sustainable businesses environments communities Southern Rural Water annual report

Transcription

1 sustainable businesses environments communities Southern Rural Water annual report

2 This Annual Report has been prepared for the financial year 1 July 2005 to 30 June All photos used in its production were taken by Southern Rural Water staff.

3 1 Contents Our year in summary 3 From the chairperson and chief executive 4 An overview of strategic priorities and performance 6 Highlights from 2005/ About us 15 What we do 16 Good governance 18 Priorities for 2005/ Case study Water trading 26 Economic sustainability 27 Service delivery 28 Financial performance 31 Business obligations 33 Asset management 35 Case study Water savings auction 36 Environmental sustainability 37 Improving river health 38 Resource management 40 Reducing irrigation impacts 43 Environment management 44 Case study Environmental flows for the Macalister River 46 Social sustainability 47 Partnerships with customers 48 Accountability 48 Community involvement 51 Our people 53 Case study Our transparent water allocation processes 56 General information 57 Bulk entitlements 58 Water transfer tables 62 Corporate reporting 69 Financial review 70 Financial report 71 Compliance certificate 103 Auditor general s certificate 104 Performance report 105 Compliance certificate 107 Auditor general s certificate 108 Disclosure index 109

4 2

5 3 Our year in summary

6 4 Our year in summary From the Chairperson and Chief Executive The continuation of the drought in the past twelve months intersected with an intensification of our efforts in three areas delivering water reform, preparing for the Essential Services Commission and readying the organisation to meet a challenging and exciting future. In 2004 we welcomed the Victorian Government s White Paper, Our Water Our Future. It articulates the next round of water reform, a desire to manage water in the context of total catchments and a commitment to ensuring that these water reforms are well rounded and enjoy broad support. We see its implementation as our principal policy driver over the next few years directing our efforts in water resource planning, sustainable irrigation, river health and water licensing. In 2005/2006 our involvement in key projects continued. We are a keen participant in the Central Region Sustainable Water Strategy, examining long term water options for a broad sweep of southern Victoria between the Moorabool Valley and the Gippsland Lakes, and the unbundling of water entitlements, a comprehensive package of measures to increase the output of irrigated agriculture with lesser impact on the environment. In the Macalister Irrigation District, we are implementing the Total Channel Control automation project across a major part of the Main Northern Channel system. This will enable us to recover water to improve the health of the Macalister River. In the Werribee basin, the Werribee Irrigation District Recycled Water Scheme will also recover water for the environment. We are confident that further opportunities exist in our irrigation districts to recover water currently lost to seepage and outfalls to the benefit of our rivers, customers, and local communities. With the Essential Services Commission s first price determination for rural water authorities taking effect on 1 July 2006, we spent most of 2005/2006 preparing for this. Early in the year we completed our draft Water Plan, the basis for the Commission s scrutiny of us. This draws heavily on our 2005/2006 Corporate Plan, with its strategic initiatives and price paths, but importantly it consolidates the role of our Customer Consultative Committees. These are pivotal to our operations, and we continue to work to ensure that our new regulatory framework recognises and strengthens their influence. The year closed, after much consultation with customers and stakeholders and discussion with the Commission, with confirmation of our proposed prices for 2006/2007.

7 5 With our Water Plan taking effect on 1 July 2006, our strategy and operations for 2005/2006 were guided by our 2005/2006 Corporate Plan. With such an active program of water reform, we have needed to build our capacity to be strategic to analyse, to plan and to deliver. Resourcing for this was a key plank of the Corporate Plan and is reflected in the restructuring of our management team to incorporate the positions of General Manager Water Supply, Commercial and Policy Analyst, Information Technology Manager, and the recruitment of Project Managers for our Total Channel Control and Unbundling projects. Throughout 2005/2006, the drought remained a continuing force, although it was little recognised in the wider community. In the Macalister, an early end to the spilling period at Lake Glenmaggie and very limited summer and autumn inflows marked the stress causing irrigators to stretch their water further than normal. In the Werribee basin, a storm in early 2005 allowed an opening allocation of 55%, but 2005/2006 inflows were so poor that the allocation increased by only 25% during the year. Furthermore, the year ended with the dams virtually empty, and 2006/2007 opening allocations of 5% in Werribee and 0% in Bacchus Marsh. Consequently, we spent much effort on communicating with our customers, and putting in place arrangements to ease their difficulties including allowing individual carryover of unused 2005/2006 water, maximising the availability of recycled water in Werribee, amending prices for 2006/2007, and implementing an alternative source of supply into Bacchus Marsh for early 2006/2007. This is truly an exciting time to be involved in water management. Whilst the issues can be challenging, and at times confronting, we all have an opportunity to make a difference and to build the sustainability of the businesses, environments and communities that water supports. In these circumstances engagement with stakeholders and customers is doubly important. Since its formation, we have used a range of mechanisms to build relationships with our partners, including our Customer Consultative Committees. We hold our Board meetings at strategic venues around southern Victoria as this provides an opportunity to meet with representatives from regional and local groups to discuss water resource management issues and concerns. In 2005/2006 we have continued to develop our Warrnambool office, which has strengthened our connection with south-western Victoria, as our third hub, complementing our Maffra and Werribee offices. The challenge we share with all our catchment partners and stakeholders is to deepen the water literacy of the communities in which we live and work these and other strategies will continue to be important tools for this work. In closing, we would like to thank our fellow Board members and staff at Southern Rural Water for their continued support in achieving the objectives of our Corporate Plan, for demonstrating their commitment to our corporate values at all times and for staying close to all our customers and stakeholders. Jan Greig Chairperson Dr Martin Kent Chief Executive

8 6 Our year in summary An overview of strategic priorities and performance Each year, as part of our planning process, we establish our business priorities according to a Triple Bottom Line reporting framework. We also identify key activities for achieving these objectives and performance targets based on timeframes and budgets. Our business reports to the Board, prepared monthly, document our progress against these priorities. Economic Priorities Action Taken for 2005/2006 Status Service Delivery Unbundling of water entitlements Incorporate SRW data into Statewide Water Register Discussions with irrigators & stakeholders & develop local proposals Awaiting water register Completed Facilitating water trading Engage in Water Market Irrigation Reforms Committee Completed Measuring & improving service Managing information strategically Support Watermove Enhance measurement / TCC project Improve definition of service standards Implement Information Systems Plan Introduce Electronic Data Management System Completed Scope of project extended Satisfactory progress but still to be completed Satisfactory progress but still to be completed Completed Metering Monitor emerging requirements & participate in Water Industry Group Completed Licensing presence Enhance role of Warrnambool office Completed Improving processes Develop brochures for key requirements Completed Financial Performance Sustainable prices Deliver price paths in Corporate Plan Price path amended for WID Price reform Introduce charge for new licences Proposal not approved Removal of 4% Rate of Return Backlog metering of licences Pricing for Urban Water Authorities Develop indicative post 2009 pricing for WID Recycled Water Scheme Registration of catchment dams Funding for Dam Remedial Works, recreational facilities & unallocated water in Corporate Plan Delay in start-up Completed Satisfactory progress but still to be completed Completed Completed

9 7 Economic Priorities Action Taken for 2005/2006 Status Business Obligations Statement of Obligations Annual report on Board performance Completed Annual report on dam safety Implement backlog metering of licences program Completed Delay with start-up Essential Services Commission Prepare plans for rivers used as channels Document other listed actions Prepare draft Water Plan Consult with ESC & stakeholders Update existing Customer Charter To be re-scheduled Satisfactory progress but still to be completed Completed Completed Safe Drinking Water Act Develop Risk Management Plans with Urban Water Authorities Completed Satisfactory progress but still to be completed Prepare annual report for DHS Completed Asset Management Critical Assets Program Deliver program Completed Safeguarding infrastructure Environmental Priorities River Health Environmental flows WID Recycled Water Scheme Complete dam design reviews & implement outcomes Implement Security Vulnerability Risk Assessment Framework for Water Utilities Submit Dam Safety annual report to DSE Action Taken Support reviews of environmental flow specifications for Latrobe, Lerderderg and Maribyrnong Rivers Support implementation of stressed rivers studies & outcomes for the Thomson / Macalister Rivers Support implementation of the Scheme Develop indicative post-2009 prices Participate in Working Group Completed Completed Completed Status Completed Completed Completed Satisfactory progress but still to be completed Completed Water savings in the MID Implement Total Channel Control project Completed Thermal impact of reservoir releases Implement package of measures Establish & implement monitoring program Completed Completed

10 8 Our year in summary An overview of strategic priorities and performance (continued) Environmental Priorities Resource Management MID 2030 Werribee pipelining Groundwater management Water resource management Reducing Impacts of Irrigation Unbundling water entitlements MID Nutrient Reduction Plan Action Taken Develop MID 2030 Plan Prepare business case & gain support from Government & stakeholders for project Further develop procedures for local management Engage in Water Market Irrigation Reforms Committee Contribute to response to White Paper Contribute to response to Central Region Sustainable Water Strategy Prepare for the introduction of water use licences Implement actions required under MID NRP drain monitoring program Continue drain management plan Advocate framework for development of successor to NRP Status Satisfactory progress but still to be completed Satisfactory progress but still to be completed Satisfactory progress but still to be completed Completed Completed Completed Satisfactory progress but still to be completed Completed Completed Completed WID drain management Establish monitoring & implement drain monitoring program actions Completed Wellington Salinity Plan Implement WSP actions Completed Environmental Management Environmental Management System Consolidate EMS in all businesses Implement external audit Satisfactory progress but still to be completed Completed Land Management Implement erosion control works program at all storages Completed Implement works program to manage Serrated Tussock at western storages Completed Implement Weed Management Plan for MID Integrate Ecological Vegetation Classes into significant vegetation management plan Review leases for conformance with policies & requirements Completed Satisfactory progress but still to be completed Satisfactory progress but still to be completed Bio-security Draft bio-security strategy for MID To be re-scheduled

11 9 Social Priorities Action Taken Status Partnerships with customers Strengthen customer involvement Engagement in Water Management Planning Accountability Enhance Corporate Governance Expand briefings with Customer Committees on business agenda & emerging issues Customer Committee briefings on White Paper Conduct Corporate Family Workshop Review Licensing Business Forum arrangements Seek diversity in committee membership Review arrangements for customers & communities once Plans are complete Conduct annual Board review & implement outcomes Completed Completed Re-scheduled for 2006/2007 Completed Completed Completed Completed Complete rolling review of due diligence activities & expectations Sharpen business priorities as detailed in Corporate / Water Plans Completed Triple Bottom Line Enhance TBL reporting in Corporate / Water Plans Completed Satisfactory progress but still to be completed Transparent Water Allocation Community Involvement Further develop treatment of TBL in Annual Report Enhance public involvement in decision-making processes Completed Completed Regional Partnerships Engage in regional forums such as GINRF Completed Stakeholder & Community Engagement Convene Southern Catchments Forum Conduct survey & implement outcomes Replaced by Central Region Sustainable Water Strategy Rescheduled for 2006/2007 Communication Plan Develop annual plan & implement actions Completed Engaging Southern Victoria Our People Developing strategic capability Support projects identified in Community & Environment Programs Review management arrangements Continue management forums Completed Completed Business development Establish Business Development Fund Completed Continuing improvement Establish Interest Review process Improve individual & team based performance measures Satisfactory progress but still to be completed Satisfactory progress but still to be completed Satisfactory progress but still to be completed

12 10 Our year in summary Highlights from 2005/2006 Continuing drought Although the 2005/2006 irrigation season opened with reasonable seasonal allocations, the continuing drought once again produced limited further inflows to our storages. By the end of the season we had a range of drought management measures in place to assist customers and protect the environment. In our Eastern Irrigation Business, the impact of the drought was signalled by Lake Glenmaggie stopping spilling in mid- October, a month or so earlier than normal. This meant that irrigators faced a longer than usual period to stretch their water rights, with little assistance from the lower summer inflows. In these conditions, water trading assumed greater importance, allowing some movement of the available water into higher-priority uses. We welcomed the involvement of the Murray-Goulburn Cooperative Ltd in water trading as an encourager and facilitator of trading. With some fine-tuning of our seasonal allocation towards the end of the season little water remained unused at its close, whilst irrigators who had spread their water use throughout the season found their remaining water still reserved for their use. The drought conditions were highlighted late in the season by a major blue green algae outbreak in the channel system. This most uncommon event led to a suspension of deliveries in the Nambrok Denison area and precautions elsewhere in order to protect human and animal health and the environment. In our Western Irrigation Business, the season opened with an allocation of 55% of water rights, but the very low inflows meant that it increased by only a further 25% during the season the lowest rise ever recorded. This created two challenges managing water supplies during 2005/2006, and preparing for season 2006/2007. Providing information on seasonal conditions, management strategies to minimise losses, and the future outlook became the key, with the Werribee Bacchus Marsh Customer Consultative Committee, newsletters, briefings and meetings all being employed. In Werribee, with river water in limited supply, we worked to maximise the opportunity for access to recycled water. Because the season in Western Irrigation opens on 1 July, in normal conditions it relies on carrying over water from one season to the next. With the continuing drought, we were concerned that no water would be available for the start of season 2006/2007, and therefore commenced preparations during 2005/2006. We provided information on the outlook to assist irrigators in planning their production and water management, and in early 2006 resolved to allow individual irrigators to carry over some of their unused 2005/2006 water into season 2006/2007. Irrigator support for this initiative grew as the dry conditions persisted, and we believe that there is a case for making this a permanent part of the seasonal allocation. Late in 2005/2006 we announced an opening allocation of 5% in Werribee and 0% in Bacchus Marsh. Whilst our practice is to have a common allocation across the basin, the drought had left less water in the storages supplying Bacchus Marsh (Pykes Creek Reservoir) than the principal ones for Werribee (Melton and Merrimu Reservoirs). Thus to maximise water availability for irrigators, we adopted a split allocation, but hope to see the return of a common allocation as inflows occur. In Werribee, recycled water is available to augment river water, particularly under such severe conditions because the shandy rules for the Recycled Water Scheme mean that mixing with river water is not required at very low river water allocations. However, Bacchus Marsh lacks such alternatives, and therefore we initiated work with customers and stakeholders to identify other opportunities. As 2005/2006 closed we started work on a connection between the irrigation system and Western Water s urban supply pipeline from Merrimu Reservoir to Bacchus Marsh township, in order to create a limited supply from Merrimu Reservoir to irrigators. Whilst only available when urban demand is low, this will provide some relief from the completion of construction in late July until September.

13 11 With 2006/2007 possibly the third season in four years with a sub-100% seasonal allocation, we also reviewed its proposed pricing for 2006/2007 and 2007/2008. We dropped the use of sales for pricing to avoid accumulating further deficits, but moderated the impact on prices by deferring any repayment of existing deficits in these years. We believe that this has stabilised the financial arrangements for our Western Irrigation Business whilst recognising the difficult circumstances faced by irrigators. In Werribee, many irrigators have licences to extract groundwater from the shallow Deutgam aquifer. We have been monitoring this closely, and managing it accordingly, for several years since there is a risk of seawater intrusion if the watertable declines too far. In 2003, a ban on extraction was necessary, but by 2005/2006 levels had recovered sufficiently to allow licence volumes to be extracted. However, with the drought continuing, our modelling indicated more limited groundwater availability beyond 2005/2006. We commenced 2006/2007 with a limit of 25% of licensed volume. Elsewhere across our region, stream rosters and bans were needed to meet environmental objectives, and to comply with environmental flows specified in management rules, streamflow management plans, and bulk entitlements. Releases from Rosslynne Reservoir again required much attention. For some time we and our catchment partners have supported a temporary amendment to our local bulk entitlement to reduce the required releases during drought. In 2005/2006 the temporary amendment concluded, and we returned to the required releases which meant substantial releases when considered against inflows and the low volume in store. Consequently, further discussions with our catchment partners has led to agreement on a further amendment to our bulk entitlement to better address both water supply and environmental needs under drought conditions, and we look forward to its adoption during 2006/2007. Sustainable Water Strategy for the Central Region In the White Paper the Government flagged the development of five Sustainable Water Strategies covering Victoria Central, Northern, Gippsland, South-West, Wimmera-Glenelg. Subsequently, provisions were added to the Water Act to allow for Sustainable Water Strategies and work commenced on the Central Region SWS in The process for the Central Region SWS has brought together water authorities, CMAs, agencies, NGOs and the Department of Sustainability and Environment. This broad engagement has been widely recognised as very positive and the outcomes integrated and unimpeded by organisational boundaries. The draft Strategy for the Central Region was released for consultation in early 2006, with the final Strategy and Implementation Plan to be released in late Implementation actions are anticipated to follow almost immediately. Based on the draft Strategy we foresee a range of implementation actions in which we will be involved for example, the allocation and licensing of stormwater, recycled water and irrigation drainage, management of small catchment dams in our peri-urban catchments, expanded water accounting and reporting, river health initiatives for most catchments, water savings projects in our irrigation districts, stronger management of groundwater, expanded water trading (including between rural and urban users), more intensive monitoring of river health and improvements produced by the Environmental Water Reserve, exploration licences for urban authorities to assess untapped aquifers etc.

14 12 Our year in summary At the same time, we have welcomed the Strategy not just for its actions to improve the sustainability of water use in the Central Region but also for its contribution to building water literacy across this region, and beyond. Water literacy an understanding of the nature of our water resources, the threats they face, the needs of users and the environment, the way they are managed, and our future directions in their management is critical for creating an understanding of the need for action and building community support for the way ahead. We believe that water literacy remains one of the greatest needs for sustainable water management revealed through our continuing engagement with the communities in our region and through the public consultation sessions for the Strategy. We strongly support the development of regional Sustainable Water Strategies as the Government s planning framework for deciding on large-scale, long-term changes in water use and look forward to the development of the other Strategies covering our region Gippsland and the South-West. Unbundling of water entitlements Unbundling of existing water entitlements into water shares, water allocations, delivery shares, and water use licences is a key initiative of the White Paper. Unbundling is designed to increase the productivity of irrigation whilst minimising its impacts on the environment by facilitating water trading and introducing water use licences to set standards for irrigation practice. We continued to work with our partners in the MID Water Reform Communication Group, which ran several workshops and other activities. With consultation arrangements for unbundling to be regionalised from 2006/2007, this Group facilitated the development of arrangements for the Macalister Consultative Group on Irrigation Reforms. This proposal was approved by us in June and is expected to be in place in early 2006/2007. Later in 2006/2007 we anticipate a similar group being formed for our Western Irrigation customers. We also recognise that tariff reform, whilst not strictly a part of unbundling, is likely to be triggered by this process and that a complete revamp of tariffs in our irrigation businesses is possible prior to the 2007/2008 or 2008/2009 irrigation seasons. This work is likely to separate the current bundled pricing (for water right or licence) into components, for example water share (to recover harvesting costs), delivery share (to recover the costs of maintaining and renewing channels and pipelines), and water use (to recover the direct operating costs of the system). Effective implementation of unbundling in our region will need strong project management over the next two years. As 2005/2006 closed, we were finalising these arrangements, which we anticipate will be led by a Project Manager dedicated to this task. Unbundling is to commence on 1 July 2007 in the northern Victorian regulated systems and 1 July 2008 in southern Victorian regulated systems including our three irrigation districts and the associated rivers. For the Macalister, particularly, unbundling raises a number of technical questions for its hydrology and other characteristics are quite unlike most other Victorian systems (Lake Glenmaggie is an annual storage, rather than the more common multi-year). For this reason substantial analysis is needed in the lead-up to commencement; but the emphasis in 2005/2006 remained in two areas participation in the statewide working groups for the various components and coordination of unbundling, and initial engagement with customers and stakeholders in our irrigation districts.

15 13 Total Channel Control In February 2004 we secured the first funding allocation from the Victorian Water Trust to invest in improving the efficiency of irrigation systems in Victoria. The key project for the Macalister Irrigation District involved automation, using the Total Channel Control technology, of a major part of the Main Northern channel. This is the least efficient part of our irrigation network. The two-year project involved two distinct stages the first stage was an accurate water balance study to provide a sound benchmark for the project and to target the highest loss areas; the second stage was the targeted implementation of Total Channel Control to provide the greatest improvement in delivery system efficiency. In 2005/2006 we completed customer connections in these areas. This was a challenging task for us and customers as we adapted to this most fundamental change to the irrigation system since its construction many decades ago. The automation will greatly improve customers service and provides an opportunity to significantly improve on-farm irrigation efficiencies, through the availability of higher flow rates and reduced ordering times. The Trust s commitment of some $8 million is an important step in the recovery of 25,000ML of water for the Thomson and Macalister Rivers announced in the White Paper. We are now building on this work through additional funding from the National Water Initiative establishing the greatest investment in the MID since the 1950s. Our MID2030 project, which is considering needs and opportunities in the MID over the next 25 years, will provide a sound long-term plan to ensure we maximise this opportunity whilst maintaining as much flexibility to consider and optimise future reconfiguration options. Our first Water Plan Victorian water authorities entered the jurisdiction of the Essential Services Commission on 1 January 2004, with its first price determination for us and other rural water authorities taking effect from 1 July The process for the price determination is specified in a Water Industry Regulatory Order and our Statement of Obligations. It required us to prepare a draft Water Plan outlining our proposed objectives, plans and prices for 2006/2007 and 2007/2008; consult with customers, stakeholders and regulators on the draft Plan; and then submit a final Water Plan to the Essential Services Commission. The Commission would then issue a draft determination for us and for public comment before handing down its final decision. Our preparations for this change started in 2004 when we discussed the format of Water Plans for rural water authorities with other authorities, the Department of Sustainability and Environment and the Essential Services Commission and then prepared a draft Water Plan. This work formed a useful base for the formal process, which we commenced in mid In preparing our Water Plan for submission in September, we emphasised mechanisms for the continued involvement and influence of our Customer Consultative Committees, and appropriate arrangements for our Licensing and Headworks Business. Our desire was to use the Commission s process to enhance rather than diminish the involvement and influence of these Committees.

