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Fear of Falling

Inquiring into the criticized past and uncertain future of HBRIC, the Regional Council’s controversial holding company and dam advocate.

Mark Sweet15 August 2016

BB30

Rotten eggs

The Tukituki river flows as a trickle under the Patangata Bridge and the countryside is parched dry. There’s been no significant rain for many months. Yet scattered across the scorched landscape are a few flat patches of green. Some farmers have access to water from the river. Most don’t.

I’ve come to meet Tim Gilbertson, former regional councillor and mayor of CHB. And as often happens in Hawke’s Bay, the conversation starts with the weather, and he tells me a 75 year old neighbour can’t recall a drier winter, and he’s lived locally all his life.

Gilbertson has signed up to take water from the Ruataniwha Water Storage Scheme (RWSS); to be piped 50 kilometres from source to his farm. He points to the fertile terraces stepping down to the river, which, with water, could be cropped and grazed all year round. Now they are barren.

“Usually there’d be 250 head of cattle grazing here making around a $1,000 a week income.”

An ardent supporter of water storage, and with a ring-side seat after being elected to the Regional Council in 2007, Tim Gilbertson is highly critical of the process by which water storage has been furthered.

“It has been an abysmal PR failure from the outset,” he says, and, “I was marginalised during the whole process, which I found bizarre, and still do.”

Gilbertson1

I ask him to start at the beginning. “Building water storage was on the table when I started in 2007,” but the first Gilbertson heard about the RWSS starting was not from his own council. “I was standing in that paddock over there,” he says, pointing to a flock of turkeys.

A passing agricultural contractor stopped for a chat and told him he was on his way to a meeting about building a dam.

Gilbertson complained of his exclusion, but, “I got flannelled by chief executive Andrew Newman, and I got that all my six years on council.”

A few months later the Regional Council organised a visit to water storage projects in Canterbury. Councillors Alan Dick, Christine Scott and Fenton Wilson were invited, but not Gilbertson.

“Rex McIntryre was chairman at the time and I pointed out that as the representative of the area a ected I should be consulted and involved. He just brushed me off.”

But, as Gilbertson points out, it’s not just him, alienating people has been endemic in the promotion of the RWSS.

“At a meeting with Forest and Bird in Waipukurau, they said they were in favour of water storage, but had some concerns about habitat around the dam, and they asked for twenty thousand to research and report.

I said to Andrew Newman, ‘Include them in the process, give them the twenty grand, and they’ll come back with a report saying save a few totaras here, and plant kowhais over there.’ Andrew’s attitude was, ‘If we give them $20,000 everybody will be asking for money.’

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In my opinion that immediately alienated Forest and Bird; that went right through to Wellington, and has resulted in delays and millions of dollars in court costs, all because council didn’t have the nous to be inclusive of everyone.”

I’m curious to know in what other ways the Regional Council behaves irrationally. Tim Gilbertson is unstoppable.

“When I was on the council it was completely controlled by the sta . They’re bureaucrats, with cushy jobs they want to protect, and they work a symbiotic relationship with the politicians. They know the politicians want to look good, so sta reports always made the best of everything.”

Gilbertson recognised ‘the spin’. He’d been mayor of Central Hawke’s Bay for six years and knew the play. “I immediately got on the outs because I made it quite clear there were things I was unhappy about,” he says. “I was simply asking questions, but I got o -side with other councillors. They told me not to upset the staff.”

Councillors freely accessing information was a given for Gilbertson. But when it came to him asking hard questions, staff obscured. To one question, about the effcient use of the vehicle fleet, he was told, “that will require an Offcial Information Act request.”

Highlighting the dysfunction, Gilbertson cites a situation, “When a council offcial lied to me, and he lied at a public meeting. I took it up with the chairman, Fenton Wilson, who basically told me to pull my head in. I didn’t. Finally I got [the offcial] to admit he’d lied. But instead of supporting me, Fenton did his bully act, and ripped into me for rocking the boat.”

I’d come to Patangata to ask Tim Gilbertson about his experience as a councillor in the formation of HBRIC, the HB Regional Investment Company, which is charged with developing the RWSS. That was my brief. We get back on track.

“At the time we were debating (2012) Andrew Newman was saying, ‘Why don’t you float the Port.’ He said it was worth $250 million.”

Selling the Port of Napier would be political suicide for councillors so they transferred it to HBRIC at a value of $177 million.

Again, Gilbertson was at odds with his fellow Councillors.

