They are recommending the council not invest in the $36.5 million scheme. The option was to take up 30% of ''dry'' shares (covering properties which choose not to irrigate) to irrigate 5999ha in Tarras.
Councillors will make a final decision on the $3.35 million investment, which had already cost the council about $250,000, at a meeting in Dunedin tomorrow.
It will end a six-month debate which included the council controversially overturning a hearing panel recommendation not to give it the option of investing in the scheme.
The council since had struggled to get the information it needed from the company to make an investment decision.
In the meantime, Tarras Water had issued two prospectuses, the second changing the form of the scheme and reducing the ''wet'' share (landowners who take up the option to irrigate) take-up from 70% to 65%.
In a report to be considered by the council, corporate services director Wayne Scott said it was very disappointing Tarras Water had made ''fundamental'' changes to the scheme without any contact with the council.
''The reissued prospectus moves further from common ground.''
It also meant conditions the ORC had set in its long-term plan amendment to allow investment were not met by Tarras Water.
A significant risk was the uncertainty around the council's ability to on-sell the shares not taken up by landholders, he said.
The new prospectus raised doubts over landowners having to buy shares from the council or taking up their full allocation.
This risk was greater than first assessed and the council was aware of at least one 100ha property in the area where owners had installed their own irrigation scheme.
''It is our view that the identified dry shareholder investment does not appear entirely robust,'' Mr Scott said.
As a result, the council could be left holding dry shares which would offer no return.
The council had sought independent advice, including a financial and investment risk report from Ernst and Young, an engineering review from Beca and advice on its possible liabilities under the Securities Act.
While Beca reported the scheme was sound, Ernst and Young advised the scheme was not designed to deliver a commercial return to shareholders.
It also noted the largest 10 landholders represented 83% of the scheme area and four of those owned 55%, and the debt repayment period had been extended to 47 years, longer than the water permit term of 35 years.
While a return on the council's investment is planned, it would not be a normal rate of return considering the associated risks, according to the Ernst and Young report.
The council's support had been based on it being a community scheme providing water for domestic, stock and fire-fighting use, Mr Scott said.
As Tarras Water had reduced the scheme's size, it appeared to be for irrigation only.
The public, through the long-term amendment and annual plan processes, had shown its opposition to the council funding the scheme and many who once supported it no longer did because of the loss of community services.
If the regional council accepted its staff recommendation, it could put the Central Otago District Council's bank loan agreement with Tarras Water - up to $8 million, or 20% of the capital cost of the scheme - into question as it was conditional on ORC support.
It would also mean the regional council's general rate increase would only be 2.97%, not the 5.34% proposed if it went ahead with the Tarras investment.
Tarras Water Ltd chairman Peter Jolly was on holiday in Fiji and could not be contacted yesterday for comment. Company secretary John Morrison, who was in Melbourne, declined to comment as he had not seen the council report, and said nobody from the company would be able to comment at this stage.
Tarras scheme
• Take water from Clutha River to irrigate land in Tarras.
• Initially proposed to cover 7630ha - now 5999ha.
• Was to include water for firefighting, town and domestic supply - now it will not.
• Cost $36.5m.70% take up of ''wet'' shares amended to 65% after investment fell short.
• ORC to take up 30% of dry shares worth $3.5m.
• CODC to guarantee bank loan if ORC gives its support.
