BRIEFING FOR INCOMING SHAREHOLDING MINISTERS ŌTĀKARO LIMITED

Transcription

1 BRIEFING FOR INCOMING SHAREHOLDING MINISTERS ŌTĀKARO LIMITED 30 OCTOBER 2017

2 1. Background of Ōtākaro Limited Briefing for Incoming Shareholding Ministers Ōtākaro Limited Ōtākaro Limited (Ōtākaro) is a Crown company listed on Schedule 4A of the Public Finance Act. While they are similar in form to a Crown Entity, some entities are set up as Schedule 4A companies to accommodate their shorter expected lifespan. As a Company, Ōtākaro is subject to the Companies Act, aspects of the Crown Entities Act, as well as some requirements of the Public Finance Act. Ōtākaro was incorporated in February 2016 and became operational in April The Company was established to take over specific functions of the Canterbury Earthquake Recovery Authority (CERA). The Company s Board of Directors includes: Ross Butler (Chair) appointed February 2016, current term expires 16 February 2018; Peter Townsend appointed February 2016, current term expires 16 February 2018; Miriam Dean appointed February 2016, current term expires 16 February 2018; and Corinne Haines appointed August 2016, current term expires 30 June A special resolution of the Shareholders of the Company was approved in May 2016 which included a clarification of the purpose of the Company, as outlined in its Constitution. The Company continues to operate effectively with a Board consisting of the four directors. The Company s Board uses governance best practices to make efficient and effective decisions with a commercial focus. One of the Board s key roles is to appoint a Chief Executive. The Board appointed Albert Brantley as the Company s Chief Executive, and Mr Brantley commenced employment on 2 May Ōtākaro s shareholders are the Minister of Finance and the Minister supporting Greater Christchurch Regeneration, with each holding 50 per cent of the share capital. The most recent letter of expectation from Shareholding Ministers was issued on 17 March A copy is attached as Appendix 1. Following submission of drafts of the Company s Statement of Intent and Statement of Performance Expectations, Shareholding Ministers agreed on 21 June 2017 that copies of these documents should be sent to the Minister supporting Greater Christchurch Regeneration for tabling in the House of Representatives. These documents are available on the Company s web site The Company also provided a draft Business Plan to Shareholding Ministers. The finalised Business Plan is a commercially sensitive document that is not otherwise disclosed, and which helps the Board guide the Company. The Company will exist until the projects it is responsible for are delivered and certain surplus Crown land in the CBD is divested. Based on current expectation, this will be a period of no longer than seven years.

3 Additional information on the current status of all projects, land divestment activities as well various governance matters is available on the Ōtākaro website at The Briefing for Incoming Ministers prepared by the Department of Prime Minister and Cabinet also provides additional information. 2. Strategic Objectives Ōtākaro s strategic objectives, acting in the interests of the Crown and the people of Christchurch, are to: Add value to Crown funded Anchor Projects by delivering the projects safely, on budget, to schedule and to the desired quality; Divest Crown land holdings in central Christchurch in a manner that balances achieving good commercial outcomes against the Crown s regeneration objectives; and Support the Crown s exit from Anchor Projects and land holdings over time on favourable terms. The overarching responsibilities of Ōtākaro include: Delivery of defined Anchor Projects by providing procurement, design management and construction management services on behalf of the Crown; Providing programme governance, including risk, cost and schedule management; Divestment of Crown owned land in central Christchurch and the RRZ (if transferred), while achieving good commercial outcomes; and Acting in a manner consistent with recovery plans and any regeneration plans. 3. Project Delivery Ōtākaro is responsible for delivery of the Crown funded Anchor Projects in Christchurch. Specifically, these projects include: Canterbury Earthquake National Memorial; Margaret Mahy Family Playground; Avon River Precinct; East Frame Public Realm and Residential Project; South Frame Public Realm; An Accessible City Phase 1 (joint delivery responsibility with Christchurch City Council); Convention Centre and Precinct; and Metro Sports Facility. While Ōtākaro is not a party to the Crown s Cost Sharing Agreement (CSA) with the Christchurch City Council (CCC), the Company is expected to support the Crown in fulfilling aspects of this agreement. In particular, the CSA deals with the transfer of public realm assets being constructed by Ōtākaro at nil value post completion, and the joint funding of the Metro Sports Facility (MSF). Ōtākaro is leading the delivery of the MSF and, as envisaged by the CSA, a draft Development Agreement has been agreed between the CCC and Ōtākaro which outlines the project s joint funding, project responsibilities and asset transfer processes. The Development Agreement records the

