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A proposed Central Otago irrigation scheme faces a major setback, with a request by Tarras Water for $3.5 million from the Otago Regional Council set to be turned down.
At the same time, an agreement by the Central Otago District Council to guarantee a loan for 20% of the scheme's cost is dependent on the regional council's support.
A hearing panel of regional councillors, including council chairman Stephen Woodhead, has recommended the council not proceed with a change to its long-term plan to allow investing in the scheme.
Councillors will consider the recommendation at a meeting in Dunedin tomorrow. Tarras Water Ltd chairman Peter Jolly, when contacted yesterday, declined to comment on the recommendation.
''We haven't had a chance to digest the report yet, or to discuss it as a board,'' he said.
The scheme, to irrigate 6000ha from the Clutha River, has generated discussion and differing views among Tarras farmers. It is seen by backers as, in part, a replacement for the Lindis irrigation scheme which expires in 2021.
The regional council's hearing panel made its recommendation after considering 68 submissions, with 12 supporting the council's investment and 55 opposed. Opposers were concerned about the council's lack of mandate to invest in the scheme, the risks, the possibility of a conflict of interest, the setting of a precedent and a benefit to a private enterprise and to a limited number of people.
Supporters believed council support would boost the scheme's viability and bring significant environmental and economic benefits. The council said it had to be mindful of risks and its financial strategy and prudent management. A legal opinion on the effects of recent changes to the Local Government Act showed the council's long-term plan could be amended. The investment was within the purpose of the Act because it supported good quality infrastructure.
The report said the council's investment policy stated investment in irrigation could only be considered if other loan and equity funding had been ''diligently'' explored.
However, Tarras Water had not explored any other avenue for the uptake in dry shares, it said.
Further risks had been identified as Tarras Water did not have a guaranteed-price construction contract and uncertainty remained around the cost of fixed charges the council would have to pay.
Tarras Water was still negotiating with energy companies.
Tarras Water had also provided the council with revised estimates. These showed the scheme had been reduced from about 6230ha to 5999ha, meaning the council's investment would drop to $3.36 million rather than $3.5 million and the fixed charges could be about $2.3 million rather than the proposed $2.1 million.