National is in big political trouble over the Sky City deal. The pre christmas timing of the news that there has been a surge in the anticipated construction cost is evidence of this. The project was originally costed at $402 million. This could now be $530 million.
The reasons given for the increase are recent and expected construction cost inflation together with the construction of a new five star hotel. Apparently in July 2013 when the deal was signed no one could have predicted that the Christchurch Earthquakes would have caused pressure on construction costs.
Yesterday morning a belligerent Nigel Morrison said that the Government would have to help plug the funding gap and that the shareholders “were not going to make a donation”. Stephen Joyce then muddied the water by saying that Auckland Council should pick up some of the expense. Given recent pressures on the City’s budgets and Len Brown’s desire to cap increases the answer is unlikely.
The response of the right wing on Council to this proposal will be interesting. Already Cameron Brewer has said that a Council subsidy should be considered for the revised project. What is it with the right and Sky City? It speaks volumes that this Government will not fund a transformational transport project but will increase gambling and the attendant misery and hardship to fund a convention centre.
And why would the city fund something that would be in direct competition with a convention centre owned by the city? Especially after a majority of councillors have already expressed opposition to the deal, even if this was symbolic?
Morrison is well known for his belligerent approach to negotiations. He previously threatened to have the convention centre built elsewhere if Parliament did not pass the poke concession law.
No doubt the terms of the agreement will now be scrutinised to see who is responsible for the increase and change. The small print does say that the total construction budget cannot increase without the consent of both parties. It also says (clause 4.1) that the contract is conditional on both parties approving preliminary, concept and approval designs. Unless these conditions have already been satisfied Sky City can walk away from the deal. But so can the Government. Or at least it could if it had not invested so much political capital in the project.
It is interesting to review some of the comments made about the deal last year and compare these with what is happening now. It is clear that the Auditor General’s criticisms of the transaction are ominously accurate. Released back in 2013 the report criticised a lack of documentation and analysis for the procurement process.
Key thought the report exonerated his government. Such unmitigated optimism in the face of reality is a trademark of his leadership. His views were in stark contrast with the views of pretty well every commentator. Bryce Edwards set out the following selection:
Commentators are refusing to let the SkyCity scandal lie, with economist Rod Oram now labelling the Auditor-General’s report a ‘whitewash’ – see: No way to run a country. John Armstrong is also harshly critical of the Government’s response to the Auditor-General’s report – see: Nats battle hard to tame report. And Tim Watkin says that it all reflects a modern modus operandi in which only results matter, not process – see: Pokies & smokies: When the means and ends don’t meet
Armstrong’s description at the time was particularly appropriate and particularly scathing:
Verging on banana republic kind of stuff without the bananas – that is the only conclusion to draw from the deeply disturbing report into the shonkiness surrounding the Government’s selection of SkyCity as the preferred builder and operator of a national convention centre.
Rod Oram was also highly critical about what had happened:
Whitewash is the only word to describe the deputy auditor-general’s report on the Government’s relationship with SkyCity.
The report dumps all the blame on civil servants. But its description of events makes it very clear the prime minister, his office, his Tourism Ministry, and the Ministry of Economic Development spent a year trying to stitch up a convention centre deal with SkyCity before any other interested party got a glance in.
By doing so, John Key and his officials subverted the normal processes required for government procurement. These are designed to ensure solutions are canvassed widely and the best option chosen. As a result we’ll get the convention centre SkyCity wants to build on terms highly favourable to it, which may not be the convention centre New Zealand needs.
This latest development is just what the Government did not want. It reopens a festering sore where legislation was given away for money and an increase in human misery used to fund a convention centre. And the one sided nature of the negotiation and the slipshop process meant that deficiencies in the agreement were almost inevitably going to occur. This attempted grab of further money is a stark reminder of how shonky the process was.
Sky City is following the rulebook established by Warner Brothers and Rio Tinto and Chorus. Threaten to walk away and this Government will open up the cheque book …
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