FCRSC Meeting 32 Approved Minutes

Meeting #32 Fisheries Cost Recovery Standing Committee Minutes

Meeting details:

Date: Friday 18 October 2013
From: 09:00am to 4:00pm
 Location: Department of Environment and Primary Industries, Room 16.1, 1 Spring Street, Melbourne, VIC.

Members attending:

• Ian Cartwright (Ind. Chair)
• Geoff Ellis (Industry)
• Gary Leonard (Industry)
• Mark Edwards (DEPI)
• Terry Truscott (DEPI)
• Anthony Ciconte (Industry)
• Edward Meggitt (Industry)
• Renee Vajtauer (SIV Observer)

Executive Support:

Chris Padovani
Ph: 03 9658 4779 (BH)
Mob: 0427 353 233

Advisors/Presenters:

• Sean Buck (Industry)
• Bill Allan (Industry)
• Harry Peeters (Industry)
• Ross McGowan (DEPI)
• Ian Parks (DEPI)
• Anthony Forster (DEPI)
• Markus Nolle (Industry)
• David Tonkin (Industry observer)

1) Welcome and Introductions

The Chair thanked members and advisors for attending, and welcomed Ross McGowan, Executive Director Fisheries Victoria, Ian Parks, A/Director of Education & Enforcement, Anthony Forster, A/Director Fisheries Management & Science Branch, as well as David Tonkin from the Abalone Industry Council as an observer.

The Chair further welcomed Markus Nolle, a new industry advisor to the FCRSC providing input related to the Rock Lobster Western Zone fishery.

Opening Statement – Ross McGowan, Executive Director Fisheries Victoria

The Executive Director Fisheries Victoria (EDFV) congratulated those industry representatives that had recently been appointed by the Minister as industry members of the FCRSC.

The EDFV advised the FCRSC that DEPI acknowledges that the levies recovered by the Department on behalf of the Victorian Government impact on their business operations/profitability.

As set out in the FCRSC's Terms of Reference, decision making by the FCRSC, on the advice to be provided to the Minister, shall be by way of consensus, and where such a consensus is not possible, divergent views shall be referred to the Minister for Agriculture for consideration. All advice from the FCRSC is to be provided to the Minister in writing by the Chair, together with the rationale supporting the advice.

Where practicable, DEPI is committed to providing the FCRSC with meeting papers at least one week prior to the meeting to enable members sufficient time to review and formulate an opinion.

DEPI acknowledges that Regulatory Impact Statements (RIS) are contentious documents, irrespective of the industry or subject matter being discussed.

Whilst the Minutes of FCRSC meeting #30 reflect that summarised public submissions and comments on the RIS will be discussed with FCRSC prior to briefing the Minister, Mr McGowan acknowledged that in hindsight, a better course of action might have been to provide in full, the 76 submissions received to FCRSC members/advisors to alleviate any transparency concerns by industry. DEPI was reluctant to over-burden industry members/advisors with large volumes of paperwork given prior criticism of too much paperwork to review during the development of the proposed new cost recovery system.

Mr McGowan advised the FCRSC that its role was to continue to provide suitable advice to the Minister on the prospective cost recovery system following the completion of the public consultation process.

The EDFV advised the Committee that DEPI had reviewed the submissions received, and had formulated some options to further mitigate the economic impact on entitlement holders, supported by the Minister, to be presented to the FCRSC for discussion. For example, expanding the small operator concession, adjusting the level of services required in the Wrasse and Gippsland Lakes fisheries, adjusting the apportionment of costs within the Rock Lobster fishery to 50/50 on licence/quota and not to recover the costs incurred for the fishery-specific forums during the first two trial years of the prospective cost recovery system. The FCRSC noted that further options would be discussed under agenda item 5 (c).

The EDFV confirmed that he would attend FCRSC meetings wherever possible, and be as open and transparent as circumstances permitted. This includes notifying the FCRSC in advance of any situation in which DEPI would provide different advice to the Minister to that provided by the FCRSC.

The FCRSC noted that Mr McGowan had also instructed Fisheries Victoria Branch Directors to attend all FCRSC meetings leading up to the provision of final advice to the Minister on the implementation of the prospective cost recovery system. Mr McGowan hoped that these measures would demonstrate to industry DEPI's commitment to the on-going operation of the FCRSC.

Mr McGowan advised the FCRSC that DEPI was committed to working with industry members/advisors of the FCRSC to finalise the implementation of the prospective cost recovery system, in line with the Minister's instructions, in a respectful manner, and expected the same from industry members/advisors.

Opening Statement – Markus Nolle, industry advisor to the Fisheries Cost Recovery Standing Committee

Mr Nolle referred to a meeting held by a number of industry persons at SIV on Thursday 17 October 2013, and advised the FCRSC of a position reached by some industry on the Fisheries Cost Recovery Program:

1. DEPI's process for engagement, consultation and representation of Commercial Fishing Sector input to the development of the July 2013 RIS has failed.
• 76 industry submissions (all extremely critical) to the RIS clearly reflect this view.
• Key issues (and broader context) raised in detail in the submissions has been left out in the Department's 'issue summary' process.
• As such, Industry has no faith in the integrity of this process and is not prepared to spend time at the meeting discussing selective elements of some of these submissions while the broader issue of Industry consultation arrangements remains unresolved.
2. The RIS itself is flawed; it does not meet the requirements of the Subordinate Legislations Act 1994, Section 10(3) and fails to meet the requirements of the Department of Treasury & Finance's (DTF) Cost Recovery Guidelines and, as such cannot proceed in its current form.
3. Industry is willing to pursue a cost recovery agenda with DEPI (consistent with DTF Cost Recovery Guidelines) but recognises that this can only occur if a program of sector specific engagement, principles and timeline can be developed.

Industry Recommendation to FCRSC

1. There is an opportunity, today, for DEPI to engage with industry to establish the principles and a timeline for new, sector specific consultation arrangements.
2. A key objective of this process will be to clarify, ratify and benchmark the schedules of services and costs for each industry sector (i.e. determine the cost base). This process must be informed by transparent DEPI data on actual service delivery and costs.
3. There be no further (arbitrary) fee, royalty or levy increases (beyond CPI), until this process delivers schedules of services and costs in a manner consistent with DTF Cost Recovery Guidelines.

