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Mistaken By Any Other Name

17/08/2018

waimea dam goldfish in shark clothing

While researching dams and risk contingency I came across an article in the Journal of the American Planning Association (vol. 68, no. 3, Summer 2002, pp. 279-295) called “Underestimating Costs in Public Works Projects: Error or Lie?” It details the results of a study looking at 258 transport projects across 20 nations and 5 continents suggesting that cost underestimation appears to be a global phenomenon. The study reveals that;

Four kinds of explanation of cost underestimation are examined: technical, economic, psychological, and political. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, i.e., lying. The policy implications are clear: In debates and decision making on whether important transportation infrastructure should be built, those legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust the cost estimates and cost-benefit analyses produced by project promoters and their analysts

Strategic misrepresentation is not only a transport related phenomenon and the authors also reference The Economist (“Under water, over budget,” 1989);

  • 1+1=3
    Of course the numbers add up

…anyone persuaded in this way to buy shares in Eurotunnel in the belief that the cost estimate was the mean of possible outcomes was, in effect, deceived. The cost estimate of the prospectus was a best possible outcome, and the deception consisted in making investors believe in the highly unlikely assumption–disproved in one major construction project after another–that everything would go according to plan, with no delays; no changes in safety and environmental performance specifications; no management problems; no problems with contractual arrangements, new technologies, or geology; no major conflicts; no political promises not kept; etc. The assumptions were, in other words, those of an ideal world.

We have already seen the Waimea Community Dam project budget blowout from $79-$82 million to in excess of $100 million. It would appear that a $26 million blowout before the project even starts, despite being told “we are 95% certain it will come in on or under budget,” would definitely be a contender for a case of strategic misrepresentation.

The case is all the stronger when considering that a number of questions had been asked about the robustness of the budget given the current contractor environment and escalating costs and also the extremely underwhelming figure given to clear and prepare the reservoir. To put the figures in context $1.2 Million was allocated to cover the costs of clearing and stabilising the 70-hectare lake reservoir in challenging terrain compared to (for example) $3 million to widen Bateup road, or almost $5.5 Million to upgrade Borck Creek (different in scope but also significantly different in scale).

The case for continued strategic misrepresentation is no less moving forward given the extreme pressure to reduce the budget to an “affordable” amount as the Council elects whether or not to embark on the Waimea Dam journey. A cynic might also reiterate that a lower quote price works in favour of those partners who’s spend is capped once a price is agreed upon and construction blowouts fall on other parties.

Local chartered accountant Ian MacLennan isn’t convinced that the true costs of the Waimea Dam have been revealed. His own research indicates that the true cost of the dam could be as high as $400 million by the time it is paid off.

It was “alarming to me that at no stage has there been open and honest financial modelling of either project risk or interest rate risk to underpin the discussions, decisions and commercial arrangements”.

In the absence of such a financial model from the council “I have prepared one as I was interested to properly understand … the true commitment TDC was making for ratepayers”.

MacLennan said he had taken publicly available information from the WIL disclosures for its capital raising and disclosures in the council’s Long Term Plan 2018-28 consultation documents, and calculated the GST-inclusive cash commitment required “as most of us ratepayers cannot get that back”.

Three build and operating cost scenarios, three interest rate scenarios and three loan-term scenarios of 25, 30 and 40 years, were run.

MacLennan made that 19-page financial model available to the council.

He said in light of a recent revelation of a $26m budget blowout, the minimum initial dam project cost would be at least $114m but could go “well beyond” $131m in his upper net project cost scenario.

MacLennan is also a believer that irrigators are receiving a subsidy by the urban water user and general ratepayer. “He estimated irrigators would gain at least 80 per cent of the benefit from the proposed dam, earmarked for the Lee Valley, but would pay $136m of the $300m-$400m project life-cycle costs.”

If the dam continues to be built under the current financial model McLennan believes there will be a significant transfer of wealth on the Waimea plans – perhaps of the magnitude not seen since the Maori first signed a deal with the early settlers.

A further explanation of MacLennan’s model can be downloaded here along with the figures that he produced downloadable here.

Council staff are having the figures independently reviewed for comment at the council meeting on the 28th of August.

An MPI study revealed a different story to that which the Mayor and staff endorse:

The Waimea Plains is one of New Zealand’s major horticulture areas and is highly reliant on irrigation. Irrigators draw water from a complex integrated surface water and groundwater systems. Freshwater resources in the Plains area are over-allocated in terms of quantity, 64% above the allocation limit. Water users face significant seasonal restrictions due to natural fluctuations in river flow and low groundwater storage, that is, water in the Plains is unreliable.

