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DAM(N)! A half-billion dollar water storage scheme

The Regional Council proposes a half-billion dollar dam project. Tom Belford asks, who pays, who owns, and is it worth it?

All public hedging about feasibility studies aside, the Hawke’s Bay Regional Council wants to build a dam on the Makaroro River in Central Hawke’s Bay. Full stop. And it’s moving mountains, with $5 million worth of analysis, to make a case that both economic betterment and environmental enhancement can be achieved by the project … and that we can afford the investment.

This article looks at the economic side of the proposition – its full costs, the economic benefits claimed, and the possible funding scenario and its implications. The Regional Council is still guarded in its public discussions of the scheme’s economic aspects, although it is clear that substantial financial analysis has been done and inquiries made to prospective financial players.

The most financial information is available in the Regional Council’s recently released Long Term Plan (LTP). In preparing this article, BayBuzz is relying additionally on ongoing conversations with HBRC senior staff, farmers and others who have heard HBRC presentations, and individuals associated with the Hawke’s Bay Regional Investment Company (HBRIC), which will eventually control and oversee the scheme if it goes forward.

What are the full costs?

In its LTP, the Regional Council indicates the dam infrastructure will cost $170 million, noting this is a best estimate, awaiting detailed engineering and design work. More recent comments indicate this number might reach $250 million.

However, this amount, itself daunting, is not the full scheme. The $250 million would cover construction of the dam itself, landscaping and earthworks associated with the 90 million cubic metre reservoir that would be created, and the headrace and other distribution infrastructure required to get the stored water to the farm gate (i.e. to individual farmer-users).

Much of the uncertainty around the ‘infrastructure’ cost relates to geotechnical issues and pending decisions about how water will actually be delivered to farmers – via canals or underground piping.
The significant further cost of the project actually relates to what happens to the water once it gets to the farms. Farmers need distribution systems to reticulate the water throughout their properties. One farmer (see Mark Sweet’s article) estimates his ‘on farm’ cost to irrigate a 330 hectare farm would approximate $500,000, or about $1500 per hectare.

Project spokesmen, including in this magazine, have put the on-farm distribution price tag in the $300-$400 million range … “even more” than the $200+ million off-farm cost, as one HBRC presentation puts it.

Then there’s the cost to farmers of mitigating the environmental impacts of the additional and/or more intensified farming they would undertake. For example, planting riparian strips, fencing off streams, building cow sheds to capture more animal waste. Although the Regional Council insists that such safeguards will be part of the ‘deal’ that ensures environmental protection, no estimates of these costs have yet surfaced.

All in, therefore, it is not unreasonable to estimate the full cost of the storage scheme at closer to $500-$600 million. At this scale, the water storage scheme represents the biggest financial investment ever contemplated in Hawke’s Bay, and ranks as one of the biggest in all of New Zealand.

This investment would create for its owners (whoever they might be), an asset worth even more than the Bay’s much-prized Port, which has recently been re-valued at $177 million. It would dwarf – and some say, with unclear risks and returns, would put at risk – the Council’s entire existing investment asset base of $256 million.

As we’ll see later, HBRC doesn’t intend to fund the dam project on its own. Nevertheless, with the dam as the new keystone, HBRC direct investments are projected to grow to $488 million over the next ten years … a daunting prospect to any ratepayer.

From the farmer-user perspective, the huge macro-numbers ultimately boil down to, “What will it cost me to use the water on my farm?” The cost (to the farm gate only) currently mentioned is $9500 per hectare, although council staff signal that they’re aiming to get the figure down to the $6500/hectare range.

Ultimately, affordability of the stored water for individual farmers is key to the economic viability of the scheme. Right now, many farmers – including many who hold existing water consents they could simply retain – fear the price will be too high. If significant numbers elect not to participate in the scheme, the project falters. We’ll come back to this point.