4 capping of the CCC s funding for the MSF at $147m, Ōtākaro and the CCC have agreed all terms in the Development Agreement. Ōtākaro inherited from CERA a long term Development Agreement with Fletcher Residential Limited (FRL) for the residential development of the East Frame. This commercial agreement outlines the expected developments, timeframes, roles of the parties and commercial terms such as milestone dates and termination clauses. Importantly, under the Development Agreement, land is transferred, s9(2)(b)(ii) to FRL at 4. Land Divestment Ōtākaro has also been tasked with divestment of certain surplus Crown-owned land in the Central Business District. While Ōtākaro is expected to undertake this divestment on commercial terms, the Company has also been given the ability to balance commercial returns against supporting the Crown s regeneration objectives. To date, this approach has been successful in divesting land for projects that have combined commercial returns with support to regeneration objectives. These projects have included, for example: the Central City Riverside Farmers Market along the Avon River; the Hoyts Entertainment Complex adjacent to the Bus Interchange; a proposed technology and educational hub at the IRD Building in the East Frame area; and, divestment of several of the heritage Duncans Buildings in High Street, with a requirement to preserve the heritage facades. Other properties have been divested to commercial parties for office and accommodation developments. 5. Monitoring of Activities The Treasury monitors the commercial and financial performance of Ōtākaro, while DPMC interfaces with the contribution of Ōtākaro to regeneration outcomes. Ōtākaro has considerable operational interfaces with the CCC in the execution of its projects, particularly with the MSF, which is jointly funded by the Crown and the CCC, as well as the Avon River Precinct and other public realm projects that will be divested to the CCC upon completion.

5 6. Other Matters Funding Arrangements Agreements between the Crown and Ōtākaro determine how the Company is funded., s9(2)(b)(ii) These funding agreements include the quarterly process by which funds are requested in advance, and the use of funds is reconciled in arrears., s9(2)(b)(ii) The quarterly funding processes continue to work effectively between Ōtākaro and The Treasury. The Company is providing the required information on time, and Treasury is ensuring that funding is available in accordance with the requests ahead of the project and operational requirements. Land Contamination/Remediation Funding and Crown Indemnity Upon establishment of Ōtākaro, a preliminary budge, s9(2) was determined to cover land (b)(ii) remediation costs for the Crown owned land transferred to Ōtākaro. This included estimated costs for removal of contamination due to the presence of asbestos, hydrocarbons or underground structures resulting from the demolition activities undertaken after the 2011 earthquakes, and covered both land for Anchor Projects as well as surplus land to be divested. At the time of setting the land remediation budget, there was significant uncertainty about the land contamination risk. To address this uncertainty, should the costs of land remediation be more extensive than considered at the Company s establishment. While some land remediation uncertainty still exists, particularly within the South Frame, the Company now has a more comprehensive view of its potential land remediation cost position and the risk spreads. The Treasury has been provided with the latest estimates and risks faced by Ōtākaro Investor Confidence Rating The Treasury has recently completed its Investor Confidence Rating (ICR) for Ōtākaro. The Company received an A rating, one of the highest ratings achieved by a Crown owned company. In light of the continued focus on improvements in internal controls, audit results for the year ending 30 June 2017 and the ICR review results, The Treasury has decided to exclude Ōtākaro from further ICR reviews. Audit New Zealand Report, s9(2)(b)(ii) As part of their audit of the financial statements of the Company, Audit New Zealand has recently confirmed their views of the Company s control environment. Their independent findings are summarised below, comparing ratings for the 2017 year with the establishment period to 30 June 2016.

6 s9(2)(g)(i) Residential Red Zones (RRZ) and the GCR Act Under section 35 of the Greater Christchurch Regeneration Act (GCR Act), Ōtākaro must provide consent before Regenerate Christchurch can submit a draft Outline, draft Regeneration Plan or an amendment to the Minister supporting Greater Christchurch Regeneration, where the draft Plan or amendment relates to an area that includes any of the Christchurch RRZ and does not relate to any area outside of the Christchurch district. Ōtākaro has been working directly with Regenerate Christchurch on consideration of options for development and how best to assist in the preparation and review of regeneration plans for the RRZ. This has been achieved through direct secondment of Ōtākaro personnel to assist Regeneration Christchurch in its technical and planning studies. Ōtākaro is also a party listed in section 29 of the GCR Act whose views are sought on draft Outlines and Regeneration Plans for Christchurch District, along with Christchurch City Council, Canterbury Regional Council, Te Rūnanga o Ngāi Tahu, Regenerate Christchurch and the Chief Executive of DPMC. Extensive discussions have taken place between Regeneration Christchurch and Ōtākaro over the past year on consideration of development strategies for the Central Business District, particularly Cathedral Square. 7. Current Status of Work Programmes and Key Priorities Convention Centre Early site works are nearly complete, with only the last sheet piles still to be removed along Colombo Street. Abstraction and reinjection bore drilling will continue through the end of October Detailed Design started on 24 July The main design focus has been on issues outstanding at the Developed Design stage, including Armagh Street activation and façade colouring. The design contract was novated to CPB Contractors Pty Ltd (CPB) during August. The Outline Plan process is complete, with the CCC advising that it would not be appealing the Plan. The CPB contract was approved as a major transaction and CPB are now mobilising and setting up site offices. Excavation for the Plenary Hall will commence in October The crane will be erected on site in November Avon River Precinct works on Oxford Terrace have been advanced to ensure that key infrastructure is in place in front of the Convention Centre works (particularly in and around the Gloucester St bridge).

