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2014 Investment Statement

Implications of the Canterbury earthquakes

The Canterbury earthquake sequence beginning 2010 highlighted the importance of Crown risk management. In addition to the loss of life and property damage, earthquakes in densely populated areas can have significant impacts on government service delivery and Crown finances.

Canterbury rebuild costs:

Total estimated cost:
$40.0 billion

Crown contribution to cost:
$14.9 billion

At least 80% of the costs to the Crown from the Canterbury earthquakes, net of insurance proceeds, have arisen from the need to meet, or contribute to, the costs of replacing or repairing physical assets. Not all of these assets are owned by the Crown. For instance, costs have arisen from:

  • the Earthquake Commission’s insurance of privately owned residential property
  • the Crown’s contribution to the restoration of essential local government underground infrastructure such as fresh water supply, wastewater and stormwater services (see Box 6.1), and
  • the Crown’s decision to support AMI insurance – a private company – after property claims arising from earthquakes caused it financial distress.

Box 6.1 - The cost of restoring local government infrastructure

Under current policy settings the Crown may contribute 60% of eligible costs incurred in the restoration of essential local government infrastructure, being fresh water supply, wastewater, stormwater and flood protection management systems (horizontal infrastructure).  The relevant local authorities are responsible for maintaining sufficient financial capacity to meet remaining horizontal infrastructure restoration costs.

Before the Canterbury earthquakes, the estimated replacement cost of the Christchurch City Council's (CCC) entire network of horizontal infrastructure was approximately $2.6 billion.  Post earthquake, restoration costs are still uncertain but are likely to be at least $2.0 billion even though, as the below table illustrates, there were significant proportions of the CCC's network which did not sustain damage.

CCC Network
Network Type of Asset   Total Damaged % of Total Damaged
All networks Reticulation Km 4785 754 16
Pump Stations No. 309 254 82
Reservoirs No. 113 113 100

If this is representative of other local authorities, it may mean that they are not maintaining sufficient financial capacity for their share of restoration costs, investing sufficiently in resilience or adequately transferring the risks on to other parties.  This has implications for ratepayers' exposure to the costs of future disasters and ultimately Councils' financial sustainability.

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