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Saturday, September 17, 2011

How the cost-effectiveness of land remediation is measured.

Cabinet, at its meeting on the 15th of August, agreed to a new method of calculating whether it would be cost-effective to remediate particular areas of land. This decision was made in association with decisions on the Kaiapoi Orange Zone, and was used for those decisions.

The method determines that land is not cost effective to remediate if the cost of remediation would be greater than the value of the land as set out in para 8.1 of the Cabinet Minute. While not the only criteria for deciding whether land is to be zoned Red or Green, the method does tackle the financial part which is the primary reason for the designations.

What follows is extracted from para 8.1 of the Cabinet Minute of the 15th of August. A copy can be downloaded here.
Determining the cost of remediation
This cost is determined by adding the first three items in the list, then subtracting the fourth.
  1.  Cost of land reinstatement to pre-September condition  plus
  2. The betterment cost (i.e. perimeter treatment and/or additional raising of land) plus
  3. Infrastructure replacement (see note 1) minus
  4. Decommissioning costs (infrastructure decommissioning and greening)
Determining cost effectiveness
  1. If the cost of the above exceeds the improvement in the value of the damaged land (see note 2), remediation is not cost effective.
  2. If the cost of the above is less than the improvement in the value of the damaged land, remediation may be cost effective.
Note 1: Includes the infrastructure within the Orange Zones required to service the sub-zone area of interest (and excludes the cost to repair infrastructure required to service surrounding Green Zones)
Note 2: Despite the recent earthquake events, properties are likely to have some land value left. We assume there is 10% of the land value remaining in the properties, as indicated by the Valuer General.
You can see how this was applied in the assessment of the Kaiapoi Orange Zones by looking at Paragraphs 9 - 14 on page 3 of the Cabinet Minute (here). The background information upon which the decision was made is contained in the Cabinet Paper here.

Anyone hoping to appeal a Green Zone ruling will need to check out how their property stacks up against this criteria, once the information becomes available. What may not be made known is how the figures are reached, and what margin of error attaches to them.

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