Agenda of Corporate and Strategic Committee

	Agenda Item	Follow-up / Request	Person Responsible	Status Comment
1	Matters Arising	Napier-Gisborne rail update on discussions with Napier Port, KiwiRail, HBRIC	Liz	Proposal submitted as an alternative to the KiwiRail Tender, involving potential contract between HBRIC and/or Napier Port and KiwiRail. Acceptance of this concept in principle has yet to be received from KiwiRail and discussions have yet to begin.
2	Minor items not on the Agenda	Online voting – put forward HBRC for trial	L Hooper	Email circulated to councillors 22 April (following) advising HBRC doesn’t meet criteria for inclusion

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 23 September 2015

Subject: Forestry Investments

Reason for Report

1. At its meeting on 12 November 2014, the Corporate and Strategic Committee of Council considered a report on HBRC forest assets. The Committee resolved to request a paper within the next year, “establishing values other than commercial that demonstrate the justification for Council maintaining this investment and projecting the ongoing forest management programme beyond 10 years to cover the rotation period of the range of species.”

2. This report covers the issues raised by the Corporate and Strategic Committee.

Forest Assets – What HBRC owns

3. Forest assets owned by HBRC are summarised in the table below. These are set out by planted area of species or tree type.

	Mahia Forest	Tutira Reg. Park	Waihapua	Waipawa	Waipukurau	Grand Total (hectares)
Cypress			17.2			17.2
Eucalyptus fastigata	18.2		60		30.2	108.4
Eucalyptus regnans			23.5	40.8	45.1	109.4
Other Eucalypt			16.1	3.1	9.7	28.9
Manuka		130	2.8			132.8
Natives		16.8	7.6	1.2	1.1	26.7
Other Softwoods			10.9			10.9
Radiata pine	17.8	114.4	60	25.3	18.9	236.4
Redwood			28.4			28.4
Grand Total	36	261.2	226.5	70.4	105	699.1

4. Note that in addition the above listed assets, HBRC manages the Tangoio Soil Conservation Reserve on behalf of the Crown. This responsibility was been vested in HBRC by the Crown in the late 1980’s. Tangoio Soil Conservation Reserve will be the subject of a separate report which is currently being developed in collaboration with Maungaharuru Tangitu Trust. It is expected to be completed by 30 June 2016.

Purpose and objectives of HBRC forest ownership

5. Each forest has a particular historic reason for ownership, and each has its own profile for timber and non-timber benefits, including carbon credit assets. Each forest has its own potential for future development of these dependent on site character, location and recreational potential.

6. The non-timber values of forestry is a growing area of forest asset management. Sustainable land management in many areas will include effective use of forestry as part of a suite of land uses, particularly for East Coast hill country. In reality forests offer massive community welfare and environmental enhancement, but these are poorly understood and difficult to measure.

7. Various non timber benefits of forests are outlined below in order that Council may consider its own priorities and aspirations for these in more detail. This is also an opportunity for Council to review how it wishes to improve the public view and understanding of these benefits.

8. Non-timber benefits from HBRC ownership of forests include:

Benefit	Explanation
Recreational opportunities through links to Regional Park network, and other landowners such as DOC and Guthrie Smith Trust	Public benefit in terms of direct recreational use can be developed through forest areas. The recent residents’ survey shows a high level of value and satisfaction placed on open spaces assets provided by HBRC. Forest ownership offers a number of opportunities to extend these values considerably, given appropriate direction and resourcing. A factor in Council’s decision to purchase Waihapua was its strategic location between Tangoio Soil Conservation Reserve and Tutira. Staff have worked with the Overseas Investment Office to secure an easement to allow walking access from Waihapua to Guthrie Smith Trust land. Staff have yet to develop any specific plans to utilise this in conjunction with Guthrie Smith Trustees. Waihapua Forest has spectacular vistas, a very diverse treescape and established tracking, which offer potential for development of a walking track network. This will require scoping and resourcing in order to be developed as it is currently outside the existing Regional Park planning process. The local mountain bike club have expressed interest in developing and using the Waipukurau forest as a mountain bike park.
Climate change mitigation	Trees sequester carbon, reversing the potential impact of the greenhouse gas carbon dioxide which is released into the air though human activity. Current carbon trading models allow for a one-off credit of the carbon fixing benefit of establishing a forest. Under this regime subsequent rotations don't offer additional yield of financial benefit to the forest owner.
Carbon credit revenue	Carbon credits represent carbon sequestered which accumulates as forests grow. The current estimated value of carbon sequestered and projections for the future are discussed in the financial section later in this report.
Improved soil conservation and water quality	The Pakuratahi paired catchment study showed that water quality is improved and soil erosion reduced over the life cycle of a forest compared to pastoral farming.
Waste water treatment	The application of waste water within the Mahia forest commenced in late 2014. The Mahia forest is established in the upper reaches of the Whangawehi catchment. The Whangawehi catchment management group and its work enhancing the catchment has been a positive benefit resulting from this project. Central Hawke's Bay District Council has opted not to use the CHB forests which were established in anticipation of use for wastewater treatment. They remain available for this purpose should the current approach to waste water treatment fail to meet consent conditions, or if public pressure means it becomes less acceptable to discharge treated waste water directly into waterways in the future.
Biodiversity (from native and exotic plantings, reserves and connectivity)	Exotic forest plantings can provide connectivity for biodiversity and provide habitat as a substitute for indigenous forests.
Educational opportunities	A key to improving public understanding of the benefits of forests and land based careers is to host educational visits for school groups and others. This is occurring as requested, but further promotion of this may be beneficial.
Research and development for sustainable landuse	The HBRC forest estate offers far more diversity in terms of planted species than typical industrial forests. Specific trials and demonstration sites included within the estate, particularly Waihapua and Tutira, are expected to demonstrate options for hill country restoration and farm and community resilience. Ongoing involvement with HB Branch of Farm Forestry Association, Manuka Primary Growth Partnership (PGP), SCION and NZ Dryland Forests Initiative are seen as keys to extending HBRC capability and maximising community and industry benefits of HBRC hosted trial activity. Field events are an ongoing aspect of this.
Honey and trees for bees research	The Tutira Manuka plantation and ‘trees for bees’ plantings offer significant scope for promoting industrial honey plantations. A Manuka workshop (270 attendees) was held in HB in 2015 and included a visit to the Tutira plantation. The Trees for Bees conference is to be held in HB in 2016 and will be hosted by HBRC. The Tutira manuka forest is a key research site for the Primary Growth Partnership for high performance manuka plantations. Research outcomes from this project will be forthcoming over the next five years. High UMF Manuka has potential to provide an alternative to pastoral farming on steep erodible hill country.
Mauri enhancement	The mauri of land and river is degraded if they no longer have the capacity to support traditional uses and values. Manmade activities have the potential to degrade or extinguish the mauri of a resource and as a result may offend the mana of those who hold traditional rights and responsibilities with respect to that resource. Known areas of significance to Maori within the estate have been excluded from commercial planting.
Demonstrating the deliberate creation of resilient landscapes	The development of resilient landscapes, farms, enterprises and communities and local economy can all be enhanced through smart application of forest plantings in the landscape. The HBRC forest estate is uniquely placed to demonstrate multiple forest based options. These entail diverse values and potential future income streams.
Potential for bioenergy in future	Current local opportunities for bioenergy are: · Hog fuel at Pan Pac cogeneration plant which generates power at the Whirinaki site. This allows for cost neutral removal of forest wastes from some locations. · A small royalty for firewood is an option in some instances. Challenges to bioenergy from forest wastes are currently; the relatively low cost of alternative energy sources, transport and recovery (harvest) costs, and low level of development of bioenergy plants, no ready competitive market for alternative fuels. Shifts in any of these factors may lead to greater interest in bioenergy options. Until then it is proposed that no immediate action be taken in regard to bioenergy.