“They chose a value much lower than market, so return on capital was 7%, instead of 3%. Just so they look good.”

Tim Gilbertson says, “That’s where politicians are rotten eggs.”

Begin as you mean to go on

Driving back to Napier along the Middle Road route, the paddocks are bare of stock, and the usual flush of green shoots beneath dried out yellow grass have yet to flourish.

I select Prince for company but I’m thinking of a Coldplay song. Maybe it was something Tim Gilbertson said. There’s a lyric that goes, ‘They say start as you need to go on, as you need to go on,’ and the last line is, ‘Blame it all on a rush of blood to the head.’

No doubt Coldplay pinched the idea from Charles Haddon Spurgeon (1834-92) an English preacher who in a sermon titled The Fear of Final Falling said, ‘Begin as you mean to go on, and go on as you began.’ He was talking about establishing sound ethics and values and sticking to them.

He went on to say, ‘Beware of mixing even a little of self (ego) with the mortar with which you build, or you will make it untempered mortar, and the stones will not hold together.’

Assessing how much mixing of self-interest and ego into the mortar of the RWSS has ‘untempered’ the project, is beyond my scope and ability.

What we all know is that many strong personalities have been part of the mix; politicians, environmentalists, and experts of all persuasions, but there are few with stronger will and determination than Andrew Newman.

Go on as you began

Andrew Newman is currently chief executive o cer of the investment company, HBRIC. He was seconded from his position as CEO of the Regional Council, having been appointed in 2007. Previously he was CEO of Ensis, a joint venture forestry start-up, based in Sydney. Newman has an MA (Hons) in Geography, and began his career in the Forest Research Institute.

Probably no one has more, or deeper, knowledge about HBRIC and the RWSS than Newman. He has been a party to the scheme from the outset, and played a formidable role at every stage of the process. It is expected he will soon return to the Regional Council. However his contract with Council expires in December, and in June they initiated a search process, opening the chief executive position to competitive applicants.

Newman has been criticised on many fronts for the manner and substance of his performance. If the dam is successful he will be a hero. If it fails he will be pilloried. Andrew Newman didn’t reply to my invitation to talk and later I learn his Chairman advised him not to do so.

Bigger than Ben Hur

“Andrew’s got a lot on his plate right now,” says Andy Pearce, Chairman of HBRIC. We are sitting in the lounge at Scenic Circle Hotel; his suggestion and a good choice. There is no one else in the room.

I assumed Andy Pearce was from Christchurch; he sits on the Board of Christchurch City Holdings (CCH), the Christchurch equivalent to HBRIC, and he chairs the Environment Canterbury
Regional Water Management Committee, along with numerous other appointments, including the board of the BNZ, and chairmanship of Focus Genetics Limited.

But he says, “No, I’m from here. My family lived continuously on Mataruahou (Bluff Hill) in a house my great-grandfather built in the late 1870s in Coote Road – until when my
aunt died in 2007.”

Pearce left Napier for university, and ten years later, “had more qualifications than a Farenheit thermometer.” (BSc (Hons), MSc, PhD, FNZIM)

After a career as a scientist, company director, and executive – he was founding CEO of Landcare Research – Pearce returned to live in Hawke’s Bay when appointed chairman of HBRIC in 2012.

HBRIC was founded as a vehicle to bring commercial expertise to infrastructure investments that served the financial objectives – as well as the economic, social and environmental goals – of the Regional Council. At latest valuation, the Council’s investment in HBRIC is valued at $235.2 million (chiefl y, the Port).

I ask how the board was assembled? “The original directors were Jim [Scotland], Sam Robinson, me, and three elected Councillors.” [Alan Dick, Fenton Wilson, and Christine Scott]

Scotland was Chairman of the Port of Napier, Robinson had been on that board, and was director of numerous companies, as well as chairman of AgResearch and Centralines.

“Between Jim, Sam, and myself we have well over one hundred years of Governance experience, but we don’t have the engineering knowledge, we don’t have the legal expertise for forming public-private partnerships, and build-own-operate-transfer projects, and we don’t have expertise around the table on maori environmental issues.”

A committee was appointed to advise – Roger Maaka, David Faulkner, and Dinelle Dinsdale.

Roger Maaka lives in Takapau, and was Professor of Maori studies at E.I.T.

David Faulkner had been Managing Director of Fulton Hogan, involved in infrastructure projects locally and Australia. Importantly for Pearce, “As a civil engineer he designed and built the Maitai dam when he worked for Nelson City Council.”

