Stadium designers justify the unjustifiable

### ODT Online Thu, 4 Mar 2010
Stadium designers explain their vision
By David Loughrey
It may not be a surprise they hold these views – they did, after all, design the Forsyth Barr Stadium – but Richard Breslin and Marko den Breems think the building near Dunedin’s waterfront is a winner. David Loughrey talks to the two men who took the stadium from an idea to a reality.

Worldwide, stadiums attract the same kind of controversy that has dogged the Dunedin example, with public funding of facilities worth hundreds of millions of dollars often unpopular with the ratepayers or taxpayers, who end up footing the bill.

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Post by Elizabeth Kerr

90 Comments

Filed under Architecture, Construction, Design, Economics, Events, Hot air, Politics, Project management, Site, Sport, Stadiums

90 responses to “Stadium designers justify the unjustifiable

  1. The comment that overseas the ‘multi use’ or ‘multi purpose’ factor is commonly sold, to secure public funds for stadia, is apt. CEO Harland said so himself in the blacked out appendices to the CST Feasibility Report. Malcolm Farry’s earlier claims of obtaining private funding, ‘beyond expectations’, was clearly crap. This was obvious to citizens, city leaders or media people who have any intuitive insight about such people and the way they operate.

  2. Phil

    I don’t quite understand the relevance of the comments of these two architects. They are building designers, not venue operators. So I’m not quite sure where they get their credentials from when speaking about viabilities, value, worth, and returns.

    They were both involved in the Wembley and Sydney Olympic stadium projects. And they are great looking buildings. I don’t think that anyone has had too much of a problem with the design of our new stadium. The sketches look really impressive. On their record of stadia design, they were the perfect people to design our new stadium.

    But that’s nothing to do with whether it was a good idea to build it in the first place.

    Worth noting that the Sydney Olympic stadium is now called the ANZ stadium because the ANZ bank took over ownership of the stadium when the stadium couldn’t repay its debts. So probably not one that they should be promoting as a great success story if they want to go down that road.

  3. Russell Garbutt

    The ODT story was one of what looks weekly “good news” stories with barely a scrap of journalistic input to it. Yet another full page story on a couple of people speculating about what might happen. In respect to their experience with the Wembley Stadium, I noted some interesting breakdowns in costs of that project.

    15.8% spent on land
    46.5% spent on building
    13% spent on demolition and site preparation
    2.8% spent on infrastructure improvements
    21.8% spent on financing and management costs

    All totalling anything from 798 million pounds to a 1000 billion pounds depending on whose figures you finally believe. It would be interesting to compare the Awatea Street stadium breakdowns based on this historical actuality.

    Another interesting fact was that Wembley was built under a guaranteed maximum price – the fights are still going on between Multiplex Construction and the owners about why this enormous price overun ocurred and why it was not completed until 2 years after the planned completion date. Suffice to say that Multiplex got their fixed price plus another 36 million pounds.

  4. Russell
    I notice a distinct hardening of the ODT recently in getting behind the stadium. The ODT has rarely been an expose style newspaper, digging hard behind the scenes for what is really going on, but at times there has been some faint light. This light has now virtually gone out. This story tells us nothing new. It is a rehash of past stories. We’re back to glory dreams and visions of what may be. This recent, hardening shift is as if the reporters have been given marching orders to toughen up on any ‘negative’ comments. The visual ‘thrill’ of the stadium emerging is being used as an emotional ploy to try desperately to get everyone on board.

  5. Phil

    Quite correct about Wembley. The client (Football Association) tried to enforce liquidated damages onto the contractor as a result of the client missing the agreed completion date. The contractor counter claimed, citing poor design as the reason for the delays. In the end, the FA blinked first, and paid the contractor out in full. Including, as you’ve mentioned, several tens of millions in approved variations. Something else that has also slipped under the radar in this project.

    Liquidated damages have been waved around as reassurance that the project will be completed on time. But any contractor will tell you that this is almost impossible to prove and enforce.

  6. JimmyJones

    Here is more about Sydney’s ANZ Stadiun (previously called “Telstra Stadium”, and “Stadium Australia”) – Debt sinks Stadium Australia: ANZ to take control for $10m (Sydney Morning Herald, 2006).

    The thing cost $690 million AUD to build, and sold for $10 million. The article says He said the stadium had been making an operating profit but was hamstrung by its bank debt. What he means is it would have been profitable if it didn’t have to pay interest. This is the same situation we now have with the DCC Stadium; we are told that it might make a small profit if it wasn’t for interest and depreciation. Our news-media and most of our DCC and ORC councilors have been misled, and don’t understand that the stadium through DVML will make big annual losses, just like Sydney’s Telstra Stadium. As part of the deception, I don’t expect any official forecasts of DVML’s Net Losses (NPAT) until after the election.

    The good news is that although we have wasted about $50 million so far, if we stop construction now, we can prevent wasting much more than that from the perpetual annual losses.

  7. Phil

    So the moral here is that anything will make a profit. So long as it doesn’t have to repay any debt.

    Sounds fair to me.

