Dodgy Council’s dodgy numbers for the dodgy dam exposed

The Hawkes Bay Regional Council are dodgy as dodgy can be.

An economist has poured cold water on their claims of break even for the dam:

Hawke’s Bay Regional Investment Company’s announcement that the Ruataniwha dam was cash flow positive was “factually incorrect and grossly misleading”, an economist claims.

Last month the HBRIC reported to its owner, the Hawke’s Bay Regional Council, that it had enough water users signed up to make the scheme “cash positive”, with the investment company signing more than 42 million m3 of water. The company’s target was 45 million m3 of water.

Economist Peter Fraser disagreed, saying 45 million m3 of contracted water volumes did not achieve financial break-even.


“It is my professional opinion HBRIC’s claim that 45m m3 of contracted water volumes represents ‘financial break-even’ for the RWSS is both factually incorrect and grossly misleading,” Mr Fraser said.

“Given the revised RWSS has a higher construction cost ($333 million rather than $275 million) it necessarily follows that the financial close number should be revised also – and HBRIC have not done that.

“For transparency and governance purposes, this needs to be rectified as a matter of urgency.”

If the HBRC was a company there would be people sitting in small rooms with their legal counsel being questioned about the claims being made.

Hawke’s Bay Today ran its own calculations (above) using the figures issued to the public by HBRIC.

These figures found that a total of 87.6 million m3 of water would be needed to break even – that is, to cover running costs and loan interest repayments, but also to deliver the return of investment of 6 per cent required by the regional council.

As the current figures stand, the project will run at a forecasted $2.085 million yearly loss for the first five years and a $1.19 million loss from 2024 onwards, presuming no more water has been sold.

Mr Fraser looked over the numbers and said while he got similar figures in his breakdown, he believed the above numbers were conservative.

“The problem is while we don’t know their model, this isn’t very hard and we already know the key numbers – and the math doesn’t lie,” he said.

Mr Newman was asked for a copy of the model HBRIC was using but declined to provide one, saying “this remains commercially confidential to financiers”.

“In regards to the financial model however, Deloitte has had access to it under confidentiality so as to be able to undertake its work,” he said.

Sneaky, furtive, and devious. These guys need to realise that it is the ratepayers funding this dam, secrecy is not an option. The full model the HBRC is using needs to be released forthwith because it is clear that their model is different from the numbers they’ve handed out to everyone else.

If HBRIC has made the number available before why not now? But it is still clear that the dam never made money and now it is 50% more expensive it will never make money.

The dodgy council needs rinsing. Come October there may well be new people at the table. Then we might get some answers.


– HB Today


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  • Peter

    I dont understand the income figures but it appears they are using income figures of $0.215/m3 of water. Isn’t the income is actually $0.275/m3, and not $0.215, noted above?
    The contracted 45M cubic meters of water at $0.275 would provide an income of $12.35M…This would provide a better than break even price on total costs of $11.25M noted above.
    The great thing about figures is you can twist them any way you like to provide your point. Economists are particularly good at this and when challenged have plenty of bolt holes to shoot into.The proof will be in what actually happens.

    • Peter Fraser

      Hi Peter,

      An explanation – apologies about the length though that’s the cost of being thorough.

      HB Today used the discounted water figures that were publicly disclosed by HBRIC – so that is a fair assumption. In comparison, I did not: I used 27.5 cents as you have done and got an identical figure as a result.

      However, I also assumed $2.5m of revenue from electricity sales and applied only a 5% WACC. Even under these assumptions, which are extremely generous, at 45M m3 sold the dam loses $7.8M per annum.

      So the 27.5 cents price doesn’t change the result – the dam still doesn’t work.

      Under the above assumptions, break even occurs at 74M m3 of water sales.

      Indeed, to break even at a volume of 45M m3 of water the water price needs to be closer to 45 cents, which – by the way – is what HBRIC’s advisers told them in the first place.

      If, however, there is water discounting (as HBRIC had stated there is) then that makes the numbers worse and lifts break even from 74M m3 to 88M m3. Moreover, if the electricity revenues are illusory then that lifts break even again to 97M m3.

