Part 7: Other matters

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

Continuing negotiations

When we carried out our inquiry, the Government had not completed its negotiations with SkyCity. Our main interest was the process leading up to the
12 June 2011 announcement, so we have not inquired into negotiations after that date.

The Government is entitled to carry out commercial negotiations with a private sector party such as SkyCity to see whether agreement can be reached. It is clear that any regulatory reforms will have to be brought to Parliament in the usual way, and the Government will be accountable to the public for the policy choices it makes. We have no mandate to comment on those choices.

Considering the social costs of gambling

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.

Please note: The printed version of this report contained a calculation error. Paragraph 7.8 (below) contains corrected figures. 

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.

16: From a Cabinet Minute (Annex to CAB Min(12) 13/3 (7)) released under the Official Information Act 1982.

page top