The Ruataniwha Dam project in Hawke's Bay has suffered a major setback with one of the proposed institutional investors pulling out.
Trustpower says it has determined that it is not possible to invest in the planned dam because the return is not enough and just how many farmers will use the water is unknown.
In 2013, Trustpower and Maori iwi Ngai Tahu signed a memorandum of understanding with the Hawke's Bay Regional Council to look at investing more than $100 million in the water storage scheme.
However, Trustpower said on Thursday it now knows that the returns it would expect to get would not be high enough to recommend the investment to shareholders. It told the New Zealand Stock Exchange that investment is not possible within its risk and return framework.
Trustpower's general manager of commercial operations Chris O'Hara told Radio New Zealand's Checkpoint programme the level of return depends on how many farmers get involved, and there isn't enough certainty.
"At least a portion of the farmers in the area will take up supply from the scheme reasonably early on. What we don't know for sure is whether the level of uptake will occur early enough to give us the sort of returns that we need to get out of an investment like this."
Mr O'Hara said Trustpower would want to have close to 100 percent uptake by farmers in the scheme, but at the moment indicative numbers are only about 40 percent.
Trustpower's withdrawal leaves a big hole in plans to fund the dam. However, the council's investment company said it is continuing to negotiate on a confidential basis with a number of parties.
Hawke's Bay Regional Investment Company chief executive Andrew Newman told Checkpoint the decision is disappointing, but is still confident that the project is viable.
Mr Newman said the key is to ensure the dam will have a large enough customer base of water users, which needs to happen sooner rather than later.
The site of the proposed dam. Photo: RNZ
