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$36 million … for what?!

BayBuzz12 June 2016

Last Thursday, five members of the Regional Council shelved — at least for now — the proposal for ratepayers to purchase $36.9 million of water from the proposed Ruataniwha Water Storage Scheme (RWSS).

The lack of any evidence-based case whatsoever for this purchase, plus the opposition of nearly 150 submitters (as against 9 in favour), convinced all but Councillors Debbie Hewitt, Christine Scott and Dave Pipe to effectively table the proposition. Those three persisted that the proposition was a good ‘deal’.

Submitter Garth Eyles, former head of HBRC’s land management function, summed up the view of many others, commenting that “the financials are irrelevant” as the “Council was required to provide sufficient water to maintain water quality in the Tukituki river. If more water is now needed than originally required surely it is a responsibility of HBRC to provide it — at no cost”.

His comment underscored the basic difference in values between opponents and proponents of the water purchase.

To opponents of the purchase, the dam is first and foremost supposed to enhance the Tukituki ecosystem. And if able to do that, and create the necessary environmental headroom, then enable more intensified farming. Thus, first priority for stored water is environmental protection and improvement … and ratepayers would already be paying their $80 million for that public good.

To supporters of the purchase (and of the dam itself for that matter), the highest value and driver of the scheme is water security for irrigators, with the environment impacts mitigated only up to the point where the cost of doing so becomes too onerous to irrigators, undermining their profitability. In this view, water diverted from irrigation should have second priority and should bear a cost … in this case, an extra $36 million to the ratepayer.

Nearly 150 submitters made very clear where they stood on this value choice … environment first.

Some interesting considerations came to light during submissions and the ensuing debate.

First, in reviewing nearly 200 submissions on all aspects of the HBRC’s work, councillors considered numerous requests for funding, in amounts from $5,000 to $300,000. I can say without hesitation that we received far more substantiation for these requests that we did for HBRIC’s $36 million pitch! And we — not happily in many of those cases — rejected most of them. Not for their lack of merit, but to protect the ratepayer’s purse.

Second, the discussions underscored the absence of thought behind the purchase proposition. At one point in his verbal submission, Garth Eyles asked, if the proposal were approved, how water was actually to be supplied to Lake Hatuma (the one example supporters have given as to how enhanced flows might be used). The silence was deafening … no one could answer! Later, during debate, Councillor Scott offered her own cost calculations, arguing that the water purchase would ‘only’ cost $23 million … which merely underscored the argument of skeptics — the half-baked proposition is so poorly conceived there’s not even agreement on its cost to ratepayers!

Third, while HBRIC argued that additional ‘environmental flows’ were hugely important for HBRC to have in its mitigation toolkit, it turns out that these flows could not have priority over the irrigation agreements already signed with 196 or so farmers, since their contracts already promise them the higher priority use of the water. In other words, the supposedly crucial extra environmental flows would play second fiddle to irrigation. One might protest: Who gave HBRIC the authority to make that call on priorities and negotiate away the environment’s right to water?!

Fourth, while supporters like HBRIC and Councillor Scott represented enhanced water flows as the key to improving Tukituki water quality, the real problem to be addressed is the huge increase in nutrient load that would be generated by intensified farming made possible by the scheme … especially the predicted increase from 8,000 more hectares of dairying on light soils on the Ruataniwha plains. It is increased nutrients (and ineffective wastewater treatment by CHB sewage plants) that must be prevented … dilution is not the answer.

It’s worth noting that the 9 supporting submitters included HBRIC itself (the RWSS champion), the mayor and chief executive of CHB, Federated Farmers, HB Fruitgrowers, HBRIC’s designated Maori advocate for the dam Roger Maaka, and the Port (because income to RWSS from the purchase might take pressure off eventually needing Port dividends to prop up the scheme).

Most disingenuous in the debate was Councillor Scott, who at one point tried to suggest that the submission of Federated Farmers counted more than the submission of any individual ratepayer, since Fed Farmers had 400 members in Hawke’s Bay. Her numbers game was, well, destroyed. It was quickly pointed out that submissions opposing the water purchase included Ngati Kahungunu, Grey Power, and Forest & Bird … all more than equal in numbers to Fed Farmers. I offered to supply some members of Fed Farmers who oppose the purchase. It was also noted that when weighing prior submissions on the dam, Councillor Scott had argued that a petition with about 1,000 signatures in opposition should be counted as one. Ah, consistency!

