Let Sky City walk

The Herald reports:

Auckland Council and Mayor Len Brown were yesterday blindsided by suggestions from the Government and SkyCity that ratepayer money be used to fund the shortfall in costs for a controversial convention centre.

SkyCity chief executive Nigel Morrison yesterday also confirmed his company wants a taxpayer-funded top-up and was willing to walk away from the deal if it doesn’t get it, after last week revealing a rise of up to $130 million for the centre, originally priced at $402 million.

SkyCity was favoured by the Government to build the centre over rival bidders for its willingness to fund and operate the facility itself without taxpayer funds, in return for gambling concessions including more gaming machines and a licence extension.

Mr Morrison said SkyCity “absolutely” wanted a taxpayer top-up and issued a veiled threat to walk away from the project.

“This is an unprecedented investment in tourism infrastructure in Auckland.

If Auckland doesn’t want it, if New Zealand doesn’t want it, quite frankly that’s fine with SkyCity, we don’t have to do this,” he told Radio New Zealand yesterday.

Economic Development Minister Steven Joyce, who has overseen talks with SkyCity, said Mr Morrison was “entitled” to try to seek taxpayer dollars. But “I have some slightly more cynical news for him, which is, that’s unlikely to be the case.”

Let Sky City walk, rather than give them taxpayer dollars. They are trying to do a Rio Tinto on the Government and extort some money from them, for something they have agreed to do. I hope Steven Joyce stays firm.

Eric Crampton makes the point:

A government committed to using PPP arrangements also has to be ready to play hardball with contractors who lowball initial cost estimates lest they encourage stupidity in each and every future contract.

The point of what is effectively a PPP is that the private sector partner carries the risk, rather than the Government.

Instead, Mr Joyce said any shortfall which could not be covered by removing costly features, downsizing the centre or more effectively managing construction costs could be offset by an operating subsidy from the council. “The other option is asking for the Auckland Council to come in, not necessarily with capital but if you look at the Wellington Council, they’ve just done a deal to do a convention centre, a much smaller one but they’ve underwritten some operating costs so that might help.”

They should downsize the centre so that it can be constructed for the original price.

The Wellington convention centre deal has actually just fallen over.

The Herald understands SkyCity would also like the council to offer millions of dollars in concessions on costly red tape necessary to build the centre.

Getting rid of red tape for developments would be good.