Hawke's Bay Regional Council has voted to allow its investment company to borrow $2 million to keep the Ruataniwha dam project alive - half the amount requested.
The council's commercial arm, Hawke's Bay Regional Investment Company, had asked for permission to borrow up to $4 million to continue work developing the Central Hawke's Bay irrigation scheme.
Delays due to an ongoing legal challenge from environmental groups mean it could be as late as February next year before a set of conditions is met to enable the project to proceed to construction, HBRIC says.
The conditions include finalising a construction contract for the $275 million project, signing up sufficient irrigators, securing financing and clearing the legal hurdles.
At a council meeting yesterday, HBRIC asked it to waive a restriction in its statement of intent that prohibits it from borrowing so it could fund its operating expenses of up to $2 million through until "financial close" - the date when the conditions are met.
It also wanted the ability to raise up to a further $2 million to fund pre-construction geotechnical work which had previously been planned.
Bringing the work forward would prevent delays in getting construction started, HBRIC said.
Councillors were divided over whether approval should be given at all and voted 5-3 to allow the company to borrow the $2 million for ongoing operations, and decided it needed to come back to them with a separate proposal if it wanted to go further into debt to fund the geotechnical work.
The three dissenting councillors - Tom Belford, Rex Graham and Rick Barker - supported a move for a decision on the loan request to be delayed until the council received independent advice on the proposal.
"It's quite difficult for any of us around this table to make - on the information we have - a reasonable, sensible and prudent risk analysis," Mr Graham said.
Council deputy chairwoman Christine Scott said the delays faced in progressing the scheme had been outside the control of the council and HBRIC.
The proposed geotechnical work was "intellectual property" required for the project to proceed, whenever that happened, Mrs Scott said.
"We have already spent quite a considerable sum of money in investigations to get to here. This dam will go ahead at some stage. Whether it is started this year, next year or whether it's ten or 20 years out from now, it will go ahead," she said.
"If we delay this for a year, two years, three years, what will happen is the costs will go up for everybody and it will be that much longer before we get a return on our investment."
Labour's Ikaroa Rawhiti MP Meka Whaitiri, who this week joined her Napier colleague, Stuart Nash, in opposing the loan proposal, said councillors who approved the move should be prepared to be held personally liable for any ratepayer investment in the scheme.
Drawing down the full $4 million requested loan funding would take total investment in the scheme - including from central government and former potential private investors - to over $20 million.
"I'm concerned about when it's going to stop," Ms Whaitiri said.
Mr Nash said the council's decision to only approve half of the loan limit requested indicated it was "fast running out of patience" with the project.
"They've sent a very clear message to get it right, and this is your last chance."
HBRIC chief executive Andrew Newman said the company's board would consider the need to go ahead with another request for loan funding to be approved for the geotechnical work once it was "in a strong position" as far as the present legal challenge was concerned.
"If we come back to the council it will be on the basis that the board has a firm view that it's the right thing to do and is the prudent thing to do," he said.