So, now what? Is the water purchase dead?

Not quite.

Given lack of support on the day, the proposition was effectively ‘left on the table’ without a vote by Chairman Wilson last Thursday. He plans to bring back to the June 29 Council meeting a proposal and timetable for how HBRC staff might develop a case for enhanced environmental flows for the Tukituki, with detail on how much water might be useful, how it would be used, its cost and financing.

You’ll recall that, as much as they try now to re-write the record, five councillors voted to force through this purchase in the first place without any public consultation at all. They seemed to feel some strange sense of urgency. The source of this urgency was HBRIC, who gave the impression that time was fleeting, negotiations were speeding along with an investor, and the ‘deal’ for this water might disappear (at least in this supposedly attractive form). However it has since turned out that no decision is needed on the matter before mid-December.

With urgency gone, the fate of the $36 million purchase (or is it $23 million, or some other cost yet to be determined?) will twist in the wind for a few more months as proponents attempt to get a case together.

Tom Belford

 

 

BayBuzz12 June 2016

11 responses to “$36 million … for what?!”

  1. Philippa Chambers says:

    What happened to the ‘Water is not owned by anyone’ therefore can’t be sold. slogan?

  2. Grant Nicholson says:

    Keep at it Tom – and your cohorts in the council – the people of Napier really have to get rid of the wallies that represent them on the council – they are a total waste of space – a rubber stamp would have the same amount of intelligence – wait on that’s what they are! Keep pushing the point that the Port is at risk if it all turns to custard. And why do the Feds support it when CHB is a dry land farming region and always has been. Adapt farming practices to suit as past farmers have always done. Dairying is not the be all and end all of farming – the rivers with all the light soils will be even more polluted with run off. And it is past time for CHB council to be called to task for the sewage system – that’s basically what the Regional Council is meant to be for For God’s Sake!!!

  3. Cecile Hurford says:

    That is great news Tom, thank you for the update. Cnr Scott should remember that we will have Council elections before December and those councillors will definitely not get my and many other people’s votes.

  4. Siena says:

    Kiaora Tom

    Councillor Debbie Hewitt has a dam full of conflicted water about to soak her head at the moment, given complaints have been made to the Auditor-General about her alleged pecuniary conflict of interest in the Ruataniwha dam in regards as to whether “she stands to profit from the water storage scheme, as her property sits in what appears to be a part of the dam’s footprint.”

    “This has seen both the council and the councillor seeking out legal advice on the matter.

    “The council’s advice is that Mrs Hewitt may have a pecuniary interest on matters relating to the dam, which resulted in her asking Auditor General Lyn Provost for her opinion on the matter.

    “Mrs Hewitt announced this week she would not be participating in any future discussions or decisions regarding the Ruataniwha dam as a result of this.

    Courtesy of Hawkes Bay Today
    http://www.nzherald.co.nz/hawkes-bay-today/news/article.cfm?c_id=1503462&objectid=11654784

    PS: “Chairman Wilson last Thursday. He plans to bring back to the June 29 Council meeting a proposal and timetable for how HBRC staff might develop a case for enhanced environmental flows for the Tukituki, with detail on how much water might be useful, how it would be used, its cost and financing.”

    Let’s hope when Councillor Wilson returns with his proposal that he has also looked at different toupee’s in detail, on which one would be useful how it is to worn, when and where, as for cost..I’m afraid he may need to look online for an overseas purchase I doubt NZ sells bleached blond ill-fitting, straw.

    Bye :)

  5. Edward Hamilton says:

    Someone needs to stamp out this disgraceful dam scheme. Hopefully the Appeal Court will put a quick end to it if and when they find in favour of Royal Forest and Bird. Without a quick end, HBRIC will continue merrily along spending millions of ratepayer dollars on their salaries, expenses and subterfuges to keep the thing tottering along.

  6. Keith Symonds says:

    If you asked me to name one person with a huge amount of knowledge and experience of land management in Hawkes Bay, top my the list would be Garth Eyles – the councillors would have to be fools to ignore his submisson.

  7. John J Harrison says:

    My information is that ACC have approved $100 million for this disaster.

    Pipe, Scott and Dick should brush up on their CV’s as they will be unemployed post October.
    Pity they cannot be held personally responsible for this huge commercial gamble which will make the MTG look like a roaring success.