If there is no agreement to this position, industry should withdraw from the process and consult their lawyers.

Mr Nolle surveyed the FCRSC to determine if any person had read all of the submissions. The Independent Chair indicated that he had read all of the submissions.

Mr Nolle further stated that this was the first time a rock lobster fisherman from the Western Zone had attended a FCRSC meeting since its inception in 2004.

Follow-up discussion regarding industry statement.

Renee Vajtauer, Executive Director Seafood Industry Victoria (SIV) advised the FCRSC that whilst the meeting was held at SIV's office, SIV does not support the position outlined by Mr Nolle as the meeting only represented some industry sectors. SIV's position is clearly outlined in the submission document submitted during the RIS 60-day public consultation period.

The Chair reminded the FCRSC that the Committee is run per its Terms of Reference and follows best practice governance processes. Industry members are nominated by SIV to represent all of industry. The Chair indicated that he resented any inference that he was not independent. The Chair advised industry that he would resign immediately if industry no longer had confidence in his ability to be independent.

The Chair advised the FCRSC that both DEPI and industry had failed each other in the past. For example, DEPI should not over-promise and under-deliver, and industry should stop verbally attacking DEPI staff members and/or every proposal put forward. He remarked that industry had lost respect in DEPI, but that there were now considerable efforts being made to address past issues and there was a need for both sides to work together.

The Chair instructed both parties to work together in good faith, and reminded the FCRSC of the Minister's instructions to develop and implement a new forward-looking/prospective cost recovery system, to be phased in over a period commencing 1 April 2014 in such a way that it does not 'overburden' industry, while moving towards an appropriate level of cost recovery.

As the previous FCRSC meeting was conducted prior to the release of the RIS, the Chair invited the FCRSC to review the cost recovery principles that were agreed by the industry-expanded FCRSC, (and subsequently approved to the Minister) as the foundation for the proposed new cost recovery system:

i) Cost recovery systems should be designed to promote:

a. economic efficiency; i.e. improve the allocation of resources in an economy by providing price signals for service provision that incorporate all of the relevant costs; and
b. equity; i.e. those that benefit from a government service, or contribute to the need for a service, should pay for the associated costs. Where a number of groups benefit from a service, costs should be apportioned.

ii) The cost recovery system should be administratively simple and minimise operating costs.

iii) Operation of the system, including planning for the provision and delivery of services, should involve well designed, cost effective, consultation with those paying for the costs of services.

iv) There should be transparency about the nature, extent, delivery and cost, of services for which there is cost recovery.

v) Operation of the system should promote opportunities for efficiency improvements.

vi) Cross subsidisation between fishers and fisheries should be minimised.

vii) Fee for service should be used where possible to directly recover the costs of transactions/services.

viii) Between year volatility should be minimised in order to smooth costs to better enable businesses to plan.

ix) Where resources are diverted to non-recoverable services (e.g. emergency services) or are materially under-delivered, a corresponding adjustment to future levies or future services should be made.

x) The implementation of the system should include monitoring and periodic review.

xi) The design, nature and extent of services should take into account the risks posed to the fishery and the value of production generated by the fishery.

In the Chair's opinion, the 11 cost recovery principles should have been published within the RIS. This could have reduced some of the anxiety experienced by industry. In his view, these principles, which had been achieved after considerable discussion, should be at the heart of the new cost recovery system.

The Chair advised the FCRSC that the 30% increase in levies applied for the 2013/14 licensing year had been determined following consultation between SIV and the Minister's Office. As instructed to by the Minister, the FCRSC had not considered this matter. Industry reaffirmed its position as stated at FCRSC #31, that it did not believe that sufficient consultation on this matter occurred between the Minister's Office and SIV. One industry advisor provided the Chair with a copy of the exemption certificate issued by the Minister under section 8 of the Subordinate Legislation Act 1994, with accompanying reasons, and asked the Chair to read out the reasons contained in a  paragraph from the document:

'The reason for forming this opinion is the relatively low level of impact of the proposed regulation on most commercial fishery licence holders. The proposed increases are relatively low in absolute terms, and for licence classes where there is reasonably reliable data (about 60%), is less than 10% of estimated GVP. The new level of cost recovery represents about 2% of the GVP ($52 million) across all these commercial fisheries. The increase in annual costs for licence holders may impact on the viability of some individual businesses, but the total amount of the increase would be unlikely to impact significantly on the viability of any particular fishery sector or the commercial fishing industry overall, as the fishing industry is only a small part of regional business. For many of the small fisheries, fishing supplements other sources of income'.

The Chair noted industry's position on this matter, however, he reiterated his earlier statement that the FCRSC was instructed not to concern itself with the 2013/14 levies by the Minister, and instead to focus on the development of the prospective cost recovery system.

The Chair kindly requested that all persons other than FCRSC members, both industry and DEPI, excuse themselves from the meeting until further notice.

Upon the recommencement of the meeting, with all persons back in the meeting room, one industry FCRSC member informed meeting attendees that the FCRSC members had reaffirmed their unanimous support for the Independent Chair, and that no further discussion as to the Chair's credibility would be tolerated.

Another industry FCRSC member advised Mr Nolle that the industry members nominated by SIV for appointment to the FCRSC represent all of industry, not just the fisheries that they have experience in, and provided a number of examples where industry members had advocated on behalf of all fisheries.

The FCRSC noted that Seafood Industry Victoria made repeated attempts to involve attendees from the Rock Lobster Western Zone sector in the development of a new cost recovery regime. Unfortunately, no person had been willing to become involved in the process until after the release of the RIS.

The FCRSC further noted that it was impractical to have representatives from all 42 licence classes.

Opening Statement – Ian Cartwright, Independent Chair, Fisheries Cost Recovery Standing Committee

The Chair advised the FCRSC that he had the support of FCRSC members to continue the meeting per the agenda, and that all FCRSC members would proceed as planned. Any industry advisor who wished to leave was free to do so, however, the Chair encouraged all industry advisors remain and provide input, which would be valued. He asked advisors to advocate for industry in a polite and respectful manner.