The proposed Waimea Community Dam (the dam) would address over-allocation and unreliability and would allow expansion of current irrigated areas. However, if the dam does not proceed, the Tasman District Council would have to phase out over-allocation by cutting back on water permits or making other changes to the management regime.

Strategic misrepresentation appears to be a significant concern across the boundary in Nelson City as well with projects going well over budget and work not being completed, meanwhile, governance is kept in the dark.

Nelson City councillor Matt Lawrey had the following comment to make on the Waimea Dam “My message to members of the Tasman District Council is that it isn’t just their hairstyles that have changed since the ’70s; lots of things have changed including the concept that you can save a river by damming it, the idea that it’s acceptable to socialise costs and privatise profits, and the notion that growth is justifiable at any cost.”

Lawrey’s not the only Nelson City Councillor who is not convinced about the Waimea Community Dam process, his colleague Paul Matheson said the process was “one of the most appallingly managed projects [he had] ever experienced”. “The water has become so muddied that it’s like a porridge that’s been sitting out for a while.”

Have we been sold a line of strategic misrepresentation?

I suppose I will have to visit the local barber to get the low down.

  • Councillor McNamara
    Photo Credit BRADEN FASTIER/STUFF

Filed Under: Your Say Tagged With: lie, strategic misrepresentation, Waimea Community Dam

Scaremongering Mayor

25/07/2018

scare tactics to sell waimea dam

After the announcement that the Waimea Community Dam has run millions, and millions, over budget before a digger has even put a bucket in the ground Tasman Mayor Richard Kempthorne has gone into over drive with the doom and gloom press releases.

As quoted by Cherie Sivignon in the Nelson Mail the Mayor says:

Water tankers may be needed on the streets of Brightwater during severe droughts if the Waimea dam project is shelved.scare tactics to sell waimea dam

“We’ll be slipping into Third World provisions [in a severe drought],” said Tasman district mayor Richard Kempthorne. “I think, the community doesn’t realise that’s what we have ahead of us without the dam.”

Kempthorne said he expected to be accused of scaremongering but the rules for tougher rationing in dry spells were in place under the no-dam provisions in the Tasman Resource Management Plan (TRMP). The rationing and related restrictions would affect rural and urban water users in the Richmond, Hope, Mapua, Brightwater and Redwood Valley areas including businesses and industry.

Of course, what he doesn’t mention is that if the dam project goes ahead as currently planned, there will likely be no inhabited streets of Brightwater. Already, they have proven that they have no idea what the cost of the dam would be, much less that they have any idea of the potential for overruns. Overruns that the ratepayers of this district are solely responsible for. There is every potential that the proposed $100 million-dollar dam could overrun by another $100 million like the Clyde dam. I suspect that by the time that the extra $30 million plus the potential extra $100 million is added to the rate bill of the residents of Tasman there will be a lot of cheap housing for sale as ratepayers file for bankruptcy.

It is rather ironic that when I argued that new residential builds should be required to put in water tanks like their rural neighbours it was argued that it would be too expensive. On the other hand, we can put up water rates by 1000% to pay for a dam and that is acceptable.

Staff have also been roped in to sell the dam at any expense.

“In the worst-case scenario, when there are cease-take directions, Tasman will face its own ‘Cape Town’ situation and people will collect water from tankers,” Bush-King said.

In the worst-case scenario with the dam going ahead we will face Cape Town like situations where a significant number of people will be living in cardboard boxes and shantytowns as they are forced off the land they currently own – if we are going to talk about “worst-case scenarios.”

Kempthorne agreed such a situation would not be palatable to ratepayers.

“That is why I have taken so seriously trying to bring in the Waimea Community Dam – because of the impacts without it.”

The council had a responsibility to provide a secure urban water supply and would have to look at other options if the dam did not proceed.

However, those other options were “considerably more expensive”, Kempthorne said.

I am pleased he explained why he has pushed this dam through with so many casting votes and spent so much money driving this project against the wishes of more than 80% of the consultation respondents because I had been wondering what his motives were.

However, he does again resort to gross exaggeration by stating that those other options were “considerably more expensive.”

Considerably more expensive than what? A $100 million-dollar dam plus full liability for all overruns? I don’t think so. He has conveniently forgotten to upgrade his figures unless Engineering manager Richard Kirby is going to revise the figures of the alternatives again to bring them back inline with the Mayor’s comments.

Last time Kirby revisited the “plan B” options they were found to be in need of some serious rescoping which increased their price by up to four times the previous budgets. When asked to apply the same scrutiny to the Waimea Community Dam he repeatedly came with the same lowball figures used to generate a P95 in 2015. It was a complete surprise when the quote missed the budget by almost $30 million dollars.

