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SkyCity deal tainted by sloppy process, decision OK: A-G

SkyCity deal tainted by sloppy process, decision OK Auditor-General

By Paul McBeth

Feb. 19 (BusinessDesk) - The government's decision to go-ahead with a deal offering land and regulatory concessions to SkyCity Entertainment Group for a $350 million convention centre was tainted by sloppy processes, though the final sign-off was probably alright, according to the Auditor-General's probe.

That's despite finding there were inappropriate meetings between Ministers and officials and a process that treated the SkyCity bid differently from rival bidders.

Deputy Auditor-General Phillippa Smith said there was "no evidence to suggest that the final decision to negotiate with SkyCity was influenced by inappropriate considerations" though there were a range of short-comings in the advice provided and the steps taken by ministers and officials to get there.

Planning and management received "insufficient attention" and risks weren't identified or addressed.

"Although we regard the process as flawed, we should also make clear that the records show that a great deal of careful work was carried out to understand the market and the different possibilities," the report said. "The fact that the process was unsatisfactory does not automatically mean that the conclusions reached were unsound.

"Process should not stand in the way of such innovation," the report concludes.

The probe, which was launched in June last year, was launched after requests were lodged by Opposition MPs over the procurement process and the adequacy of the cost-benefit analysis. Auditor-General Lynn Provost had to recuse herself from the investigation because she owns shares in the hotel and casino operator.

SkyCity chief executive Nigel Morrison welcomed the report, saying the casino operator is still "willing to to invest up to $350 million to develop, own and operate the New Zealand International Convention Centre, provided acceptable returns can be delivered on the total project."

The company's shares rose 1.2 percent to $4.07 today.

Brokerage Goldman Sachs last year estimated SkyCity would need 350 to 500 extra machines to profit from the deal, generating as much as $46 million of revenue in the first full year of operation.

A 2009 report for the former Auckland City Council by the Ministry of Economic Development expected the convention centre would run on an operational breakeven basis, generating $17.7 million in revenue with costs and overheads of some $16.6 million.

The Auditor-General's report took a dim view of the lack of overall planning, saying there was no consideration given to whether public sector rules on procurement were relevant. Further, once expressions of interest were called for, there were two-speed negotiations between rival bidders and SkyCity.

The casino operator understood the government wouldn't stump up any capital costs, whereas its rivals hadn't been expressly told that, and SkyCity continued to meet with ministerial staff, in meetings the report says were "not appropriate."

"We accept that it is unlikely that this flaw made a material difference to the outcome. However, we have spent some time discussing it because we regard it as symptomatic of the lack of attention to procedural risks, and therefore to the fairness and credibility of the process," the report said.

The Auditor-General was also unhappy with the evaluation process, which treated SkyCity's bid on a wholly different basis to its rivals.

"In our view, officials effectively worked with SkyCity for some months, giving detailed feedback and engaging in some preliminary negotiations, while the other proposers were kept on hold and given very little information," the report said.

Economic Development Minister Steven Joyce said the report cleared the government of any wrongdoing, with the only flaws procedural.

"Officials will carefully evaluate the report and incorporate its conclusions both in future procurement processes, and as part of the procurement policy work now being developed across government," he said.

(BusinessDesk)

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