Part 2: Establishing the feasibility of an international convention centre

Inquiry into the Government’s decision to negotiate with SkyCity Entertainment Group Limited for an international convention centre.

In this Part, we outline:

Early feasibility work (2000-06)

The idea of an international convention centre for Auckland has been under consideration for more than a decade. CINZ markets New Zealand as a destination for international conferences and has a strategy to promote an international convention centre for Auckland. It considers that New Zealand could compete with convention venues in Asia and Australia for larger events of more than 1000 delegates with a large international-standard convention centre.

From 2000 to 2002, there were several studies done for industry and the former Auckland City Council on the benefits for Auckland of an international convention centre.

In 2005, a convention centre steering group was formed to work with local and central government to promote the case for an international convention centre in Auckland. In October 2005, some members of that group – Auckland City Council, CINZ (which was assisted by the Ministry of Tourism), and the Committee for Auckland5 – jointly funded a report by Horwath Asia Pacific Limited6 (Horwath) on the case for an international conference centre in Auckland.

In February 2006, Horwath issued a report entitled New Zealand Convention Centre Business Case and Facility Recommendations (the 2006 Horwath report). The report considered three scenarios – a small, medium, or large convention centre for Auckland located in the central business district (CBD). It did not consider the small option to be viable, but recommended that more research be carried out to further develop a business case for the other options.

The report identified the benefit-cost ratio of a new convention centre to the New Zealand economy as being 3.45:1, and estimated it would generate an additional $72.5 million each year to New Zealand’s gross domestic product (GDP) (in 2006 prices). The work assumed that 80% of the capital costs of a new convention centre would be funded from the public sector.

Ministry of Tourism interest (2007-08)

At this time, the Ministry of Tourism was the main government agency with an interest in the idea. The New Zealand Tourism Strategy 2015, issued by the Government in November 2007, recommended investigating the case for developing national facilities such as a convention centre and cruise-ship facilities.

On 22 December 2008, after the change in Government, the Ministry of Tourism briefed the new Prime Minister/Minister of Tourism on a proposal for a new convention centre in Auckland based on the findings of the 2006 Horwath report. As well as summarising the main points of that report, the briefing also discussed the benefits and drawbacks of two possible Auckland sites – above the Aotea Centre car park or a waterfront location. The briefing paper did not include recommendations, but included a timeline and process to further consider those sites.

The briefing to the Prime Minister/Minister of Tourism also noted:

International experience shows that convention centres deliver significant economic benefits; however, they tend not to generate commercially viable returns to the owner/operator. Consequently, public sector leadership in funding is often critical in their development.

This point was elaborated in our discussions with industry representatives and officials during our inquiry. We were told that convention centres can operate at a profit, but it is not possible to recover the capital investment (land and construction costs) from operating profits.

The 2009 feasibility study

As noted above, the former Auckland City Council had been involved in advocating for an international convention centre in Auckland from time to time and had participated in the steering group. However, at the time of the December 2008 briefing, Auckland City Council’s formal plans did not include it providing funding for a convention centre.7

Funding application for a two-stage development process

On 3 April 2009, Auckland City Council applied to the Ministry of Tourism for funding to progress the development of an international convention and exhibition centre in Auckland. The application outlined two work stages: a feasibility study to be completed by mid-May 2009, and, if the feasibility study were favourable, a subsequent full business case and establishment plan.

Funding for a feasibility study was available under the New Zealand Tourism Strategy 2015 and had Cabinet approval. The Minister of Tourism approved a grant of up to $80,000 to go towards a feasibility study for a proposed Auckland international convention and exhibition centre. Auckland City Council also contributed funding and staff time for this work.

How the feasibility study was carried out

Auckland City Council engaged Horwath to do this work. Horwath completed the feasibility study in July 2009. The New Zealand Institute of Economic Research and WT Partnership (a quantity surveying company) also contributed to it. A steering group of representatives from Auckland City Council, the Ministry of Tourism, the Department of the Prime Minister and Cabinet, and CINZ oversaw the work. The Auckland-based Ministry officials worked with Auckland City Council officials to support the steering group and the project.

Horwath interviewed major conference industry representatives as part of its feasibility study, including CINZ, SkyCity, and The Edge (operator of the Aotea Centre). Horwath also looked at governance, funding, and ownership models for a convention centre based on overseas best practice. The feasibility study identified three broad ownership options:

  • private ownership through a mechanism such as a build, own, operate, transfer (BOOT) scheme;
  • direct ownership by the public sector; and
  • creation of a special purpose entity accountable to the public sector but operating at arm’s length – for example, a statutory body or council-controlled organisation.

