Agenda of Regional Council Meeting

	Agenda Item	Action	Person Responsible	Status Comment
1.	9 month Annual Report Progress	Develop a strategic approach to Appeals, using risk analysis	AN/DL
2.	Quarterly Significant Initiatives Update for Council	Recreation Plan for the Waihapua Forest Park (Tutira Carbon Sequestration property)	GH/MA	To be reported to Council meeting in July or August
3.	Annual Plan Submissions	Concerns expressed by Derek Williams in relation to possible contamination of watercress to be made available to members of the Maori Committee for communication to the members of their communities if they wish.	VM	Document tabled by Mr Williams to be tabled for information at the 28June Maori Committee meeting.
4.	Annual Plan Submissions	Derek Williams requested a DHB study on disease outbreaks related to onsite wastewater contamination be undertaken	EL	To be raised at the next DHB-HBRC stakeholder meeting.

HAWKE’S BAY REGIONAL COUNCIL

Wednesday 29 June 2011

SUBJECT: Infrastructure Insurance

REASON FOR REPORT

1. Through the Asset Management and Biosecurity Committee on 11 May 2011, Council was advised that the Local Authority Protection Programme (LAPP) did not have sufficient cover in place following the 22 February 2011 earthquake, to enable them to offer any cover on other Council underground reticulation and flood control assets until 1 July 2011.

2. The Committee was also advised that there would be a significant increase in insurance premiums for infrastructure assets in 2011/12 from those paid in the 2010/11 financial year.

3. Staff have made enquiries of commercial insurers and have obtained quotes for renewal of insurance premiums for “generally uninsurable assets”, however have been advised that at present the insurers only have terms for a 10% placement of the assets (i.e. cover for 10% of the risk).

4. The situation with LAPP and commercial insurers remains unclear, with insurers seeking interest and commitment from offshore insurers and reinsurers to provide cover for Local Government assets. LAPP is also awaiting a response from central government for a proposal for government to carry 90% of the risk (normally 60% under the National Civil Defence Emergency Response Recovery Plan) for the 2011/12 year, reducing in the future back to 60% while LAPP rebuilds their reserves.

5. This paper updates Council on the situation and seeks agreement for a proposal to insure Council’s infrastructure assets for the 2011/12 financial year.

Background

6. Council currently insures its infrastructure assets through a hierarchy of insurance as follows.

6.1. Each flood control and drainage scheme holds a disaster reserve account set at 1½x (2½% of the value of live tree edge protection; plus 2% of the value of stopbanks; plus 1% of the value of drains).

6.2. A regional disaster fund set at 1½ times the difference between the maximum scheme excess and the excess for commercial insurance cover for Council’s infrastructure assets ($3M).

6.3. Central Government cover, under the National Civil Defence Recovery Plan, which provides for 60% of the value of infrastructure assets critical to the functioning of the Community, above 0.002% of regional capital value and provided Council has taken demonstrable steps to meet the remainder of the cost.

6.4. LAPP which covers 40% of infrastructure value.

6.5. Commercial insurance covering 60% of infrastructure value excluding live tree edge protection should Central Government fail to consider the damage critical to the Hawke’s Bay community, up to a maximum estimated loss of $19M.

7. LAPP and commercial insurance premiums for the 2010/11 year are approximately $100,000. Prior to the February 2011 Christchurch earthquake, LAPP signalled that they would need to increase cover to allow them to rebuild their fund following the September 2010 Canterbury earthquake and also commercial insurers indicated that there would be increased premiums. Accordingly the 2011/12 Draft Annual Plan includes a total budget of $130,000 for LAPP and $140,000 for commercial insurance.

8. Following the February 2011 earthquake Council has been advised that new premiums will be as follows.

8.1. Commercial Insurance covering 60% of Council’s infrastructure assets with an excess of $5M equals $180,000, and excluding live tree edge protection.

8.2. Commercial Insurance covering 100% of Council’s infrastructure assets with the same conditions as above equals $275,000.

8.3. LAPP, should they be supported by Government in their proposal that they cover 10% of insurance value in the 2011/12 year with Government covering 90% and reducing to 60% in subsequent years, equals $360,000.

9. LAPP was specifically entered into by Council in 2007 because of its offer to cover live tree edge protection. Council has assets of approx $11 million of live tree edge protection which are at high risk of damage in a major flood. Based on damage modelling following a flood, Council entered into LAPP on the basis that there would be significant financial advantages should an event causing significant damage occur.

10. With the significant increase in LAPP premiums, staff are no longer convinced that the cost benefit of maintaining LAPP insurance covering live tree edge protection makes economic sense. Staff believe that self insurance for live tree edge protection is an option. Staff have yet to do any financial modelling to determine the cost benefit of a self insurance option, and if economically viable, what adjustments to Scheme and Council reserves should be made.

11. Staff therefore believe that Council should continue to insure its infrastructure assets using commercial insurance, and explore some restructuring of scheme disaster fund and the regional disaster reserve to ensure adequate self insurance for:

11.1. The increased excess from $3m to $5m for commercial insurance; and

11.2. The fact that commercial insurance does not cover live tree edge protection and therefore this will need to be funded directly from Council following a disaster.

12. In the past Council have considered it prudent to hold commercial insurance and LAPP insurance to cover the risk that government will not recognise Council’s infrastructure assets as critical to the functioning of the HB community. In the light of the significant increase in premiums staff suggest that this approach be reconsidered and that insurance for 2011/12 is placed on coverage to provide at least 60% cover, this assumes that government will cover at least 40%.

13. Accordingly staff believe that there are two options for insurance.

13.1. Council takes out commercial insurance covering 60% of asset value with a reliance on Central Government to meet at least the remaining 40% in accordance with the National Civil Defence Recovery Plan; and restructure and increase its disaster reserves to provide insurance cover for live tree edge protection. Any increase to disaster reserves would need to be factored into Council’s LTP 2012/22 budgets.

13.2. Council takes out commercial insurance covering 100% of asset value, excluding live tree edge protection, to cover Council’s infrastructure assets including the risk that Central Government will not meet a 60% share in accordance with the National Civil Defence Recovery Plan. This option would also require Council to review its self insurance to meet:

- The commercial insurance excess; and

- Live tree edge protection.

14. It should be noted that:

14.1. Staff expect the decision made with regard to insurance of infrastructure assets will be considered valid for the 2011/12 financial year only, as staff will continue to monitor the situation with insurance and undertake further exploratory work to determine an appropriate option for inclusion into Council’s 2012/22 LTP.

14.2. Budget provision in the 2011/12 Annual Plan is adequate to find 100% commercial insurance (option 2 in this paper), and if option 1 is chosen a saving of $95,000 will result. Given the uncertainty in the insurance market and the real possibility of Council increasing its self insurance in the future, staff recommend this saving be credited to the Regional Disaster Reserve Account.

14.3. Staff have received advice from commercial insurers that at this stage they have secured cover for 10% of the risk only, but are continuing to pursue further insurance cover.

DECISION MAKING PROCESS

15. Council is required to make a decision in accordance with Part 6 Sub-Part 1, of the Local Government Act 2002 (the Act). Staff have assessed the requirements contained within this section of the Act in relation to this item and have concluded the following:

15.1. Sections 97 and 98 of the Act do not apply as these relate to decisions that significantly alter the service provision or affect a strategic asset.

15.2. Sections 83 and 84 covering special consultative procedure do not apply.

15.3. The decision does not fall within the definition of the Council’s policy on significance.

15.4. The persons affected by this decision are those regional residents that rely on the protection that Hawke’s Bay Regional Council’s infrastructure assets provides.

15.5. The options considered are set out in this paper.

15.6. Section 80 of the Act covering decisions that are inconsistent with an existing policy or plan does not apply.

15.7. Council can exercise its discretion under Section 79(1)(a) and 82(3) of the Act and make a decision on this issue without conferring directly with the community or others having given due consideration to the nature and significance of the issue to be considered and decided, and also the persons likely to be effected by or have an interest in the decisions to be made.

RECOMMENDATIONS

That Council:

1. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted policy on significance and that Council can exercise its discretion under Sections 79(1)(a) and 82(3) of the Local Government Act 2002 and make decisions on this issue without conferring directly with the community and persons likely to be affected by or to have an interest in the decision due to the nature and significance of the issue to be considered and decided.

