14 July 2005

Institute receives additional crown loan

Education Minister Trevor Mallard announced today that Cabinet has approved additional crown loan support of $4.8 million for the Western Institute of Technology at Taranaki.

“Cabinet has approved a crown loan payment of $4.8 million to meet the institute's anticipated cash flow requirements through to the end of 2005 and to support the planned restructuring of the institute. This funding is in addition to existing crown loans totalling $4.5 million," said Trevor Mallard.

“The institute is currently under significant financial pressure as a result of a shortfall on planned revenue and an inability to adjust expenses in line with its income. It requires additional funding to achieve further efficiencies in its operation and realignment with current government strategies for tertiary education.

“The government is committed to supporting the institute so that the interests of its students are protected and there continues to be a strong provision of tertiary education within the region.

“A crown manager was appointed in March 2005 to assist with the financial management of the institution. I have indicated to the institute’s Council that I will consider initiating steps towards the appointment of a Commissioner if that level of intervention is necessary to protect both student and community interests. However, I have recently received a level of assurance that current measures being undertaken by the Crown and the institute will lead it to viability in the medium term.

“In recent months the institute has undertaken a great deal of work to realign its activities to those of a strong regional provider of tertiary education as well as reducing staff numbers, mainly through attrition, to more appropriate levels.

"The current senior management team and Council bring a strong level of commitment to the future viability and strategic direction of the institute. Also, recommencing the process of appointing a Chief Executive Officer is expected to provide further impetus for the required direction and change at the institute.

“Once the Western Institute of Technology at Taranaki has completed its restructuring and realignment work, I expect them to come back to the Crown with a final business case around its future operations and options for long-term funding arrangements."

Questions and Answers – Crown Loan

Why was the Western Institute of Technology at Taranaki given an additional crown loan by government?

The institute is under financial difficulty and without the crown loan it would not be in a position to meet payroll and creditor payments through to 31 December 2005. Despite tight cashflow management its expenses continue to be higher than its income and it has no funds available to continue with the restructuring that is required to further reduce the institute’s overheads.

What is the financial state of the institute?

The institute recorded a deficit in 2004 and current predications are for a further deficit in 2005, which has been exacerbated by a drop in income from student enrolments. Over optimistic budgeting, lower than expected returns from an offshore teaching programme in China, and high fixed expenses with little scope for cost cutting have contributed to the current financial position.

What are the terms of the crown loan?

The crown loan is for an immediate drawdown of $2.8 million to meet day-to-day running costs through until 31 December 2005. A further $2 million will be made available, pending an application from the crown manager, to continue the institute’s restructuring. A further contingency of $5.2 million has been put in reserve to manage, for example, any risks that may arise as a result of the institute’s current financial arrangements with its bankers. The government is moving to safeguard the interests of students studying at the institution.

What are the conditions of the loan?

The loan requires that the crown manager remain in place. It also requires that the institute continues appropriate consultation with key stakeholders and interested parties about the future structure of the institute. In terms of previous loan conditions there is already a higher level of monitoring by the Crown and this will continue.

What formal interventions has government taken to date?

The current statutory intervention is that of a crown observer, which recognises significant risk at the institution. A crown observer is an advisory role. In December 2000 Graeme McNally, was appointed to the position.

In light of new information on the financial stability of the institute, and by the agreement of the institution’s Council, Graeme McNally’s role was extended to crown manager in March 2005. A crown manager is a non-statutory role and relates to financial management and control.

There are no plans at this stage to continue with steps towards the appointment of a Commissioner, although this position will be reviewed in light of the operational changes.

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