Challenges in valuing non-timber benefits from forests

9. The trend in NZ has been for the value of ecosystem services and biodiversity and social benefits to be ignored. These services and benefits can be significant and ideally should be part of any assessment of land use options. Not appropriately accounting for these benefits can favour land uses which provide limited ecosystem services, and/or biodiversity benefits relative to forests.

10. Perversely, costs to forest owners can accrue with policies to preserve benefits, such as the ETS. This has the potential to lead to a negative value being placed on services which are incredibly valuable for a successful society.

Specific issues to be addressed

Waihapua Forest

11. Waihapua is located between Tangoio Soil Conservation Reserve, which is administered by HBRC on behalf of the Crown, and Tutira. An easement on a neighbouring property suitable for a walking track link between Waihapua and the Guthrie Smith property has been negotiated with the Overseas Investment Office. Staff have held a number of discussions with groups about the possibility of developing a walking/mountain bike track network within the property with the potential to link through Tangoio and to Tutira.

12. Staff seek agreement from Council to progress this vision into a concept plan in collaboration with interested groups and neighbouring properties. Subject to Council agreement to proceed, this work would be largely undertaken during the 2016 year, with a concept plan and indicative cost estimate prepared for Council consideration late in 2016.

Waipukurau Forest

13. A group of Central Hawke’s Bay mountain bike enthusiasts associated with the Rotary Rivers Pathway Trust have approached Council seeking agreement to develop a mountain bike park on the Waipukurau forest block. Discussions between Council staff and the group have been on hold since late in 2014, because of the potential for the block to be needed as part of a waste water treatment system for Waipukurau. The Manager Resource Use has been providing regular updates on the performance of the waste water treatment system installed for Waipukurau. The system is now operating and its ongoing operation and maintenance within its consent conditions is an issue for Central Hawke’s Bay District Council. The current consent expires 30 September 2030.

14. A draft Agreement between HBRC and the mountain bike group has been prepared. The group has prepared a concept design for tracks through the block and estimates that they will need to invest in the order of $100,000 to construct the tracks and associated infrastructure. To provide certainty before making this investment the group seek a commitment from HBRC for the use of the block for at least 10 years, and preferably 20 years. The current draft of the Agreement provides for HBRC to reimburse the group the full cost of developing the track infrastructure if the land is required for another purpose within 10 years of the signing of the Agreement, and for the amount to be reimbursed to reduce year by year over the following 10 years.

15. This paper seeks agreement in principle from Council to enter into an Agreement with a community group for the establishment of a mountain bike park on the block for public recreation and enjoyment for a period of at least 10 years.

Mahia Forest

16. Mahia – This 36 hectare (ha) forest was established 2011 for waste water treatment, carbon sequestration and timber production. Mahia beach waste water is being treated through irrigation onto the site.

17. There are no specific issues for Council to consider for this forest.

Tutira Regional Park – Pine Forest

18. The land and forest was purchased by HBRC during the late 1990’s. 114 ha of radiata pine was established by previous owners from 1991-1998 for timber production and soil conservation.

19. Forest tending is complete for this rotation. The first rotation harvest is due between 2018 and 2025 with estimated net harvest revenues of approximately $2.8 million.

20. Specific issues for management of this forest:

20.1. Harvesting and the construction and maintenance of associated infrastructure will need to be to a very high standard to address risks relating to extreme erodibility of this site and the sensitive nature of the Tutira catchment. Staff expect to develop a harvest and post-harvest plan for Council consideration over the next 2 years.

20.2. Maungaharuru Tangitu hapu have a significant interest in the area and harvest and replanting planning will need to take their interests into account. Discussions with Maungaharuru Tangitu Trust with regard to harvest planning have already commenced.

Tutira Regional Park - Manuka Forest

21. The plantation of 130 ha of high performance manuka was established in 2011-2013 for manuka honey production, carbon sequestration, soil conservation, forest restoration, research, vista enhancement and amenity.