Subject to confirmation from Council’s insurers that they are able to place insurance to cover these risks, Council either:

2.a Takes out commercial insurance covering 60% of asset value with a reliance on Central Government to meet at least 40%, which provides for the risk that Central Government do not meet the full 60% share, in accordance with the National Civil Defence Recovery Plan; and restructure and increase its disaster reserves to provide insurance cover for live tree edge protection. Any increase to disaster reserves would need to be factored into Council’s LTP 2012/22 budgets.

2.b Takes out commercial insurance covering 100% of asset value, excluding live tree edge protection, to cover Council’s infrastructure assets which provides for the risk that Central Government will not meet a 60% share in accordance with the National Civil Defence Recovery Plan. This option would also require Council to review its self insurance in its LTP 2012/22 budgets to meet:

2.1 The commercial insurance excess; and

2.2 Live tree edge protection.

Mike Adye

Group Manager Asset Management

Paul Drury

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Wednesday 29 June 2011

SUBJECT: Adoption of the 2011/12 Annual Plan

REASON FOR REPORT

1. The purpose of this paper is to set out for Council the final amendments to be made to the 2011/12 Annual Plan and to set out the resolutions required by Council to formally adopt this Plan which is to be adopted no later than 30 June 2011 as required by the Local Government Act 2002.

Consultation

2. During the Council meetings on 8, 9 and 10 June 2011 Council considered 46 written submissions and presentations from 36 submitters who verbally submitted their submissions. The main issues considered by Council through these submissions related to requests for assistance, specifically for projects covering community facilities and open space/regional park initiatives.

3. It is worth noting that the special consultative process covering the proposal for the Investment Company was run independently to the Annual Plan consultation process.

4. Subsequent to the adoption of the Plan, it is the intention to write to each submitter setting out the Council’s resolutions in response to the items raised by their submission.

Final 10 Year Plan Financials

5. The impact of changes made by Council through the external and internal submission process to the draft Annual Plan have now been included in the Plan financials to provide figures for the final Annual Plan 2011/12. The following attachments to this paper set out the effects of those changes:

5.1. Attachment 1: Reconciling the underlying deficit/surplus from the draft Annual Plan adopted on 16 March 2011 to the final underlying deficit/surplus in the final Annual Plan.

5.2. Attachment 2: Analysis to show that the adjustments made to the budgets by Council are consistent with the objective of ensuring that cash operating balances remain at $4 million for the term of the Plan.

Further Annual Plan Amendments

6. A few further amendments that are required to be made to the final Annual Plan figures have arisen since staff compiled the internal submission on the Annual Plan which was considered by Council on 8 June 2011. These further adjustments are as follows.

Increased Premium for Infrastructure Insurance

6.1. A paper is included in this Council meeting agenda which covers the reasons for increasing insurance premiums, specifically for the cover for Council’s infrastructure assets. That paper establishes that 60% cover for damage to Council’s infrastructure in the event of a disaster is currently covered by commercial insurance. The value of assets covered is between $100m - $110m.

6.2. The cost of this insurance during 2010/11 was $46,000. Discussion with insurance companies established that subsequent to the Christchurch earthquake that there would be substantial increases in the premiums due to a very restrictive reinsurance market. Figures available during discussions at that stage required that $140,000 be provided during 2011/12 for the commercial insurance premium to cover infrastructure assets.

6.3. Over the last week Council’s insurers have indicated that the premium for a 60% cover will now be $180,000. Accordingly, a further $40,000 has been provided for in the 2011/12 budget.

Ruataniwha Plains Water Augmentation Feasibility Study

6.4. The paper submitted to this Council meeting establishes the issues in relation to progress and costs for the Ruataniwha Plains project. The final Annual Plan reflects the adjustments required to costs in that submission and also the related reduction in interest revenue that will now be earned from the Sale of Land account.

Regional Land Transport Strategy – Project 797

6.5. A sum of $570,000 was provided in 2010/11 to fund two transport strategies, the Wider Region Transportation Study and the Heretaunga Plains Transportation Study. These studies are integral to ensuring projects are regionally prioritised for the 2012-15 Regional Land Transport Programme.

6.6. As these projects have proceeded, it has become apparent that additional information is required to be provided by the territorial local authorities to ensure the success of the studies. Additional time will therefore be required to complete the studies and, accordingly, the studies will now be completed during 2011/12. This will require $200,000 of expenditure to be carried forward to the 2011/12 financial year.

6.7. The New Zealand Transport Agency provides a 75% subsidy for these projects so the effect of the carry forward will amount to only $50,000 affecting Council’s general funded expenditure. The resolutions in this paper cover a request for this carry forward.

Funding of Final Annual Plan Deficit

7. Set out in Attachment 1 is the reconciliation from the draft Annual Plan 2011/12 deficit of $51,000 to a final Plan deficit of $349,000. This is an increased deficit of $298,000 which will be funded as below.

Item	Amount
Carry forward funding from 2010/11 to 2011/12 for the completion of these projects.	$172,000
Established under expenditure in 2010/11 where Council did not resolve to carry these projects forward.	$60,000
Cash operating balances	$66,000
Total	$298,000

Final Annual Plan – Printer’s Proof

8. The production and printing of the final Annual Plan 2011/12 will commence immediately after approval at this Council Meeting. Under the Local Government Act 2002, the final Annual Plan must be sent out no later than one month after Council’s formal approval. It is envisaged that this Plan will be completed over the next few weeks and sent out by mid July 2011.

DECISION MAKING PROCESS

9. Council is required to make a decision in accordance with Part 6 Sub-Part 1, of the Local Government Act 2002 (the Act). Staff have assessed the requirements contained within this section of the Act in relation to this item and have concluded the following:

9.1. Special consultative procedure is required by sections 83 & 85 of the Act and this process has been completed.

9.2. The Council has a statutory obligation to adopt an Annual Plan under Section 95 of the Act.

9.3. The persons affected by the Annual Plan have been consulted and a final decision is to be made at this Council meeting covering those issues raised by those members of the community that have submitted to the Council on the draft Annual Plan.

RECOMMENDATIONS

That Council:

1. Agrees the decision is to be made under Section 95 of the Act which specifies the adoption of the Annual Plan, and also under sections 83 & 85 requiring a special consultative process which includes consideration of submissions on the Plan from members of the community, and that this process has been undertaken.

2. Agrees to fund the underlying deficit from cash operating balances which are estimated to be at a level which is sufficient to provide such funding.

3. Approves the carry forward in project 797 – Regional Land Transport Study (cost code 2395) of $200,000 from 2010/11 to 2011/12, and further carry forward $150,000 of revenue to be received from the New Zealand Transport Agency from 2010/11 to 2011/12 to fund the completion of the wider regional transportation study and the Heretaunga Plains transportation study.

4. Adopts the following resolutions pursuant to Section 12 of the Local Government Act 2002:

4.1 Council raises a loan or loans or facilitates loan funding through banks to fund the borrowing set out in the 2011/12 Annual Plan for the purposes of funding clean heat and insulation advances to householders, flood and drainage schemes, technical equipment, buildings, public good capital assets and a systems integration programme. These loans to be drawn down when required, to fund the approved capital programmes.

4.2 Council delegates to the Chief Executive, authority to negotiate and agree on the terms of the loan including:

4.2.1 Any future financing needs within the overall terms of borrowing, the interest rate payable by Council

4.2.2 The frequency of interest payments

4.2.3 The timing of drawdown

4.2.4 The institution(s) that will provide the loans

4.2.5 The number of loans which will make up the borrowing

4.2.6 All other terms and conditions of such loans and facilities as may be necessary in obtaining such loans and facilities in accordance with the Council’s Liability Management policy to execute any agreements, documents, and certificates in respect of such loans and facilities on behalf of Council.

5. Adopts the Annual Plan 2011/12, in accordance with Section 95 of the Local Government Act 2002, being the draft Annual Plan issued for public consultation and amended:

5.1 By Council at the meetings held on 8, 9 and 10 June 2011.

5.2 By Council at its meeting on 29 June 2011.

6. Approves, in accordance with sections 83 and 150 of the Local Government Act 2002, the resource consent and user charges as adopted in Part 3 on pages 26-34 of the draft Annual Plan issued for public consultation and amended by Council at its meetings on 8, 9 and 10 June 2011, and today, 29 June 2011.