16 14 Our year in summary In April the draft determination was released and we were pleased that it was largely consistent with our Water Plan. However, we responded on a handful of issues that remained of concern to us, including: the very high minimum threshold for adjustments for the impact of changes in legislative obligations the application of a 1% productivity savings without acknowledgement of the additional functions we had absorbed changing to zero sales pricing in Western Irrigation as the drought continued and deepened varying the sales budget for the Macalister that had been agreed with the Customer Consultative Committee after much analysis and discussion, and adjustments needed to reflect the actual progress on the refurbishment of Yallourn Weir. As required, we also submitted our schedule of proposed tariffs for 2006/2007 based largely on those already included in our Water Plan. We were pleased that the final decision, issued in June, affirmed both our schedule of proposed tariffs for 2006/2007 and many of our comments. Concurrently with the finalisation of this process we commenced work on our second Water Plan, which is to be submitted in mid At this stage our work is focussed on the over-arching strategies for the anticipated period of the Plan, mid-2008 to mid-2013.

17 15 About us

18 16 About us What we do Southern Rural Water is the trading name of the Gippsland and Southern Rural Water Authority. We are a statutory rural water authority, established under the provisions of the Water Act We report to the Minister for Water, the Hon John Thwaites MP. Our main business centres are located in Maffra, Werribee and Warrnambool and we employ more than 140 people, including a network of field staff. We are responsible for: managing the delivery of water to the Werribee, Bacchus Marsh and Macalister Irrigation Districts and maintaining the channels, pipelines and drains for these Districts implementing the Government s regulations and policy for groundwater and surface water resource management, in accordance with delegated powers from the Water Act This means we assess licence applications, issue licences to construct new farm dams and bores (if approved) and manage new and existing groundwater and surface water licences harvesting, storing and managing water in Glenmaggie, Narracan, Blue Rock, Melton, Merrimu, Pykes Creek and Rosslynne reservoirs. We also manage the recreational facilities at most of these storages. The map above shows where our offices are located. These are important responsibilities, demanding sustainable management of water resources and nurturing the businesses, communities and environments that support and depend on them. A copy of the Water Act 1989 is available via a link from our website to the Victorian Legislation and Parliamentary documents website Our region

19 17 FlumeGates TM are being installed across the Macalister Irrigation District, Water wheel in Werribee Irrigation District, Tower at Blue Rock Reservoir, Tower at Pykes Creek Reservoir, Drilling a new bore for groundwater. Our Eastern Irrigation Business Our Eastern Irrigation Business operates and manages water supplies to almost 1,000 customers in the Macalister Irrigation District (MID) and surrounding area. It also schedules water deliveries for licensed diverters on the Macalister and Thomson Rivers and Rainbow Creek. Each year, almost 150,000 ML of water is delivered through an open channel distribution network and a further 30,000 ML of licensed volume is taken from the regulated rivers. This water is primarily used for pasture, crop irrigation and for stock and domestic purposes. Our Eastern Irrigation Business has an annual turnover of about $7 million. Our Western Irrigation Business The Western Irrigation Business operates and manages water supplies to almost 400 customers in the Werribee Irrigation District (WID) and the Bacchus Marsh Irrigation District (BMID). It also schedules water deliveries for licensed diverters on the Werribee River. This business delivers some 4,000 ML each year into the Bacchus Marsh Irrigation District and 10,300 ML into the Werribee Irrigation District for irrigation, stock and domestic purposes. River diverters hold a further 1,100 ML of licensed volume. During 2005/2006 this Business also delivered 792 ML of Class A recycled water from the Western Treatment Plant into the Werribee Irrigation District. Our Western Irrigation Business has an annual turnover of about $2.6 million. Our Licensing Business Our Licensing Business is responsible for managing groundwater and surface water licences, in accordance with the Water Act 1989, under delegation from the Minister for Water. This Business: monitors and regulates the use of water from aquifers or rivers, streams and waterways across southern Victoria, including the use of water from farm dams licences the construction and use of water from new bores and dams manages permanent and temporary water transfers. Our Licensing Field Team provides advice to customers on licensing issues and enforces compliance with licensed volume and other water use conditions to protect the environment and other water users. Our field staff work within their local communities to ensure that meters are installed, where necessary. This business also: supports the development and implementation of Groundwater and Streamflow Management Plans. These plans document existing licensed entitlements and identify proposed activities for managing restrictions, rosters, environmental flows and diversion limits provides administrative support to the Victorian Drillers Licensing Board. The Licensing Business turnover is around $5.5 million. Our Headworks Business The Headworks Business harvests, stores and manages water for irrigation customers, urban water authorities and the Latrobe Valley power generators in accordance with the provisions of Bulk Entitlement Orders. Bulk Entitlement holders take around 300,000 ML of water during an average year. Our storages are located at: Glenmaggie, Narracan and Blue Rock in the east Melton, Merrimu, Pykes Creek and Rosslynne in the west. We also manage the recreational facilities at most of these storages. This Business has an annual turnover of about $2.6 million.

20 18 About us Jan Greig Good governance Southern Rural Water is a statutory authority. It was established under the provisions of the Water Act 1989 and reports to the Minister for Water. As a State Government entity, we are expected to comply with this enabling legislation, Government policies and initiatives. Our Board is responsible for ensuring these responsibilities are embedded into our strategic framework, business objectives, targets and operational controls and that our people implement and manage these business requirements. In 2005/2006, the Board completed its inaugural report to the Minister on the performance of the Board. Our Board The Board has eight members seven non-executive members appointed by the Minister for Water for a three year term (1 July 2004 to 30 June 2007) and the Chief Executive. Ms Jan Greig, Chairperson Ms Greig is a Director of Murroon Associates, a consultancy firm providing services in water and forestry issues including natural resource management and economics. Ms Greig is also a partner in a beef and winegrape property. She is also a former Manager, Water Markets (DNRE) and former Chief Economist, Rural Water Commission. Mrs Jennifer McMillan, Deputy Mrs McMillan is a dairy farmer from Denison. She is a member of the Board of Australian Dairyfarmers Ltd, a Central Councillor of UDV; a member of the Board of Primary Skills Victoria; a Fellow of the Australian Institute of Company Directors and a recipient of the year 2000 Jack Green Churchill Fellowship. Mr Terry Burgi Mr Burgi is a partner in a fruit growing and beef cattle enterprise in the Yarra Valley. Mr Burgi has over 20 years experience in representing farmers in industry organisations at regional, state and federal levels. He has a Bachelor of Engineering (Agricultural) with eight years experience in the water industry. Mr Alan Hawkes Mr Hawkes is a consultant, specialising in governance and risk management in the public sector. He has had several years experience in business enterprise governance in the Victorian Department of Treasury and Finance, with special emphasis on the State s water sector. Prior to this, Alan was a senior executive in National Australia Bank. He was involved in strategic planning and risk management for the Bank in Australia and the United Kingdom. Dr Martin Kent Dr Kent is our Chief Executive, a position he has held since Trained in Civil Engineering and operational research, Dr Kent has extensive experience in policy development, corporate planning and management with state and local government authorities. Prof John Lovering Professor Lovering was Vice Chancellor and Professor of Geology at Flinders University of South Australia. He has been Chairman of the Victorian Government s Environment Conservation Council and President of the Murray-Darling Basin Commission. He is currently Chairman of the Gippsland Research Co-ordination Group. In 1999, the University of Melbourne appointed him Chair of the Academic Advisory Board of the Office of Environmental Programs. Mr Michael Martin Mr Martin is a Director of a financial services company with extensive business management experience, who has been involved in all aspects of the Irrigation Industry for 30 years. During this time he has had substantial experience both within the water industry and with primary producers. Mr John Pye Mr Pye is a dairy farmer with various certificates in farming and farm management. He is a former Central Councillor with the UDV and former Chair of Leadership, Education and Training Committee. He is currently a General Councillor of the VFF and a member of the VFF Land Management Committee. Mr Pye is also the statewide Chair of Target 10.

21 19 Jennifer McMillan Terry Burgi Alan Hawkes Martin Kent John Lovering Michael Martin John Pye Corporate Governance Principles The Board has established general principles under which it and management operate to ensure that the Authority fulfils its responsibilities in the best interest of Government, customers and the community. Role of the Board To be accountable to the Minister for the achievement of the results and targets required by Government To ensure that customers and other stakeholders are adequately consulted by management To plan the future of the Authority To set, review and amend policies to direct the Authority To appoint the Chief Executive To assess the performance of the Authority and the Chief Executive To avoid unacceptable actions and situations. Management of the Authority The Chief Executive is accountable to the Board, not the individual members and is responsible to the Board for the operation of the Authority The Chief Executive: - manages the Authority - is the connection between the Board and the Authority - makes recommendations to the Board concerning the Authority - implements the policies of the Board The Board instructs the Chief Executive through written policies Membership of the Board Members are appointed by the Minister in accordance with the Water Act 1989 The Chairperson is appointed by the Minister The Deputy Chairperson is appointed by the Board Board remuneration is set by the Minister. Board Committees Board Committees assist the Board in the effective execution of its governance responsibilities Committees have formal Terms of Reference, report to the Board and liaise closely with the Chief Executive and senior management to ensure that their activities support and enhance the governance role of the Board. Status and independence Members must disclose any conflict of pecuniary or other interest Members are appointed to bring specific skills and experience to the Board, not to represent any constituency Members may access independent professional advice subject to approval by the Chairperson. Risk management Risk Management is recognised as a key Board responsibility Formal risk assessment processes and risk avoidance and management plans are in place Regular and comprehensive reviews are undertaken to ensure that the business risks of the Authority are being properly and effectively managed Contingency and emergency management plans are in place for significant risks. The Board monitors and assesses the performance of the Authority and the Chief Executive.

22 20 About us Due diligence Regular management reports to the Board Regular formal reviews of performance undertaken by senior management and Board Committees Major reviews, audits and assessments undertaken as required according to identified priorities or needs Clear review and audit responsibilities established for Board Committees Direct Committee access to internal and external auditors. Assessment and development A regular, annual, formal program of Board self assessment A planned annual program of formal education or training in topics identified during the assessment process A planned and ongoing program of visits to key locations in the Authority s region Regular formal and informal meetings with customer, community and government groups and individuals. Ethics The Board is committed to compliance with the spirit and the letter of legislation The safety and health of Authority staff is a key focus All Board and Authority responsibilities and functions are undertaken in accordance with the following governance values: - Authority rather than individual priorities Board Committees The Audit and Risk Policy Committee oversees the internal and external audit program as well as our risk management program. Committee members are Mr Alan Hawkes (Chairperson), Mr Terry Burgi, Mr Michael Martin, Mrs Jennifer McMillan and Mr Trevor Tappenden (external representative). All are independent members. The Technical and Environmental Committee provides advice to the Board about technical and environmental activities across all four businesses. It develops policies and helps to identify and prioritise the annual works programs, investment in major projects, risk management strategies, asset integrity and service standards. Committee members are Professor John Lovering (Chairperson), Mr Terry Burgi, Mr Michael Martin, Mrs Jennifer McMillan and Mr John Pye. The Remuneration and Corporate Governance Policy Committee oversees the implementation of the remuneration policy, monitors executive and senior management remuneration and advises the Board on corporate governance matters. Committee members are Ms Jan Greig (Chairperson), Mr Alan Hawkes and Mrs Jennifer McMillan. The Community and Customer Engagement Committee is responsible for ensuring appropriate policies, systems, monitoring and reporting processes are implemented so that our desired engagement with the community and partnerships with customers and stakeholders can be delivered. Committee members are Mr John Pye (Chairperson), Ms Jan Greig, Mr Alan Hawkes, Dr Martin Kent and Mrs Jennifer McMillan. - outward vision rather than internal preoccupation - encouragement of diversity in viewpoints - strategic leadership more than administrative detail - clear distinction of Board and Chief Executive roles - collective rather than individual decisions - future rather than past or present - proactivity rather than reactivity.

23 21 The following table details Committee members and the number of meetings Board members attended. Board Meetings* Audit & Risk Policy Committee Technical & Environmental Committee Remuneration & Corporate Governance Policy Committee Community & Customer Engagement Committee J Greig 13 of 13 2 of 2 6 of 6 J McMillan 13 of 13 5 of 7 5 of 6 2 of 2 6 of 6 T Burgi 12 of 13 7 of 7 6 of 6 A Hawkes 12 of 13 6 of 7 2 of 2 6 of 6 M Kent 13 of 13 5 of 6 J Lovering 11 of 13 6 of 6 M Martin 13 of 13 7 of 7 6 of 6 J Pye 13 of 13 6 of 6 6 of 6 Mr T Tappenden attended all nine Audit & Risk Policy Committee meetings * During the year there were eleven ordinary Board meetings and two special meetings. Our structure and management team Over the past twelve months, the structure of our organisation has changed to better reflect our obligations to Government, stakeholders, customers and communities and our business requirements. We now have two General Managers and core business teams. Our Water Supply business is responsible for storing, managing and delivering water to landowners for commercial, irrigation or domestic and stock use. The key objectives of this business include the sustainable management of water, meeting environmental flow obligations, managing supply and customer demand, and maintaining the performance and safety of our reservoirs and delivery network. Our Licensing Business is responsible for managing groundwater and surface water licences, in accordance with the Water Act The focus of this business is on managing water resources according to Government policy and ensuring the landowners comply with licence conditions at all times.

24 22 About us In May 2006, we established a Strategic Planning Team. This team is responsible for: shaping the development of our Water Plans, identifying priorities and considering the resources required for implementation implementing strategic plans and actions, as detailed in the Water Plan monitoring plans to ensure commitments are met and that related issues are identified and responses developed as well as monitor the internal and external environments to identify emerging issues and provide a forward-looking review. Our Technical Services and Business Services teams - our engineers, environmental scientists, accountants, technology and human resource specialists and administrators - support these core businesses. Our vision and values We aim to be a successful and enduring business, which means being regarded by our: customers as a respected and valued service provider shareholder as fulfilling expectations and adding value peers, stakeholders and the community as a professional, competent, respected and progressive business. To realise this, we aim to continuously improve customer service, charge sustainable prices, safeguard our business, build our capability and work in partnership to improve water resource management and regional development. corporate social responsibility based on ethical behaviour, a professional staff and care for the environments and communities in which we work continuous improvement as we strive to better meet the needs of our customers, our aspirations as an organization, and the expectations of our shareholders, stakeholders and the community informed action that balances the need for soundly based economic decisions with the need for responsible and precautionary responses to sustainable water resource management. Our strategic plans During 2005/2006 we developed two key strategic planning documents; the 2006/2008 Water Plan that was submitted to the Essential Services Commission in August 2005 and the 2006/2007 Corporate Plan that was submitted to the Minister for Water in July The Water Plan provides a blueprint for guiding business decisions and activities, reflects our obligations to stakeholders and is shaped by key influences including: the White Paper, Our Water Our Future our entry into the jurisdiction of the Essential Services Commission the continuing drought with its severe impacts the expectations of Government, stakeholders and the community more intensive water resource management In our work we value: partnership with our customers to empower them to influence our business direction and assist us in meeting their needs engagement with the community as we collaborate with our shareholder, stakeholders and the community in sustainable water resource management in southern Victoria

25 23 the need to demonstrate our compliance with our Statement of Obligations the need to ensure that all businesses are on a sound, sustainable footing the need to ensure we complement customer influence with demonstrated achievements of Government and community expectations the need to raise our visibility in the community, our formal and informal interaction with the community and the between us. Supporting government policies Growing Victoria Together In 2001, the state Government outlined its vision for making Victoria a stronger, more caring and innovative state. Growing Victoria Together is a ten-year vision that articulates what is important to Victorians and the priorities that the Government has set to build a better society. The Government has identified ten shared goals that are the focus for priority setting, including legislation and spending decisions for the next decade. Our Water Our Future In 2004, Victoria launched its water reform package, Our Water Our Future. This is an action plan to enable smarter water use and management across the state and is being funded through a $225 million contribution from water authorities over the first four years. Its groundbreaking actions will: repair rivers and groundwater systems by giving them legal water rights and conducting restoration works Victoria s Biodiversity Strategy Victoria s Biodiversity Strategy fulfils commitments in the national Strategy for the Conservation of Biodiversity and requirements under Victoria s Flora and Fauna Guarantee Act The strategy seeks to encourage Victorians to better understand our flora, fauna and ecosystems and to take an active part in their conservation and management for future generations. Victoria s Greenhouse Strategy The Victorian Government is committed to playing its part in national and international efforts to address the threat of climate change. The Victorian Greenhouse Strategy outlines new policy and program directions that support actions to reduce greenhouse gas emissions and to develop adaptive responses to climate change. Victorian River Health Strategy The Victorian Government is committed to protecting and restoring our rivers and catchments and safeguarding the regional economies that are dependent on them. The Victorian River Health Strategy, released in August 2002, outlines the Government's long-term direction for the management of Victoria's rivers. It provides a clear vision for the management of rivers in Victoria, comprehensive policy direction on issues affecting river health and a blueprint for integrating all our efforts on rivers and for ensuring that we get the most effective river health benefits for the effort and resources invested. The strategy provides the framework for regional communities to make decisions on river protection and restoration and to find the balance between using our rivers and maintaining their ecological condition. price water to encourage people to use it more wisely permanently save water in our towns and cities, through common sense water savings and recycling measures secure water for farms through pioneering water allocation and trading systems.

26 24 About us Water Recycling Action Plan This Plan sets the Government s target for Melbourne to recycle 20% of its wastewater by Our Werribee Irrigation District s recycled water scheme provides Class A recycled water for irrigation and offers longer-term opportunities for the recovery of water for the Werribee River and the environment and as a substitute for potable water. Other recycled water opportunities are being examined for the Bacchus Marsh irrigation District through the Eastern project. Vision for Werribee Plains In August 2002, the Government launched its Vision for Werribee Plains, an integral part of its water reform strategy. This project aims to transform Melbourne's west into an internationally renowned green region and to position the region as a world leader in sustainable development. The Government has committed $10 million over four years from the Victorian Water Trust for projects that will bring real and lasting benefits to the region through the increased use of recycled water. This region covers the local government areas of Wyndham, Melton, parts of Greater Geelong, Moorabool, Brimbank Hobson s Bay, Queenscliffe, Golden Plains and Maribyrnong. Our Environment Our Future In April 2005, the Government launched its Environmental Sustainability Framework. This framework provides direction for Government, business and the community on building environmental considerations into the way we work and live. It establishes three directions Victoria must pursue to move towards becoming a sustainable state. These are: maintaining and restoring our natural assets using our resources more efficiently reducing our everyday environmental impacts. The framework sets out 13 objectives for guiding Victoria s progress towards environmental sustainability and has adopted the interim measures detailed in other policy documents. Progress reports will be prepared every two years. State Environment Protection Policy (Waters of Victoria) State Environment Protection Policies (SEPPs), are legislation under the Environment Protection Act They safeguard the environmental values and human activities that need protection from the effect of waste. SEPP (Waters of Victoria) applies to all surface water in Victoria and provides a co-ordinated approach for the protection and, where necessary, the rehabilitation of the health of water environments. Specific schedules to SEPP (Waters of Victoria) deal with specific catchments and have detailed requirements.

27 25 Priorities for 2005/2006 Implementing our Statement of Obligations In January 2005 the Minister issued our Statement of Obligations detailing specific requirements for developing our: prices for the 2005/2006 financial year proposed Water Plan for submission to the Essential Services Commission governance and risk management plans plans and programs for service delivery environmental management plans payment schemes and contributions compliance. These obligations and reporting requirements came into effect during our 2005/2006 financial year. Pricing principles and customer consultation Prior to submitting our final Water Plan to the Essential Services Commission we met with our customers and our Customer Committees to discuss proposed price paths and with regulatory agencies such as the Department of Human Services, the EPA, the Essential Services Commission, the Department of Sustainability and Environment and Catchment Management Authorities. In response to this consultation, we were able to identify key issues and develop response management plans. Subsequently, our Water Plan for 2006/2008 has been approved by the Essential Services Commission. Assessing and managing risk As part of our commitment to good governance, we have developed a risk management strategy, a risk register and implemented risk management software, Sentinel. This software enables us to identify and prescribe standards for classifying risk within and between businesses. It also provides a consistent basis for assessing and reporting these risks, both internally and when dealing with stakeholders and Government. Having a consistent, comprehensive and clear definition of risk facilitates a common understanding of risk exposure, documents tolerable levels of risk exposure and identifies improvement priorities and targets. Our risk management plans, systems and processes comply with Australian/New Zealand Standard AS/NZ 4360 Risk Management. These plans ensure that risks to our assets, services and staff are identified, assessed, prioritised and managed. Meeting service standards Key customer service targets Our customer service targets allow us to measure our performance in critical, core business areas. They enable us to focus on how well we manage our supply networks, respond to customer orders, or deal with applications for licences. In recent years, we have introduced new mechanisms for measuring our performance in communication and engagement, including: our Communication Plans document actions to ensure that communication is treated as an intrinsic component of service delivery to be measured alongside times, volumes and other service targets our Stakeholder Survey is conducted every second year our customer response cards, used by our Licensing Business, measure customer satisfaction according to key criteria - how we listen to their needs, how we explained what information we need from them, how we treat them as a customer, how we explain the reason for our decision and the availability of staff for them when needed our formal complaints register. Corporate value measures Our corporate values express how we expect to work and behave as an organisation, and as its individual representatives. Our corporate values measures enable us to track our performance against key criteria: partnerships with customers corporate social responsibility continuous improvement informed action engagement with the community.

