Tauranga-based TrustPower will not be funding the construction of the controversial Ruataniwha Water Storage Scheme, it announced today.

The power company signed a memorandum of understanding with Hawke's Bay Regional Investment Company and Ngai Tahu Capital Limited in September last year, suggesting it may fund a significant per cent of the estimated $265 million project.

In an announcement to the NZX today, TrustPower chief executive Vince Hawksworth said the power company has decided to withdraw as a potential investor.

'TrustPower has determined that it will not be possible to invest within its risk and return framework for a project of this nature.

'Accordingly, Trustpower has terminated its memorandum of understanding.”

The Ruataniwha Water Storage Scheme is a proposed project to build and operate a dam, water storage and distribution infrastructure, which would deliver reliable irrigation to 20,000-30,000 hectares of farmland in the Ruataniwha Plains in Hawke's Bay.

The estimated capital cost, including water storage and distribution infrastructure, is $265 million, according to Hawke's Bay Regional Investment Company.

TrustPower group manager for commercial operations Chris O-Hara says they were looking at investing $50-60 million into the scheme.

He says the decision to pull out is based on the realisation the scheme will not offer significant returns for TrustPower shareholders.

'Early last year we entered into discussion with HBRIC on the basis we would potentially invest in the scheme, and we signed a memorandum of understanding.

'That MOU had a number of milestones that needed to be met in order for us to engage as an investor.”

Milestones included the 'firming up” of a number of details, including the return of investment, designer and construction cost, the investment model, how returns would be distributed and details on when revenue would start, says Chris.

'We really needed all of those things to align perfectly for the returns to get to a level we were going to be able to recommend to shareholders.

'The returns were tight, they were always at the lower end of expectation.

'In the end, we really just weren't able to get the deal structured in a way that the investment returns were happening early enough and giving us an adequate return.”

He says, despite the controversial nature of the scheme, the decision is purely financial.

'All projects of that nature are controversial, so were used to that.

'The other big thing is that we had made it clear from the outset that we weren't prepared to take risk around uptake, and that needed to be taken by someone else, and we couldn't achieve that.”