7. Instructs staff to make any necessary final amendments and then to issue the published Plan in its final form.

8. Instructs staff to amend the Policy Handbook, Section 1.1.2 – Annual Planning to read:

“That the Council adopts the 2011/12 Annual Plan being the draft Annual Plan issued for public consultation and as amended:

- By Council at the meetings held on 8, 9, and 10 June 2011.

- By Council at its meeting on 29 June 2011.”

Paul Drury

Group Manager

Corporate Services

Andrew Newman

Chief Executive

Attachment/s

1 View	Underlying Surplus (Deficit)
2 View	Cash Operating Balances

HAWKE’S BAY REGIONAL COUNCIL

Wednesday 29 June 2011

SUBJECT: Investment Company Proposal

REASON FOR REPORT

1. To clarify and inform Council on the issues raised by verbal submitters and Councillors to Council’s proposal to establish an Investment Company as requested by Council at its meeting on 25 May 2011.

2. Assuming this paper sufficiently informs Council to make a decision about establishment of an investment company, it also contains recommendations to proceed with its establishment.

Format of Report

3. Information covering the following issues is outlined below.

3.1. Investment Strategy, Financial Performance and Company Structure

3.2. Comparative Returns for other Council’s investment companies

3.3. Directors of the investment company

3.4. Conflicts of interest

3.5. Adequate staff resourcing for the investment company

3.6. Portfolio balance

3.7. Taxation advice

3.8. Future dividend expectations and policy

4. Technical issues listed below are included as Attachment 1 to this report.

4.1. T1. Gearing the investment company balance sheet

4.2. T2. Ring fencing risk

5. The paper also reviews the public consultation process followed to date on the proposed establishment of an investment company and what steps would be taken to move forward in the event Council decides to establish an investment company.

Issues

Investment Strategy, Financial Performance and Company Structure

6. The proposed structure of the investment company, where corporate investments involving actual or potential private sector participation are held is intended to enable achievement of improved financial returns from this part of the investment portfolio compared with the returns currently achieved from these investments.

7. The structure is intended to facilitate investment in commercially sound regional infrastructure projects, by both using Council’s investible resources and increasing the quantum of capital available for Council investments by attracting private sector investment in them, whether by way of partnering in direct ownership (equity) of assets or providing debt to the investment company.

8. This structure will enable Council to “leverage” its own investment through effective partnerships with the private sector and cost effective access to debt to improve returns on its own investment beyond what it currently achieves.

9. The company’s initial proposed investment strategy is to build on the approach adopted for Council’s existing investment in the Port of Napier Limited (“PONL”) by an active policy to make new equity investments in regional infrastructure assets provided commercially attractive returns are secured from them and all investments satisfy the requirements of Council’s Investment Policy as spelled out in its Long Term Plan 2009‑2019.

10. Drafts of the investment company’s Statement of Intent (“SOI”), previously reviewed by Council, set an initial target of 5% annual revenue return on investment from the investment company plus 3%pa growth in capital (market) value of its investments.

11. Hawke’s Bay Regional Council has achieved revenue returns ranging from 3.8% - 4% on its current portfolio over the last three financial years from following a passive investment policy.

12. Current expected return on investment from dividends from PONL is 4.9%.

13. This means current expected performance of the investment company will be in line with the proposed SOI target at its establishment.

14. Projected revenue returns will grow as new investments are required to earn 7% revenue on invested capital in accordance with Council’s current policy, which together with the dividend returns from PONL, will lift the performance of the investment company above the current investment portfolio performance.

15. The additional capability this structure gives to Council was reviewed and confirmed by Martin Turner, Senior Fellow at the School of Accounting and Commercial Law, Victoria University of Wellington. The terms of reference for his review, approved by the Strategic Planning and Finance Committee, were to:

15.1. Confirm or otherwise that the proposed structure is capable of meeting the objectives and serving the purposes it is designed for as set out in various papers but most particularly in the presentations to Council dated 27 May 2009 and 24 March 2010

15.2. Identify any element of the structure which has not been addressed in the internal assessments and papers submitted to Council in the course of designing and evaluating the proposed structure

15.3. Comment on their materiality and risk to achievement of the objectives of the proposed structure

15.4. His main conclusions were:

“I confirm that in my opinion the proposed structure is capable of meeting the objectives and serving the purposes of the Council as set out in Section 1 above [of his report] [Mr Turner’s bolding].

I do not consider there is a material element of the structure which has not been addressed in the internal assessments and papers submitted to the Council in the course of designing and evaluating the proposed structure. I do note, however, that there remains to be completed aspects of the way in which HBRIC holds and manages its investments (such as, for example, its investment strategy and structures, such as possibly limited partnerships, in which it may hold future investments) which will not be determined by HBRIC until after it is established. Thus my Peer Review is limited to a consideration of the proposed structure and does not extend to issues yet to be resolved and decided by HBRIC.”

16. A copy of the Peer Review of the proposed structure and purpose of the investment company is attached to this paper as Attachment 2.

Return on Investment

17. Returns earned by other existing investment companies are shown in Table 1 below which records profit before tax as a percentage return on council funds invested achieved by other council’s major investment companies over the last three financial years.

Table 1: Other Investment Companies - Returns on Council Funds

Sources: Published annual reports for financial years ended 30 June 2008, 2009 and 2010

Notes: 1. All returns are before, interest and depreciation

18. Returns range from 10.6% on Council funds (Wellington Regional Holdings FY2010) to -8.0% (Auckland Regional Holdings FY2009).

19. Returns earned by the other investment companies exceed those earned by Hawke’s Bay Regional Council because:

19.1. Their portfolios are largely equity type investments (eg, Christchurch City Holdings – CCHL, holds investments in a port, airport, electricity distribution etc – which are operating businesses), which have been geared, and in a number of cases feature partnerships or minority shareholding by the private sector (eg, CCHL, Quayside Holdings and WRC Holdings investments in their ports)

19.2. The Hawke’s Bay Regional Council’s portfolio is constrained by the constitution of its portfolio, including a large, low yielding illiquid asset in the form of its Napier leasehold property.

20. Investment returns are subject to conditions in the economy, the mix within each investment portfolio, gearing of the portfolio, decisions about changes in investments and requirements by owners to pay dividends.

21. All investment companies shown in Table 1 include a port and property investments, but one of them (CCHL) also includes an airport, electricity network (Orion New Zealand Limited), broadband infrastructure (Enable Networks Limited), passenger transport company (Red Bus Limited) and contracting business (Christchurch City Care Limited).

22. Some are “mature” portfolios where very little change occurs in the investment portfolio and all the investments generate income for their shareholding councils. Their income is relatively steady and significant variances only arise from any changes in the performance of their port investment or shifts in interest rates. Hawke’s Bay Regional Council, Quayside Holdings (Environment Bay of Plenty) and Wellington Regional Holdings fall into this category.

23. Others are active investors, making major investments to increase future financial and economic returns but pushing down their current income in favour of higher future incomes. Examples of this are Auckland Regional Holdings (now called Auckland Council Investments Limited - ACIL) which is investing in the development of the Wynyard Precinct, and Christchurch City Holdings which is investing in Enable Networks and Christchurch International Airport. Cash returns for these investment companies therefore are more volatile and currently fall below their long term returns objectives while they are using cash to build infrastructure and are yet to receive any real return on those investments.

Directors of the Investment Company

24. The following table shows the current make-up of major investment company boards operated by councils:

Table 2: Other Investment Companies – Board Composition

Sources: Companies Office, Reports and press releases of the respective TLA’s and investment companies

25. All Boards contain independent (non-councillor and non-officer) persons.

26. Councillor-directors are in the majority on the WRC Holdings Board. Other boards range from equal numbers of councillor directors and independent persons, (MWRC and CCHL), to two with no councillors at all (ACIL and Port Otago Limited).

27. To date, all Council’s have taken the view that appointing independent commercially experienced persons as directors adds strength to their investment company’s and ensures they focus on achieving commercially acceptable financial returns.

28. Moreover Boards with independent external directors have greater access to business and investment risk assessment and management as a result of their knowledge and experience gained in these areas from their own ongoing business and investment decision making and operations.

29. In addition, independent external directors are able to bring to the table different perspectives about investment issues from those held by councillor directors.