The Chair advised the FCRSC that it would not be discussing fishery-specific issues. These matters will be discussed at the fishery level, and the Chair reminded the FCRSC that agenda item 5(d) consultation regarding the level of services, addressed this matter. The Chair reiterated the conclusion that the FCRSC reached at meeting #26, that reporting at the fishery level would support transparency and accountability. The Chair reminded the Committee that once the prospective cost recovery system was implemented, it would be a key role of the FCRSC to review these fishery-level reports on a quarterly basis.

The Chair acknowledged that industry members had unanimously requested, on more than one occasion, that the preliminary costs be released to all of industry to allow a more robust debate about the cost recoverable services and deliverables to be provided, however, the Minister's instruction was that the preliminary cost data contained in the schedules would remain Committee-in-Confidence. The description of services and milestones could be distributed. The Minister reasoned that the Committee had been established to work strategically on the design and operation of cost recovery, and industry attendance had been expanded, at the request of the Minister, to include a wider range of industry expertise to be involved in the development and implementation of the new cost recovery system. This decision was made because the levy amounts evolved during the consultation process with the FCRSC, i.e. there was no benefit to providing draft levy amounts to industry that were subject to change.

The Chair further acknowledged industry's opinion that without the ability to share the cost data, there was insufficient feedback provided during the development of the prospective cost recovery system, which has created anxiety amongst wider industry at some of the proposed cost recovery levies. In essence, industry's opinion was being sought on a range of services without knowledge of the costs involved. This created, understandably, considerable difficulties for industry and was the main reason behind much of the current angst.

The instructions to the Chair from the Minister are that the changes being discussed need to begin being implemented in 2014-15, as the Minister has already granted an extension of 12 months. The Chair advised the FCRSC that the phase-in of levies would be discussed in more detail in agenda item 5(c).

The Chair confirmed that the RIS contained increases in levies for most fisheries, and in some cases, significant increases in levies. The FCRSC has been aware of this for some time, which is why it supported almost $1million worth of concessions to mitigate the economic impact on industry. Any assertions that the FCRSC had neglected to consider the economic impact on licence holders is incorrect.

The Chair noted that Mr Nolle had not attended FCRSC meeting #30 where DEPI advised the FCRSC that summarised public submissions and comments on the RIS will be discussed with FCRSC prior to briefing the Minister. When asked to provide the submissions to industry members, DEPI complied with the request.

DEPI engaged an external consultant, Regulatory Impact Solutions, to prepare the RIS, and to summarise the submissions received into an Issues Log for discussion with the FCRSC. DEPI advised the FCRSC that Regulatory Impact Solutions have extensive experience in preparing RIS's, having prepared 40% of the RIS's over the last four years, including 75% of Victoria's fee/levy RIS's in the last three years.

The Committee was informed that there are strict statutory requirements on what must be included in a RIS and how it must be presented, including an independent assessment of adequacy of the RIS by the Victorian Competition and Efficiency Commission (VCEC). Where Regulations impose fees, charges, levies, etc., the RIS must also demonstrate compliance with the Victorian Government's Cost Recovery Guidelines.

The FCRSC noted that the RIS was independently assessed by VCEC as meeting the requirements of the Subordinate Legislation Act 1994 and the Victorian Guide to Regulation.

DEPI acknowledges that the RIS is a technical document, and as such, attended four industry forums convened by SIV to better explain the proposals contained in the RIS.

DEPI has consulted Regulatory Impact Solutions which has reassured DEPI that the RIS process did meet the necessary legislative requirements and had appropriately considered impact on industry for the following four reasons:

1. It is not normal practice for a RIS to contain detailed industry specific analysis of social and economic impact. This information is not normally available in constructing a RIS.
2. The RIS contains a high-level Multi-Criteria Analysis (full or partial cost recovery);
3. The concessions agreed by the FCRSC to mitigate the economic impact on licence holders, particularly those from smaller fisheries; and
4. The independent assessment conducted by VCEC.

Some industry members/advisors maintained that there are significant flaws with the RIS, as outlined in a number of public submissions.

The Chair advised the FCRSC that the Victorian Government provides regulatory services to the commercial wild-catch and aquaculture sectors in order to meet its obligations under the Fisheries Act 1995. A proportion of some of the costs incurred to deliver those services is then recovered from industry (the beneficiary of those services) in line with Government policy on cost recovery. It is not the same as a contract entered into between two parties in the private sector, nor is it a negotiation. On this basis, the meeting will continue per the agenda.

ACTION ITEM:

1. DEPI to review the legality of the RIS in consideration of the public submissions received.

2) Apologies:

Vin Gannon (Industry), Sue Alcock (Industry), Vince Collins (Industry)

3) Confirmation of previous Minutes

BACKGROUND: Draft Minutes of FCRSC meeting #31 of 3 April 2013 were circulated to members on 30 April 2013 for comment by 13 May 2013.

No comments were made by FCRSC members or advisors. Consequently, the Chair authorised DEPI to publish the Draft Minutes of FCRSC meeting #31 of 3 April 2013 on the DEPI website to ensure that FCRSC deliberations were transparent to all of industry.

DEPI published the Draft Minutes on the DEPI website on 14 May 2013.

OUTCOME:

1. The Committee confirmed the Minutes of FCRSC meeting #31.

4) Progress on Action Items from meeting #31

4 (d) Progress on Action Items from meeting #30

Progress on Action Items from meeting #26

5) Items for discussion/noting

5(a) FCRSC appointments

BACKGROUND: The Minister recently appointed Anthony Ciconte, Gary Leonard, Edward Meggitt, Geoff Ellis, Terry Truscott, Mark Edwards and Ian Cartwright (Independent Chair) as FCRSC members until June 2016, subject to the satisfactory completion of probity papers. 

SIV will provide a Bay & Inlets nominee to fill the final industry vacancy on the FCRSC. The Executive Director SIV will remain as a permanent observer.

Sue Alcock, Sean Buck, Harry Peeters, Bill Allan, Vince Collins, Vin Gannon and Markus Nolle will continue to be industry advisors to the FCRSC until 31 December 2013.