22. The area was chosen because the long term plan for the Regional Park is for this area to regenerate into native species over time. The manuka will act as a nurse crop and allow for native forest succession to occur. The manuka trial provides potential proof of concept for high performance manuka plantations as an alternative to pastoral farming and production forestry in NZ hill country.

23. As part of the research driver for this property HBRC is a member of the Primary Growth Partnership (PGP) for high performance manuka plantations. This PGP aims to increase manuka honey export volume and improved honey quality. Manuka honey harvest will phase in over the next ten years. Ongoing monitoring of honey production is being undertaken under the PGP, and it is expected that good data will be available by 2018 once the manuka crop is fully established and flowering.

24. There are no specific issues for Council to consider for this forest.

Silviculture

25. Background information to consider regarding silviculture management is set out in Attachment 1. Based on this information and advice received, staff propose:

25.1. Up to 50% of the Pinus radiata stands are pruned to about 5.5 metres to give the option of pruned logs in the sales mix, but recognising the risk that the poor economics of pruning under some price scenarios will be exacerbated on sites with poorer site quality and/or lower rainfall.

25.2. Eucalyptus regnans and E. fastigata and E. maidenii are managed with a low cost regime of thinning only, to maintain stand vigour and health and to remove the worst formed trees to allow for potential sawlog harvest in future, with some targeted pruning of extremely productive areas to offer the option of higher grade sawlogs to market at harvest.

25.3. 80-100% of species other than Pinus radiata and Eucalyptus are pruned to 5-6 metres. Species offering potential high quality timber will be pruned and thinned as part of treatment. These species include redwoods, cedars and cypresses and the ground durable eucalyptus trial area at Waihapua. Advice from Farm Forestry Association members is that it is essential to prune the best areas of these species so that pruned logs are available for sale on harvest.

Financial detail

Forestry Land Values

26. Table 1 below shows land values at 30 June 2014. Land was last revalued as at this date. HBRC’s accounting policies require land to be revalued every three years and accordingly the next revaluation will be as at 30 June 2017.

Forest	Valuation 1 July 2014 $’000	Purchase date (if since 2005)	Purchase price $’000
Mahia	$71	2010	$450
Waihapua	$879	2009	$1,048
Waipawa	$291	2009	$753
Waipukurau	$406	2009	$1,615
Tutira	$326

27. With the exception of Tutira Forestry, revaluations of land apply to the whole forest area in each location, irrespective of whether it has some open space public good use and other non-timber uses as outlined in Section 1 above. For Tutira the cost and revaluation figures are for that part of the land used principally for commercial forestry operations. Other parts of the Tutira Regional Park are separately identified and recorded as infrastructure assets in HBRC’s records.

Forestry Crop Values

28. Forestry Crops were revalued at 30 June 2015 in accordance with international accounting standards. Table 2 below shows crop values as at 30 June 2015. Values increased during 2014/2015 due to improved log prices, however the value of Manuka Honey crops fell. The new basis for Manuka crop valuation is the longer term Comvita projection whereas the valuation for previous years was based on the planting cost.

Forest	Area (ha)	Valuation 30 June 2014 ($000)	Valuation 30 June 2015 ($000)	Valuation variance ($000)	Establishment cost ($000)
Mahia	36	37	48	11F	104
Waihapua	227	219	283	64F	834
CHB	175	219	250	31F	412
Tutira - manuka	130	332	277	55U	368
Tutira - pine	131	1,783	2,476	693F

29. In total therefore, the HBRC owned forestry estate had a value at 30 June 2015 of $5.307million in respect of both land and crops.

Financial Returns

30. The forestry estate’s commercial operations are expected to generate positive financial returns over the long term. Council’s LTP 2015-2025 relies on returns from forestry, especially over 2019-2022 when the Tutira pine forest is harvested. A financial model has been developed by Kevin Molony of Sinamatella Limited, a specialist forestry consultant, including harvest yields, pricing and sales of carbon credits (on a “safe” basis) to estimate revenues, and expenditures and net cash flows over the period.

31. The financial projection is that operating returns from the forest estate will enable returns to reach around 6% - 7% across the portfolio (estimated internal rate of return) for full forest rotations. This is consistent with HBRC’s financial strategy which requires a 6% return from funds involved in investment projects.

32. HBRC’s 2015-2025 LTP has included for all years of the Plan, a 6% return on forestry investments as part of regional income and also includes approximately $2.5 million from the Tutira forestry harvest during the years 2018-19 to 2021-22, these proceeds accruing from an end of term rotation of radiata pine.

33. The following Table 3 details these currently modelled financial returns in terms of cash flows based on the silviculture management approach outlined in above and assuming current market prices for logs, honey and carbon credits continue throughout the remainder of the LTP 2015-2025 period.

Table 3: Projected Annual Returns from the Forest Estate 2016-2025

	Projected Net Cash Flow for Financial years ending 30 June
Forest	2016 $	2017 $	2018 $	2019 $	2020 $	2021 $	2022 $	2023 $	2024 $	2025 $
Tutira - pine	18,375	16,155	18,925	19,951	819,905	636,646	1,012,282	-153,239	-110,591	-46,223
Waipawa	-8,005	3,637	-13,523	-19,361	6,314	-38,724	-7,134	-7,134	-7,134	-7,134
Waipukurau	-6,854	1,718	-22,890	-13,419	6,630	-54,259	-10,003	-10,003	-10,003	-10,003
Waihapua	-5,898	-7,396	-25,999	-13,755	9,547	-25,260	-33,251	-12,418	-12,418	-12,418
Mahia	-10,733	-8,666	3,663	-7,337	-25,677	3,245	-19,203	2,011	2,632	2,635
Tutira - manuka	-13,304	3,895	33,271	53,386	53,386	58,386	58,386	58,386	58,386	58,386
Net Operating revenue	-18,499	9,343	2,790	19,465	870,105	580,033	1,001,077	-122,397	-79,128	-14,757
Holding interest	337,525	357,777	379,243	401,998	401,998	376,923	361,340	322,284	341,621	362,118
TOTALS	319,026	367,120	382,033	421,463	1,272,103	956,956	1,362,417	199.887	262,493	347,361

34. It is important to note:

34.1. Volatile Prices: Prices can be very volatile, as shown by the movement in prices for carbon credits and logs over the last three years. The modelling assumes no change in net prices of logs, carbon credits, or honey over the period.