30. As a result a mixed board would combine the regional, environmental, social and cultural perspectives more familiar to councillors with the commercially oriented financial performance perspectives of independent external directors in an effective balance of skills and knowledge to ensure the investment company plays a key role in achieving Council’s overall strategic economic, environmental, financial, social and cultural objectives.

Adequate Staff Resourcing for Investment Company

31. Resourcing of an investment company has been planned on the basis of it having its own operational and strategic management capability supported by appropriate accounting, audit, taxation and secretarial services in addition to governance provided by a Board of Directors.

32. The budget to provide these resources, for the investment company in 2011/2012 is $182,000.

33. These costs are in addition to operational costs of the investment company’s proposed subsidiaries (eg, Waterco) and associates. Waterco costs are provided for in addition to the costs of the investment company in the 2011/2012 budget and are largely capitalised during Waterco’s development stages in accordance with Council’s standard policy.

34. Initially part of the budget provided for the investment company will need to be spent on people who will establish the structure of the investment company, including setting up management information, accounting and secretarial systems. This establishment phase will be completed upon the appointment of an operational manager. If Council gives final approval for the establishment of the investment company, setting up is expected to take around three months from that approval.

35. Given the size and scope of the investment company operations, (excluding its operating subsidiaries and associates), its governance structure and ability to access Council services, resourcing at the budgeted level to establish the investment company and operate it for the remainder of the 2011/2012 financial year is considered to be sufficient.

36. Looking beyond the investment company’s initial set-up and operations, it will be important for it to be able to access investment evaluation skills and experience when it considers new investment opportunities. This will mean resourcing the ongoing operating budget (2012/2013 and beyond) with sufficient funds to employ expert advice for this purpose, whether the advice comes internally from within the HBRC “group”, or externally, from specialist advisers or both.

Conflicts of Interest

37. Conflicts of interest may arise for councillors who are directors of the investment company between their roles as councillors and directors.

38. Common commercial practice in similar situations is for the conflicted person to record their conflict, refrain from voting on the issue where the conflict arises, but retain the right to speak on the issue in both Council and company forums.

39. Similarly, conflicts of interest may arise for independent non-executive directors between their interests as directors of the investment company and their other interests (for example as a director or manager of a business supplying services to Council or the investment company). In this instance the conflicted person would record their conflict with the investment company, refrain from voting on the issue where the conflict arises, but retain the right to speak on this issue in company forums.

40. Conflicts of interest may also arise for Council officers who are advising, or acting for both the investment company and the Council. For example, where the chief executive of the investment company is also chief executive of the Council, issues where conflict arises should be recorded and the Board would consider the conflict and its impact on the position of the investment company on a case by case basis.

41. All directors and officers of the investment company would be required to detail conflicts of interest in a Directors and Officers Interests Register on appointment and annually thereafter, and as conflicts of interest arise in the course of investment business. The Register would be maintained as part of the investment company’s records and be open for inspection by the Council as shareholder and stakeholders.

42. Directors’ and officers’ interests, together with summaries of any financial transactions they may have had with the investment company will also be reported each year in the investment company’s published Annual Report.

Portfolio Balance

43. As shown in the Statement of Proposal the investment company’s portfolio will be unbalanced from its commencement with Port of Napier Limited comprising 99% of the total asset value.

44. Prudent investment management will result in a more balanced portfolio over time.

45. Portfolio balance is a function of the investment strategy adopted by the Council and the investment company from time to time

46. Assuming adoption of an active investment policy in future, investments in new infrastructure projects over the next five years, such as the Ruataniwha Plans water storage scheme, will reduce the present dominance of PONL, shifting the balance of the portfolio toward 50% PONL/50% other investments.

47. As the investment company’s investment portfolio grows in this way, governance and management responsibilities will become more demanding, and these roles will need to be enlarged from the initial relatively low-key start-up structure likely to be required while PONL remains such a dominant investment.

Taxation Advice

48. PricewaterhouseCoopers (PWC) has provided advice to Council on:

48.1. Deductibility of water storage establishment costs; and

48.2. Requirement or desirability of securing an Inland Revenue Department ruling on the tax status if the investment company.

49. PricewaterhouseCoopers’ advice (Attachments 3 & 4) is:

49.1. Water storage establishment pre-feasibility and feasibility and other costs incurred before establishment of a company (Waterco) to construct and operate the scheme can be depreciated by Waterco and claimed as deductible after Waterco’s incorporation provided:

· Waterco has decided to commence a water storage business; and

· To the extent these costs relate to obtaining resource consents under the Resource Management Act 1991.

49.2. For example, “reports prepared during the feasibility phase of a project may be used to support resource consent applications and therefore may form part of the cost of resource consents eventually obtained” (PWC, 31 May 2011).

49.3. It would appear from the draft advice received from PricewaterhouseCoopers (PWC) that when Waterco commences business and carries out the business of the water harvesting activities then there is a potential for a tax recovery of around $600,000 (based on company income tax rate of 28%) which may be able to be realised from the expenditure (net of MAF recovery) incurred by this Council on the feasibility study. PWC recommend that Waterco is incorporated at the end of the feasibility study phase.

49.4. They don’t recommend seeking a binding ruling for the investment company as presently proposed to operate.

Future Dividend Expectations and Policy

50. As the controlling shareholder, Council will determine the investment company’s dividend policy, which will be embedded in the Statement of Intent between the investment company and Council.

51. Current intentions, as previously reported, are that 100% of the investment company’s net profit after tax each year will be paid to Council as dividends, provided the dividends are no less than the levels set in Council’s Annual Plans.

52. The investment company’s objectives include improving the financial performance of the portfolio it is responsible for by successful execution of an active investment policy. Achievement of this objective, coupled with the dividend payment requirements incorporated in the investment company’s Statement of Intent (as detailed above), should result in increased dividends to Council.

53. Initially the investment company’s ability to improve dividends to the council will rely on the performance of the Port of Napier Limited, because, as noted in Section 9.1 above, PONL will represent around 99% of the investment company’s assets.

54. PONL dividends are currently projected to rise from $5.7million in 2010/2011 to $7.1million on 2015/2016 and $8.4million in 2019/2020.

55. Provided these projections are achieved, the investment company will be able to increase its dividend over this period in respect of the PONL contribution to its financial performance.

56. In addition, under current Council policy, the investment company will earn interest at the rate of 7%pa on funds it advances to new investments, such as the proposed Ruataniwha water storage scheme, and eventually operating returns from them.

57. Provided these projections are also achieved, the investment company should be able to increase its returns to Council over the next 10 years.

Public Consultation

58. This paper completes the special consultative procedure adopted for consideration of Council’s proposal to establish an investment company. It follows earlier consultation on:

58.1. The LTP 2009-2019 in 2009

58.2. A Statement of Proposal to transfer Council’s 100% shareholding in the Port of Napier Limited to an investment company (in the event an investment company is established) as part of the 2010/2011 Annual Plan consultation

58.3. Public meetings in Napier and Havelock North in May 2010 to discuss the possible establishment of an investment company

59. In his legal advice (Attachment 5) provided to Council on 23 June 2010 in respect of the Statement of Proposal to transfer Council’s 100% shareholding in the Port of Napier limited to an investment company if it is established, Martin J E Williams, Barrister, said:

“My overall opinion is that there has been adequate consultation and scope for public debate regarding this issue, and that all relevant legal requirements as to the provision of information as part of the special consultative procedure employed have been met.”

60. The further consultative process now completed in June 2011, coupled with Mr Williams advice means that Council has fulfilled its obligations for public consultation.

61. The consultative process completed in June 2011 covered 22 submissions on the proposal received by Council, eight submitters presented verbally to Council on 18 May 2011. All submitters received a reply from staff covering not only the issues that were covered in each submitter’s submission, but a number of the issues covered by other submitters. Furthermore, Council requested clarification of further issues that arose as a result of discussions with the eight verbal submitters and also other issues that Councillors sought clarification on. This paper comprehensively covers all these issues.

62. Considering the level of consultation carried out on this proposal, this paper requests that Council resolves to formally advise the submitters of Council’s resolutions from this meeting and attach a copy of this Council paper for their information and reference.