      Note: there is a slight difference – I assumed a water discount price of 20.5 cents whereas HB Today used 21.5 cents.

      I also assumed $6M in operating costs, which is likely to be low given the revised scheme design. This figure is the same as that employed by Deloitte in their 2014 Peer Review of the Business Case – and is the operating cost inclusive of electricity distribution costs (which is why I used his figure – as it matches the electricity revenue figure).

      The point is even modest changes negatively impact on the viability of this project, which is why I continue to say it is neither commercially nor economically viable

      Indeed, changing the WACC from 5% to the 8.5% claimed by HBRIC lifts the 74M m3 to a whopping 117M m3….

      …and if we remove electricity revenues and allow for discounting then we spiral to 140M m3…..

      The point is in the absence of the actual numbers from HBRIC you need to make some calls – and even under pretty fair and reasonable assumptions the simple point is break even is no where near 45M m3.

      So rather than being a metric measuring the financial performance of the scheme and being a trigger point where financial risk from ratepayers all the 45M m3 represents is a water sales target – and one that it seems HBRIC still hasn’t met.

      Maybe this is something the rate payers of Hawkes Bay should consider.

      Peter Fraser

      Ropere Consulting

      • rua kenana

        Thanks for that Peter Fraser.
        A bit of sound analysis was needed to show up the wishful thinking and economic non-viability involved in this maggot-brained dam scheme.

      • Peter

        Yes thanks for that Peter. I see that you have had an interest against this project now for some years.
        I haven’t looked at this end of things as I haven’t much interest in it – more on viability for the end users (yes it is viable for farmers despite claims to the contrary)
        Some comments though.
        I am not so sure about your simple numbers analysis. However given that you think that the project will break even around 50Mm3/year, even you by extrapolation believe the scheme will be viable at full uptake.
        Probably the analysis Deloitte’s have formulated is a little more comprehensive and considers delivery over time of costs and income. This project will not instantly happen, nor will costs and income instantly occur. I think it highly likely the scheme is more than viable in the Deloitte’s analysis. In particular the most significant cost in construction will be the reticulation system. (pipeline). By focusing construction of the pipelines to farms signed up to the scheme costs can be managed under income. Similarly operating costs will not be fixed – they will be proportionate according to demand.
        I also have some doubts about your borrowing interest rates which seem to way more than what is available for projects of this size. I know a business borrowing at a rate of around 2% on $20M lending so HBRIC should be able to do as well as that. In your simple analysis above simply changing the interest rates to more meaningful values makes the project viable.
        I really like the inclusion of the power station to this project. HB has only one antique diesel powered station at Whirinaki and hydro – true renewable energy – is a great option for HB. Again I think you may have under estimated the income from this station. Unison have to import nearly all their power and will have the highest power costs in NZ. A local power station will be able to charge commensurate to these costs.

        • Peter Fraser

          OK – between myself and others correcting the holes in your initial argument let’s go for the trifecta.

          1. As I have stated, I have no ‘interest’ in this issue apart from an academic interest as a co-author of a paper on dams in NZ. The work I have done since has been on a pro-bono basis as the likes of THB work extremely hard on the smell of an oily rag and I’m happy to help them out (and they don’t have any money anyway).

          2. If you read my post you would realise that I don’t say the RWSS will breakeven at 50M m3 – indeed, I’m pretty sure I said 74M m3 – but if other assumptions fail to hold then that starts to escalate north rapidly – and to the point where you need more water than HBRIC claims is available.

          I don’t know where you got the 50M m3 figure from but you can be assured it’s nothing to do with me.

          3. I do not say that the scheme is viable at full take up (and I really wish you would get your facts rights – because continuing to play fast and loose with numbers is getting really tedious and starts questioning your credibility).

          Instead, what I do say is based on the 8.5% HBRIC claimed as the appropriate project WACC the RWSS still manages to lose $1.26M per annum if all 104M m3 is subscribed at 27.5 cents AND all 9M m3 of spot water is sold AND the net electricity revenue of $2.5M is also counted.