  8. JimmyJones

    Yes Phil; no problems as long as long as there is no interest, no debt capital repayments, and no depreciation provision. It’s like saying my mortgage is free, except for the interest and capital payments. Council staff and their compliant consultants prefer to ignore interest and depreciation because it makes their shonky projects look good. Some councillors understand this, and some don’t.

    The only genuine way to measure profit/loss is Net Profit After Tax (NPAT) because this must comply with accounting standards (NZIFRS). All of the DCC’s businesses use NPAT for their 3-year profit forecasts except for DVML (which will own the stadium). Our councillors on Monday accepted DVML’s 3 year forecast even though it was missing most of the NPAT forecasts. I think that most of them don’t realise that they were being tricked, and the rest either didn’t care, or were complicit in the deception.

  9. Phil

    or maybe gazumped.

  10. You have all got it wrong about stadiums and the reasons behind them. It has all become quite clear just today in the ODT. Mr Jim Harland has just been to Kobe as a selected speaker to a WHO (World Health Organisation) conference on the strategies employed to improve urban health. He says, that while local bodies in New Zealand did not deliver health services as such, it had to take into account the health and wellbeing of residents. Obvious examples were water, sewerage and rubbish services, but less obvious examples included the correct use of lighting, which reduced the risk of violent street attacks, and providing facilities such as sports stadiums and libraries, which improved mental health.
    So, there we are, the stadium is to benefit our mental health, and if the lighting is good as well, we won’t be violently attacked in it. Excellent, now I will be able to throw away all those anti-depressant tablets and go dancing off to the stadium. Thank you so much Jim, I now see why it is such a small price to pay for such a wonderful benefit. What! Did I just say that? Now where did I put those anti-depressants?

  11. James

    Our news-media and most of our DCC and ORC councilors have been misled, and don’t understand that the stadium through DVML will make big annual losses

    Is this a secret? I haven’t seen anything that suggests the stadium will pay its capital costs. When the stadium was first proposed it seemed like it might, but that changed years ago now. Despite your continued insistence on NPAT and including interest in the bottom line, I note that Wellington Stadium presents their accounts in the same fashion. That is, the stadium produces a moderate operating surplus, and various councils provide the stadium with interest free limited-recourse loans for the building cost of the loans (although in theory if the stadium started to make too larger profit, they would eventually pay down the loans).

  12. JimmyJones

    Yes James, it is a secret. Unless you count Athol Stephens’ affidavit, there has been no DCC released estimate of Net Profit (NPAT) for the stadium or DVML (except for the current year to June 2011=pre-stadium). The CST have boldly proclaimed in an ODT ad that “The Stadium will run at a profit”.

    You are right about repaying capital costs – there seems to be no claims that it would be able to, and it would be unreasonable to expect it to. A viable business is however expected to pay it’s expenses including interest and depreciation.

    I do insist on NPAT and including interest in the bottom line, because this is the normal way to calculate profit in all countries. In general, anything else is illegal. DCHL and all its companies have provided NPAT results and forecasts. DVML claims that their forecasts comply with the IFRS, which means that profit includes interest and depreciation. Anything else is dishonest.

    The Wellington Stadium Trust makes a profit each year after paying depreciation and interest on its debt. However, as you are aware, they get a free ride from the interest free loans from their city and regional councils. The debt incurred in providing the interest-free loans attracts interest (paid by the ratepayers), and so there are stadium expenses which are somewhat hidden by not being included in the Trust’s expenses. So you could say that the Wellington Stadium Trust makes a profit, but the stadium itself including all its non-Trust expenses might not make a profit. This will be the same situation with DVML and the Chin stadium: most of the interest on the stadium debt won’t be paid for by DVML; Dunedin ratepayers will be paying for that. Up to now my main gripe is that DVML has failed to provide NPAT forecasts in its recent Statement Of Intent, but as I have just explained there are additional, non-DVML, expenses to be paid by DCC and ORC Ratepayers. In summary, Dunedin Ratepayers will have to fund DVML’s yearly losses as well as interest on a big chunk of debt borrowed to build the stadium. I think it will be a double-surprise when we find out how much they both will be.

  13. James

    The NPAT figure might be a secret, but the fact that it won’t cover its interest costs (which therefore means it will be a loss) is not?

    Up to now my main gripe is that DVML has failed to provide NPAT forecasts in its recent Statement Of Intent, but as I have just explained there are additional, non-DVML, expenses to be paid by DCC and ORC Ratepayers.
    I actually pointed this out on another thread the other day. The NPAT is entirely irrelevant. It includes the town hall and Edgar Centre. It would include the private sponsorship money (the EBITDA appears to), but also doesn’t account for the money that we’ve been told we’re paying. Certainly, what I want to know is whether it is going to cost us more than we’ve been told, but the NPAT figure won’t help with that.

  14. James, you could contact the ODHB. The shortfall in revenue could be made up out of the mental health vote. It seem Jim Harland is laying the groundwork for just such a claim. Just kidding, but hey, nothing would surprise.

  15. JimmyJones

    James, the recent DVML forecasts are for it owning just the stadium. Next year’s forecast might include the other venues. Calvin has mentioned the big loss expected from the Town Hall and I am fairly sure the Edgar Centre consumes ratepayer $ also (thanks Eion). It’s the DCC’s duty to make public proper financial forecasts for these three businesses.

