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A Political Punch in the Nose

Paul Paynter24 December 2016

BB32

ding dong, the dam is dead! 

Our newly elected councillors are sensibly circumspect on the matter, but in a private moment have likely declared a discreet ‘ding dong’. Putting aside the euphoria or despair of dam protagonists, it’s worth considering for a moment why the Ruataniwha dam lost the public relations battle.

The Hawke’s Bay Regional Council election results are truly astounding. The conservative provincial public has rejected the highflying Cynthia Bowers and the eloquent lawyer Martin Williams in favour of reappointing a pony-tailed American and electing a greenie in a bow tie. I wager five years ago they’d be seen as absolutely unelectable. So where did the establishment go wrong? In five places at least.

Trust

The HBRC touted Plan Change 6 as the solution to concerns about the environmental impact of intensified agriculture. The truth is they vehemently opposed nutrient runoff restrictions, fighting appropriately stringent nitrogen limits. Instead, those were imposed by the Board of Inquiry, who chided HBRC for its weak wrist on the matter, and stoutly defended Fish & Game.

This is the council that has allowed the non-compliant Central Hawke’s Bay sewerage ponds to operate without meaningful consequences for a decade; that allows feedlots to operate without adequate regulatory oversight, and lets stock wade in our waterways, even while half the Havelock North population clutched at their cramping, campylobacter colons.

‘Asleep at the wheel’ was the assertion and asleep at the wheel they have been. HBRC, I don’t trust you.

Transparency Throughout the dam’s development process there have been endless public-excluded meetings and critical details withheld due to HBRIC commercial sensitivity.

Nonsense. If there were a competing dam project you might have a case for commercial sensitivity, but there is not. There are virtually no instances where openness would have led to negative consequences. The public has been treated with ‘we know best what’s good for you’ contempt. The pro-dam regime needed a political punch in the nose … and I’m pleased they got one.

The economic case

The Ruataniwha dam’s prosperity was founded on 70% of farms changing hands and land use changing substantially to dairy, viticulture and apples.

The ongoing dairy malaise and their environmental track record makes their expansion either unlikely or undesirable.

The apple industry in CHB has been in decline for a generation, but I’ve not heard anyone mention water as the problem. The key issues are frost, hail and labour.

As you move inland the frosts get harder, more frequent and the frost season longer. When we get a -2C frost in Hastings, it can be -4C in CHB. A frost of this severity is beyond the protective powers of wind machines. Ironically, applying overhead water as they do in parts of Central Otago can protect crops from frost damage through ‘the latent heat of vaporisation’. Unfortunately such systems use a great deal of water and require even more costly infrastructure. Grapes are even more prone to frost damage, to which SH50 growers will attest.

The recent hailstorms in CHB are a reminder that such events are more common there.

Perhaps above all there are great industry concerns over labour. The foreign worker RSE scheme has been capped at last year’s levels, despite what looks likely to be an increased crop next year. The ‘approval to recruit’ from abroad is issued on a year-by-year basis and at the political whim of the government. In Hastings, foreign workers commonly occupy backpacker and other seasonal accommodation. But in CHB purpose-built facilities would need to be constructed. For that growers would need more certainty over the RSE scheme.

There are some areas off the Heretaunga plains that are worthy of development into apples and grapes, but these industries do not fancy the Ruataniwha.

Financial risk

I’m fairly certain that the Ruataniwha dam would be successful in thirty years. The problem is that there is some history of such investments going broke in the short term, potentially putting at risk other HBRIC assets such as the port. With such a heavily front-loaded investment, the early years are critical. We’ve been told that returns on this investment are virtually risk free. They are not.

The dam has been promoted as a solid money-making venture, delivering returns well above the current cost of capital. If that were so, ratepayers should not need to invest a cent as the private sector would be clamoring to fund it. This is particularly so for foreign investors whose borrowing rates can be a quarter of what they are in NZ. And yet we see no sustained commercial interest.

There are good reasons for this. Firstly agriculture is strongly and sometimes wildly cyclical. You don’t need a long memory to recall a major downturn in dairy, grapes, apples or kiwifruit. Moreover the financial world is a dangerous place. Both public and private sector debt are at astronomical levels in many countries and debt creates fragility. The chances of another GFC or worse remain elevated.

The dam water supply contract only requires water purchasers to guarantee two years of payments. A prudent farmer would set up a shell company, say ‘Joe Farmer Irrigation Ltd’, which would sign up to the 35 year water supply. If a major economic or commodity downturn occurred, the shell company would simply default and be liquidated, leaving ratepayer investors to carry the can.

The Ruataniwha dam requires a predictable world over 35 years, while no such world exists. What was the cost of capital 35 years ago? It was more than 20%, an incomprehensible return hurdle for an infrastructure asset of this nature.

An environmental awakening

Recent years have seen a swing to blue green voters – capitalists with an environmental conscience. The HBRC, indeed this National Government, have misread this trend. When Nick Smith talks wade-able rivers, fat cat businessmen in Gucci shirts revile. The HBRC election results send a very clear message in this regard. I’ll bet some quite surprising locals voted for Belford and Bailey!

A word of caution for the new HBRC power brokers though. Don’t sack the entire HBRIC board. Some sound minds were there who were simply doing the bidding of their masters. At least a sliver of business continuity is required.

And don’t expect any brave new initiatives to be immediately embraced by the community. You’ll have to earn our trust back first. Concentrate first on things that need fixing. And fix them.

We’ve given you three years – maybe only three years.

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Paul Paynter24 December 2016

BB32

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