Even the recently inflated costs of a storage pond capable of supplying urban water needs for the immediate future is nowhere near the figures now being talked about for the Waimea Dam. While the initial potential plan B pond will not meet the 100-year projections, that they claimed to be able to meet with the dam, it will avert “Cape Town” like conditions in the near future.

Of course there are many options to avert urban residents begging on the streets for a cup of water including further reductions of the irrigation permits to bring allocation back inline with the new water availability requirements. Another might be to raise the price of water as restrictions are applied to ensure water is not wasted. Fixing leaks in the network is an option that many people are calling for, as are water tanks for urban users.

No solutions are going to be without cost, however, one thing is certain, the extra three million dollars that the Mayor used his casting vote to spend on the Waimea dam this term would have been better spent on a project that was affordable. Not to mention the thousands of dollars a day still being spent on the Waimea Community Dam project at the Mayor’s direction.

Filed Under: Projects, Spending Tagged With: Richard Kempthorne, scaremongering mayor, Waimea Community Dam

Concerns Growing Over Waimea Dam

24/02/2018

Waimea Dam train wreck

My concerns over the proposed Waimea Dam continue to grow. Not helped by the two days of “deliberations” following the recent public consultation. We were asked to submit any questions that we had prior to deliberations where a panel of “objective technical and legal experts” would answer them. Unfortunately, although I submitted a list of questions (provoked from the dam submissions) prior to the deliberations most of them remain unanswered as they did not fit within the scope of each allotted expert so I was unable to ask them.

Following the question and answer sessions council moved to pass the motion on the agenda. Normally in the case of a deliberation councillors would take each of the points on the consultation and debate the results of the submissions. Only some councillors seem to remember this kind of deliberation taking place (oddly, they seem to be aligned with those who in general support the dam). Other councillors raised concerns over the process.

I have serious concerns about a board controlled by Waimea Irrigators on a Council Controlled Organisation working on a project the rate-payers are underwriting the lion share of. This despite when it was first raised that councillors would not be on the board I questioned the term sheet and was told it was not actually in the terms sheet that councillors were excluded from the board – contrary to the information released by the irrigators in their Statement Of Proposal.

I also questioned at that time the ability of WIL shareholders to be on the dam company board because they would share the same perceived conflicts that any council members might. I was given the assurance that this issue would be addressed. In the last full council meeting 22.02.18 I find out that it was not addressed and that we fully expect WIL shareholders to be on the board of the dam company.

This poses a problem because in the construction phase it is in the irrigators best interest to have a low quote with lots of overruns. A low quote (or on budget quote) ensures the project proceeds while cost overruns are not a concern for a partner with a capped liability.

An irrigator biased board poses a problem going ahead because irrigators will be controlling the release of the water to suit their best interests leaving the residential supply at higher risk during periods of extreme drought.

Of course, WIL board members are vastly more experienced than councillors some of them have prior experience with large companies such as the recently bankrupt Solid Energy.

Waimea Dam train wreck
Full Steam Ahead On Waimea Community Dam

I have other concerns which on their own may seem minor, but taken as a collective suggest that this project has a lot in common with people who in the past have been sold a great deal on the Brooklyn Bridge.

For instance, despite repeatedly asking about sedimentation infill rates I am still informed that in 100 years we expect the volume of infill to be 300,000 cubic meters. This indicates that a huge man-made reservoir is going to have zero impact in the levels of erosion upstream of the dam.  They assert that there is currently 3000 cubic meters of sedimentation flowing down the river historically, this figure multiplied by 100 years gives the figure quoted of 300,000 cubic meters. Obviously, I am not a qualified engineer nor a geologist so I am unable to dispute the logic used here.

There is a contingency figure of $143,000 built into the project office estimate for a total of $2.2 million. When I queried the interim project manager why there was such a high contingency figure on the project office I was informed that it was for the purchase of telecommunication equipment because it is cheaper than airfares.  This is slightly concerning that a $143k contingency be built in to the office management budget in case the purchase of telecommunication equipment spend overruns. Remembering that they have in excess of a $2million dollar budget for running an office for three years without it. To put it in further context the budget for land and access is a mere $2.9m and other sunk costs (could be anything) climb another $1.3m.

On a similar note council also signed off on overseas travel as approved by the project manager in his delegation authority. There is no specific budget limit allocated to this delegation.

Council also agreed to fully accept another $799k of sunk costs which no doubt includes the $12413.20 spent on a Dam Straight media campaign when it became apparent that submissions were coming in overwhelming against the dam proposal. Remembering that these growing sunk costs are increasing the over-all contributions of TDC to the dam over-and-above our share of the now $82.9m “core project Budget” as per the WIL PDS.

