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


THANK YOU for being a subscriber. Because of you Whaleoil is going from strength to strength. It is a little known fact that Whaleoil subscribers are better in bed, good looking and highly intelligent. Sometimes all at once! Please Click Here Now to subscribe to an ad-free Whaleoil.

  • cows4me

    I heard this news on the radio this morning, I thought aww this will work our fearless leader up and yes it did. “I’d be surprised if Fenton Wilson survives”, he’s not related to Len Brown by any chance ? Doesn’t look like he’s going to throw in the towel.

  • Andrewj

    The water issues must be a nightmare now the local iwi have won in the environment court. Love to see how they intend to intensify and keep water quality the same or improving. That would be a poor outcome for any farmer involved in the scheme.

  • biscuit barrel

    The HBRC just seems to have announced the race has ended when the runners are still out of sight. If it was boxing then it would be a Duco fight.

    I see this as the process to get the agreements signed up before an election so it cant be overturned by a new council.

  • Peter

    Happy days. Good to see another milestone reached.

    All of the legal cases are just delay tactics by the various haters of this project and will only serve to further delay and further increase the cost of this project. When you talk of cost overruns think back to the constant lobbying by these special interest and minority groups who have continued to frustrate this project proceeding. To no positive consequence, and increasing the costs and delaying the p[project.

    Slow sign ups would be a direct result of the insecurity caused by the constant lobbying and mis-information spread by the various minority and special interest groups.

    As a irrigation scheme, the cost of water at 27.5cents per cubic meter is comparable to other schemes and provides a viable financial proposition for irrigation for farmers.

    Dairy farming was always around d the 25% mark not 40% as overstated above.

    As a long term investment, this project requires long term investors such as ACC, local and central government, and pension schemes.

    If the scheme fails then HBRC are well aware that this will be a major set back for Hawkes Bay as a region. Its already an economic backwater and this is a chance to propel it forwards.

  • Bruno 32

    hopefully the seriously dodgy dam won’t leak and will provide prosperity to “The Bay ” for many years to come.