Dam scheme may see $13.6m wasted

Andrew Newman is at the helm of the Ruataniwha Dam project Photo / File

The Ruataniwha water storage scheme and an associated environmental plan change will cost Hawke's Bay ratepayers, the country's taxpayers and institutional investors $13.6 million - even if the irrigation project doesn't go ahead.

The cost of developing the scheme to the point where Hawke's Bay Regional Council votes on whether it should be built has leapt by $2.6 million since 2012 when it was budgeted to cost $11 million.

The council's commercial arm, Hawke's Bay Regional Investment Company Ltd (HBRIC), has spent almost $1 million more on consultants for the project than originally budgeted. Costs associated with a complex and lengthy board of inquiry hearings process to gain resource consents for the scheme, along with associated changes to the regional resource management plan, were just over $1 million over budget, at $4.16 million.

The cost of paying regional council staff seconded to HBRIC to work on the scheme has also exceeded the 2012 budget, by $391,000.

The council came under fire in February when it emerged it had approved an $84,000 back-dated pay rise for HBRIC CEO Andrew Newman.

Mr Newman, who stepped aside as the regional council's chief executive to drive the Ruataniwha project, currently receives a $380,000-a-year pay package.

The spike in costs for the dam project has forced HBRIC to seek a $2 million advance from the council, a request councillors will be asked to approve at a meeting on Wednesday.

In June councillors are due to vote on whether to go ahead with plans to invest up to $80 million in the scheme, which is designed to boost the Central Hawke's Bay economy by providing irrigation to about 25,000ha of land on the Ruataniwha Plains.

In a report to next week's council meeting, Mr Newman and HBRIC chairman Andy Pearce say the cost blow-out is partly due to a delay in concluding the feasibility phase of the project, with an original deadline of the end of last year extended to June 30 this year.

June 30 is the "financial close" date by which time HBRIC wants to have a fixed-price contract to build the dam finalised, along with a sufficient number of contracts with land users wanting to take water from the scheme.

Mr Newman and Dr Pearce's report says an increase of $932,000 in consultancy costs is mainly due to additional work undertaken to evaluate and negotiate over the selection of a consortium to design and build the dam and irrigation scheme.

Submissions received last year from competing consortia bidding for the work were larger and more detailed than expected, and therefore required more scrutiny, they said, meaning more specialists had to be employed to evaluate the bids.

"It is important to note that the additional cost in relation to the extended evaluation and negotiation phase in selecting the preferred consortia resulted in a reduced capital cost from the original bid of approximately 15 per cent," their report said.

The Ministry for Primary Industries is contributing $3.94 million towards the $13.6 million cost of the project to June 30. Institutional investors have also contributed funding but the withdrawal of Trustpower as a potential investor meant HBRIC was left to pick up some additional costs, the report said.

But the report said there had been "good momentum" in water uptake discussions since the board's draft decision was released.