7 , s9(2)(b)(ii), s9(2)(j) The Company has continued its consideration of the divestment of land on the south eastern (Cathedral Square) side of the Convention Centre site for a high quality hotel. The District Plan has a 28m height limit, so any building consent sought above this will need to be notified. No significant issues were identified in shadow and wind studies for a 50m hotel. External real estate strategic and marketing support is being engaged to assist in market positioning and potential sale of the precinct lands on the southern side of the site. Metro Sports Facility (MSF) During recent months, transfer of the project to Ōtākaro was completed (previously Ōtākaro was providing project management services to the Crown). Both Ōtākaro and The Treasury have kept Shareholding Ministers informed of the negotiation issues, s9(2)(b)(ii), s9(2)(j) In parallel to negotiations with the proposed contractor, early site works have proceeded. Stone column ground remediation testing is complete, with analysis of results now underway. This is likely to lead to a further round of tests before a design can be finalised for building consent. Site decontamination works are complete, and Detailed Design is approximately 80 percent complete. East Frame Residential Precinct Good progress is being made with delivery of the Stage 1 Super lots. Superlot 4 construction is tracking in accordance with programme, with services currently being installed, and the area is being readied for pouring of the major foundation slab. Completion of the residences are planned for mid 2018, and marketing and sales will commence in early Ōtākaro has approved the developed design stage for Superlot 7 and title for this Superlot is expected to be issued to Fletcher Residential Living (FRL) in late October Early works have also started on this Superlot in October Completion is expected by early 2019, and marketing of these residences will commence in early 2018, along with sales and marketing for Superlot 4. s9(2)(j) FRL s work with Gapfiller has commenced to achieve temporary activation of the East Frame areas not in construction.

8 East Frame Public Realm The Public Realm project is on schedule and under budget, with 90% of works complete for the linear park area, and 80% of works on adjoining streets complete. Main activities on site include paving, garden bed preparation and planting and light pole installation. During the period the public space was named Rauora Park. A variation to the existing East Frame Public Realm contract with the City Care/JFC Joint Venture (JV) has been agreed for works on the CTV site. The 90% Developed Design for the site has been received and is currently under review. The Completion of the CTV work is scheduled for February Te Papa Ōtākaro / Avon River Precinct (ARP) Works are underway under a design and build contract for the area parallel to the Avon River between Antigua Street through to the family playground end of the ARP project. Five work face areas are open at varying stages of construction. The contractor has flexibility to prioritise works across the full site. In part, this enables the contractor to manage its sub-contractor work force and to mitigate adverse impacts of any ground issues encountered. The Company has worked closely with the contractor to maintain momentum on the area in front of the Farmers Market area (Retail Precinct) and to ensure works are coordinated with the Convention Centre site to provide access as the Convention Centre contractor mobilises. Within the Victoria Square component of the project, street works are advancing on schedule with the partial completion of rain gardens and tree pits along Colombo Street. The Bowker Fountain has been returned to its newly constructed pool walls and base. The base was reinforced by the last concrete pour in late September The amphitheatre works are almost complete, hydro-seeding has been completed and lighting has been installed. Paving continues. The only remaining paving is around the Queen Victoria statue and adjacent circle, the nib walls and planter boxes. An Accessible City, s9(2)(b)(ii) This followed confirmation that additional funds to complete the works, required due to the impacts of the funding suspension, would be available. A significant feature of the renegotiated contract is the consequent delay of completion dates for each separable portion into s9(2)(j) The Company has als by taking the section of Tuam Street between Antigua Street and Hagley Avenue out of the scope of s9(2)(j) works for the Downer contract. s9(2)(j)

