23 Feb 2015

Govt expected SkyCity cost to be addressed

9:19 am on 23 February 2015

The Minister of Economic Development says it had been hoped that warnings 14 months ago about cost overruns on the SkyCity convention centre project would be resolved.

SkyCity told the Government it could not build its convention centre for the agreed price, only weeks after new legislation gave the company gambling concessions in return, official papers show.

An artist's impression of the convention centre.

An artist's impression of the convention centre. Photo: SKYCITY

Ministerial advice provided to Radio New Zealand shows the Government was told 14 months ago that SkyCity could not find a way to build the centre for the $402 million price tag, to which it had agreed.

The extensively blacked out reports provided under the Official Information Act span a 16-month period, and also show major changes in the design during a year of negotiation between the Crown and the casino operator.

View a timeline of events and communications.

The parties had agreed in May 2013 that SkyCity would build a 3500 seat national convention centre, at its own cost of $315 million.

In return, the Government would extend its casino licence by 35 years and pass legislation allowing an expanded casino operation.

When the deal was signed in July 2013, the agreed price had risen to $402 million. The required legislation passed with a one vote majority in November 2013.

Just four weeks later, in December, officials from the Ministry of Business, Innovation and Employment (MBIE) told Economic Development Minister Steven Joyce that the casino operator had advised for the first time it would not be possible to build the centre as proposed for that price, nor had it been able to come up with an appropriate alternative.

Steven Joyce talks about Sky City deal with the Government.

Steven Joyce Photo: RNZ / Alexander Robertson

MBIE responded, it says, by telling SkyCity it must prepare a design within the agreed budget.

The minister, Steven Joyce, told Morning Report this morning that projected cost overruns were not considered unusual at that stage.

"The concept design stage indicated there was an issue with about $30 million to $40 million that that would be addressed at the preliminary design stage. As it turned out that gap just grew."

Mr Joyce said the original $315 million did not include land purchase.

Design changes

The ministerial advice released by the minister's office shows that even by late 2013, SkyCity's publicly-stated intentions for the convention centre site had begun changing.

In September 2013, two months before the enabling legislation had passed, SkyCity announced it had bought land from TVNZ, in the city block where the centre would be built.

SkyCity said the $10.6 million purchase would "enhance the design and operational flexibility".

In December, MBIE told the minister not only about the rising costs, but also that SkyCity advised the former TVNZ land would not be used for the centre, but for a 300-bed hotel.

In January 2014, on the final day for SkyCity to provide a concept design, the company delivered a nine volume proposal, weighing 8kg.

Its design proposal had changed markedly. The main exhibition hall had moved to the ground floor, reducing the maximum available uninterrupted floor space. A proposed skybridge linking SkyCity's existing complex to the convention centre now linked to its new hotel, and the number of carparks had risen from 918 to 1328.

MBIE advised that the new design might also prove to be over budget.

The reports show extensive meetings were held through 2014 to revise the design, with proposed completion dates for the centre being pushed out by 20 months to May 2019 if a full, notified resource consent process was required.

In a covering letter with the redacted reports, the Minister Steven Joyce said he was told in October 2014 that the likely cost over-run was estimated at $70-$130 million.

That figure became public on December 19, when the Government and Sky City announced agreement on the preliminary design, and an application for resource consent was lodged.

The reports show MBIE officials believe the design will deliver the same economic benefits as the original proposal the two parties signed up to.

Earlier this month, the Government announced SkyCity would not seek taxpayer funding to close any cost escalation, but that the centre may be shrunk by up to 10 percent.

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