    The stadium not able to pay its interest: secret or not? Probably not secret, but not widely known by the public, our newspapers and some/most DCC councillors. The info can be found but hasn’t been made explicit or easily accessible. I think that the general impression of councillors and the public is that they don’t know, but probably they think it will make a small profit. They are wrong. That is what happens when you ignore interest and depreciation.

    To calculate the Ratepayer impact of the stadium you need to know DVML’s NPAT. As you know, this is not the whole thing; you need to add to it non-DVML costs (DCC interest and capital repayments, tax benefits etc) – simple. Remember NPAT is profit after interest, after depreciation, after everything. Nothing less will do.

    {Sigh. Perhaps at some stage Richard or other councillors would care to explain council policy as relates to ratepayer subsidy of certain council-owned properties that are in community use? -Eds}

  16. James

    Remember NPAT is profit after interest, after depreciation, after everything.

    Which is precisely why it is pointless. The ITDA, the everything, all occur above DVML. DVML is being treated as part of a single larger tax entity, so DVML will never pay any tax. The interest is incurred and paid above DVML. Depreciation is being funded by DCC (but the depreciation itself may be within DVML), and it seems pretty clear that the stadium is short on goodwill, so nothing to amortise there. It would be possible to pay a team of accountants to try to allot these expenses back down to DVML, but I’d still prefer to have the actual bottom line figure, not DVML’s NPAT.

  17. JimmyJones

    No James. DVML like every NZ company is responsible for its own interest tax depreciation amortisation etc. All these contribute to its bottom line profit (NPAT). The DCC owns DVML, and DVML owns the stadium (book value $224 million). The DCC cannot pay depreciation on an asset it does not own, and cannot pay interest on DVML’s debt ($24 million, I think). All DVML’s income and expenses combine to give NPAT, including interest and depreciation, as required by law. Like the other council companies it can pay a dividend to its owner, or if there is a loss it can provide a tax benefit to the group of companies. DVML’s losses can be funded by more debt (unlikely), or by its shareholder (you and me). For us to know the total weight of the millstone round our necks, we need to add together both DVML’s NPAT, and the other stadium expenses incurred directly by the DCC (mostly interest). We need to know both parts, and so far we know neither.

  18. James

    I was under the impression that companies could join consolidated groups, one of the effects of which was that they became liable for tax as a single entity, not as a constituent company. I was further under the impression that DHCL was one of these consolidated groups. Is this not the case?

  19. JimmyJones

    Yes. DCHL is a company that owns a group of companies. I think that the companies are a consolidated group by virtue of having a common owner (“the parent”). I don’t know the details, but the overall effect is that tax is paid on the combined profits and losses of all the companies. This is the same as an individual, who also combines his income and loss-making businesses to calculate taxable income. I don’t know if companies have other options, but this is the normal way. This is what happens with DCHL.

    DVML is, however, are not part of DCHL; it is owned directly by the DCC. So, the DCC is also a group of companies/businesses; it owns DVML, DCHL and some others. The DCC will pay tax on the combined profits and losses of these businesses. For example, if a company in the group makes a $10 million loss, then the group will be worse off by $7 million after benefiting from the reduced tax ($10m x 30%). Profits are good, tax is bad.

  20. James

    Thanks, I didn’t realise that DVML was owned by DCC not DHCL, however my point remains the same. Companies can elect not to consolidate, however if they do elect to consolidate, that changes things. Firstly, there is no requirement to prepare a separate financial statement for each entity, only consolidated group financial reports. Secondly, because taxation occurs at a group level, you can’t compute net profit after tax for a company within the group, because there is no taxation occurring at the company level (which you just appear to have illustrated yourself).

  21. JimmyJones

    Companies can elect not to consolidate – Thanks for explaining that.

    there is no requirement to prepare a separate financial statement for each entity – I expect that this is true to satisfy the IRD, but the owners of subsidiary companies will impose their own financial reporting requirements for monthly, annual etc reports. For the DCC financial results, I don’t know if those requirements include calculating NPAT.

    because taxation occurs at a group level, you can’t compute net profit after tax for a company within the group – Yes you can. As well as the subsidiary’s revenues and expenses (cash and non-cash) being blended into the consolidated NPAT result, the subsidiary’s NPAT can also be calculated separately (for each subsidiary). I don’t know if the DCHL subsidiaries do this with their periodic financial results reports, but they do for their Statements Of Intent.

    The individualised NPAT calculations must comply with the financial reporting standards, and so must include interest, depreciation etc. And also tax; if the Net Profit Before Tax is a profit, tax is deducted to get NPAT. If Net Profit Before Tax is a loss, then a tax credit is calculated which reduces the reported loss. In this way, when you add all the subsidiary’s NPAT’s, you get the same as the consolidated NPAT. The difference is that the shareholders know what’s going on from seeing the individual calculations.