  8. Alan Simmons says:

    Keep it up Tom and other Councillors.
    What are they planning to enhance the Tuki flows with? Put 36 millions dollars of fresh water into the Tuktuki River from the dam face and by the time it reaches Havelock North it will be so full of nitrates and phosphates it will be “un waderble”!
    So the people of the Hawkes Bay have to buy their own water back!!! what a farce! and pay for the dam as well!
    The Tukituki is already so polluted it is dangerous to humans and dogs and that pollution has been caused by intensive farming already… and poor decisions by the regional council regarding over allocation of water extraction and sewage.
    When will this madness stop!

  9. Brian Anderson says:

    I have spent a good part of today listening to the presentations and the debate around the Deloitte business case update. See the HBRC website here . .
    http://meetings.hbrc.govt.nz/video/3256

    I am shocked and stunned by the amount of basic information that is being withheld from Councillors, by the arrogance and belligerent attitudes being displayed by the HBRIC people toward councillors, and the smoke and mirror economics that are going on to pull the wool over councillors eyes.

    Take this simple example. We are being told that the scheme will be cash flow positive in its first year. Independent financial analysis [for example in HB Today, and by Peter Fraser] shows that is not the case. In fact a very simple back of the envelope calculation shows that it is not even remotely possible. Assume 45 m cubes have been sold at 27.5 cents. The total income is therefore $12.375M. The total capital cost of the scheme is $330M. Hence the total income represents only 3.75% return on the investment. That does not even cover the cost of capital!

    So how does HBRIC and Deloitte make this work? They hoodwink you and do not include costs that ought to be included. The project is now planned to be financed by a deal of bank debt, upon which interest must be paid. So, the only costs that HBRIC ad Deloitte include, in the first year, are operating costs, and interest payments on the debt and some principal repayment.

    But what about the return on the $80M invested by HBRC. Not included! What about the return on the $xxxM from CIIL. Not included! What about the return on the $yyyM from other institutional investors. Not included! Yet HBRIC are required to return 6% to the Regional Council, and I suspect that CIIL and other investors will be looking for the same return. So how does HBRIC provide the 6% return to the Regional Council? By borrowing more money!

    Yes, the scheme might be cash flow positive in its first year if much of the real cost [the required investment returns] are ignored. But they can’t be ignored forever.

    I hope that Councillors continue to ask the probing questions about these aspects until they get straightforward answers.

    And, by the way, cash flow positive in the first year is NOT breakeven. Breakeven occurs only when all the accumulated costs have been covered off by the increased revenue flows. And the accumulating investor [and HBRC] returns, having been swept under the carpet in the first year at least, will all be accumulating rapidly.

    Please Councillors, blow away the smoke and look behind the mirrors.

  10. kelvyn stevens says:

    There is a thesis on marketing to be written about this. A very high percentage of the opposition to this dam scheme concerns the way it has been promoted. Whatever way you look at it, it is still a dog but without the disastrous and amateur marketing of the proposal it may possibly have got off the ground. Using public money up-front was kind of dumb but when you look at the promoters of the scheme they are all feeding off public money, snout in the trough people anyway. I hope when the dust settles on this madness it wont discourage others from doing serious work on water management in Hawkes Bay.

  11. Brian Anderson says:

    Indeed, the “marketing” machine has been working rather well. The full page, cartoon-like, advts extolling the virtues of the scheme a few weeks back were clearly aimed at dummies, which is what HBRIC think we are.

    They are doing a good job of lulling the HBRC into a false sense of security over the economics too. Their emphasis on “cash flow positive in the first year” is a case in point. The fact is that this statement is designed to convey the message that the scheme is “risk free”. Of course it isn’t, and in fact by manipulating their outgoings to make it look “cash flow positive” they are creating an even more risky situation to be dealt with in later years.

    It is only “cash flow positive” because they choose not to include major cost liabilities in the first year calculation. These liabilities [the returns to HBRC and other investors] are accumulated, to be paid at some later time when revenues increase sufficiently [based on HBRIC’s assessment of water uptake]. The interesting questions are . . when will that be, and what is the risk attached to that? Will other investors tolerate that?

    The more interesting issue is . . when will the scheme “break even”. That is, when will the accumulated revenues finally equal the total of the accumulated costs. Will it ever? Some economic analysts suggest, with a capital cost now of $333M, that it can’t.

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