The Dunedin City Council should plan for a nearly $50 million repair bill for damaged pipes, roads and other infrastructure after a major earthquake, a new council report warns.
However, the report by council financial controller Maree Clarke also warned "significantly more work" was needed to assess the magnitude of the risk faced by the council.
It was also possible rates or debt levels might have to be considered to cover the cost of self-insurance or a repair bill should disaster strike, her report said.
Her assessment came after the Otago Daily Times reported the council's $2.4 billion network of above and below-ground infrastructure assets had been left without insurance after the Christchurch earthquakes.
International reinsurers worried about their own exposure refused to offer new cover for underground assets, while council staff refused to pay inflated premiums for reduced cover for above-ground assets.
The council was instead considering self-insurance to cover 40% of any repair bill that eventuated, which was a requirement to obtain 60% support from the Government.
Mrs Clarke's report, detailing the options and the council's likely risk, would be considered by councillors at today's finance, strategy and development committee meeting.
The report said the Christchurch earthquakes were a one-in-2500-year event, and the more likely threat in Dunedin was from "localised" events, such as a major landslip causing several million dollars in damage.
Dunedin was in a low-risk seismic zone, but a large shake could still cause damage to "significant areas" of Dunedin, particularly in areas built on alluvial soil prone to liquefaction and settlement damage, she said.
Damage to just 5% of the council's infrastructure assets would require $120 million to fix, with the council's 40% share amounting to $48 million.
It was "prudent" to plan for such an event, given 150km of sewers in Christchurch - or 9% of the city's network - had been damaged by the city's earthquakes, she said.
That was despite the likelihood of the council's total share not being needed up front, as any recovery process could take "three to five years", she said.
Her report listed four ways the council could cover its share of insurance costs, including a $5 million line of credit for civil defence purposes and "new borrowing and/or increases in rates".
However, she recommended councillors establish a "strategic risk fund" to provide council self-insurance, with $250,000 in annual insurance premiums - no longer to be paid - diverted to the fund each year.
The money could be invested with the Dunedin City Treasury and ring-fenced, with a 4% return increasing the fund to $3.1 million in 10 years.
Councillors should also agree to use a "significant chunk" of the council's $25 million-$40 million annual renewals budget, and new capital if required, to pay for repairs after a major event.
A $100,000 surplus from within the council's finance department could also pay for a consultant's report to accurately gauge the maximum exposure the council could face in a disaster, she said.