28 26 About us Case study Water trading One way that we have supported Government policy and applied our corporate values is the promotion of water trading within the Macalister Irrigation District. During the 2005/2006 irrigation season, we implemented a communication plan to raise understanding of our allocation model and to encourage irrigators to trade water they did not plan to use. In March 2006, when farmers are making key decisions about on-farm production, we sent all customers a Water Usage Statement to highlight how much water they had used and had available for the rest of the season. We also sent letters to customers who had substantial amounts of water remaining to encourage them to make the water available to others within the District. All formal announcements about the increase in Water Right or Licensed Volume and Spill Entitlement included information about the need to trade water within the District. Representatives from Watermove attended the Heyfield Field Day and provided hands-on training. By working together with Murray Goulburn, it was agreed that irrigators could buy and sell water and offset the cost of the purchase until they received their next milk cheque. Our staff are available to assist customers complete their water transfer forms. SRW staff demonstrating online water trading at the Heyfield Field Day Last year 140 customers in the Macalister Irrigation District traded water. This year 349 customers applied to trade water and the volume traded increased by almost 4,000ML. If this water had not been traded it would have remained in Lake Glenmaggie until the start of the 2006/2007 irrigation season.

29 27 Economic sustainability The Government is committed to building a creative and enterprising State with thriving industries and innovative businesses. We will continuously build on our current and emerging strengths, develop innovative ideas and transform these into good commercial practices.

30 28 Economic sustainability Service delivery Customer service targets and measures Eastern Irrigation Western Irrigation 95% of water orders delivered within one day of request, with three days notice All water orders delivered according to customer instructions Applications for Farm Dam and Works on Waterways licences determined within 60 days Applications for Bore Construction Licences determined within 14 days Applications for Surface and Groundwater Licences determined within 60 days Applications for Surface and Groundwater Licence transfers determined within 14 days Applications for temporary Water Right transfers determined within five days Applications for Information Statements processed within seven days Monthly reporting to customers on storage shares Quarterly monitoring and reporting to customers on water quality in storages 100% compliance with service targets and measures Headworks Licensing

31 29 Unbundling water entitlements A key reform documented in the White Paper Our Water Our Future is the unbundling of water entitlements. Major components of this initiative are the: establishment of a Victorian Water Register separation of existing water rights and licences into water shares, water allocations, delivery shares and water use licences. These reforms are scheduled to be introduced into our irrigation districts during In the Macalister Irrigation District, our emphasis has been building awareness and understanding through discussions with local irrigators and stakeholders. We have also begun work on the conversion of existing water rights into water shares. We anticipate that a key task will be the establishment of water use licences, particularly water use limits and delivery shares and that this work will lead to a new focus on our service standards and constraints. We also recognise that tariff reform, whilst not strictly a part of unbundling, is likely to be triggered by this process. Facilitating water trading In many areas water trading is the only means of access to new or additional water entitlements. We encourage landowners who do not plan to use their full entitlement to consider trading this water on a temporary or permanent basis to others in their community. We promote the use of Watermove, the Victorian water exchange and water trading information system. Measuring and improving customer service All our businesses are expected to seek and take opportunities for continuous improvement and to benchmark our customer service performance. Our customer service targets enable us to measure our performance in critical areas for customers. They focus on how well we manage our supply networks, respond to customer orders, or deal with applications for licences. As our current systems don t allow us to discriminate between our performance (our processing time) and the diligence of applicants (in providing initial and follow-up information), we can only measure the time elapsed between when an application is lodged and the time we take to reach a decision. To ensure that we are meeting the service and information needs of our Licensing Business customers, a survey form has been developed to measure customer satisfaction. Over the past twelve months more than 4,800 cards were sent and 9% were returned. Of those returned: 90% of all responses confirmed a satisfactory customer service experience, 4.5% were dissatisfied and 5.5% were neutral dissatisfaction comments usually related to time to process applications or the cost of applications and the time of year - higher dissatisfaction scores were recorded during the irrigation season half the number of survey cards represented views from Bore Construction Licence customers. Over the past twelve months there has been a significant increase in the number of trades and the volume of water being traded. An analysis of the comments made by customers identified the need to better explain our licensing process and decisions. This is being addressed through our community consultation process.

32 30 Economic sustainability Improving our licensing processes As part of our half-year review, our Licensing Business confirmed that there had been a significant reduction in the number of licence applications and revenue. As a result, a two-day staff conference was held to discuss our existing administration processes and procedures and to identify ways that they could be streamlined. Staffing numbers were reduced. Since this meeting, a Steering Committee has been established and new or amended procedures identified. An initial briefing paper has been submitted to senior management for confirmation. Some of these proposed changes may need Board approval. Increasing our Licensing Business presence Our Licensing Business has 23 field staff working from 12 locations across our region of 88,000 square kilometres. We located staff in the Barwon region and near the Melbourne fringe and, in recognition of the significant number of customers in the south-west of Victoria, we opened an office at Warrnambool in October We also appointed dedicated drilling staff to improve compliance within the drilling industry. Meter accuracy As part of the National Water Initiative, the National Standards Commission has proposed a national-wide standard be adopted for irrigation meters. A federal committee has been established, and a representative from our Licensing Business participates in these meetings. Managing information strategically During 2005/2006 we implemented the first stages of our new Electronic Data Management System and Technology One, our finance management system. We also commissioned a review of our information technology network. We see the roll-out of these initiatives as the base for a strategic analysis of the collection and storage of data, its transformation into information, and our investment in, and management of, information technology over the next five years. Our field staff work with customers and within their local communities to ensure compliance with licence conditions and to implement our monitoring, inspection and surveillance activities. Over the past twelve months they have also been involved in the registration of farm dams and the metering of irrigation licences. We participate at all major regional Field Days as this is a key component of our community education programs.

33 31 Financial performance Ensuring sustainable prices In the lead-up to 2005/2006 we closely reviewed most of our prices. Our Irrigation Businesses already had multi-year price paths (started in 2003/2004) in response to problems caused and revealed by the protracted drought (reduced delivery volumes have created a shortfall in revenue and challenged the delivery volumes upon which past budgets have been predicated). The price paths were designed to overcome these problems allowing the repayment of the resulting business deficits over 10 years. In Eastern Irrigation, three factors lifted prices by 5.9% above the 8.1% in the price path: a further reduction of the sales budget, from 30,000 ML to 25,000 ML a once-off increase in channel maintenance of $130,000 and the environmental component of prices. With the further adjustment of the sales budget, we reached what we believe is a sustainable level set at 25,000 ML, it would have been exceeded in 2003/2004 and attained in 2004/2005. In Western Irrigation, major dam safety works scheduled for Pykes Creek Reservoir commencing in 2005/2006, with a budget of some $5.5 million, had a substantial once-off impact on the price path adding some 10%. Consequently, the price increases were around 25%. In Licensing, rising expectations continued to drive price increases. To date our focus has been twofold: increasing application fees so that they cover the costs of assessing licensing applications, and increasing annual licence fees to fund additional field activity and to allow us to plug gaps in our field network. Our 2005/2006 prices showed their further impact and more recent imposts, particularly: the updating of our corporate allocation model has increased the share of these costs borne by the Licensing Business, reflecting the growth in the Business over recent years, and project management of the backlog metering program (and the consequential additional recurrent costs). In 2004/2005 we examined the application of renewals in our Headworks and Licensing Businesses. This confirmed that the renewals approach is less appropriate and therefore in 2005/2006 we converted exclusively to pricing on a return of and from capital model. Removal of the 4% Rate of Return The White Paper flagged that the 4% Rate of Return charged to urban authorities would be phased out by 1 July This decision followed opposition to the imposition of a Rate of Return on the customers of rural water authorities, but not on other customers. Thus a new pricing regime was introduced for these authorities in 2005/2006 and the following arrangements introduced for the government priorities and community service obligations previously funded by the 4% Rate of Return: the costs of our Dam Remedial Works Program recovered from the holders of entitlements in the affected storage the costs of our recreational facilities recouped from a charge based on the number of customers and from Gippsland Water and Western Water the costs of unallocated bulk entitlements in Blue Rock and Merrimu Reservoirs paid directly by Government. Because some individual projects in the Dam Remedial Works Program are very substantial, there will in time be some price impacts for customers the first being in 2005/2006 for our Western Irrigation customers from our planned expenditure of some $5.5 million at Pykes Creek Reservoir. Pricing for Urban Water Authorities With the removal of the 4% Rate of Return from 1 July 2005, in accordance with the White Paper, we discussed an alternative pricing regime with the Department of Sustainability and Environment, Gippsland Water and Western Water. The negotiated outcome preserved our capacity to support government priorities and community service obligations whilst providing some reductions for the urban authorities, particularly from the cessation of the previous Government dividend concurrent with the removal of the 4% Rate of Return. This arrangement was subsequently confirmed for 2006/2007 by the Essential Services Commission.

34 32 Economic sustainability Meters are being installed to better manage water resources and improve water use compliance. Environmental component of prices In 2005/2006 the environmental component of prices was introduced. We adjusted our retail prices to recover the $210,000 required of us in accordance with the Water Industry Act; allocated pro rata over all our retail customers, including the Latrobe Valley power companies, this added a little under 2% to prices. The revenue generated from the environmental component of prices is directed by Government into environmental programs associated with the water sector. White Paper initiatives The White Paper announced a range of initiatives that have been, or will be, significant for us. These include: unbundling of water entitlements Sustainable Water Strategies recovery of water for the Thomson and Macalister Rivers through Total Channel Control development of the statewide water register completion of metering of significant diversion licences, and development of further Groundwater or Streamflow Management Plans. In 2005/2006 our staff continued their positive involvement and leadership in these programs, reflecting our engagement in and commitment to the White Paper and its initiatives. Metering of irrigation licences One of the key initiatives of the White Paper, Our Water Our Future, is a commitment to improving water use compliance and accountability. Under a program jointly funded by us and the Government, several thousand meters are being fitted to pumps to measure groundwater and unregulated surface water use. This program requires that: all significant water use is to be metered all new licences for commercial and irrigation use will be metered new water users will be responsible for the full cost of metering their diversions. Management Areas (GMAs) in our region that were not already metered and installed almost 200 meters. There are about 300 more to be installed. Once this work has been completed we will begin work to install meters on un-metered surfacewater pumps and then we will install meters in non-gma areas. We expect this work to be completed by late August WID Recycled Water Scheme In accordance with the requirements of the Recycled Water Scheme, in late 2005/2006 we started framing the process for the pricing discussions with irrigators and relevant agencies that will lead to indicative recycled water prices from This process is a requirement of the Customer Supply Agreements under which participating Werribee irrigators take Class A recycled water from Melbourne s Western Treatment Plant. Until 30 June 2009, irrigators in Werribee South using recycled water are paying the same price as for river water. As a consequence, we are failing to recover our costs in this period which, together with unfunded set-up costs, are likely to amount to $1.5 million or more by We expect that the accumulated deficit will be incorporated into the post-2009 prices examination. Licensing of farm dams Following an amendment to the Water Act in 2002, all existing catchment dams used for irrigation or commercial purposes are to be registered. By the close of the registration period, we had received nearly 4000 applications covering some 7,000 dams. Our work to register these dams commenced in 2003 and was suspended in late 2004 when our initial Government funding was fully used. Work has recommenced and we expect to complete this registration process by late Borrowing requirements In 2005/2006 Government granted us a borrowing limit of $5 million. Of this, $1.5 million is to accommodate seasonal fluctuations in our cash flow and $3.5 million to cover: the drawdown of renewals reserves to fund several large infrastructure replacements, and the deficits created in our Irrigation Businesses during the drought. For groundwater, significant use is defined as equivalent to 20 ML or more. For surfacewater, significant use is equivalent to 10 ML or more. Over the past year, we have surveyed all Groundwater

35 33 Business obligations Fund Balances The following table shows the movements in our Irrigation Businesses Renewals and Accumulated Funds Eastern Irrigation $'000's Western Irrigation $'000's Renewals Funds Opening balance as at 1 July ,102 2,241 Add Annuity Provision 1, Less Renewals Program Add Interest Earned / (Incurred) Closing balance as at 30 June ,589 2,730 Accumulated Funds Opening balance as at 1 July 2005 (2,439) (2,113) Add Recurrent Surplus / (Deficit) 479 (282) Add Interest Earned / (Incurred) (82) (135) Closing balance as at 30 June 2006 (2,402) (2,530) Cost recovery and financial viability are managed and monitored by employing fund based budgeting and management reporting. This helps focus on the need to generate sufficient funds to manage the replacement of assets. Our renewals are funded from an annuity provision included in prices, which is calculated to generate sufficient funds to replace assets when they reach the end of their life. The calculation is based on estimated future replacement costs within the renewal period and accounts for the time value of money. Our accumulated funds represent business surpluses/(deficits). Typically, these funds have been in deficit over recent years, generally as a result of seasonal conditions. Even with our proposed price paths these deficits will take some time to eliminate. End of year results The Corporate Plan for 2005/2006 established prices that were targeted to achieve, on a renewal basis, the following results for our operating Businesses: Eastern Irrigation surplus of $479,000 Western Irrigation deficit of $282,000 Licensing surplus of $252,000 Headworks surplus of $110,000. The actual results for 2005/2006 were in line with these plans for all but our Licensing and Headworks Businesses. The Licensing Business experienced a reduction in the number of applications received during the 2005/2006 financial year. This resulted in reduced revenue and a reported deficit for the business. This business has since undergone a review and we anticipate improved performance in the 2006/2007 financial year. The financial target proposed for our Headworks Business was calculated on the basis that the upgrade works at Pykes Creek Reservoir would conclude during the 2005/2006 financial year. These works are now scheduled for completion during 2007/2008 and accordingly the increase to our pricing generated from our return on this investment will not be realised until 2007/2008. The proposed result was calculated on the basis that this revenue would be available during the 2005/2005 financial year.

36 34 Economic sustainability It should be noted that SRW s audited financial statements are prepared on a depreciation basis, rather than the renewals basis used for setting prices. Major differences include the use of depreciation (in place of the renewals charge) and the re-classification of non-capital major projects (funded from renewals funds). Consequently, as shown in the table on the previous page, there were no significant changes in SRW s financial position during the year. SRW is not aware of any events subsequent to reporting date that would have a significant impact on the Authority. Statement of Obligations Our Statement of Obligations was issued by the Minister in January This clarified many of the specific obligations that apply to us and in a few areas introduced new operational or reporting requirements. Our goal is demonstrable compliance with all aspects of our Statement. Key actions in 2005/2006 to meet obligations in the Statement were: report to the Minister on our annual Board Self-Assessment our annual Dam Safety Report to the Secretary of the Department of Sustainability and Environment, and implementation of the Metering Program for unregulated surface water and groundwater licences over specified thresholds. Transitioning to the Essential Services Commission In January 2004, the Minister announced that all water authorities would come under the jurisdiction of the Victorian Government s economic regulator, the Essential Services Commission. The primary role of this Commission is to regulate prices and service standards. However, given the number of issues in the White Paper Our Water Our Future that impacted our business planning activities, particularly the way we set prices, our entry into the Commission and its jurisdiction was deferred. Safe Drinking Water In accordance with the Safe Drinking Water Act 2003, we began to implement Risk Management Plans for each of our storages that supply bulk water to urban water authorities for drinking water purposes. These plans, developed in conjunction with Urban Water Authorities and Catchment and Catchment Management Authorities, define priority risks to water quality for each system, as well as roles, responsibilities, and current and proposed process for eliminating and reducing those risks. In developing our plans, we reviewed our Operation and Management procedures, strengthened relationships with partners for the development of water catchment protection policies and implemented ongoing training of staff in water sampling and testing techniques. A number of our existing programs and activities are now obligations under the Statement, for example asset management, risk management, seasonal allocation and drought response arrangements, managing environmental flows, and emergency management. We anticipate independent auditing of our compliance with key obligations in 2006/2007. During 2005/2006 the Department of Sustainability and Environment flagged a number of amendments to our Statement; we contributed to a broader analysis and response to these by VicWater. These changes are now expected in 2006/2007.

37 35 Asset management Critical Assets Programs Irrigation A major failure of our main channels and pipelines could result in a substantial supply disruption to our irrigation customers. To address this specific risk we have developed a Critical Assets Program for both our irrigation businesses. These programs focus on the main arterial assets of our irrigation supply network, and includes ongoing surveillance and maintenance activities as well as cyclic and detailed inspections of our major assets plus some capital investments. They also include specific response plans in the event of a major channel failure. During 2005/2006 our irrigation businesses continued with their targeted surveillance of the channel system at crucial stages of the season - when we know it is most vulnerable. Our Eastern Irrigation Business: adjusted its channel filling procedures to better manage the risks associated with filling channels at the start of the season completed a comprehensive risk review of the Main Northern Channel. This included detailed site inspections, soil testing and drilling. This helped refine the location and extent of our higher risk sections, which are generally are the elevated channel bank sections commenced investigation and design to replace a section of elevated bank on the Main Northern channel. Over the next twelve months we plan to assess the value of undertaking further capital investments to reduce risk. We will continue to refine the surveillance program and establish a database to record surveillance details. Critical Assets Programs Headworks To ensure that our large dams comply with current design standards and continue to meet Australian National Committee On Large Dams (ANCOLD) Guidelines, we implement Dam Design Safety Reviews. These reviews identify issues requiring further investigation or remedial works to enhance contemporary compliance. At Yallourn Weir we continued to manage the new works program, as detailed in our design and project plans. In August we commenced construction for the installation of ground anchors to resist earthquake forces. By May the contractor had completed the anchoring component of the works. The second stage of the Yallourn works involves replacing the drum gate with a concrete fixed crest. This work commenced in early May with the installation Our staff complete ongoing maintenance and repair works in the WID. Works at Yallourn Weir and Pykes Creek Reservoir. of a cofferdam and concrete was poured in early June. This project was completed in August This upgraded structure will remove the operational aspects of the weir and increase the security of supply to the energy companies that use the water for cooling purposes. Whilst Pykes Creek reservoir is in good condition and continues to perform very well, it does not meet contemporary dam design guidelines. Our proposed remedial works were planned in two stages. Construction of the Stage 1 works, the installation of filters at the spillway/embankment interface, was completed in July Designs for Stage 2, the installation of filters across the remaining embankment, have been progressed and construction is planned to commence in January By installing these filters we will improve dam safety to acceptable levels that meet ANCOLD Guidelines. Designs are currently being prepared for remedial works at Melton reservoir, however construction is not planned to commence until 2007/2008. As part of our ongoing risk management and annual reporting requirements, we complete a risk reduction profile for each dam and include detailed priority dam safety works and an anticipated date for this work to be completed. Incident and emergency management In recent years we have developed plans to improve our preparedness and response to incidents and emergencies. These include our: Corporate Incident Management Plan Critical Assets Programs for our irrigation businesses Risk Assessment Framework, Risk Management Plans under the Safe Drinking Water Act 2003, and Dam Safety Emergency Plans for our Headworks Business. We have completed both desktop and field based Dam Safety Emergency exercises and, based on feedback, will run another exercise late in During 2005/2006 we strengthened our capacity with emergency management training provided by the State Emergency Service and we anticipate a review of our Corporate Incident Management Plan and local plans to ensure their effectiveness and alignment with our risk management system.

38 36 Economic sustainability Case study Water savings auction On Wednesday, 3 August 2005 we auctioned 790 ML of new water entitlement to customers in the Macalister Irrigation District. This auction was open to irrigators from the Macalister Irrigation District and neighbouring reaches of the Thomson and Macalister Rivers. Twenty bidders purchased between 1 and 136 ML of water entitlement, at an average price of $1,980 / ML. These new water entitlements came from the water saved when we replaced a 4.5 kilometre section of old concrete channel with a new pipeline. We were losing up to 30% of all water delivered through leakage and seepage. The new pipeline means that our customers receive an improved water delivery service and the risk of salinity, due to rising watertables, is reduced. Our Water Savings Auction added two more benefits for our community: Firstly, local agriculture, and the community that depends on it, has an extra 790 ML of high-security water entitlement. This means additional production and income. Secondly, we have agreed that the proceeds from the auction, some $1.5 million, will be reinvested in the Macalister Irrigation District and used to renew other channels and structures. This will ensure that irrigators continue to have a reliable and sustainable service. Irrigators and members of the local community at our water savings auction in August This project confirmed that well-targeted investments in our water system will ensure that Victoria can continue to have healthy water resources to support growing communities and a thriving economy.

