Special Dam Meeting
Council Chambers
Shane Jones Challenge To Waimea Irrigators
If a person or persons were receiving a helping hand (like a subsidy) you would think they would respond with gratitude. Not so with the members of WIL. They have two responses, one is denial, and the other is to attack anyone that suggests they are receiving a subsidy.
Why do people dare to suggest that WIL are being subsidised in relation to the share of the Waimea dam? It is not just me making this outrageous claim Forest and Bird chief executive Kevin Hague questioned why 16 per cent of the fund’s latest grants – making the project the single largest awarded so far – had gone to what he argued was a taxpayer-funded subsidy for irrigation.
If we go back to the beginning (or at least to the beginning of this term of Council) we are presented with a Waimea Community Dam funding policy that was extractive users (irrigators and Tasman District Council/Nelson City Council community water supplies) would contribute one-third of the capital costs of the environmental flows/public good, 30% of the project costs, i.e. 10% of the project costs. All operating costs were to be met by extractive users. That meant that the Council would not contribute operating costs relating to the environmental flow capacity.
Then on the 14th of June 2017 Council was presented with a new funding model because “Waimea Irrigators Limited are at (or near) the limit of their ability to pay.”
“That approach to cost allocation on extractive use has been deemed unaffordable to irrigators especially in light of the increase in estimated operating costs.”
“The JV Working Group is developing an alternative for consideration by all parties that involves the Council covering the full costs of the environmental flows. The Council is also being asked to meet the operating costs on the environmental capacity.”
“The revised allocation of operating costs would see the Council contribute 52% of operating costs and irrigators 48%. This approach would see the Council’s operating cost contribution increase by an estimated $460,000 per annum to $675,000 per annum based on current LTP and dam operating cost estimates.”
Not finished there WIL also required an underwrite of their $25 million CIIL loan so they could get a reduction in interest rates. “the project is ‘in the balance’, unless the Council agrees to go back to the negotiating table with a view to meet the additional costs and providing the credit support being requested of it.”
“The Council’s current strong financial position, in particular it’s lower than budgeted debt level puts it in a position where it can accept the irrigator funding debt being held within the Joint Venture. Debt in the JV or in WIL will be treated as Council debt by credit rating agencies.”
By 19 October 2017 the full extent of the subsidy had become apparent for “the Waimea Community Dam (Dam) project to proceed it is likely that Council would need to agree to the overall funding package and Council’s contribution of $26.8m. WIL have made it clear through the funding negotiations that they are at their potential shareholder affordability limit with this funding model.”
The total estimated cost of the Dam project (excluding incurred project costs) is $75.9 million (m). Under the Dam funding proposal this would be funded on the following basis:
- $50.22m by extractive users, where a secure water supply is guaranteed.
– Irrigators through (WIL) $37.12m
– Nelson City Council’s (NCC) $3.52m
– Council $9.58m
- $22.77m by Council for the benefits that would accrue to the environment and community generally. This would be funded through:
– $7m grant from the Government’s Freshwater Improvement Fund (FIF Grant)
– $10m interest free loan from Crown Irrigation Investments Limited (CIIL) (that Council would need to repay),
– $1.48m from Nelson City Council
– $4.29m by Council
- $2.91m by Council for its share of the additional Dam capacity for future use
“Council would provide credit support of up to $29m for the CIIL $25m loan to the dam company for WIL. The reason for the difference is that from day one, once the loan costs and interest are capitalised, the actual potential maximum liability of the loan would be $29m.”
The “future use” component is the difference between the dam capacity of 7765 hae and the portion that irrigators decided would actually be uneconomic for them service, a total of 850 hae. “Additional capacity in the Dam would be shared on a 50/50 basis between WIL and Council. This results in each partner contributing $2.91m. WIL’s contribution is included as part of their $37.12m contribution as in paragraph 5.1.1 above. Because the use of our additional water capacity has not yet been determined, Council is treating this cost as part of the benefits that relate to the environment and community generally.” It will be serviced from surpluses in Council’s Commercial account.
Not yet finished with the subsidies, there was also the small matter of cost overruns.
There is a $13m contingency allowance for the budgeted dam construction cost of $50m. This provides a high level of confidence (95%) that the dam will be constructed within budget. In relation to project cost overruns, amounts between 0 – $3m would be shared on a 50/50 cost share basis between Council with irrigators, while debt above $3m would fall to Council to fund.
There were also those sneaky costs not shared in the project costs that council would raise a further $2m to $2.7m through a Table loan over 30 years to cover additional project costs to financial close.
How far we have strayed from a water extractor or beneficiary pays model.
