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Last updated: November 2012
Grant 09/05 Final Report
Grant 11/10 Final Report
Name of Applicant Group: Tarras Community Trust on behalf of Tarras Water Ltd
Contact person: John Morrison
Address: 102 Thomson Gorge Rd, R D 3 Cromwell 9383
Telephone: 03 445 2033
CIF funding: $50,000
Total project funding: $100,000
Proposed start date: 2009-07
Proposed finish date: 2010-06
Region: Central Otago
CIF funding: $278,000 excl GST
Proposed start date: 2011-07
Proposed finish date: 2012-04
Region: Central Otago
Generating investor and community support: The proposed new water scheme intends to pump up to 5.5 m3/sec from the Clutha River and distribute this water on demand by underground pipe, to approximately 9000ha, as well as provide water for domestic, fire-fighting and light industrial purposes. The project is to establish a water company, promote the scheme to potential water users, and capture stakeholder support, all in parallel to the scheme's feasibility study being completed.
Scheme design: This project will carry out a design tender process in order to contact a a contractor to design, build and operate the scheme.
Generating investor and community support: The project plans to deliver 100 percent reliable, on-demand water to irrigators, domestic and light industrial users. Hence, existing takes can then come off the Lindis River, so that an environmental flow is left in the river before the 2021 deadline. Because of minimal system losses, cost and reliability, the water will be used more efficiently.
But the scheme's viability is totally dependent upon water user take-up and wider community support, so the CIF is important to partially fund the securing of these stakeholders.
Scheme design: In late 2010, Tarras Water Ltd was preparing to engage a contractor to design, build and operate (DBO) the new $35million water scheme for the Tarras district. It was also conducting a capital raise and had budgeted to spend $80,000 on the design process in alliance with this contractor. After talking with the principals of another irrigation scheme, TWL revised this strategy by appointing a Project Manager (Arrow International) and a Project Engineer (Opus International) to provide independent advice. Both Arrow and Opus advised that they conduct a competitive tender for the DBO contract. Although this design tender methodology is more expensive than the budgeted figure in the prospectus, it will translate into significant savings in construction costs because the engineering risks will be identified and minimized, thus easily recouping this investment. TWL believes this better informed, examinable and prudent method is in the best interest of shareholders.
The Tarras farming area has an average rainfall of approximately 450mm a year and is located in Central Otago, and the present 100year old run-of-the-river Lindis irrigation scheme is very unreliable. Furthermore, the schemes' water rights which exist under historic mining privileges expire in 2021, beyond which there will most likely be a further reduction in water taken from the river. Domestic water is reliant on individual opportune bores. Without a new water source the district, including approx. 50 farms and 230 residents, could easily dry up.
Generating investor and community support: Produce individual reports for each potential water user detailing scheme costs and benefits, on-farm economics, along with quantity, pressure and location of water supplied.
Investigate a supply and funding as well as other capital raising models model to include most users within the Lindis Catchment as per the Otago Regional Council's Community Company model.
Consultation with potential stakeholders and owners with the aim of seeking commitment.
Keep community updated on issues and options through meetings, email and website.
Prepare a constitution, water supply agreement.
If scheme is viable and consents granted prepare a budget and prospectus for full scheme funding and develop a management structure.
This approach involves:
The submission of the GMP2 had been put back from 26 October to 5 December. This reflected ORC being unable to be in a position to commit to a dry shareholding until February 2013 which in turn affected TWL’s ability to issue a prospectus.
Design and ancillary activities undertaken during the period are as follows:
The submissions have been reviewed by Opus and were of a high standard.
Resulting from the delay caused by the ORC political process, the date for submission of GMP2 has been put back from 26 October to 5 December to ensure the best possible GMP is obtained.
Consequently construction work is forecast to start around April 2013 with water planning to be delivered by Sep 2014.
Although design and planning activities and associated deliverables are being provided later than originally forecast, a significant amount of plans were delivered to Opus for evaluation in October, leaving a relatively small number still to be presented as per the current Irrigation Acceleration Fund grant
The date for submission of GMP2 is currently 26th October. The status of design is not hindering this but what is going to affect the submission is news that ORC will not be in a position to make a commitment regarding a dry shareholding during November 2012. Instead this is likely to be in February 2013.
The only document submissions received during the period have been:
The delays in the submission of deliverables appears to be the result of the focus being to complete as much design as is necessary to allow the development and submission of the GMP2 on the target date.
A Letter of Intent was prepared by Opus and signed by TWL on 31st July and by Delta on 1st August. The Letter of Intent allowed elements of the design to advance immediately without entering into the full contract which is a process that would be delayed by the need to resolve the contractual non-compliances. It was purposefully formulated to allow design work to progress up to a maximum fee of $1.3m. Only once a guaranteed maximum price acceptable to the shareholders (GMP2) via the prospectus is achieved will the project advance beyond this design stage and into construction.
Delta has submitted their preliminary designs for the following areas:
Having a clear understanding of the on-farm pressure requirements for each major shareholder was recognised as a prerequisite for determining the optimal design and resultant capital and operational costs. Working directly with the URS designer and individual on-farm plans, and after a few design iterations, a capital cost of around $5,500/ha and using approximately 1.3kW/ha to deliver that pressured water to the farms was derived and presented to shareholders at a field-day held on 19 March 2012.
