A major backer of the Ruataniwha dam scheme has pulled out, saying returns on investment will not be high enough.
Trustpower said yesterday that it was withdrawing as a potential investor in the $270 million scheme, which would irrigate 25,000 hectares of farmland in Hawke's Bay.
Trustpower and Ngai Tahu signed a memorandum of understanding with Hawke's Bay Regional Investment Company in September last year.
Yesterday Trustpower general manager commercial operations Chris O'Hara said the company had looked to invest about $50m in the scheme, and had "sought comfort" on the level of return and on the number of farmers likely to sign up to take water over the long term.
Projected design and construction costs made the project feasible, but "unfortunately the overall project from our perspective gets down to a rate of return that's just not one our shareholders are going to buy", Mr O'Hara said.
"We couldn't construct a deal between ourselves, HBRIC and the Crown where we were comfortable that we had enough protection against future uptake risk.
"This is a long-term, 70-year project and we can't expect our shareholders to be happy to receive all of their returns in the last 20 years. There needs to be good cashflow all the way through.
"From the outset, the return was at a range that was at the bottom of what we would consider.
"We believe the uptake [by farmers] will occur, but if it's 20-30 years out, then the investment returns just aren't big enough."
O'Hara said there were investors comfortable with returns of less than 10 per cent, "but we're not one of them".
"For us it needs to be up around 12. Our shareholders can take their money to Australia and get 15 per cent. If local and central government want projects like this to go ahead, they've got to invest in them."
Hawke's Bay Regional Council may invest up to $80m in the scheme. Investment from the Crown Irrigation Investments Scheme has also been sought.
The scheme provides bridging finance on top of private investment, and will fund only those schemes that have exhausted all other sources.
"We do sincerely hope the project gets there," O'Hara said. "Of all the greenfields opportunities in New Zealand at present, this is the best of them."
HBRIC yesterday said it was still negotiating with "a number of parties" looking at investing in the scheme.
It expected the situation to become clearer once it had consolidated water agreements with users. A board of inquiry is considering resource applications to build the dam and scheme, with a decision due in mid-April.
"HBRIC remains strongly of the view that [the scheme] offers the Hawke's Bay community both significant environmental and economic benefits and that, subject to securing contractual commitments to take water, that the scheme will prove financially viable," it said.
- The Dominion Post