Moving Forward

63. In summary, the proposed establishment of an investment company:

63.1. Sets up a structure to improve investment performance in the future. The investment company is only a structure; - improved performance requires sound investment assessment and decision-making which the structure will facilitate.

63.2. Will initially have an unbalanced portfolio - dominated by its shareholding in PONL. But over time as new investments are made the portfolio will become more balanced and returns grow as a result.

63.3. Should generate better returns than those currently achieved in the Council’s current portfolio, provided sound investment decision-making and execution is achieved.

64. If Council approves establishment of an investment company, the steps required to achieve practical establishment are as follows.

64.1. Consequential Decisions to be taken by Council on:

- Constitution of the company and its name

- Composition of the Board (number of directors, councillor/independent directors, chairperson), and terms and conditions of directors appointments

- Management and support structure (staffing, services to be provided by Council, and the basis of charging for them)

- Its physical location and registered office

- The assets to be transferred from Council to the company (including intellectual property)

- The company’s funding structure, including issued and subscribed capital

64.2. Officers/advisers to set up:

- Legal entity, based on the decisions made as outlined within this paper

- Accounting systems and audit protocols

- Secretarial systems, including Board and Council reporting procedures and fulfilment of statutory obligations (Companies Office, Inland Revenue (GST and income tax)

- Recruitment procedures for directors (job specification, briefing, advertising, recommend selection panel to obtain short list)

- Board protocols (standing orders, interests register, relationships with subsidiary companies, fee levels and guidelines for directors and management expenses)

64.3. Selection and appointment of Directors by:

- Implementing recruitment procedures previously designed

- Short listing of candidates by selection panel

- Final recommendations to Council for consideration

64.4. Inaugural Board Meeting to:

- Approve all legal issues where required

- Approve asset transfers

- Approve Board protocols, secretarial and reporting systems (to the Board and by the Board to Council) and operating procedures

- Approve terms of service agreement(s) with Council

- Appoint auditor

- Appoint Manager

- Approve, company’s initial strategic plan

- Approve, Draft Statement of Intent for submission to Council

64.5. Ongoing Meetings:

- Initially, in the first year, probably only three meetings required after the inaugural meeting. Main issues will include recurring operational and financial reporting from subsidiaries, ongoing reporting to Council, and its own and subsidiaries’ Statements of Intent.

- However as new investment opportunities/proposals become more certain Board meetings or Director’s workshops may be required during the evaluation process to consider, for example, presentations of investment proposals and their funding, from subsidiary companies (e.g. PONL, Waterco).

- As the investment portfolio expands, the investment company will make decisions about governance and management of its subsidiaries and associates and monitor their ongoing activities. Frequency of meetings will increase for these purposes over time.

64.6. Ongoing Operational Management:

- Operational management of subsidiary companies will be responsible for monitoring and reporting their company’s own operational performance to their Boards as well as to the investment company; taking action to improve performance where necessary,, identifying and evaluating new investment opportunities, and undertaking all other operational actions required to ensure achievement of the each company’s objectives in accordance with its agreed Statement of Intent.

DECISION MAKING PROCESS

65. Council is required to make a decision in accordance with Part 6 Sub-Part 1, of the Local Government Act 2002 (the Act). Council has assessed the requirements contained within this section of the Act in relation to this item and has concluded that because of the significance of this item, that a special consultative process was to be carried out, such consultative process being publicly notified on 26 March 2011, and presentation of submissions on this proposal received by Council on 18 May 2011.

RECOMMENDATIONS

That Council:

1. Notes that a special consultative process as set out under the Local Government Act 2002 has been carried out by Council covering the proposal to establish an investment company.

2. Approves, in principle, the establishment of an investment company subject to the process outlined in Section 64 of this paper for its establishment.

3. Notes that the establishment of the investment company does not need to be done on 1 July 2011 for taxation reasons or any other point of view, and that a staged approach to setting up detailed structures, protocols and accounting and management information systems is therefore appropriate.

4. Notes that the first step in the establishment of the investment company will be the submission of a further paper to Council on the matters raised, namely:

4.1. Constitution of the company and its name.

4.2. Composition of the Board of the company in terms of the number of directors, the number of councillor directors, the number of independent directors, whether the chairperson will be a councillor director or not, and the terms and conditions of their respective appointments.

4.3. Its physical location and registered office.

4.4. The assets to be transferred from the Council to the company.

4.5. The company’s funding structure.

5. Instructs staff to advise each submitter of the resolutions made by Council at this meeting in relation to the proposal to establish an investment company and to provide each submitter with a copy of this Council paper which clarifies the issues considered by Council when adopting the resolutions.

Paul Drury

Group Manager

Corporate Services

Andrew Newman

Chief Executive

Attachment/s

1 View	Technical Notes on T1 & T2
2 View	Martin Turner Peer Review Report of Proposed Structure
3 View	PWC Draft Report 21 June 2011
4 View	PWC Reports on HBRC Holding Co Report, Exec Summary, Key Tax Issues, 10 & 22 June 2010
5 View	Martin J E Williams Transfer of Port Shares to Holding Co - Submissions re Consultation 23 June 2010

HAWKE’S BAY REGIONAL COUNCIL

Wednesday 29 June 2011

SUBJECT: National Policy Statement on Freshwater Management

REASON FOR REPORT

1. This report describes the recently gazetted National Policy Statement for Freshwater Management 2011, how it is likely to impact on Council’s policy development and consenting functions, and outlines the joint measures being undertaken by the regional government sector to assist in implementing the National Policy Statement.

Background

2. The development of the National Policy Statement for Freshwater Management (the NPS) originally came out of the Water Programme of Action commenced by the previous Labour led administration. In September 2008 the Board of Inquiry publically notified the proposed National Policy Statement for Freshwater Management and called for submissions. Submissions closed in January 2009 and the Hawke’s Bay Regional Council was a submitter. A year later in January 2010, the Board of Inquiry reported back to the Minister for the Environment (Dr. Nick Smith). The Minister then forwarded the report to the Iwi Leaders Group, Land and Water Forum and officials in order to provide useful content for debate and discussion in their work on the New Start for Fresh Water reforms.

3. The Report of the Land and Water Forum (September 2010) made 53 recommendations with four being specific to the development of a national policy statement to assist local authorities with the management of freshwater resources through the RMA (1991). They are:

#16 Central government should provide guidance to regional councils on regulatory design for water quality

#30 National direction should be given to regional councils to provide:

• a consistent process for developing a scarcity threshold for each catchment

• guidance for allocation and transfer methods, and the circumstances in which they should be used

• consistency of approach to setting in stream limits and to water allocation, while recognising spatial variability.

#41 National direction for regional councils must be given through national policy statements and national environmental standards, and templates on different aspects of water management. Regional Councils should be assisted to resolve capacity issues including through coordination.

#48 The government should:

• promulgate a National Policy Statement for fresh water quickly. The current draft as recommended by the Board of Inquiry is a basis to work from.

4. The Minister for the Environment considered the Board of Inquiry’s report and the final National Policy Statement for Freshwater Management 2011 was approved by Cabinet and the Governor-General on 9 May 2011 and gazetted on 12 May 2011. It takes effect from 1 July 2011. A copy of the document is appended as Attachment 1.

Key features of the NPS: Freshwater

5. It is a significant that the NPS reinforces the regional council role to interpret central government policy directions with respect to water management and recognises that the primary policy instrument is the regional plan. Most of the content policies link back to s30 (RMA) functions of regional councils. The exception is the section on integrated management which specifically mentions the Regional Policy Statement.

6. There are three content sections of the NPS: Freshwater (sections A to C), a combined content and process section (section D) and one process section (section E).

They are:

A Water Quality

B Water Quantity

C Integrated Management

D Tangata Whenua roles and interests, and

E Progressive Implementation programme.

7. These sections are discussed in more detail below with respect to the implications for Council policy, planning, advocacy, consenting programmes, activities and relationships with stakeholders.

8. Transitional policies for discharge consents (Policy A4) and water allocation (Policy B7) are provided. These are required to be inserted into the Regional Resource Management Plan and proposed Regional Coastal Environment Plan without using the First Schedule (RMA) process and apply from 01 July 2011. A copy of the public notice to give effect to this in the Hawke’s Bay region is appended as Attachment 2.