39 37 Environmental sustainability The Government is focussed on protecting the environment and supporting sustainable development. To contribute to a better quality of life for current and future generations, we must aim to provide products and services that meet environmental and sustainable growth standards. We will do this by ensuring that we understand and meet our environmental obligations, by managing our resources sustainably and in harmony with the environment and by continuing to develop essential future management structures to ensure genuine sustainability of rural water supplies.

40 38 Environmental sustainability Water wheel and Werribee River. Improving river health Ensuring environmental flows Environmental flows are the main area in which we can contribute to maintaining river health. Our Licensing Business manages licences in accordance with the specified environmental flows and allocation caps and supports the development of Streamflow and Groundwater Management Plans. Our Headworks Business provides releases from our dams in accordance with bulk entitlement and environmental flow requirements. Our Irrigation Businesses manage the diversion of water from rivers, into our channels and pipelines, to ensure that environmental flows are achieved. Water savings achieved through our channel automation project in the Macalister Irrigation District are returned to the Macalister River as environmental flows. Our Werribee Irrigation District recycled water scheme reduces demand on the Werribee River. Water savings in the Macalister Irrigation District The Macalister Irrigation District Channel Automation Program commenced in 2004 with funds from the Victorian Water Trust, provided by the Minister of Water. This project aims to improve customer supply and delivery efficiency and to transfer water savings back to the Macalister River as environmental flows. It also paved the way for the Commonwealth Government to invest a further $20 million through the National Water Initiative, trebling the water savings from an estimated 5,000 ML to 15,000 ML. Stages 1 and 2 have been completed and cost approximately $7 million. These stages will: establish a comprehensive water measurement network with the installation of FlumeGate at channel outfall sites enable automation at a number of channel sub-system offtakes and along the Main Eastern and Main Sale arterial channels extend the radio communication network and provide full coverage across the entire Macalister Irrigation District. Project costs for Stages 3 and 4 is expected to be approximately $4.7 million. This channel automation technology is state-of-the-art. It continuously monitors and controls water from Lake Glenmaggie through to the irrigators outlets and enables us to be more efficient with water deliveries to our customers. It will not affect security of supply to our irrigation customers. By adopting this technology, we expect to save an estimated 15,000 ML each season once Stage 5 and 6 is completed. The State Government, through the National Water Trust, and the Federal Government, through the National Water Initiative, are funding this project and water savings will be used to improve river health and environmental flows in the Macalister River. This project demonstrates a smarter use of irrigation water a key initiative of the White Paper, Our Water Our Future. It also reflects our commitment to implementing programs to improve the efficiency of our distribution systems. Stages 3 and 4, the first stages funded by the National Water Commission, commenced in May 2006.

41 39 Recycled water supplies in the Werribee Irrigation District In response to the severe surface water and groundwater restrictions experienced during 2003 and 2004, we commenced the supply of recycled water from Melbourne Water into the Werribee Irrigation District. This scheme has the potential to deliver up to 8,500 ML of recycled water to more than 100 growers each year. This is water that would otherwise be discharged into Port Phillip Bay. This project is one of the largest recycled water schemes in Victoria and is part of the Government s Our Water Our Future action plan to secure Victoria s water supplies for the next 50 years. It will help to ensure sustainable agricultural development in Werribee and represents a significant step towards achieving the Victorian Government's target of 20% water recycling by The scheme is in its early stages and is experiencing increasing customer interest. As at the 30 June 2006, 114 customers have signed Supply Agreements for a total volume of 4,243 ML. During the 2005/2006 irrigation season we delivered 792 ML to 80 customers. We anticipate these current dry conditions will see further interest in the scheme as customers endeavour to secure more water to meet on farm needs, particularly for the early part of 2006/2007. The Regional Environment Improvement Plan developed by us, Melbourne Water Corporation and the EPA outlines environmental requirements for the supply and use of recycled water within the WID. These requirements include defined water quality targets and the monitoring and reporting of river, recycled and groundwater and soil quality. We complied with all of the Plan requirements during the season. On 28 April 2006 we ceased recycled water deliveries to the Werribee Irrigation District. Under the shandy rules that apply, water cannot be supplied if we are unable to meet the salinity target of less than 1,400 EC. As river water salinity had increased to 1,360 EC and recycled water was 1,700 EC, it was not possible for us to comply with this requirement. Supplies of recycled water to the WID have resumed. Throughout the year we have been negotiating with Melbourne Water on a range of matters including increased recycled water volume, pricing and achieving the proposed salinity target of <1,000 EC by 30 June Monitoring thermal impact of reservoir releases Since 2003 we have been collecting data on water temperature across our storages, and the impact of cold water releases from our reservoirs on downstream waterways. This year the Department of Sustainability and Environment prepared its first statewide report. This report confirmed that the monitoring program needs to continue as most of the data had been collected during the drought when storages were at low supply levels.

42 40 Environmental sustainability Resource management Collaborating in water resource management As one of Victoria s principal water licensing authorities, we began working with the Department of Sustainability and Environment, other water licensing authorities and stakeholders to develop the Central Region Sustainable Water Strategy in early It is expected that this will help reshape water supply arrangements in Melbourne s hinterland to the benefit of communities, rivers and aquifers. We are also involved in the development of proposed State Management Rules for unregulated catchments, and changes to water entitlements to improve environmental outcomes. MID 2030 As part of our long term, strategic planning for the Macalister Irrigation District, we have been consulting with community groups to develop a framework for future infrastructure investment decisions that meet customer and stakeholder expectations about the commercial, social and environmental needs of the area. This consultation process involves three stages. The first stage, commenced in November 2005, specifically targeted community, customer, business and agency groups that were most likely to have an interest in the future of the MID and included input from the general community. In the second stage, we will present our options assessment criteria and a discussion paper for review and comment. We will use the feedback to further refine our plan. The third and final stage of consultation will be the presentation of the draft plan. This is expected to ready by the end of the year. Public submissions are invited at each stage of the process and an independently chaired Stakeholder Reference Group provides feedback to the consultation process. The first stage of the community consultation process has been completed. We anticipate the final plan to be ready for community consultation in Proposed pipeline project in the Werribee Irrigation District In June 2006 we lodged a funding submission to the Australian Government Water Fund to fully convert the Werribee South supply system to pipes. This project would create 4,100 ML of savings - and represents the only significant water saving opportunity in the stressed Werribee River catchment. Piping this system would secure the long-term future of the supply infrastructure for our customers. The project aligns closely to the objectives of the Federal Government s National Water Initiative and the State Governments policies. We expect to receive notification on this funding decision in the later part of Supporting Water Management Planning Several years ago, the then Department of Natural Resources and Environment initiated the development of community-based water management plans in priority groundwater management areas and unregulated catchments. Under this program, we collaborated with the Department of Sustainability and Environment and Catchment Management Authorities in determining priorities for developing Water Management Plans and our staff provided support and participated in planning committees.

43 41 The Water Management Plans developed for the Nullawarre and the Yangery Groundwater Management Areas were completed and signed-off by the Minister. Plans for Deutgam and Sale were rejected and subsequently the Minister has foreshadowed the need to form new committees to develop Plans for these areas. Plans for areas including Bungaree, Warrion, Condah, Koo Wee Rup, Lang Lang, Lake Mundi, Wandin Yallock and Yarram are all being developed. The Department of Sustainability and Environment awaits approval from the Minister on a work plan that will see all of the above areas having a level of management. Eight other Plans for the Avon, Gellibrand, Merri, Upper Latrobe and Upper Maribyrnong catchments and the Denison and Wy Yung Groundwater Management Areas were completed but have not been signed-off. We are working with the Department of Sustainability and Environment and the planning committees to finalise this statutory process as we are required to defer all licence applications from within these areas. Once implemented, Water Management Plans provide us with reliable water usage and system information and are effective in supporting the implementation of our metering and monitoring programs. Local committees produce annual reports and these provide a summary of activities, data collected and compliance with the Plan s recommendations. Managing groundwater With a severe drought continuing to impact water availability from aquifers, our groundwater monitoring regime has played an important role in management decisions especially in the Deutgam and Sale Water Supply Protection Areas. In the Deutgam WSPA there was a dramatic plunge of groundwater levels in October We applied a ban and subsequent progressive restriction regime (25% and then 60%) on the use of groundwater up to June These restrictions were eased in July 2005 after significant recovery of regional groundwater levels aided by good rainfall. Quarterly meter reading and fortnightly groundwater monitoring continued to assist our management decisions. The Boisdale Formation aquifer is a valuable source of groundwater for Sale urban supply and irrigators from Maffra through to Bairnsdale. Due to declining groundwater levels and the threat of saline intrusion from the Gippsland Lakes, in July 2004 we imposed restrictions on the transfers of groundwater within the Clydebank area of the Sale WSPA and continued to closely monitor aquifer drawdown and recharge levels.

44 42 Environmental sustainability Groundwater resource research In June 2005 we received funding from the Department of Sustainability and Environment to commission an independent study into a number of aquifers that were showing signs of stress and/or required reviewing as part of an approved management plan. The aim of this investigation was to understand and resolve water resource management issues. The aquifers of Sale, Condah, Yangery and Nullawarre were assessed as part of this resource appraisal. Whilst the project is yet to be formally completed, there are some significant conclusions that can be made for each area. In Condah, the initial Permissible Annual Volume estimates could be overestimated given new data on aquifer parameters. In Nullawarre, the initial Permissible Annual Volume estimates appear to be sound given there appears to be a significant (yet unquantified) contribution to surfacewater features. Managing surfacewater The White Paper Our Water Our Future documented the Government s action plan for improving rivers, floodplains and estuaries. It aims to use regional river health strategies and Catchment Management Authorities to establish regional priorities and to integrate programs for river protection and restoration, and to manage the Environmental Water Reserve. It highlighted a number of unregulated catchments where this reserve was to be met within five to ten years and confirmed that the way to achieve this reserve was through communitybased Stream Flow Management Plans. These plans aim to secure licensed diverters with an agreed level of security, whilst also securing the needs of the environment, improving the ecological health of rivers. In 2006/2007, we will commence the Stream Flow Management Plan process for up to three catchments the Barwon, Avon and Gellibrand. In Yangery the current use appears to be sustainable, however a potential threat of saline intrusion exists as drawdown at the coast increases. In Sale, the declining groundwater levels may be as a result of connection with other aquifers as well as water use. The threat of saline intrusion from Lake Wellington may not be as obvious as first thought and that east and west of the WSPA appear to by hydraulically connected. The research report will determine the management planning activities for each area.

45 43 Reducing irrigation impacts Implementing the Wellington Salinity Management Plan Soon after irrigation began in the Nambrok-Denison area in the 1950s, low-lying land began to suffer from rising groundwater levels and salt-damaged crops. Within a decade other areas within the Macalister Irrigation District (MID) were also being affected. To minimise this damage, a system of deep surface drains, pumps and free flowing bores were installed to remove saline groundwater from shallow aquifers. In 1994, the Lake Wellington Salinity Management Plan was developed. This Plan, implemented by us on behalf of the West Gippsland CMA, is managed through a committee of community and agency stakeholders. Today, there are 19 public groundwater control pumps and over 300 observation bores located across the MID. The operation and maintenance of these pumps is funded through a Salinity Mitigation Rate paid by irrigators, and a contribution from Wellington Shire Council. This program is recognised as one of the most effective in the state. Drain management As part of our water resource management activities we monitor and manage discharges from drains within our irrigation districts. In the Macalister Irrigation District, we participate in the Nutrient Reduction Plan. This is a collaborative project that involves the Department of Sustainability and Environment, the Department of Primary Industries, the Environment Protection Agency, the West Gippsland Catchment Management Authority and local irrigators. Initiated in July 2000, its aim is to reduce the amount of phosphorus leaving the district. As at the end of June 2006, the total phosphorus load discharge was approximately 61 tonnes. This result is higher than the reduction sustained over the past years. It is believed that weather has a major influence in the total load discharge, even though there is no direct relationship between the two. Further statistical analysis is needed to relate drain discharge to weather pattern, especially investigating the timing of rainfall and its impacts. Research studies conducted this year have produced information that could help understand and manage the variability experienced this year. To help achieve the Plan s objectives, we are continuing our nutrient monitoring across the district, improving the management of channel outfalls, continuing our drain-start transfer program, as well as our erosion control and fencing activities. We are working closely with other agencies to ensure nutrient reduction outcomes, and are involved in the development of the Land and Water Management Plan that will succeed to the current Nutrient Reduction Plan. We are also investigating new nutrient reduction options for our drains, and supporting research projects to understand nutrient issues better.

46 44 Environmental sustainability BGA testing at Glenmaggie. Environment management Our Environment Management System and Programs To help us identify and manage the impact of our activities on the environment we have developed an Environmental Management System. This system highlights our statutory obligations and the key environmental risks that each of our businesses face as a result of their specific activities. This year we conducted a major review of our EMS to incorporate recent changes in our environmental obligations and to ensure that new policies and directions are integrated with existing programs. During 2004/2005 we continued to implement our EMS across all businesses. Building staff environmental capacity is still a major focus, and activities this year included in-house training on key environmental issues, development of an induction package for new staff, and review and improvement of procedures to address significant environmental risks. We also continued the establishment of our internal audit team to built the organisation s knowledge and understanding of environmental and sustainability issues. Developing this knowledge base is a key driver for future change and ongoing certification. Monitoring Blue Green Algae To protect public health and to ensure that risks for our customers and business are minimised, we monitor Blue Green Algae (BGA) in our storages and weirs. We are responsible for reporting algal blooms according to requirements set by the Department of Sustainability and Environment, the statewide co-ordinating authority for blooms, and for implementing our own Emergency Response Plan, when necessary. BGA occurs naturally in water but can bloom to alert levels during summer and autumn, given the right conditions. During routine monitoring of our channels in April 2006, a potential bloom was observed in the Nambrok-Denison area. Sample results indicated extremely high levels of BGA and so water supplies to this area were suspended temporarily as a precautionary measure. This loss of supply impacted on approximately 200 customers. Following receipt of monitoring results, it was considered highly likely BGA blooms could be occurring throughout the channel system. Warnings were extended for the whole of the MID and a strategic monitoring plan was undertaken. We implemented our BGA Emergency Response Plan and irrigators were advised of the best way to use and manage water for irrigation. Specialist advice was sought for the Nambrok-Denison customers and water supplies resumed within seven days. However, our warnings against domestic and stock use of this water remained current. Empty channels and cooler weather at the end of the irrigation season, have reduced the extent of the bloom and our alert for the district has been removed. However, the BGA alert for both the Macalister River and Lake Glenmaggie are still current. We are continuing to monitor this situation and have sought specialist advice to minimise the occurrence and impact of future blooms. From December to June 2006 we reported algal blooms at our Pykes Creek, Melton, Merrimu, Rosslynne, Blue Rock, Glenmaggie and Cowwarr storages. The BGA outbreak at Lake Glenmaggie, first detected during January 2006, reached Alert Level 3 in early February and so we advised the public against using of the storage for all recreational purposes and erected warning signs around the reservoir.

47 45 Our staff and contractors implement our weed management programs. Channel bank erosion in the MID caused by carp. Managing weeds To help manage weeds in the irrigation distribution networks and drains, our staff and contractors only use Roundup Bi-active as this product is not harmful to the environment and is safe to use on waterways. The focus of our weed management program for the Eastern Irrigation Business is to control the growth of submersed weeds in our channels as this ensures that our channels operate at full capacity over the whole season. For our Western Irrigation Business, the focus of our weed management program is the spraying of artichoke thistle and wild aniseed. Our Western Headworks Business has an ongoing weed management program that targets serrated tussock a noxious weed that is prevalent in the western plains area. Our contractors use a residual herbicide that has been specifically developed for controlling this weed. However, this product can only be used on areas that have a set back greater than 10 metres from Full Supply Level. All other areas are treated using biodegradable, non-residual products. Over the past twelve months we have also worked with Grow West to develop a number of indigenous species tree planting sites at Merrimu Reservoir. Managing pests In the Macalister Irrigation District, the European carp presents a real threat to the environment and our distribution infrastructure as their feeding activity creates high turbidity levels, undermines channel banks and causes erosion. To help control numbers we are implementing an ongoing carp management program that includes an inspection of our entire eastern system to record carp damage and setting priorities for completing a works program. This year we began work to restore key areas of the Main Sale Channel. This includes rebuilding banks to their original profile, reforming the batters and then beaching them with recycled concrete. In some places it also involves reclaiming land that was originally part of an easement or access. Once the earthmoving and waterway reconstruction work is completed, we reinstate fencing and re-gravel tracks. As this work can only be completed when the channels are empty, this program will take a number of years to complete. Around each of our storages we manage the parcels of land, or buffer zones, that act as filtration zones for minimising nutrient inflows to the waterway or are native vegetation areas. Our Eastern Headworks Business is working with stakeholders and the community to ensure that opportunities for enhancing these areas are optimised. Our three main storages have been targeted for the establishment of Waterway and Surrounds Management Plans and these are under development. These plans will bring together expert representatives from Shire Councils, the West Gippsland Catchment Management Authority, the Department of Sustainability and Environment, Fisheries, local Landcare groups and other community interest groups. In addition, the land leases around these storages are being reviewed to ensure that best land management practices are being followed. This includes the operation of the caravan park located at Lake Glenmaggie.

48 46 Environmental sustainability Case study Environmental flows for the Macalister River A key requirement of the Thomson Macalister Environmental Flows Task Force was that flows of 1000 ML/day were to be released from Glenmaggie into the Macalister River to improve river health and biodiversity. In order to achieve these recommended flows, we needed to make modifications to the dam. Designs were prepared and funding from the Department of Sustainability and Environment through the West Gippsland Catchment Management Authority was approved. However due to operational constraints this work didn t proceed until winter Since then we have begun work to modify the Northern outlet at Glenmaggie so that these releases and irrigation supply requirements can be achieved. Our current works program includes installing an outfall structure in the Main Northern Channel basin, immediately downstream of the dam wall, so that environmental flows can be released into the Macalister River without interruption or impacting irrigation supplies. This work is expected to cost almost $550,000. Modifications to the Main Northern Channel outlet at Glenmaggie so that environmental flows into the Macalister River can be achieved.

49 47 Social sustainability We acknowledge our role in the broader community and the implications of our business practices and operations on the society and environment. We must manage our interactions with key stakeholders and establish open and transparent relationships that are based on trust, respect and honesty.

50 48 Social sustainability Our Macalister Customer Consultative Committee, Our Werribee & Bacchus Marsh Customer Consultative Committee. Partnerships with customers Accountability Promoting customer involvement In our two irrigation businesses, our Customer Consultative Committees work in partnership with our Board and management team to ensure that a strong customer perspective is brought to our planning, decision-making, programs and services. These Committees are responsible for: providing a customer s perspective on key business issues building an understanding of issues facing customers, identifying current and future expectations collaborating with our staff to develop a business plan that identifies prices, investment priorities and service/performance measures and standards improving relationships with our customers through communication, problem solving and dispute resolution linking our business into the community. Each year, they are involved in the development and approval of our Business Plans before they are submitted to the Board and Minister for approval. Their involvement is integral to our planning process. Licensing Business Forum Due to the regulatory nature of our Licensing Business we established a Licensing Business Forum in This group monitors the progress of surfacewater and groundwater management plans across our region provides input and advice on key management issues including our business guidelines, policies, processes and prices. Our Licensing Forum brings a licence holder s perspective to our business decisions and activities. We also consult with local Implementation Committees on specific issues such as rostering, restrictions, metering, monitoring and the application of our licensing policy and rules. Enhancing good governance The Board s corporate governance is based on its Corporate Governance Statement, its Handbook for Board Members, and its formal annual process of Board self-assessment. With the introduction of our Statement of Obligations, the Board self-assessment has become a formal obligation, and our first self-assessment was reported to the Minister by 30 June This self-assessment highlighted two issues for further work our organisation-wide risk framework and our internal succession planning. Whilst risk management has always been a priority in all our businesses, and much has been achieved in evaluating and documenting key risks and their management strategies, we have added an enterprise-wide risk management system to integrate a range of management interventions at a manageable and affordable scale. This is based on the Sentinel software package. Earlier in 2005/2006 the Board approved a management restructure which created the position of General Manager Water Supply to provide high-level and strategic leadership across our Eastern Irrigation, Western Irrigation and Headworks Businesses. At the same time the role of Commercial and Policy Analyst was created to lead corporate and business planning, engagement with the Essential Services Commission, and key pricing and strategic tasks. These initiatives have considerably strengthened our internal succession planning. In recent months the Board completed its 2006 self-assessment, which was timed to achieve the anticipated 30 June 2006 submission date. This assessment demonstrated that the Board remained well-focused, effective, and in touch with its customers and broader stakeholder needs in a challenging environment. The Board has resolved, in the light of the completion of its term on 30 June 2007, to complete a formal end-of-term assessment of its performance in February This will take into account the guidelines recently issued by the Minister. The self-assessment will contribute to an understanding of overall performance, any potential changes in any new Board, and the guidance of any incoming Board members.

