
to take out appropriate insurance, and to build a cash reserve to meet future capital costs.
Risks associated with Local Management are discussed in detail in Sections 4 and 7.
O Lost potential to access Government subsidies and support
The Government has historically capped distribution price rises by subsidising the operation
of the Irrigation Scheme. Current Government policy is that Customers should ultimately
pay the full cost of operating and maintaining the network, but the Government has sought
to smooth the transition to Cost-reflective Pricing by limiting the rate at which prices have
increased. This support may continue if the network remains with SunWater (although there
are no guarantees regarding the Government’s future pricing policy). Under Government
ownership through SunWater, the Government has the financial ability, should it choose to do
so, to respond to unexpected events and support the Irrigation Scheme.
Under Local Management, the Company will need to rely upon insurance together with
existing operational budgets and cash reserves to respond to unexpected events. Where
additional funding is required, it will most likely need to be sourced from Customers through
an increase in distribution prices charged to them.
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4. KEY QUESTIONS AND ANSWERS
This Section 4 answers some questions Customers may have about the Local Management Proposal and
the Offer of Shares, and should be read together with the other parts of this Offer Document.
Question Answer Further information
General
What is the Local The Local Management Proposal is the proposal Sections 1.2 and 9.2
Management Proposal? to transfer the Emerald Irrigation Channel Scheme
from SunWater to FIN and pay FIN a Separation
Payment of $2.5 million as well as certain cash
assets including around $81,000 for exit fees
previously paid to SunWater and $276,000 in lieu
of SunWater upgrading certain bulk meters. The
transfer is targeted for 30 June 2019.
The Local Management Proposal is subject to a
number of pre-conditions.
What are the pre- Under the Transfer Deed, a number of conditions Section 1.2 and 9.2
conditions to the must be satisfied before the transfer may occur,
Proposal and what including:
happens if they are not
• 70% of Current Customers (by volume)
met? accepting this Offer; and
• FIN concluding agreements with SunWater
in relation the Selma Pump Station, the LN1
drain, the Channel Lining Project, supply of
distribution loss allocations and ongoing
services via a service level agreement.
If the pre-conditions are not met by the dates
required in the Transfer Deed:
• those dates may be extended by agreement
between the Company and the State (which
could result in the Transfer Date being
extended)
• the Transfer Deed may be terminated by
the Company or the State and the Local
Management Proposal will not proceed, or
• the Board and/or State may waive the relevant
condition allowing for the transfer to proceed
despite one or some of the conditions not
being met.
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Question Answer Further information
What is the Irrigation The Irrigation Scheme refers to the distribution and Section 9
Scheme and what assets drainage assets in the Emerald Irrigation Area. This
are being transferred? includes:
• the Selma and Weemah channel systems,
including associated channels, pipes, pumps,
meters, and the Parshall flumes
• the drainage network, including the part of the
LN1 drain within the channel system
• the distribution loss water allocations
• the house on Old Airport Drive, and
• the depot and office at Esmond Street and
plant and equipment related to the Irrigation
Scheme.
Does the Irrigation No, Fairbairn Dam and other bulk water assets will
Scheme include the remain with SunWater.
Fairbairn Dam?
What happens to Selma SunWater will continue to own and operate the Section 9.4
pump station? Selma pump station, which will be used to supply
water to the Irrigation Scheme. FIN will pay
SunWater for the cost of providing pumping services
from the pump station.
SunWater and FIN are negotiating an agreement
regarding pumping services from the pump station.
A term sheet has already been agreed.
What about the LN1 FIN has successfully negotiated the retention by Section 9.4
drain? SunWater of the part of the LN1 drain that traverses
the township of Emerald. The remainder of the LN1
will transfer to FIN.
FIN and SunWater are negotiating an agreement
under which the Company will be required to pay
SunWater for the discharge of water into LN1. A
term sheet has already been agreed.
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Question Answer Further information
What about the Channel SunWater has been granted $3.01 million from the Section 9.5
Lining Project? National Water Infrastructure Development Fund
towards lining channels within the Scheme to
reduce water loss. The funding is subject to final
agreements being concluded between the Federal
Government, the State and SunWater.
Under the Transfer Deed, SunWater and FIN must
enter into a Channel Lining Project Agreement prior
to the Transfer Date in line with principles set out in
the Transfer Deed. Under those principles:
• generally, SunWater will fund the capital costs
of the Channel Lining Project and carry out the
works after the Transfer Date,
• SunWater will be able to recover the capital
costs from the sale of any water saved by the
project,
• interest will be payable with respect to the
capital costs and that interest amount should
be recovered from the sale of any water saved
by the project,
• if there are surplus funds from the sale of water
saved by the project after SunWater capital
costs and interest have been paid, those funds
would go to FIN.
What about the bulk SunWater had planned to replace the Parshall
meters? Flumes with new bulk water meters in the current
network service plan. The Board determined that
the upgrade was not required immediately and the
funds allocated for the upgrade will instead be paid
to the Company on the Transfer Date. The Board
currently has no plans to install new bulk water
meters.
