Funding and pricing

223. The Crown operated most of its schemes using user-charges to recover operating expenses and some capital costs (the Audit Office 1989). During most periods, affected land owners were required to enter into contracts of up to 50 per cent before a scheme could proceed. In 1987, the Audit Office estimated $60-$80 million was owed to the Crown from accumulated losses, because charges were insufficient to recover the operating, maintenance and capital costs of the schemes. (Audit Office 1987)

224. Today, most schemes are funded on a commercial basis by farmers, power companies and other shareholders, and where there are local public benefits, local government.

Planning

225. Demand is growing for more reliable irrigation, particularly in Canterbury, but also in the Hawke’s Bay, Wairarapa, Marlborough, Tasman and Otago, where there are potential risks to supply in times of drought. By 2012 it is projected that water will be fully allocated in most of Canterbury, Waikato, Marlborough and Northland, as indicated in the map that follows. Furthermore, existing older infrastructure is limiting the ability of irrigators to become more efficient.

Major Catchment Boundaries

Source: Sustainable Fresh Water Management - Towards an Improved New Zealand Approach Report prepared for NZBCSD by Aqualinc, 2008 (reproduced)

226. In 2008, MAF was aware of 22 prospective irrigation schemes, both storage and non-storage based, in Canterbury, Otago, Tasman, Marlborough, Hawkes Bay and the Bay of Plenty. More details on planned investment is being sought.

227. A range of strategies will be required to meet this growing demand. Part of the answer will be to use more efficient technology to reduce waste, capture and store more water such as snow melt, and free up the allocation system so irrigators can access water where they can make the best use of it. Better understanding of the sustainable yield levels of key aquifers will also be required.

Analysis

228. Since central government ended its direct involvement in schemes, private investment has funded some successful ventures in major rural water infrastructure. Since 1985, irrigation in the Canterbury region has more than doubled, from 150,000 hectares to 438,000 hectares in 2001.

229. Lately, however, several rural water infrastructure projects have failed to reach their final construction stages. Reasons for this appear to include:

• Issues around regional planning (clear strategic plans at local government level are necessary to address the integration of infrastructure, new and existing, with the management of effects and impacts on the environment, the allocation of water amongst competing uses and community engagement processes);
• Failure to co-ordinate or obtain sufficient support from stakeholders (end-users must co-ordinate and agree on funding, design, consenting and construction aspects of a project before it can begin, and obtain buy-in from stakeholders throughout the process);
• Issues around obtaining consents (time lags, consultation requirements, appeal rights, or previous allocation of available consents within environmental limits mean rural water infrastructure projects may be delayed);
• Lack of finance (end-users of the water, such as farmers, may have difficulty raising equity or debt for rural water infrastructure projects and can be cautious about involving outside investors. Many potential irrigators already have sunk costs in on-farm individual water takes, e.g. groundwater wells, and many are at a stage of life personally or financially that does not support investment); and
• Unviable projects (some projects are simply not viable, in that the benefits they will provide do not outweigh the costs to build them). This may be for geographic, logistical or other reasons.

230. There is little consensus on the relative importance of these factors, and it is likely that each individual project faces a number of different hurdles that it is not able to overcome. It may also be that the more straightforward schemes have already been built.

231. To address these barriers, the government has expanded regional council access to the Community Irrigation Fund. This will help them to complete strategic water plans that address water infrastructure issues. Two major regulatory reforms should also help with rural water infrastructure:

1. Regulatory reform

Existing and upcoming amendments to the Resource Management Act and Public Works Act will simplify the consent process for rural water infrastructure projects and designation provisions. A National Policy Statement on Freshwater Management is being consulted on, which will make it compulsory for local councils to have water management plans in place that set sustainable limits and allocate within those limits to the most valuable use.

2. New start for fresh water

Two processes relevant to rural water infrastructure are being established under the government's New Start for Fresh water reforms:

• The Land and Water Forum collaborative process. This aims to bring together
• water allocation, iwi interests in water and rural water infrastructure.

232. Through these processes, the government will be ensuring it has correctly understood the regulatory and market barriers to developing rural water infrastructure, and the extent to which current proposals will address them, and if not, what else might be needed.