Section A: Water Quality

9. The focus of the section is on the maintenance and improvement of water quality and changes are required to plans to establish freshwater objectives and water quality targets for all water bodies to achieve NPS objectives. Methods are required to avoid over allocation of the assimilative capacity of water bodies. In the setting of objectives, the effects of climate change on water quality are a minimum requirement. Once targets have been established, limits on consents are required that ensure targets can be met.

10. Policy A4 requires an immediate change to the Regional Resource Management Plan that is triggered when a discharge consent application is considered. An initial consideration of this requirement is that in the Hawke’s Bay context there is likely to be little impact as many of the activities that affect water quality from diffuse sources are permitted activities.

Section B: Water Quantity

11. The focus of this section is on water allocation. The NPS requires regional plans to establish freshwater objectives and set environmental flows and / or levels for all water bodies to give effect to NPS objectives. Additionally it requires that water allocation plans are prepared for all water bodies in the region. They must take into account the reasonably foreseeable effects of climate change. Over allocation is to be avoided and any existing over-allocation is to be phased out. Regional plans must state the criteria for the transfer of water permits (which the Regional Resource Management Plan does).

Section C: Integrated management

12. This section recognises that water quality and quantity is not just the result of activities associated with the water body itself, but also with land use and the interconnections between water bodies. In recognising the influence of land use over and above those land uses covered by s30 (RMA) the involvement of District plans is required.

13. To this end Regional Policy Statements are to be changed to provide for integrated management including the co-ordination and sequencing and / or urban growth, land use and provision of infrastructure to the extent that it affects freshwater.

Section D: Tangata whenua roles and interests

14. Policy D recognises the interests of Tangata whenua with respect to water and is not new to this council, especially with recent experiences involving tangata whenua in the establishment of the Regional Planning Committee. It further reinforces the need to manage water resources at the catchment or sub-national level.

Section E: Progressive implementation programme

15. If the policies are unable to be fully implemented within 3½ years, there is provision for a staged approach to full implementation by 31 December 2030, (19 years). This is in recognition that a considerable amount of work will be required to establish water quality and quantity targets for all waterbodies, (rivers, lakes, groundwater and wetlands) and the process of changing regional plans. This work has inter-generational benefits and costs and the timing allowed for full implementation also recognizes this.

16. The NPS requires all regions to implement all policies as promptly as reasonable in the circumstances (Policy E1 (b)). The scope of the work needed to implement the NPS will need to be thoroughly worked through, but it is highly unlikely that this will be able to be achieved, policies and methods developed and agreed and fully implemented by 31 December 2014. The alternative pathway requires up front scoping and the development of time bound annual implementation targets to be developed within 18 months of the NPS coming into force (31 December 2012).

17. Council will need to focus on the development of a progressive (staged and prioritised) approach to implementation and include sufficient interim targets to allow for annual reporting. The co-designing with tangata whenua partners of the regional plan review process is in this council’s hands.

Consenting Implications

18. Section 104 of the Resource Management Act (the “Act”) concerns the matters that must be considered when evaluating an application for a resource consent. Amongst other things it requires that the local authority “have regard to” any relevant provision of a national policy statement.

19. There are various provisions in the NPS that will impact on resource consent applications received on or after 1 July 2011 (the NPS does not have retrospective effect). These include:

19.1. Policy A4 – for new discharges, a requirement for councils to have regard to various matters including the avoidance of contamination and effects on life-supporting capacity of fresh water and ecosystems

19.2. Policy B5 – for new water takes, a requirement to ensure that over-allocation is avoided

19.3. Policy B7 – for new water takes, a requirement to have regard to various matters including adverse effects on life-supporting capacity and ecosystems

20. These requirements should not have a significant impact on processing times or costs of consent applications. More significant impacts are likely to arise in the longer term as Council amends the RRMP in response to the NPS. The NPS is likely to significantly influence consent processing decision-making in the future through clearer direction and greater precision around water quality and water quantity limits.

21. It needs to be noted that there is some residual uncertainty around some of the terminology which has been introduced into the NPS. For example, one objective of the NPS requires the “overall” quality of water to be maintained or improved but no guidance is provided as to the meaning of “overall” quality. Another example is an objective that requires the protection of the “significant values of wetlands”, yet it is not specified which values are “significant” nor is the objective quantified in any way; implying that this objective applies to every wetland irrespective of size or location.

22. There is other terminology within the document that raises uncertainties, for example “dependable monitoring” and, in Policy B7 the notion of “the last occasion which the activity was carried out”.

23. The NPS also strengthens the weight that needs to be afforded to “avoiding” adverse effects on water resources, whereas the RMA provides for “mitigating and remedying” effects. Hence there is a substantially greater onus upon applicants to demonstrate how adverse effects will be avoided that, prior to the NPS coming into force, was not required.

Regional Sector Collaboration

24. The NPS underlines central government’s support for the ongoing role of the regional government sector in freshwater management. With this support come expectations from across the spectrum of stakeholders that the regional sector will deliver on the NPS and will achieve a level of consistency across the country.

25. Regional government is working collectively towards an outcome that achieves a consistency of approach while recognizing the differences that make each region unique. The sector is actively engaged in getting to the heart of the implementation of the NPS through a series of works undertaken by staff from across regional councils. These works include:

25.1. Setting Objectives, Establishing flows and limits, Generic rules, Integrated management – it is proposed that two or three approaches to a regional plan are developed that implement the NPS and bring in all these matters. Approaches would reflect different philosophical approach to decision-making and managing resources. These would be accompanied by a sector paper that highlights the issues and options that each council will need to consider as it implements NPS.

25.2. Legal opinion - this is necessary in order to understand the fundamental question of what the term “avoid over-allocation” in Policy A1 and the BPO approach in Policy A3 mean and whether they represent a significant divergence from the standard ”avoid, remedy or mitigate” test.

25.3. Climate change – there is value in a single, simple, authoritative high-level piece of work that could support all Councils in implementing the NPS. The first stage is to summarise the work already done by regional councils, followed the second stage: engagement of an expert consultancy in this area to prepare a report for use by all councils on the reasonably foreseeable first order impacts of climate change.

25.4. Tools for managing water quality – compiling of systematic stock take of management approaches currently being used and their utility.

25.5. Allocation of water to activities –a stock take of allocative measures will be compiled, followed by a paper that explores the potential for new and more sophisticated allocative mechanism.

26. Current investment by the Hawke’s Bay Regional Council to coordinating this process, especially in terms of staff time, will pay dividends to the regional sector and to this Council over the medium to long-term.

27. The Ministry for the Environment is preparing high-level national guidance on the implementation of the NPS which will sit alongside the work outlined above.

DECISION MAKING PROCESS

28. Council is required to make a decision in accordance with Part 6 Sub-Part 1, of the Local Government Act 2002 (the Act). Staff have assessed the requirements contained within this section of the Act in relation to this item and have concluded that, as this report is for information only and no decision is to be made, the decision making provisions of the Local Government Act 2002 do not apply.

RECOMMENDATION

1. That Council receives the report titled “National Policy Statement on Freshwater Management”.

Liz Lambert

Group Manager

External Relations

Helen Codlin

Group Manager

Strategic Development

Attachment/s

1 View	National Policy Statement on Freshwater Management May 2011
2 View	Public Notice of Changes to Regional Resource Management Plan

Annual Plan Progress to 31 May 2011

Attachment 1

annual plan progress report

for ELEVEN months of 2010/2011

from 1 july to 31 mAY 2011

Financial Section

Summary of Financial Position to 31 May 2011

Comment on Financial Results for the Eleven Months to 31 May 2011:

· Groups of Activities

· Operations Group

· Venture Hawke’s Bay

· Regional Income

· General Funding for Capital Projects

· Loan and Grant Funding for Healthy Homes

· Balance Sheet

· Outstanding Consent Invoices

· Cash Reserve Investments

Financial Statements:

· Financial Summary

· Summary Operating Statement

· Balance Sheet

· Capital Activities

· Reserves Funding

· Financial Assets

REPORT FOR FIRST THREE MONTHS OF 2010/2011

FROM 1 JULY 2010 TO 31 mAY 2011

FINANCIAL OVERVIEW

Summary of Financial Position to 31 MAY 2011

· The actual result covering the Council’s general funded operations for the first eleven months of 2010/11 is a surplus of $778,734. This compares with the Annual Plan budget deficit of $599,808 and re-forecast deficit (including the effects of carry-forward expenditure in the Internal Staff Submission) of $596,471 for the full year.