The feasibility study’s conclusions

The feasibility study noted that the third option was the most popular model. The benefits included that a special purpose entity is fully accountable to the public sector but can operate at arm’s length to ensure that public sector objectives are met in the most efficient manner. The feasibility study noted that this model would fit with recommendations of the Royal Commission on Auckland Governance – that a council-controlled organisation be formed to own all regionally significant venues, which could include the proposed convention centre.

The feasibility study concluded that, when fully operational, an Auckland-based international convention and exhibition centre would generate an increase of $85.4 million in tourism-related expenditure each year (almost 22,000 additional international visitors who would not otherwise visit New Zealand, and more than 200,000 extra visitor days). The New Zealand Institute of Economic Research modelled the effects of this on GDP and estimated an additional $40.3 million each year.

At the same time as the feasibility study was under way, officials from the Ministry of Tourism carried out some supplementary research. The supplementary work included interviews with convention centre operators in Asia and Australia, and with officials from federal and state governments in Australia. When completed, the summary report of that supplementary work cited the same benefits as the feasibility study.

From the 2009 feasibility study and the supplementary work, officials concluded there was enough evidence of the economic and wider benefits to justify proceeding to the second stage: developing a detailed business case and establishment plan.

The economic analysis in the feasibility study favoured an Auckland CBD site for an international convention and exhibition centre. The stated benefit-cost ratio of a “midtown” site was higher than for a waterfront or Wynyard Quarter site. This was mainly because of the existing mid-town hotel infrastructure.

We note that some of the parties we spoke with did not agree with the economic analysis about location. This was mainly because, in their view, co-located hotel infrastructure will follow the building of a convention centre. This is not a matter that we needed to resolve or form our own view on. From our perspective, the important point is that these issues were being analysed and debated.

Officials also noted that some overseas convention centres were developed with private sector funding as part of precinct developments (involving retail premises and hotels), but with government contributions of land or funding. They noted that public sector ownership could support wider economic, social, and environmental outcomes because a convention centre could operate in part as a community asset – for example, by having free concerts and events from time to time. If necessary, broader outcomes could be specified in key performance indicators for a convention centre, as well as economic objectives.

Next steps

The Ministry of Tourism gave the Prime Minister/Minister of Tourism a written briefing on the findings of the feasibility study and supplementary work on 24 August 2009. The briefing paper sought his agreement to proceed to the planned second stage. This was to involve officials continuing to work closely with Auckland City Council to develop a business case and establishment plan. It required funding of $170,000.

The briefing paper included a section on the benefits and costs of an international convention and exhibition centre from the feasibility study. It stated:

When fully operational, the centre could attract almost 22,000 additional international visitors and more than 200,000 extra visitor days. There would be an estimated increase of $85.4 million in tourism-related expenditure annually. Furthermore, there would be non-quantifiable benefits such as improving shoulder and off-peak tourism, fostering commercial links between international and New Zealand businesses, and supporting innovation and knowledge transfer between international delegates and New Zealanders.

The Prime Minister/Minister of Tourism signed the briefing paper but did not agree to officials progressing to a business case and implementation plan. He annotated the briefing paper by hand, stating that “we should close off the SkyCity angle first”.

Our comments on the early feasibility work

In our view, the work through to August 2009 was a reasonable and careful exploration of the possibilities presented by an international convention centre. The processes for committing government funding to the work were orthodox and the work canvassed an appropriate range of issues and views.

4: The Ministry of Tourism was a separate ministry within the Ministry of Economic Development until August 2010, when it became part of a branch of that Ministry.

5: The Committee for Auckland is a not-for-profit private sector organisation that seeks to influence the enhancement and development of Auckland. Members include corporate businesses, not-for-profit organisations, local and central government agencies, and tertiary institutions.

6: Horwath Asia Pacific Limited is the earlier company name of Horwath HTL (Hotel, Tourism and Leisure) Limited. It is a New Zealand company that provides consulting services to public sector stakeholders and private sector clients in the hotel, tourism, and leisure industry.

7: The importance of an international conference and convention facility to Auckland and New Zealand is now acknowledged by reference to such a facility in the Auckland Council’s 2012-22 long-term plan and in its economic development strategy.

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