MINUTES OF A meeting of the Regional Council
Date: Wednesday 10 May 2017
Hawke's Bay Regional Council
159 Dalton Street
A J Dick
In Attendance: M Mohi – Chairman – Maori Committee
G Woodham – Interim Chief Executive
G Hansen – Group Manager Asset Management
J Palmer – Group Manager Strategic Planning
L Hooper – Governance Manager
The Chairman welcomed everyone to the meeting and Mike Mohi offered a karakia.
There were no apologies, nor notices.
The Chairman advised he would need to leave the meeting at 2pm to attend the release of the Havelock North Enquiry report release.
The Chairman briefly introduced the report being presented today, on the Ruataniwha Water Storage Scheme review and the findings of the various reviewers, extending his thanks to James Palmer for his very substantial efforts in running the review process and developing the report.
2. Conflict of Interest Declarations
There were no conflict of interest declarations.
Review of the Ruataniwha Water Storage Scheme
Mr James Palmer, General Manager Strategic Development, introduced the item by first extending his thanks to the more than 60 people who contributed to the review and report, and then briefly outlined the terms of reference for the review before presenting the findings.
Legal issues slides covered:
· Council has legal right to withdraw from RWSS however public consultation likely to be necessary given conditions precedent still subject to ongoing processes including DoC land swap appeal
· CHB community perceives RWSS and PC6 as a package deal even though they are separate in law
· principle liability is write down of $19.5m invested to date
· CIIL may seek return of $7m but there is no contractual obligation on HBRC to do so.
Discussion relating to the legal issues traversed:
· Combined RWSS and PC6 proposal ‘of national significance’ and community perceptions of a ‘package deal’
· focus of review on legal risks of not proceeding with RWSS
· Environmental Defence Society and Fish & Game to seek declaratory judgement from Environment Court in relation to instream DIN requirements of PC6
· plan changes are iterative processes to enable amendment to address deficient policies and/or rules
· implications associated with council not achieving the instream 0.8 DIN limits within the PC6 timeframes
· timelines and the conditions precedent of minimum uptake, fixed time and price design and construct contract, resource consents and financing arrangements with the only condition precedent not resolved being the investor financing.
Economic issues slides covered:
· RWSS water affordable for a range of land uses including dairy, sheep and beef, arable, vegetable cropping and horticulture
· economic benefits depend on land use mix and expect there will be considerable change over the 70 year horizon of the project
· worst case GDP increase $137m and base case $380m.
Discussion relating to economic issues traversed:
· Economic upsides from technology, land use change enabled and/or accelerated by the security of water for irrigation
Engineering issues slides covered:
· avoiding DoC Land is uneconomic given that lowering the dam would result in 80% less storage and moving 3km downstream would cost an additional $35m
· smaller dams or on farm storage more expensive and pose new issues including obtaining water from groundwater or surface water sources, and the use of higher value land for storage rather than production
· seismic risks to dam structure adequately assessed and mitigated
· decommissioning 100 years away at a cost of $26-30m
· gravel management assessment revealed it would take 400 years for the dam reservoir to fill with gravel
· hydrology data has been updated and suggests 4% lower inflows overall but better drought performance and 95% reliability.
Discussion relating to engineering issues traversed:
· whether capital costs of on-farm water storage dams are comparable to costs to provide irrigation water from RWSS to the farm gate
· if council were to embark on a strategy to support on-farm storage HBRC would need to revisit the water allocation framework to work out how that could work in practice
Environmental issues slides covered:
· PC6 and RWSS developed as a dual strategy to manage environmental health objectives of the RRMP, particularly related to periphyton and river flows
· RWSS resource consent conditions 8 & 9 require flow augmentation – to maintain outflow at the base of the dam at the rate of the mean annual low flow level (average 700,000 m3 per year) and to maintain flow rates in the Waipawa and Tukituki rivers (on average 1.2 Mm3 annually).