    An example- DVML forecast for year 3 (AJS affidavit, August 2009):

    EBITDA = $5·069m
    Interest = $7·943m
    Depreciation= $3·554m
    Net before tax= -$6·428m (Loss)
    Tax benefit (30%)= $1·928m
    NPAT = -$4·500m (loss) (= -$6·428m + $1·928m)

    This loss of $4.5 million should be roughly what should be in the DVML Statement Of Intent, but all we get is ” – ” and ” – “. Even a big fat lie would be better than a blank. Remember that the DVML loss is only part of the ratepayer burden.

  22. James

    Other DCC companies (eg the airport) don’t provide NPAT in their Statements of Intent.

    And your own NPAT calculation is nothing like DVML’s NPAT. That interest charge is clearly the interest for the full loan amount, not any debt carried by DVML. The figure that you have calculated is more like the net position of the stadium on the DCC consolidated group (which is much more interesting). In fact, if your figures here are accurate, then you’ve just neatly proven that the $5million (via the $66/ year figure) does in fact pay for the stadium, in that it will cover that loss (and some).

  23. Jimmy and James: If DCHL does not own DVML then how come the debt raised by DVML to pay DCC to in turn pay off the stadium construction debt does not remain on DCC’s books? You see, as I understand it, DVML is to rase the money from DCTL, itself a DCHL company. Also, DCHL is to pay down the capital of that debt at $5 million per annum. The fact that the construction debt is transferred from the DCC to DCHL suggests that DVML must be part of the group. How else can it contribute its losses (and trust me there will be) to the group for tax advantages. It is the $5 million per annum paid by DCHL which results in a reduction of that amount in dividend being diverted from DCC. That loss to DCC is being made up by the $66 per year from ratepayers.

  24. James

    Because DCHL and DVML are both owned by DCC they are both part of the group. Hence the tax loss can be transferred for tax advantage (this is clear from Appendix AJS2 in the affidavit).

    Actually, I’m finding this extremely re-assuring.
    Jimmy’s comes up with an ‘NPAT’ figure of -$4.5 million dollars. This includes the non-cash fictional accounting depreciation of $3.5m, leaving a real cash loss of $1m. Actual depreciation is being funded within the overall loan, so the $1m actually includes real cost depreciation. Ratepayers are stumping up $5m p.a., which is enough to cover the cash loss, and make up the remaining annual loan payments.

  25. JimmyJones

    James-
    Other DCC companies (eg the airport) don’t provide NPAT in their Statements of Intent – All the DCHL ones do. I am looking at the DCHL Statements Of Intent presented to the F & S Committee on 8 Feb 2010. For Delta next year’s NPAT (called “Net Profit After Income Tax”) will be $4.928 million. For the Airport for next year NPAT will be -$0.76 million (loss) (called “Operating Surplus after taxation”).

    And your own NPAT calculation is nothing like DVML’s NPAT – My calculation compared to what? If you have DVML’s forecast NPAT, I would really like to see it.

    And your own NPAT calculation is nothing like DVML’s NPAT – They aren’t my figures; they are from Athol Stephens’ sworn affidavit for the High Court last year, titled “DCVL Taxable Income(loss)”. I believe that DCVL was an earlier name for DVML. Athol’s figures could have errors, and are too old to be reliable, but don’t blame me.

    The figure that you have calculated is more like the net position of the stadium on the DCC consolidated group – As best I can tell, Athol and his team has never released this information (not even to Councillors). And no, it is not $66 per ratepayer. $66 per year is the capped/ring-fenced part of the stadium costs. Costs beyond this limit are paid for indirectly by ratepayers.

    $5 million a year would pay for the Chin Stadium if there were no other costs – as I said before: “For us to know the total weight of the millstone round our necks, we need to add together both DVML’s NPAT, and the other stadium expenses incurred directly by the DCC (mostly interest). We need to know both parts, and so far we know neither.” Do you not want to know these things?

    • Elizabeth

      JimmyJones says: “I believe that DCVL was an earlier name for DVML.”

      Richard has earlier pointed out, on several occasions, on several What if? threads, the difference between Dunedin City Venues Ltd and Dunedin Venues Management Ltd.

      Here’s a sample:

      ****

      Richard 2009/11/03 at 7:39am

      Phil:

      it may well be that, somewhere down the line, DCVL (the “ownership company” yet to be activated) will, as has been outlined in recent Annual/Community Plans et al, own the “bricks and mortar” et al of various council facilities.

      I would envisage them contracting the management and operation of the facilities that come under their ownership, by way of service contract/agreements (just as Council does now) to the groups that run them now for the very good (and obvious) reason you mention.

      DVML as the management company (presently for the FB Stadium and the Dunedin Centre) is likely to have a role to play in the overall promotion and marketing of all council facilities but that is something yet to be determined.

      ****

      Richard 2009/08/31 at 11:23am

      There are two companies in the model. DCVL (Dunedin City Venues Ltd) which will eventually own land, bricks and mortar and DVML (Dunedin Venues Management Ltd).

      DVML is the first to become operative. Its scope is set out on pages 294 to 296 in Volume 2 of the recently confirmed Community Plan 2009-19.

      It will not only include the stadium but also the Dunedin Centre/Town Hall, The Edgar Centre/Lion Arena and possibly other similar facilities.

      The model used is based on Christchurch City’s successful V-BASE.

