Ruataniwha Water Storage Scheme

Presentation to Irrigation New Zealand Conference8 April 2014

Presentation outline

1. Freshwater in Hawke’s Bay

2. Tukituki catchment issues & the Ruataniwha Water Storage Scheme

3. RWSS business model– A few basic stats

4. Delivering the proposition– Regulatory security

– Design & construct procurement and the infrastructure offer

– Water access & uptake

– Finance & structuring

5. Summary– Scheme development approach

– Hurdles, risks, challenges & opportunities

Hawke’s Bay Catchments

Hawke’s Bay has plenty of water

• Hence extensive flood protection infrastructure assets

But is summer dry

• Has significant seasonal limits when the water is most needed and has highest value

• Long-term drying trend

• Very low river flows in typical summers

• Poorer water quality in lowland areas in part coupled with the low flows issue, part urban

Has traditionally dealt with not enough water solely through a regulatory approach

• Traditional planning instruments on their own lack flexibility when dealing with change (average 8 years)

The Water Challenge

Freshwater in Hawke’s Bay, June 2013

0

10

20

30

40

50

60

1 July 1 August 1 September 1 October 1 November 1 December 1 January 1 February 1 March 1 April 1 May 1 June

Soil

Moi

stur

e (%

)

Month

Onga Onga - Average Daily Soil Moisture

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

Field capacity

Water Management in Tukituki Catchment1 = problem action & inaction

2 = storage pre-feasibility

3 = full feasibility

4 = full scheme operational assessment & final business case

Following 3 years of feasibility studies, examination of 20+ sites for water storage options (large and small), and extensive stakeholder consultation, the team is on track for determining final financial viability by June 2014

Environmental benefits

• Direct environmental benefits = o flushing flows for removing algae

o increased river flows from irrigation return flows

• Offsetting the economic cost of Tukituki plan change = o the Plan change will improve the river environment through lifting minimum flows,

setting regulatory limits for nutrients

o the RWSS can mitigate the economic impacts as an alternative source of water

• Estimated value $50 to $80 million

Economic Benefits to Hawke's Bay Region from the RWSS

Governed by:

5 Independent Directors

Dedicated RWS sub-committee

• Agribusiness

• Water strategy

• PPP/SPV Commercial Lawyer

• Large Civil Works Engineer

• Cultural & Mana Whenua Advisor

Operational Assessment Scheme delivery

• CEO and RWSS Internal team with assistance from:

Infrastructure Financing Experts

Large Dam Enginering Advisor

Legal (PPP, Securities Law)

Resource Consent / EPA

Scheme GovernanceThe below comprehensive current and future governance structure will ensure a robust investment recommendation is made, and contractual frameworks will protect end users against inherent natural monopoly market power

Scheme Sponsorship

Advisory

• Water supply business that supplies water to users on volumetric charge basis

Farmer do not have to be, but can be, investors

• Business owns and operates storage and distribution infrastructure – supplies water to farm gate

• Modified BOOT-like model, with SPV operating business for defined concession period (70 years)

• Assets revert to HBRC (or its successor) for nil compensation at end of concession period (Iwi & local investors rights carry through)

• Concession deed with HBRC controls many public good aspects of project

• Water users have long term, take or pay, contracts, but some water available for spot market

Scheme Model

Proposed infrastructure

• One large dam 83m high

• Distribution network for approx 26,000 ha

• River corridors offer alternative distribution

• Approx 80,000 ha in catchment irrigable based on slope class 0 – 7 degrees

• Depending on land use and consumption very high reliability water for up to 30,000 ha.

Delivering the proposition

Co

nsen

ting

Up

take

Fin

ancin

g

Desig

n &

Co

nstru

ction

Contractual & Financial Close Target June 2014

Environmental, Social, Technical & Economic

Feasibility EstablishedOctober 2012

Parallel Work Streams

Stru

cturin

g

Consenting – 6 May (EPA lodged) to April 15 2014 - Draft Decision Final Decision 28 May

• Resource consent application for the Ruataniwha Water Storage Scheme and Tukituki River Catchment Resource Management Plan Change lodged by way of a joint EPA process (6 May)

• The Plan Change will increase minimum flows and set water quality standards to promote efficient water usage and environmental sustainability

• The Plan Change will increase minimum flows and set water quality standards to promote efficient water usage and environmental sustainability

D&C Procurement – Feb 2013 (EOI) to Mid 2014 (ready to construct)

Design and construction for the Scheme is being procured through a competitive global process

February 2013EOI

Strong local & global interest

5 fully formed responses:

March 2013Short List

‑ Boygues & OHL/Hawkins selected

‑ Significant experience constructing dams in seismic areas

‑ Innovative approach to optimise D&C outcome

‑ Local involvement promoted through HB subcontractors

‑ Underwriting by two of world’s largest constructors mitigates completion risk

November 2013Select Preferred

Select preferred D&C provider based on two fully costed bid

designs:

Fixed - time

Fixed - price

Design compliant

Design Phase

Fully costed design 1

Fully costed design 2

Mid 2014 Financial Close

Negotiation December-Feb

13/14

D&C offerStorage

• Central Core Rockfill Dam 83 m high

• Static storage approx 98 Million m3

• 6.5 megs hydro

Distribution

• Primary distribution 16 kms canal, 17 km pipe

• Secondary distribution approx 200 km pipe

• Pressure = 35 m head across pipe network

Further optimisation

• Run of river takes Tukituki mainstem

• Ground water swaps?

• Hydro

Commercial Manager Appointed

Engagement with farmer stakeholder group to establish earlybird incentive framework

Engage with farmer advisor network

Release farm budgets to farmers

On farm field days (Dairy, Arable, Sheep+Beef)

Sign Expressions of Interest with Potential Water Users

1. Release of Information memorandum for select capital raising amongst eligible investors including farmers

2. Convert EOIs to long term Water User Agreements

Uptake – April 2013 (EOIs released) to Ongoing

April 2013

2012

December 2012

March - April 2013

April 2013to

November 2013

Mid 2014: Target Contractual & Financial Close

February 2014to

Mid 2014

November 2013to

Feb 14

Preparation of Preliminary Information Memorandum/Information Memorandum/

Water User Agreement

Water Access & Uptake

• We currently hold 110 EOI’s, for 44 Mm3 water or 13,000+ hectares

• 47% of the water under EOI, would equate to 27,500 ha on current metres cube per ha

• Aiming to contract 40 Mm3 water at financial close

• Contractual elements: Water Price – 23 c take of pay + 3 cents for pressure

35 year contract

CPI inflator with reset mechanism

Farm environmental management plan

• Opportunity for investment via Information Memorandum for eligible investors (Irrigators/ Hawke’s Bay Investors)

Summary and RecapScheme development approach

1. Ensure the scheme is part of an overall catchment water strategy

2. Seek to create regulatory security

3. Seek to manage demand and construction risk through a public private sector alliance

4. Aim to complete final go no go proposition inside 5 years

5. Take a systematic approach – pre feasibility, feasibility and final business case.

6. To achieve these timeframes – run work-streams in parallel & resource adequately

Hurdles/risks/challenges/opportunities

1. Workable consent – April – go – no go> We’ve lost 3 months in our critical path in this work-stream

2. Securing committed revenue from farmers mid year – go - no go

3. Aligning compatible investors and settling the capital structure mid year – go – no go

> the final capital structure will fold in behind revenue

4. Keeping the build process & critical path aligned

5. RWSS may create new ground for rural water infrastructure in its approach to> consenting

> procurement

> capital structure

> Bulk water supply business model

Biggest current risk/opportunity = time and momentum