          Indeed, to make the 8.5% WACC claimed (and again, this is HBRIC’s number – not mine, so go and talk to Andrew if you don’t like it) HBRIC need to sell 117M m3.

          4. Last time I looked debt servicing was a fixed cost – and the opex costs of $6M I used came from Deloitte. The major difference between mine and HB Today’s numbers is I included the 6% return demand by HBRC from HBRIC for the $80M advanced for the RWSS. As that must be paid from day one I think it is reasonable to include it in the breakeven analysis whereas HB Today left it out. This is why I said I thought they were conservative.

          Oh, and by the way, that’s another fixed cost.

          5. If you can find money at 2% I suggest you better tell Bill English as he’s paying 2.66% for 10 year money at the moment and I suspect he’d love to be paying less.

          6. See previous post regarding electricity. Indeed, something you can do that will be really useful is finding out from Andrew Newman how much HBRIC reckons the net generation revenue are, and let me know so I can update my figures.

          • Peter

            I see no others poking holes in my arguments.

            I see press releases from 2014 where you are saying the project should be abandoned. So basically you have formed your opinion already some time ago.

            You are a consultant providing advise to interest groups and giving press releases. You are cited as an expert and an economist. You have a vested interest whether you are paid for these services or not.

            I am only calling this as I see it. Your table is simplistic and doesn’t give me clear direction – just questions. Your comments jump around with the numbers – basically because you are guessing what they actually are – like me.

            Like me I think you are just guessing as you do not have access to the Deloitte analysis and are cobbling together the numbers from what information you have gleaned or have estimated yourself. There is nothing wrong with that I guess unless you start giving press releases and presenting it as fact.

            Really it would be much easier to understand if the financials were made available by the scheme.

            This does pique my interest though. I might just go and have a chat to Andrew. Unfortunately I rather suspect my findings will fall on the other side of the equation. But thats economics for you!

          • Peter Fraser


            For the love of all that is Holy I will say it again – the ‘simplistic table’ you mention is from HB Today – it isn’t mine.

            So please try and keep to the facts and attribute work correctly. It’s a basic courtesy and an important one.

            That said, at least HB Today have had the courage to put up a case for debate and critique – rather than merely snipe from the anonymity of cyberspace.

          • Peter

            Oh my apologies, your name was all over the posting and I assumed it was your work.

      • Peter

        I had a quick look at returns on the proposed 6.5MWhr power station. 14 day smoothed average spot price for generation is around $100 – $ 200/ MWhr (2012), let us say median of $150/MWhr. At full generation for the irrigation season 200 days retail of power at standard prices will yield a return of around $4.7M/year, or double what you are saying.
        Actually I would expect the hydro system to run more than 200 days as it should be able to also generate during winter months., so the income on generation could be closer to $6M/year….

        Certainly there will be plenty of demand as Unison have an antique diesel in Whirinaki, and intermittent wind powered electricity, or they have to bring the power from Taupo…
        So the hydro scheme option in this scheme looks pretty darn good to me actually.

        • Peter Fraser


          I have no idea why you choose to run distraction on this issue but each to their own.

          For the record:

          1. The $2.5M dollar electricity revenue figure is a net number (as the scheme consumes power for pumping purposes) and comes from HBRIC – it’s what they considered the net review will be. If you think this number is incorrect then talk to Andrew Newman as it is his figure not mine.

          2. Jeff Butcher, in the revised CBA analysis, states the revised scheme has additional pumping costs (which I suspect will require additional electricity – so the the net amount available will fall as a result)). Moreover, he doesn’t include electricity revenues in his revised CBA – despite having done so last time.

          It’s a pretty radical deduction, but maybe Jeff didn’t count electricity revenues because there aren’t any. However, if you think Jeff is wrong and he should be counting an extra $4.7M then I suspect he would love to hear from you as that’s a big deal given a 70 year project evaluation period.

          3. Is it only me or wasn’t there a company called Trustpower involved in this scheme? I also suspect they may know something about the electricity business too – though clearly not as much as you as they walked from the scheme – having somehow failed to see the opportunities you do.

