Fisheries Cost Recovery Standing Committee Meeting #6

Chairman's summary of the meeting held on 2-3 August 2005

The sixth meeting of the Fisheries Cost Recovery Standing Committee (FCRSC) was held on 2-3 August 2005 at the DPI, 1 Spring Street, Melbourne. The following representatives attended

Chair:

Mr Ian Cartwright

In Attendance:

Mr Paul Welsby (Industry)
Mr David Lucas (industry)
Mr Gerry Geen (industry)
Mr Tim Mirabella (Industry)
Mr Ross McGowan (SIV Permanent Observer)
Mr Dallas D'Silva (DPI)
Mr Peter Rawlinson (DPI)
Mr Paul Mainey (DPI)

Observers:

Ms Lyn Warn (Abalone fishery)
Mr Harry Peters (Abalone fishery)
Mr Allan Taylor (Abalone fishery)
Ms Karen Weaver (DPI)

The sixth meeting of the FCRSC focused on consideration of the latest Fisheries Activity Cost System (FACS) data, the draft Regulatory Impact Statement and progress with the options paper on Abalone Royalty.

The Committee:

reviewed the role and attendance of observers at the meetings of the FCRSC;
noted industry concerns about the prospective changes in levies resulting from the first full 12 months of FACS data;
discussed the need for a committed 'partnership' approach to implementing and monitoring cost recovery – this required that DPI applied appropriate resources and expertise to allow timely consideration by the Committee and industry of FACS data and other cost recovery issues;
considered and agreed on a means for improving industry input into the cost recovery process, particularly in terms of validating and commenting on fishery-specific costs;
emphasised the need to provided a more comprehensive and industry-friendly picture of how costs are allocated and how levies are calculated from the FACS database;
agreed to task DPI with recalibrating FACS data to differentiate more clearly between fisheries specific operating and 'overhead' costs;
reiterated the value of industry and the FCRSC being more familiar with the details of FV budgeting and how DPI budgets related to outcomes and subsequent cost recovery;
agreed to examine ways to better engage industry up front on research priorities and new projects, so as to provide greater ownership of projects and willingness by Industry to support the research through levies;
agreed that DPI would look at ways to split compliance and management costs within certain cost categories;
agreed that the FACS architecture, logic and outputs be independently audited and reported on; and
agreed that an additional option of a set % of GVP, including both a royalty and cost recovery component, be incorporated in the Abalone Royalty Options Paper to be presented to the Minister.

Observers

The Committee noted that according to the FCRSC observers could be invited to attend a meeting for specific purposes by either SIV or DPI, and with the agreement of the Chair. It was agreed that in future, attendance of observers would be in line with process outlined in the TORs. This would allow an appropriate level of transparency and access to relevant expertise and views, while not overly constraining the ability of the Committee to have focused discussions and agree on advice to the Minister.

FACS results, framework and coordination

The committee discussed the possible impacts of changes to the levies as a result of unexpected and unexplained changes arising from the FACS data, and presented in the FCRSC papers. Industry members of the Committee levelled strong criticism at the data generated by the FACS and presented in the draft RIS. They stated that owing to the continuing changes in estimates of costs, confidence that the FACS data was somewhat compromised and as a result, industry was unable to support the draft in the form currently presented.

Industry stressed the need to ensure that Fisheries Victoria had the required resources to maintain a credible cost database and produce the required data in formats requested by the committee. The issue of succession planning was also discussed in the context of reliance on one key staff member for cost recovery implementation. Industry noted that it was important that all cost recovery systems be carefully documented and other staff trained and made aware of the technical aspects of FACS.

DPI in response acknowledged this and would ensure that the cost recovery mechanism (FACS) remained robust and well maintained and that the points raised by industry would be addressed.

Industry noted that increasingly there was a view that the DPI was not fully committed to the partnership approach fundamental to the effective introduction of cost recovery. DPI undertook to address this issue.

After a full and frank discussion, both Industry and DPI reiterated their commitment to the cost recovery process.

2004/05 Budget overview

DPI stated that the cost figures used for 2005 levies were based on April (2004) – Sept (2005) being across financial years and missing crucial summer months of activity. This may have underestimated those figures and hence the figures for 2004-05 seem inflated.