· It is worth noting that when the Operations Group’s surplus on services to the Council’s flood and drainage schemes is distributed at the end of the financial year, the surplus of $778,734 at 31 May 2011 would be more realistically shown to be $380,000 as most of the distribution is channelled towards scheme funds.

Comment on Financial Results for Eleven Months to 31 May 2011

Groups of Activities

· This report establishes that the net expenditure on groups of activities for the first eleven months is 88% of the re-forecast net funding requirement, as against an equal monthly pro-rata comparative of 92%. The comparative figure for the eleven months to 31 May 2010 was 89%.

· Land Drainage & River Control shows a net expenditure of 77% of re-forecast. Overall actual expenditure is 74% of re-forecast with income at 86% of re-forecast. Work on a number of larger river projects has been delayed due to adverse river conditions and some scheduled work may not be completed as planned by year-end. This is likely to result in river rating schemes gaining an un-forecast credit for this year, but being drawn down against in the following financial year when the work is completed.

· Regional Resources shows a net expenditure of 79% of re-forecast. While expenditure in Water Management, Gravel Management and Open Spaces projects are running at the expected pro-rata percentage, Land, Air, and Coastal projects are running behind the that figure.

- In Land Management, expenditure on regional land care grants (projects 380 and 383) is 50% of re-forecast. Staff advise that there provisions will be fully utilised by year end.

- In Air Management, expenditure is 69% of re-forecast. Costs associated with air quality reporting are expected to meet re-forecast expectations by year-end.

- In Water Management, expenditure is 91% of re-forecast. This is before Section 36 Charges are billed for the year. Billing of Section 36 charges will reduce the current amount of Sale of Land funding currently shown in the Operating Statement and should improve the overall surplus by approximately $100,000.

- In Coastal Management, expenditure is 63% of re-forecast. Planned coastal water quality work, although delayed due to unfavourable sea conditions, is now completed. Staff expect all external expenditure to meet re-forecast expectations by year-end.

· Regulation shows a net expenditure of 104% of re-forecast. While expenditure is tracking on re-forecast, income is slightly behind because Compliance typically bill most of their costs at year-end. Staff estimate that approximately $300,000 of billing is yet to be charged, which should bring net expenditure close to re-forecast by year-end.

· Biosecurity shows a net expenditure of 83% of re-forecast. While some invoices for recent work have not come to hand, Staff expect that there may be cost savings of up to $50,000 ($15,000 general funding effect) from the integration of fur harvesting into possum initial control.

· Transport shows a net expenditure of 183% of re-forecast. This position is a result of a mismatch of expenditure and income in Project 797, Regional Land Transport Strategy. Billing of contributors to the Strategy occurred in June meaning that net expenditure for the group of activities will meet re-forecast expectations by year-end.

Operations Group

· Operations Group reports a surplus of $533,136 for the eleven month period to 31 May 2011. The surplus earned on services provided to the Council’s flood and drainage schemes will be distributed at year end as a credit to those schemes. In regard to the surplus on external activities, after the payment of outstanding creditors, it is anticipated that at year end $50,000 in surplus will be achieved which will be available to Council for funding general funding activities.

Venture Hawke’s Bay

· Venture Hawke’s Bay reports that expenditure for the six month period to 31 December 2010 is $957,593. Almost all expenditure has now been processed for the half year period. Economic Development Agency staff are now located within the Dalton Street ledger.

· The Regional Tourism Organisation, trading under the name of Hawke’s Bay Tourism, has been operating separately from the Council for five months to 31 May 2011 and shows a net expenditure of $504,268. This actual expenditure is 74% of forecast and although running behind the expected pro-rata percentage is anticipated to meet budget expectations by year end.

Regional Income

· Total regional income represents 94% of the re-forecast net funding contribution for the first eleven months of the financial year, as against a pro-rata of 92%.

· This result includes Other Income of $166,634, which is the subvention payment from the Port of Napier Limited representing the income tax effect of donations for the year ended 30 June 2010. The difference between the current actual balance and the re-forecast amount is an expected surplus of $50,000 from Animal Health Board Operations this year.

General Funding for Capital Projects

· The general funding requirement for capital projects is $421,612 or 82% of budget. Land Drainage & River Control projects are only 62% of re-forecast. The two major capital drainage projects for Napier/Meeanee/Puketapu and Karamu continue to progress satisfactorily, however, recent costs have not been brought to account. In addition, final loan repayments for the year will not be paid until June 2011.

In Napier, the Plantation Drain project is progressing as planned and expenditure is expected to meet re-forecast.

In Karamu, the Awanui Stream development is progressing as planned and expenditure is expected to meet re-forecast.

Loan and Grant Funding for Healthy Homes

The clean heat target of 1,500 conversions will not be achieved in 2010/11. To date (31 May 2011) 643 houses have been converted to clean heat under the Heat Smart programme and other Council-administered programmes.

While it is considered that this target significantly over-estimated the number of homeowners who would seek financial assistance from Council, the number of annual conversions required to meet the NES by 2016 has risen to 3305. The challenge now is twofold:

· To further increase awareness and therefore uptake of the programme; and

· To ascertain how to determine the number of “self-funded conversions” outside of the Heat Smart programme as part of the assessment of progress towards an improvement in PM10 air quality.

As at 31 May 2011, 621houses have been insulated under Council administered programmes.

Balance Sheet

· Public Equity, which reflects the net value of all the Council’s assets and liabilities, has increased by $2,112,000 or 0.53% since the beginning of the year.

· Non-current property, plant & equipment, intangible assets and infrastructure assets have increased by $3,610,000 or 2.53% since the beginning of the year due to the construction of river protection, water augmentation and forestry assets off-set by depreciation and amortisation charges.

· Investment property has decreased by $2,082,000 or 2.25% since the beginning of the year reflecting the disposal of 18 endowment leasehold land properties and one property in Wellington.

· Trade receivables have decreased since the beginning of the year by $1,137,000 but are $252,000 more than 12 months ago. The main reason for the increase over the balance 12 months ago is an outstanding invoice to MAF for work done on the Ruataniwha Water Storage Project – since paid.

Outstanding Consent Invoices

*Consent Categories*	*Number of debtors*	*Balance* *($)*	*Current* *($)*	*1 Month* *($)*	*2 Month* *($)*	*3+ Months* *($)*
General	22	137,766	120,474	0	3,463	13,830
On-Hold re Objections	3	127,936	6,483	0	0	121,452
Liquidations	4	7,562	0	0	0	7,562
Arrangements Made	5	8,542	0	0	0	8,542
Totals	34	281,806	126,957	0	3,463	151,386

Overdue consent invoices at 31 May 2011 amount to $154,849. (That is invoices shown in the 1 Month, 2 Month and 3+ Month columns.) At the beginning on the financial year the comparative balance was $417,291. The $121,452 on-hold and $7,562 in-liquidation comprise only seven debtors in total. No action can be taken on these debtors.

· Borrowings have decreased by $819,000 due to scheduled repayments of loans. No loans have yet been down this year; however, approximately $3,000,000 will be drawn down at the end of June 2011 in relation to 2010/11 financial year scheduled borrowings.

· Trade and Other Payables have decreased since the beginning of the year by $2,600,000 as year-end invoices have been paid and accruals reversed. The current balance of $588,000 is $273,000 lower than 12 months ago.

· Income in advance has increased by $784,000 since the beginning of the year due to the accrual of rates income in advance.

· Total Cash, Cash Equivalents and Financial Assets (as set out on the Financial Summary page) are at the same level as 12 months ago but show a decrease of $2,599,000 since the beginning of the year.

Cash Reserve Investments

· The average rate of interest being earned on liquid investments is currently 4.74%. This rate is higher than the average rate of 4.58% at 30 June 2010 and higher than the rate assumed in the 2010/11 Annual Plan of 4.0% for both short and long-term bank investments.

· The pie chart on page 24 entitled “Allocation by Institution” shows the percentage of Council investments placed with various institutions. Council policy requires that no more than 25% of investments be placed with any non government–guaranteed institution of groups of associated institutions.