Other contracts quoted for engineering work to be done on behalf of council are coming in 15 to 100% over budget because of the huge amount of work in the district and the ability of the contractors to pick and choose the contracts that they accept.  This is not an isolated local issue as Fletcher Construction can attest to. I suspect that cost over runs already experienced on the project combined with inflation and contractor’s ability to demand a higher price have eaten well into the “P95” contingency figure before any earthwork begins.

As someone who entered the Council supporting the concept of a dam I have been left drowning in concerns over the proposed Waimea Community Dam and the effect it is going to have on rates if it proceeds any further.

My attempt at the last council meeting to have the Mayor’s right to a casting vote removed because I have lost confidence in his ability to use it in a prudent manner was deferred for a future report. A cynic might suggest that the report will not come back to council for a vote until after the dam has been signed off.

 

Filed Under: Projects, Spending, Your Say Tagged With: casting vote, concerns, Waimea Community Dam

Lies Damned Lies and Statistics

14/08/2017

waimea plains picture

Following the distribution of the Newsline – the dam special edition, I have fielded a number of communications questioning the level of “propaganda” that council has stooped to. Initially, I was somewhat surprised of the response as my copy had not been delivered.  Interestingly, councillors had been receiving a pre release copy of Newsline for proof reading. This copy was not circulated prior to publication, so I did not have an opportunity to address the errors before it went public. Given that my opportunity to address issues privately was not given I will address my issues in the open forum.

Without getting bogged down in the fine print, I will just address the glaringly obvious propaganda as presented pictorially. The first obvious use of “Lies, Damned Lies and Statistics” (as penned by an author of disputed origin) is found in the picture on the front page.
waimea plains picture
One wonders why a discussion about the Waimea Plains, as affected by the Waimea Community Dam, shows a picture of the Wai-iti Plains – not affected by the Waimea Community Dam?

Yes, it is possible to see the Waimea plains in the distance, but a good half of the land pictured shows land that comes under the 88 Valley (or commonly referred to as the Kainui) water scheme and is not affected by the Waimea Community Dam discussion.

The use of the picture really just highlights how little land mass we are really talking about when we hear the stories of great woe that befall the world food supply (as present to council by John Palmer) or the national food supply (as reported in Newsline).  Yes, there may be some impact locally to vegetable prices until another source is found in a no dam scenario, but a dire impact globally? Interestingly, the boutique crop of hops as mention in Newsline are mostly grown outside the Waimea Community Dam catchment – which makes one wonder if John Palmer is writing Newsline now.

Moving on we come to the pictures following the Mayor’s soliloquy.weight loss before and after

Sorry, these are not the dam pictures they are pictures of Bailey – winner of the 90 day weight-loss challenge at lifetime-weightloss.com.  And while I congratulate Bailey on her efforts, I find the photos used here typical of photos used in this genre of advertising.

And I am sure that many of  you will have noticed that in advertising the benefits of the Waimea Community Dam  that we have used the same template as the traditional weight loss miracle cure before and after photos.Waimea River With Dam

With a dam we use the flash on, bright colours, full make-up, hair fresh from the salon, and big smile template.  It is a sunny day, we have chosen a cross-section of the river where there is lots of green grass in the picture, and the fish are playing happily (we can assume).

No dam no sun pictureWithout a dam the story is much different. There is no smile, no make-up, no flash photography, and the hair is messy.  Or at least the picture has been photo-shopped to appear devoid of 90% of the colour. Ironic really given that the water crisis generally occurs mid summer. We have also chosen a different cross-section of the river that contains no greenery, only grey lifeless gravel, and one can only imagine in this Armageddon-like scene that the fish are not smiling at all.

The reality is that had both pictures been taken from the same perspective on equally sunny days you would barely see a difference between an 1100 litre per second flow an 800 litre per second flow.

Of course that is not the only occurrence of where we have refused to let the facts get in the way of a good story.

average water use for common tasks chart

“Average” in a mathematical sense usually refers to a mean average or a median average figure. Median being a mid point figure, and mean referring to number generated when the sum of figures is divided by the number of figures used.

In this list of common water usage activities the term Average would appear to mean something entirely different – I am not sure what. Take for instance the average figure given for flushing the toilet, here it is given as 11 litres. While old single flush toilets may have used 11 litres per flush or more, the Caroma national survey reveals 60% of households use a split flush system, most of which operate on a 6/3 litre flush and newer design toilets are even more economical again with their water use. So, for the “average” flush to be 11 litres some people must be using their bath as a header tank to flush the toilet.