In considering the data, Industry requested a clearer diagrammatic representation of how the allocation rules work and how levies fall out of the FACS database. A clear comparison between the 2005 levies (@ 82% FCR) to 2006 levies (100% of FCR) was also requested. DPI agreed to provide these as soon as possible and that they would be inserted in the RIS.

The committee discussed how the $2.5 million of the Marine Parks Initiative (MPI) Funding to FV was spent on projects that directly impact on the commercial sector. DPI explained that regional priorities regarding elements of the MPI involved a significant increase in the level of fisheries compliance activities outside the marine protected areas with a particular focus on the abalone sector. DPI stated that this amount was subtracted from each of the sectors before the recovered amount was determined. DPI stated that this expenditure would be ongoing and incorporated as part of budgetary support by the Government to the fisheries sector.

Wider involvement in the budgetary process

Industry again stressed the need to be more meaningfully involved in up-front budgeting and to move away from paying against historical costs 'after the fact'. To promote this approach, Industry requested a clearer picture of how critical output indicators are linked to budget outcomes.

One example of getting more input into setting broad budget parameters was research. Since industry is expected to foot part of the bill, it is equitable to provide it with a greater capacity to influence up front how research dollars are spent.

DPI stated that the critical information required by the Committee is contained in the quarterly reviews of expenditure and recoverable cost estimates, against outcomes. DPI agreed to provide this information which would be used by the FCRSC as a means of 'quality control'.

Industry stated that they need to get regional managers and industry representatives together to discuss the costings for each of the regions so that industry fully understands where the money that is being recovered is being spent. This process would also be essential to building industry confidence in the FACS data and how it is derived and used in the cost recovery process. DPI agreed to work on such an approach, and to facilitate industry input into fisheries research planning and expenditure where industry is contributing to the cost of that research.

Review of FACS methodology

DPI highlighted that "management" and "compliance" levies were an amalgam of actual FMS expenditure and allocated pro rata costs. It was noted by industry that this would have the effect of distorting pure "management" and "compliance" costs as a significant proportion of total costs are imbedded in the pro rata costs. The Committee agreed that DPI agreed would split the pro rata costs into management and compliance so as to provide a more meaningful reflection of each of the FMS categories.

In addition, DPI will recalibrate FACS data to isolate pro rata "overhead" costs and "operating costs" and other "global" costs (eg Abalone Victoria) so that a more comprehensive picture is given to how expenditure is defined.

Abalone Royalty

Further to industry's suggestion of an additional alternate royalty option which would address problems created by previously considered options, the Committee agreed that an additional option be incorporated into the Royalty Options Paper currently being prepared for the Minister. The proposed option would be based on a fixed percentage of GVP which would collect both a royalty and a cost recovery component. It was noted that such an approach would:

provide DPI with an incentive to manage their own costs rather than have industry as the sole promoter of cost efficiency;
be in line with the Tasmanian model for royalty collection;
remove a number of equity issues across zones; and
provide for the certainty required by industry.

Other issues

It was agreed that capacity to pay would continue to be an issue for some fisheries, and that it was important that more certainty be incorporated in the cost recovery system. A single major compliance, research or other activity could make a substantial difference to levies, and industry would be expected to pick up the bill, after the expenditure and with no say in terms of limiting up-front budgets.

It was noted that while the first 12 month set of FACS data was available, it still represented a very short (the minimum possible) time series. Better estimates of long term averages will emerge after the cost recovery programme has had the opportunity to 'bed down'.

Industry requested that FACS specifications and framework be independently audited and accounted for in terms of systems specifications. DPI agreedto organise and independent audit on FACS architecture, logic and outputs.

Industry suggested that 2006 (based on 2004/05 FACS data) levies should be seen as an extension of the transitional phase, pending greater industry involvement in the budgetary process. A further suggestion was made by industry that 2006 levies could consist of 2005 levies plus 20%, as this would be in line with licence holder expectations and would allow for a further 12 months or data and for the FACS to bed down. Effectively this would mean waiting 12 months to fully implement levies based on FACS.

The Committee agreed a plan of action/considerations that need to be addressed within the next 12 months.

Next meeting

The Committee tentatively agreed to meet again on 4th October 2005.