Appendix: Terms of reference for our inquiry

Inquiry into decisions by Delta Utility Services Limited to invest in residential development at Luggate, near Wanaka, and at Jacks Point, Queenstown

14 November 2012

The Auditor-General has decided to carry out an inquiry into decisions in 2008 and 2009 by Delta Utility Services Limited to invest in residential development at Luggate, near Wanaka, and at Jacks Point, Queenstown.

This document sets out the terms of reference for the inquiry.

Background

In 2008, Delta Utility Services Limited (Delta), a council-controlled trading organisation of Dunedin City Council, acquired a 50% interest in a joint venture for residential property development at Luggate. In 2009, Delta acquired 9.4 hectares of land at Jacks Point, for the same purpose. The combined cost to Delta was $14.12 million (comprising Luggate joint venture at $5.3 million and Jacks Point land at $8.82 million). Delta had not previously been involved in property development, but the company expected to expand its core business activities in the Central Otago region by providing infrastructure services as the land was being developed.

There has been less demand for the residential sections than expected. In 2012, Delta reduced the value of the land in its financial statements by $7.5 million.

The Mayor of Dunedin City Council wrote to the Auditor-General on 19 October 2012 to ask for an investigation into Delta's decisions to invest in the residential developments.

The inquiry

The inquiry will examine:

• how and why Delta made decisions to acquire an interest in the joint venture at Luggate and to purchase the land at Jacks Point, including its consideration of risks;
• compliance with legislation, including the Local Government Act 2002 and Companies Act 1993;
• the identification and management of any conflicts of interests;
• any consultation with or involvement by Dunedin City Council in the transactions; and
• any other matters the Auditor-General considers it desirable to report on.

The inquiry is being carried out under sections 16 and 18(1) of the Public Audit Act 2001. We will not comment while the inquiry is under way, but will publish a report when the inquiry is completed.