Where the principle of user pays and/or direct beneficiaries pay is applied to the Dam project, then the allocation of capital cost relative to the levels of current and future extraction is:
- $37.13m for irrigators (WIL) – 69.9% of $53.13m capital costs allocated to extractive use
- $12.5m for Council – 23.5% of $53.13m
If the $22.77m capital cost allocation apportioned to environmental/community benefits was fully funded by the exacerbators/users at the same percentage of their extractive use, then Council’s share would be $5.35m and WIL’s $15.92m.
“The total cost if transferred to landowners/irrigators would make it unaffordable for them. It represents a 43% increase in the proposed capital investment and the associated costs.”
To Recap
- The urban water user/ratepayer bought more shares (or hectare equivalents) than we will need in 100 years growth.
- The urban water user/ratepayer underwrites the WIL loan from CIIL so they get a cheaper interest rate.
- The urban water user/ratepayer picks up significantly more running costs than their share of the allocation because it is too expensive for irrigators.
- The urban water user/ratepayer picks up all the cost overrun liability (that won’t happen – yeah, right!) because the irrigators are at their limit.
And this is what the irrigators have to say about their subsidy:
On the Waimea Water Facebook page Horticulture NZ Chair and WIL shareholder Julian Raine “there is no subsidization by ratepayers. Irrigators are paying their fair share. This is a myth naysayers have made up. If irrigators do their own augmentation then the rest of the community will pay double the current cost. It’s not rocket science but clearly lost on some. The Dam is a win win solution”
WIL chairman Murray King on Radio Live speaking about the recent protest outside of council “ Probably half the people there were probably in support of the dam.” If 30 supporters are about the same as 300 demonstrators then yes that is the same math that could be used to say the irrigators are paying their fair share.
After being told for the past two years that WIL were at their limit, any more would be unaffordable for irrigators, two weeks after the announcement of a $26 million budget blowout the mayor announced that the irrigators would meet their share. How do they suddenly now find the capacity to meet supposedly an extra $13 million?
Possibly because an MPI case study reveals that:
The dam would also provide close to full water supply reliability for existing irrigators, representing a $2.9 million (or 20%) increase in average annual earnings.
The extra money that the irrigators could contribute is confirmed by Murray King who said:
without a dam, larger irrigators would look to put in their own storage ponds, “which will mean instead of having a community solution, irrigators and the council will end up competing with one another for water”.
“The cost to irrigators to construct on-farm storage will be more than four times what they are currently contributing to the dam,” he said. “If you add the consenting costs and the opportunity cost of the loss of productive land then the figures are even worse.”
Image credit – BENN BATHGATE/STUFF
Perhaps this is why Shane Jones challenged the region’s civic and economic leaders to do the “vast majority of the heavy lifting” to cover the funding shortfall before they could expect “expeditious treatment” of the growth fund application.
He would not be specific about how much extra funding needed to come from both groups, but thought the economic stakeholders were “capable of picking up quite a bit of that (deficit)”
It sounds like from a Government perspective that if the irrigators are not prepared to “step up to the plate” then the Waimea Dam project is dead in the water.
If the dam fails to get across the line the MPI study reveals that the 64% overallocation would best be solved by:
Clawback based on irrigation needs would result in lower costs than flat-rate cuts (an 8.5% drop in average catchment profit compared with a 10.4% drop) and a slightly more even distribution of those costs. This is a logical conclusion, consistent with the approach already adopted by many regional councils.
P95 Probability or Implausibility
For the past 18 months or so I have heard a lot about the P95.
What is a P95?
Good question!
I was told that it was a 95% likelihood that the Waimea dam would be built on or under budget.
Given the current state of press releases coming out of the Tasman Council, I thought it would be timely to delve a little deeper into this magical assurance while we await the next announcement. Incidentally, press releases are the only way anyone gets any information regarding the dam (not as big an exaggeration as you might imagine, councillors are just privileged to receive their copy 15 minutes ahead of the general ratepayer).
Back in January 2016, we read in the Nelson Mail the following:
The dam’s estimated cost rose to $83m last year after costs were revised by the council’s consulting engineers…
The council’s $83m figure is based on a risk factor which assumes there is a 95 per cent probability the dam can be built for that amount of money or less. It’s known as P95.
WCD project manager Nick Patterson said the dam can be built for $73m, including the $6.5m already spent. This was using a P50 risk factor that assumed the dam could be built for that amount of money or less.
There was a lot of confidence around what price the dam could be built for and the level of certainty once we added a few extra million and called it a P95. These confident assertions have continued right up until the press release on July 5 2018.
