Part 6: Detailed discussions with SkyCity about its proposal

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

In this Part, we :

Discussions from January to June 2011

The Ministry responded to SkyCity’s December 2010 letter (see paragraph 5.50) on 17 January 2011, after further discussions with the Department of Internal Affairs. The response made it clear that there were some issues that the Government would be unlikely to support. These issues were outlined in the letter. The letter stated:

Put simply, Ministers will not authorise me to commence negotiations with you … while you insist that we pursue issues on which there is minimal or no likelihood that the Government in 2011 would support a review of existing policy or regulatory frameworks …

Finally, I would like to reiterate a point I made at our 14 December meeting. Any consideration of the issues raised… that pertain to the existing regulatory framework will be subject to the normal Cabinet and Parliamentary decision-making processes.

Engaging expert advice

In January 2011, the Ministry engaged a law firm to help with negotiations for the convention centre. The estimated cost of the legal services needed was in the range of $250,000 to $500,000. A closed tender process was used because of the commercial sensitivity of the project, the tight time frames, and the few firms having the necessary capability.

Also, on 18 January 2011, the Ministry engaged a financial analyst to help with advice on the financial and economic benefits of what SkyCity had proposed. The financial analyst provided the Ministry with several reports on these matters during the next five months. The reports contained detailed financial analysis to help inform the Government’s negotiating position. The analyst obtained some information from SkyCity to help inform the analysis.

The analyst estimated a dollar value, in terms of benefit to SkyCity, of the various gambling concessions that SkyCity sought. The analyst advised the Ministry on the value of this benefit relative to the estimated cost to SkyCity of building a new large-scale convention centre. The advice also considered whether any gambling harm minimisation measures would be necessary to balance the value of the concessions sought and the cost of building the centre.

Unfolding discussions with SkyCity

From February 2011 onwards, there was a steady stream of meetings, correspondence, and briefings between SkyCity and officials, and officials and Ministers. The main steps were:

  • A meeting was held between officials and SkyCity on 8 February 2011 to resume discussions.
  • SkyCity sent the Ministry a list of “agreed issues for negotiation”, so that the Ministry could include this in a briefing to the Minister for Economic Development.
  • A 9 February 2011 briefing paper for the Minister for Economic Development covered the oversight arrangements proposed for the negotiations, the process required to get to the point of announcing SkyCity as the Government’s preferred option for providing an international convention centre, timing, risks, and comments on the various matters for negotiation. This paper was also given to the Ministers of Tourism, Finance, Internal Affairs, and Broadcasting for discussion, along with a preliminary assessment of the value to SkyCity of the major regulatory changes sought.
  • Officials provided Ministers with an updated briefing paper on 8 March 2011.14 This briefing included the table comparing and assessing all five proposals for the international convention centre with updated information on the SkyCity proposal to reflect the independent specialist advice that the Government had received on the costs of what SkyCity had proposed, and to reflect the discussions with SkyCity on funding after the closing date of the EOI process.
  • Cabinet discussed the international convention centre at a meeting in mid-March 2011.15
  • Officials prepared a briefing paper for the Acting Minister for Economic Development and the Prime Minister, sent to the Prime Minister on 25 March 2011, to show what “the final outcome of the negotiation with SkyCity might look like” and to ensure that both Ministers were comfortable with instructing officials to “begin more formal negotiations”.
  • There was a meeting between the Acting Minister and the Mayor of Auckland Council (Mr Len Brown) on 7 April 2011, to seek Mr Brown’s support for the SkyCity convention centre proposal and his agreement to be part of a later joint public announcement.
  • Throughout April and May, there was more detailed work by officials and discussions with SkyCity on the various issues identified in paragraph 5.46.
  • There were weekly progress reports to the Acting Minister throughout May and early June.
  • Advice was received from international experts on the site and design.
  • International research and advice from the Department of Internal Affairs were sought on the social effects of any gambling concessions.
  • The New Zealand Institute of Economic Research provided an updated economic impact analysis.
  • In late May 2011, officials prepared an early draft of the type of agreement the Government would need to make with SkyCity to implement the proposal, and to capture SkyCity’s responsibilities to deliver an international-standard convention centre.

Announcing the Government’s decision

On 9 June 2011, the Ministry provided written advice to the Acting Minister for his discussions with the unsuccessful proposers. These took place in Auckland on 12 June, ahead of the Government’s announcement of its decision to enter into negotiations with SkyCity. One of the discussions was by telephone rather than face to face.

On 12 June 2011, the Government announced that it was negotiating with SkyCity, because its proposal had been selected as the best option for a large (3500 people capacity) international convention centre in Auckland. The announcement was at a media-only event at the offices of the law firm Kensington Swan in Auckland. The Prime Minister, Acting Minister for Economic Development (Hon David Carter), Mayor Brown, and the Chief Executive of SkyCity attended.

At the time of the announcement, the Acting Minister’s press release noted that:

SkyCity’s proposal is favoured because it offers by far the best level of benefit to taxpayers, the company has a good track record in the convention business and the location is good.

The press release also referred to the estimated increase in international visitor spending in New Zealand associated with having a large international convention centre in Auckland. An estimated $90 million a year of extra spending was quoted. This was broadly consistent with the estimated increased spending identified in the 2009 feasibility study.

Our comments on the discussions leading up to the announcement in 2011

If this had been a normal commercial negotiation, then we would have little comment on it. Officials were canvassing an appropriate range of issues in negotiations, getting expert advice as needed through appropriate engagement processes, and maintaining regular contact with Ministers.

As explained in Part 5, our concerns are procedural rather than about the substance of what was being considered. The concerns we set out in paragraphs 5.60 to 5.68 apply to this period as well.

14: By this time, Hon David Carter was the responsible Minister, having taken over as Acting Minister for Economic Development after the Canterbury earthquakes in late February 2011.

15: An exact date cannot be provided because Cabinet did not issue any written communication about this oral item. It was referred to in the Ministry paper of 25 March 2011.

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