Dam cracks

Thu, Mar 27 2014

By now, everyone knows Trustpower has pulled out as a prospective $50-60 million investor in the CHB dam.

The questions that now need to be addressed are fairly obvious:

1. Will there be a domino effect?

To some degree Ngai Tahu, the south island Maori investment company considering an equivalent size investment, found the involvement of a savvy infrastructure partner like Trustpower reassuring. Will Ngai Tahu’s confidence be fatally shaken? Especially since any investment they might consider will require further consultation with Ngati Kahungunu, our largest iwi in the region, which does not support the dam.

2. How will HBRIC plug a $50 million or so hole in the dam (twice that amount if Ngai Tahu backs out)?

The pullout of knowledgeable investor Transpower — which has been intimately involved in the details of the proposed venture, indeed paying for some of the development expense — will doubtless have an impact on the assessment of any new potential investor … including far less expert and informed investors, like ‘rich people in Hawke’s Bay’.

3. How does this affect the assessment of the Crown — Crown Irrigation Investment Ltd (CIIL)?

CIIL is on the blackboard for another $100 million or so, as a secured loan. But CIIL has always made clear it would be a ‘last resort’ partner. What is the minimum Council and private investment CIIL would demand to see firmly established before entering the deal. CIIL has also said farmer uptake (firm contracts to buy the water) must be robust, ensuring a strong revenue base, before it would commit funds. But it is precisely the unpredictable and quite possibly slow ramp-up of farmer participation, as assessed by Trustpower, that caused Trustpower to exit.

4. What about those CHB farmers, anyway?

“Expressions of Interest” (EOIs) — which obligate farmers who have signed them tonothing — now total 42% of available water from the dam. HBRIC indicates that 40% of available water must actually be locked up by firm purchase contracts for the scheme to be at all financially viable. If ‘no obligation’ EOIs have peaked at 42%, how realistic is that nearly all of these would be converted to firm 35-year water purchase contracts? And realistically, how long might that take … for example, by the ‘financial close’ target date of 30 June?

Moreover, HBRIC and HBRC Chairman Fenton Wilson, looking to ‘make a silk purse out of a sow’s ear’, now tout the withdrawal of Trustpower as opening the door to the opportunity for farmers in CHB to invest in the dam themselves. Wait a minute … why didn’t we start there (as in other NZ irrigation schemes)? Precisely because that level of available capital was judged to simply not exist amongst CHB farmers. Indeed, the whole financial structure of the deal has been designed to subsidise approximately 50% of the cost of the water. Why? Because CHB farmers couldn’t otherwise afford it.

The notion that the venture can climb from 42% no-obligation EOIs to 40% firm contracts to farmers filling a $50 million capital gap on top of that seems — to put it generously — ambitious.

5. How quickly can a new investor package be cobbled together?

HBRIC says it is in active talks with new prospects. However, if prospects capable of $50 million high risk, low return investments were readily available, clamouring outside HBRIC CEO Andrew Newman’s office as I write, why weren’t they part of the deal in the first place? The risk would have been more widely spread (including the contingency of one party getting cold feet prior to financial close), and HBRC and CIIL might have been required to put up less ratepayer and taxpayer money. Moreover, it would have been easier to recruit them before the bail-out of a savvy investor like TrustPower.

Seems like it will be tough to meet that 30 June deadline.

These are the questions I have as a Regional Councillor.

But they are questions for every Hawke’s Bay ratepayer … who are as much entitled to a full and compelling response as I am, if this project is to proceed.

Tom Belford

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