Agenda of Hearings Committee - 19 September 2016

HAWKE’S BAY REGIONAL COUNCIL

Hearings Committee

Monday 19 September 2016

Subject: Hearing of Submissions

Reason for Report

1. The purpose of this paper is to outline the process to be undertaken to hear and consider submissions received on the proposal to establish an additional council controlled trading organisation HBRIC Ltd to undertake the operational activities of the Ruataniwha Water Storage Scheme.

Background

2. The proposal was notified on 18 August 2016.

3. Twelve submissions were received, with five wishing to be heard.

4. A copy of the submissions is appended as Attachment 1.

Decision Making Process

5. 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:

5.1. The decision affects HBRIC Ltd, being a strategic asset.

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

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

5.4. The persons affected by this decision are the ratepayers of the region.

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

5.6. Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council has decided to publicly consult on this matter.

Recommendations

That the Hearings Committee:

1. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council can exercise its discretion 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.

2. Receives and considers the verbal and written submissions.

Authored by:

Diane Wisely

Executive Assistant

Approved by:

Liz Lambert

Chief Executive

Attachment/s

Copy of Submissions

HAWKE’S BAY REGIONAL COUNCIL

Hearings Committee

Monday 19 September 2016

Subject: Operating Company for Ruataniwha Water Limited Partnership

Reason for Report

1. As part of the process of establishing the Ruataniwha Water Storage Scheme and associated companies the Hawke’s Bay Regional Council has previously established HBRIC Ltd as a Council-controlled trading organisation that will:

1.1. Achieve the objectives of its shareholder (HBRC), both commercial and non-commercial, as specified in the statement of intent;

1.2. Be a good employer;

1.3. Exhibit a sense of social and environmental responsibility by having regards to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so.

2. In March 2016 HBRC agreed to consult with the public on the establishment of an additional Council-controlled trading organisation (CCTO) to undertake operational work for RWM Ltd under a services agreement that will be entered in to following the registration of RWLP.

Summary of Proposal

3. HBRC holds 100% of the shares in HBRIC Ltd and appoints the Board of Directors. CCTOS are council-controlled organisations that operate a trading undertaking for the purpose of making a profit.

4. HBRIC Ltd holds Council’s shares in its other Council-controlled Trading Organisations, monitors their performance and recommends new director appointments for these organisations for Council’s approval.

5. Council has now consulted on the establishment of a council-controlled trading organisation that will be required to undertake the operational activities of the Ruataniwha Water Storage Scheme.

6. ‘ServiceCo’ will be a subsidiary of HBRIC Ltd and will undertake the operational work for the Limited Partnership/ General Partner (RWM Ltd). This will be conducted via a service agreement with Ruataniwha Water Limited Partnership. It is important for this agreement to be entered into separately from HBRIC Ltd as limited partners of a Limited partnership must not take part in the management or control of the business affairs of the Limited Partnership.

7. The relationship between the various entities is shown as follows.

8. The principal responsibilities of ServiceCo will be:

8.1. Provision of site by securing of all required land

8.2. Responsibility for ensuring all resource consent requirements and obligations for the scheme are implemented, including various liaison groups, management plans and mitigation works

8.3. Marketing and execution of new water user agreements

8.4. Establishment of billing and invoice processes

8.5. Delivery of technical operating and maintenance services

9. The administration and operational activities of ServiceCo will be fully funded by Ruataniwha Water Limited Partnership (RWLP).

10. ServiceCo will enter into an Operations and Maintenance Contract with RWLP for the delivery of the agreed services and will be fully funded by RWLP for these services.It is expected that the operating structure of ServiceCo will comprise about 4 full time equivalent employees responsible for project management, sales, service, and maintenance and reporting.

11. The governance and oversight of ServiceCo by HBRC will occur via Council’s investment company, HBRIC Ltd. Two directors will be appointed to ServiceCo and they will report to the HBRIC Ltd Board as shareholder.