RECOMMENDATION: For noting.

OUTCOME:

1. The FCRSC noted the recently appointed membership of the Committee, including the re-appointment of the Independent Chair.
2. The FCRSC noted that SIV would shortly provide a Bay & Inlets nominee to fill the final industry vacancy on the Committee.
3. The FCRSC noted that the FCRSC would revert back to its normal membership of 5 industry and 2 DEPI representatives from 1 January 2014.

5(b) Timeline

BACKGROUND: At FCRSC meeting #25,the FCSRC discussed and agreed upon both the actions that need to be completed in order to meet the Minister's stated intention to implement a new cost recovery regime by 1 April 2014, and the timeline required to complete those actions.

DEPI will update the FCRSC on the timeline.

RECOMMENDATION: For noting.

OUTCOME:

1. DEPI updated the FCSRC on the timeline to implement the prospective cost recovery system by 1 April 2014.
2. The FCRSC noted that the timeline was developed prior to the 2013/14 levies being set 30% higher than the previous year. If the increase had not occurred, industry would be more willing to work through the fishery-specific forum consultation process during the first trial year, however, a second increase (the first year's phase-in) has intensified the need for industry to be satisfied that, prior to 1 April 2014, the level of services/costs outlined in the schedules are accurate.
3. The Chair asked DEPI to clarify if the timeline permitted any opportunity for industry and DEPI to discuss fishery-level matters, i.e. the nature and extent of services to be provided. DEPI advised the FCRSC that there is scope within the timeline for further consultation up to 8 November 2013.
4. The FCRSC agreed that the schedules should form the basis for further consultation. Industry members were asked to provide queries on schedules in writing to DEPI by close of business Friday 25 September 2013 to enable DEPI sufficient time to respond. The FCRSC agreed that the submission must specify if it is an individual, FCRSC member/advisor or an association representative that is making the enquiry.
5. Some industry members believed that the timeframe would be impractical to discuss the fishery-specific issues of all 42 licence classes, and as such, would not be providing further written submissions.
6. The FCRSC noted that industry members/advisors and DEPI have conducted fishery-specific consultation on a number of fisheries since September 2012, such as the Eel, Abalone Processors, Corner Inlet, Gippsland Lakes, Private Land Eels, Crown Land Eels, Private Land Salmonid and the three wild-catch abalone fisheries. Written submissions should focus on additional matters and/or fisheries that have not yet been addressed.
7. The FCRSC agreed that some fisheries, for example, bait, WP/PPB would be satisfied for now following discussion of additional concessions, and that SIV would co-ordinate any additional input from scallops, ocean, trawl, corner inlet, etc.
8. DEPI noted that if additional meetings were to be convened, they would need to be scheduled by 25 October 2013.
9. The outcome of this additional consultation held up to 8 November 2013 would be reflected in further advice provided to the Minister by the FCRSC Chair.
10. The FCRSC noted that the timeline contained an allowance to advise entitlement holders of the new levy values a month in advance of them receiving their licence renewal notices. As a result of the additional fishery-specific consultation between DEPI and industry that is proposed to occur up to 8 November 2013, DEPI will likely not be able to advise entitlement holders a month in advance of issuing renewal invoices.

ACTION ITEM:

1. Industry and DEPI to work together to address as many as possible fishery-specific queries for the 2014/15 licensing year prior to 8 November 2013.

5(c) Regulatory Impact Statement submissions

BACKGROUND: The purpose of the Regulatory Impact Statement (RIS) process is to ensure that regulation is only implemented or amended when there is a justified need; that only the most efficient forms of regulation are adopted; and that there is an adequate level of public consultation in the development of regulatory measures.

The Fisheries (Fees, Royalties and Levies) Further Amendment Regulations 2013 RIS was assessed by the Victorian Competition and Efficiency Commission against the requirements of the Subordinate Legislation Act 1994 and the Victorian Guide to Regulation, and subsequently released for 60 days public consultation (26 July – 24 September 2013).

DEPI engaged external providers to prepare the RIS and to provide summarised public submissions and comments on the RIS for discussion with FCRSC, prior to briefing the Minister.

An analysis of the content of the 76 submissions received by DEPI, grouped into 26 categories was provided to members/advisors on 11 October 2013.

RECOMMENDATION: For discussion.

OUTCOME:

1. The FCRSC noted that Regulatory Impact Solutions created the Issues Log, and that any errors regarding the number of submissions per issue was accidental, as opposed to an attempt to discuss selective issues raised during the consultation process.
2. DEPI advised the FCRSC that it had reviewed the issues contained in the public submissions and obtained approval from the Minister to discuss with the FCRSC a range of options that seek to address the issues raised.

Issue Log

Abalone industry concessions on compliance services

The FCRSC noted a submission from the Abalone Industry Council which states that the wild-catch abalone sector has changed its position, and now wishes to accept the concessions that were offered to all licence classes in relation to compliance (nil cost recovery for surveillance, investigations and intelligence). DEPI advised the FCRSC that there are four zonal associations, and that one of the zonal associations has advised DEPI that it does not support the concessions.  DEPI maintain the advice previously provided to the abalone sector at FCRSC #30, that the level of recovery (either 0% or 100%) for intelligence, investigations and surveillance costs should be the same for each abalone zone. The three wild-catch abalone fisheries are already treated differently to the remaining commercial fisheries due to the 7.2% GVP cap, and introducing different levels of recovery for different abalone fisheries would create further complexity, which does not comply with one of the cost recovery principles to have an administratively simple cost recovery system.

Industry opined that the EZAIA, WADA and VADA members represent the majority of abalone entitlement holders, and that it would be reasonable for the sector to accept the concessions on this basis.

VADA advised the FCRSC that it represented 80% of central zone entitlement holders. VADA agreed to provide DEPI with its legal register of members to verify membership.

Industry members/advisors of the FCRSC agreed to support the proposal from the abalone sector representatives that the compliance concessions are applied to all three abalone wild-catch fisheries.

