If the dodgy socialist dam business case was rooted before, it is well-rooted now

The Ruataniwha Water Storage Scheme had a marginal business case in the first place. We know this because institutional investors walked away from it, like Ngai Tahu and others.

Now the costs have blown out by over 50%. If the dam’s business was rooted before, it is well-rooted now.

The cost of the Ruataniwha water storage project in Hawke’s Bay has jumped 50 percent and is approaching the billion dollar mark.

The new figures are in a report commissioned by the dam developer, the Hawke’s Bay Regional Council, to review the regional economic impacts of the irrigation scheme.

The Butcher report predicts economic activity around the dam will create 3500 jobs and contribute $380 million to Hawke’s Bay’s GDP.

The same report, to be considered by the council this morning, shows the total cost of the dam has jumped by $300m to over $900m.

The construction cost of the dam alone has jumped by nearly $100m to $333m.

The Butcher report says this is because a new irrigation zone has been added so more pipes and pumps are needed to get the water into the zone.

Of that $333m, $80m will come from Hawke’s Bay ratepayers and the rest will be met by Crown Irrigation Investments and ACC, which RNZ News understands is the preferred investor.

Sixteen million has already been spent on the project, but the biggest cost increase is the amount farmers are expected to invest – that has jumped $200m to $556m.

ACC are smart; better even with returns than the Super Fund. They will realise quickly that this dam is rooted, both financially and politically.

The construction cost of the dam only gets water to the farm gate and farmers are expected to invest or borrow to install additional pipes and irrigators.

The regional council’s investment company HBRIC says the farmers’ cost has increased because a large part of the irrigated land is now expected to be used for growing apples and grapes.

The farmers’ land would have a higher profitability than other land uses and in turn a higher economic return to the region, HBRIC says.

However, it’s not clear how many Central Hawke’s Bay farmers will suddenly want to convert to apple or grape growing.

The Council has shifted focus from dairy to fruit growing for two main reasons. Firstly, new dairy conversions would have blown the nutrient overhead through the roof; the Tukituki is already at the overhead. Secondly, dairy is in the poos at the moment, and farmers are more interested in surviving on low milk payouts than committing to buy very expensive water predicated on a dairy price payout over $6.50.

If ACC bails then the dam is poked. It was always poked but this will make sure it never gets built.

 

– RadioNZ

 


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  • Woody

    I just hope that ACC bail on this one but not at all hopeful that they will, they do have history with embracing bad investments.

  • Peter

    It was never all about dairy. The project always had a major component of supply to cropping, pip and stone fruit and pastoral irrigation.
    In terms of supply to the farmer, the buy price of water from the project will yield a reasonable return on investment.
    It is a good option for ACC.

    • biscuit barrel

      “The project always had a major component of supply to cropping, pip and stone fruit and pastoral irrigation.”

      And they make money how for these activities ? The reason why its not being going well, is the ROI is not good ,as seen by farmers themselves.

      Would be interesting to see those canterbury irrigation schemes that are supplying ‘pip and stone fruit’

      I can only see ACC going into this if they got a lions share of the returns at a very cheap price. They put up 60% of the money but get 75% of the return plus guarantees from HBRC

      • Peter

        Really? I have done a few feasibility studies now for this scheme and at 27.5 cents per cubic meter the farmer will make good money just growing grass. ROI on crops, which can yield a much higher return than pasture can only yield much higher ROI. Its not really rocket science and the figures I used are pretty conservative.

    • Hailstormers

      Cross of pip and stone fruit. That part of CHB gets more frosts and bigger frosts than the Heretaunga plains. The cost of wind machines and or helicopters will be huge. They get more hail down their and it’s bigger. The cost of hail netting is not cheap and affects fruit colour and brix etc so lesser quality produce which means less $$$. Lack of cool storage. Emmmm, I’ve got fruit in bins and nowhere to put it. To far from the port. All orchards need trees and theirs a 3 year wait on that at present. Intensive orchards are now planted at 2500 or greater trees per Ha at $15-20 per tree, do the maths on that. Posts, wire and yes irrigation and the list goes on. Almost forgot to mention the first crop is 3 years away and up to 6 years for full production. Brain fade, gotta pay for water as well.

      The last thing will surprise all and that is not enough people to pick the fruit. Yep that’s right. The fruit will rot on the trees if the frost and hail doesn’t nail it first. It’s a foolish idea and the longer it goes on Newman and Fentons snouts are in the trough.