The Mayor was an early adopter of this confident boast as is recorded in articles such as this Stuff article on September 2017:
Richard Kempthorne said the dam costing was based on a “P95” confidence level, which meant the council could have 95 per cent confidence the dam would be constructed at or below the estimated cost.
“At or below the estimated cost” was the catchphrase that echoed the Council chambers every time anyone questioned the possibility of cost overruns. We have used a P95 to arrive at the budgeted figure.
On the 10th of August 2017 Natasha Berkett is quoted in the Farmers Weekly as saying:
However, there was also a $13 million contingency allowance in the $80m project for further increases.
“We are working to a P95 standard that is where we are 95% certain about the cost of the project.”
Waimea Irrigators Ltd advocates John Palmer and Murray King scoffed at any hint that there would be any budget blowout. The Waimea Water site boasts the following:
Are the cost estimates for the Dam accurate?
A great deal of work has gone into the current cost estimates for the dam construction and project leads are currently undertaking another robust analysis.
The base cost estimate for the Dam construction is $50m. On top of that there is $13.5m included in the project estimate for changes in scope and unexpected cost increases. This raises the level of confidence in the estimate to a very high level – there is only a 5% probability that the costs will exceed the $63.6m budgeted and a 95% probability the project will come in on or below budget. That level of confidence is far higher than the typical estimates you might see in other construction projects (emphasis added)
I hope you are feeling convinced in the level of confidence that we have that the dam will come in on or under budget. That is the completed dam, including construction cost blow-outs. We are 95% certain in our facts.
Just in case you still had a few doubts we put out a Dam Straight fact campaign at the ratepayer’s expense of almost fourteen and half thousand dollars (which I realise is chicken feed compared the ten million, in round figures, lost on the project to date).
To prevent large cost overruns, Council is doing all it can to keep risks to a minimum including:
- using a p95 level for construction costs, meaning that there is a 95% probability that the project will come in at or under budget;
- using modern engineering and risk management approaches and external professional advice; and
- $13.5 million contingency for changes in scope and other unforeseen eventualities.
Can there be any doubt as to the robustness of the budget after we used a P95 level, modern engineering and risk management approaches, external professional advice, and even a whopping $13.5m contingency figure for good measure?
Well, some people thought so. One such person is Paul MacLennan who indicated:
TDC’s own recent admission they have never priced the civil cost of the 87 Hectare Reservoir and sealing of the lake bed to hold the 13.4 million cubic meters of water is appalling and makes the TDC claim $76.9 million at P95 a gross misrepresentation.(emphasis added)
A rather strong assertion. He claimed that “clearing 87 Hectares of steep, sloping, and fractured terrain will cost $30 million plus.” I tried to follow up on his concerns with staff only to receive repeated replies attesting to the robustness of our P95. A P95 that it seems, from reading between press release lines, was so grossly inadequate that it didn’t even cover the quote, never-mind the inevitable construction overruns.
In his submission, during the Waimea Dam consultation process, Dr. Roland Toder questioned the P95 claim.
A so-called ‘P95’, as mentioned by TDC is misleading. In project management, percentiles are expressed by P followed by the percentile. A P95 estimate of $82.5million means that the project has a 95% chance of being completed with this or less amount of money. Normally one uses data one has from similar activities (like executed several dams of similar size before). Ideally, if you have a number of similar activities (many dams of similar size) that would be best, because from this data, you need to find the mean (expected value) and the standard deviation (to determine the range of error) for each activity. THEN you can calculate cost and timing estimates for the entire project.(emphasis added)
People from the Water Information Network Inc also protested the validity of the P95 figure sold by WIL and Council staff.
- Tasman District Council (TDC) admit they have never priced the clearing cost of the 87 hectare reservoir.
- With steep, sloping and fractured terrain clearance of the area is likely to cost over $30 million.
- Similarly, no costing has been made for the sealing of the lake bed to hold 13.4 million cubic metres of water.
- Removed trees, bushes, shrubs, detritus, topsoil, and stumps will add up to a metre-high pile.
- This will amount to around one million cubic metres to shift from the Dam’s footprint area to a stockpile area where run-off can be managed until final disposal.
- Silting up risks and decommissioning costs have not been taken into account.
- Suitability of rock fill ‘borrowed’ for the Dam wall has not been accurately assessed. So it may not be suitable.
- All of this indicates that TDC’s claim of $76.9 million at p95 (95% ‘accurately’ costed) is a gross misrepresentation. (emphasis added)
I repeat that when I questioned the validity of these claims I was told that we had sufficiently budgeted all aspects of the dam, and early indications on pricing confirmed the validity of the budget.