In the view of FCRSC, based on the facts that i) the EZAIA, WADA and VADA members represent the majority of abalone entitlement holders in the Victorian abalone sector ii) that these organisations support the application of concessions in relation to compliance (nil cost recovery for surveillance, investigations and intelligence) and iii) that DEPI is unwilling to have different approaches to these concessions applied in different zones,  it was reasonable that these concessions be applied to the whole of the abalone sector.

Allocation of costs between rock lobster licence and quota

The proposal contained in the RIS was to allocate costs 70/30 on licence/quota in the Rock Lobster and Giant Crab fisheries based on advice from the FCRSC.

Following the feedback received via the public consultation process, DEPI reviewed the drivers of cost recovery, and propose that the attribution of costs between quota and licence holders in these three fisheries be adjusted to distribute the costs 50/50 on licence/quota.

A Rock Lobster industry advisor asked DEPI to explain the justification for the 50/50 attribution proposal.

DEPI advised the FCRSC that cost recovery principle 1(b) states 'cost recovery systems should be designed to promote:

a) economic efficiency; i.e. improve the allocation of resources in an economy by providing price signals for service provision that incorporate all of the relevant costs; and

b) equity; i.e. those that benefit from a government service, or contribute to the need for a service, should pay for the associated costs. Where a number of groups benefit from a service, costs should be apportioned'.

Cost recovery has two further criteria:

• Beneficiary pays – the proposition that those who benefit from the provision of a good or service should pay for it; and
• Impactor pays – A principle requiring impactors to meet the full costs, including external costs, of their actions.

The matter is complex, however, DEPI considers that costs are largely driven by licence holders, but that the beneficiary is largely quota unit holders. Therefore, a charge largely on quota would cross-subsidise licence holders. Based on an estimation of the cost drivers for services, and applying both cost allocation criteria, DEPI suggests an allocation of 50/50 between licence and quota.

An industry FCRSC member affiliated with the rock lobster fishery supported the 50/50 approach noting that this approach would likely result in the reduction of latent licences in the fisheries, which would be a positive outcome for these fisheries because it would reduce costs. 

Whilst an industry advisor for rock lobster maintained that costs should be allocated 30/70 on licence/quota, the FCRSC members agreed to support the 50/50 proposal.  

Bar to new entrants

The FCRSC agreed that higher operating costs (levies) will, amongst other costs, be a bar to new entrants. DEPI noted that although not the intent, an increase in cost recovery levies may lower quota and licence values to new entrants.

The FCRSC noted that experimental aquaculture investment may cease due to higher operational costs (levies).

The FCRSC agreed that the best way to lower any bar to new entrants was for industry and DEPI to work together to improve service delivery, becoming more efficient and reducing costs that need to be recovered from industry via levies.

Competitiveness

The FCRSC noted that the Commercial Wild Catch Fisheries and Aquaculture Cost Recovery Review, conducted by the Economics and Social Research Branch of the then DPI, completed in 2012, contained case studies for cost recovery in New Zealand, South Australia and AFMA jurisdictions. The recommendations contained in that report have been used in consultation with the FCRSC to develop the prospective cost recovery system.

The FCRSC noted that the RIS contained a comparison with South Australia because South Australia is the only Australian state that has implemented a comprehensive cost recovery framework for commercial fisheries services, and reports on the costs of services as a proportion of GVP.

The FCRSC agreed that DEPI should look to provide competitive services. The level of cost recovery would be based on the provision of efficient services rather than the lowest level of recovery applied by a jurisdiction that competed with Victoria in the market.

The FCRSC agreed that the cost recovery process proposed for Victoria is similar to AFMA, however, the fisheries/costs are very different. It further agreed that the availability of alternative service providers is an effective method to reduce costs.

One industry advisor suggested that AFMA does not recover the costs of compliance. The Chair, who is also an AFMA Commissioner, advised the FCRSC that AFMA does recover the costs of compliance.

The FCRSC noted that there is increased competition for entitlement holders wanting to sell their product, i.e. increasing volumes of imported fish reduces the market share for domestic fishers, which reduces profitability, and ability to pay cost recovery levies.

Consultation

DEPI advised the Committee that the Government is committed to a transparent cost recovery process. In order to facilitate this, the FCRSC has been established which operates under an agreed Terms of Reference (TOR) between industry and Government. Moreover, the Minister, via the Chair, had requested a broadening of industry attendance at the FCRSC meetings to reflect the major fisheries, broaden the level of expertise available; and increase the level of support for its outcomes. In the short term, and to expedite progress, additional attendance is being achieved using the current provision in the FCRSC TORs for advisers.

Wider consultation with industry occurred via the RIS consultation process, including four cost recovery forums convened by SIV, attended by DEPI and the FCRSC Chair, with the intention to explain the proposed cost recovery system.

Moving forward, the FCRSC has agreed that the fishery-specific forums are a vital part of the cost recovery process to enable consultation with affected entitlement holders.

SIV has agreed to assist in the education of industry members, and DEPI has started briefing its staff, including Fisheries Officers, on cost recovery, with a view to increased communication with industry and adjusting the operation of DEPI for a cost recovery environment, with its focus on accountability and efficient service provision.

The FCRSC agreed that consultation is a 'two-way street' and that both industry and DEPI should be as transparent as possible.

Contestability

The FCRSC agreed that the information on contestability in the RIS is lacking in detail, however the FCRSC further agreed that the process of contestability had been discussed at a number of FCRSC meetings during the development of the prospective cost recovery system.

DEPI reiterated with the FCRSC  that it is supportive, in principle, of alternative service providers delivering cost recoverable services to industry at a lower cost than DEPI, noting that some types of services could not be delivered outside of Government. DEPI advised the FCRSC that it has created the schedules, in consultation with the FCRSC, to specify the cost recoverable service to be delivered, including a definition of the service, the milestones against which performance can be measured, and the time and cost incurred by DEPI to deliver that service on behalf of industry.  Such information could provide a basis for the consideration of outsourcing options where appropriate.

DEPI agreed that more detailed standards and specifications would need to be developed to support consideration of contestability. Contracting arrangements, and monitoring and auditing may also be needed. It would simply be too time consuming to create a service specification for every cost recoverable service within each of the 42 fisheries.

