Environmental consultants from a company that advised governments on major developments in
New South Wales have made windfall gains of millions of dollars by selling what’s known as conservation offsets for those very same developments to the state and federal governments, a Guardian investigation can reveal.
In theory, offsets allow developers to compensate for the environmental damage they cause in one area by undertaking work to deliver an equivalent environmental benefit in another.
Now, the transactions of one company – Meridolum No 1 – have sparked calls for an investigation after it made more than $40m by buying land and then selling offsets on that land to government. The offsets were for infrastructure projects that a consulting firm that employed two of Meridolum’s directors provided offset advice on.
The two directors told Guardian Australia they were not personally involved in preparing the offset advice for the government, and do not recall ever seeing the relevant report. They denied any suggestion of wrongdoing or conflict of interest and said they had made the appropriate declarations to government.
Two NSW government departments have launched internal investigations into the transactions after receiving Guardian Australia’s questions.
Geoffrey Watson SC, a director of the Centre for Public Integrity and a former counsel assisting Icac, said the transactions should be independently investigated.
“The circumstances are such that it warrants a serious investigation. The sum of money at stake is extraordinary. The fact that so much of it is taxpayer money is especially concerning,” Watson told Guardian Australia.
“Questions have got to be asked about good management of taxpayer funds because it seems to me the taxpayer has paid an enormous sum of money for properties the government could have just purchased,” he said.
“It’s got to be examined to determine if there was trading on information acquired from the government ultimately leading to massive profits in selling the interests back to the government.”
Millions in profit
Two of Meridolum No 1’s directors and shareholders are also a current and former director of a consulting firm called Eco Logical Australia.
In 2015 and 2016, Eco Logical Australia provided advice to the NSW Roads and Maritime Service (RMS) on the environmental offsetting requirements for the Western
Sydney Infrastructure Plan, a joint NSW and federal government roads program to support the new Sydney airport and surrounding development. The advice was prepared by two staff members who are not part of the Meridolum company.
Eco Logical Australia was also contracted by the RMS on behalf of the state and federal governments in 2017 to source biodiversity offset credits for those road developments.
Guardian Australia can reveal that Meridolum No 1 was formed in January 2017 and it then purchased two parcels of land in Sydney’s Razorback region in 2017 and 2018 at a combined cost of $9.3m.
The company “banked” the land in July 2018 through the state’s offsetting scheme, which requires landholders to permanently conserve their land under an agreement with the state government.
Under the scheme, credits are assigned to properties and those credits are then purchased by developers as offsets for the environmental damage caused by major projects.
About a month later, the RMS purchased $38m in offset credits from Meridolum No 1 to compensate for the destruction of a type of critically endangered woodland known as Cumberland Plain that would be caused by upgrades to the Northern Road and construction of the M12 motorway, which will connect to the new airport.
In March 2019, just over two years after the purchase of the first property, the company made another sale of $5.2m in credits to the federal infrastructure department as one of eight successful bids in a process that sought credits as part of the offset package for the construction of the new airport.
Speaking on the condition of anonymity, a consultant ecologist told Guardian Australia that, in general terms, consulting companies providing environmental assessments would be privy to information that would make the process of finding offset sites much easier.
This would include the types of vegetation that is needed for offsets and the number of credits required, an understanding of where these vegetation types could be found and an average number of credits generated on an offset site, and an understanding of the costs of offset site management and sale prices on the market.
In general, the consultants would likely have a deep understanding of a complex process and specific market details to facilitate finding the right offsets in the right location. And they would not have to seek and pay for expert advice from consultants like themselves to participate in the offset market.
Tony Harris, a former NSW auditor general, said the transactions raised serious questions about potential conflicts of interest.
“If I were in the government I would be asking whether or not my dealings with Meridolum and Eco Logical were in the best interests of the state and offered best value for money,” Harris told Guardian Australia.
“In other circumstances where I have seen such inherent conflicts the government has removed the conflict.
“In this case, they’re dealing with two private companies. The government should be saying to the companies that at least the perception of conflict is so inherent they should do something about it. [The directors] have got to give up one or other of the companies.”
Meridolum and its directors with links to Eco Logical have denied any suggestion of wrongdoing or conflict of interest and told Guardian Australia they made the appropriate declarations to government.
A lucrative market
Meridolum No 1 has four directors who, via a second company called Meridolum Capital Management Pty Ltd, are also its ultimate shareholders.