When I questioned the age of the original estimate given that all our current contracts are experiencing a premium in a high demand marketplace I was again assured that the estimated budget for the Dam was adequate.
At the councillor 15-minute-advance-notice-of-the-press-release meeting, I asked TDC engineering department head Richard Kirby which aspects of the dam quote were currently running over budget he said he didn’t know. When asked what was the range of budget blowout on the figures that had come in to-date he responded that he didn’t know. When I questioned that they had called an extraordinary briefing and are about to send out a press release announcing that there are significant challenges with the contract price meeting budget and yet you are telling me that you have no idea what the overrun gap is? He confirmed that was correct.
The head of Engineering doesn’t know the figures.
The Mayor doesn’t want to know the figures.
I want to know whose head is going to roll for misleading the Council over the 95% certainty of the price for building the Waimea Community Dam. Information that resulted in the Council spending the best part of ten million dollars of ratepayer’s money progressing the project to this point. Whether deliberately misleading councillors or doing so through incompetence someone has to be held accountable.
Dam Budget Bombshell
Early indications of huge blowout in the Waimea Dam price call into question the entire dam process to date.
Today, Councillors were called into an extraordinary briefing session ahead of the Community Development Meeting where we were informed of a press release going out within minutes stating that there are “significant challenges” with the early dam pricing to achieve a within budget price.
I asked for an indication of what aspects of the dam they had an indication were running over budget – they could not tell me.
I asked what kind of budget blowout range we are talking. Again, they were unable to tell me.
I stressed that they felt it important enough to call an extraordinary briefing and go out with a press release and yet they are telling me that they have no idea of what kind of early indication budget blow out we are talking about. They confirmed that was the case.
We were told that the press release was to address the fact that there is already information “on the street” about the dam budget being insufficient. This is interesting given the ridiculous conditions that they suggest at the last council meeting be imposed on Councillors wishing to view the dam Term Sheets with our partners. It also supports the Councillor’s decision not to accept personal liability for the leaking of information when this dam is already full of leaks. Leaks that could not have come from Councillors as we are not allowed to know any information at all around the current pricing of the dam.
The fact that staff were unwilling to suggest any kind of price range leaves one to speculate that is so far away from the budgeted figure that there is no likelihood we are going to be able to achieve a dam. If that is the case then there are some serious questions that need to be answered.
Do council staff have the experience to manage a project of this magnitude?
When the current members of the Council table wished to revisit the “plan B” options a revised estimate of each project was produced. Without exception every other option had the budget increased by 2, 3, even 4 times the budgets originally presented to council. It turns out that the projects were not fully scoped and there was an array of reasons why the budgets had to be revised to be accurate in the current market.
I asked for a similar review of the Waimea Community Dam as my own assessment, and the advice that I was receiving from experts in the fields of forestry, earthmoving, and even dam building was that aspects of the budget were seriously deficient. The assurance that I was given by staff on numerous occasions was that we are confident that the pricings were accurate. Various aspects of the project along the way we were told were coming in within the budget range. We have been repeatedly assured by our staff, and by the likes of John Palmer, that this budget was so robust we could be 95% sure it will come in on budget.
Why this is important is because Council has elected to continue spending money on the Dam project based on this advice. I am sure it was this advice that the Mayor relied on when he used his casting vote to increase the dam budget by $3million dollars. It was also on the back of this information that the Council elected to proceed with the early contractor engagement process (ECI) to get a finalized quote for the dam – also costing the Tasman ratepayers a significant amount of money.
If the dam fails to proceed due to excessive budget blowouts I feel somewhat responsible as a Councillor. I have failed in my role as governance to monitor the process adequately before we ended up with a $10million bill for a dam project that was not affordable. However, I have been asking questions for the past 2 years, I just have not been getting all the information to make a better-informed decision.
When the irrigators were telling us that they could not afford their share, and urban water users and ratepayers who already paying some of the highest rates in the country could not afford more than their share, I questioned how we could proceed with the project. I should have insisted more strongly that we revisit the viability of the dam.
When I was repeatedly told that we had sufficient budget for aspects of the dam that were clearly under budgeted I should have insisted on further investigation. When I was told that I could not view Term Sheets or the Schedule of Risk I should have insisted as governance that I have a right to view such crucial information before making decisions around the dam.
