Rotorua's council spent a decade and almost $7 million trying to make money from human poo - but made nothing.
A Local Democracy Reporting investigation can now reveal a $6.7m Rotorua District Council investment in technology to turn human waste into "gold" has returned zero dollars in 12 years.
Terax was a sewage sludge disposal technology that Crown Research Institute Scion developed as part of a project originally known as "Waste 2 Gold", beginning in 2005.
In 2012, Rotorua Lakes Council, then Rotorua District Council, partnered with Scion to create Terax 2013 Ltd to commercialise the technology, which reduces the bulk of the solids and produces nutrient-rich by-products such as phosphorus and vinegar.
Then-council chief executive Peter Guerin said in 2011 that Terax could have a cost reduction and value creation of about $4m a year.
The then-National government funnelled another $3m into the project over seven years, but in 2017, the Ministry for the Environment pulled further funding due to concern about the technology and project's financial viability.
Without the funding, the project could no longer go ahead. The council stopped funding it in 2017, voting to wind it up in 2018. It transferred the intellectual property to Scion, with a contract ensuring a 50/50 share of any future commercialisation return.
Between 2008 and 2015 Scion invested about $1.85m in the project.
In May last year, Terax 2013 Ltd went into liquidation. Scion holds a confidential agreement with private investment company Pacific Channel to continue pursuing commercialisation.
The council originally pursued Terax as it needed a way to dispose of sewage sludge, but continued funding it after it resolved that issue via composting in 2012.
A retired chemist and economist said in his view Terax was based on a technology that was never going to make the council any money - something he has been telling the council since 2014.
Others, however, say the Terax technology may still make money - it was just ahead of its time.
But the fact remains - the technology cost taxpayers and ratepayers almost $10m and has yet to provide a service, product or any financial return.
---
It all starts with poo. Rotorua's, to be exact.
Sewage sludge is a by-product of the wastewater treatment process. The question, for councils, is what to do with it.
According to Rotorua Lakes Council infrastructure manager Stavros Michael, until about 2009 or 2010, Rotorua's sewage sludge was mixed with green waste to create a compost called Gardener's Gold.
It became unviable for three major reasons: the odour from the mixing process; cost and scarcity of mixing agents such as sawdust; and because users - farms especially - became averse to using a compost made from human poo.
With Gardener's Gold no longer an option, the council had to send it to the landfill.
Michael said this was problematic because there was not enough general waste to achieve the necessary ratio to mix in the sludge. The wet sludge also made the landfill face unstable and generated a run-off that needed re-treating.
Meanwhile, since 2005 or so, Scion had been working on ways to dispose of forestry sludge through combining wet oxidation and anaerobic fermentation processes.
Applied to sewage sludge, anaerobic fermentation would dramatically reduce the solids entering the wet oxidation process, according to an archived page on the Scion website.
Wet oxidation used high pressure, temperature and oxygen to break down the solids into carbon dioxide, water and small organic compounds, and in a later stage, biological nutrients could be removed to "make valuable products" it said.
The project was named Waste 2 Gold.
Scion chief executive Dr Julian Elder, who was not in the role at that time, said the forestry application was not pursued as forestry sludge disposal costs were already low.
Elder said Scion became aware of the council's sludge disposal quandary at the same time as the council became aware of Scion's research.
---
In August 2010 then-Environment Minister Nick Smith announced a $1m grant from the Ministry of the Environment's Waste Minimisation Fund for Waste 2 Gold.
The grant would go toward the Terax pilot plant - the first step, after Scion's initial research, towards the ultimate goal: a Terax demonstration plant at the Rotorua wastewater treatment plant.
That demonstration plant was intended not just to provide a solution to Rotorua's sewage sludge woes, but also to demonstrate the technology to potential buyers.
Smith opened the pilot plant on May 31, 2011.
The plant's purpose, according to an archived Scion website page, was to "provide sufficient data to determine if the technology can work at a full commercial scale".
In November 2011 the pilot plant became operational. It was also the month the council entered into a contract with Whakatāne-based company Ecocast to compost its sewage sludge.
