New Zealand / Environment

Crown Irrigation company defends spending

06:04 am on 4 July 2016

The Crown company set up to oversee public financing of irrigation projects has so far spent $14 million - more than half of which has gone on administration costs.

Photo: 123rf.com

Crown Irrigation Investments was set up in July 2013 to provide bridging finance to help get irrigation projects off the ground.

The money comes from the $400m water infrastructure development fund.

That money was taken from the Future Investment Fund - the money set aside from the sale of state-owned assets.

According to financial details provided to RNZ by Crown Irrigation Investments, $120m has so far been allocated to the organisation, of which $17.4m has been drawn down.

One project - the Central Plains Water stage one - has been funded to the tune of $6.5m, $7.9m has gone on operating and transaction costs and the remaining $3m is in the bank.

Return on investment questioned

Morgan Foundation general manager Geoff Simmons questioned the return on investment.

"It's not a great return on investment is it? The amount of money that's being spent on administration versus money that's actually going out."

Mr Simmons said with the dairy downturn it was a bad time to be investing in this activity.

"You can argue that this is a difficult business to get going, but it's turned out to be a really bad time to make these investments, with the dairy price plummeting. So this has turned out to be a real dud in terms of pumping money into this section of the economy."

David Parker. Photo: RNZ / Amelia Langford

Labour's water spokesperson David Parker said much of the money that had been put forward by the government was being chewed up in administrative expenses.

"The wider point for me is why would you tax low and middle income New Zealanders in order to subsidise the irrigation projects that go to the benefit of the landowner."

But Crown Irrigation Investment chief executive Murray Gribben said the administration cost was justified.

"That's less than $3m per annum and that cost includes the establishment of the business three years ago, so I don't have any problem with that."

He said the company had tried to keep permanent staff at a low number and use consultants to keep the cost base down.

The annual report shows $1.6m went on six full time equivalent staff and consultants in the last financial year.

Two members are on between $310 and $320,000, while Mr Gribben is on between $410 and $420,000.

Mr Gribben said the salaries reflected the capabilities of the team.

"Those salaries are benchmarked against the likes of other investment companies such as New Zealand Super or an ACC or a Infratil type arrangement where the skills and you'll notice the qualifications of those individuals are pretty high.

"So I make no apologies for the quality of people we have to hire to invest that capital."

The company is going well according to Mr Gribben and projects take a long time to get off the ground.

Irrigation New Zealand chief executive Andrew Curtis agreed, saying the financing of the projects was complex.

"It's bespoke commercial arrangements which involve hundreds of million of dollars."

He said the investment company had been doing well on working through the commercial arrangements.

Bur Mr Simmons questioned why the schemes needed government support if they were economically viable.

"The real question is, why is the government involved in this sort of stuff at all?.

"The amount of due diligence that they have to do before getting involved in any scheme makes the administrative costs incredibly high. And they absolutely have to do that due diligence, but you've got to wonder if they should be in this game at all."

Mr Gribben said the company was required to get a return on its investments, which included the operating costs, and that would happen when farmers bought into the schemes.

He said there were nine projects in the pipeline, about four of which he expected to come on board in the next 12 months.