Skycity deal a political lemon
Arguably, the current government should never again be allowed to negotiate with foreign corporations when issues of national interest are at stake.
Over The Hobbit deal, the asset sales programme and in the recent SkyCity negotiations over the convention centre in Auckland, the evaluation process has been such a pre- determined charade that it is easy to entertain the conspiracy theory that giveaways – and not serious negotiations – were the intention all along.
Was SkyCity ever made to feel that the Government could, and would, walk away from the bargaining table? Hardly.
From the outset, the Government not only enabled SkyCity to become the sole bidder, but its political A- Team ( Prime Minister John Key, MBIE Minister Steven Joyce) made public commitments to concluding the deal – thereby nailing their political credibility to the outcome and telling the casino operator that it had the Government over a barrel.
Thus heartened, SkyCity demanded an array of concessions.
While some of its wilder demands were not met, it has won more than it could have rationally expected – more pokies, more gaming tables and a cast- iron insulation from the realities of the market ( at taxpayer/ ratepayer expense) for the next 35 years.
Its returns will reportedly exceed its expenditure on the convention centre by well over a hundred million dollars, by conservative estimates.
When the background papers were released last week, the SkyCity settlement looked like the kind of deal Custer negotiated with the Sioux at Little Big Horn.
All the detailed research – by Treasury, by the old Ministry of Economic Development – sounded the alarm, but in vain.
In September 2009, preliminary research by the Ministry of Economic Development flagged that the convention centre would need to rely on bridging subsidies to turn an initial, marginal profit.
Subsequently, all the promotional costs would need to be met by taxpayers and ratepayers, and other conference facilities around New Zealand would have to defer to the new entrant and scale back their own promotions and profit expectations.
Given the trend for videoconferencing, the prospects of a conference centre located far from global transport hubs was marginal, and offered few multiplier effects.
Local cafes and restaurants could even expect to lose business to the convention’s in-house catering.
Ultimately, the Ministry of Economic Development concluded, the bulk of any benefits would be captured by the casino proper, via the supply of well-heeled conference attendees spilling over into SkyCity’s gambling operations.
Subsequent Treasury research has expanded on those original misgivings.
Though Joyce has said flatly that Treasury has got it wrong, the research to back up Joyce’s claim of Treasury errors has yet to surface.
In sum, New Zealand has been sold a lemon that it will be obliged to support for the next 35 years, even before counting the problem gambling issues that the extension of casino facilities will bring in its wake.
The Government already knew – from the Ministry of Development research four years ago – that the convention centre was a dubious prospect, at best.
Yet rational socio- economic arguments do not appear to hold much sway on such occasions.
More often than not, the Government looks like a delivery mechanism of pre-determined outcomes to corporate interests, rather than a proper guardian of the national interest.