We’ve had a few questions come through this week about what would happen if an irrigator couldn’t pay its share of costs, whether this be the initial construction costs, unbudgeted overrun costs, annual costs or other unexpected costs of GBIP.

Page 32 of GBW’s Information Memorandum lists the Key Risks of the project, so the answer to the question in GBW’s own words is: 

(Non-payment of purchase price or Charges): GBWL is dependent on Water Rights Holders paying all instalments of the purchase price and paying Charges on the due dates for payment. The non-payment or late payment of the purchase price or Charges by Water Rights Holders may affect the ability of GBWL to meet its outgoings on a timely basis and/or trigger covenant and/or other breaches under the financing documents to which it is party. In the event of unremedied default or the insolvency of any Water Rights Holder(s), Charges may need to be increased to remaining Water Rights Holders to cover any shortfall. If GBWL is unable to fund ongoing capital and operating expenditure, the Scheme may cease to be viable.

So if one or more investors do not pay the full amount of their contributions, GBW can ask the remaining investors (including SDRC) to meet any shortfall.  No doubt GBW would look for a new investor, or ask current investors if they would like to take over the water rights of the defaulting party.  This however, may be difficult in circumstances where cost overruns are out of control and the cost per ML is no longer attractive to investors. 

Investors could fail to pay for a number of reasons, including insolvency or deciding that the cost overruns have gone too far and they don’t want to continue to pay above a certain amount.  Corporate investors (we understand from Council that this is about half of the applicants) could cease contributing by declaring insolvency.  It is harder for individual investors (whom Council does not know the identity of) absent declaring bankruptcy.  However insolvency/bankruptcy is of course a possibility for any of the 50-odd investors in the project.

But not for the Council.  As such, in the case of cost overruns where other investors have ceased to contribute, the Council may well find itself as the only investor that would be able to continue to pay.  Council is the investor with the deepest pockets.  This is the major reason why, apart from determining conflicts of interest, SDRC needs to know the full details of all of the investors.  In fact we raised this very point with the Mayor and SDRC’s CEO in January 2021, but the Mayor and the CEO did not see any need to know the identity of the other investors.  This remained the case even after we explained the potential risks to Council in the event of the insolvency of one or more of the investors.  A prudent investor would, in the circumstances of the risk outlined by GBW in the Information Memorandum, at least do some basic due diligence on the creditworthiness of its fellow investors.  Absent that, an investor should insist on a cap on their potential liability.

The Water Sales Documents on GBIP’s website make clear that the irrigators don’t have such a cap.  At a meeting in May 2021, GBIP’s CEO Lloyd Taylor said that Council would have the same deal as the other irrigators, but with different documents.  This doesn’t look to us like Council will have a limit on its potential liability to GBW.