On the understanding that the scheme costs may be adjusted as the design becomes more refined, a majority of shareholders have accepted these costs. Furthermore, land within the command area which eventually had little chance to be irrigated by TWL water has been excluded, bringing the designed area down to 6,560ha.
We are just about to start the detailed design phase which will deliver a construction guaranteed maximum price that will be included in the next prospectus to build the scheme.
Energy charges averaging around $0.08/kWhr have been quoted by a major energy supplier.
During the period we have successfully completed the assessment of the three Design Build & Operate tenders received, selected a preferred tenderer and with them have embarked on a process of optimization to establish an acceptable Guaranteed Maximum Price (GMP) for the scheme.
The procurement process and tender assessment has been led by Opus, with Arrow providing the role of probity auditor. The assessment resulted in the selection of Delta as the preferred tenderer after they scored highest against the quality and cost criteria given in the tender documents.
Delta's forecast costs were, however, above those that would make the scheme viable with our shareholders. A high forecast cost was always a risk but the procurement process accounted for this by allowing a phase of optimization with the preferred tenderer before we needed to commit further. We did commence this process and are progressing through design iterations with the goal of reducing costs without significantly affecting the levels of service we want to provide.
Without needing to adopt an aggressive commercial position, or the running of a two horse race to reduce costs, we are seeing the real benefits of the partnership approach advocated by contract advisors. This started with the earlier interactive tender process and was followed by the trust evident in selecting just a single consortium to work with. The non-adversarial environment has helped build the design team and also our understanding of the complex technical issues that they have to overcome. We are just about to receive an acceptable GMP1 from Delta but should this not be the case we do reserve the ability to approach the second most competitive tenderer. Once received, the design will be presented to the major shareholders, and if sufficient commitment is forthcoming, a final design and GMP will be completed and shares will be issued to build the scheme.
Tarras Water Ltd recognized that a competitive tender for the design, build and operate contract, scrutinized by a project manager and engineer, offered the best opportunity to introduce innovation to the project, as well as ensuring a successful scheme is delivered.
The rigorous standards introduced in the tender documentation and tendering procedures by Opus have been matched by the exceptionally high level of effort, involvement and quality of the submissions from the contracting industry. This has shown that the contracting industry is prepared to follow the same professional process they are used to following for equally significant capital projects in other environments.
Other than the elements of the scheme that need to be undertaken in confidence, the process has been visible to the wider irrigation and contracting industries and there is a sense that the bar has been raised. The next stages of the Tarras Irrigation Scheme will provide broad capital and operational information for undertaking similar schemes. The irrigation industry will benefit from this contemporary knowledge.
The project has been progressing nicely on time and on budget.
This period has seen the development of a 2 stage share offer program, the first completed by 30 Nov 2010 with the final projected to be by July 2011. The former will determine genuine subscribers as well as allowing further design work to be completed and a funding package to be secured in readiness for construction starting mid-2011.
Contractors have completed, or about to complete, reviews of the feasibility study design concept. These same contractors have expressed interest in becoming funders of the construction.
Liaison with potential contractors continues on project delivery models, feasibility study design review and potential funding options.
Also, a joint Central Otago approach was made to central government to see whether they could guarantee any debt. At this time, not much support is anticipated from this quarter so approaches have been made to other government sources. Tarras Water Ltd directors attended the IrrigationNZ – organized governance course and will attend the Rural Water Infrastructure Forum later this month.
Drafting of the company's constitution, investment statement and water supply agreement is progressing well in preparation for the first share offer in Oct/Nov this year.
Outside this CIF funding, the significant milestone of obtaining the water permit has been completed during the reporting period. Alongside this permit process, negotiations were continued with a supplier over a power supply agreement and securing water supply to upstream users.
The project is now able to turn its full attention to identify costs, funding and potential stakeholders. Recent financial modelling has highlighted power and interest costs are large determinants of the annual costs per hectare. So Registrations of Interest that have been sent to potential power suppliers will accurately estimate this cost. As well, a CODC-coordinated joint approach to central government was prepared seeking access to government interest rates.
Also, a trip to Mid-Canterbury was organized to familiarize the Board with farms that had 95-100 percent reliable water as well as Barhill-Chertsey, a scheme that is slightly advanced from Tarras's current position, which provided valuable to insights into company structure and funding.
Using the feasibility study data, personalised reports for each potential water user were produced. These reports detailed the amount and pressure of water supplied to each user together with the costs, on-farm and regional economic impacts of the scheme. An example is on the Tarras website
From September 09, preliminary discussions have been held with various parties identifying possible models to minimize the up-front construction costs to users. These parties include local and central government, government agencies and utilities.
Much of the focus has been to see whether any central government support will be forthcoming for the project. Not only has Tarras made its own approach to government but also has been a participant with similar projects in a joint approach coordinated by Central Otago District Council.
The amount of water left in the Lindis River available for extraction at various minimum flow levels, has been determined. With this information, support of the new scheme by upstream Lindis users can now be sought.
It is envisaged investigations into the funding package will gather momentum once the water permit to take and use Clutha River water has been granted.