Option 3: Remake the LLS Regulation with proposed amendments

Under Option 3, the LLS Regulation would be remade with amendments.

This would include the changes identified in Option 2 to ensure the remade Regulation can legally be made and is consistent with current legislative drafting conventions. 

Key changes

Option 3 also includes additional proposed amendments relating to the administration of 3 stock watering places in western NSW. 

Specifically, a new clause is proposed that formally designates Cobar Shire Council as the controlling authority for 3 specified stock watering places in Central West NSW:

• Stock Watering Place No. 927, known as Elouera Tank
• Stock Watering Place No. 27, known as Nymagee Tank
• Stock Watering Place No. 19, known as Nullamut Tank. 

Impacts

The table under 'Other changes required under Option 2' assesses the mandatory drafting changes that are part of both Options 2 and 3. 

The impact of the majority of these changes is assessed as “immaterial”. As described previously, these changes are considered necessary to improve the overall clarity, consistency and ease of application of the remade LLS Regulation. Changes assessed as having a material impact relate to amendments to clauses to ensure consistency with the regulation-making powers under the LLS Act.

Additional changes in proposed Regulation under Option 3

The proposed introduction of a new clause 99 in relation to Stock Watering Places under Option 3 has been assessed as ‘material’. As this new clause has been assessed as holding a material impact, more in-depth analysis is provided below to consider the impacts, costs and benefits of this proposed change.

Assessment of transferring controlling authority for 3 SWPs

Section 108 of the Act provides for the controlling authority of a Stock Watering Place (SWP) that is not declared to be a town water supply to be a body specified by the regulation as the controlling authority of the SWP. 

Under this power, the proposed Regulation declares that Cobar Shire Council is the controlling authority for the following SWPs.

• Stock Watering Place No. 927, known as Elouera Tank
• Stock Watering Place No. 27, known as Nymagee Tank
• Stock Watering Place No. 19, known as Nullamut Tank. 

The effect of this declaration is that the controlling authority status for the 3 SWPs is transferred from LLS to Cobar Shire Council. 

Currently, the Cobar Shire Council leases these SWPs from LLS, and pays LLS an annual lease fee. Cobar Shire Council is responsible for the maintenance of fencing and other assets, but is not required to undertake works related to fair wear and tear, repairs required due to natural disasters, or any structural works to buildings unless caused by negligence or misconduct of the lessee. Under the lease, Cobar Shire Council also must insure and indemnify LLS. 

The lease does not give the Cobar Shire Council exclusive right to the SWPs and the Council is required to supply water (if available) to any person or stock of a class prescribed by the LLS Regulation. 

As a lessee, the Council is not permitted to charge fees for the use of the stock watering place. 

The proposed change does not materially change the obligations of the Cobar Shire Council with the exception of: 

• transferring the obligation from LLS to the Council for replacing assets as a result of fair wear and tear, damage caused by natural disasters or structural damage of assets, and
• removing the obligation for the Council to pay LLS a lease fee. Currently the lease fee is $1,500 per year for each of the 3 SWPs.

Importantly, the declaration of the Council as a controlling authority for these SWPs does not change its obligations with respect to general maintenance, nor does not it create any additional power to restrict the use of or access to the 3 sites as SWPs, nor does it provide the Council with the ability to charge fees for their use. 

Impacts of transferring authority 

The proposed declaration of the Cobar Shire Council as the controlling authority for the 3 SWPs affects the financial obligations of LLS and Cobar Shire Council, but does not affect the overall provision of benefits associated with the 3 SWPs to the agriculture sector. This is because access rights and fees associated with access are not affected by the proposed change. 

The proposed amendment does have financial impacts relating to the lease payments made by the Council to LLS, and on future asset replacement costs that will become the responsibility of the Council as the relevant controlling authority. 

