The 70-odd page HB Regional Investment Company’s (HBRIC) business case is now available for review. Not that you would know that, because HBRC has elected not to publish it yet (as of Saturday).

So here’s my copy for you.

Unlike the HBRC staff or HBRIC, I’d welcome your comments before this coming Wednesday, when Council will be discussing the matter.

Here’s a communication I sent this morning to HBRC chair Fenton Wilson and interim chief executive Liz Lambert …

“In one more example of staff’s manipulation of dam information, the HBRIC business case has NOT been posted online for the public to see over the weekend. No sign of the Agenda online as I write. As you’ll recall, we normally get an email Thursday nite or Friday from Leeanne confirming that Agenda materials for following week are now online and available to the public.

Standing orders don’t require Agenda materials to be available until 2 working days before the meeting, so technically the rules are being followed.

However, given: 1) the crucial importance of this biz case; 2) the obvious huge public interest (and stake) in it; 3) the fact that it is indeed available (Councillors have it) and is to be discussed in the public agenda, it is unconscionable that staff would elect to withhold it over the weekend.

Consequently, I intend to publish my copy on BayBuzz.”

Is this a confidence builder in the HB Regional Council?

Tom Belford

Join the Conversation


  1. Thank you for allowing your readers to peruse this important Council document. It would take many hours of study to gain a thorough understanding of the RWSS proposal, so I’ve confined myself to forming a personal view on what it will likely mean for ratepayers, who are being asked by the Council’s investment company HBRIC to invest up to $80 million in the RWSS.

    Here are some relevant extracts:

    “There is a wide variety of risks faced by HBRIC Ltd as an investor in the RWSS.”

    “Cash flow distributions to HBRIC Ltd will rank behind other investor returns, so delays in demand uptake can reduce HBRIC’s return.”

    “RWSS has not satisfied CIIL’s investment requirements and CIIL (the Crown) has not made any commitment to invest in RWSS.”

    I further note that the cash returns from the Regional Council’s investment will be nil during the construction period, “minimal” for the next 3-5 years and are “estimated” to be 5-6% from then until 2022. After then the “target” rate of return will be 10%.

    My conclusion is that if the RWSS goes ahead it is likely to be a poor financial investment for the Council, and if any of the major risks eventuate, it will be even worse.

    That means it should only be undertaken if the Council believes the wider economic and environmental benefits to the region will exceed the benefits from any other form of investment.

    I’ll leave that wider argument to others with a broader agenda.

    Purely on financial grounds, I would not consider investing any of my own savings in the RWSS.

  2. Bill, great synopsis.
    This has all the hallmarks of the catastrophic Gingko Tree ” investment” that Ron Massey of the NCC promoted.
    For his sage advise everyone concerned lost their money and assets.
    He is to appear in court on April 2nd to answer for his actions.
    Popcorn anyone ?

  3. This Dam will never ever return a profit to anyone!! it will only ever return Tax losses to carry forward, it is doomed to be financial disaster!! surely just an average brain will work that out despite the “David Copperfield” illusion’s in the financial proposals, plus I seriously doubt that it will attract any outside investors, as the proposed returns are pure pie in the sky!! the up coming ASB Bonds would be a far better return.
    I put this Dam in the same category as Hastings Splash Planet, Napier’s Museum, Napier’s Buses, Napier’s Ocean Spa, and the like.
    Plus!! the cost over runs to build it will be massive, if it in fact goes ahead, because they leave loopholes in the contract for that exact reason, to be exploited!!
    Does anyone really believe that any corporations/investors, are going to invest many millions for a ZERO return!!

  4. This is definitely a summary of the business case and really needs a comprehensive critique and review.
    A quick glance does show that the motivation for the dam is ideological rather than for financial return to HBRC. There are plenty of lower risk/higher return options.
    The case provided also compares the current base case with the dam. I would hope that the council would not be idle for the next 20 years, so a more valid comparison would be comparing the dam to spending money on “the next best alternative”.

    There are a couple of engineering decisions that I hope that they have right – for example:
    the pipe sizing flow water flow distribution being at peak rather than average flow
    a common understanding between HBRIC and the customers about where the guaranteed water pressure is measured.
    I also hope that modelling has been carried out using the 10th percentile estimate for incoming water flows. It is in those years of drought that we will really need the water.