34.2. Sensitivity to Price Fluctuations: The revenues assumed and their net present value cash flows were represented by income from the sale of logs (90%) and the accrual or sale of carbon credits (10%). Therefore price variations on the model for log revenue has a greater impact than variations in carbon prices.

34.2.1. For example, a 10% shift in log prices would give rise to a plus or minus $300,000 adjustment in gross revenues whereas carbon prices would need to fluctuate 64% (ie, a reduction from $7 to $2.50 per tonne or an increase from $7 to $11.50 per tonne of carbon) in order to have the same effect of $300,000 on gross revenues.

34.2.2. Even with the income sensitivity adjustments referred to above, the model would still provide a long term return on the rotation of approximately 6%.

34.3. Carbon Credits: Carbon credits accumulate as the tree crop grows and carbon is sequestered in the wood and bark of stem, branches and roots and in foliage. After harvest the carbon in the stem is assumed not to exist any longer and losses in carbon need to be paid back in the form of credits. Residual carbon in roots and harvesting “slash” is assumed to break down to zero over a ten year time frame. When a site is replanted, the new crop will sequester new carbon which will offset the decaying carbon from the previous crop. The point at which the increment from the new carbon first exceeds the rate of decay from the previous crop is the level of “safe” carbon. As long as a crop is being planted, harvested and replanted in a perpetual cycle the carbon on site will never fall below this safe level.

34.4. The projections contained in Table 3 above assume a policy of selling no more than the “safe” level so as to avoid any future liability as much as possible. For a more detailed understanding of the need to establish a carbon trading policy see Attachment 2.

34.5. Non-Timber and Open Space Policy: Benefits from non-timber and open space usage are not included in the modelling or the results shown in Table 3 above. These benefits are over and above financial returns reported above.

34.6. Manuka Honey: Almost all establishment costs of the Manuka Honey project were met by 30 June 2015. Only modest maintenance and land rental costs are likely to be incurred in future as there is no further planned investment. Returns from the venture with Comvita will show significant IRR over its assessed life time.

34.7. Taxation Issues: HBRC is not subject to income tax on the income from the commercial operations on the forest estate while it continues to directly own the land and crops. Should the land and/or crops be sold to a company (such as HBRIC) the returns will become taxable income for that company (even if it is wholly owned by HBRC) and reduce the net return to HBRC by around 28% pa.

34.8. LTP 2015-2025: The LTP is predicated on use of commercial forestry returns on the forest estate to support Council’s continuing operations. Absence of these returns whether through their becoming taxable or other reason could have a significant negative impact on the Council’s financial performance. For example, around $2.6 million net is expected harvesting forest on Tutira Forest between 2019 and 2022. Paying tax on these receipts would cost the Council around $730,000 over this period.

Carbon Credits and Strategy

35. At today's estimate the HBRC forest estate has sequestered 28,746 NZU of carbon. This is based on projections from Kevin Molony who prepared the financial analysis of the forest estate.

36. The first measurement event included only stands planted in 2010 or earlier. Younger stands were too small to economically measure given their very small tree sizes and low volumes. Registered forests are measured every 5 years.

37. At current prices of $7.00 per NZU of carbon HBRC’s sequestered carbon has an estimated value of $201,221.

38. The next carbon measurement is due at end of next commitment period and will include all HBRC planted sites. Forest plots are to be measured by 30 June 2017, (then submitted by 30th June 2018).

39. Voluntary interim returns can be made based on current growth curve, with unders and overs reconciled in mandatory returns based on the latest data when this becomes available. Attachment 2 illustrates options for the measurement and management of a carbon portfolio.

40. A carbon sales protocol and model is proposed to be developed for HBRC to allow informed and timely carbon trading decisions according to an agreed risk profile. This will allow sales or purchase decisions to be signed off by the CE while making carbon revenue available to HBRC.

41. Carbon credit sales create a potential liability at time of forest harvest. This is because a proportion of relevant credits must be surrendered (total carbon volume minus that carbon that will remain onsite and be reabsorbed by following tree crop). If these credits have been sold they need to be purchased at the price of the day for surrender.

42. Professional advice will be sought to assist with drafting a suitable carbon strategy and policy.

Decision Making Process

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

43.1. The decision does not significantly alter the service provision or affect a strategic asset.

43.2. The use of the special consultative procedure is not prescribed by legislation.

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

43.4. Options to be considered are outlined in the paper.

43.5. The decision is not inconsistent with an existing policy or plan.

Recommendations

The Corporate and Strategic Committee recommends 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 engagement 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.

2. Agrees that staff should progress the development of a concept for a walking/mountain bike track network within the Waihapua property, with the potential to link through Tangoio and to Tutira, in collaboration with interested groups and neighbouring properties.

3. Agrees that HBRC enter into an Agreement with a community group for the establishment of a mountain bike park within the Waipukurau Forest for public recreation and enjoyment for a period of at least 10 years, and delegates authority to the Interim Chief Executive to determine the terms and conditions of such an Agreement.

4. Agrees to the proposed management approach for the HBRC forest estate being:

4.1. Pruning up to 50% of Pinus Radiata stands to give the option of pruned logs in the sales mix.

4.2. Manage Eucalyptus regnans and E. fastigata and E. maidenii with a low cost regime of thinning only, with some targeted pruning of extremely productive areas to provide the option of higher grade saw logs at harvest

4.3. Prune and thin between 80-100% of other species to provide high quality timber.

5. Agrees to the development of a carbon sales protocol to allow informed and timely carbon trading decisions according to an agreed risk profile, and requests staff to progress its development for Council consideration during 2016.