HAWKE’S BAY REGIONAL COUNCIL

Wednesday 29 June 2011

SUBJECT June 2011 Work Plan Looking Forward

REASON FOR REPORT

1. This report is provided in order to update Councillors about significant work activities under way over the next month in each area of Council.

Group	Area of Activity	Report to go to Council or Committee as indicated
Asset Management	· Review of Heretaunga Plains Scheme	Review options for changes to levels of service for Heretaunga Plains Flood Control and Drainage Scheme – Rivers including cost/benefit analysis of options in August.
	· Asset Management Plan reviews	Reviews of Asset Management Plans commenced. Committee approval for reviewed plans will be sought by November 2011.
	· Capital Works	2010/11 programme including Upper Tukituki stopbank upgrade and Plantation Drain earthworks completed.
	· Biosecurity	Regional pest management strategy review submissions considered by AM&B Committee in May. Draft document to be prepared for August.
	· Management of Coastal hazards at Haumoana / Te Awanga	Serjeant report completed and presented. Further work requested by Serjeant currently being priced. Staff will update Council once cost known.
	· Land Management	A number of strategies to improve effectiveness of Council land management investment being developed. Report to Council planned for September.
	· CHB District Council Wastewater project	System design and consenting progressing.
	· Mahia Wastewater project	Land purchase being finalised. Forest establishment planned for winter 2011.
	· Tangoio and Tutira	Recreational plan for area being developed. Planned for report to Council in September.
	· Accommodation	Plans being progressed for upgrade to Guppy Road office accommodation and review of Dalton Street.
Resource Management	· Appeal mediation processes underway for: o Twyford o AFFCO o Opoutama Wastewater o Mexted & Williams	Ongoing
Strategic Development	· Development of the Water Strategy with input from the Reference Group. More meetings may be required.	Draft strategy to a Committee in August.
	· Schedule 1 RMA process for Variation 1 (Rivermouth Hazard Areas) to proposed Regional Coastal Environment Plan. Awaiting technical evidence then officers report will be prepared.	Hearings to be scheduled late 2011.
	· Public notification of on-site wastewater plan change plus subsequent submission and hearing process.	Notification mid July 2011. Hearing possible late 2011, subject to complexity of submissions received.
	· Drafting of objectives and policies for RPS to incorporate HPUDS/ Stormwater and Wastewater. Also liaising with key stakeholders on draft provisions. Aiming to notify Change in October 2011.	Draft growth and infrastructure RPS plan change to a Committee in August.
	· Publish Draft Taharua Strategy. Strategy to be released for public comment over 3 week period July/August 2011. Will inform direction for Taharua Plan Change intended for notification end 2011.	Report on comments received and any recommended amendments to Strategy to a Committee in August if possible. Draft Taharua Plan Change to a Committee late 2011.
Corporate Services	· Systems Integration Project – phase 2	SP&F 13 July 2011.
	· Investment options for leasehold land.	SP&F 13 July 2011.
	· Share service background and proposals	SP&F 13 July 2011.
	· Establishment of Investment Company if approved at 29 June 2011 meeting.	August/September 2011
	· LTP timelines	July 2011 Council meeting.
External Relations	· Freshwater Governance and Management – Collaborative sector approach to Implementation of NPS	July 2011.
	· Continuation of discussions with Treaty claimant groups on development of Regional Planning Committee Terms of Reference	Approaching final version of ToR for approval by Council
	· July version of Council newspaper “Our Place” to be published	July 2011
	· Liaison with Massey University to prepare for visit by University of Michigan.	Programme prepared for 1 August to include site visits.
Operations/ Water Group	· Ruataniwha Water storage – Work over the next month involves: Evaluation and award of tender for the engineering work for the full feasibility phase; Development of project briefs for the environmental and water resources work elements; Stakeholder and leadership group meetings.	Ongoing
	· Cycleways – Approvals all finalised and preparations of work programmes for sections of trails being prepared. · Work is progressing on final plans for NCC coastal section with work due to be tendered in the next month. · Work continuing on trail construction of Taipo section of trail.	Ongoing
	· Final Pre Feasibility report for Ngaruroro Water storage due for completion by end of June with community meetings scheduled for July.	Ongoing
CE’s Office	Ÿ Draft strategic plan to be developed post 10 May workshop and discussion document.	July
	Ÿ Freshwater Governance and Management – sector workshops on allocation, limit setting and regulatory agility aligned with NPS for freshwater workshops completed in May – detailed work program being discussed with RSG subgroup	July
	Ÿ Regional sector alignment with “LAWF” (Land and Water Forum) grouping going forward. HBRC CE attending LAWF meeting June 23 on behalf of Regional sector to discuss this relationship	Ongoing
	Ÿ Treaty Settlements – further work with Claimant Groups	Ongoing
	Ÿ Investment Portfolio scenarios – further development of detailed business cases for 10 Year Plan.	November
	Ÿ Options for Economic Development component of VHB	Part of the Economic Strategy review - July
	Ÿ Ongoing engagement in regional water strategy and Water storage feasibility projects	Ongoing

DECISION MAKING PROCESS

2. Council is required to make a decision in accordance with Part 6 Sub-Part 1, of the Local Government Act 2002 (the Act). Staff have assessed the requirements contained within this section of the Act in relation to this item and have concluded that, as this report is for information only and no decision is to be made, the decision making provisions of the Local Government Act 2002 do not apply.

RECOMMENDATION

1. That Council receives the June 2011 Work Plan Looking Forward report.

Andrew Newman

Chief Executive

Attachment/s

There are no attachments for this report.

Hawke's Bay Regional Council - 2011/12 Annual Plan
UNDERLYING SURPLUS / (DEFICIT)
Revision of Draft 2011/12 Annual Plan following Submissions
[Revised 20 June 2011]

			Year 2	Year 3
			2010/11	2011/12
			Budget	Ann Plan
		*Note*	($'000)	($'000)

	2010/11 Annual Plan / Draft 2011/12 Annual Plan		(600)	(51)
	Underlying Surplus / (Deficit)

	2010/11 Re-Forecast Adjustment (27 April 2011 Council Paper)		(228)

			(828)	(51)

	Effect of Staff Internal Submission on Underlying Surplus / (Deficit)
	Carry-forwards (Approved)		122	(122)
	Carry-forwards (Not Approved)		60	0
	Adjustments		0	(62)

	Effect of Staff Internal Submission		182	(184)

	Effect of External Submissions on Underlying Surplus / (Deficit) (2011/12)			0

	Effect of Additional Items on Underlying Surplus / (Deficit)			0

	Additional Infrastructure Damage Insurance Premium			(39)
	Sale of Land Interest Foregone re Addditional Ruataniwaha Costs			(25)
	Transportation Strategy Carry-Forward (Net General Funding Effect)		50	(50)

	Effect of Additional Items		50	(114)

	Annual Plan 2011/2012 Underlying Surplus / (Deficit)		(596)	(349)

Hawke's Bay Regional Council - 2011/12 Annual Plan
CASH OPERATING BALANCES
Revision of Draft 2011/12 Annual Plan following Submissions
[Revised 20 June 2011]

			Year 2	Year 3
			2010/11	2011/12
			Budget	Ann Pln
		*Note*	($'000)	($'000)

	*Opening Cash Operating Balance*		6,481	6,113

	2010/11 Annual Plan / Draft 2011/12 Annual Plan		(600)	(51)
	Underlying Surplus / (Deficit)

			5,881	6,062

	Effect of Staff Internal Submission on Underlying Surplus / (Deficit)

	Carry-forwards (Approved)		122	(122)
	Carry-forwards (Not Approved)		60	0
	Adjustments		0	(62)

	Effect of Staff Internal Submission		182	(184)

	Effect of External Submissions on Underlying Surplus / (Deficit)			0

	Effect of Additional Items on Underlying Surplus / (Deficit)

	Additional Infrastructure Damage Insurance Premium			(39)
	Sale of Land Interest Foregone re Addditional Ruataniwaha Costs			(25)
	Transportation Strategy Carry-Forward (Net General Funding Effect)		50	(50)

			50	(114)

	*Closing Cash Operating Balance*		6,113	5,764

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
Ruataniwha Plains Water Storage Project	7(2)(i) Enable the local authority holding the information to carry out, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations)	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

1 View	Annual Plan Progress to 31 May 2011
2 View	Period 11 Financial Reports

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