3. Investment in Large-scale Water Developments
There has been significant activity surrounding irrigation from the private sector in recent years. This has been triggered by the exit of government from ownership in major community assets, the removal of subsidies and hands-on government services, improving product returns, greater skills and technology, and the intensification of land use that is possible with water. The majority of this activity initially occurred on a very small scale with development of single farm bores and small run of river pumping schemes. Two community based schemes of Opuha and the Waimakariri and grants for investigations into water resource and irrigation feasibility studies has resulted in the current activity. Funds have been provided through a combination of public (Central and local Government) and private (primarily land owners, some related industry and some unrelated private investment) sector investment.
Irrigation provides clear tangible benefits for landowners, demonstrated by the level of activity currently surrounding large-scale water enhancement developments throughout the country. However, in most cases landowners do not have the ability to fund large-scale irrigation developments without significant financial assistance from other parties. The success of these schemes is therefore dependant on their ability to attract funding from other private and public sector investors.
3.1 Private sector (excluding water users)
Private sector investment (excluding landowners) is driven by two key factors – "risk" and "return". If the returns are adequate to match the level of investment risk (within reason) then there is likely to be interest from the private sector.
Large-scale water enhancement developments generally find it difficult to access private sector funding for the feasibility and construction phases, as investment risk is simply too high.
However, once the start-up risks have been overcome these schemes have specific characteristics that make them an attractive low risk option for private investors. These characteristics include:
- Schemes are likely to generate long-term (20 – 30+ years) stable investment returns.
- There is high certainty over future revenue streams given:
- a monopoly over high certainty supply of water to the region (no by-pass risk);
- strong customer commitment given the level of on-farm investment that has to be made to utilise the water effectively;
- customers are generally committed to regular payments through long-term take-or-pay supply contracts;
- growth in global populations and increasing world food requirements.
- There is high certainty over future expenditure streams given that the majority of the schemes operating costs are fixed (assuming funding costs can be fixed over the life of the project).
- There is a track record of recent success with similar investments i.e. Waimakariri and Opuha schemes.
- There is no concentration of credit risk given a wide customer base of relatively small individual users.
- There is likely to be strong community commitment to assist and facilitate with the scheme development given the regional economic benefits.
3.2 Public sector
The benefits and justification for Public sector investment in water enhancement developments have been reviewed in detail within the studies on the Roles of Central and local Government.
The key public sector benefits provided by a water enhancement development relate to a more efficient use of primary resources generating economic, social and community activity for the region and the country. Previous studies have shown water enhancement projects to assist with the revitalisation of rural communities through the creation of new employment opportunities, increases in the productive population, and increases in disposable earnings from higher yielding land use.
The are also significant financial benefits for the public sector in the form of increases in rateable property values, personal tax takes and export earnings.
Further analysis is given in the studies on the role of central and local government.
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