Dear Leah

Thank you for your reply to my email dated 22 September.

As your council reply on 23 September indicated an "OIA process" to answering these questions I sent an additional request via FYI.org.nz with questions framed very specifically for information and meeting records held by council.

I would appreciate Council's urgency on answering this request also as it contains slightly different requests and an additional meeting information request.

If council does not have the requested information, ie a mechanism or process in place, then please inform with reference to the very specific questions asked. I appreciate the general reply you posted, and it provides a good overview of council's status on the cial issue, but it does not answer most of my specific questions regarding information (on mechanism/process) held and in place (or not) at council.

I aim to reply to your email in the next few days when I have received the additional information.

If you could please post the OIA request answers on the FYI.org.nz website rather than my personal email address.

Thank you.

Rob van der Mark
Cromwell

On Fri, Oct 21, 2022 at 4:46 PM Official Information <OfficialInformation@ccc.govt.nz> wrote:
Dear Rob,

I refer to your questions to Council on 22 September:

I am hoping you may be able to help us better understand some critical Council processes that relate to CIALs plans to pursue a Central Otago airport development.

Financial Oversight
1. What is/are the formal mechanism(s) currently in place for Council to evaluate and approve the long term financial outcomes of its CCO's (CIAL or CCHL) investment decisions which will carry a large short term cost but long term delayed cost recovery / profit / break even?

In the case of CIAL's decision to pursue a new airport in Central Otago, the cost to build this airport is estimated to approximate $1 billion, whilst the new airport annual profit will most likely only be in the order of several tens of million dollars (assuming profitability levels of a Queenstown sized airport at full capacity). Meanwhile sunk costs approximate $50 million to date, with significant ongoing costs to scope the project and prepare for what will be a lengthy and costly RMA submission which is by no means guaranteed to succeed.

If granted approval to build (under the RMA or its replacement), a financial break even will take many decades to achieve, with a great uncertainty factor around the future of international tourism and aviation. Such an investment decision would potentially cause long term lost dividend to Council, or at worst cause rate increases through the required long term debt financing.

CIAL has flagged in a recent letter to Central Otago residents it does not have to seek shareholder approval (under the Companies Act 1993) to proceed if the investment is less than half its asset value (which it may be). It is unclear to us whether the CIAL board has already formally approved a go ahead to its management team (media statements suggest this is the case) but on their website CIAL claims to be making this decision in 2023.

The Council runs an annual LOE/SOI process, however financial requirements appear to only cover a 3-4 year forecast period, and therefore do not adequately brief councillors on long term financial profitability and/or their impact on ratepayers of any long term investment decision (by CIAL or CCHL).

There is mention of strategic alignment of CCO projects with Council objectives, however it is unclear exactly how this alignment is to be achieved.

2. Apart from the SOI approval process does Council solely rely on the CCHL board to make the right long term financial investment decisions for its CCTO's?

3. What formal mechanism does council have to ensure the existing CCHL board makes the right long term financial investment decisions?

4. Will Council instruct in its next LOE to CCHL for CIAL to submit to Council long term financial forecast models with key assumptions and risk assessments so that Council can properly use this in its evaluation to proceed or put a stop to this project? Key assumptions and risk assessments would include the outlook for international tourism, increasing regulation / taxation on flights, increasing cost of SAF fuel reducing demand, major geopolitical uncertainties (eg reduced flights from China, another pandemic), etc.

5. How is alignment of Council strategic objectives and CCO business activities achieved in practical terms? How does Council evaluate how an out of district airport serves its ratepayers (in ways other than dividend impact) and whether there is strategic alignment and this is therefore a worthwile investment decision that would benefit (or adversely affect) Christchurch ratepayers?

6. What would be the mechanism via which Council would stop CIAL going ahead with this proposal?

Climate Change impacts

7. Similarly to the topic of long term finacial forecasting, what is the mechanism via which Council would evaluate long term GHG emissions from both the airport build as well as the enabled emissions that come with a new airport (ie. flight emissions)?

We note Council's submission last year to the Climate Change Commission, and in particular your recommendation that "the New Zealand government could play a leading role in building domestic and international action on aviation emissions accounting, offsetting, and emission reduction efforts". Also noteworthy is that the recently released NZ Infrastructure Strategy recommends the inclusion of all enabled emissions for the lifetime of any new infrastructure project in its business case.

8. Does Council plan to take a proactive leadership role and include all enabled aviation emissions into its business panning processes going forward?