51 49 In addition to the self-assessment, much work has been completed during 2005/2006 in regard to performance, governance and strategic development. In August 2005, we completed a full Board workshop with Mr Keith Hanslow, the author of The Seven Deadly Sins of Directors where evaluation of performance, conformance, strategy and organisational lifecycle was considered. Our Audit and Risk Management Committee members also undertook a skills, competency and areas of focus review self- assessment in early TBL reporting In 2002 we prepared our Annual Report in a Triple Bottom Line (TBL) format our first step towards sound, quantitative TBL reporting. Since then we have continued to refine this structure for reporting and we used it to prepare our 2004/2005 Corporate Plan. Our performance measures are TBL-based and our Corporate Values Measures have been selected to capture and reinforce TBL outcomes. We are now looking for an appropriate mechanism to embed TBL in decision-making. Introducing transparent water allocation processes As our licensing decisions need to be transparent, consistent and fair, we continuously assess our processes for improvements. Over the past twelve months, our licensing administration team introduced new processes for communicating with landowners who apply for significant or unique licence applications. A significant groundwater application is 20ML/year or more and a significant surfacewater application is 10ML/year or more. Water bottling is an example of a unique licence application. Our new process includes: public advertising and neighbour notification of the licence application so that interested parties can make submissions to us outlining their concerns with the proposal Once our desktop assessment has been made, we request the applicant submits a water use plan and provides a hydrogeological assessment. If necessary, we will call a public meeting so that we can hear from those who made submissions during the advertising period. The licence application is then approved (subject to normal and/or special conditions) or refused. Any affected party has 28 days of our decision to lodge an appeal with the Victorian Civil and Administrative Tribunal or appeal the licence conditions. When the application is determined, all interested parties receive a Statement of Reasons outlining the basis for our decision. We believe this communication and community consultation process considers the interests and concerns of neighbours and the general public. By working together with our licensing field staff we have also improved our management and use of data collected as part of our monitoring and metering programs and by installing additional gauging stations for streamflow monitoring where necessary. These improvements enable our field staff to be the eyes and ears of the organisation. Managing information and complaints Complaints register To ensure that we manage customers in a professional way at all times, we have established policies and procedures to track and monitor complaints. Complaints are reported to our Board, if a customer: questions a decision or action taken by us questions the absence of action by us makes any assertion about a member of staff reports damage to property seeks compensation or redress, or reports a significant shortfall in customer service. referral of the licence application to stakeholder agencies, including the Department of Sustainability and Environment, Catchment Management Authorities, Water Authorities, local Government, Coastal Board and indigenous groups an on-site inspection and report from our Licensing field staff.

52 50 Social sustainability Information Privacy Act 2000 This Act established a regime for the responsible collection and handling of personal information according to ten Information Privacy Principles. Our privacy policy statement explains our business functions, the reason for the collection, use and disclosure of personal and other water resource entitlement information, the management and protection of personal information, individual access to their own information and contacts for more information or complaints. To ensure that we comply with this legislation at all times, representatives from each of our businesses monitor our collection and handling of personal and private information. Our nominated Privacy Officer also attended a number of Privacy Victoria network meetings held during the year. During 2005/2006 we did not receive any formal privacy complaints. A copy of our privacy policy statement is available on request. If members of the public consider that their privacy has been breached or interfered with, they should phone us on or write to our Privacy Officer, Southern Rural Water, PO Box 153, Maffra, For more information about the Information Privacy Act 2000, visit the Privacy Victoria website Freedom of Information Act 1982 The Freedom of Information Act 1982 allows the public a right of access to documents held by us. Freedom of Information (FOI) requests are made in writing, describe the documents required and include payment of the $21.00 application fee. Further charges may be payable. These fees and charges are not subject to GST. Over the past twelve months there were three requests for documentation. These requests were processed within the statutory reporting period of 45 days and the information released in accordance with the Act. One request was then referred for internal review. There were no applications made to the Victorian Civil and Administrative Tribunal. All Freedom of Information (FOI) requests should be sent to the Freedom of Information Officer, Southern Rural Water, PO Box 153, Maffra, For more information, phone us on Whistleblowers Protection Act 2001 The main objective of this legislation is to encourage and facilitate the making of disclosures of improper conduct or detrimental action by public officers and public bodies. It aims to protect people who disclose information about serious wrongdoings and provides a framework for investigating and managing disclosures, and for rectifying action to be taken. During 2005/2006 there were no disclosures made to us or referred to the Ombudsman for investigation. Disclosures can be made to our Protected Disclosure Coordinator, Southern Rural Water, PO Box 153, Maffra, VIC 3860 or direct to the Ombudsman Victoria, Level 3 (South Tower), 459 Collins Street, Melbourne, A copy of our procedures is enclosed, available on request, or can be collected from our offices during normal office hours. This information is free of charge. More information about this legislation is available from the Ombudsman s website Value of our Community Service Obligations Provision of concession to pensioners Rebates paid to not for profit organisations under the water and sewerage rebate scheme Utility relief grant scheme payments 2005/ / / , , , Nil Ni Nil Nil Nil Nil

53 51 Community involvement Implementing our communications plan While our Stakeholder Survey, conducted in 2003, confirmed that we had made good progress with our communication and engagement activities with customers, stakeholders and the community, our 2005/2006 Communication Plan detailed new priorities that were linked with and enhanced our existing activities. During this time of active water reform, our priorities and projects focus on: engagement and discussion with local irrigators and stakeholders to ensure that they re empowered to participate in the tailoring of unbundling to local circumstances demonstrating the informed involvement of Customer Consultative Committees in the service/price trade-off (a revamped Customer Charter is to form part of this) engagement and discussion with customers and regulators regarding the evolution of our financial arrangements, including the use of renewals in pricing communicating as part of Government the benefits of water reform for customers, communities, and the environment. Establishing regional partnerships As an organisation we demonstrate our commitment to our communities by being involved in a number of projects, by participating in committees and action groups, and by leading regional activities. We are partners in a range of regional natural resource management forums - including the Gippsland Lakes and Catchment Task Force and the Gippsland Integrated Natural Resources Forum, local committees and groups supported by Catchment Management Authorities. Much of our involvement with CMAs is focussed on support for the development and implementation of Regional Catchment Strategies. We continue to work in partnership with Melbourne Water on the use of recycled water, particularly through the WID Recycled Water Scheme. In SW Victoria, we worked with the Glenelg Hopkins Catchment Management Authority and Wannon Water to develop a Regional Water Authorities in Partnership brochure. Gippsland Integrated Natural Resources Forum The Gippsland Integrated Natural Resources Forum is a whole-of-gippsland approach to the management of the region's natural resources. Its role is to achieve a co-operative and strategic approach to natural resource management in the region. This forum has a membership of over 60 organisations including government departments, CMAs, councils, rural and regional urban water authorities, universities, private industry and community based groups. Our representatives attend Executive and Reference Group meetings. Last year we participated in the Who Does What in Water conference, held in Sale, and this year we participated in the GINRF/WaterWatch program for World Environment Day - 5 June This program included the launch of the GINRF Report Card and a schools education program for years 5 to 8 Linking catchments and estuaries to the sea. We supported the Willow Grove Primary School with their video and tree planting activities at Blue Rock Reservoir. Western Treatment Plant Community Open Days Each year, in early May, Melbourne Water opens the Western Treatment Plant to the general public and offers free, guided bus tours. By supporting this activity we promote our business, explain how we manage water in our storages and how we deliver recycled water to customers in the Werribee Irrigation District. This year, more than 400 people registered for the bus tours on each day. Engaging with stakeholders and community Field days Throughout 2005/2006 our field staff attended a number of regional forums, held meetings with farmer/industry groups and attended the major regional field days to explain changes in water management practices and licensing requirements. This year we attended field days at Lancefield, Lardner Park, Bairnsdale/East Gippsland, Heyfield, Lang Lang, Silvan, Sungold in Warrnambool and Sheepvention at Hamilton. These field days are an opportunity for us to meet with customers and to provide them with specific information about their water use and management concerns.

54 52 Social sustainability National Water Week tours Each year we support National Water Week by conducting bus tours of the Bacchus Marsh and the Macalister Irrigation Districts for primary school children. The focus of our tour in Bacchus Marsh was the impact of the drought on water supplies for rural and urban use. Our tour included a visit to Merrimu Reservoir which supplies water for urban use. We also went to the Bacchus Marsh diversion weir and visited a local farm to hear how irrigators manage and use water from our channels. Students completed water quality/health testing at the new ecolinc education centre. Our tour of the Macalister Irrigation District includes a number of key sites across the district where we explain how we manage and distribute water, and a visit to the robotic dairy to see how water is used by a local irrigator. The theme of Water Week is Water For Life protect, conserve and get involved. Glenmaggie Open Day On Saturday, 21 January 2006 more than 500 people attended our Open Day at Glenmaggie Reservoir. Held every two years, this is an opportunity for the public to take a guided tour across and inside the dam wall, hear how we manage the delivery of water to the Macalister Irrigation District and the environment and visit our new display at the Information Centre. It also included a tour Country Energy s hydro power station, a free boat safety check by Marine Safety, learning water health with Waterwatch and a bbq lunch. Our Glenmaggie Open Day is a major community event where we get together with our families, friends and resource management partners to explain what we do and how we work together. Rusty Shovel Golf Day Each year our Eastern Irrigation Business holds its Rusty Shovel Golf Day. The money raised at this charity event is donated to a local service organisation. This year customers, stakeholders and members of the local community joined our staff in raising almost $3,300 for the Clydebank Rural Fire Brigade. Tours of the Macalister Irrigation District Following a number of requests from groups to tour the Macalister Irrigation District, we have developed a program that can be tailored to meet the information needs and interests of the community. This program and support materials includes: a tour of Glenmaggie and the updated display and information centre our Main Northern channel, regulators and the new automated flume gates key monitoring and measuring sites for environmental flows and runoff into our drain network a visit to the robotic dairy and museum. Anecdotal feedback from the East Gippsland TAFE, Melbourne University and Retired Officers Association tour groups has confirmed that our tours are interesting and informative. Engaging with southern Victoria In early June 2006 we held a series of groundwater information meetings for landowners in SW Victoria. These meetings were an opportunity for us to share information about groundwater where it comes from, how licence applications are assessed and how a groundwater management area is established. The meetings provided landowners with an opportunity to ask questions about the use of water within groundwater management areas. The meetings were held over three days in three locations, Nullawarre, Hawkesdale and Camperdown, and over 110 people attended and stayed for lunch. Feedback from landowners confirmed they appreciated the opportunity to ask questions about local water use and groundwater management issues and that the meetings helped to increase their understanding of the importance of groundwater and how it is managed.

55 53 Our people Public Administration Act 2004 Southern Rural Water is committed to employment and conduct principles as outlined in the Public Administration Act For employers, it must ensure that decisions are based on merit, employees are treated fairly and reasonably, equal employment opportunity is provided and reasonable avenues of redress against unfair or unreasonable treatment. For employees, it ensures that they act with impartiality, display integrity (including avoiding real or apparent conflicts of interest), show accountability for actions and provide responsive service. Diversity As at 30 June 2006, there were 140 people employed at Southern Rural Water 110 males and 30 females. By comparison, at the same time last year we employed 131 people. The following table shows the breakdown of staff by function as at 30 June Category 2005/ /2005 Executive officers (salary greater than $116,000) 2 2 Senior management (salary less than $116,000) Administration staff Finance staff 6 6 Operational staff Total The following table shows comparative staffing numbers by gender and employment category for the past three years. Category 2005/ / /2004 Female Permanent full time Permanent part time Temporary full time Temporary part time Male Permanent full time Permanent part time Temporary full time Temporary part time Total

56 54 Social sustainability Our staff at team building workshop Most new employees were sourced with the assistance of Mission Employment, a job network recruitment service provider. Job advertisements and position descriptions were developed for each new role and a selection panel interviewed short-listed candidates. Our selection process measures candidates against advertised job pre-requisites and a key selection criteria that includes the Merit and Equity Principles established under the Public Administration Act All new starters received a formal induction. Pay and entitlements are administered in accordance with signed employment contracts and certified industrial agreements. Employee Consultative Committee Arising from our Enterprise Agreement 2004, an Employee Consultative Committee was formed to monitor implementation of the Agreement. This committee formally met twice and there were no significant industrial issues raised during the year. Equal Opportunity A network of six staff has been trained as part-time Equal Opportunity field contact officers. These field contact officers to work within our business teams to identify and manage issues and to provide peer education and support. We established our Equal Opportunity Contact Officer training program during 2001 under the auspices of the Victorian Government s People Management Award Managing Fairly category. Women s Network Our Women s Network, now in its sixth year, implemented a program of professional development, business focussed meetings and training activities. This year the key activities included a tour of Melbourne Water s Treatment Plant and our Werribee Irrigation District, and workshops with a focus on career planning and team building. The aim of the network is to: provide a support network where women can exchange ideas and information provide opportunities for professional growth through leadership development, education and mentoring enhance personal development through role modelling opportunities and drawing from the diversity of the network s members assist members to develop their strengths, increase their confidence and motivation, and work towards self-improvement. People Matter Survey 2006 Over a third of our staff participated in the voluntary People Matter Survey conducted by the State Services Authority (SSA) in March As at 30 June 2006, the SSA is yet to provide data and feedback from the survey. Capability To ensure continuous improvement and the building of capability, we have implemented a number of ongoing programs and initiatives for all our employees and we have placed copies of our policies, procedures and Chief Executive s Instructions on an openaccess database so that they are available to all staff at all times. Management Development Our Management Development Program provides staff with the opportunity to attend Management Forums as well as lunchtime information sessions presented by in-house subject specialists. These presentations cover topics such as occupational health and safety, information management and superannuation education sessions. Regional Training Training and development is provided both on a business needs and personal development basis. We have been involved in a number of regional training networks and initiatives during the year. Our Human Resources staff participated in the following training forums and projects: Victorian Water Industry Association Training Network Gippsland Regional Training Cooperative, and the Water Authorities of Gippsland Project. The VicWater Training Network met in November 2005 and had a major focus on nationally based qualifications and courses. We were also represented in the National Water Training Package review, an outworking of the VicWater forum. The Gippsland Regional Training Cooperative (GRTC) is a group of major regional employers who have a shared commitment to training and staff development. Formed in 2003, GRTC members pool their collective training needs to ensure critical mass training and delivery within Gippsland. An annual training calendar is one outcome from this initiative. The Water Authorities of Gippsland (WAG) project initially involved all Gippsland based Water Authorities joining together for the nationally recognised Certificate 3 program. However in the past year, it has diversified into a general HR forum covering a wide range of topics and collaboration on mutual benefit projects.

57 55 SRW staff receiving their Certificate 3 award in April Staff from GMW with our staff at Glenmaggie. Nationally recognised qualifications In 2004, 60 field officers enrolled in a two year nationally recognised training and assessment program conducted by the University of Ballarat and Goulburn-Murray Water Training Services. Another 20 new staff have enrolled in the Certificate 3 program since this time. By June 2006, 55 staff qualified and received their Certificate 3 qualification Award in Water Industry Operations. Goulburn Murray Water tour In May 2006, representatives from Goulburn Murray Water visited us to benchmark key planning and operational activities and to discuss differences and similarities with managing water resources. This included policies and procedures, operations, maintenance, remuneration and OH&S. GMW were particularly impressed with our demonstrations especially the channel automation technology, the online water ordering facility that is available to all customers and the Navman satellite vehicle communications that is used for the OH&S of our staff. Trainees and work experience During the year we hosted six Youth Employment Scheme (YES) trainees, and a number of Work for the Dole participants and school based work experience students. The YES scheme, a state government sponsored initiative, provides people aged 15 to 24 years with an opportunity to enter the workforce and build careers. As a result of the YES program, two trainees were offered employment and another three other are continuing their traineeships. One trainee decided to attend University full-time. The YES initiative has helped us to build a diverse workforce and the work experience program is a potential source of candidates in the future. Occupational Health and Safety During 2005/2006 we continued to manage our Occupational Health and Safety (OH&S) responsibilities in accordance with the provisions of relevant legislation. We retained the professional services of KFA & Associates to assist in the management of OH&S and WorkCover, and the provision of training and consultancy services. As part of our ongoing employee induction program we advise staff of their rights and obligations with respect to providing a healthy and safe working environment for all employees. This program introduces new employees to their duties and responsibilities and explains key elements of our OH&S principles, procedures and programs. Our OH&S Committee includes elected employee representatives from all our businesses. This Committee facilitates co-operation by instigating, developing and implementing measures designed to ensure health and safety at work. During the year our OH&S Committee met four times. Over the past year we: undertook a number of training events including a Victorian WorkCover Authority approved refresher training program conducted by IRT Pty Ltd in June 2005 for Health and Safety representatives and line managers completed a number of workplace audits, system reviews and inspections participated in two VicWater safety conferences and a number of working teams including a statistical benchmarking project and a manual handling risk identification and training program. The following table shows our OH&S performance during 2005/2006 and the previous two years. 2005/ / /2004 Number of lost time injuries Total lost time (hours) Number of no lost time injuries (medical expenses only) Number of incidents / near misses This year there was one lost time injury recorded compared to four in the previous year.

58 56 Social sustainability Case study Our transparent water allocation processes In July 2005 a landowner from Darnum in Gippsland applied for a 90 ML groundwater licence. He planned to use this water for irrigation purposes to grow crops and pasture. As the application was for a significant amount and came from a sensitive region where very few commercial and irrigation licences have been approved, we advertised the application and requested submissions from local landowners. Once our desktop assessment had been completed we also requested that a water use plan and a hydrogeological assessment be submitted. In August 2005 we held a public meeting so that those who had made submissions about the licence application could voice their concerns and hear how the landowner planned to use the water to develop his property. More than 20 people attended the meeting. The licence application was approved with specific conditions and timeframes for developing water use on the property according to the whole farm plan. Since the licence was approved, there have been no complaints about the development, interference to existing water supplies or any direct impact on others in the broader community. Public meetings are an opportunity for us to explain our licensing process and to hear submissions from the community.

59 57 General information

60 58 General information Glenmaggie Reservoir. Bulk entitlements Thomson Macalister The following information is provided in accordance with Section 20.3 of the Thomson/Macalister Bulk Entitlement Order. At 30 June 2006, our entitlement in the Thomson Reservoir was 15,820 ML. Releases from the Thomson Reservoir to supply primary entitlements, 3,271 ML. Volume of our share of storage capacity as at the 1 July 2005 under Clause 9 was 10,209 ML. The volume of inflows attributed to us under Clauses 10.1 and 10.2 was 8,882 ML. The annual amounts of water taken by us from waterway were: Southern Channel 120,181 ML Northern Channel 47,989 ML Eastern Channel 45,910 ML Cowwarr Channel 9,003 ML. The volume of water held at Lake Glenmaggie as at 30 June 2006 was 30,161 ML. The annual amount of water taken by the primary entitlement holders under this Order was 166,916 ML. There were no credits granted under Clause 17 of the Order. There were no temporary or permanent transfers of a bulk entitlement or any other entitlement to us. There were no alterations made to Schedules 1 or 2 under sub-clause 8.1 of the Order. Permanent transfers of primary entitlements were: MID to MID, 7 transfers, 427 ML MID to Thomson River, 2 transfers, 32 ML Thomson River to MID, 3 transfers,109 ML Macalister River to MID, 2 transfers,35 ML. Temporary transfers of primary entitlements were: MID to MID, 230 transfers, 8,891.4 ML MID to Thomson River, 17 transfers, ML MID to Macalister River, 11 transfers, 829 ML Thomson River to Thomson River, 25 transfers, ML Thomson River to Macalister River, 0 transfers, 0 ML Thomson to MID, 22transfers, ML Macalister River to Macalister River, 0 transfer, 0 ML Macalister River to Thomson River, 1 transfers, 35 ML Macalister River to MID, 12 transfer, 316 ML. There are no amendments to this Bulk Entitlement Order. There have been no new Bulk Entitlements granted. There has been no program approved under sub-clause 18.2 to date. There has been no program approved under sub-clause 19.3 to date. The Authority is not aware of any failure to comply with the provision of the Bulk Entitlement. To minimise the potential for breaching compliance with environmental flows, we have developed a Risk Management Strategy and action plans.

61 59 Melton Reservoir. Werribee River The following information is provided in accordance with Section 18.1 of the Werribee Bulk Entitlement Order. We did not transfer any water from Pykes Creek Reservoir to Melton Reservoir. Water taken from: Bacchus Marsh Diversion Weir was 4,173 ML Werribee Diversion Weir was 10,383 ML Maddingley Pumps was 0 ML. Water taken by us from the system waterway at each of the Diversion Weirs: From Lerderderg Weir to Goodman s Creek was 292 ML. Our share was 29 ML. From Goodman s Creek to Merrimu Reservoir (from the Lerderderg Tunnel) was 236 ML. Our share was 34 ML. Werribee Upper Diversion Weir to Pykes Creek, a total of 1,450 ML was diverted. Volume of water taken from the waterway by primary entitlement holders including outfalls: Bacchus Marsh was 3,224.6 ML River Diverters was ML Myrniong was 33.0 ML Werribee was 7,560.6 ML (This includes ML recycled water, 6,528.7 ML water right and ML outfalls). There have been no internal spills in Lake Merrimu. As at 30 June 2006 capacity shares in Lake Merrimu were: Western Water, 3,758.9 ML SRW, ML Unallocated, 1,355.5 ML As at 30 June 2006, share of passing flows from Lake Merrimu were: Western Water, 0.9 ML SRW, 0.3 ML Unallocated, 0.3 ML No temporary transfers from this BE have taken place. No transfers to us have taken place. The 2005/2006 seasonal allocations commenced at 55% of Licensed Volume or Water Right and rose to 80% in December It remained at 80% for the rest of the season. Allocation There were no changes to Schedule 1 or to Schedule 2. There was one permanent transfer of 6.1 ML from the BMID to the WID. Temporary transfers included: 13 Transfers, ML, from BMID to BMID 5 Transfers, 70.3 ML, from BMID to WID 3 Transfer, ML, from BMID to Merrimu 0 Transfers, 0 ML, from BMID to Werribee River 1 Transfer, 10.7 ML, from WID to Werribee River 85 Transfers, 1,459.4 ML, from WID to WID 3 Transfers, 200ML, from WID to BMID 1 Transfer, 2.0 ML, from Werribee River to Werribee River 12 Transfers, ML, from Werribee River to WID. The annual volume supplied to: Bacchus Marsh, 2,861.1 ML Werribee, 7,319.9 ML (which includes ML of recycled water). % WR or LV July % August % September % October % December 80% There are no amendments to this Bulk Entitlement Order. There have been no new Bulk Entitlements granted. During the completion of minor works on the Bacchus Marsh diversion weir, there was one instance when we had difficulty in complying with the passing flow requirements. We have not received any credits. For 2005/2006 a total of ML was returned to the system waterway via the main channel outfall.

