Billions of litres of water purchased by taxpayers to save Australia's inland rivers are instead being harvested by some irrigators to boost cotton-growing operations, in a policy failure that threatens to undermine the $13 billion Murray-Darling Basin Plan.

The pumping of this environmental water means taxpayers have in some cases been effectively subsidising already wealthy agricultural interests, including those of Webster Limited, a publicly-traded company which holds a $300 million water portfolio — the largest Australian-owned private holding in the country.

A Four Corners investigation has found that in the Barwon-Darling system — a critical link in the wider Murray-Darling Basin — NSW Government water extraction rules have given irrigators more reliable access to water than prior to 2012 when the Basin Plan was signed.

Taxpayers have effectively been subsidising already wealthy agricultural interests. ( Four Corners )

Long-time farmers' advocate Mal Peters, who chaired a Murray-Darling Basin Authority (MDBA) statutory committee examining the Barwon-Darling, described the rules as "bloody disgusting".

"It rendered the whole plan, in my mind, completely null and void because the amount of water that could be taken out was huge," he said.

University of New South Wales scientist Richard Kingsford said the revelation "goes against the whole tenet of the [Basin] Plan".

"Environmental water bought by taxpayers is going through pumps into storages to grow cotton, and to me that is the biggest problem that we've currently got," he said.

Between 2012 and June this year, more than 74 billion litres of environmental water has flowed into the Barwon-Darling system — including when the controversial 2012 extraction rules allowed irrigators to pump it.

The Murray-Darling Basin Authority is explicitly aware of these concerns.

In July last year, the MDBA board held private discussions on the problem.

Mr Peters said the revelation went against the philosophy of the Basin Plan. ( Four Corners )

Board member George Warne emailed minutes from this discussion to other board members, including Phillip Glyde, the MDBA chief executive.

His email, seen by Four Corners, described the policies in the Barwon-Darling as an issue which "appears to enable gaming of water extractions ... enabling much higher use of water".

The email also acknowledged "water use behaviours that effectively mine the E-flows that make it into the Barwon-Darling".

These "E-flows" are those that taxpayers had purchased through so-called "buybacks" to save the river system.

Since John Howard announced the Murray-Darling initiative, taxpayers have spent more than $3 billion on water buybacks.

Graziers and townspeople downstream who rely on the river have expressed anger and dismay at the extraction rules, claiming they have seen the river diminish since the new policies were introduced in 2012.

One of Webster's directors, Joe Robinson, told Four Corners the company was not to blame for pumping environmental flows.

Under the extraction rules irrigators were given more reliable access to water. ( Four Corners )

"I agree that if there's a flow that triggers my pumping and that means it does not get to your town, I agree there's a major problem," he said.

"But why do I have to carry the can for it?"

Mr Robinson said he had pumped less of the low-flowing water in the Barwon-Darling than his licences entitled because he was conscious of the effect it was having on downstream communities.

"There are some areas where we are probably taking too much water but who is responsible for that?" he said.

"We have bought the property with these licence conditions. We have modelled the viability of the farm on those conditions."

The extent to which the new rules have enabled pumping of environmental water has even prompted commercial negotiations between Webster and the Commonwealth Environmental Water Office (CEWO), Mr Robinson confirmed.

Graziers downstream who rely on the river have expressed anger at the extraction rules. ( Four Corners )

"I met with them and said if you want an outcome tell us when you don't want us to pump, when the flows need to be protected," he said.

"The CEWO are looking into and what they are going to do, they will say these are the flows to protect and hopefully they will come back with a commercial arrangement [such as] don't pump this water and this is how we will compensate you."

If such an arrangement was executed, it could mean taxpayers will have to pay a second time for the same water.

The extraction rule changes for the area have also boosted the value of water licences and prompted a market consolidation.

The result has been just two irrigators, Webster and prominent cotton farmer Peter Harris, own about 70 per cent of all licenced water in Barwon-Darling.

David Papps, head of the CEWO — a statutory officer who manages the government's water portfolio for the purposes of assisting the environment — has said the water "has no legal recognition" in the Barwon-Darling.

In correspondence with the Australian Conservation Foundation, Mr Papps wrote: "There is no right to recognise or protect CEW [Commonwealth Environmental Water] within the river or to prevent other WALs [Water Access Licences] from extracting that water."

In May this year, he explicitly told the head of the Murray-Darling Basin Authority, Phillip Glyde, that the NSW Government had "legally embodied" increased access to water and "unsustainable irrigation practices", describing its attitude to the Basin Plan as "openly hostile".

"Let me remind you of the previously strongly-held position put forward by senior NSW DPI (Water) officials ... that they would never introduce regulatory measures to protect environmental water."

The extraction rule changes for the area boosted the value of water licences and prompted a market consolidation.

It follows an earlier letter from April 2016, seen by Four Corners, in which the CEWO wrote: "Once this situation becomes apparent ... it will inevitably undermine public confidence in the effective delivery of environmental water [and] the [Basin] Plan itself."

Mr Glyde told Four Corners: "That is a concern that has been expressed broadly across the basin in our Northern review. Which is why in our recommendations for changing the settings within the basin plan we recommended to governments the importance of protecting environmental water."

"There is some concern as a result of rule changes more of the low flows have been harvested legally by irrigators so there is a concern that in low flow periods the irrigators are getting the benefit of that — over the long run, over the long run average that shouldn't matter," he said.

Mr Glyde — as well as irrigators and the NSW Government — say that regardless of the Barwon-Darling extraction rules, water licence-holders must abide by an annual cap on extractions.

But a 2014 internal MDBA memo, signed by its previous chief executive and obtained by Four Corners, states that the area has been "problematic for Cap compliance since the beginning of Cap accounting in 1997/8".

Had the river area not been merged with another accounting region "to support its performance", the memo says it "would have been in breach for continuous [sic] 14 years up to 2010-11".

The MDBA says the river region has not been in breach of the cap since then, but the same memo says a series of changes have been made to the NSW model used to assess cap compliance which "have generally created a more favourable Cap compliance outcome".

"There are reasonable doubts over the veracity of the model," the memo states.

Mr Glyde says the MDBA can "walk and chew gum at the same time". ( Four Corners )

Under the Murray-Darling Basin Agreement, the MDBA is required to audit the NSW Government's compliance with the Barwon-Darling cap on an annual basis.

Despite publishing such audits for 16 years to 2011, the MDBA has failed to do so since then; Mr Glyde told Four Corners he has had other priorities.

"Certainly, we should have been publishing those reports," he said.

Asked how the public "can have any faith" in the MDBA ensuring compliance with the cap, Mr Glyde said: "That's a good point and I think they should question that."

Last year Mr Warne wrote to the other board members of the failures to regulate the cap: "It is currently out of hand (my view), and effectively gives users a free kick in terms of access-to and using any water available ... for the foreseeable future."

An MDBA spokeswoman said a series of other reports about the cap would be published late in 2017.

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