Central Otago District Council (CODC) has agreed to act as the banker for the new regional water entity, fronting an estimated $8.8M in setup costs to get the organisation off the ground.

At the final council meeting of the year on Wednesday (December 17), councillors authorised chief executive Peter Kelly to sign a legal agreement that designates Central Otago as the "lead council" for the Southern Waters partnership.

Under the deal, CODC will borrow the money needed to establish the new council controlled organisation (CCO), which will eventually manage water services for Central Otago, Clutha, and Gore.

A report tabled by the chief executive revealed the cost of setting up the entity is estimated at $8.8M, with the biggest ticket item a new information and communications technology system at $4.2M followed by a "transition team” at $1.5M.

The decision for Central Otago to carry the initial debt was driven by financial pragmatism.

"Central Otago District Council’s ability to access competitive borrowing terms", was a key reason listed in the chief executive’s report, alongside a desire "to simplify the transaction costs" rather than having three councils paying separate bills.

While Central Otago is providing the cash upfront, the ‘Deed of Amendment and Cost Sharing’ ensures ratepayers are not permanently subsidising their neighbours.

The legal document, prepared by law firm Wynn Williams, states the three councils "agree to fund the costs of the project in equal parts".

To protect Central Otago, Clutha and Gore are legally bound to pay interest on their share of the debt. 

The deed said this interest would cover the "actual interest rate" paid by the council, plus "all margins, fees, costs, and charges incurred by CODC".

The chief executive’s report said the goal is for Central Otago to "fund all project expenses...and recover the costs back from Southern Waters once it is established".

During the discussion, Vincent councillor Nathan McLean asked the chief executive for reassurance CODC would not be “left carrying the can” if the new water entity fails to be established for whatever reason.

In response, Peter said, “this agreement is what guarantees that”.

The agreement includes safety nets for CODC if the proposal falls apart before the new company is formed.

The deed lists specific "repayment events" that would force Clutha and Gore to "immediately...repay its Pro-rata Share" of the costs to Central Otago.

These triggers include if the new entity has not been incorporated "by 31 December 2026", or if the project is scrapped for "any other reason, including a change in Government policy".

The chief executive’s report provided a breakdown of the estimated establishment costs, prepared by consultants Morrison Low:

• ICT system: $4,200,000
• Transition team: $1,500,000
• Entity establishment: $640,000
• Office set up: $475,000
• Legal and compliance: $400,000
• Finance and funding workstream: $400,000
• Communication and engagement: $400,000
• Business process and design: $400,000
• Restructuring costs: $250,000
• Rebrand: $150,000

However at the meeting Peter described these costs as “broad” and “indicative”.

“Will it cost that much? I’m not sure,” he told elected members.

At the meeting councillors also agreed to give mayor Tamah Alley delegation to, along with her mayoral colleagues at Clutha and Gore, appoint the chair of the new entity.

Peter said a recrutiment process was now in its final stages and had attracted a number of strong candidates.