62 60 General information Rosslynne Reservoir. Maribyrnong River The following information is provided in accordance with Section 19.1 of the Maribyrnong Bulk Entitlement Order. 13.7MLs were released this year to supply licence entitlements. Our share of Rosslynne Reservoir at the 30 June 2006 was 123 ML. Taking into account evaporation and measurement discrepancies, we had inflows of -3.34ML. Allowances of up to 50% were provided for transfer and operating losses. We have had 40.8 ML deducted for passing flow requirements. With the continuation of the drought throughout 2005/2006, water levels in Rosslynne Reservoir remained extremely low. Irrigation releases were only provided during the later part of December 2005 to mid-january 2006, and this resulted in ongoing issues with compliance for flows at Sunbury. A total of 11.0 ML has been taken from the waterway by primary entitlement holders. There have been no temporary or permanent transfers from this Bulk Entitlement. A total of ML was transferred from Western Water s Macedon and Sunbury system into the Maribyrnong system, less estimated losses. There are no alterations to Schedule 1 or 2 of this Bulk Entitlement. There have been no temporary transfers within the system. There has been one temporary amendment to this Bulk Entitlement. The requirement to meet the 1 ML/day minimum flow at Sunbury has been replaced with a requirement to maintain water quality parameters at Settlement Road and Salesian College. This temporary amendment was reviewed in November 2004 and a new amendment put in place until November There have been no new Bulk Entitlements granted. We have submitted plans for managing the environmental effects of operating the reservoir to the Department of Sustainability and Environment. We are awaiting their signoff on these plans. With the Bulk Entitlement amendment concluding in November 2005 and the continuing dry period, there were two events where passing flow requirements were not met - a short period at the conclusion of the amendment and a two- week period during December. Due to the extremely dry conditions, low water levels and the suspension of irrigation flows, we have continued to experience difficulties in meeting the passing flow requirements at the Sunbury site, as stipulated under the Bulk Entitlement Order. We have worked through these issues with the Department of Sustainability and Environment and key stakeholders and an application to amend the Bulk Entitlement was submitted in June The proposed new arrangements will guide the development of an Environmental Water Reserve and continue to provide protection for the environment while minimising the quantity released during this prolonged dry period.

63 61 Blue Rock Reservoir. Latrobe River The following information is provided in accordance with Section of the Bulk Entitlement Order At 30 June 2005, Blue Rock Reservoir contained 189,790 ML of water, 92 % of capacity. Capacity is 208,188 ML. At 30 June 2005, Lake Narracan contained 8,000 ML of water, 100 % of capacity. At 30 June 2006, Blue Rock Reservoir contained 169,140 ML of water, 81.2 % of capacity. Capacity is 208,188 ML. At 30 June 2006, Lake Narracan contained 8,000 ML of water, 100 % of capacity At 30 June 2006, the amount of water in the Authority s share of Blue Rock Reservoir was 2,590 ML or 1.24 % of the total capacity. The annual amount of water taken by licence holders from the system waterway was: 27.7 ML, upstream of Yallourn Weir Yallourn Energy The following information is provided in accordance with Section 12.3 and 12.1 of the Bulk Entitlement Order The annual amount of water designated as taken by the Authority from the waterway at its pumping station was 32,340 ML. In accordance with Clause 11.4, the Authority has a network of meters installed within its low quality water system that enables it to determine the low quality water usage by both the Loy Yang A and Loy Yang B power stations. This equipment is checked monthly for validity and annually for signal integrity. There were no temporary and no permanent transfers of all or part of the Bulk Entitlement. There was one entitlement or licence in respect of the system waterway temporarily or permanently transferred to the Authority. There were no amendments to this Bulk Entitlement. There are no existing or anticipated difficulties by the Authority in complying with the Bulk Entitlement. 6,693.8 ML, downstream of Yallourn Weir. The amount of annual losses debited to the Authority s share of Blue Rock Reservoir was 131 ML. There were no internal spills into the Authority s share of storage in Blue Rock. There were no periods of rationing for any licence holders during 2005/2006. The Authority has provided for passing flow requirements as specified in the Bulk Entitlement Order for the complete year. There were no temporary transfers and no permanent transfers of all or part of the Bulk Entitlement. There were no Bulk Entitlement or licences transferred temporarily or permanently to the Authority. Although there were no amendments to this Bulk Entitlement, modelling will continue as this confirms natural flow indicators and is used to review passing flow requirements, particularly at Sale. There were no amounts supplied to any licence holders other than those specified in Schedule 1 of the Order. Difficulties were experienced in relation to modified natural flow indicators at designated passing points. Modelling of passing flows is currently under review.

64 62 General information Water transfer tables During year ended 30 June 2006 Table 1 Permanent transfers (summary) Water right & diversion licences District/area or waterway Internal transfers within district/area or waterway Total transfers from other districts/ areas & waterways within Southern Rural Water Total transfers to other districts/ areas & waterways within Southern Rural Water Total transfers from districts/ areas & waterways of other Water Authorities Total transfers Net to districts increase/ areas & decrease waterways for district/ of other Water area or Authorities waterway Districts No ML No ML No ML No ML No ML ML Macalister Werribee Bacchus Marsh Waterways Thomson River (77.0) Macalister River (35.0) Latrobe River Maribyrnong River Werribee River Groundwater Other Waterways Total Table 1.1 Permanent transfers of water right or licensed volume Transfers from & to districts/areas & waterways within SRW To From Macalister District Werribee District Bacchus Marsh District Thomson River Waterway Macalister River Waterway District No ML No ML No ML No ML No ML Macalister Werribee Bacchus Marsh Waterways Thomson River Macalister River Latrobe River Maribyrnong River Werribee River Groundwater Other Waterways Total

65 63 Table 1.1 Permanent transfers of water right or licensed volume Transfers from & to districts/areas & waterways within SRW (continued) To From Maribyrnong River Waterway Werribee River Waterway Groundwater Other waterways Total District No ML No ML No ML No ML No ML Macalister Werribee Bacchus Marsh Waterways Thomson River Macalister River Latrobe River Maribyrnong River Werribee River Groundwater Other Waterways Total Table 1.2 Permanent transfers of water right or licensed volume transfers from districts/areas & waterways of other authorities There were no permanent transfers of water right or licensed volume from districts/areas and waterways of other authorities. Table 1.3 Permanent transfers of water right or licensed volume transfers to districts/areas & waterways of other authorities There were no permanent transfers of water right or licensed volume to other districts/areas and waterways of other authorities. Table 2 Temporary transfers (summary) water right, diversion licences & sales water District/area or waterway Internal transfers within district/area or waterway Total transfers from other districts/ areas & waterways within Southern Rural Water Total transfers to other districts/ areas & waterways within Southern Rural Water Total transfers from districts/ areas & waterways of other Water Authorities Total transfers Net to districts increase/ areas & decrease waterways for district/ of other Water area or Authorities waterway Districts No ML No ML No ML No ML No ML ML Macalister (370.9) Werribee Bacchus Marsh Waterways Thomson River (107.1) Macalister River Latrobe River Maribyrnong River Werribee River (180.9) Groundwater Other Waterways Total

66 64 General information Water transfer tables During year ended 30 June 2006 Table 2.1 Temporary transfers. Water right, diversion licences & sales water transfers from & to districts/areas & waterways within SRW To From Macalister District Werribee District Bacchus Marsh District Thomson River Waterway Macalister River Waterway District No ML No ML No ML No ML No ML Macalister Werribee Bacchus Marsh Waterways Thomson River Macalister River Latrobe River Maribyrnong River Werribee River Grounwater Other Waterways Total To From Latrobe River Waterway Maribyrnong Werribee River River Waterway Waterway Groundwater Other waterways Total District No ML No ML No ML No ML No ML No ML Macalister Werribee Bacchus Marsh Waterways Thomson River Macalister River Latrobe River Maribyrnong River Werribee River Grounwater Other Waterways Total

67 65 Water transfer tables During year ended 30 June 2006 Table 2.2 Temporary transfers. Water right, diversion licences & sales water transfers from districts/areas & waterways of other authorities. There were no temporary transfers of water right, licensed volume or sales water from districts/areas and waterways of other authorities. Table 2.3 Temporary transfers. Water right, diversion licences & sales water transfers from districts/areas & waterways of other authorities. There were no temporary transfers of water right, licensed volume or sales water from districts/areas and waterways of other authorities. Table 3 Irrigation water usage. District/area or waterway (district) Total water rights allocated to District and diversion licences Total recycled entitlement Gross supply at offtakes (excl. volume passed to other Districts) Recycled water Users in Districts Users outside District from district channels Total delivered from District Diversions from rivers, streams, lakes and main channels Total irrigation usage Sales usage Usage under entitlements / stock & domestic Total delivered in District Recycled Water Sales of water Under water rights/domestic & stock allowance ML ML ML ML ML ML ML ML ML ML ML ML Macalister Werribee Bacchus Marsh Gippsland Diverters Maribyrnong System Werribee System Bunyip/ Tarago System Other Total

68 66 General information Water transfer tables During year ended 30 June 2006 Table 4 Private diversions. Regulated waterways Irrigation Stock & Domestic Other Total Drainage Basin Licence Authorised Authorised Volume Area Licence Authorised Volume Licence Authorised Volume Authorised Volume No. ML HA No. ML No. ML ML *Main Northern (Regulated) Avon River Bemm River Bunyip River Bunyip River Weirs East Gippsland Glenelg River Hopkins River Lake Colac Latrobe River Latrobe River Tributaries Maribyrnong River Mitchell River Mitchell River Tributaries Moorabool River Nicholson River Otway System Portland Snowy River Snowy River Tributaries South Gippsland Tambo River Tambo River Lower Tambo River Tributaries Thomson Cowwarr Channel Thomson Macalister Thomson River Werribee River Westernport Bay Tributaries Yarra River Total

69 67 Water transfer tables During year ended 30 June 2006 Table 4 Private diversions. Unregulated waterways Drainage Basin Licence Irrigation Stock & Domestic Other Total Authorised Authorised Volume Area Licence Authorised Volume Licence Authorised Volume Authorised Volume No. ML HA No. ML No. ML ML *Unregulated Avon River Bemm River Bunyip River Bunyip River Weirs East Gippsland Glenelg River Hopkins River Lake Colac Latrobe River Latrobe River Tributaries Maribyrnong River Mitchell River Mitchell River Tributaries Moorabool River Nicholson River Otway System Portland Snowy River Snowy River Tributaries South Gippsland Tambo River Tambo River Lower Tambo River Tributaries Thomson Cowwarr Channel Thomson Macalister Thomson River Werribee River Westernport Bay Tributaries Yarra River Total

70 68 General information Water transfer tables During year ended 30 June 2006 Table 5 Groundwater extractions Irrigation Other Total Groundwater Management Area Licences Volume Area Licences Volume Volume Awaiting GMA Assessment Bungaree Cardigan Colongulac Condah Corinella Cut Paw Paw Denison Deutgam Frankston Gellibrand Gerangamete Giffard Glenelg Glenormiston Heywood Jan Juc Koo Wee Rup Zone Koo Wee Rup Zone 2a Koo Wee Rup Zone 2b Koo Wee Rup Zone Koo Wee Rup Zone Koo Wee Rup Zone Koo Wee Rup Zone Koo Wee Rup Zone Lancefield Leongatha Merrimu Moe Moorabbin Nepean Newlingrook Not In Nullawarre Orbost Paaratte Portland Rosedale Sale Stratford Tarwin Wa De Lock Zone Wa De Lock Zone Wa De Lock Zone Wandin Yallock Warrion Wy Yung Zone Wy Yung Zone Wy Yung Zone Yangery Yarram Total

71 69 Corporate reporting Directions from the Minister for Finance The information in this Report has been provided to comply with the requirements of FRD 2 of the Directions of the Minister for Finance under the Financial Management Act 1994, if they have not been met elsewhere in the Report. National Competition Pricing As a Government-owned business, we operate in accordance with the National Competition Policy. Our prices are set in collaboration and consultation with customers to ensure that all operational costs are met and provision is made for the replacement of assets used to provide our services. As from 1 July 2001 we have operated under a Tax Equivalent regime. Consultancies Greater than $100,000 Each year we engage consultants to provide expert analysis and advice, to facilitate decision-making and provide skills not currently available within our organisation. In September 2005, we engaged Moroka Consulting for $100,000 to provide support with our MID2030 project. Progress payments are being made on completion of key milestones. Less than $100,000 During 2005/2006 we contracted fourteen consulting firms at less than $100,000 to provide advice, skills and services. The total cost of these consultancies was $230,000. For comparison, during 2004/2005, we engaged eight consulting firms at a total cost of $60,494 and during 2003/2004, we engaged nine consulting firms at a total cost of $94,831. We did not enter into any contracts greater than $10 million in value during the reporting period. Building Act 1993 Each year consultants are engaged to review and report on our compliance with the building maintenance provisions of the Building Act The buildings we own or lease comply with these requirements. Water and energy consumption With the implementation of our new accounting system, we expect to be able to capture this information for all our offices. However, we do not have data on our water and energy consumption for this reporting period. Greenhouse gas emissions In December 2005 a Victorian Water Industry working group comprising of representatives from the Victorian Water Industry, VicWater, Sustainability Victoria, EPA Victoria and the Department of Sustainability and Environment was established to identify ways to reduce greenhouse emissions (GHG) whilst providing services to a growing population with a reduced water supply. The water industry has been identified as a sector that is highly vulnerable to climate change and amongst the top 20 electricity consuming businesses in Victoria. This Committee has made a number of recommendations that will apply to all water authorities and it is expected that these will take effect from 1 July In the meantime, we have begun to develop a Greenhouse Action Plan for the next five years that is aligned with the state Government s targets for both reducing GHG emissions and for adopting renewable energy and started to collect data for reporting this requirement. We have included these reporting requirements into our MID 2030 project and a full energy audit is programmed into our EMS. The target completion date for this audit is December So, while our actual greenhouse gas emissions for 2005/2006 are approximates, we estimate that our businesses generated almost 1,000 T of CO2e and our fleet of vehicles generated approximately 800 T of CO2e. This estimated total of 1,800 T of CO2e compares favourably with estimates recorded for the 2004/2005 financial year. To offset our emissions, we produce renewable energy at two of our storages Blue Rock and Glenmaggie. Collectively these sites generate up to 12.4 megawatts of hydroelectricity. We are investigating opportunities for additional renewable energy production at other storage sites.

72 70 General information Financial review of operations and financial conditions Five-year financial summary, including renewals reconciliation $'000's $'000's $'000's $'000's $'000's Revenue Water Rights and Charges 14,880 13,573 12,291 9,947 8,812 Storage Operator Charges 7,453 3,415 5,839 6,773 4,101 Government Grants 602 2,142 1, Other 2,430 1,149 1, ,164 Total Revenue 25,365 20,279 20,354 18,488 15,034 Expenditure Operations and Maintenance 16,278 12,264 13,925 13,440 12,257 Depreciation and amortisation 5,617 5,089 4,825 4,755 4,637 Other 4,591 4,005 3,008 3,527 4,034 Total Expenditure 26,486 21,358 21,758 21,722 20,928 Net Operating Result (1,121) (1,079) (1,404) (3,234) (5,894) Payment to Government 0 (418) (418) (418) (418) Change in Accounting Policy (16) 0 Movement in Retained Earnings (1,121) (1,497) (1,822) (3,668) (6,312) Add Non-regulatory Depreciation 4,543 5,089 4,825 4,755 4,637 Less Renewals Charge 1,816 2,313 2,327 2,145 2,286 Renewals Based Result 1,606 1, (1,058) (3,961) Less additional Transfers to Renewals 0 (141) Add Major Projects Expensed 1,172 1,432 1,328 1,568 3,352 Funds Based Result 2,778 2,570 1, (609)

73 71 Financial report

74 72 Financial report Operating statement For year ended 30 June 2006 Revenue from operating activities Notes $'000's $'000's Service charges 2(a) 16,511 15,452 Chargeable works 1(c) 4, Sale of water 1,137 1,537 Government contributions 1(c),2(a) 602 1,277 Other revenue 2(a) Interest on overdue accounts Revenue from non-operating activities Interest Government contribution for capital purposes 1(c),2(a) Sale of created water entitlement 1(c) 1,571 0 Net gain on disposal of assets 1(d),2(b) Total Revenue from Ordinary Activities 25,365 20,279 Expenses from Ordinary Activities Depreciation 1(e),2(c) 5,239 4,959 Amortisation 1(e),2(c) Services 1,798 2,671 Employee benefits 1(j),2(c) 8,559 7,622 Insurance Maintenance 1(c) 7,104 2,965 Telecommunications Property and occupancy Written down value of transferred assets 2(b) Environmental contribution 1(n) Other 1,510 1,583 Total expenses 26,486 21,358 Net result from ordinary activities before tax (1,121) (1,079) Income tax expense / (revenue) 1(l),3 0 0 Loss for year (1,121) (1,079) The operating statement should be read in conjunction with the accompanying notes

75 73 Balance sheet As at 30 June 2006 Current Asset Notes $'000's $'000's Cash and cash equivalents 1(f),4 10,810 8,562 Receivables 1(g),5 3,305 2,435 Inventories 1(h), Other current assets Total Current Assets 14,728 11,311 Non-Current Assets Property, Plant & Equipment 1(d),7 432, ,073 Intangible assets 1(p), Total Non-Current Assets 433, ,941 Total Assets 448, ,252 Current Liabilities Payables 1(i),10 3,577 3,422 Interest bearing liabilities 11(a) 6 6 Employee benefits 1(j),11(b) 1,956 1,814 Total Current Liabilities 5,539 5,242 Non-Current Liabilities Interest bearing liabilities 11(a) Employee benefits 1(j),11(b) Total Non-Current Liabilities Total Liabilities 5,691 5,410 Net Assets 442, ,842 Equity Contributed capital , ,100 Asset revaluation reserve 13 8,207 8,207 Retained profits 14 57,414 58,535 Total Equity 442, ,842 The balance sheet should be read in conjunction with the accompanying notes

76 74 Financial report Statement of Changes in Equity For the period ending 30 June 2006 Notes $'000's $'000's Gain on property revaluation ,732 Net income recognised directly in equity 0 5,732 Loss for year (1,121) (1,079) Total recognised income and expense for the period (1,121) 4,653 The statement of changes in equity should be read in conjunction with the accompanying notes

77 75 Cash Flow Statement For the reporting period ended 30 June 2006 Cash Flows from Operating Activities Notes $'000's $'000's Receipts from customers 23,289 20,179 Receipts from government 507 2,142 Payments to suppliers and employees (22,783) (18,263) Interest and bill discount received Net GST received from ATO 1,784 1,005 Net cash provided by operating activities 22 3,259 5,315 Cash Flows from Investing Activities Payments for property, plant & equipment (7,072) (6,129) Proceeds from sale of non-current assets Proceeds from redemption of investments 0 5,000 Net cash used in investing activities (6,604) (460) Cash Flows from Financing Activities Dividend payment to State Government (89) (443) Proceeds from contributed capital by State Government 12 5,682 3,240 Net cash provided by financing activities 5,593 2,797 Net increase in cash held 2,248 7,652 Cash and cash equivalents at the beginning of the financial year 8, Cash and cash equivalents at the end of the financial year 10,810 8,562 The cash flow statement should be read in conjunction with the accompanying notes.

