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13 Reasons Why-The Waimea Dam

Waimea Irrigators Ltd (WIL) have announced a new funding model for their share of the dam. The institutional investor that rode in on a white horse the day after the Council voted the Waimea Dam funding and governance model down has been side-lined.

[redacted] the institutional investor, whom we know not the identity of,wanted to de-risk his investment by shifting the risk of his shares onto theirrigators. The same irrigators who have shifted large portions of their riskonto the general rate-payer and urban water user. When the irrigators saw thatrisk was being shifted to them in similar fashion they started to squeal like a stuck pig and said it wasn’t fair.

Instead of this unfair arrangement they said they would like to fund the extra shares themselves, so [redacted] passed the hat around, and within a few days they had come up with an extra $11 million dollars from 13irrigators (and possibly one non-irrigating shareholder).

These are the same irrigators, who when we were talking about an $83 million-dollar dam said they were “at their limit” of payment and wanted Council (the urban water ratepayer) to buy more shares then the amount of shares we already had signed up for to more than satisfy our 100-year demand.

These are the same irrigators who were “at their limit” on the $83 million-dollar dam and could not possibly be tied to any dam overrun expenses, thus shifting 100% of dam overrun risk on to the general ratepayer and urban water user.

These are the same irrigators who were “at their limit” when the environmental flow components of the dam were being divvied out [these figures are a fabrication designed to shift cost from irrigators that should fall on the users for using the river as a conduit to run their water from the dam to their pumps like with all the plan B options]. The end result being that the general rate-payer had to pick up these costs (now a total of 52% of running costs) because “we all have to get there together or we don’t get there at all.”

These are the same irrigators who were “at their limit” on an $83 million-dollar project who managed to find “their share” of the increase in the dam budget when the project became a $102 million-dollar project – within a matter of days.

And now we see that within a matter of days 13 irrigators (plus possibly one other) are able to put their hand in their pocket to find another $11 million dollars. This would be in line with the comments by WIL chairman Murray King who said if the dam doesn’t go ahead they would spend more than four times their dam contribution to put in their own water supplies. 

Dam under hostage

The 13 reasons why this dam is being built have been revealed, and they will, once the dam is built, control the water on the Waimea Plains as they have a monopoly on water right allocations. They will set the price of any water shares sold and they will determine if the applicant is a worthy recipient of said shares.

[I am told this statement is factually incorrect. Council controls water right allocations through the TRMP, what the investment vehicle will partly control is the ability to affiliate and therefore get a more secure water supply.]

[redacted] This despite the fact that the general rate-payer and urban water user will be subsidising irrigators on the Waimea Plains for at least the next 100 years anyway.

On top of that we have still ended up with a scenario where the Council does not have a buffer zone between when irrigators are required to experience water restrictions and when the Council reticulation is required to experience water restrictions. I have heard all the explanations from staff how with the dam this won’t be an issue for 100 years. I have also heard how the Government could change what we currently consider to be an acceptable minimum flow in the river at the drop of a hat. I am also waiting to see that the dam works as described as we head into changing climate conditions. [redacted]

Dam Decisions

Congratulations to the Waimea Irrigators who have secured a subsidized water supply for the next 100 years (assuming the dam can be built, functions as intended, and lasts for 100 years). I hope the smaller shareholders in WIL are informed as to what risks they carry. Given that 2000 shares have been sold to investors only 3000 shares are target rateable in the event council comes knocking for a share of any overruns. I suspect that some of the 3000 shares are held by people with an exit strategy also, although councillors have no idea who the shareholders (or the investors) are.

Businesses on the reticulated supply will also be celebrating. However, I hope they read the fine print of this dam that they wanted so badly. I also thought a dam was a good solution, but not THIS dam. If the costs start to overrun then water on the reticulated supply is going to be eye wateringly expensive given that we are starting from a position of the most expensive urban supply in the country. One can imagine in this scenario that Nelson residents being supplied from Tasman will insist that Nelson City Council supplies them water, and in that scenario, there will be another million dollars a year (current prices) that will fall back on Tasman residents and businesses.

Waimea Dam good deal

Looking ahead (given that I have been accused of near sightedness among other things) we are destined for a similar problem that exists with the current over-allocation model. Urban supply should always have been protected as allocations were made on the plains. This did not happen and the council has repeated exactly the same mistake with the new dam supply model.

Given that the urban water user and businesses are paying for gold-plated shares in the dam (because it is not an irrigator subsidy) we should have a gold-plated supply guarantee. This would look something like a protected portion of the reservoir that can only be released to cover the urban supply. The deal that we have got is a deal where everyone is on the same restrictions.

During the summer the irrigators will be pumping full allocations and the tap on the dam will be opened to meet the demand. When the dam gets down to 20% capacity water restrictions will kick in across the board (irrigators, urban, and commercial). Everyone will end up on cease take at the same time just as occurs now. This will not affect the bulk of irrigators as they need the supply early in the summer before their fruit and crops are harvested. The most likely irrigators to be affected by late summer restrictions are market gardeners and dairy farmers extending their season.

However, the industrial users such as fruit processors, and the meat works will be hitting peak season as restrictions apply. Other industries also spoke about how they cannot afford any restrictions, such as the glue plant, cool stores, and the mall etc. Given the exceedingly high price our industries are paying for their “water security” I hope they are happy with the deal this dam offers for the next 100 years.

Since I am so nearsighted, my objection that there is no mention in the Terms Sheets of who pays for the decommissioning of the dam is obviously redundant also. But what do we care, we won’t be around in 100 years, right? Let’s hope this dam doesn’t need decommissioning before then.

In the short term I only have to worry about the degraded state of the river, a responsibility in our consents and under The National Policy Statement For Fresh Water (that doesn’t state we have to build dams contrary to what dam supporters keep telling me). The corners being cut in dam construction by flooding a huge quantity of mulched wood and stumps left in situ will be challenging to mitigate the effects of. It is highly likely that the running costs will blow out accordingly as we try and mitigate these effects – further adding to the burden on water users.

Of course, my concerns are only based on a few vocal nay-sayers and I should only be taking the advice of staff and their experts.

No doubt time will tell who are the heroes and who was the voice of reason. Whether dam advocates will be labelled as saviours of the district or whether the nay-sayers will be able to say “I told you so.”  But one thing is for sure, if this dam doesn’t deliver as promised, it won’t be the wealthy that will be left homeless.

pool celebration
Cheers

Mistaken By Any Other Name

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

Scaremongering Mayor

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.

Concerns Growing Over Waimea Dam

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.

 

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