Export office faces $30m trade loss

TREASURY WON’T reveal the details of a nearly $30 million provision which appears to have resulted from a New Zealand exporter not being paid for a huge export order.

The New Zealand Export Credit Office (NZECO) operates under the wing of Treasury providing export guarantees to facilitate Kiwi businesses sending their wares offshore, but one of those guarantees appears to have gone bad.

The NZECO has provisioned $29.7m in its accounts, which it told Sunday Star-Times was a prudent response to a developing situation facing one of its policyholders.

The NZECO provides policies in cases where commercial insurers can’t be found to write insurance. Since it was founded in 2001 it has issued just over 300 policies to 82 exporters sending their wares to 60 countries. It has only ever faced three claims.

But Treasury says the ECO operates just like a commercial insurer and details of the provision and the circumstances that have led to it cannot be released as the policyholder has a right to privacy.

Events that lead to nonpayment can include the likes of political revolution in countries, receiving companies going bust, or criminal conspiracy, but Treasury said it could not even talk broadly about the reasons for the provision. ‘‘Though the provision has been made, a claim by the policyholder has not yet been made. The policyholder has not made a claim under the terms of the policy but has advised NZECO that a claim may be made if certain previously unforeseen events occur, and if these events then result in losses to the policyholder,’’ Treasury said. ‘‘NZECO and the policyholder are actively working together to try to negotiate a solution to reduce the likelihood of a claim.’’

The bulk of NZECO’s exposure is to the food and beverage sector, followed by manufacturing, and as such the insurer has a role to play in the Government’s aspirational goal of achieving a 40 per cent export to GDP target by 2025.

But it appears the office is being retooled to do that in a way that spreads risk, or brings in outside professionals to help reduce risk.

Following the provisioning, the ECO is developing new ways of operating, including working on agreements with similar organisations in other countries to share information and also risk on trade between their countries.

It has also been linking with private firms which can provide ECO-backed finance to New Zealand exporters. AUCKLAND FILM boss Michael Brook has defended a proposal to expand an Auckland Councilowned film studio after private studio owner John Barnett said the council was wasting ratepayer money.

Last week the Sunday StarTimes revealed that councilowned Auckland Film Studio (AFS) Limited was eyeing expansion after council-controlled body Auckland Tourism, Events and Economic Development (ATEED) concluded there was ‘‘market failure’’ because private money had not invested in studio space in Auckland.

Barnett, who owns Aucklandbased South Pacific Pictures, questions the idea of market failure, and has called on the council to make public a PricewaterhouseCoopers report on the studio and the Auckland film market, to reveal evidence behind the council’s claim of market failure.

Barnett says New Zealand’s high dollar, comparatively low subsidies for movies compared to other countries, and a large numbers of empty and underutilised studios around the world make a lack of investment in new studio space in Auckland entirely rational.

He said the low utilisation of the various studios in Australia’s Gold Coast were testament to how hard things were for jobbing studios seeking to attract productions.

‘‘I don’t think there is any evidence of market failure,’’ he said, adding the council needs to put its evidence out to view because ‘‘the council is a public body’’.

Barnett said the big Hollywood movie-makers had long-standing tie-ups with studios, adding that the trend for movies and bigbudget TV series coming to town is to rent and fit out warehouses

‘You have seen a $10m write-off in four years. I really just think the council is wasting its money.’

as ‘‘green-screen’’ studios as was the case for the filming of the Spartacus series.

Brook said there was no hard evidence or analysis in a form that can be released to demonstrate the case for market failure while Gary Swift, the chief executive of Auckland Council Investments, the council-controlled entity which owns AFS, said the PWC report won’t be made public as it contains commercially sensitive material.

But Brook said he was satisfied there was market failure, adding: ‘‘We have definitely had a lot of feedback from a lot of industry people both here and internationally that there is a need for studio space here.’’

Auckland is attractive for its world-class crews and support services, Brook said, but there is a lack of facilities to support that.

Swift told the Sunday StarTimes the economic impact of expansion by AFS would not be captured entirely in its balance sheet, including hiring local crews, accommodation and other goods and services film projects spend money on.

‘‘It is a business that would generate a lot of economic activity for the region, but the benefit is unlikely to be captured in one entity,’’ Swift said.

Barnett also questioned whether councils were skilled in running film studios, pointing to the capital write-downs in the value of AFS. In 2008, the councilowned studio was valued at more than $14m. That had been cut to $8m by the end of June, and since then it has been cut still further to $4.8m.

‘‘You have seen a $10m writeoff in four years,’’ Barnett said. ‘‘I really just think the council is wasting its money.’’

Barnett’s personal belief is that if Auckland wants to have a major stake in the big-budget movie industry, its best option would be to invite Kiwiphile movie director James Cameron to set up a studio in Auckland and build it for him.