      ****

      Richard 2009/06/12 at 5:40pm

      [excerpt] As previously noted and commented upon by Athol Stephens, DCC General Manager, Finance and Corporate, a CCO (Dunedin City Venues Ltd, DCVL) is proposed to own the stadium and other council properties such as the Edgar Centre etc.

      A ‘sister’ management company will be the operator of the facility.

      These companies make no call on rates.

      NO CALL ON RATES.

      ****

      Richard 2009/06/06 at 3:12pm

      I will repeat again – it is the SAME $5 million.

      For two years the $5 million is levied as a rate.

      There is no reduction in the DIVIDEND for those two years. In fact, for 2009-10 it increases.

      When ownership transfers to DCVL, the rate ceases and the dividend from the companies REDUCES by $5m.

      Hence the change is NEUTRAL.

      You and David must stop double-adding!

      ****

      Richard 2009/06/12 at 12:04pm

      David and Elizabeth – you fail to grasp how the ownership and operation of the stadium will work.

      As has been explained on several occasions, Council has adopted the successful model adopted by Christchurch. FB Stadium is to be managed by a council owned company, provisionally known as Dunedin Venues Management Limited. DVML will be charged with operating the stadium in a professional, business-like manner, co-ordinated and integrated with other Dunedin venues, to better ensure its commercial success.

      A second company, Dunedin City Venues Limited, also owned by the Council, will own the physical assets and carry the debt previously borne by the Council.

      The cash required to service the debt comes from the collective cash flows and financial efficiencies from within the group of council-owned companies.

      At the time ownership of the stadium passes from council to DCVL, council will release the group companies from an obligation to remit $5 million pa in its dividends.

      The dividend thus reduces at that point by $5 million for the duration of the loan and the rate to be levied in 2009-10 and 2010-11 therefore ceases.

      I have nothing more to add.

      I have tried – and tried – David to explain this. You persist in mis-using and/or confusing the figures. That is your prerogative.

      My response in this case was, of course, to confirm what Paul had said. Nothing more, nothing less.

      ****

      Elizabeth 2009/05/04 at 10:26pm

      David asked Richard: “All I would like to know is how much it will cost to service the $105m loan – what are the annual capital and interest repayments?”

      Go to Richard’s comment on April 7, 2009 at 9:43 pm:

      David asked:
      “Is it possible to clarify the following …Total DCC Loan for the Stadium”.

      The answer:
      $137 million.

      $108 million will stay in DCVL when it it takes ownership of the Stadium.

      The balance of $29 million stays with Council to cover the bridging loan. That is paid off over 10 years as the instalment payments on the subscribed seats come through.

      Also see Richard’s comment on April 8, 2009 at 12:52 am:

      “I come back.”

      In response to David:

      (1) The ‘memberships’ are all contracted.
      (2) Interest in Year 1: $7.459m. Year 5: $5.293m
      (3) Principal Repayments in Year 1 (on a table loan): $2.6 million. Year 5: $4.86 million.
      (4) Depreciation @ $2.83 is on a straight line basis, this is, of course, an operating expense.

      The city will not be funding any of this through rates.

      As previously noted and commented upon by Athol Stephens, DCC General Manager, Finance and Corporate, a CCO (Dunedin City Venues Ltd DCVL) is proposed to own the stadium and other council properties such as the Edgar Centre etc. A ‘sister’ management company will be the operator of the facility.

      These companies make no call on rates. Indeed I do not believe they can legally do so other than through shareholder advances, capital placement etc. Not like “the old days” when hundreds of thousands of dollars went into prop up gas and the like! That would be millions in today’s dollars!

      At Year 2 when the ownership is planned to pass from Council to DCVL, the dividend from the overall COUNCIL GROUP is – as has previously been noted – reduced by $5 million. This relates back to the $57 levy on a median residential property with a rateable value (or $66 on a property @ $291,000) proposed to start in the 2009-10 Financial Year. That has been discussed ad nauseum here and elsewhere, was set out in the 2008-09 Annual Plan and again in the current draft Community Plan 2009-19.

      I won’t add any more to that other than to observe that the way that it is being levied in 2009-10 and again in 2010-11 year before the change in two years is ratepayer “neutral” as you have previously observed.

      You were pretty much on target on the interest. I suppose you want today’s prize – always a chocolate fish. No quotas on those!

      I go!

  26. James

    *Operating surplus after tax doesn’t include depreciation (and probably not interest). So not NPAT.
    *I read Athol Stephens’ affidavit, which I hadn’t seen before. Good reading.
    *I’m glad we agree that $5m p.a. would pay for the stadium with no other costs. I keep getting the impression from others that secretly it won’t.
    *other stadium expenses incurred directly by the DCC (mostly interest). The figures you provided of Athol’s seems to include all the interest. If there was more interest, there’d be more tax gain, which I’d assume they’d be trumpeting.
    *So by other expenses, you mean roading realignments etc?

  27. As I understand it, DCHL is to pay $5 million per annum off the capital debt. But due to tax subvention advantages this is really costing around $3.5 million. The $66 per average ratepayer, assuming 53,000 of them, will raise that $3.5 million. No more. Does that sound about right?