DEPI advised the FCRSC that there are approximately 250 services provided to industry by DEPI in the schedules, noting that some services are grouped such as cost recovery administration.

DEPI suggested that industry prioritise those services that could be delivered by alternative service providers for review. The FCRSC could then work on one or two pilots.

Cost attribution

The FCRSC noted that costs associated with inspections of Rock Lobster processors are not borne by the Rock Lobster licence classes, except where there is association with compliance by Rock Lobster fishers.

The FCRSC considered whether cost recovery should be based on production rather than licences. DEPI noted that costs for some services were driven by the number of licences. The FCRSC noted that a charge on production would be seen as a tax, and results in cross-subsidisation of costs. DEPI advised that as production is not known in advance, this approach would reintroduce retrospective elements into the system. DEPI would also need to generate individual fisher invoices which is complex, and the level of production is not limited  in non-quota managed fisheries. The FCRSC noted that levies based on production reduces the incentive to generate efficiencies in service provision.

The FCRSC concluded that it was more efficient and simpler to recover costs on the basis of licences (for non-quota managed fisheries).

FRDC Levy

The FCRSC noted that it is FRDC policy that the FRDC Levy is based on 0.25% of GVP. This level is applied nationally. This is a levy collected by government on behalf of the Victorian industry.

Illegal fishing

The RIS identified a risk that due to the increase in the total levy amount to be collected, there may some commercial operators who choose not to renew their licenses (pay their levies), instead choosing to fish unlicensed (illegally). Industry confirmed that this is a real risk, albeit very low risk, given the level of increases in some fisheries.

The FCRSC agreed that the increases in levies poses some risks, but it is not seen as a reason to not recover cost.

Inconsistent with the objectives of the Fisheries Act 1995

The FCRSC noted that the objectives of the Fisheries Act 1995 are:

a) to provide for the management, development and use of Victoria's fisheries, aquaculture industries and associated aquatic biological resources in an efficient, effective and ecologically sustainable manner;

b) to protect and conserve fisheries resources, habitats and ecosystems including the maintenance of aquatic ecological processes and genetic diversity;

c) to promote sustainable commercial fishing and viable aquaculture industries and quality recreational fishing opportunities for the benefit of present and future generations;

d) to facilitate access to fisheries resources for commercial, recreational, traditional and non-consumptive uses;

e) to promote the commercial fishing industry and to facilitate the rationalisation and restructuring of the industry; and

f) to encourage the participation of resources users and the community in fisheries management.

Some industry advisors agreed with the submissions on this matter; that the proposed cost recovery levies outlined in the RIS are inconsistent with the Fisheries Act 1995.

There was concern from industry that an increase in effort in non-quota fisheries may have an impact on the sustainability of the fishery. The FCRSC noted that if such a situation was to occur, DEPI would manage the fishery accordingly to ensure its sustainability.

DEPI, and some industry members/advisors disagree that the implementation of a prospective cost recovery system is inconsistent with the above objectives of the Fisheries Act 1995.

The FCRSC noted that S151A 'Additional provisions applying to royalties and levies' would not have been inserted into the Fisheries Act 1995 if it was inconsistent with the Act's overall objectives.

Indexation

The FCRSC noted that the Victorian Government has a policy of automatically indexing levies, fees and fines each year for inflation, so that the real value of those levies, fees and fines is maintained.

Levies, fees and fines are officially set and revised by legislation relevant to their application [e.g. Fisheries (Fees, Royalties and Levies) Regulations 2008].

The annual rate is set by the Treasurer, and is relevant to:

1. the annual automatic indexation of the amount of a fee unit or a penalty unit for the next financial year (section 5(4) of the Monetary Units Act 2004); and
2. determining the maximum amount that fees and fines can be increased in the next financial year without the obligation for a Regulatory Impact Statement to be completed (section 8(1)(d) of the Subordinate Legislation Act 1994).

Without indexation via the use of fee units, there would be significant administrative work and cost in undertaking Regulatory Impact Statements on a regular basis.

An industry advisor asked whether CPI would be applied to both the average staff cost each year, and to the fee units. DEPI advised the FCRSC that the average staff cost would not change each year. The only application of CPI would be to the fee units, in line with Government policy. As such, there would not be any 'double-dipping'.

Justification of costs

The FCRSC noted that the issues of misalignment of costs with services have been considered, and that some specific adjustments are proposed to the compliance and research services respectively, for the Wrasse (Ocean) and Gippsland Lakes fisheries.

DEPI also proposes to:

a) Reduce the cost for the Purse Seine (Port Phillip Bay) Licence class by consolidating it, for cost recovery purposes only, with the Western Port/Port Phillip Bay Licence class, which essentially has the same level and type of services.

b) Extend the small operator discount to cover seven Aquaculture Licence classes and the Sydenham Inlet (Bait) licence class (the only bait class currently not proposed to receive it).

The FCRSC supported the proposed amendments outlined by DEPI to further mitigate costs on licence holders.

Industry queried DEPI regarding the level of inspections conducted historically, as referenced in a number of submissions. DEPI acknowledged that the number of inspections in previous years was less than what is proposed in the schedules for some fisheries, e.g. aquaculture. The FCRSC noted that the schedule of services represent the activities that DEPI will deliver, on average, over the next four years.

Industry asked if other primary producers such as farmers will be required to pay cost recovery? DEPI advised the FCRSC that within government, there will continue to be more attention directed towards cost recovery to ensure that the beneficiaries of services and those that create the risks are required to contribute to costs incurred.

DEPI agreed to investigate what other primary producers pay cost recovery levies.

An abalone industry advisor queried the difference in total research costs between each of the three abalone zones. DEPI opined that this did not sound correct, and would provide further information to the FCRSC after reviewing the schedules.

The abalone advisor also queried the higher overheads associated with DEPI employees in regional areas as opposed to metropolitan DEPI employees. For example, the accommodation charge for a regional employee is higher than a metropolitan employee. DEPI advised the FCRSC that the average staff cost (salary & on-costs) for a management branch employee was $141,305 in 2012/13, as outlined in page 42 of the RIS. This average was determined prior to the relocation of fishery management branch staff from Melbourne to Queenscliff. As such, this relocation of staff has no impact on the proposed levies to be paid by industry under the new prospective cost recovery system. Mr McGowan further advised the FCRSC that the Victorian Government has made a commitment to 'regionalise' the Victorian Public Service as much as possible, and will continue to meet this commitment.