          Tasking this a step further, I see no other electricity gentailer or lines company have spotted this peach of an opportunity either….

          So let’s say you are the only person who is right and both Andrew and Jeff are wrong (the former for not counting enough electricity revenues and the latter for not counting it at all), Trustpower was crazy for passing up on the deal of the decade and the entire the electricity industry is blind to the opportunities that so clearly exist.

          The net result is that you have reduced a $7.8M loss to a $5.6M loss when the claim is the scheme is ‘cashflow positive’ (whatever that means).

          Congratulations – the scheme is now clearly commercially viable.

          • Peter

            Ahh you cited the generation aspect of the project which is why I brought it up.
            My figures are gross income amounts, you were not specific, I expect generation income will offset pumping costs, in which case did you deduct from the $6M irrigation operating costs?
            I suspect like me you are guessing at the numbers based on what information you have.

    • By which time you, as a vested interest, will have made plenty.

      • Peter

        LOL. I stand to make very little thanks Cam, the big boys will be all over this project if it happens.
        Sorry about the impact on your hunting block though.

        • So at least you admit that that the river will be poked as a result of the dam. How is that good for the community?

      • Peter

        What gets me on this is that when you stop and take a closer look at the numbers people keep spouting against this project, they simply don’t stack up.
        It amounts to building a ‘truth’ through omission of facts…
        Its not a winning strategy really – just take a look at the Labor party.

        • You are right, the numbers provided by the HBRC don’t stack up and never have stacked up. But people like you have a build it and they will come mentality despite it wrecking a river.

  • Gladwin

    Considering that if this project went ahead as above the deficits would be met by the last resort financiers, the public. Therefore full disclosure should be made available to all.

  • AndyG

    The water price is correct at $0.215. This is the discounted price for foundation water users which increases to $0.275 after 5 years

  • Ginny

    From 2019 onwards, running costs are estimated at 6 million per annum. No allowance for inflation and a reassuringly round figure. When you see an estimate to the nearest million, you know that they have absolutely no idea of the costs.

  • Matt Long

    Peter Fraser is a professional economist and Nicky Hager is a professional journalist. I can feel a Tui billboard coming on.

  • MarcWills

    Warning to the HBRC ratepayers – when Kaipara Council was unrestrained, they landed their small community with a $60M millstone. I suggest you call for the Auditor General to get involved well before any binding contracts are signed for this scheme. It may not protect you, but the evidence she produces will make it embarrassing for any Government in the future – even if they can pass a retrospective Validation Bill (as they had to in Kaipara).

    • Peter

      I did the irrigation to land for that scheme. The project was well run and is a good solution for the community which had the most polluted waterway in New Zealand.The final report (2015) also drew that conclusion.
      Excluding the argument over cost something had to be done.
      The project itself did not seem to have significant cost overruns. We did the work under Guaranteed Maximum Price, so there were certainly no incrfeased costs for the irrigation system.
      My understanding that the ‘blow out’ was more mismanagement of the financials by the Council as they assumed significant contribution from development….

  • F T Bear

    The on going discussion and back and forth arguments around this project just go to show that a post I made a few days ago was valid.
    The project was and still is a good project for Hawkes Bay.
    It will provide jobs, a more diverse agriculture base, recreational possibilities, flushing flows, power generation, increased exports, better infrastructure, an increase in conservation land as well as much needed boost for a rural area screaming out for investment.
    The fact that it has been hijacked by people and groups with their own agendas, apparently including hunters now, is a reflection on how we in this country do business. What we should be doing is what is best for the majority of Hawkes Bay,

    • Plum

      …which is not burden the current and future ratepayers of HB with a white elephant like the Ruataniwha Water Storage Scheme that will bring no long term benefit to the region.

      • F T Bear

        As a rate payer I’m plenty happy to pay a share. Just as I’m happy to pay for flood protection, foreshore protection, environmental protection, port development, roading development and any other infrastructure improvement that I may or may not use. It’s about belonging to your community. Build the damn thing and let’s get on with it.