Oram: Damming conclusions on irrigation

ANOTHER MANAPOURI? The Tukituki River is already suffering from overuse and pollution.
ANOTHER MANAPOURI? The Tukituki River is already suffering from overuse and pollution.

As Hawke's Bay teeters on the brink of yet another drought, an equally hot and damaging storm is brewing over water storage and irrigation in the region.

To its proponents, the Ruataniwha Plains project west of Waipukurau would deliver big water storage and thus a sizeable increase in agriculture and better management of waterways, particularly the Tukituki River.

It would be the biggest scheme in the country, irrigating 25,000 hectares and influencing farming on a further 17,000ha. It would cost some $250 million to build, with the Hawke's Bay Regional Council and central government stumping up much of the equity; and farmers would need to invest in the dam plus an additional $300m or so on their properties to make use of the water.

To its opponents, Ruataniwha is a debacle in the making. They challenge the economic benefits identified by council-commissioned studies. They believe regional ratepayers risk being saddled with a heavy financial burden and adverse environmental impacts.

They argue a range of much smaller investments on farm and in the catchment would deliver many of the economic and environmental benefits in less risky and more resilient ways.

The battle is coming to a head this year. In May the regional council will ask the Government to declare the project one of national significance. This means the Environmental Protection Authority, not the regional council, will evaluate and decide on the resource consents.

This is essential because the regional council has disqualified itself as the regulator. In its enthusiasm as the project's promoter it has given environmentalists and other opponents short shrift.

But the Government is hardly a neutral arbitrator either. Its big goals for irrigation are one of its planks for infrastructure, which in turn is one of the six drivers of its Business Growth Agenda.

Some 600,000ha are irrigated now around the country, mostly in Canterbury. It believes a further 340,000ha can be added in big regional projects plus 80,000ha in small community ones.

The Government is seeding studies for many of them, with Ruataniwha receiving $3.3m so far. It then plans to invest $400m from SOE sales in equity in big projects that get resource consent.

It expects significant progress on these projects over the next two years, it said last November in its infrastructure report under the Business Growth Agenda.

Two huge challenges arise, however. First, the Government is massively overhauling the three areas of policy critical to irrigation: water, local government and resource management.

Conflicts abound already in its positions, even before it reveals the substance of its reforms. For example, the plan by the regional council to invest heavily in Ruataniwha runs contrary to the narrow-focus, low-debt councils the government says it wants.

With all these policy areas in play, it will be impossible for the Environmental Protection Authority to make a well-informed and timely decision on resource consents for Ruataniwha and other irrigation projects. Other delays are possible too. If, for example, the courts stall SOE sales, the government would have to find irrigation funding elsewhere.

Thankfully, progress is being made elsewhere on economically and environmentally sound irrigation projects. But these are small extensions to existing ones, conversions from open canals to pipes to eliminate water losses, and upgrades to precision irrigation by farmers.

There is also some excellent innovation. For example, Aquaduct New Zealand has developed world-leading plastics technology to extrude pipes up to 1.6m in diameter on-site. This enables it to make pipes up to 200m long, rather than transporting short sections from factories. This way, it has supplied 80km of pipes for the upgrade of the Valetta scheme in Canterbury.

The economics of irrigation are the second big challenge. The Government makes its case on the basis of the New Zealand Institute of Economic Research's 2010 analysis of 14 projects with the potential to be built by 2025. The estimated cost would be $2.7 billion off-farm and $8.7b on-farm. The institute reckoned 41 per cent of the newly irrigated land would go into dairying, 11 per cent dairy support, 27 per cent arable, 16 per cent mixed livestock and 4 per cent horticulture.

These 14 projects would deliver $4b of agricultural exports in 2026, a modest 17 per cent increase in the national total based on 2010 prices. But the internal rate of return on all 14 projects was only 6.4 per cent, which would be less than the cost of capital. But even that was inflated by average returns of 11.5 per cent for Canterbury projects, thereby undermining the viability of projects elsewhere in the country.

For evidence of Ruataniwha's economic value, Hawke's Bay Regional Council offers a series of studies it commissioned. But they contain some significant contradictions and risks.

The "Prosperity Study", for example, correctly identifies low-wage, low-value and volatile commodity agriculture as one of the region's economic weaknesses. The main remedy it recommended was more of the same from the Ruataniwha scheme plus the vague hope the region's farmers can somehow move themselves up the value chain.

A study of on-farm economics is more robust, concluding farms in the scheme would lift their return on on-farm assets from 4.2 per cent to 6.6 per cent. But it notes that the project is "extremely sensitive to farm commodity prices and costs" and, to a lesser extent, to water prices. Moreover, this modelling is based on the farmers being in the top 20 per cent of the nation in terms of productivity.

A funding study by BNZ says the regional council could procure the $250m dam and water distribution infrastructure by offering private sector investors a 35-year concession. Local and central government would still need to invest in it to make it viable but they would exit once the scheme reached maturity after 10-15 years.

BNZ says the regional council would regain total ownership once the concession expired. But if the scheme were such a good idea for farmer-investors, why would they accept such a short-lived ownership stake?

The environmental issues are no less challenging. The Tukituki River is a mess thanks to over-allocation of existing water and poor effluent control by council and farmers. Both will need to dramatically improve their practices if they are to heavily intensify dairying yet still deliver their promised improvement in water quality.

With all these economic and environmental issues at stake, Ruataniwha could become just as crucial and defining a conflict as Lake Manapouri was between 1959 and 1972.

Sunday Star Times