Alarm bells should have gone off when the Mayor insisted that he did not want to see Term Sheets or the Schedule of Risk. As someone who reserves the right to vote twice (despite my attempt to remove that right) the Mayor should be extra well informed on significant projects that he is voting on, and yet he does not even want to know how much the early quote indication is over budget (as quoted here). Questions have been raised in the community if he is up to the task and I am struggling to find evidence to suggest that he is. Certainly, Mayor Kempthorne’s current approach of burying his head in the sand at every given opportunity does not suggest he is capable of leading significant projects.
Now that we have been given no indication of how much the budget is looking likely to blow out by we are left in the position of assuming that it is as stated in the press release a “significant challenge.” My next line of questioning is how can we trust any figures that we are presented with in the future. If they manage to get the price within budget (or close to it) I will be wondering what corners have been cut to achieve it? What risks have we taken onboard that will result in huge overrun expenditure that the ratepayer is solely liable for because the irrigators have capped their liability?
If the initial estimate was only marginally overbudget you could imagine that things could be tweaked to bring the quote into alignment with the budget. However, a “significant” (staff wording) gap can only be closed by taking shortcuts or a complete redesign. We only have to look across the boundary at the Stoke Greenmeadows project to see where corner cutting and budget skimping leaves a project
I have to say that I have gone from dam sceptical to thinking that those members of the community who have been calling for a judicial review into the process may indeed be barking up the right tree. Ratepayers have a right to know how 10 million dollars of their money could possibly have been wasted on a project that had no way forward. Land acquisition is still far from a certainty, the initial budget was apparently woefully inadequate, consultation and deliberation was dubious at best, what else is yet to be shaken out of the tree?
Like all other ratepayers, I will eagerly wait for a council press release to find out what is going on with the dam!
Grandstand Dam Long Term Plan
The 28th of June full Council meeting should have been about Council adopting the Long Term Plan. However, it was overshadowed by a couple of other agenda items. View the agenda here.
A surprising turn of events saw those on council who wanted to raze the Takaka grandstand to the ground do an about face. One wonders what persuaded the change of heart when a petition of over a thousand signatures, a demonstration outside council, a multitude speaking in the public forum, and numerous emails wasn’t enough last time we voted. Maybe the TV cameras filming people in chains was a little harder to ignore?
While the Grandstand execution order has been lifted there is a long way to go before the old lady of the Bay can rest in peace. There are a lot of issues to come out of the woodwork to satisfy the Council compliance team. The success of the in-situ restoration bid will largely depend on the ability of all the stakeholder groups to put the past and egos behind them and find enough common ground to work together for the good of the grandstand.
Other agenda items were no less surprising. Councillors were recommended by staff to sign a waiver of councillor privilege and take on personal liability if we wanted to view the Term Sheets in relation to the dam. They stopped short of insisting on a strip search but required that we book a time to view the documents. We would then be allowed access to them in a secure controlled room where we were not to take any copies, electronic or otherwise, of the individually identifiable documents. If our document was proven to be leaked then we would be personally liable for the breach.
What staff didn’t explain was how our personally liable documents would be securely stored, who would have access to them, what supervision would be in place for anyone that had access to them. They also admitted that our staff that had access to the current documents did not have similar requirements, nor did the members of WIL that had access to the documents – even the Term Sheets between CIIL and TDC (rather bizarre I would have thought).
This overreaction in it self leaves one wondering what they are hiding. An earlier version of the Term Sheets was circulated with councillors without such extraordinary security precautions, so what has changed? According to the staff report councillors have “previously been made aware of the key conditions in the Term Sheets” so this is rather extreme to be protecting the non-key conditions surely?
Of course, there were those around the table that did not want to see the Term Sheets. Although, at least one of those councillors wanted “all the information” before making a decision on the Grandstand. A cynical person might say that this selective interest in getting all the information on topics seems to be related to the outcome desired by the individual councillors rather than a reasoned and fair-minded approach.
Another example of this would be a referendum on the Waimea Dam, twice denied by Mayoral casting vote. Yet on the topic of the Public Water Supply Bylaw Review the Mayor is recorded in the latest Engineering Committee minutes as saying “… that without the Waimea Dam there will be significant changes to the District’s water supply during dry summer months. He said that the proposed bylaw clarifies those changes and that it was important to consult with the community.”
It is very important that we have all the information, and the community have a voice, when it comes to water restrictions applying particularly in a no dam scenario. I can hear that cynical ratepayer making a snide comment about this being an attempt to scare them into paying for the dam. However, the current Tasman Resource Management Plan provisions in the event of a no dam scenario will require drastic water cuts should we face dry weather.
It is a pity the community doesn’t have a voice when it comes to expressing an opinion over water restrictions verses unaffordable rate increases when the dam runs over budget don’t you think? The Mayor doesn’t think so.