Operation of the Irrigation Scheme
Who will run the FIN, overseen by its Board, will operate the Irrigation Section 2.2 and
Irrigation Scheme under Scheme. FIN will be owned by those Eligible section 2.3
Local Management? Customers who agree to become Shareholders in
the Company. The Board will be responsible for the
strategic direction of the Company, while the staff,
led by the general manager, will be responsible for
day-to-day operations.
Neither the Government nor SunWater will be
involved in the management or decision-making of
the Company.
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Question Answer Further information
What happens to existing All local SunWater staff working in the Irrigation Sections 9.2 and 9.8
SunWater employees? Scheme in Emerald will transfer and the SunWater
enterprise agreement will continue to apply to their
employment with FIN. In addition, provision has
been made:
• to ensure that the ‘no forced redundancy
provisions’ in the SunWater enterprise
agreement will apply for 3 years from the
Transfer Date, and
• in the Transfer Deed to ensure that the
transferring employees shall receive the
benefit of any future beneficial terms in
the new enterprise agreement currently
being negotiated between SunWater and its
employees.
Will the operation and Initially, the Irrigation Scheme will be operated by Section 1.1 and
maintenance of the the same staff (except employed by FIN instead of section 5.9
Irrigation Scheme be SunWater) and using the same or similar operating
different under Local rules. Over time, the Board and management may
Management? change service standards in response to decisions
of the Board and feedback from Customers. The
Board has planned for significantly more capital
expenditure than is currently planned by SunWater.
Water prices under Local Management
Who will set the The FIN Board will set prices for water distribution Section 1.2 and 6.1
distribution water in the Irrigation Scheme and for related services.
prices under Local Distribution prices will be determined based on
Management? the Board’s assessment of the revenue required
to operate and maintain the scheme including
provision for capital expenditure into the future.
Under the new deemed Customer Contract, FIN
can adjust the distribution prices (fixed and variable)
annually on 1 July, provided it has given Customers
at least six months’ prior notice.
What about bulk water Bulk water charges will continue to be paid to Section 7.3(a)(ii)(C)
prices under Local SunWater. Bulk water prices will continue to be
Management? set in accordance with legislative and regulatory
processes, which currently includes reviews by the
QCA with prices set by the Government based on
the QCA recommendations.
Will the Government No. A Separation Payment will be paid on or before Section 9.2
subsidise water the Transfer Date, which is a one-off lump sum to
distribution prices under assist with the transition of the Irrigation Scheme to
Local Management in the Local Management. The Government has stated that
future? no subsidies will be paid by the Government to the
Company in the future.
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Question Answer Further information
Proposed governance arrangements
What type of entity is FIN will be a public company limited by shares.11 Section 9.7
FIN?
How do I have a say in To have a say in the decisions of the Company you Section 9.7
the decisions of FIN? need to be a Shareholder. If you are a Shareholder:
• you or your nominee could seek election as a
Shareholder Director;
• you will be able to attend general meetings of
the Company; and
• you will be entitled to vote on the election of
Directors and certain other decisions set out
in the Constitution or where required by the
Corporations Act.
The Company will prepare annual financial reports
which will be publicly available.
How many Directors will There must be a minimum of five Directors and a Section 9.7
there be? maximum of seven Directors, of which at least two
must be Independent Directors and two must be
Shareholder Directors.
How long are Directors Directors will, depending on the particular date of Section 9.7
appointed to the Board? the relevant meeting and the rotation process in the
Constitution, typically be appointed for a maximum
of three years (subject to re-election).
Other questions
What happens to my On the Transfer Day, if you are a registered holder Section 9.3
existing supply contracts of a Water Allocation holder, your existing contracts
with SunWater? with SunWater for bulk water and for the delivery of
water through the Irrigation Scheme will be replaced
by two new contracts:
• one with SunWater for your bulk water; and
• a new deemed Customer Contract with FIN for
the water distribution and drainage services.
The new deemed Customer Contract has been
based on the existing SunWater channel and
pipeline contract.
You are the ‘holder’ of the relevant Water Allocation
if you are registered as the person who holds the
Water Allocation or if a lease of the Water Allocation
is registered on the register, the lessee of the lease.
11 FIN is currently a proprietary limited company. FIN will be converted to a public company prior to the Transfer Date.
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Question Answer Further information
Does this mean I Yes, it is the Board’s intention that FIN will issue
will now receive two customers with an invoice for the distribution (fixed
separate invoices for my and variable) and drainage charges and SunWater
water charges? will continue to invoice customers for the bulk
water charges.