9 South Frame Works are proceeding in Evolution Square (eastern end of the South Frame Innovation Precinct). Works are due for completion at the end of November One of the middle sections of the South Frame is currently being reprogrammed after receiving confirmation that acquisition of the area required for the public realm at the Donnithorne s property is now complete. Work is likely to commence at the end February Activity at the Smash Palace / Hi Para Apartments site (eastern end) is on hold until compulsory land acquisition is complete. Preparation for transfer of Innovation North to the CCC is under way, as is preparation for the ECan and Mollet Street areas. It is planned to have all transfer documentation ready and executed in November The main risk to achieving this transfer is the transfer of land, some of which is still held by LINZ. Progress on the areas currently occupied by Team Hutchison Ford (THF) and Miles Toyota is delayed until the THF land is purchased by LINZ and the Miles land is made available to the Company. s9(2)(g)(i) Canterbury Earthquake National Memorial (EQM) Transfer of the EQM asset to the Ministry for Culture and Heritage (MCH) has not yet been achieved. In the interim, MCH are funding maintenance costs while Ōtākaro is managing final minor defects s9(2)(g)(i) remediation on behalf of the MCH. Bus Interchange Ōtākaro holds the completed Bus Interchange on its balance sheet, and continues to play a day to day operational role in managing the facility. Lease arrangements are in place with ECan to operate parts of the Christchurch bus network through the facility. s9(2)(g)(i) Land Divestment Work progressed in recent months with a preferred bidder for the IRD building (224 Cashel Street) and the Cashel Chambers carpark. The IRD Building was transferred to the Company with a balance s9(2)(j) sheet valu including the Pavilion Carpark and Cashel Chambers and land). A Development and Sale agreement has now been signed that will see this building developed as a technology and education hub. Settlement of the sale of land for the Farmers Market development (Retail Precinct) occurred in early October The Company also notes that the land transaction for development of a Quest Hotel in the South Frame opposite the Justice and Emergency Precinct also settled in early October Land Contamination and Remediation As part of the transfer of assets at establishment of the Company, the Shareholders provided the Company wit unding and to cover further risk for land contamination and

10 remediation. The Company monitors both spend to date and remaining risk for all land areas. The At the end of the quarter the Company had spent land remediation activity. The Company has a disciplined process for ensuring the optimal remediation approach is taken, depending on the level of contamination found, the proposed land use and the available remediation options. Ōtākaro runs a detailed quantifiable risk analysis across all remaining land areas where remediation work may be required. As at 30 September the 85 th percentile shows a possible estimate at completion of. This estimate continues to trend down from earlier quarters and is heavily influenced by broad estimates of what contamination exists in the South Frame. Work is progressing to better understand the levels of contamination existing in this land. Additional information on the current status of all projects, land divestment activities as well various governance matters is available on the Ōtākaro website at 8. People and Resourcing As at 30 September 2017, the Company had 71 employees on its payroll consistent with the Company s Business Plan. These employees are complemented by approximately 14 contractors or consultants, mainly providing additional resources to the Ōtākaro Project Support Office.

11 Ross Butler Chair Otakaro Limited Private Bag 4999 CHRISTCHURCH 8140 Dear Ross Office of Hon Gerry Brownlee MP for 11am Leader of the House Minister of Defence Minister of Civil Defence LETTER OF EXPECTATIONS FOR OTAKARO LIMITED Minister Responsible for the Earthquake Commission Minister supporting Greater Christchurch Regeneration 1 4 MAR 2017 I am writing on behalf of the shareholding Ministers of Otakaro Limited to set out our expectations for Otakaro, for the Financial Year 2017/18. We also set out our expectations of Otakaro's general long-term, specific relationship-based and monitoring requirements. Otakaro will exist until the projects it is responsible for are delivered and land is divested; based on current expectations, a period of no longer than seven years from establishment. We will review these expectations each year. Purpose and objectives of Otakaro We have established Otakaro to contribute to the regeneration of Christchurch by adding value to defined anchor projects and Crown land in a manner which balances a desire to achieve good commercial outcomes against the Crown's regeneration objectives, and by supporting the Crown's exit over time on favourable terms. As the company is funded through the Crown, this necessitates a high level of engagement between the company and Crown representatives to ensure the spending of public money delivers the outcomes sought by shareholding Ministers. Otakaro 's core functions We expect Otakaro to achieve its purpose through successful delivery of its objectives and shareholders' expectations as expressed in the Constitution, this letter and future letters of expectations. We do not expect Otakaro to take on activities that would expose the company or its shareholders to undue financial or reputational risk. Shareholding Ministers do not expect the proceeds of asset divestment to be applied to new investments, but consider that the retention of sales proceeds in excess of associated debt (including capitalised interest) provides an incentive to achieve good value for the Crown. These may be applied to meet cost pressures in the anchor project programme and operating costs in line with the funding agreement. Business cycle The timetable for Otakaro's planning documents is set out in Annex 1 to this letter. We expect the Business Plan to explain how you intend the company's work programme to be Private Bag 18041, Parliament Buildings, Wellington 6160, New Zealand. Telephone Facsimile

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