Thursday, July 18, 2013

A rotten deal

How rotten is the SkyCity deal? So rotten that even treasury opposed it. In a January 2012 briefing on the government's negotiating position [PDF, p. 11; OCR version here], they laid out their very frank view of the proposed deal:

Treasury is not convinced by the cost benefit analysis for the NZICC. For example, New Zealand already attracts a disproportionate share of the international conference market. In addition, international arrivals for conferences have plateaued since 2005, despite increases in the number of international travellers arriving in the country. Taken together with the international evidence on the low net public benefit of conference centres, these considerations lead Treasury to doubt that an expanded conference centre in Auckland will attract significantly more international conference attendees.

Treasury is also concerned about the social costs to increasing gambling in Auckland, balanced against which are the potential benefits of the NZICC, paid for through the concessions. As soon as the cost of building the NZICC are recouped by SkyCity, public costs will go only to private gain. Given the poor information on the value of the concessions, Treasury has strong concerns that private benefits to SkyCity will exceed public benefits to New Zealanders.

However, if Ministers wish to proceed with a contractual arrangement with SkyCity, Treasury considers that the difficulty of accurately assessing both the costs of the building and the revenue generated by the concessions will inevitably expose the Government to significant risks. These relate to both the information asymmetry between SkyCity and the Crown and costs to the Crown in respect of both negotiating the contract initially and then managing it over an extended period such as 25 years.

In short, the costs would outweigh the benefits, the latter would go solely into private pockets rather than being split fairly with New Zealand, and the government would get rolled in negotiations. On the latter at least, that is exactly what happened, with SkyCity making a deal in May 2012, then playing hard-ball and backing away from it, secure in the knowledge that they would gain further concessions now that John Key and Steven Joyce had put their personal prestige on the line. As for the former, Joyce claims that "We were able to prove Treasury was in the wrong on that one". But no documents have been released suggesting any such thing. Until those documents are released, we must assume he is simply making it up to cover his arse for making a poor deal and selling out New Zealanders.