78 76 Financial report Notes To and forming part of the Financial Statements 1 Significant Accounting Policies (a) Establishment of the Authority Gippsland and Southern Rural Water Authority (SRW) was established on 1 July 1995, by a Ministerial Order under section 98 of the Water Act 1989, dated 30 June The Authority is a not for profit entity owned by the State Government of Victoria. (b) Basis of Accounting General This financial report of SRW is a general purpose financial report that consists of an Operating Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and notes accompanying these statements. The general purpose financial report complies with Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the requirements of the Financial Management Act 1994 and applicable Ministerial Directions. This financial report has been prepared on an accrual and going concern basis. Accounting policies Unless otherwise stated, all accounting policies applied are consistent with those of the prior year. Where appropriate, comparative figures have been amended to accord with current presentation and disclosure made of material changes to comparatives. Classification between current and non-current In the determination of whether an asset or liability is current or non-current, consideration is given to the time when each asset or liability is expected to be realised or paid. With the exception of employee benefits, the asset or liability is classified as current if it is expected to be turned over within the next twelve months, being the Authority's operational cycle. Rounding Unless otherwise stated, amounts in the report have been rounded to the nearest thousand dollars. Application of AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards These financial statements are the first SRW financial statements to be prepared in accordance with AIFRSs. AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied in preparing these financial statements. Financial statements of SRW until 30 June 2005 had been prepared in accordance with previous Australian Generally Accepted Accounting Principles (AGAAP). AGAAP differs in certain respects from AIFRS. When preparing 30 June 2006 financial statements, management has amended certain accounting, valuation and consolidated methods applied in the AGAAP financial statements to comply with AIFRS. With the exception of financial instruments, the comparative figures of 30 June 2005 were restated to reflect these adjustments. The Authority has taken the exemption available under AASB 1 to only apply AASB 132 and AASB 139 from 1 January Reconciliations and descriptions of the effect of transition from previous AGAAP to AIFRS on the entity s equity and its net income are in note 24. Early adoption of standard SRW has elected to apply AASB 119 Employee Benefits (issued in December 2004) to the annual reporting period beginning 1 July This includes applying AASB 119 to the comparatives in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. Historical cost convention These financial statements have been prepared under the historical cost convention, except where stated in note 1(d) for the revaluation of financial assets, certain classes of property, plant and equipment and investment property. Critical accounting estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the entity s accounting policies. (c) Revenue Recognition Water charges Rates and service charges are recognised as revenue when levied or determined. Water charges by measure are recognised as revenue when the product is provided. Meter reading is undertaken progressively during the year. Sale of created water entitlement In 2003 the Authority completed work on the Nuntin pipeline project. The project replaced 4.5 kilometres of poor condition concrete lined channel with a low pressure pipeline. Water saving studies confirmed that the project had saved 790 ML each year. In 2004 the Minister approved the amendment of our bulk water entitlement and the creation, then sale by auction, of these new water entitlements. The funds raised by the August 2005 auction have been recorded in the operating statement as revenue. Chargeable works From time to time the Authority undertakes capital works for its customers. The cost of these works is included within Maintenance expense, which is offset by revenue reported in the Operating Statement as Chargeable works. During the 2006 financial year, the Authority undertook significant upgrade

79 77 works at Yallourn weir. Revenue from this activity of $4,685k is recorded within Chargeable works, and an equivalent expense has been accumulated within the Maintenance expense line. Government contributions Government grants and contributions are recognised as operating revenue on receipt or when an entitlement is established, whichever is the sooner, and disclosed in the operating statement as government contributions. However, grants and contributions received from the Victorian State Government, which were originally appropriated by the Parliament as additions to net assets or where the Minister for Finance and the Minister for Water have indicated are in the nature of owners contributions, are accounted for as Equity Contributed Capital. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Authority will comply with all attached conditions. Interest and rents Interest and rents are recognised as revenue when earned or the service provided. (d) Recognition and Measurement of Assets Acquisition The purchase method of accounting is used for all acquisitions of assets. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where assets are constructed by the Authority, the cost at which they are recorded includes an appropriate share of variable overheads and any associated borrowing cost. Property, plant and equipment represent non-current assets comprising land, buildings, water and drainage infrastructure, plant, equipment and motor vehicles, used by the Authority in its operations. Items with a cost or value in excess of $500 and a useful life of more than one year are recognised as an asset. All other assets acquired are expensed. Repairs and maintenance Routine maintenance, repair costs and minor renewal costs are expensed as incurred. Where the repair relates to the replacement of a component of an asset and the cost exceeds the capitalisation threshold, the cost is capitalised and depreciated. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the operating statement on a straight-line basis over the period of the lease, in the periods in which they are incurred, as this represents the pattern of benefits derived from the leased assets. Lease income from operating leases is recognised in income on a straight-line basis over the lease term. Non-Current Physical Assets Land and buildings are measured at the amounts for which assets could be exchanged between knowledgeable, willing parties, in an arm s length transaction. Plant, equipment and vehicles are measured at cost. In accordance with FRD 103 Non-Current Physical Assets, water infrastructure assets are to be measured at cost less any accumulated depreciation and any accumulated impairment losses. Such assets may comprise substructures or underlying systems held by water entities to facilitate the harvesting, storage, treatment and transfer of water to meet customer needs. They also include infrastructure assets that underlie drainage systems. Previous accounting treatment In the 2005 financial year, Water Infrastructure assets were measured at fair value. All other assets were measured in the same manner as the current year. Rather than establish the true historical cost of Water Infrastructure assets, FRD 115 Non-Current Physical Assets - First Time Adoption, allows SRW to elect the deemed cost outlined in the FRD and AASB 1. SRW has elected the deemed cost as the fair value of the assets at the date of transition to AIFRS, being 1 July These Water Infrastructure Assets were last revalued as at 1 July 1999 and recorded in the 1999/2000 annual financial statements. Headworks infrastructure assets were revalued by the Snowy Mountains Engineering Corporation (Mr T Reid B Eng (Civil), Dip Civl Eng, FEIA, MAGS and Mr Colin Rudd B Eng (Civil), Grad Cert Water Eng, Grad Dip Mgmt, MIEA). Irrigation distribution assets were revalued by SRW officers (Mr P Byrnes B Eng (Ag)(Hons), Grad Cert Water Eng, Grad Dip GIS and Remote Sensing and Ms Lucy Hluszko B Eng (Civil & Computing)). Gains and losses on disposal Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the operating statement. When revalued assets are sold, it is the Authority s policy to transfer the amounts included in other reserves in respect of those assets to accumulated funds. All assets must be tested for impairment on an annual basis. Such assets are tested to ascertain whether the carrying amounts exceed their recoverable amounts.

80 78 Financial report Notes To and forming part of the Financial Statements (continued) Revaluations Assets other than those that are carried at cost are revalued with sufficient regularity to ensure that the carrying amount of each asset does not differ materially from its fair value. This revaluation process normally occurs every three to four years for assets with useful lives of less than 30 years or six to eight years for assets with useful lives of 30 or greater years. Revaluation increments or decrements arise from differences between an asset s depreciated cost or deemed cost and fair value. Revaluation increments are credited directly to equity in the revaluation reserve, except to the extent an increment reverses a revaluation decrement in respect of that class of asset previously recognised as expense in determining the net result, the increment is recognised as revenue in determining the net result. Revaluation decrements are recognised immediately as an expenses in the net result, except to the extent a credit balance exists in the revaluation reserve in respect of the same class of assets, they are debited to the revaluation reserve. Revaluation increases and revaluation decreases relating to individual assets within a class of property, plant and equipment are offset against one another within that class but are not offset in respect of assets in different classes. Impairment of Assets Goodwill and intangible assets with indefinite useful lives are tested annually as to whether their carrying value exceeds their recoverable amount. All other assets are assessed annually for indicators of impairment. If there is an indication of impairment, the assets concerned are tested as to whether their carrying value exceeds their recoverable amount. Where an asset s carrying amount exceeds its recoverable amount, the difference is written-off by a charge to the operating statement except to the extent that the write-down can be debited to an asset revaluation reserve amount applicable to that class of asset. The recoverable amount for most assets is measured at the higher of depreciated replacement cost and fair value less costs to sell. Recoverable amount for assets held primarily to generate net cash inflows is measured at the higher of the present value of future cash flows expected to be obtained from the asset and fair value less costs to sell. It is deemed that, in the event of the loss of an asset, the future economic benefits arising from the use of the asset will be replaced unless a specific decision to the contrary has been made. An impairment loss on a revalued asset is recognised directly against any revaluation reserve in respect of the same class of asset to the extent that the impairment loss does not exceed the amount in the revaluation reserve for that same class of asset. A reversal of an impairment loss on a revalued asset is credited directly to equity under the heading revaluation reserve. However, to the extent that an impairment loss on the same class of asset was previously recognised in profit or loss, a reversal of that impairment loss is also recognised in profit or loss. (e) Depreciation and Amortisation of Non-current Assets Where assets have separate identifiable components that have distinct useful lives and/or residual values, a separate depreciation rate is determined for each component. Land is not depreciated. Motor Vehicles are depreciated on a diminishing balance basis, over their estimated useful life, commencing from the time the asset is held ready for use. Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, commencing from the time the asset is held ready for use. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. In accordance with industry standards, Headworks storage assets are subject to a major review every 15 years. This inspection process is used by SRW to confirm and validate the annual assessment of asset useful life. Major depreciation rates used are listed below and are consistent with the prior year, unless otherwise stated: Land & Buildings Rates Buildings 2.50% Infrastructure Water Storages % Drain structures 1.00% Distribution network % Other assets Plant & equipment 10.00% Furniture & computers % Motor Vehicles 22.50% Software 33.30%

81 79 (f) Cash and Cash Equivalent Assets For the purposes of the Cash Flow Statement, cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within interest bearing liabilities on the balance sheet. (g) Receivables Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less allowance for doubtful debts. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Authority will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the operating statement. (h) Inventories Inventories comprise stores and materials used in the construction of new works and for the repair and maintenance of existing assets. All inventories are valued at the lower of cost and net realisable value. Costs are assigned to inventory quantities on hand at balance date on a first-in, first-out basis (FIFO). (i) Trade and Other Payables These amounts represent liabilities for goods and services provided to the Authority prior to the end of the financial year, which are unpaid. (j) Employee Benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably, All annual leave and unconditional vested long service leave representing six or more years of continuous service is: (b) measured at: nominal value under AASB 119 where a component of this current liability is expected to fall due within 12 months after the end of the period; and present value under AASB 119 where the entity does not expect to settle a component of this current liability within 12 months. Long service leave representing less than six years of continuous service is: (a) disclosed in accordance with AASB 101 as a non- current liability; and (b) measured at present value under AASB 119 as the entity does not expect to settle this non-current liability within 12 months. Superannuation, in accordance with FRD 112A A liability or asset in respect of defined benefit superannuation is recognised in the provision for employee benefits, and is measured as the difference between the present value of employees accrued benefits at the reporting date and the net market value of the superannuation plan s assets at that date. The present value of accrued benefits is based on expected future payments which arise from membership of the plans to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using rates of national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows. The amount charged to the operating statement in respect of superannuation represents the contributions made to the superannuation plan, adjusted by the movement in the defined benefit plan liability or surplus (note 18: Vision Super defined benefit plan). Employee Benefit On-Costs Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities. (k) Changes in Accounting Policy The accounting policies are consistent with those of the previous year, unless stated otherwise. (l) Taxation (a) disclosed in accordance with AASB 101, as a current liability even where the Authority does not expect to settle the liability within 12 months as it will not have the unconditional right to defer the settlement of the entitlement should an employee take leave within 12 months; For the financial year , the Authority was subject to the rules applicable under the State Equivalent Tax Regime administered by the Victorian Department of Treasury and Finance. The Authority was notified by the Treasurer, of the Government s decision to direct Rural Water Authorities to become subject to the National Tax Equivalent Regime (NTER) from 1 July The NTER is administered by the Australian Taxation Office.

82 80 Financial report Notes To and forming part of the Financial Statements (continued) The income tax expense or revenue for the period is the tax payable on the current period s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantially enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The Authority does not consider that future taxable income is probable and accordingly does not recognised future tax assets and liabilities. (m) Dividend Policy An obligation to pay a dividend only arises after consultation with the portfolio Minister and the Treasurer and a formal determination is made by the Treasurer. For the 2005/06 financial year, the Victorian Government White Paper Securing our Water Future Together states at item 6.6 that the government will forgo its dividend entitlement for the 2005/06 financial year. (o) Goods and Services Tax Revenues, expenses and assets are recognised net of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Balance Sheet. (p) Intangibles Intangible assets represent identifiable non-monetary assets without physical substance. Intangible assets are recognised at cost. Costs incurred subsequent to initial acquisition are capitalised when it is expected that additional future economic benefits will flow to the Authority. (q) Provisions Provisions for legal claims and service warranties are recognised when: (a) the Authority has a present legal or constructive obligation as a result of past events; (b) it is more likely than not that an outflow of resources will be required to settle the obligation; and (c) the amount has been reliably estimated. Provisions are not recognised for future operating losses. (n) Environmental Contributions The Water Industry (Environmental Contributions) Act 2004 amended the Water Industry Act 1994 to make provision for environmental contributions to be paid by water supply authorities. The Act establishes an obligation for authorities to pay into the consolidated fund annual contributions for the first period, from 1 October 2004 to 30 June 2008 in accordance with the pre-established schedule of payments, which sets out the amounts payable by each authority. The purpose for the environmental contribution is set out in the Act, and the funding may be used for the purpose of funding initiatives that seek to promote the sustainable management of water or address water-related initiatives. The environmental contributions are disclosed separately within expenses.

83 81 2 Operating Statement - disclosures 2(a) Significant revenues Service charges Water service charges $'000's $'000's Irrigation, diversion and groundwater 12,306 10,954 Storage operator charges 2,768 3,415 Other charges Bore construction, application fees, transfer fees & information statements 1,437 1,083 16,511 15,452 Government contributions Operating State Government of Victoria Youth Employment Scheme Implementation of Farm Dam legislation WID Stakeholder Reference Group 0 18 Groundwater Appraisals WID Smarter Irrigation Practices project Develop Macalister River Trigger Based Rules 0 5 Thomson Macalister REALM Model 0 2 Streamflow Management Plan Improve Environmental Flows Modify Glenmaggie Northern Outlet* Water for Growth Initiative* Salinity Projects* MID drain research* 25 0 MID drain nutrient reduction program* ,152 Commonwealth Government Training Subsidies ,277 Non-operating State Government of Victoria Installation of meters ,142 * Funding from West Gippsland Catchment Management Authority, which may include funds from the Commonwealth.

84 82 Financial report Notes To and forming part of the Financial Statements (continued) 2 Operating Statement disclosures (cont d) Other revenue $'000's $'000's Royalties Building rentals Occupational licences Other rentals, leases or agistments Recovery of expenditure Other (b) Net gains and expenses The net result from ordinary activities includes the following specific net gains and expenses Proceeds from sale of assets Written down value of disposed assets (412) (509) Net gain on disposal - property, plant & equipment Written down value of transferred assets * * Written down value of transferred assets represents the transfer of ownership of irrigation drains to landholders as part of SRW's nutrient reduction activities. Drains were transferred to landholders at no cost under this program.

85 83 2 Operating Statement disclosures (cont d) 2(c) Expenses Depreciation $'000's $'000's Infrastructure Assets 4,227 4,126 Buildings Furniture & Fittings Plant and Machinery Motor Vehicles Computer Equipment ,239 4,959 Amortisation Software Employee Benefits Aggregate amount paid and accrued 8,786 7,596 Less capitalised employee benefit costs (353) (218) Movement to: Annual leave provision Long service leave provision ,559 7,622 Auditors remuneration Auditor-General for audit of financial statements 25 24

86 84 Financial report Notes To and forming part of the Financial Statements (continued) 3 Income tax $'000's $'000's The income tax expense for the financial year differs from the amount calculated by applying the income tax rate to the loss. The differences are reconciled as follows: (a) Reconciliation of income tax expense to prima facie tax payable Operating result from continuing operations before income tax expense (1,121) (1,079) Tax at the Australian tax rate of 30% (2005: 30%) (336) (324) Tax effect of amounts which are not deductible / (taxable) in calculating taxable income Dividend Payment to Government 0 (114) Sponsorships & Entertainment 2 2 Depreciation & amortisation (7,731) (7,477) Increase/(decrease) in 'employee entitlement provision' Decrease/(increase) in 'accrued revenue' (83) 7 Increase/(decrease) in 'revenue in advance' 0 (1,113) (7,774) (8,622) Less: Benefits of tax losses not brought to account in the absence of probable realisation 7,774 8,622 Income tax expense 0 0 (b) Tax losses At 30 June, the Authority has the following carried forward tax position: Income tax loss to carry forward 43,672 35,898 The carried forward tax loss includes the following temporary differences: Cumulative depreciation & amortisation 37,648 29,917 Employee entitlement provision (192) (183) Accrued revenue Realisation of the carry forward income tax loss is contingent upon the future profitability of the entity's operations, continued compliance with the conditions of deductibility imposed by the law and the taxation law itself not changing in a manner which would adversely affect the entity in realising those benefits.

87 85 4 Cash and cash equivalents $'000's $'000's Cash on hand 2 2 Cash at bank 1,105 7,560 Deposits at call 9,703 1,000 10,810 8,562 4(a) Cash on hand These are non interest bearing 2 2 4(b) Cash at bank The account bears floating interest rates between 5.1% and 5.35% 1,105 7,560 4(c) Short term and deposits at call The deposits are bearing floating interest rates between 4.5% and 5.45% These deposits have an average maturity of 90 days. 9,703 1,000 5 Receivables Current Trade receivables 3,335 2,456 Allowance for doubtful debts (30) (21) 3,305 2,435 6 Inventories Current Stores and consumables at cost

88 86 Financial report Notes To and forming part of the Financial Statements (continued) 7 Property, Plant & Equipment Classes of property, plant & equipment Land $'000's $'000's At fair value * 11,302 11,302 Land improvement At fair value ** 22,985 23,333 Buildings At fair value * 3,066 2,988 Less: accumulated depreciation (241) (119) 2,825 2,869 Water infrastructure At cost 408, ,570 Less: accumulated depreciation (25,001) (20,783) 383, ,787 Furniture and fittings At cost Less: accumulated depreciation (336) (301) Plant and machinery At cost 1,490 1,257 Less: accumulated depreciation (828) (599) Computer equipment At cost Less: accumulated depreciation (777) (658) Motor vehicles At cost 3,439 3,335 Less: accumulated depreciation (1,086) (1,097) 2,353 2, , ,506

89 87 7 Property, Plant & Equipment (cont d) Capital Works In Progress $'000's $'000's Buildings 6 56 Water infrastructure 8,981 6,450 Furniture and fittings 0 13 Computer equipment Plant and Machinery ,110 6,567 Total Property, Plant & Equipment 432, ,073 * A revaluation of Land and Buildings was undertaken as at 1 July ** A revaluation of Land improvement was undertaken as at 1 July Land values have taken into account the planning restrictions applying to their use, as well as the restrictions and impacts of the existence of water infrastructure assets (drains and channels), but not the value of those assets (which are separately recorded as infrastructure assets). In the case of land used for reservoirs, all land below the full supply level has been assessed at zero value.