The Ecocast contract has cost an average of $800,000 annually and remains in place today.
On February 3, 2012, Terax Limited - later renamed Terax 2013 Limited - was incorporated. Its purpose, according to the council's website, was to "commercialise the Terax organic waste treatment process and thereby generate returns to its investors" - the council and Scion.
The name Terax has no particular known meaning, and was adopted for trademark purposes. A patent for the technology was granted in 2015.
A 2016 Terax presentation to a council committee stated 10 Chinese investors were interested in the technology.
The presentation, titled "Terax: creating value from waste" stated Terax "solves Rotorua's long-term biosolids problem in an economically efficient and environmentally sensitive way" and "saves money in the long term".
It stated the Chinese market for sewage sludge disposal was "immense".
"An investment by any of these Chinese investors will lead to significant international sales and increase the value of [the] council's investment tenfold."
---
Gerard Horgan, a retired chemist and economist, worked for Scion (then Forest Research Institute) and as a consultant for APR and Ministry for Primary Industries.
"Wet oxidation has been around since the 1930s. Even back then it was recognised [that] it could be a nice way of treating sewage sludge."
However, he said that process has always been plagued with a cost problem due to the "highly oxidising conditions" and pressures on the vessels holding the sludge.
"It'll rust like nobody's business.
"You have to use very expensive steels to stop your vessels oxidising along with the process. That means that makes them highly expensive to build."
He said that came to fruition in Rotorua when the Terax pilot plant broke down.
In 2014, Horgan warned the council of what he believed was Terax's expense and unreliability.
In his notes from his presentation to the council, Horgan said "proper and adequate testing of the commercial viability" of Terax needed to be done - "ideally not with Rotorua ratepayers acting as the test guinea pig".
In a 2016 presentation, he told the council that other councils weren't taking up licences to use Terax because it was "an expensive process involving substantial risk, high maintenance costs" and there were cheaper options.
In the presentation he called a council report entitled "Terax plant - approval to proceed" "faulty and demonstrably wrong".
"All [the council's] analysis of Terax was based on 'we can either use Terax and get rid of it, or we have to take it and put it in the dump'."
Horgan said this was in his view untrue because by the end of 2011, the council had its sewage sludge solution – composting.
---
Former district councillor Glenys Searancke said supporting Terax in its early days was one of her "huge disappointments" in 30 years at the council table.
In her opinion, the reason Terax never happened was that it was too expensive.
She said Scion approached the council in 2008 with an impressive presentation, and the council viewed it as an opportunity.
"I don't think we were hoodwinked."
However, shortly after, Searancke became aware of Horgan's views about Terax.
She said there were other councillors who listened, and Horgan wasn't the only submitter, just the most persistent.
It took about three years for Horgan to convince Searancke.
"We didn't seem to be making any progress and the fact of the cost of it … if it had been developed by a commercial company with Scion, then I think that would have been different.
"We were going to sell the intellectual property."
Searancke said there were "troubles" with the pilot plant breaking down.
"Three or four" other councils were interested in buying the technology once it had been developed, but "backed off".
"[The] council shouldn't be experimental. That's for private enterprise."
She believes councillors had enough information to make a decision, but as time passed some developed doubts, she said.
"On reflection, I believe we were wrong."
Former mayor Kevin Winters met with Local Democracy Reporting to discuss Terax but declined to comment on the record.
In an election pitch in the Rotorua Daily Post in September 2013, he described Terax as "world-leading".
In opinion columns for the Rotorua Daily Post in 2012 and 2013, then-council chief executive Peter Guerin wrote Terax had "substantial economic benefits for Rotorua ratepayers" and would "provide a valuable source of income". He called it a "win-win" for ratepayers and the environment.
In a 2011 report, Guerin said a full-scale plant could have net benefits of $4m a year.
Another former councillor, Rob Kent, said he never believed Terax "added up".
Current councillor Peter Bentley said he had been against the project. It had cost "an awful lot of money".
Quite frankly, I think most of the councillors didn't understand what we were going into.