· 4 x 1Mm3 flushing flows required over the summer period are in addition to the augmentation flows and Dr Richard Measures (NIWA) noted benefits of higher volume flushing flows to improve their efficacy
· Without RWSS flow augmentation, when PC6 minimum flow requirements are in effect in 2018 (+25%) and 2023 (+50%), impacts on existing irrigators’ EBIT will be a reduction of 35% or $900k in an average year and up to $4.7m less in the driest years (e.g. 2013)
· Review noted single biggest environmental challenge for HBRC relates to phosphorus and sediment – as the biggest drivers of aquatic health
· RWSS required through consents to be at least neutral for phosphorous, and more stringent than requirements for other farmers in the catchment
· 0.8 mg/l Dissolved Inorganic Nitrogen limits (all forms of nitrogen that end up in the water) already exceeded by 130-420% in Ruataniwha catchments, and will probably not be achieved by 2030 everywhere with or without RWSS
· BoI set DIN limit while noting the uncertainty including lag effects of between 10 years and 200 years for effects of nitrogen losses to show up in surface water
· BoI decision states “identification of the cause and effect relationship between elevated nitrate nitrogen levels in surface water and the land use activity that is responsible can be very difficult, if not impossible”
· In CHB production systems currently cope with dry summers by intensifying spring and winter-based activities which tend to have higher nitrogen losses
· NPSFM requires councils to have an operative plan that includes limits in place by 2030 and the objectives may take years or even decades to achieve
Rex Graham left the meeting, vacating the Chair, at 2.10pm and Rick Barker assumed the Chair
Environmental issues slides continued:
· LUC allowances provide for increased nitrogen losses contrary to achieving lower DIN limits
· BoI noted the need to progressively work toward achieving the instream DIN limits
· If argument mounted that RWSS cannot proceed because it cannot achieve DIN limits then that standard also needs to be applied to land use outside the scheme
· If RWSS does not proceed all farms anticipated to join the RWSS in DIN exceeding catchments will also require resource consent in 2020 – meaning the regional council will be required to regulate activities at the individual property level
· Key question whether the RWSS is enabler of land use change required to deliver lower nitrogen levels or whether it will only exacerbate nitrogen levels
· PC6 and RWSS are very much reliant on each other in practical terms so if RWSS does not proceed PC6 will need to be urgently revisited
Discussion on environmental issues traversed:
· instream DIN limit is considered a useful trigger for precipitating concerted effort on nitrogen reduction
· instream DIN results from contributions outside individual farmers’ control and is the reason the BoI set this as a requirement for the Council to meet
· mitigation of the risks of increased nitrogen losses from very intensified land use is partially provided through the required LUC leaching rates
· through resource consent conditions, Council provides the goal (e.g. nitrogen loss limit) and relies on the farmer to achieve it - this is generally preferred to Council dictating specific on farm management practices
· resource consents require RWSS to manage in a manner consistent with achieving the 0.8 DIN limit, requiring a downward trend in nitrogen loss
· RWSS enables global optimisation of outcomes
· increased irrigation ban days resulting from lower minimum flow rates in lower Tukituki and emergency provisions for providing water for root stock
· tools available to RWSS could be made available through third option to deploy Council’s financial resources in less commercial ways through providing more intensive farm advisory services, further support of research and development, incentives for land use change
· Tranche 2 water and exploration of Council drilling deep water wells to augment flows in Tukituki technically feasible and BoI has given some consideration of this possibility
· Use of global consents for nitrogen, like Twyford Water Users for water takes, not enabled currently by the Plan and would be much more complex as land use and equity issues are quite different than managing water take and use
· RWSS has financial means to require environmental performance while Council has solely regulatory means of enforcement available to it
· Possible definition of acceptable rate for achieving the DIN limit - as quickly as practicable while retaining economic viability for land users
· Implementing PC6 in its current form is fraught with legal and scientific risks and uncertainties, and even with improvements PC6 will not be perfect as planning is an iterative, adaptive process to improve outcomes over time – PC6 is not an end in itself
· Why recommendation of review is not to park further investment while rewrite rules in further plan change that make sense? The Plan will never be perfect, continuous improvement and adaptation are ongoing with all major resource consents through monitoring and review of conditions and modification over time
· believe Council is in a position to decide to proceed with the Scheme with all of the uncertainties if the consideration of the balance of risks and opportunities is lifted up a level, looking at the strategic framework and objectives and the role the RWSS plays in achieving those