Note that there are a small number of built capital assets associated with these 3 SWPs, comprising:

• one diesel water pump in a shed at the Nymagee Tank (currently not in working order and is assumed will need to be repaired or replaced at some point in the future), and
• approximately 35.1 km of fencing. 

Costs of transferring authority 

The declaration of the Council as the controlling authority will allow the Council to stop paying lease fees for the 3 SWPs to LLS. Currently, lease fees are set at $1,500 per year. The removal of these fees means that declaring the Council as the controlling authority will reduce the lease fees accruing to LLS by $4,500 per year, or approximately $41,800 in present value terms over the remaining 14 years of the lease.

Declaring the Council as the controlling authority will transfer responsibility for the replacement of SWP capital from LLS to the Council. The expected lifespan of a diesel pump is estimated to be 7 to 12 years, meaning the pump could require replacement once or twice across the remaining 14 years of the lease.

Assuming a middle point of the estimated life, a pump will last for 9.5 years before needing to be replaced. Assuming that the existing non-operable pump is replaced in Year 1 of the new arrangement and that the replacement occurs after 9 years of operation (that is, in year 10 of the new arrangements), the present value of pump replacement (at a 6% discount rate) is approximately $5,000 in new costs that would be incurred by the Cobar Shire Council. 

There is 35.1km of fencing required across the 3 SWPs. It is assumed that 15% of the length of the fencing is on the roadside, which does not allow for the sharing of fence costs with neighbouring properties. The remaining 85% of fence costs are shared with neighbouring property owners. An estimated cost of fencing of $7,150 per km was used based on fencing contractor estimates of the cost of fencing for sheep and cattle in Australia. It should be noted that actual costs could be higher or lower due to the specific requirements of any fence replacement at the 3 SWPs. 

It is not possible to determine how much fencing would be replaced in any one year. To address this, an estimate has been made of the total cost of fencing for the 3 SWPs based on the assumptions outlined above. 

It is further assumed that fencing lasts 30 years (with maintenance which is already the responsibility of Cobar Shire Council) and that one sixth of the fence length is replaced every 5 years. Over the 15 year analysis period, this would seek half the fence length replaced. The cost of fence replacement is assumed to be funded through annual payments to a sinking fund over the 15 year analysis period. This equates to a present value to the Council of approximately $35,200. 

Benefits of transferring authority 

Based on the assumptions outlined above, the comparison of costs and benefits of the proposed clause 99 results in the Cobar Shire Council avoiding $43,700 in lease fees while incurring a potential $40,200 in asset replacement costs. 

The end result is that Cobar Shire Council will face lower payments over the 15 years totalling approximately $3,465. At the same time, the NSW Government will lose the same amount which is essentially transferred to the Cobar Shire Council so that there is no new economic benefit or loss to the community. 

Sensitivity analysis 

The cost-benefit analysis results are sensitive to a number of assumptions affecting the variables used. This includes assumptions relating to the timing of asset replacement and the cost of assets replaced. The more asset replacement is deferred to later periods, the higher the financial benefit accruing to Cobar Shire Council (on a net present value basis) while the opposite is true if asset replacement happens early. 

In all cases, however, the financial impact on the Cobar Shire Council whether positive or negative is offset by an opposite impact on the NSW Government, due to the transfer payment nature of the proposed change.

Costs

There is little cost associated with the majority of the proposed amendments which aim to streamline, clarify and modernise the LLS Regulation.

The overall costs associated with Option 3 - Remake the LLS Regulation with proposed amendments – have been assessed as low.

Benefits

Option 3 will provide a modernised and streamlined LLS Regulation, with reduced duplication, improved clarity, and consolidated requirements where appropriate. 

Conclusion

Option 3 is the best option to achieve the purpose and objectives of the LLS Act, and provide broad benefits to the community, businesses, government agencies and the environment. 

Option 3 has been assessed as providing an overall improvement compared to current state.

For these reasons, Option 3 – remake the Regulation with proposed amendments – is considered the preferred option.