And Dinelle Dinsdale was an exciting find for Andy Pearce. “What probability,” he says, “would you put on finding an experienced public-private partnership lawyer, who had worked in the biggest law fi rm in the world, residing in Hawke’s Bay?”

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Dinsdale “led DLA Piper’s private-public partnership team doing $50 million worth of business a year in London.”

With the Board assembled, the work began, but concerns arose that the elected councillors were compromised, and could be challenged in taking part in council decisions. They resigned, and Dinsdale and Faulkner joined the Board. Maaka did not. He too had confl ict of interest, but he was retained as an advisor.

As chairman of HBRIC, Andy Pearce has had to wear heavy criticism over the RWSS. He says, “You’re open to criticism in a way company chairmen are not. But it is public money, so you have to accept the fact of public scrutiny, but not all of that public scrutiny, or criticism, has been fair, balanced or truthful. And I think it’s reasonable to expect those three things when levelling criticism.”

According to Pearce, Christchurch City Holdings experiences none of the conflict that has plagued HBRIC. He attributes that to the Christchurch company being 20 years old, and that councillors sit on the Board.

“If you have only professional directors on the holding company, soon the politicians feel they don’t know what’s going on, they haven’t enough information, and they don’t have enough influence,” he says. “In the future I hope the Regional Council sees the value of appointing councillors as directors.”

Appointment authority rests with HBRC, and the prospect of councillor-directors remains open. Present directors, Scotland and Robinson, serve until 2018; Pearce and Dinsdale until 2019. HBRC confirmed its policy of no councillor-directors last March, but resolved to reconsider that policy in 2017.

Andy Pearce is philosophical about the controversy the RWSS has attracted.

“This is the biggest infrastructure project anyone alive today in Hawke’s Bay will see in their lifetimes. It was always going to be controversal. It’s become bigger the Ben Hur in some respects.”

I ask if there are any other projects HBRIC is working on?

He points to the Statement of Intent between HBRIC and the Regional Council.

“Our mandate is to provide infrastructure projects that benefi t the economic, cultural, and social needs.”

But he says, “To be brutally frank, we’ve had more than enough to do with the RWSS than to consider another project at this point in time.”

So, when the RWSS is under way, or not, what does he envisage next?

“Potentially next o the block, which Council has already done some pre-feasibility work on, is a water infrastructure investment in the Ngaruroro,” he says. “And at some point or other, it makes sense to have an inland port, and the obvious place for that is Whakatu. We could have a multi-model interchange catering for trucks and trains that would be well integrated with the Port.”

When I ask a question about the Port, Andy Pearce says, “You should talk to Jim about the Port.”

Seeing to the future

Jim Scotland replied promptly to my email request for an interview. He suggested I look at the Port accounts, and the Statements of Intent, for both Port and HBRIC.

Scotland

His email ends, “Happy to talk to you if you can fit it in and you have done some homework! Or is that too blunt?” I replied, “Blunt is good, especially when dealing with journalists!”

Accounting is not my forte, but I did my homework, and made a spreadsheet of the Port accounts 2007-15, and HBRIC accounts 2013-15. I sent a copy to Scotland.

When we meet at his home, my spreadsheets are printed, with some numbers circled.

“See here,” he says, “In 2007 the Port had $11.5 million in external liabilities. It’s now got $84 million. You could argue that every year it has borrowed to pay its dividend to the Regional Council.”

I ask if that is a concern, and he says, “Not at all. Debt is cheaper than equity. And if we’d been told, ‘you can’t borrow to pay a dividend,’ the Port would only have $15 million of debt, and the Regional Council wouldn’t have had $70 million of accumulated dividends.”

Being chairman of the board of the Port of Napier (2007-15), Scotland was an obvious choice for the board of the investment company whose major asset is the Port, and he was involved from the outset in water storage planning, and in forming the investment company.

He’s the ideal person to tell me what differences he has observed, now that the Port reports to HBRIC, and not to the Regional Council.

“Often the questions asked by Council were personal interest things, like how many tons of logs? Or what are you doing about those apples?” says Scotland. “The difference now, is the questions asked by our board members, are not operational matters, but about long term strategic planning.”

The future of the Port deeply concerns Jim Scotland. “Imagine,” he says, “if tomorrow night you hear on the news that KiwiRail is closing the Palmerston to Napier railway line. A decision like that, which we can do absolutely nothing about, would really hurt the Port.