· if satisfied RWSS is an enabler of land use change over time to lower nitrogen loss then that is consistent with the enduring objectives of the Plan to achieve better ecological health
· clarity around the range of risks and uncertainties - councillors to come to a decision that either those risks are great enough to decide to not proceed or at a level acceptable for the scheme to proceed
· the offsets available within designated surface water zones to achieve a downward trend in DIN are balanced between land uses, e.g. dairy high balanced by lower arable cropping, under the RWSS consents
· as land use changes, rebalancing of nutrient budgets will need to occur
· possible to see the balances between land uses across the catchment reconciled on a spreadsheet – and could request HBRIC undertake some analysis to provide that information based on current uptake
· need to set achievable targets required for downward trending DIN; BoI noted nutrient limits would need further analysis and change over time
The meeting adjourned at 2.55pm and reconvened at 3.15pm
Mr Palmer introduced Sarah Park and John Palairet, neither of whom had any prior experience with the Scheme, who highlighted the key findings of the review of the financial issues through a presentation, including:
· capital spend at construction completion including operation costs, land acquisition, development costs, bank interest and fees will be $340M
· Funding provided by equity from HBRC and Institutional Investor of $80m each, ($160M equity) bank debt $85m and Crown Irrigation debt funding $95M
· Revenue forecast provided by the demand model, which has been extensively modelled and reviewed and withstood reviews on behalf of the institutional investor and CIIL which all came to consistent agreement on the outputs
· demand modelled is considered appropriate and conservative
· D&C contract will need to be re-negotiated if decision is made to proceed
· project life IRR of 7.1% (base), 6.2% (downside) and 5.8% (severe downside), with benefit from increased Napier Port Napier throughput adding 1.3%, so base case IRR 8.4% post tax
· 6% return required by Council from day 1 will not be achieved until year 22 and will require HBRIC to borrow to fund the shortfall
· Key risks are demand uptake, D&C contract price increase and dam consortium is financially fit for purpose – mitigated by increasing CP to 48 M m3
Discussions and queries around the financial review traversed
· 6% return based on today’s figures
· scheme required to pay all debt by the end of the 35 year consent period
· increased CP to 50 M m3 water uptake to mitigate risks
· investor fee 5%
Concluding remarks by James Palmer stated that given the scale of the project, there is a wide range of risks and uncertainties that cannot be completely avoided and council will make its decision based on whether the level of risk is either acceptable or not. Final comments included:
· Thanks and congratulations to James and team on comprehensive review undertaken
· On balance – scheme receives a tick to proceed on the basis of economics, sales of water and engineering but there remain substantial environmental impacts to address
· review process has been worthwhile as has validated five years of work
· perfect time for the review as still awaiting resolution of the land swap appeal, has crystallised the issues, CP of 50m m3 de-risks financial risks however still need to see a way forward to manage environmental impacts
· sharpened and clarified some issues, but not sufficiently on environmental impacts and improving the ecological health of the Tukituki
· still work to do on environmental issues however the glass is half full with RWSS because more water in the rivers and irrigation security providing opportunities for farmers to change land use practices that will achieve environmental outcomes over time
· concerns remain, but faith in positive outcomes being achieved through proceeding with the scheme
· complex issues take significant time and effort to digest
· Ruataniwha about more than just delivering water – about environmental, social, cultural, and economic outcomes that will be impossible to deliver without the scheme – the review focussed on negatives and not the many positive opportunities the RWSS presents
· clarified issues into focus, and brought some issues forward – need to be assured about the environmental weaknesses – there will always be inherent risks and uncertainties, and there will be a balance of whether the council is comfortable with the uncertainties and risks
· focus on the environment
That Council receives and notes the “Ruataniwha Water Storage Scheme Review” report.
Plan Change 5 Appeal - Confidential Settlement Offer
That Council excludes the public from this section of the meeting, being Agenda Item 5 Plan Change 5 Appeal - Confidential Settlement Offer with the general subject of the item to be considered while the public is excluded; the reasons for passing the resolution and the specific grounds under Section 48 (1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution being:
Cr Beaven left the meeting at 4.08pm
The meeting went into public excluded session at 4.10pm and out of public excluded session at 4.14pm
There being no further business the Chairman declared the meeting closed at 4.15pm on Wednesday 10 May 2017.
Signed as a true and correct record.
DATE: ................................................ CHAIRMAN: ...............................................