90 88 Financial report Notes To and forming part of the Financial Statements (continued) 8 Movements in Fixed Assets Year ended 30 June 2006 Total Capital Works in Progress Computer Equipment Buildings Motor Vehicles Plant & Machinery Furniture & Fittings Infrastructure Assets Land Improvement Land At 1 July 2005, net of accumulated depreciation 11,302 23, , ,238 2, , ,072 Additions , ,536 7,694 Transfers 0 0 3, (3,993) 0 Disposals 0 (348) (99) 0 0 (412) (859) Revaluation Increments Depreciation Expense (4,227) (35) (149) (586) (123) (119) 0 (5,239) At 30 June 2006, net of accumulated depreciation 11,302 22, , ,352 2, , ,668 At 1 July 2005 Cost (gross carrying amount) Accumulated depreciation Net carrying amount 11,302 23, , ,257 3,335 2, , , (20,783) (301) (599) (1,097) (119) (658) 0 (23,557) 11,302 23, , ,238 2, , ,073 At 30 June 2006 Cost (gross carrying amount) Accumulated depreciation Net carrying amount 11,302 22, , ,490 3,439 3, , , (25,001) (336) (828) (1,086) (241) (777) 0 (28,269) 11,302 22, , ,353 2, , ,668

91 89 8 Movements in Fixed Assets (cont d) Year ended 30 June 2005 Total Capital Works in Progress Computer Equipment Buildings Motor Vehicles Plant & Machinery Furniture & Fittings Infratructure Assets Land Improvement Land At 1 July 2004, net of accumulated depreciation 6,320 23, , ,735 2, , ,887 Additions (163) 156 1, ,796 6,341 Transfers 0 0 7, (13) 86 (7,931) 0 Disposals (4) (340) (75) 0 0 (509) (928) Revaluation Increments Depreciation Expense At 30 June 2005, net of accumulated depreciation 4, , (4,126) (32) (101) (506) (119) (75) 0 (4,959) 11,302 23, , ,238 2, , ,073 At 1 July 2004 Cost (gross carrying amount) Accumulated depreciation Net carrying amount 6,320 23, , ,025 2,326 2, , , (16,657) (269) (498) (591) 0 (583) 0 (18,598) 6,320 23, , ,735 2, , ,887 At 30 June 2005 Cost (gross carrying amount) Accumulated depreciation Net carrying amount 11,302 23, , ,257 3,335 2, , , (20,783) (301) (599) (1,097) (119) (658) 0 (23,557) 11,302 23, , ,238 2, , ,073

92 90 Financial report Notes To and forming part of the Financial Statements (continued) 9 Software Software Year ended 30 June 2006 Implementation in Progress Total At 1 July 2005, net of accumulated amortisation Additions Transfer 466 (466) 0 Amortisation (378) 0 (378) At 30 June 2006, net of accumulated amortisation At 1 July 2005 Cost (gross carrying amount) 1, ,264 Accumulated amortisation (1,396) 0 (1,396) Net carrying amount At 30 June 2006 Cost (gross carrying amount) 2, ,315 Accumulated amortisation (1,617) 0 (1,617) Net carrying amount Year ended 30 June 2005 At 1 July 2004, net of accumulated amortisation Additions Transfer 186 (186) 0 Amortisation (130) 0 (130) At 30 June 2005, net of accumulated amortisation At 1 July 2004 Cost (gross carrying amount) 1, ,915 Accumulated amortisation (1,265) 0 (1,265) Net carrying amount At 30 June 2005 Cost (gross carrying amount) 1, ,264 Accumulated amortisation (1,396) 0 (1,396) Net carrying amount

93 91 10 Current and non-current liabilities - payables Current $'000's $'000's Trade payables 2,052 1,474 Accrued expenses 1,253 1,633 Advances for capital and other works ,577 3, Current and non-current liabilities employee benefits 11(a) Interest Bearing Liabilities Superannuation Liability Deferred Payment (interest bearing)* Current 6 6 Non-current Total *Refer note 18 Vision Super Defined Benefit. 11(b) Employee Benefits Provision Current All annual leave and Long Service Leave entitlements representing 6 or more years of continuous service Long Service Leave 1,145 1,106 Annual Leave Non-current 1,956 1,814 Long Service Leave representing less than six years of continuous service measured at present value Aggregate carrying amounts Current 1,956 1, 814 Non-current Total employee benefits 2,071 1,946 Number of Employees at year end The following assumptions were adopted in measuring the present value of long service leave: Weighted average increase in employee costs 4.75% 4.75% Weighted average discount rates 5.78% 5.16%

94 92 Financial report Notes To and forming part of the Financial Statements (continued) 12 Contributed Capital $'000's $'000's Balance at beginning of reporting period 371, ,860 Total Channel Control Contribution* 5,682 3,240 Balance at end of reporting period 376, ,100 *The treatment of capital contributions is as agreed with the Department of Sustainability and Environment and in accordance with Urgent Issues Group Abstract 38 Contributions by Owners Made to Wholly-Owned Public Sector Entities. 13 Asset revaluation reserve Balance at beginning of reporting period 8,207 2,475 Revaluation increment Land 0 4,986 Buildings Balance at end of reporting period 8,207 8,207 *The asset revaluation reserve is used to record revaluation increments and decrements in the value of non-current physical assets. The reserve is restricted to those assets that continue to be valued on a fair value basis, refer Note 1(d) 14 Accumulated funds Balance at beginning of reporting period 58,535 59,994 Loss for year (1,121) (1,079) Dividends paid to government 0 (380) Balance at end of reporting period 57,414 58, Lease commitments Operating lease of building commitments are due for payment as follows: within one year one to five years over five years

95 93 16 Commitments for expenditure Capital Outstanding capital commitments are likely to be exercised as follows: $'000's $'000's within one year 4,020 6,554 one to five years 0 0 over five years 0 0 4,020 6,554 Operating Outstanding operating commitments are likely to be exercised as follows: within one year one to five years over five years Contingent liabilities Bank Guarantee The Authority has a contingent liability for water obtained from Melbourne Water Corporation (MWC) from the Thomson Reservoir in accordance with an Agreement signed on 6 June The Bank Guarantee may be exercised in accordance with clause 13 of the Agreement if the Authority is unable to repay water volumes owed by it as detailed in Schedule 1 of the Agreement, which provides for repayment over a nominal five year period. At 30 June 2006, MWC and the Authority were in discussion to complete the agreement and recognise the full repayment of water volumes in accordance with the agreement. The Authority expects both the conclusion of the agreement, and the cancellation of the bank guarantee during the 2007 financial year. The total limit of the Bank Guarantee is $1,207,500. The Authority has established a mortgage over future revenues as security for the Bank Guarantee, which remains in place until our obligations under the agreement are met.

96 94 Financial report Notes To and forming part of the Financial Statements (continued) 18 Superannuation The Authority contributes in respect of its employees to superannuation schemes. Contributions are shown in the following table: Contribution Rate Defined benefit schemes $'000's 2005 $'000's (a) Government Superannuation Office New Scheme 8.8% 10.5% 9.7% 10% (b) Government Superannuation Office Revised Scheme 17.00% 17.00% (c) SSF State Employees Retirement Benefits Fund % 12.80% (d) Vision Super (previously LASB) 9.25% 9.25% Accumulation schemes (e) Vision Super (previously LASPLAN) 9.00% 9.00% (f) Other Superannuation Schemes 9.00% 9.00% Total employer contribution As at 30 June, there were no outstanding contributions payable to the above funds. As at 30 June, there were no loans to or from the Authority to any of the above funds. Unfunded Superannuation Liabilities Unfunded Liabilities are defined as the difference between the present value of members' accrued benefits and the net market value of a superannuation scheme's assets at the reporting date. The Authority is responsible for any unfunded liabilities arising from 1 July 1992 on defined benefits superannuation schemes which it sponsors in respect of its employees. Vision Super - Defined Benefits Scheme Past Services Liability The Authority's share of the unfunded liability as advised following the 31 December 2002 Actuarial Review was $53 thousand (plus contributions tax of $9 thousand). This amount was recognised in full as expenditure in 2002/03, and will be repaid over a ten-year period. Payments to date against this liability total $16 thousand (plus contributions tax of $3 thousand), leaving a balance of $37 thousand (plus contributions tax of $6 thousand) State Superannuation Funds (items a, b & c) The Authority has no unfunded liability in respect of its employees who are members of schemes in this fund. This liability has been assumed by the State Government and is disclosed in its financial statements.

97 95 19 Responsible persons related disclosure 19(a) Responsible persons The names of the Responsible persons of Gippsland and Southern Rural Water Authority during the financial year were: The Hon John Thwaites MP, Minister for Water Members of Authority Board: Ms J Greig (Chairperson) Mrs J McMillan (Deputy Chairperson) Mr T Burgi Mr A Hawkes Dr M Kent Prof J Lovering Mr M Martin Mr J Pye The Chief Executive is Dr Martin Kent (Accountable Officer). Remuneration of responsible persons Remuneration paid to Ministers is reported in the Annual Report of the Department of Premier and Cabinet. Other relevant interests are declared in the Register of Members' Interests which each member of the Parliament completes. Remuneration received, or due and receivable from the Authority in connection with the management of the Authority (includes termination payments and bonuses paid at the end of contracts). The number of responsible persons whose remuneration from the Authority was within the specified bands were as follows: $342,044 $319,860 $10,000 $19, $30,000 $39, $170,000 $179, $200,000 $209, There were no retirement benefits paid in conjunction with the retirement of responsible persons, nor were there any transactions between the Authority and any responsible Person other than those which occurred within the normal arms length transaction between the Authority and its customers. 19(b) Executive officers' remuneration The number of executive officers, other than responsible persons, whose total remuneration falls within the specified bands above $100,000 are as follows: $110,000 $119, $140,000 $149, $150,000 $159, Total Numbers 1 3 Total Amount $153,645 $374,836

98 96 Financial report Notes To and forming part of the Financial Statements (continued) $'000's $'000's 20 Transactions with other Victorian Government Controlled Entities Intra Inter Intra Inter During the financial year transactions were undertaken with other Victorian Government controlled entities. These transactions are summarised as follows: Assets Liabilities Revenues 2,789 1,047 5, Expenses , 'Inter' Transactions are with entities outside the portfolio and controlled by the Victorian Government, including: Revenues Department of Treasury and Finance, Water charges 1, Expenses State Revenue Office, Payroll Tax 'Intra' Transactions are between entities within the Sustainability and Environment portfolio.

99 97 21 Financial Instruments 21(a) Risk management policies The Authority does not use complex financial instruments. It has no interest bearing debt other than for unfunded superannuation liability and engages in short term investment of surplus funds at market rates of interest. No specific financial policies in respect of financial risks are considered necessary. 21(b) Terms, Conditions and Accounting Policy The Authority's accounting policy including the terms and conditions of each class of financial asset, liability and equity instruments, both recognised and unrecognised at the balance date, is as follows: Recognised Financial Instruments Balance Sheet Notes Accounting Policies Terms and Conditions Financial Assets Cash Assets 4(b) Cash is stated at its nominal amount. Surplus Authority funds are held in the bank account Deposits at call 4(c) Term deposits are stated at their nominal amount. Interest revenue is recognised in the operating statement when it is earned The Authority does not have an overdraft facility but has access to TCV funds. The Bank accounts attracted an average 5.07% interest rate for the year. The Authority holds the following term deposits as at 30 June 2006: $2M for 90 days expiring 19 July 2006 at a current interest rate of 5.64% Receivables 5 Receivables are stated at their nominal amounts due less any provision for doubtful debts. Financial Liabilities Payables 10 Creditors and accruals are recognised for future amounts to be paid in respect of goods and services received, whether or not billed to the Authority. Advances for Capital & Other Works 10 Advances for Capital & other works are recognised for amounts received in advance for recoverable works, as well as security deposits held in respect of works programs. $4.5M for 90 days expiring 21 September 2006 at a current interest rate of 5.97% Normal terms are 30 days from date of invoice. Interest is charged on overdue accounts at 12.25% Terms for the payment of creditors are 30 days after the end of the month in which the goods and services are received or services rendered or within 30 days from the receipt of invoice, whichever is the later. Advances and security deposits are refunded upon successful completion of works, or otherwise brought to account as revenue where required to undertake completion or remediation of works.

100 98 Financial report Notes To and forming part of the Financial Statements (continued) 21(c) Interest Rate Riskrest Rate Risk The Authority's exposure to interest rate risk and the effective interest rates of financial assets and liabilities, both recognised and unrecognised at the balance date, are as follows: Recognised Financial Instruments Floating Interest Rate $ '000's $ '000's Fixed interest rate (within one year) $ '000's $ '000's Financial Assets Cash Assets 1,105 7,560 9,703 1,000 Debtors Total Financial Assets 1,105 7,560 9,703 1,000 Financial Liabilities Payables & accruals Advances for Capital & Other Works Superannuation Liability Deferred Payment Total Financial liabilities (c) Interest Rate Risk((continued)st Rate Risk Recognised Financial Instruments Financial Assets Non Interest Bearing $ '000's $ '000's Total Carrying amount as per the Balance Sheet $ '000's $ '000's Weighted Average effective interest rate % % Cash Assets ,810 8, % 4.96% Debtors 3,305 2,435 3,305 2,435 Total Financial Assets 3,307 2,437 14,115 10,997 Financial Liabilities Payables & accruals 3,305 3,107 3,305 3,107 Advances for Capital & Other Works Superannuation Liability Deferred Payment Total Financial liabilities 3,576 3,422 3,619 3,465

101 99 21(d) Net Fair Values The value of assets and liabilities in the Balance Sheet equates to fair value. 21(e) Credit risk exposure The Authority's maximum exposure to credit risk at balance date for each class of recognised financial assets is the carrying amount of those assets as disclosed in the Balance Sheet. 21(f) Concentration of credit risk The Authority's exposure to credit risk is low, as most of the revenue transactions represent a charge on the property or are under a Bulk Entitlements Order. Credit risk is managed in the following ways: Payment is 30 days or installments for some customers. Overdue payments are referred to debt collector approximately 6 weeks after becoming over due. 22 Reconciliation of loss for year from operating activities 2006 $ '000's 2005 $ '000's Loss for year (1,121) (1,079) Add/(less) Non-Cash Flows in Loss for year Depreciation and amortisation 5,617 5,089 Loss on sale of fixed assets (56) (160) Written down value of transferred assets Change in assets and liabilities: Decrease/(Increase) in inventories (8) (1) Decrease/(Increase) in trade receivable (878) 426 Decrease/(Increase) other assets (291) 95 Increase/(Decrease) in doubtful debts provision 9 (9) Increase/(Decrease) in provision for employee benefits Increase/(Decrease) advances for capital 0 89 Increase/(Decrease) in trade creditors (585) 212 Net cash flows from Operating Activities 3,259 5,315

102 100 Financial report Notes To and forming part of the Financial Statements (continued) 23 Retail and Wholesale Operations Wholesale Operations $'000's Retail Operations $'000's Eliminations $'000's Total Authority $'000's Wholesale Operations $'000's Retail Operations $'000's Storage Operator Charges 4,308 0 (1,540) 2,768 3,015 1,855 Chargeable works 4, , Retail Usage Charges 0 14, , ,570 Other Revenue 90 2, , ,046 Total Revenue 9,083 17,822 (1,540) 25,365 3,547 18,472 Operating & Maintenance 7,348 8, ,278 2,999 9,265 Depreciation 1,994 3, ,617 1,522 3,567 Administration, Finance Other Expenses Internal Storage Operator Costs* 979 3, , , ,540 (1,540) 0 0 1,740 Total Expenses 10,321 17,705 (1,540) 26,486 5,363 17,734 Total Profit/(Loss) for the year (1,238) (117) 0 (1,121) (1,817) 738 Fixed Assets ** 285, , , , ,613 Wholesale operations account for the harvesting and storage of water on behalf of external and internal customers who hold bulk water entitlements. * The internal Storage Operator Charges of $1540 thousand is included in the revenue of the Wholesale Business and the expense of the Retail Business above and are eliminated in the Operating Statement. ** All other assets and liabilities of the wholesale business can not be readily determined and are accordingly not disclosed.

103 Explanation of transition to Australian equivalents to IFRS Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles (AGAAP) to equity under Australian equivalents to IFRS (AIFRS) 24(a) At the date of transition to AIFRS: 1 July 2004 Net assets under AGAAP 430,687 AIFRS adjustment Property, plant & equipment (545) Intangible assets 545 Employee Benefits Provision Current 801 Non Current (801) Other adjustment Assets Derecognised (358) Net assets under AIFRS 430,329 Equity under AGAAP 430,687 AIFRS adjustment Asset Revaluation Reserve (71,795) Retained profits / (Accumulated Losses) 71,795 Other adjustment Retained profits / (Accumulated Losses) - Assets Derecognised (358) Equity under A-IFRS 430,329 24(b) At the end of the last reporting period under previous AGAAP: 30 June 2005 Net assets under AGAAP 437,842 AIFRS adjustment Property, plant & equipment (601) Intangible assets 601 Employee Benefits Provision Current 1,048 Non Current (1,048) Net assets under AIFRS 437,842 Equity under AGAAP 437,842 AIFRS adjustment Asset Revaluation Reserve (71,795) Retained profits / (Accumulated Losses) 71,795 Equity under AIFRS 437,842

104 102 Financial report Notes To and forming part of the Financial Statements (continued) 24(c) Reconciliation of profit for the year ended 30 June 2005 Net result as reported under AGAAP (1,437) AIFRS impact on revenue Proceeds from disposal of fixed assets (669) Profit on sale of fixed assets 160 AIFRS impact on expenses Written down value of disposed assets 509 Other adjustment Assets Derecognised 358 Net result under AIFRS (1,079) Property, Plant & Equipment / Intangible Assets AIFRS implementation has resulted in the Authority re-classifying software as an intangible asset, rather than property, plant and equipment. Employee Benefits Provision AIFRS implementation has resulted in the Authority re-classifying Long Service Leave. A greater proportion of Long Service Leave is now assessed as a current liability on the basis that once entitlement has occurred, the obligation is unconditional and, even though it may not be paid in the next 12 months, it is disclosed as a current liability Asset Revaluation Reserve / Retained Profits In accordance with AIFRS Implementation, Financial Reporting Directive 115 directs the Authority to value all infrastructure assets on a cost basis. SRW has elected the deemed cost as the fair value of the assets at the date of transition to AIFRS, being 1 July The revised accounting standard introduced as part of AIFRS transition directs any associated Asset Revaluation Reserve to be written back against Retained Profits. Asset Derecognised The Authority has elected to adjust the 2005 comparative to more accurately reflect the timing of the Mitchell River land derecognition. Land purchased for a proposed Mitchell River dam was transferred to the Crown as at 30 June Events occurring after Balance Date Responsible persons of the Authority are unaware of any events that have occurred after balance date that will materially affect the financial position disclosed as at 30 June 2006.

105 103 Compliance certificate We certify that the financial statements of the Gippsland and Southern Rural Water Authority for the year ending 30 June 2006 have been prepared in accordance with the requirements of the Financial Management Act 1994 including all applicable Financial Reporting Directions, and with applicable Australian Accounting Standards and other mandatory professional reporting requirements. In our opinion the Operating Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and Notes to the financial statements present fairly the financial transactions during and the position of the Gippsland and Southern Rural Water Authority as at 30 June At the time of signing the financial statements we are not aware of any circumstances that would render any particulars in the statements to be misleading or inaccurate. Jan Greig Chairperson Martin Kent Chief Executive Stuart Wrigglesworth Finance Manager Dated at Maffra 19 September 2006

106 104 Financial report

107 105 Performance report

108 106 Performance report This is a report prepared in accordance with Financial Reporting Directive 27A, issued by the Department of Treasury & Finance. The performance indicators have been specified by the Department of Treasury & Finance and are not considered to provide an accurate or comprehensive assessment of the performance of the Authority. Performance Indicator Target Financial performance indicators Long Term Profitability Result % Variance Notes Earnings before Interest and Tax Average Total Assets (0.10%) (0.25%) 154% 1 Owner s investment Net profit after tax Average Total Equity (0.10%) (0.26%) 157% 2 Long Term Viability Total Debt including Finance Leases Total Assets 1.40% 0.01% (99%) 3 Liquidity and Debt Servicing (Interest cover) Earnings before Net Interest and Tax Net Interest Expense (4.88 times) ( times) 3794% 4 Immediate Liquidity and Debt Servicing (Cash cover) Cash Flow From Operations Before Net Interest and Tax Net Interest Payments times times 1331% 5 Notes The Corporate Plan of the Authority for the 2005/06 financial year was prepared in late Accordingly, the target indicators presented within the Performance Report were based on the prevailing business assumptions at that time. Actual 2005/06 results were generally in line with the operating assumptions described by the Corporate Plan, with the following two key exceptions that influenced most of the performance indicators: Recoverable Meter Installation: Planned meter installation works were not completed in As a result the Authorities operating revenue declined by approx. $1m, resulting in a worse than forecast operating result. These works are expected to be completed in the 2007 financial year and the associated revenue has been forecast accordingly. Cash Position: The Authority s cash position improved significantly against target, as a result of: ii. Planned capital expenditure activity not commenced in the 2006 financial year, principally the Pykes Creek upgrade project (approx $5m ). iii. Planned meter installation works not complete in the 2006 financial year (approx $.75m of grant funding retained). iv. Unplanned advance receipt (in advance of expenditure) from Government for the Total Channel Control Program in the Macalister Irrigation District (approx $4.5m). 1 & 2 Lower than forecast earnings, principally on account of meter installation works not complete in Planned borrowings not required on account of the Authority s improved cash position. 4 & 5 Planned interest expense not incurred given the Authority s improved cash position. i. Cash receipts from the Sale of Created Water Rights not forecast in the 2005 Corporate Plan. Approx $1.25m of these receipts have been retained by the Authority at year end.

109 107 Compliance certificate Gippsland and Southern Rural Water Authority In our opinion, the accompanying Statement of Performance of Gippsland and Southern Rural Water Authority, in respect of 2005/2006 financial year is presented fairly in accordance with the Financial Management Act The Statement outlines the relevant performance indicators as determined by the responsible Minister, the actual results achieved for the financial year against predetermined performance targets and these indicators, and an explanation of any significant variance between the actual results and performance targets. As at the date of signing, we are not aware of any circumstances which would render any particulars in the statements to be misleading or inaccurate. Jan Greig Chairperson Martin Kent Chief Executive Stuart Wrigglesworth Finance Manager Dated at Maffra 19 September 2006

110 108 Performance report

111 109 Disclosure index

112 110 Disclosure index This 2005/2006 Annual Report for Southern Rural Water is prepared in accordance with all relevant Victorian legislation. This index has been prepared to facilitate identification of our compliance with statutory disclosure requirements. FRD 10 Disclosure Section Page 22 Manner of establishment and the relevant Ministers About Us Objectives, functions, powers and duties About Us Nature and range of services provided About Us Organisational structure, names and functional areas of responsibility of senior officers Names of Board members, committees, objectives and achievements About Us 21 About Us Statement of workforce data for current and previous financial year Social Sustainability Merit and equity Social Sustainability Executive officer disclosures Social Sustainability year summary of the financial results General Information Significant changes in financial position during the year Our Year in Summary Objectives and performance against objectives Our Year in Summary Major changes or factors affecting performance Our Year in Summary Subsequent events which will affect operations in future years N/A N/A 22 Details of consultancies >$100,000 General Information Details of consultancies - total number and cost < $100,000 General Information Disclosure of major contracts General Information Application and operation of FOI Act 1982 Social Sustainability Application and operation of the Whistleblowers Protection Act 2001 Social Sustainability Compliance with building and maintenance provisions of the Building Act 1993 General Information Statement on National Competition Pricing General Information OH&S Social Sustainability Statement of availability of other information Inside back cover Information Privacy Act 2000 Social Sustainability 50 Community inclusiveness Social Sustainability 53 Auditor General s certificates Financial Report Performance Report

113 111

114 112