They are Mark Adams, a director and the current chief executive of Eco Logical Australia, Steven House, who was a director of Eco Logical Australia until early 2017, Justin Punch, an environmental investment manager who is now the chair of the board of the Australian Renewable Energy Agency (Arena), and a fourth investor called Matthew Press.
Meridolum takes its name from the scientific term for the Cumberland Plain land snail, a species found in small areas west of Sydney that have been under pressure from some of the most intensive urban development in the country.
The extent of recent development in western Sydney, and the scarcity of Cumberland Plain woodland, has created a lucrative market for biodiversity offset credits for this type of woodland.
The money landholders receive when their credits are purchased goes into two pools: Part A pays for annual costs to manage the land for conservation. Part B – typically the larger portion – is direct profit.
The advice Eco Logical prepared for the RMS was not publicly available until Guardian Australia sought access to it. Transport for NSW published the two documents on 31 March this year.
The documents contain detailed information about the number and types of credits that the RMS would likely have to purchase to offset the roads associated with the Western Sydney Infrastructure Plan and includes a list of potential “biobanks” – or suitable and available land – that credits could be purchased from.
Eco Logical also calculated how much the RMS might spend on credits for these projects, telling the agency it could expect to pay up to $40.7m for credits to offset the Northern Road upgrade and up to $42m for the M12. In the publicly available material seen by Guardian Australia, these estimates were not made generally available to other landholders. The document also noted that the price of credits was likely to increase due to other developments in the area, including the new airport.
The RMS ran a public expression of interest process that sought offset credits during 2016 and 2017. That process included newspaper advertisements and placing a “credits wanted” request on the state’s biobanking register.
In December 2017, the RMS also sent a letter to landholders in the region, such as the Local Land Services agency, asking them who owned land that might have been suitable as a biobank. Those landholders were asked to contact a staff member of Eco Logical Australia who was managing the process for sourcing the credits. That staff member is not involved in the Meridolum company.
‘No conflict of interest’
Through a PR firm, the directors of Meridolum told Guardian Australia they purchased the two parcels of land in response to a widely anticipated demand for offset credits in western Sydney, including calculations that were public at the time through the 2015
draft Environmental Impact Statement (EIS) for the western Sydney airport, the final EIS published in 2016, and changes to NSW legislation that expanded the use of biodiversity offsets.
“The size of this anticipated demand was a key factor in the decision to purchase the [two parcels of land],” they said.
The directors said they followed government processes for credit purchases, including by advertising their available credits on the NSW biobanking register in 2017 and formally registering their interest through the RMS tender process in that same year.
They added they had no knowledge of the credit procurement process undertaken by their Eco Logical Australia colleague for the RMS, nor were they involved in “the preparation or review” of the offset advice Eco Logical Australia prepared for the RMS on the Western Sydney Infrastructure Plan.
They said no member of Meridolum could recall seeing or having accessed that
report. Separately, Steven House told Guardian Australia he had not seen the report.
“At all times Meridolum, and its officers and principals, have acted with integrity and transparency,” they said.
“We categorically deny any suggestion of wrongdoing, breach of law, conflict of interest or that Meridolum, or any of its officers or principals, used information not available to the public to gain an advantage in the acquisition of land and sale of biodiversity credits.”
They said Adams and House declared their roles at Eco Logical Australia to the RMS and the federal infrastructure department and that after the Meridolum company was registered in 2017 processes were put in place at Eco Logical Australia “to manage information flow and conflicts of interest”.
The directors said the company’s financial data was confidential but it had put tens of millions into establishing and restoring endangered habitat.
“Meridolum is regarded as a model participant in the NSW biobanking scheme by the scheme’s regulator and Meridolum’s principals have made a substantive commitment to environmental protection.”
Transport for NSW, which replaced the RMS in 2019, did not respond to detailed questions. A spokesperson told Guardian Australia: “The community may be assured that Transport for NSW takes these matters very seriously and has commenced an investigation. It would not be appropriate to comment further.”
The NSW Department of Planning, Industry and Environment said it would also commission an independent review.
A spokesperson for the federal infrastructure department said the department “conducts all tenders … in accordance with commonwealth procurement rules”.
As part of the offset procurement process in 2019, “vendors were required to declare conflicts of interest and that they had not otherwise engaged in any collusion, anti-competitive conduct or any other similar conduct in relation to the preparation of the tender”.
Meridolum “made these declarations, and advised the department of the detail of any conflicts of interest”, the spokesperson said.