      • Peter

        Jeez looks like you’ve given up already…Weather is a part of agricultural life. Irrigation just reduces risk in one area.

        • biscuit barrel

          Just get meteorological report, problem goes away.
          Isnt thats how its done. Oh unless some other expert peer reviews it and then theres trouble.

          Im surprised they dont have artesian water on the Ruataniwha as geologists reckon both plains were connected at one time, (and that Cape Kidnappers- Mahia were connected too)
          Orchardists would be happy with that as they only need water some of the year.
          I was a kid in around hastings and some friends of the family are still known well drillers in the area.

          The price increases and the increase in scope of the project sound much like the Mangawhai project- but of course this is 10x the price.
          That would be the worry for ACC, high risk projects are just not in their investment frame.

          • Peter

            Water takes in HB are pretty much allocated or over allocated. My relations who have orchards there have to stop pumping and so do farmers I know at the height of the season nearly every year. Same with the river takes. The run of the mill water takes need to be replaced with schemes like the Ruataniwha where they sequester a small fraction of the water lost to the river system and out to sea during winter flows and use this to irrigate during the growing season.

  • Sailor Sam

    Judging by Catherine Delahunty’s question in parliament today, even the watermelons are now on side.

  • Peter

    No not really I have been doing them for a few years now and because I use conservative figures the productivity can be 30% over cost on forecast. We also get a year on year improvement which we didn’t account for in our modelling. The thing is to tie everything back to median costs of diesel, power, products etc. so they or we can quickly re-assess if the price structure moves..

    • biscuit barrel

      I thought you were trained as a biologist, so now you have skills as a agronomist/economist and a agricultural engineer ?
      LSE ?

      • biscuit barrel

        HBRIC has been using Canterbury based farm consultants MRB to produce rosy figures
        http://www.hbrc.govt.nz/HBRC-Documents/HBRC%20Document%20Library/Dairy%20Light%202016.pdf

        Seems strange to me that you have to buy 27% more feed to make it work over the comparison farm. So it seems like you have to buy more water and more feed. Oh and have a milk price of $6 kg.
        The farm price of the water is 20% of Aucklands purified piped system at 27.5c per m3. Seems to me the decimal point is in the wrong place. And that price was with the lower capital cost which has been superseded

        • Peter

          When I did the water supply for a dairy factory some years ago I looked onto value of water. The true value of water is quite high. Actual cost for municipal water is from 40c per cubic meter to a few dollars per cubic meter, depending on what they do with it to meet the NZ drinking water standards.
          Irrigation water from this project at 27.5 cents per cubic meter is quite cheap. Especially when you consider that it can cost $100k to drill a water bore, $80k for the pump, electrical supply, and delivery pipeline and then pumping costs for a 50kW pump at $0.30 per kW.hr ( or $350/day for 160 days, or around $50k per irrigation season) Add that all up and compare it to the cost of water at the gate and you may see that the farmers are getting a pretty good deal!

          • biscuit barrel

            The city price are for households in the range 5-20 m3 per month. Which is tiny and not comparable with ‘bulk’ supply.

            The Opuha scheme in S Canterbury is looking at 5.6km3 per ha ( over 22.5 week season) of water supply. Total area supplied 16,000 ha
            They dont say a price per m3 but working back wards from their estimate of $200 per ha per year we can get 3.5c per m3.
            This seems to agree with my rough guess that Ruataniwha should be in that range rather than 27.5c

            And their shares in the original scheme ( 1 share per ha) are trad-able, original cost $250 each , now $5000 each

            Thats the crux of the problem. too expensive

          • Peter

            Opuha appears to be $197 for 80% share or $197 for 4500m3 of water or about 4.4 cents per cubic meter. However the water user still needs to either pump and pipe the water from either the river or a secondary water scheme to irrigate, and all of those costs..A quick search found a report that for farms using the LPIC scheme which takes water from Opuha the all up cost per hectare is around $1200 per annum.
            In comparison the Ruatanipha project fares very well indeed. Based on 85%ile demand a farm might need 450mm per annum per hectare or 4500m3 – same as above. At 27.5cents per cubic meter this equates to about $1200 per annum. Basically the two schemes water costs the same.
            Interstingly the same report shows the gross revenue to be 2.4x cost, or $2.9k income from irrigation costs of $1.2k. SO it really pays to irrigate. From either scheme.

      • Peter

        Actually I have a degree in applied Physics and a second major in biology. You learn as you go.

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