What if I am a SunWater If you have an existing channel and pipeline contract Section 9.6
customer who temporary with SunWater to temporary transfer water into
transfers water into the the Scheme and you are not a registered holder
scheme but don’t hold a of a Water Allocation in the Scheme, that existing
Water Allocation in the contract will be transferred to FIN on the Transfer
Scheme? Date. The terms of the existing contract will be
amended via the Transfer Notice to provide for
the change to Local Management, including, for
example to allow FIN to set the charges in the same
manner that it is able to set charges under the
deemed Customer Contract which applies to the
holders of water allocations in the Scheme.
People who only trade on a temporary basis and are
not a registered holder of a Water Allocation holder
will not be entitled to own Shares in FIN.
How do I have a say FIN intends to establish an irrigator advisory
if I don’t become a committee. The governance structure of this group
Shareholder or I am is yet to be determined but the Board’s intention
not eligible to be a is that this could include customers who are not
Shareholder? Shareholders.
What about drainage FIN will levy a drainage charge for each hectare in Section 9.6
under Local the Declared Drainage Area. The Declared Drainage
Management? Area will be the same area as under SunWater. The
drainage charge will be the current drainage charges
escalated by CPI for the start of the next financial
year.
The terms and conditions associated with drainage
are contained in either:
• the new deemed Customer Contract; or
• in the Company’s standalone Drainage
Contract for landowners in the Declared
Drainage Area who are not a party to the
deemed Customer Contract (because they are
not the registered holder of a Water Allocation
in the Scheme).12
12 The standalone drainage contract is available at www.fairbairnirrigation.com.au.
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Question Answer Further information
What happens if It will be the responsibility of FIN to ensure that the Section 7
following the transition, operation of the scheme remains viable over the
FIN does not have long term. FIN will need to ensure that its prices are
sufficient funds to set at a rate to cover its costs and build sufficient
operate the Irrigation funds to cover future capital expenses or deal with
Scheme? unforeseen circumstances.
The Government has stated that there will be no
recourse to the Government for funding once Local
Management is implemented.
Under Local The Constitution provides that a person together Section 9.7
Management, could the with their Associates cannot own more than 25% of
Irrigation Scheme be the Shares in FIN13.
taken over by another
A takeover therefore could only occur if
company?
Shareholders passed a special resolution majority
vote to amend the Constitution to remove this
25% cap. Any potential acquirer would also need
to comply with the takeover provisions of the
Corporations Act.
Accepting the Offer of Share Entitlement
If I accept the Offer, You will receive one Share for each megalitre of the Sections 8.1 and 8.6
how many Shares will I nominal volume of your Allocation. However, no
receive? one person together with their Associates may hold
more than 25% of Shares in the Company.
Does it cost anything to No. There is no amount payable for an application Section 8.1
become a Shareholder? for your Share Entitlement.
Will becoming a As a Shareholder in a public company limited by Section 7
Shareholder expose me shares, you are not exposed to the financial risks of
to financial risk? FIN.
In circumstances where revenues and reserves are
insufficient, FIN may consider any additional sources
of funds available to it. The most likely source of
funding would come from an increase in prices
charged to customers.
13 See Article 7.3 of the Constitution. Also note that “Associates” is widely defined in the Constitution and includes, for example children,
spouse, dependent or in the case of a company, another company in the group of companies.
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Question Answer Further information
Will becoming a An application for an Administrative Binding Section 9.1(a)
Shareholder expose me Advice has been made to the Australian Taxation
to any tax risk? Office with a response due in early 2019. In similar
circumstances, advices have been issued providing
that no material income tax liability would arise for
customers electing to become shareholder of the
similar entities. The Transfer Deed is conditional
upon the Company and the State being satisfied no
material tax liabilities will arise as a consequence of
the Local Management Proposal. You should obtain
your own tax advice in relation to your individual
circumstances.
If I support the Local Yes. By supporting the Local Management Proposal Sections 8 and
Management Proposal, and returning the Support and Acceptance Form, 9.7(g)
do I have to apply for you also agree to apply for Shares in the Company.
Shares?
If you support the proposal and return the Support
and Acceptance Form but do not wish to be a
Shareholder, then after the Transfer Date you
may apply to the Company to have your Shares
transferred, bought-back, cancelled or forfeited
under the Constitution.
What happens if I don’t You will still become a customer of FIN under the Section 8
become a Shareholder? new standard deemed Customer Contract.
If I don’t support the Yes, but only after the Transfer Day, at which time if Section 8
Local Management you meet the criteria to hold Shares in FIN you can
Proposal can I still apply to become a Shareholder.
become a Shareholder?
Who will know whether Your Support and Acceptance Form will be collected Section 8.9
or not I support the Local by an entity called LMA Support Services Pty Ltd.
Management Proposal? LMA Support Services will review all responses and
advise the Government and the Board whether the
Customer Support Threshold has been met.
If you support the proposal and thereby elect to
become a Shareholder of FIN, and if the Local
Management Proposal proceeds, then your details
will be provided to the Government and FIN for the
purpose of managing the Share Register.
During the Offer phase, Board members may
contact you to encourage you to return your
Support and Acceptance Form and to discuss the
Local Management Proposal with you.
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