"They'd keep on saying that there's all those people interested in the technology, but when you try to put your finger on it, it's like mercury, it just disappears."
Bob Martin, a councillor until 2010 and then a Rural Community Board member, said he had not wanted to put Terax into liquidation.
"I wanted to retain it. Auckland has a huge [sewage] problem.
"Those places needed it more than we did because they have the huge populations. It would have probably been beneficial to [Terax 2013] to be able to sell the recipe."
But Martin conceded Terax was not a sure thing from the start.
"Quite frankly, I think most of the councillors didn't understand what we were going into.
"I believe it was the right thing to do, but ... we didn't realise how complicated Terax would end up being."
Councillor Merepeka Raukawa-Tait was also part of Terax decision-making.
She said the council was "proactive" and along with Scion "attempted to explore, develop and design a solution that would suit our purposes".
"We canvassed other councils to see if they might be interested in our project. As it transpired, after looking offshore in particular, the model proved too costly to take from prototype to full scale.
"The cost was becoming prohibitive. If money was no object I feel we could have ended up with our problem solved and a viable model portable to other councils.
"Hindsight is great, but I take the view 'nothing ventured nothing gained'."
In an August 2012 Rotorua Daily Post article, then-Rotorua Chamber of Commerce chief executive Roger Gordon said he believed the council should follow Scion's lead by limiting its commercial involvement to licensing the technology.
"This is a low-risk option and reflects adherence to their [Scion's] core purpose,'' he said.
"This is an example of council stepping into the private arena and exposing the local authority to a level of commercial risk in an environment over which it has little control."
However, in July 2021, Gordon's view had changed. Now a Waipa District councillor, he said he possibly would have made the same decision as Rotorua district councillors did, knowing the challenges of wastewater treatment.
---
Pacific Channel investment manager Lachlan Nixon is a director of Terax Innovation, the new company set up to commercialise the technology through an agreement with Scion.
Nixon said Terax is a "world-class sludge treatment" and he has high hopes for commercialisation.
He said a new pilot plant was planned, slightly larger than Rotorua's.
Nixon said he was in contact with potential customers but contracts had not yet been formally secured, so he was unable to disclose who or what those customers are.
"We hope to commercialise the technology globally including within New Zealand."
He said sewage sludge was an economic and environmental problem globally.
"I think the Terax technology is able to solve both those."
He couldn't say when the agreement with Scion ended because it was commercially sensitive.
Nixon said Pacific Channel's goal was to see some return from the commercialisation of Terax within the next decade.
Scion's Julian Elder told Local Democracy Reporting details of the deal with Pacific Channel – including how much of a share of any future profits would come back to Scion and the council – were commercially sensitive.
Rotorua Lakes Council chief financial officer Thomas Colle confirmed in June last year the total council investment in Terax was $6.7m.
He also said Terax, as a company, had earned a "minimal amount" for consulting work.
---
TODAY
Rotorua mayor Steve Chadwick said the Terax partnership began "well before" her time at the council. Chadwick was elected mayor in 2013.
"I can't speak to earlier decisions but the company set up to commercialise the technology was the right mechanism. They followed some promising leads which, ultimately, did not come to fruition."
Local Democracy Reporting asked Chadwick what her view was of Terax now it had wound up, what her view was of the $6.7m spent on it and what she believed Rotorua had got out of Terax.
She was also asked if she expected there would ever be a financial return from Terax and how the spending on Terax affected the council's bottom line today.
"We stopped funding the partnership in 2017 and had delayed progressing with a demonstration plant to conduct further due diligence and by May 2018, had to make a call and made the decision to wind things up," she said.
"We left open the potential for gains from future opportunities should they arise.
"Whether the technology may come into its own in future, with the focus on climate change and energy, will be something for the experts at Scion to determine.
"The project hasn't affected our ability to continue delivering services and initiatives for our community."
Local Democracy Reporting asked the Ministry for the Environment if it believed Waste 2 Gold and Terax were a good use of government funding.
A Ministry spokesperson said investing in innovative or emerging technologies "always [had] a risk of failure".