9. Will council include specific long term emissions targets in its LOE to CIAL?

Community Consultation
I have reviewed council's "Significance and Engagement policy" which estimates the extent to which the community might be impacted by a Council decision and provides clarity and certainty to the community.

10. Could you confirm if this policy also covers financial investment decisions by your CCO's that affect the community via lost dividend or rate increases? And will Council also include emissions forecasts in its community consultation process?

11. Could you confirm if Council is planning to evaluate the impact of CIAL's decision to pursue/proceed with this airport on Christchurch as well as Tarras/Central Otago communities with regard to this policy?

12. When would Council seek to do so relative to a Go/No Go decision that CIAL is planning to make on this project in 2023? Or would Council merely consult after the decision to proceed by CIAL?

13. Could you please provide details of the evaluation/engagement framework in use and/or would be used for a CIAL Central Otago airport development. Would it include evaluation of cost of debt servicing, potential cost of lost dividend, rate increases and the probability/risk that this may eventuate, ie include details on key financial forecast assumptions and probabilities around these.

Council Response

The following response is from Leah Scales – General Manager Resources/Chief Financial officer:

Tēnā Koe Rob

I acknowledge receipt of your email dated 22 September 2022 in which you ask a number of questions relating to the Council’s processes with respect to the Christchurch International Airport Limited’s (CIAL’s) development of a business case for an airport in Central Otago.

First of all, to clarify timing. I refer you to the Central Otago Airport website[1] which advises that CIAL is in the Validation and Planning phase of the Project. Its priority is to allow itself the time needed for thorough and robust investigations, and is not tying the project to strict deadlines. At the end of the Validation and Planning phase, indicated to be the end of 2023, CIAL will make a decision on whether to proceed to the next phase – Approvals. If a decision is taken to proceed, a period of three years has been indicated to obtain operating and planning consents from the relevant authorities. Although a decision for CIAL, it is unlikely that a case to determine whether to proceed with construction will be fully developed until then.

CCOs’ boards of directors are responsible and accountable for the investment decisions of the companies they govern. Section 131 of the Companies Act 1993 requires directors to act in the best interests of the company. In addition, the Council has been clear to all of its CCOs that their strategic objectives and activities should be aligned with those of the Council. That is to say, they should be engaging in activities and providing services that deliver the outcomes that the Council itself is wishing to achieve.

As shareholder of Christchurch City Holdings Ltd (CCHL) (and ultimate shareholder of its subsidiary companies) the Council expects to be consulted on the merits of the project whether it is a major transaction pursuant to section 129 of the Companies Act 1993 or not. Both CIAL and CCHL have given the Council undertakings that consultation and engagement with the council (as well as with other stakeholders) will be conducted. CIAL and CCHL both have commitments in their SOIs to consult with shareholders on any significant investments or acquisitions.

Given there are several years of work to be undertaken by CIAL prior to any decision to proceed with the development, the Council has not, at this early stage considered the way in which it will evaluate any proposal. Many of the concerns you allude to in your email are similar to those that the Council will be looking to see addressed.

While statements of intent provide three year financial forecasts, the Council’s current Long Term Plan(FY21-FY31) which is consulted on with the community has 10 year forecasts of dividends from CCHL, noting our next LTP(FY25-FY35) will be reviewed and consulted on prior to effective date of 1 July 2024.

We are aware that CIAL is engaging with the local Central Otago community and other stakeholders, and will continue to do so as it progresses towards any decisions it will need to make to proceed.

The Council expects its organisations to reduce and then offset carbon emissions towards being net neutral by 2030. They are expected to have independent greenhouse gas emissions’ inventories and action plans in place to reduce and offset emissions. This requirement applies equally to all business activities whether new or ongoing.

Ngā mihi nui

Leah

[1] Process | A new Central Otago airport

You have the right to request the Ombudsman to review this decision. Complaints can be sent by email to info@ombudsman.parliament.nz, by fax to (04) 471 2254, or by post to The Ombudsman, PO Box 10152, Wellington 6143.

Kind regards,

Sean

Sean Rainey
Manager Official Information and Privacy Officer
Official Information Team

03 941 8549

Sean.Rainey@ccc.govt.nz

Te Hononga Civic Offices, 53 Hereford Street, Christchurch

PO Box 73016, Christchurch 8154

ccc.govt.nz

[1] Process | A new Central Otago airport

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