Dodgy Council announces dodgy numbers of sign up for dodgy socialist dam

The Hawkes Bay Regional Council is acting like it has crossed the finish line by announcing it has finally, after seven attempts, reached the threshold that allows them to start spending $80 million dollars on the dodgy socialist dam.

The Ruataniwha dam has enough water users signed up to make the scheme “cash positive” with HBRIC signing more than 42 million m3 of water.

Presenting to a packed public gallery – mostly of farmers who were called on to talk at various points of the HBRIC’s presentation to the regional council today – the investment company’s board members were upbeat.

“We believe that we are in a position where we will have the support of other investors to reach financial close on the basis of the uptake levels that we have achieved,” Board Chairman Andy Pearce said.

“There is sufficient water sign up for the scheme to be cash positive.”

Except that Andy Pearce is telling pork-pies. Those sign-ups and the alleged cash-positive status of the project were predicated on the former price for the dam, which has now increased substantially. The Council think they have crossed the finish line but the race got extended and they are out of puff.  

As economist Peter Fraser points out the council’s numbers are seriously dodgy.

1. 45M m3 financial close figure was always shonky and still is: Financial close at 45M m3 has always been a complete fantasy unless HBRIC has found a source of capital at less than 3% – indeed, based on HBRIC’s figures presented at Tamatea High School ($2.5M of electricity revenues, 104M m3 of water on offer, 8.5% WACC, operating costs as per Deloitte, and gearing at 75/25) financial close is at least 61M m3 (and if the electricity revenues prove illusionary then that increases to 70M m3 and if there is water discounting then it increases again to 92M m3).

2. If the price of the project has changed then financial close must change too. If the project price has increased by up to $100M then it is impossible that ‘financial close’ can still be 45M m3. Assuming a total build cost of circa $350M, a 8.5% WACC and 27 cents for water financial close is 71M m3 (allowing for electricity revenues) and 80M m3 without. With discounting, it comes out at 109M m3.

3. This project still has dairy as a cornerstone user: The revised project still assumes 40% of the water will go to dairy farms and assumes a long run milk price of $6, which seems completely unrealistic. I return to my earlier point – without dairy, there is no need for circa 100M m3 of storage.

But the dodginess gets even worse:

At today’s meeting, HBRIC has also asked councillors to approve an amendment to its 2015/16 Statement of Intent (SoI) to allow it to borrow money for working capital as well as investment, so it can to pay the council its agreed 6% return on its potential $80m investment, if the dam goes ahead.

Recent legal advice to the regional council has confirmed that HBRIC must pay it annual dividends of $4.8million, representing a flat 6% rate of return on its $80m.

But as the RWSS generates no cash during construction, HBRIC Ltd’s only source of funds during this period is from special dividends from Napier Port – which is 100 per cent owned by HBRIC – or from subvention payments for tax losses.

In a letter, HBRIC chairman Andy Pearce tells councillors that the change to its SOI would enable HBRIC to fund dividends, in any specific year, where there was a shortfall of cash.

“The purpose of this change was …to enable HBRIC Ltd to be able to borrow for working capital, including to enable it to fund future dividend payments to council in the event of a shortfall in dividends paid to HBRIC by Napier Port and the [RWSS] if that proceeds,” he said.


If this was a publicly listed company the directors would be in stainless steel bracelets. Their legal advice should be double-checked. Borrowing money to pay dividends is a crock.

In any case there is no chance of anything happening before the local body elections in five months time. Sources in Hawkes Bay are telling me that Forest & Bird, Fish & Game and Iwi all have legal cases pending. Then there is the issue over the illegal land swap the dam needs to cover Conservation land that would be flooded. Maori have already won over that in a separate case.

The local body elections are going to become a referendum on the dam, and councillors are likely to get rinsed. I’d be very surprised if Fenton Wilson survives.

 – HB Today, Hawkes Bay, Facebook

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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

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