The FCRSC noted that other adjustments will be subject to further discussion at fisheries-specific meetings that will be scheduled. The FCRSC noted that the Minister had approved the non-recovery of costs incurred to facilitate the fishery-specific meetings for the two year transition period.

Multi Criteria Analysis

The FCRSC noted that a multi criteria analysis was used to compare the impact of full cost recovery and partial cost recovery in the RIS. This approach involved identifying suitable criteria, weighting these criteria in accordance with the objectives outlined in the RIS, and then scoring each option according to those criteria.

The FCRSC agreed that whilst the scoring criteria and weightings table was not explained adequately in the RIS, partial cost recovery was preferred over full cost recovery.

Levies increases affect viability

The FCRSC noted the high number of submissions received reflecting industry's anxiety regarding the impact of the proposed levies on their viability.

The FCRSC supported almost $1million worth of concessions prior to the release of the RIS to mitigate the economic impact of the proposed cost recovery levies on entitlement holders.

In addition, the FCRSC has supported each of the proposed options tabled by DEPI to further reduce the economic impact on entitlement holders.

The FCRSC reaffirmed its position that the best way to lower any levies for industry, was for DEPI and industry to work together to improve service delivery, become more efficient, thereby reducing the costs incurred, and subsequently recovered from industry via levies.

Levy waiver – Regulation 23B

The draft amending Regulations provide for a waiver in subsequent years to adjust for the proportion of services materially under-delivered. DEPI reminded the FCRSC that it does not have the ability to provide a refund, as all cost recovery revenue goes to the consolidated fund (Treasury), not DEPI.

The definition of 'material under-delivery' of services specified in the Regulations will be circumstances where 75% or less of a service, as specified in the cost recovery schedules for a fishery, is not provided.

The FCRSC noted that no other cost recovery system in the world has provision to waive/reduce the following year's levies for the non-provision of services. This is a very strong form of accountability by DEPI to industry for the non-provision of services.

DEPI has made a commitment to industry to deliver 100% of services, wherever possible.

DEPI advised the FCRSC that the Fisheries Act 1995 provides for the creation of regulations to provide a reduction or waiver of a levy in whole or in part. DEPI has received advice that this power relates to variation in the provision of those services, rather than recognising disaster circumstances or economic hardship. Mr McGowan noted that emergency relief was a source of debate between the Commonwealth and State governments.

The FCRSC noted that the proposed cost recovery system has considered economic hardship, which was the rationale for supporting the concessions, advising the Minister to phase-in the levies, etc.

Industry suggested that the Fisheries Act 1995 should be amended to include a provision for a waiver in certain circumstances of hardship such as a bushfire destroying an aquaculture farm. Industry suggested that this should be considered on a case by case basis by the FCRSC. The Chair agreed to advise the Minister of industry's suggestion.

Quality of RIS

The FCRSC noted DEPI's position that the RIS was independently assessed by VCEC as meeting the requirements of the Subordinate Legislation Act 1994 and the Victorian Guide to Regulation, and DEPI's intention to seek further legal advice on this matter.

Reduction in number of licences

If there is a reduction in the number of licences in a fishery, will the costs on the remaining licence/quota holders in the fishery increase, i.e. costs of managing the fishery spread amongst fewer licences?

DEPI advised the FCRSC that the answer is, in general, yes. In the case of a stock assessment, the FCRSC noted that a stock assessment would need to be conducted irrespective of the number of licences. So a reduction in licences in the fishery would increase the levies of the remaining licence holders.

In the case of compliance, fewer licences in the fishery would result in fewer inspections conducted in the fishery. In this case, there would not be an increase on remaining licence holders.

The FCRSC again reaffirmed its position that the best way to lower any levies for industry, due to a reduction in licence numbers or otherwise, was for DEPI and industry to work together to improve service delivery, become more efficient, thereby reducing the costs incurred, and subsequently recovered from industry via levies.

SIV Levy

The FCRSC supported the regulatory amendment required to maintain the SIV funding through calculation of the Grants levy.

Small Operator Concession

The FCRSC supports the proposal to expand the small operator discount to cover seven Aquaculture Licence classes and the Sydenham Inlet (Bait) licence class (the only bait class currently not proposed to receive it, and because the catch data included one outlier year of very high catch data).

Transferability

A submission raised the issue of transferability of a Purse Seine Port Phillip Bay licence. The FCRSC noted that this was not a matter related to cost recovery.

Transition (phasing)

Some industry advisors suggested that the introduction of the new prospective system be delayed by 12 months, with a CPI adjustment occurring for the 2014/15 levies, followed by the three year 30%, 30% 40% phase-in.

An industry FCRSC member suggested that the FCRSC should provide a recommendation to the Minister to roll over the levies by CPI because in his opinion:

a) Inaccuracies in the RIS are evident;

b) The high number of submissions received and their content;

c) The failure of past cost recovery systems to recover a proper level of costs falls at the feet of DEPI, not commercial fishers;

d) CPI is a holding pattern whilst fishery-specific consultation occurs, any higher increase may put some operators out of business (If a licence holder pays a levy, and then goes bankrupt, however no services are delivered for whatever reason, how can DEPI provide the operator with a waiver?); and

e) Industry is happy to pay cost recovery, but verifiable cost recovery.

The Chair reminded industry members that he personally obtained a 12 month extension from the Minister, and that the FCRSC's instructions from the Minister were to implement the system on 1 April 2014. At FCRSC meeting #29, the Minister reiterated his instructions to the FCRSC to implement the system on 1 April 2014.

Mr McGowan reminded the FCRSC of his intention to be as transparent as possible. As such, Mr McGowan informed the FCRSC that DEPI's advice to the Minister would be to proceed with the 30% phase-in of costs because this is a reasonable transition to the proposed level, contains a number of concessions for industry, and still represents significant under-recovery of costs from industry.