6. Notes the significant returns projected for harvesting the Tutira pine forest between 2019 and 2022 and that these returns have been included in HBRC LTP 2015/25 financial forecasts.

7. Notes that on average over a full rotation the estimated long term return on HBRC’s investment in the forest estate is expected to be around 6-7% for full rotations (subject to variations in prices and harvest yields). The returns from Manuka honey are expected to be greater than 6% - 7% which reflects the limited further expenditure required on these crops.

8. Notes Council’s continued direct ownership of the forest estate will provide the following benefits:

8.1. Continued integrated Council management of the open space policy on these lands together with achieving a reasonable positive return from their commercial operations

8.2. Significant financial returns over the long term; and

8.3. These financial returns will be received free of income tax whilst the forest estate continues to be directly owned by the Council.

James Powrie

Land Services Advisor

Mike Adye

Group Manager
Asset Management

Paul Drury

Group Manager
Corporate Services

Attachment/s

1	HBRC Silviculture Motivation
2	HBRC Carbon Credit Trading

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 23 September 2015

Subject: Human Resources 2014-15 Annual Report

Reason for Report

1. This agenda item is to provide Council with a brief overview of the key human resource metrics recorded for the year 1 July 2014 to 1 July 2015. It also covers, in more detail, the key aspects of Council’s health and safety policies and practices so that councillors are aware of the steps undertaken by management to provide a safe environment for all Council staff. A copy of the HR Highlights document is appended as Attachment 1.

Key Metrics

Staff Numbers (Previous year in brackets)

2. As at 1 July 2015 180.8 FTE (172.22 FTE).

2.1. Dalton Street (including Waipukurau and Wairoa): 152.8 (144.2)

2.2. Works Group (Taradale and Waipukurau): 28 FTE (28)

3. Turnover for the year ending 30 June 2015 was 6% (2014 – 9%). Twelve staff left during the year not including two redundancy situations. One staff member was internally promoted to a new position during the year.

4. The Lawson Williams – HRINZ New Zealand Staff Turnover Survey indicated an average turnover of 16.3% for contributing organisations in 2014. For contributing local government organisations the average turnover was 12.4%.

Staff Leave Usage

5. The average number of sick days used was six, slightly down on last year (6.3 days). There was a reduction in the total sick days used, 931 days compared to 986 in 2014. The number of staff taking more than the annual allocation (10 days) remained at 15%. This is only possible where they have accumulated sick leave to use.

6. Annual leave usage remained constant at around an average of 19 days per staff.

Average Age/Tenure

7. The average age of Dalton street staff was 45 and the average tenure nine years.

8. For Works Group staff the average age was 52 and tenure 12 years.

9. Age Profile

	20-25	26-30	31-35	36-40	41-45	46-50	51-55	56-60	61-65	65+
Dalton Street	8	11	13	19	27	27	18	14	12	4
Works Group	0	1	1	1	5	4	8	7	1	0

10. Succession planning is an important ‘tool’ used to try and protect institutional knowledge and in the next few years will be a key component of workforce planning for Council.

Health and Safety

11. The move to new legislation is a significant issue for all organisations and Council is no different in that respect. Also included as Attachment 2 is an outline of the aggregated key hazards and the tools used by Council management to maintain a safe workplace.

12. The new Health and Safety at Work Act will come into force from 4 April 2016.

13. All new staff have a significant component of their induction programme aligned to health and safety policies, practices and procedures.

14. There were 31 work related incidents or accidents reported during the year, 25 involving Dalton Street staff with two of these resulting in a total of 10.7 days off work. Works Group had six accidents reported but with no time off work – an excellent outcome particularly when the type of work undertaken is considered. This result is considered a reflection of the Works Group’s attention to health and safety and staff awareness and commitment to safe work practices.

15. Of the 25 Dalton Street incidents/accidents, 15 were incidents where no harm happened. The 10 accidents were: sprain/strain (4), minor cuts (2), falls/slips (3), environmental (1) - poisonous plant.

16. There were no serious harm incidents requiring a referral to WorkSafe NZ.

17. There were four complaints from the public regarding staff driving and five speeding fines.

18. Both Works Group and Dalton Street have health and safety committees that have met regularly during the year and played an active part in Council’s commitment to good health and safety practices.

19. Staff have recently completed a required self-assessment in terms of the requirements of HBRC’s participation in the Workplace Safety Management Practices programme (WSMP). Council achieved the tertiary level in the WSMP programme, the highest level discount provided and has been at that level for the last four years.

20. Vitae continues to provide a workplace support service for Council. The number of stress related referrals dropped over the last 12 months. Under the new legislation issues around stress, particularly related to bullying, will be able to be investigated by WorkSafe NZ as a health and safety issue.

21. Under the new legislation councillors and the Chief Executive will be classed as the “officers” of the PCBU (Council). Officers run the risk of being personally liable over serious harm incidents if they haven’t been carrying out due diligence. This can include, but is not restricted to, the new Act’s role in dealing with staff stress claims that result in a serious harm incident. Officers’ personal involvement in such claims would be investigated by WorkSafe NZ and could lead to them being prosecuted.

22. Exit interviews are held for all staff leaving the organisation and a review of these surveys does not indicate any trends that are a cause for concern. Those leaving had a range of reasons for doing so.

Staff Training and Qualifications

23. The training budget was 2% of the salary budget which is a reduction on last year’s 2.3%.

24. The main focus for training has continued to be the enhancement of leadership skills and those participating have provided excellent feedback on the value of the programme. Council also undertook staff training days which involved some ‘community services’ activities and an opportunity for staff who would not normally work together to spend time with staff from across the Council. The feedback from this initiative was extremely positive and has had positive spin offs in the work place.

25. Specific staff health and safety training has been updated as appropriate including driving skills, water safety training and first aid, together with general awareness training with the leadership team.