12. Council retains ultimate governance oversight through its appointment of directors to the Board of HBRIC Ltd, its approval of the annual Statement of Intent with HBRIC Ltd, and its required approval for relevant Board appointments to the Ruataniwha Water Limited Partnership and ServiceCo.

13. ServiceCo will be established as a limited liability company with no financial recourse to the Hawke’s Bay Regional Council.

Summary of Submissions

14. A summary of the key points made in the submissions is as follows:

15. Points of concern:

15.1. HBRC should be protecting our environment not endangering it Council

15.2. Do not support any proposal that advocates the building of the Ruataniwha Dam

15.3. Local ratepayers funding into scheme; environmental effects; lack of transparency.

15.4. Not all conditions on dam been met

15.5. Another layer of costs, complexities

15.6. RWSS should be abandoned

15.7. Do not spend any more money on Ruataniwha Dam

15.8. Decreases accountability and transparency even further

15.9. No explanation of difference between RWLP and RWM Ltd

15.10. Prospectus not publicised/published for ServiceCo

15.11. No information as to any possible financial recourse to HBRIC

15.12. Responsibility for providing an operational site for RWSS and ensuring resource consent requirements and obligations for the scheme are implemented should rest with HBRC

16. Points of support:

16.1. Keen to see RWSS succeed

16.2. Decisions made by HBRC with respect to governance and operation of the RWSS are key to success

16.3. Following matters to be considered:

16.3.1. Purpose of Service Co

16.3.2. Structure

16.3.3. Documentation

16.3.4. People

16.3.5. Building and maintaining effective relationships.

Discussion on points of submission

17. The majority of submissions either supported or opposed the construction of the Ruataniwha Dam as a main point of statement. Very few points were made specifically on the establishment of a CCTO for the purpose outlined in the consultation document.

18. I do not propose to traverse the range of points made about the RWSS per se. Any decision on the establishment of this CCTO will neither enhance nor reduce the prospects of the Dam being constructed.

19. The purpose of the CCTO is to provide an efficient vehicle for the operation activities that will be required to operate the Scheme, should it proceed.

20. On that basis the following comments are directed to the consideration of relevant submissions:

20.1. That the establishment of ServiceCo decreases accountability and transparency even further – following financial close the ownership, governance and operation of RWSS will be the responsibility of a consortium of investors, of which HBRC will be only one, through its investment arm HBRIC Ltd. Accountability and transparency of HBRC’s share of this project will be managed through its relationship with HBRIC Ltd.

20.2. No explanation of difference between RWLP and RWM Ltd – the Limited partnership comprising all the investors is RWLP (Ruataniwha Water Limited Partnership). A limited partnership is not, by law, allowed to manage or control its own business affairs and therefore RWM Ltd will be established to oversee the business.

20.3. Prospectus not publicised/issued for Service Co – A prospectus is not required as it is not the intent of ServiceCo to raise capital

20.4. No information as to any possible financial recourse to HBRIC – HBRIC Ltd will hold the regional council’s investment in the RWSS but will not hold those of any other investors. HBRIC Ltd has been formed as a limited company to ensure that any of its investments do not have financial recourse back to HBRC.

20.5. Responsibility for providing an operational site for RWSS and ensuring resource consent requirements and obligations for the scheme are implemented should rest with HBRC – HBRC is neither the consent holder nor the concession holder for the RWSS. This is held by a consortium of investors. HBRC would be exposed to a significant conflict of interest were it to take such a course of action.

20.6. Matters to be considered in establishment of ServiceCo include its purpose, structure, documentation, people and building and maintaining effective relationships – the key specifications for ServiceCo will be managed through any agreements between HBRIC Ltd, Service Co and RWM Ltd.

Decision Making Process

21. Council is required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

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

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

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

21.4. The persons affected by this decision are ratepayers of Hawkes Bay and investors in the RWSS

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

21.6. Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.