The Port is always at risk. And I think that risk is growing, and that’s why I have advocated for selling down part of the Port.”

Scotland points to the Port of Tauranga, “where the Council owns 55%, and the rest has been floated on the stock exchange. It’s a fantastic model.”

Sharing risk, releasing equity, assessing opportunity cost; these are the tools of the businessman, and when coupled with imagination, things happen.

What Scotland would like to see happen in the future is HBRIC having a venture capital component. “One of the dynamics of the dam is there’s quite a cash flow early on, after 8 to 10 years.”

He envisages investing some of the cash in local enterprises, and gives a current example.

“There’s a $20 million horticulture project underway and the guys getting it to the ground have got $10 million, other investors will put in $5 million, and I think it would be great if we had the investment company in a form that we could look at such a project with the objective of making an investment of $5 million, for say 8 to 10 years, and then turn the money over for another project.”

His example sounds similar to the manuka honey investment currently being considered by the Regional Council.

But shouldn’t that be HBRIC’s job? After all it is the investment company

ndependently from HBRIC in following investment opportunities. It’s a strange dichotomy,” he says.

But surely the Wairoa rail initiative, being infrastructure investment, must be HBRIC’s responsibility?

“You’d think so,” says Scotland. “They’re spending time and effort, and using independent advisors, but they’ve haven’t consulted with us (HBRIC).”

Jim Scotland’s answer points to a strain in the relationship. He and fellow directors of HBRIC have been subject to fierce criticism, with accusations of secrecy and even deception, over their handling of the RWSS.

“The concerns about lack of communication and transparency I lay at the foot of the Regional Council,” says Scotland. “It’s not HBRIC’s job to handle communications. That’s the Council’s job. They charged us with developing the RWSS scheme. We answer to them, and it’s their job to handle the publicity.” supportive of HBRIC, I invite Pauline Elliottfor coffee, and ask her why she challenged the establishment of an asset holding company.

pauline-elliot

She says, “The Regional Council is an environmental protection agency. Its role is to be the guardian and protector of our environment; soil, air, water. What’s it doing getting involved in a massive infrastructure project with so much risk?”

Elliott has been involved from the beginning. We both attended the first ‘holding company’ public meeting in June 2009 in Havelock North.

My abiding memory is thinking the presenter for the Regional Council was disingenuous when he said, “Why settle for 6% return on assets when you could get 9%.” Later I discovered he was jailed for two years in 1990 for fraud.

“The whole thing got off to a very bad start,” says Elliott, and in the ensuing years, so frustrated with lack of information access and communication, she and others formed Transparent Hawke’s Bay in 2013, with the express purpose “to hold the Council accountable”.

But as Elliott points out, “I think one of the reasons they formed the holding company in a corporate structure was so any matter they didn’t want public, they could claim as ‘commercially sensitive’. And right from the beginning we got the message that HBRIC didn’t want, or have to, talk to people, or ratepayers.”

“Distrust” is the word Elliott uses to describe the relationship the Regional Council and HBRIC have formed with the public.

“If they’d been honest and transparent from the outset, been willing to talk frankly and openly, and address concerns, things could have been very different.”

Later, Pauline Elliott sends me an email, and one phrase stands out: “Trust is an economic as well as a constitutional and social value.”

It’s in your hands

Having a corporate structure, and professional directors, HBRIC runs much the same way as a publicly listed company, whose directors are answerable to shareholders. HBRIC, too, is answerable to its shareholder, the Regional Council, and in turn the Regional Council is answerable to its ‘beneficial’ shareholders, the public of Hawke’s Bay.

Obviously, the Regional Council has work to do in defining roles and responsibilities with its investment holding company and insisting on greater transparency. After all, they are the parent in the relationship.

And if the culture of alienation, and intimidation, experienced by Tim Gilbertson still persists at the Hawke’s Bay Regional Council, it’s high time attitudes and behaviour changed.

The future of HBRIC is uncertain. Some councillors are avid supporters, while others are critical and call for a review. With local body elections in October it is expected
debate will be intense around the following questions:

• Can HBRIC successfully achieve its RWSS goals?
• Will it need a chief executive when Andrew Newman departs?
• Should councillor-directors serve on the Board?
• Is part sale of the Port, to reduce risk and raise capital, a good idea?
• What should the next investment projects be?
• If the dam proceeds, can HBRIC be trusted to make its irrigators meet tough environmental standards?
• Are there other investment management models that would better serve Hawke’s Bay?

Mark Sweet15 August 2016

BB30

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