26. The overall staff qualifications can be seen in the attached HR Highlights. Over 80 staff have a degree or above qualification, including five PhDs.

Industrial

27. All supervising staff are employed under individual employment agreements.

28. There are two current collective employment agreements, both are three year agreements and expire in 2017. The Dalton Street Collective Agreement covers about half the staff whose work is covered by this agreement; the other half have chosen individual agreements.

Decision Making Process

29. 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 the Corporate and Strategic Committee receives the “Human Resources 2014-15 Annual Report”.

Viv Moule

Human Resources Manager

Liz Lambert

Chief Executive

Attachment/s

1	Human Resources Report Highlights 2014-15
2	HBRC Health and Safety Risk Overview August 2015

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 23 September 2015

SUBJECT: September 2015 Public Transport Update

Reason for Report

1. This agenda item provides the Committee with an update on Council’s public transport operations.

General Information

2. There were 6.9% fewer bus passenger trips in 2014-15 than 2013-14. As previously reported, fluctuating petrol prices and private car running costs are thought to have been the main contributing factors to this.

Bus Passenger Trips

3. The graph below shows total bus passenger trips during 2012-13, 2013-14 and 2014-15.

Diagram 1 – Passenger Trips – 2012-13, 2013-14, 2014-15

4. Average monthly patronage is shown in the table below.

Table 1 – Total Annual Passenger Trips and Monthly Averages

Year	Total Annual Trips	Monthly Average
2009-10	480,244	40,020
2010-11	554,647	46,220
2011-12	681,566	56,797
2012-13	761,392	63,449
2013-14	799,845	66,653
2014-15	744,692	62,057

5. Passenger classes showing the largest drop in patronage when compared with 2013-14, are shown in the following table.

Table 2

Passenger Class	% change between 2013-14 and 2014-15
Adult	-17%
Community Services card	-8%
District Health Board patients	-6%
Senior	-3%
SuperGold card	-8%
Tertiary students	-5%

6. This pattern is consistent with our theory that the drop in patronage has been largely caused by a decrease in the cost of driving a car. Passengers paying adult fares are those most likely to have access to a car. Many SuperGold passengers also drive, but make more use of SuperGold free travel when the cost of driving is high.

7. When passenger numbers are analysed by route, the following patterns emerge.

Table 3

Route	% change between 2013-14 and 2014-15
Route 11 – Napier- Hastings via Clive	+22.7%
Route 12 Napier –Hastings via EIT	-5.1%
Route 13 Napier-Taradale via Tamatea	-4.6%
Route 14 Napier - Maraenui	-12.5%
Route 15 Napier - Ahuriri /Westshore	+16%
Route 16 A/B Hastings Camberley/Mahora	-15%
Route 17 Hastings Parkvale Akina	-24%
Route 20 Hastings Flaxmere	-11%
Route 21 Hastings Havelock North	-5.6%

Bus Stops

8. NCC has initiated investigations with regard to a programme for formalising Napier bus stops.

Realtime Passenger Information

8. Investigations are ongoing into the ‘TrackABus’ passenger information system. We have had initial discussions with our current service provider with regard to its application to the Hawke’s Bay bus service. Subject to a favourable outcome, we will seek approval of the council to implement it, with the cost being met from within our existing bus contract budget.

Bikes on Buses

9. There were 2721 bikes carried in 2014-15, which is 26.4% fewer than 2013-14. The growing network of cycle ways, cycle lanes and bike trails could be a contributing factor to this, with fewer cyclists opting to take the bus.

Bus Service Costs

10. The following table shows the net cost (after fares and excluding GST) of operating the goBay bus service in 2012-13, 2013-14 and 2014-15. The costs include base contract and quarterly incentive and indexation costs, which accounts for the significant price fluctuations between months.

Table 4 – Net Cost of Bus Service – 2012-13, 2013-14, 2014-15

Year	Jul	Aug	Sep	Oct	Nov	Dec	Jan	Feb	Mar	Apr	May	Jun	Total
2012-13	$224,406	$206,395	$217,298	$229,967	$218,084	$246,304	$242,115	$237,799	$202,020	$231,333	$202,252	$237,765	$2,695,737
2013-14	$186,170	$278,969	$182,220	$187,613	$302,615	$207,605	$192,259	$162,473	$135,329	$189,097	$280,422	$160,101	$2,464,873
2014-15	$168,720	$157,262	$264,227	$174,153	$141,819	$255,647	$159,785	$141,269	$253,717	$160,004	$139,482	$247,509	$2,263,594

(50% of this cost is met by the New Zealand Transport Agency).

Bus Service Tender

11. The bus service is currently being re-tendered for a period of nine years from 1 August 2016. The result of the re-tendering is expected within the next two weeks.

Total Mobility

12. The Total Mobility Scheme, which is funded by regional council, local councils and the NZTA, provides subsidised taxi transport for people who have a permanent illness or disability which prevents them from using public transport.

13. The following tables show the number of Total Mobility trips made during 2012-13, 2013-14 and 2014-15 and the corresponding cost (excl GST).

Table 5 – Total Mobility Trips – 2012-13, 2013-14, 2014-15

Year	Jul	Aug	Sep	Oct	Nov	Dec	Jan	Feb	Mar	Apr	May	Jun	Total
2012-13	6,753	6,839	6,471	7,256	6,925	6,447	6,022	6,320	6,614	6,850	7,106	6,382	79,985
2013-14	7,401	6,804	6,611	7,658	7,365	7,185	6,546	7,032	7,605	7,745	7,707	7,188	86,847
2014-15	8,320	7,950	7,677	8,267	7,701	7,948	6,354	6,901	8,245	7,328	7,737	7,852	92,280

Table 6 – Total Mobility cost ($, excl GST) – 2012-13, 2013-14, 2014-15

Year	Jul	Aug	Sep	Oct	Nov	Dec	Jan	Feb	Mar	Apr	May	Jun	TOTAL
2012-13	44,451	44,877	43,211	46,216	45,382	39,880	37,347	40,862	44,382	43,927	47,613	43,394	521,542
2013-14	49,274	46,153	43,965	50,189	47,744	46,968	39,581	46,567	52,047	50,715	51,078	49,348	573,629
2014-15	55,780	53,489	51,222	54,492	53,590	49,973	38,990	45,943	52,581	46,747	50,972	51,422	605,201

(60% of this cost is met by the New Zealand Transport Agency).

