Sacha is right. The initial framing of Joyce’s announcement that Sky City will not seek further financial contribution by the Government to the Sky City convention centre is all wrong. What is happening is that SkyCity is now allowed to build something cheaper in consideration of which it will receive the same significantly valuable legislative changes. And John Key’s concern that we will not get a world-class, iconic convention centre has succumbed to the weight of the political reality that further public money being paid to Sky City was not going to happen. It may be that the project is now a dog but Key can only blame the clearly flawed process for this.
SkyCity has still won. The negotiations that were completed two years ago have obviously been based on underestimated costs. And the concessions to SkyCity are unchanged. These include:
The reduction in size must affect the financial sustainability of the centre. The original feasibility study said that “[i]n order for the convention centre to maximise its economic impact it must be capable of hosting conferences averaging 3500 delegates, including associated activities such as exhibitions”. The revised plan will mean that the main hall will be unlikely to fit 3,500 delegates making the goal of conferences averaging 3,500 impossible. The report also said that 35 conferences a year would be required, 25 of them international conferences. On this basis the centre would operate on a break even cash flow basis. Any reduction in delegate numbers would obviously mean the centre will be losing money. The centre being at a break even position appears unlikely and you can bet your bottom dollar that SkyCity would expect a public subsidy to be paid.
The politics are interesting. National essentially had three options:
None of the options were good ones. The possibility of option one was causing huge public ructions even from those usually supportive of National. Option three risked the prospect of the project being cancelled with huge amounts of political egg on face. Option two was realistically the only choice Key and Joyce had but the dawning realisation amongst the public that SkyCity has again won will cause increasing political damage to National.
Andrew Little has gone on the offensive and has targetted not only Joyce but also SkyCity chief Nigel Morrison. According to Stuff:
Labour leader Andrew Little welcomed the announcement [of no further money being paid], but said if the Government had pushed ahead with a cash injection, the furore would probably have forced Joyce’s resignation.
Little also launched an attack on Morrison, SkyCity’s chief executive since 2008, saying he had played a political game along with Key and Joyce, knowing that any added costs would fall on the taxpayer.
“They all made a promise they couldn’t keep. They all led taxpayers to believe that there would be a free convention centre that would be iconic and world-class.
And he has also come up with a phrase that will no doubt start to rival “cut the crap”. He was reported as saying that he hopes “this Government has the cojones to hold SkyCity to its promise”.
Hamish Rutherford has summarised the situation well:
[I]t appears Morrison went for more, publishing details of a significantly more expensive centre at the end of last year, knowing full well that the added costs would fall on the Crown.
In short, he breathed new life into a controversial issue for the Government, undermining the central defence that somehow National was delivering something for nothing.
SkyCity must now go back to the original deal on the original terms, offsetting higher costs by building a slightly smaller convention centre.
But its act of brinkmanship has humiliated the Government, which is already sensitive to claims that it engages in corporate welfare.
Worse still, it has made it seem as if Key and Economic Development Minister Steven Joyce were outsmarted in commercial negotiations.
One of Key’s biggest selling points to date is his claimed corporate expertise. SkyCity has shown through an act of brinkmanship that a short term money trader approach to significant public contracts will lose out every time.