Casino and hoospitality operator SkyCity Entertainment will go back to the drawing board to design an international convention centre for Auckland that costs no more than the $402 million originally proposed, ending a politically damaging saga in which it sought up to $128 million more in funding from the government.
The decision, announced simultaneously this afternoon by Economic Development Minister Steven Joyce and SkyCity, effectively makes good promises from Joyce and Prime Minister John Key that the taxpayer would not pay "a cent" towards the construction of a global-scale convention centre for Auckland.
However, the price of the deal may be a smaller facility and further delay in its construction, after SkyCity's initial cost estimate blew out to a total cost of between $470 million and $530 million.
"SkyCity has agreed not to pursue a financial contribution from the government and instead will amend its design to ensure the facility can be completed without financial input from the Crown," said Joyce after intense negotiations last week in which media reports universally suggested the government was snookered by SkyCity's position, raising questions about both Joyce's and Key's commercial acumen in setting up the controversial deal in the first place..
However, the government also had a trump card - the 27 year extension to SkyCity's 27 year exclusive licence to operate a casino in Auckland, which expires in 2021 and will be extended to 2048 as part of the deal for SkyCity bearing the construction and operating risks of the flagship project. Other sweeteners include more gaming tables and pokie machines on the central Auckland site of the casino, where the convention centre will be built.
"I welcome SkyCity's agreement with the Government's approach," said Joyce in a statement. "This clears the path for the project to continue.
"I have repeatedly stated since December that our least preferred option is for the Government to contribute funding for the project. I am pleased to confirm that will be the case."
"The Crown has also indicated today that it may be prepared to accept a slightly smaller NZICC (convention centre), if that is required to meet the agreed total construction cost," Joyce said.
"SkyCity will now work on a revised Preliminary Design in the coming weeks and will submit it on a date that will be agreed by both parties.
In its statement, SkyCity chief executive, Nigel Morrison, said the company "accepted and respected the Crown's decision."
Morrison had initially suggested that if New Zealand wanted an international convention centre, it would have to find the additional funding, leading to accusations of naivety and arrogance from convention supporter and Auckland Chamber of Commerce head, Michael Barnett.
"We have agreed to review the design for the NZICC so that the expected total project cost, which SkyCity will be totally responsible for, will be more in the vicinity of SkyCity's $402 million commitment, as set out in the NZICC Agreement," he said.
SkyCity announced its first half trading results for the six months to Dec. 31, last week, with profit falling to $54.6 million from $61.1 million in the same period a year earlier, amid questions from investment analysts as to whether its plans to spend $800 million on new facilities would generate sufficient return on capital to justify the outlay.