Decision Making Process

14. 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 the Corporate and Strategic Committee receives the September 2015 Public Transport Update report.

Megan Welsby

Sustainable Transport Coordinator

Anne Redgrave

Transport Manager

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 23 September 2015

Subject: Gravel Resource Inventory and Gravel Demand

Reason for Report

1. This report is to inform the Committee of the findings of two recent investigations concerning the region’s gravel supply and demand. This work is part of the Gravel Resource Review being carried out under the Gravel Management Project (Project 369).

Background

2. In November 2010 Council approved a River Bed Gravel Review project to review the management of the gravel resource in the region’s rivers. The significant issues were grouped into 13 different study areas and a work program and budget devised with the aim to complete the work in by the end of 2017.

3. The significant issues are:

Issue No.	Issue	Completion date
1	Hydrological review	2011-12
2	Gravel Supply and Transport	Begun and ongoing *
3	Gravel Resource Inventory	2015
4	Implications for Flood Protection
5	Gravel Demand and Forecast	2014
6	Gravel Monitoring & Determination of Resource Availability	Begun 2015
7	Instream Ecological Effects	Underway, due 2015
8	Riverbed Birds and Flora	Underway, due 2015
9	Tangata Whenua Values	Ongoing
10	Effectiveness of Beach-raking	2013
11	RMA Issues
12	Allocation and Financial Mechanisms
13	Riverbed Gravel Management Plan

4. *Note: Since the start of the project staff have worked with NIWA on more advanced geomorphological modelling of gravel transport to gain a much greater understanding of the processes and the effects of different scenarios (extraction rates, climate change, beach-raking, etc.). Staff are carrying out the modelling and due to the complexity it is taking take more time than initially considered at the start of the project. However the results are proving of value and the work will help with questions relating to gravel supply to the coast. Councillors have previously been given a presentation on this modelling work relating to the Ngaruroro River.

5. The budget for the review is approximately $120,000 per year from Project 369, Gravel Management Project. Gravel extraction rates were increased by 20 cents/cubic metre to pay for the study. Gravel extractors have been involved with the project from the start and support it. Meetings are held with them each year to discuss progress and any other issues. However the demand for gravel has reduced in recent years and the annual programme has had to be curtailed because of reduced income.

6. Two significant issues were investigated last year and reports provided. These were:

6.1. Gravel Demand and Forecast by Barry Larsen (Consultant, principal author) and Murray Stevens

6.2. Gravel Resource Inventory by Murray Stevens (Consulting Geologist, principal author) and Barry Larsen.

Gravel Demand and Forecast

7. The prime purpose of this report was to produce a river gravel demand forecast together with a methodology for continuing with being able to predict demand in the future. The report analyses past gravel demand from 2000 to 2013.

8. Meetings with key gravel extraction industry participants and stakeholders were carried out along with industry research and other regional research. HBRC recognises the benefits of working collaboratively with players in the gravel extraction industry.

9. There are currently more than 50 companies or organisations with river gravel extraction allocations covering the northern, central and southern regions. The three largest extractors have extracted on average 60% of the reported river gravel allocation (since 2000).

10. Other sources of gravel are the coast (aiming to phase this out) and land based pits used predominately to serve district council roading needs and forestry.

11. Historic consumption (demand) has risen and fallen over the years since 2000 with some 8 million cubic metres extracted across the region during the period. This is an average rate of 572,000 cubic metres per year. Since the peak of 2009 there was a reduction in demand on average of 31% such that the average extraction across the region as at 2013 was 400,000 cubic metres per year.

12. Note that since the report was completed, as at 30 June 2015 the total extraction across the region was 397,000 (including coastal). Of this amount 75% is taken from the Ngaruroro River. Note that this figure differs from the annual plan reporting in June 2015 because at that time not all the extraction data had been returned.

13. In the 2000-2013 period the most significant reduction was 84% in the southern region from an average of 121,000 cubic metres per year down to a mere 30,000 cubic metres per year. As at 30 June 2015 the amount extracted was just 10,000 cubic metres. This has serious implications for the Upper Tukituki Flood Protection Scheme. Staff are currently working on methods to deal with this issue.

14. There are a number of economic, demographic and industry drivers which contribute to aggregate demand. Typically construction activity provides a good indicator of demand and the Infometrics Ltd construction growth forecasts have provided a forecast of the potential construction growth rates for the next 5 years (2014 to 2019). Staff propose to continue to update these forecasts in future years. A sensitivity analysis was carried out by the author on low and high growth rates.

15. Interestingly the data indicates that the construction low is occurring now (2014 to 2015) and is due to increase steadily out to 2019 with a growth rate of 6% to 8% per annum on average for residential and non-residential sectors. The infrastructure sector is lower showing only a 10% increase over the total forecast period.

16. From this data the increase in gravel demand can be forecast. By 2019 the demand is expected to reach approximately 650,000 m3 an increase of 250,000 m3 on current (June 2015) values.

17. The impact from the Ruataniwha Dam on gravel demand was also examined. This was just the impact from flow-on economic growth not the impact of gravel to be used in construction of the dam which is all sourced on site. The impact of the Ruataniwha Dam is short lived, with a maximum increase in demand of 250,000 m3 in the middle to latter part of the study period (2014 to 2019) and essentially the same at the end of the period.

18. High, mid and low growth forecast scenarios were reviewed to provide a range from which decisions relating to demand can be made. This will be important when balancing demand with the available supply from the region’s rivers. This is the subject of the second report noted above.