Following further discussion, industry supported a proposal that the schedule for the introduction of cost recovery should be re-assessed to provide an opportunity for further fishery-level discussions about the services and costs before the proposed further increase in levies on 1 April 2014 (i.e. 30% of the difference between current levies and the proposed  level).

Industry's strong preference was to adjust the level of cost recovery to 10%, 30%, and 60% respectively over the next three years. Industry opined that this would provide a chance for industry to use fishery level discussions to, where possible, reduce the costs of fisheries management, compliance and research services.

DEPI maintained the view that the schedule of levy increases laid out in the RIS (i.e. 30%, 30% 40%) provided for a substantial deferral of cost increases, while moving to address the current under-recovery of costs.

The Chair agreed to ask the Minister to consider industry's amended phase-in proposal.

Transparency/Accountability

The Committee reaffirmed the position agreed at multiple meetings throughout the development of the prospective cost recovery system, that it would be the services/milestones that would be important within any year, and that reporting on services/milestones at the fishery level would support transparency/accountability and assist in rebuilding the trust between industry and DEPI.

Unrelated Matters

The FCRSC noted that the matters raised in these submissions were outside the scope of cost recovery.

Why Recover Costs

DEPI delivers fisheries administration, management, compliance and research services for the ongoing sustainable operation of Victoria's commercial fisheries (comprising wild-catch, aquaculture and fish receiver licences and quota holders), in accordance with the Fisheries Act 1995 and the Fisheries (Fees, Royalties and Levies) Regulations 2008.

Levies for cost-recoverable services are recovered in line with the Victorian Government's response to the National Competition Policy 2001 review of the Fisheries Act and its more recent Cost Recovery Guidelines.

ACTION ITEM:

1. VADA industry advisor to provide DEPI with its legal register of members.
2. The abalone industry members/advisors that attended FCRSC meeting #32 support the adoption of compliance concessions in the three wild-catch abalone zones. DEPI will further consider its advice on this matter.
3. Industry to identify particular priority services that should be considered as pilots to be delivered by alternative service providers.
4. DEPI to clarify the total research costs for each wild-catch abalone zone.
5. DEPI to investigate what other primary producers pay cost recovery levies.
6. The Chair to advise the Minister that industry believe that the Fisheries Act 1995 should be amended to include a provision for a waiver in certain circumstances of hardship.
7. The Chair to ask the Minister to consider industry's amended phase-in proposal (i.e. 10%, 30%, 60%).

 5(d) Consultation regarding the level of services

BACKGROUND: At FCRSC meeting #30, the Committee provided their support for Fishery Specific Forums where DEPI could use existing organisations and meetings such as Total Allowable Commercial Catch (TACC) meetings in quota managed fisheries, or zonal forums, to consult with particular fisheries, and that SIV would be able to consult with the remaining wild-catch fisheries via other means, subject to the exact process and timeline being determined.

The existing forums proposed to be used are:

a) Abalone (Central, Eastern, Western zones) TACC/Management forums;

b) Rock Lobster (Eastern and Western zones) & Giant Crab Management forum;

c) Victorian Bay & Inlet Fishery Association or appropriate SIV subcommittee;    

d) Victorian Commercial Eel Fishermen's Association; and

e) DEPI's aquaculture forum.

The fishery specific forums will be complemented with the use of DEPI's website to publish proposed fishery-specific schedules, advertise the consultation period, and seek written feedback from affected entitlement holders.

RECOMMENDATION: For discussion.

OUTCOME:

1. The FCRSC acknowledged SIV's concern that not all licence/quota unit holders are familiar with cost recovery, and that it would take some time to get all of industry 'up to speed'.
2. Mr McGowan advised the FCRSC that all Fisheries Officers will be briefed on cost recovery and its implications. These Officers would then be conversant with cost recovery as it related to compliance services and be able to engage with fishers on these issues.
3. The FCRSC agreed that SIV would need to take a leading role in educating its members. SIV advised the FCRSC that it would expand its education of industry members via its newsletter, emails and information sheets.
4. The FCRSC noted that meetings are open and transparent, with Chair's summaries published on the DEPI website. Since the instructions from the Minister to the FCRSC to develop and implement a prospective cost recovery system by 1 April 2014, FCRSC meeting Minutes have also been published on the DEPI website. The Chair has also always welcomed industry observers to attend FCRSC meetings.
5. The FCRSC noted that the fishery-specific forums should discuss how the risks and legislative obligations for each fishery relate to service provision. Mr McGowan advised the FCRSC that there are some matters, mainly relating to compliance, that would not be discussed with industry.
6. The Committee recognised that it would be the services/milestones that would be important within any year and that reporting on services/milestones at the fishery level would support transparency/accountability and assist in rebuilding the trust between industry and DEPI.
7. DEPI suggested that the proposed use of existing forums should consider the timeframe required to adjust levies prior to the start of the licensing year in the transition years. For example, the abalone TACC forums are held in Jan/Feb, which is too close to the start of the licensing year – 1 April to allow levy adjustments to be made before the next licensing year. To achieve this purpose, meetings would need to be held between July and October. Final decisions by the Minister must be made by mid-November each year to enable sufficient time to create the regulations.
8. Industry suggested that Annual General Meetings for industry associations would be more suitable for this level of consultation, based on timing and industry attendance, e.g. VADA, EZIA, WADA, Victorian Bay & Inlet Fishery Association, etc.
9. The FCRSC agreed that there is a difference between services that must be delivered by DEPI, or an alternative service provider to meet regulatory obligations, and those services that could be provided. The educational service provided to the aquaculture sector from the fisheries management branch was used as an example. This service was originally requested of DEPI from industry. However, now that the cost recovery system is changing, and the cost to provide that service would be recovered from industry, industry advised DEPI that it no longer requires that service.
10. The FCRSC agreed that it would be a key focus of the Committee to further develop the fishery-specific consultation process.

ACTION ITEM:

1. DEPI to develop a discussion paper which outlines the process, timetable, etc. to implement the Fishery specific forums.

6) Other Business

7) Next meeting:

Date to be Confirmed.

Meeting closed at: 4:00pm.

ACTION ITEMS