In June 2012, I announced that this Office would carry out an inquiry into the process that the Ministry of Economic Development (the Ministry) followed leading up to the Government’s decision to negotiate with SKYCITY Entertainment Group Limited (SkyCity) about developing an international convention centre in Auckland.
The inquiry has considered both the adequacy of the process followed and whether anything substantively wrong has taken place. The main question underlying this inquiry was whether the Government’s decision to negotiate with SkyCity had been influenced by inappropriate considerations, such as connections between political and business leaders.
We have seen no evidence to suggest that the final decision to negotiate with SkyCity was influenced by any inappropriate considerations.
However, we found a range of deficiencies in the advice that the Ministry provided and the steps that officials and Ministers took leading up to that decision. The quality of support that was provided fell short of what we would have expected from the lead government agency on commercial and procurement matters.
In the previous Parts, we briefly mentioned that officials have researched the costs of increased gambling and provided advice to Ministers on this. It is not appropriate for us to detail the content of that advice in this report, but we can confirm that we are satisfied that the issues have received adequate attention during the evaluation and negotiation process. As already noted, any reforms of this kind will also be debated publicly and by Parliament before they can be implemented.
Costs to the Government
As noted in Part 1, Hon David Cunliffe MP asked us to consider costs to the Government as part of our inquiry. Mr Cunliffe commented that Ministers have rationalised their choice of SkyCity on the basis that SkyCity, rather than taxpayers, would meet the cost. However, he identified an estimated Government contribution of $2.1 million towards the convention centre project during the next few financial years.16
The Government met some of the costs of the 2009 feasibility study, the costs of the EOI process, and expert advice to support the due diligence process for the SkyCity site and design. This expenditure was incurred in 2009/10 and 2010/11, the main periods covered by our inquiry. There were further costs to support the negotiation process in 2011/12, and there will be more in 2012/13.
We have been given some information about the costs of the expert advice to support the due diligence process. The Ministry has made this information available in answers to financial review questions for the relevant financial years.
The Government expects further spending on advice about the international convention centre. Cabinet agreed departmental output expenses of $2.1 million for Vote Economic Development for this purpose for the period from 1 July 2011 to 30 June 2015. These costs are to be met through reprioritisation of savings in Vote Economic Development. The estimated costs were highest in 2011/12 ($1.014 million) then decrease during the next three years.
The Ministry told us that the actual cost of expert advice (construction consultants, legal fees, a financial analyst, valuation of concessions, and land valuation) from September 2010 to August 2012 was $975,000. Most of this expenditure ($702,000) was in the 2011/12 financial year.
In our view, it is inevitable that there will be costs involved in properly negotiating a complex commercial agreement of the kind contemplated here. The reasonableness of those costs will have to be assessed against the value of any final agreement reached. As noted in paragraph 2.6, the feasibility study estimated that a new international convention centre would generate an additional $72.5 million each year to New Zealand’s GDP.
We are unable to comment on the value of any contribution the Government might make as part of any eventual agreement with SkyCity, because negotiations have not yet been concluded.