19. The report looked at export opportunities outside the region. Currently there is around 14% of the river gravel extracted exported out of the region, especially rounded pebble. There is potential for increased demand particularly to the Auckland market.

20. An important issue for gravel extractors and HBRC is that of longer term allocations, beyond the annual allocation process currently operating. The desire for some of the larger extractors is for more certainty over supply for business planning and investment purposes. For HBRC the key issue, if extractors were to request allocations for longer than 1 year, is that those extractors would need to commit to the extraction of those volumes and not merely ‘bank’ them. HBRC relies on extractors to help maintain river channel capacity at a rate that is affordable and it is in everyone’s interest to work together.

21. The useable saleable product from gravel extraction is the yield. The actual yield varies between extractors and local arrangements are made between companies to help shift by-product. Regardless, stockpiles of by-product mount up over the years as currently it cannot be returned to the river and there is little demand for it. However there are options to be looked at in further studies such as return to the river. Modelling can provide some answers to the effects if this is carried out. Beach re-nourishment is another potential use, but the pricing structure would need to be changed for this to be more acceptable.

Gravel Resource Inventory

22. The key objectives for this study were:

22.1. The identification of gravel resource locations and volumes

22.2. Identifying the risks in gravel supply and quality

22.3. Determining the sustainability of the river based gravel resource.

23. Gravel source locations have been investigated and mapped in the report. Although there is potentially a vast source of gravel, it still requires weather events (floods) to transport the gravel naturally to populated areas where demand is greatest or alternatively where channel capacity issues are paramount. Transport costs become prohibitive if gravel needs to be sourced from sites well away from the end use locations or alternatively if channel capacity needs to be maintained by extraction to stockpile with no end use.

24. Using data collected by HBRC and previous reports and investigations by HBRC a river based gravel inventory was determined for each major gravel-bearing river in the region. In order to arrive at a volume of gravel stored in the active channel a design grade line is first determined. Volumes above the grade line represent surplus gravel available for extraction. Volumes below the grade line represent a deficit and extraction is not permitted. Clearly the position of the grade line is important to determine the volumes and it is part of future investigation to check that the grade line determination set sustainably.

25. For example, if current grade lines were raised the volumes that could be allocated for extraction would be reduced and severely affect local extractors and probably the local economy to some extent. On the other hand if the grade lines were to be lowered there would be more gravel available but at the same time there would be a greater risk of undermining the vital edge protection vegetation. It’s a matter of getting the right balance.

26. A significant part of the report and a significant finding relates to the gravel supply above grade line (availability) and the annual demand forecast (demand) carried out for all the region’s gravel bearing rivers. The report indicates that at the forecast demand the availability is not sustainable for more than a few years (3.5 to 5 years for example on the main extraction reach of the Ngaruroro River). Low and high growth scenarios lengthen or shorten the period. However, this is not what it seems as is explained below.

27. Other rivers in the Heretaunga Plains area have similar predictions although none of those rivers have the supply volumes of the Ngaruroro extraction sites. In the Lower Tutaekuri River for example extraction has almost ceased as the bed is at or below design grade. The same applies to the Lower Tutaekuri and the Esk.

28. On the other hand the Middle Tukituki has large reserves (14 to 19 million cubic metres) depending on the grade line choice. It has been known for some time that gravel is held up in the middle reaches due to the wide active channel and infrequent floods of sufficient size and transporting power to move the gravel through the system to the lower reaches and coast. The cost to haul gravel from the middle reaches is prohibitive compared to current extraction sites. Beach raking may assist in moving more gravel through the system, but this has not been studied and it still relies on frequent flood events.

29. As noted in section 26 above the sustainability as reported is not what it seems, or at least it needs further discussion. When the draft report was received HBRC engineers carried out their own analysis, using the same data and methodology to test the validity of the conclusions. Note that there is nothing wrong with what the report’s authors have done and the methodology is valid. However the conclusion that gravel will run out in a few years (i.e. Ngaruroro extraction area) is false if the same methodology is applied say 2 decades ago and repeated at 5 yearly intervals. If this is done, indications are that we should have run out of gravel years ago and yet clearly this is not the case.

30. So what is happening? The problem lies with the estimates of sediment transport rates and with the cross section method of measuring volumes. With survey intervals of 3 years, a lot of sediment can pass into the extraction reach; some may be extracted, some may stay and some may pass through but we won’t know how much. Extraction could take place as allocated (with actual volumes recorded) and not necessarily affect the volumes calculated at the start of the survey period.

31. The other aspect that we have investigated subsequent to receiving the reports is a comparison between conventional cross section surveys (with cross sections spaced 1.4 km apart in some reaches) and LIDAR survey of the entire surface of the river bed. This showed that there was a significant difference in the two methods with the cross section method significantly underestimating the volumes above grade line by nearly 50%.

32. On the other hand the LIDAR survey assessment method also indicated a significantly greater volume below the design grade line. In other words the cross section survey method is not picking up areas of riverbed that are below design grade. A reason for this may be, that at and around the cross section lines, extraction (and gravel movement) is more closely controlled, whereas between cross sections extraction amounts are ‘estimated’.

33. There needs to be further investigation around this issue so that the questions of sustainable availability v’s demand, sediment transport rates and volume measurement can be better determined. Modern survey techniques and better sediment transport modelling will be a key to this. This work is continuing.

Decision Making Process

34. 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 the Corporate and Strategic Committee receives and takes note of the “Gravel Resource Inventory and Gravel Demand” report.

Gary Clode

Manager Engineering

Mike Adye

Group Manager
Asset Management

Attachment/s

1	Gravel Demand and Forecast		Under Separate Cover
2	Gravel Inventory		Under Separate Cover

1	HB Tourism 2014-15 Quarter 4 Report
2	HB Tourism 2014-15 Q4 Financial Results
3	HB Tourism Proposed Key Performance Indicators