    The major issue for me is the capital cost and the return on investment.
    The estimate of cost at $240-245 Million (p44) is likely to be the median price of an estimate. At this stage of engineering design these estimates are usually +20% even for a project of this magnitude. This is often covered by a contingency, which may be included, but I cannot see a reference to that in the business case.

    If, for example, the actual price is 15% higher than estimate ($240 million) that is another $36 million, of which HBRIC would need to find $18 million. If this does need to happen, would this money need to be borrowed? How would this impact on returns?

    For projects like these where the spending and returns are split over many years, I am also used to seeing a CFROI and I am very surprised not to see one here. Perhaps it is because it is show shockingly low, and this is such a risky investment that it hasn’t been calculated.

  5. Questions
    1) Does anyone know who the fabulously wealthy but not so smart investors clamouring to get a piece of the action might be?

    2) If there is a funding shortfall will the ratepayers be expected to cover it?

    3) Have the negative effects of employing 2500 people for a short term been investigated?

    4) Does HBRIC intend to protect the Cape Coast homes if the Dam reduces the shingle transport down the Tukutuki to the beach. I couldn’t find any references in the business case to any contingency funding.

  6. Well done publishing the Business Case. I’ve noticed it is now available on the HBRC website too. Clearly it’s a business case constructed to present the view to the Council that they are wanting to hear.

    How could the Council make an intelligent decision on a business case so lacking in a sound economic analysis, with no evidence of a proper risk assessment and no attempt to justify the myriad of assumptions that must be made in order to reach a proper conclusion.

    Of interest though is a supplementary document also available on the HBRC website entitled “An updated summary of value tables”. This document assesses the project NPV at two different discount rates, 5% and 8%, under some basic scenarios for water take-up. Of course the most favourable result occurs with an assumed discount rate of 5%. But, is 5% reasonable, and how likely is the base case for water take-up compared to a faster or slower scenario?

    And here-in lies the dilemma. We just don’t know, and maybe no-one knows, how likely any particular variable, and there are many many variable to consider in this case, is likely to play out. Hence it is impossible to say with any certainty, or indeed any level of comfort whatsoever, that the net result presented is likely to occur in practice.

    If some rationality were to prevail though it is possible to establish a view which will withstand scrutiny. Large industries are frequently faced with seemingly imponderable economic decisions such as this. Often they use modelling tools that allow any number of variable scenarios to be incorporated, and the results tested comprehensively using Monte Carlo simulations to produce probability profiles for any particular output chosen.

    Such a tool is an Excel add-in called @Risk. [see

    I am now retired, but I used early versions of this technique extensively when modelling complex financial projections in business cases. The results were always illuminating. The techniques are straightforward, but require a deal of thought into establishing probability profiles for the important variables. Many thousands of iterations are performed automatically as the outputs are tested for changes in variables and for the correlations between variables.

    The outputs are presented in the form of probability profiles too. Outputs of this nature do not suit accountants, because the result is never black and white. Yes, it is possible to determine from the probability profile the most likely outcome, but then it is entirely possible that many other outcomes are also possible within small statistical variations.

    The supplementary document referred to above seeks to test the NPV with only two discount options. How do we know that either is more likely? We don’t. Wouldn’t it be more appropriate to establish a likely probability profile for discount rates and test the NPV over the whole range. This is easy with @Risk. OK, so now apply exactly this technique to the multitude of other important variables and test the whole lot, together.

    It is easy to tell that this type of modelling has not been attempted for the Business Case. What a great pity. But there is still time.

    So how do we convince the HBRC and its consultants that a business case would benefit tremendously from an intelligent economic assessment using these techniques?

    Perhaps they just don’t want to know.

  7. I agree with you Brian – it sounds like we have both carried out similar types of analysis.
    I have also used the same modelling tools (@Risk) to work out a probability curve of outcomes – in my case the probable annual production from a large Pulp & Paper mill, comparing a number of different capital projects.
    It is a great technique to simulate the combined impact from uncertainty and to arrive at a simple easy to understand curve. If the existing modelling has been done in Excel and is robust, it would not be a huge job to carry out this analysis. It should cost less then the annual pay rise given to Andrew Newman.
    As you say, the debate would be about what the probability profiles for each variable would be like. But I found people find it easier agree to a curve than to agree on a single number.
    But it does require a desire…

Leave a comment

Your email address will not be published.