  28. JimmyJones

    Calvin – DVML is definitely 100% owned by the DCC. This is stated only on the newest version of the Statement Of Intent (23/2/10). Are you sure that the stadium debt does not remain on DCC’s books after DVML becomes the owner. My impression is that all the $ is borrowed from DCT [Dunedin City Treasury], and one chunk pays for the ownership of DVML (through shares), and another chunk becomes a loan from DCC to DVML with no interest due, and also another loan to DVML that gets paid down with interest. I could be wrong about this, and it might have been changed. I bet Athol is having a quiet chuckle to himself as he sees us floundering around trying to untangle his financial knots.

    There seems to be two discreet but connected consolidated groups (the DCC and DCHL). I trust the DCC to choose the most tax efficient structure for DVML and all the other companies.

    $66 per average ratepayer collects a total of exactly $5 million. All of this and more is needed to pay for the stadium. How much more, I don’t know, but the DCC has a legal obligation to tell us, through the SOI, and for the initial special consultation (as part of the 2008 Annual Plan, I think it was).

  29. JimmyJones

    James.
    Operating surplus after tax doesn’t include depreciation (and probably not interest). So not NPAT. – “Operating Surplus After Tax” is used interchangeably with “Net Profit After Tax” here in NZ (it is the same thing). If you believe otherwise, show me why.

    The figures you provided of Athol’s seems to include all the interest – Athol’s figures are shonkey and probably refer to a financial structure that doesn’t exist now, and might have never existed. Yes, the interest seems large, but it may have been a valid prediction for whatever was being considered at the time. My point is that we should be told what is going on; do you agree or disagree with that? We all want a low ratepayer burden, but wishing and hoping won’t make it so.

    If there was more interest, they’d be more tax gain, which I’d assume they’d be trumpeting. – No. Interest isn’t imaginary, nor is depreciation. If a business borrows money and pays interest the profit is reduced as a consequence, even if your tax is reduced.

    So by other expenses, you mean roading realignments etc? – No, I was referring to non-DVML ongoing expenses (ie incurred by the DCC), in particular, interest.

  30. Jimmy Jones: I haven’t yet seen the latest draft plan, but the current one shows the DCC’s net debt at $383.795million 2010/11 reducing to $301.472 million in 2011/12. A reduction due to the stadium debt moving off the DCC’s books.
    On page 30 in this plan, in the preamble on the stadium it states the intention of setting up two companies, Dunedin Venues Management Ltd (DVML) to be responsible for the management of the stadium and other venues such as the Dunedin Centre and the Edgar Centre. The second company, Dunedin City Venues Ltd (DCVL) will be responsible for the ownership of the stadium, but will not acquire the property until its completion in August 2011. To me it seems obvious that DVML will be a CCTO while DCVL will be in the DCHL group, thereby taking the debt with it. DVML will hopefully produce sufficient revenue to service the debt, thus removing the servicing costs from being a direct charge to the ratepayers. DCHL are to pay down the capital at the rate of $5 million per year. The $66 from the ratepayers is to make up for the $5 million shortfall in the dividend to the DCC from DCHL. Of course if the stadium doesn’t perform then any shortfall for debt servicing will fall on the ratepayers. Therein lies the worry and risk.

  31. James: if you look at Athol’s report of 9 Feb 2009 you will see in stadium financial transactions that between 2008/09 and 2020/21 he has allowed for $14.377 million of interest to be capitalised. Now, why do you think he would do that, other than to cover his arse for any shortfall in DVML’s revenue? In other words he is kicking the can down the road. How many councillors do you think understand that?

  32. Phil

    Ok, so are we saying that DCHL will be responsible for the repayment of the capital cost. And building maintenance costs. As the building owner. Whereas DVML will be responsible purely for the operational side of the venue. As the building tenant. Presumably DVML will be paying a rental fee to DCHL as this will be DCHL’s sole source of income to repay the capital debt. In theory.

    The problem with that scenario, as I see it, is that DCHL can set a very low artificial rental figure for DVML to pay. Far below the amount that DCHL requires to service the capital debt. And low enough so that DVML can appear to be making a profit. It will then fall back on DCHL to cover the balance of the debt repayment from its other companies such as City Forests.

    So DVML can be trumpeted as defying all the critics and turning out a healthy profit. Justifying the decision made by those brave souls and their wow factors (I’m sure Bill is really regretting saying that).

    DCHL, on the other hand can return a reduced dividend to the city, but no-one can really see exactly why the dividend is reduced. A fall in the dollar, planes getting lost, a plague of woodpeckers, it could be anything.

    That’s actually pretty clever. Totally immoral, but clever.

  33. JimmyJones

    Thanks Elizabeth and Calvin for explaining about DCVL. I need to do some reading.

    • Elizabeth

      Hey but JimmyJones, the horror is there is so much to read about the stadium project, and so little clarity and cohesion between Council reporting ‘attempts’.

      Why would any citizen be bothered to try and stay on top of all this – it’s unwieldy, tiresome and draining. It’s not like there’s any reward. Every which way you look it’s a minefield.

      Good luck if you want to do more reading. It’s a pity more elected councillors didn’t read and understand the paperwork they are obliged to discuss and vote on – or abstain from.