The same can also be applied to the 5 litre figure given for hand washing. That is two and a half ice-cream containers of water used for every hand wash. Some people must have a lot higher water pressure than me, or they take an extra ordinarily long time to wash their hands, or again, they are filling the bath to wash their hands if the “average” figure is 5 litres per hand wash.

The next chart that I would highlight is exactly the kind of use of statistics that the author of the “lies, damned lies, and statistics” quote would have been referring to, I am sure. Augmentation option statistics

Council staff will apparently tell you that this accurately represents the associated costs of the dam to urban water users.

The first fallacy is that it assumes that urban supply users are not general ratepayers as well because there is no ongoing costs for “environmental flow” included in the graphic – which is odd because they include the environmental flow component of construction costs. Even in this model urban supply users will be paying general rate subsidies of the actual cost of water supply from the Waimea Community Dam. I repeat, these figures are not shown on the table.

The other issue with this model is that “environmental flow” costs have been segregated out in the first place. When this model was first presented to council environmental flow was described a separate entity from water extraction. What has since come to light is that environmental flow is a direct cost of using the river as a conduit to run water from the augmentation source (the community dam) to the end user.

The reason that all the other options looked at are outrageously expensive by comparison to the Waimea Dam is because all the other options have to include piping from augmentation source to end user. We cannot use the river as a conduit to channel the water if we are putting in X litres of water at the top and taking the same X litres of water out at the bottom of the river (or where ever extraction occurs). To use the river in this manner would necessitate supplying a certain level of environmental flow above the water extraction levels which none of the other options have capacity for.

Not only is there a saving in piping by using the river as a conduit, there is also a large saving from treatment because the river is doing the bulk of the “treating” of the water for us when it is used as a conduit.

Therefore, the cost of using the river as a conduit (rather than piping and potentially treating) is that environmental flow has to be accommodated for.  This is not a “public benefit” cost that should be attributed to the general rate payer, this is a water extractor cost that is currently being directly subsidised by the general rate payer. Another means by which the general rate payer is being expected to prop up the billion dollar industry generated from irrigation on the Waimea Plains.

Finally, I would question the doughnut chart that depicts financial contributors to the dam.break down of dam financial contributions

Little details like the “SPENT” portion is added on the opposite side to the council contribution could raise eyebrows. I am wondering what genie contributed these spent funds.  At this rate the dam will be built using “spent funds” and council will announce that we have saved the rate payer $25 million by not using the allocated budget from the Long Term Plan, even if it costs council $50 million in spent funds.

But, I guess that is how we can keep council contribution to the quoted 33% if we don’t include spent funds, which looks like a really good bargain.

There is also the small matter of CIL contributions included as the same colour as Waimea Irrigators $15 million contribution. In my business education I understood that the person who underwrites a loan is the person responsible for the loan (many a parent, and best friend, has come unstuck by not fully appreciating this fact). Given that council is being asked to underwrite the CIL loan it could be considered misleading at best, and down right deceptive at worst, to attribute that loan directly as WIL contributions.

If the Waimea Community Dam is the goose that lays the golden eggs:

as the proponents of the dam would have us believe, then why is it consistently being over-sold?

The most damage to the dam progress has not been fliers delivered by Murray Dawson or other anonymous detractors. The most damage to dam goodwill among the general rate payers is the constant and consistent propaganda put out by the Council and Waimea Irrigators.

Why are we using suspect at best statistics, and outright lies to sell what is reputedly a no-brainer for the Tasman District?

Yes, I said outright lies. If you consider that none of the above are lies, then panic not. I have other examples where I have been directly lied to in relation to questions I have raised, and information that has been presented to me as a councillor with regard to the Waimea Community Dam. Examples that will have to wait for another post as this post is supposed to be a quick analysis of some of the obvious propaganda presented in the Newsline special edition.

We could have looked at some of the anomalies in the small print but given that the recipients of Newsline are obviously deemed to be imbeciles by the authors of Newsline one would assume that the recipients don’t read the articles.

Perhaps the Waimea Community Dam is actually a lemon painted up to look like a Ferrari?

Perhaps we should accept the offer ( or threat, depending on how you read the articles) of the Waimea Irrigators who have publicly stated they will pack up and move on if the dam is not built?  That would solve the over allocation of water situation amongst the irrigators and those that remain will then have a greater security of supply.

It is hard to see the best solution amidst all the smoke and mirrors and statistics spewing forth from the irrigator/council marketing department.

Filed Under: Projects, Spending, Your Say Tagged With: TDC propaganda, Waimea Community Dam, Waimea Dam lies

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