Fisheries Cost Recovery Standing Committee Meeting #4

Phased cost recovery program for Victorian commercial fisheries

Fisheries Cost Recovery Standing Committee

Abalone royalty meeting

Chairman's Summary of the meeting held 8 April 05

Introduction

The fourth meeting of the Fisheries Cost Recovery Standing Committee (FCRSC) was held on the 8th April 2005 at the DPI Offices. The following representatives attended

Chair:

• Mr Ian Cartwright

In Attendance:

• Mr Paul Welsby
• Mr David Lucas (industry)
• Mr Gerry Geen (industry)
• Mr Dallas D'Silva
• Mr Peter Appleford (DPI)
• Mr Ross McGowan (industry observer)
• Supporting expertise: Mr Peter Rawlinson (DPI -
• FACs and budget analysis)
• Ms Karen Weaver (DPI – Policy Analysis)
• Mr Gary Stoneman (DPI – Economist)
• Mr Arthur Ha (DPI – Economist)

Additional observers:

• Mr Alan Taylor (industry observer)
• Mr Harry Peters (industry observer)
• Mr Vin Gannon (industry observer)

Minutes:

• Ms Nicole Catlin

Apologies:

• Tim Mirabella
• Neville Fowler

The fourth meeting of the FCRSC focused on the issue of abalone royalty, and a number of industry observers attended the meeting. The Committee:

• noted a letter from the Minister's office commending the Committee for progress during 2004;
• considered industry comments on the DPI Royalty Background Paper and reached general agreement on points raised by industry;
• considered the industry paper ' Community Return by the Victorian Abalone Industry – Some further considerations dated 4 April 05';
• members (and the DPI Chief Economist) agreed on the principle of using a sliding progressive scale for royalty payments based on the price of abalone;
•  noted the industry position that any future royalty scheme would be long-term, based on the previous fee formula regime, and, under a verbal commitment from the Minister, that total fees and royalty should be revenue neutral;
• noted the Government position that the royalty scheme must not unduly impact on the economic efficiency of industry;
• established a sub-Committee of FCRSC to progress discussions on the abalone royalty issue prior to the next meeting; and
• agreed to a communication strategy with industry on cost recovery.

Overall, the meeting established the industry position on abalone royalty and the key principles that it wished to see underpin any future scheme of royalty collection.

Abalone royalty

DPI representatives and industry met prior to the FCRSC to review guiding principles for the way to go forward.

Industry made numerous changes to the DPI Draft Abalone Royalty Background Paper, which the Committee reviewed and agreed to in substance as being representative of past events.

The Committee noted that Industry has historically paid a royalty which was contained within a fee formula that included management levies. It was agreed that there was a need, according to the management plan and the Government response to the RNRC Enquiry, to separate royalty and levy payments and collect them separately.

The RIS (August 2004) represents the best indication of true level of cost of fisheries management services (levy payments). The estimated cost of $1.9 million (cost recovery for abalone sector) is based on July to December. It was noted that better estimates will become available as full financial year data is processed however industry was concerned that waiting too long for clarification would cause a delay in resolving the royalty issue, which in turn would cause uncertainty in the industry.

On the issue of the calculation of royalty payments, industry outlined a number of key principles they wished to see adopted:

• the royalty/price relationship outlined in the industry paper "Community Return By The Victorian Abalone Industry; Some Further Considerations (4 April 2005)" was the true reflection of community return;
• royalty and fees and levies would not change from previous fee formula scheme i.e. the new regime should be revenue neutral (it was also noted that in a meeting last year with the Minister, industry were given a verbal commitment that they should not have to pay more royalty than they have previously paid because of the implementation of cost recovery.
• based on the previous fee formula, royalty would be calculated using a sliding progressive scale;
• the historical rate of around 3% (ENRC, 2002)(residual amount after cost recovery and other fees and charges are subtracted) and that this principle should be used for the future given that this percentage has been arrived at using relatively comprehensive (FACS) analysis for determining costs;
• the scheme should be as 'permanent' as possible, and preferably with a binding agreement between industry and Government to ensure stability over a reasonable period,;
• to provide some stability there would be value through the issue of a ministerial statement of intent;

In response, DPI indicated that:

• that the exact scale used could not be ascertained until full cost recovery has been determined (August 2005);
• that the Department of Treasury and Finance would be involved in determining the final royalty scale; and
• the development of a comprehensive royalty regime for fisheries, including abalone, should be addressed following the introduction of full cost recovery

The Committee agreed that DPI would work with industry on the development of a royalty scheme based on a sliding, progressive scale. It was noted however that there would be a need to work with Department of Treasury and Finance (DTF) to get support for the notion of a sliding scale and how it is applied. To achieve this, DTF will need to be presented with a comprehensive brief on the industry and the impact of various royalty regimes on economic efficiency.

To help inform discussion on options, the DPI Chief Economist gave a presentation on options regarding royalty collection regimes and the results of projections carried out by DPI (detailing considerations of revenue collection and economic efficiency). It was noted that efficiency considerations are far more important over the long run than revenue raising.

In response industry noted that proposed scale is similar to that underpinning the royalties being historically paid. In this case, industry would be faced with the same efficiencies and inefficiencies as they had historically experienced.

DPI stated that the royalty regime would be implemented through an RIS process through the Fisheries Regulations, which was considered would provide an appropriate level of certainty for industry.

DPI stated that they are unable to commit or express opinion in respect to the 3% of royalties until Treasury is satisfied that the new royalty rates will return the same level of revenue.

A sub-committee of the FCRSC was established consisting of Dallas D'Silva (DPI), Peter Rawlinson (DPI), Karen Weaver (DPI), Paul Welsby (Industry), Ross McGowan(Industry) and Gerry Geen (Industry). The Committee requested that this group develop a proposal to put through to Treasury.

Communication Strategy

The Committee reiterated the need for an effective communication strategy on Cost Recovery. It agreed that Peter Rawlinson, together with one or two members of the FCRSC should make a presentation on cost recovery to the relevant sub committees of SIV. The presentations would include:

• an overview of cost recovery methodology;
• operation of the FCRSC;
• fishery specific issues (e.g. Rock Lobster Eastern Zone); and
• an opportunity for a question and answer session.