  34. JimmyJones

    Yes Elizabeth, the great DCC wall of obscurity seems impenetrable, but I am sure it has a few cracks. There may be no personal reward in our struggle, but I think the more we can reveal before we elect our new council, the brighter will be Dunedin’s future. There is no place for those obsessed with creating a debt mountain the size of Mt Everest, or who cares about the ratepayer burden as much as an infant with diarrhoea cares about personal hygiene. The super-spenders must go, and stay gone.

  35. Jimmy Jones; Even if they are all gone, it still leaves the Staff (equally culpable, if not more so), the unelected (CST, DVML), and most important of all, the DEBT! Then there is the ongoing operational costs which will escalate year on year. As I pointed out to Kate, the horse has bolted.
    I pointed out to James the matter of Athol Stephens planning to capitalise $14.377 million of interest between 2008/09 and 2020/21. What do you think of that?

  36. JimmyJones

    Well Calvin, some of the big horses have bolted, but there are still some others I would like to save. A lot of damage has been done, and the effects will persist; all we can do is stop it getting even worse.

    Capitalized interest – That is an interesting report, it shows interest payments capped at $5 million with the rest capitalized (pay less now; pay lots more later). It shows that (before DVML was thought of) DCVL was going to own the stadium as well as do the marketing/event management. I wonder if the reason that DCVL doesn’t exist yet is so that they can avoid having to produce financial forecasts (SOI) for it.

  37. Jimmy Jones; I suspect that the reason that DCVL doesn’t exist yet is because no one knows what the stadium will finally cost. By DCC controlling through to completion, that way they can control what they will declare, putting that to DCVL to handle, and somehow or other disappear the balance into all manner of strategic invisible places. Capitalizing interest is one. We have seen enough disgraceful manipulations already to know that, as in war, the first casualty is the truth.
    As a matter of interest, which horses do you think can be saved? The $50 million Dunedin Centre perhaps, or the Harbour side Dream?

  38. JimmyJones

    Well Calvin, it will be hard to keep those horses in. Some other ones ready to leave with our money are: the DPL relocation, South Dunedin Library, Otago settlers Museum ($35m), Sewerage stage 2 ($74m), Regent Theatre ($6m), Logan Park Redevelopment ($14m). All these unnecessary and wasteful projects are diverting money that should be being spent on our essential water infrastructure renewals ($25m per year needed). This has been delayed for many years, and our councillors intend to continue this pilfering of money for their own wasteful pleasures.

    This is from the 3-Waters report to ISC 1/2/10 – We plan to conduct comprehensive consultation on customer’s willingness to pay for further service improvements in these and other areas, as well as looking for areas where customers may accept lower service levels to manage cost increases.

  39. Richard

    Phil – you say: “DCHL, on the other hand can return a reduced dividend to the city, but no-one can really see exactly why the dividend is reduced. A fall in the dollar, planes getting lost, a plague of woodpeckers, it could be anything. That’s actually pretty clever. Totally immoral, but clever.”

    Well, I do not agree and really it’s a bit unfair!

    If there is one thing that has been “right up front'” over the past two years in this whole debate, it is how the ratepayer levy is/was to be funded.

    Perhaps unintentionally however, you do underline one thing; just how few understand the return the ratepayer gets on investments etc.

    It has always shown in successive draft Annual Plans but obviously with little effect.

    You may have noticed that, in this current financial year, the breakdown is on the back of the Rates Assessment Notice thanks to a recommendation of the Rates Funding Working Party. One can also access it via the ‘Rates Calculator’ on the DCC website.

    There is obviously more to do because I personally think that breakdown is the determinate in one deciding whether rates are fair value for the services delivered. Nevertheless, some have obviously noticed as ‘screams’ on the library levy are fairly audible along with a couple of others!

    As far as DVML is concerned, it does not operate anything yet so, of course, it has no income.

    Previously, the setting up of companies (such as those now within DCHL) required the forming of Establishment Units, formal consultation and the necessary funding to go with it. That requirement was removed some time ago (I think in the 2002 amendment to the LGA) but in circumstances like DVML, they still require funding to get established. Whether you agree with that or not is a separate matter. It is, of course, in the current DAP for 2010-2011 now out for consultation.

    There is also a difference between the companies within Dunedin City Holdings Limited and Dunedin Venues Management Limited and whatever the facilities ownership company is to be called.

    The DCHL ones are all CCTOs (Council Controlled Trading Organisation) whereas DVML is a CCO (Council Controlled Organisation) just as DCVL will be.

    DVML is not part of DCHL. Nor will DCVL. It will be DCVL as the facilities owning company which sets the rents etc, not DCHL.

    So, when Council talks of THE GROUP it is THE COUNCIL GROUP comprising Council (core) CCTOs, CCOs etc.

    And yes, before you ask, all this group stuff can get confusing. The similarity and confusion of DVML and DCVL does not assist either. A different name perhaps for the latter as the facilities owning company? Nevertheless, I hope this assists some understanding of how it all “fits”.

    Finally “JJ” in his comment misinterprets what the 3 WATERS STRATEGY actually is. “A generalised set of priorities and approaches as a background to a strategy development.” In regard to funding, not everything that may be required will be a capital work and depreciation needs, of course, to be factored in.

  40. Richard; you say that DVML and DCVL are both companies classed as CCOs, in other words part of DCC. If this is so, how then can the debt attached to the stadium which will be assumed by DCVL on completion of construction be removed from the DCC’s books onto DCHL’s books? That surely, suggests that DCVL will be a trading company and as such, part of the DCHL group, in other words a CCTO. I agree that all this group stuff can get confusing, none more so than perhaps for councillors themselves.

  41. Richard

    The debt is not being moved onto DCHL’s ‘books’ and never has been. It will be transferred to DCVL, repeat DCVL or whatever it may come to be called.

  42. Richard; so why does the DCC debt reduce from $329.357m to $221.466m in year 2011/12 if it doesn’t go to DCHL? Where then is it?

  43. Richard

    When DCVL (or whatever) takes ownership of the stadium, it will repay Council. Effectively the loan is transferred. It therefore does not show in council ‘core’ debt.

    The loan is, of course, repaid by DCHL reducing its DIVIDEND to Council of $5m and paying this to DCVL.

    I cannot think of any simpler way to explain it.

  44. So DCHL is to repay a debt it doesn’t have? Great. How can it do that without first having it on its books? Wouldn’t the auditors want to know? Besides, Richard, you said that the debt is not moving onto DCHL’s books and never was. Nonetheless, DCHL is to do this by short changing its dividend to the DCC by $5m a year. We, the ratepayers are to make up the dividend loss by the ‘mythical’ $66 per year. So, why doesn’t the debt stay on the DCC’s books and we ratepayers receive the $5m dividend and use it to pay off the debt. Then we wouldn’t have to pay the ‘mythical’ $66 per year? But then that would prevent the tax subvention rorts wouldn’t it? I’ve got it so far, Richard. When DCVL (or whatever) takes ownership of the stadium how does it pay for it? It surely must if the DCC is to sell it. As I said the DCC’s debt reduces from $329.357m to $221.466m (about $108m, the DCC’s contribution to the build) in year 2011/12. How does it do that, if DCVL (or whatever) owns the stadium and is also a CCO? Richard, you are darn right, you cannot think of any simpler way to explain it.

  45. Russell Garbutt

    As I said earlier, the whole sad fiasco relies entirely on confusion and lack of transparency. About time to stand back and really just remind ourselves of the real basics in this.

    A few Councillors on the DCC and the ORC have managed, through their narrow majorities and fixation with professional rugby, to ensure that a new rugby stadium will be built paid for by the ratepayers knowing that a huge majority of those same ratepayers did not want to pay for such a project.

    Furthermore, those same Councillors have caused the City to be placed in record levels of debt to pay for the same stadium, and have raised rates well beyond the rates of inflation to assist in that process.

    They then have bailed out the failing business of the ORFU by purchasing Carisbrook without knowing what they were going to do with it.

    And to crown it all off, they seem hell-bent on driving any industry out of the City in favour of a few latte bars.

    Do we need reminding ourselves of the names of the Councillors who have followed and supported this litany of headless chook behaviour?

  46. Richard

    I am not going to get into an endless and pointless debate.
    The process I have set out is in a host of council documents such as page 30 and 31 of the LTCCP Vol.2. adopted last year.

  47. Richard, is that it? So where is the debt lying? You don’t know?

  48. OK Richard. Page 31 says quite clearly that DVML will be a council controlled trading company. It does not say where DCVL will be placed. It says it will be responsible for the ownership of the stadium, but will not acquire it until it is complete in August 2011. But the fact that DCHL is to pay the capital debt at $5m per year indicates DCVL would have to be part of DCHL. As the DCC will shed the debt on transfer confirms that. Perhaps Richard, you may wish to rethink that point.

  49. Richard

    That may have been a ‘typo’. Whatever, DCVL is intended to be a CCO as is DVML – refer page 11 of this year’s draft Annual Plan.

    Neither DCVL or DVML will be in DCHL which is comprised of CCTO’s.

    They do not have to be.

    All are, however, within the Council GROUP.

    There are many reasons for that including taxation efficiencies etc. But then, I am certain you know all that having had it explained to you by our GM, Corporate and Finance some months ago.

  50. Come on Richard, a ‘typo’? Page 11 in the Draft Plan speaks of DVML being a CCO. It makes no mention of DCVL at all.

    When I spoke to your GM Corporate some months ago DVML was not even in the picture. So I ask again, if the debt is not with DCHL, and is off the DCC’s books, then where exactly is it? Face it, you don’t know.

    It has got to be with DCVL as a CCTO under DCHL. That’s why DCHL is going to pay the capital debt at $5m per year. DVML is, hopefully going to pay all interest and holding costs out of revenue. It is also going to receive whatever private funding comes after completion. It will carry the underwriting debt on its books, taking it over from the DCC’s accounts, and pay it down through 2021. I say hopefully, because that is if it has any surplus after operating expenses are taken out. If in fact there is insufficient, or no surplus, then the problem will become a huge embarrassment to all concerned, and the ratepayers will be in the gun bigtime.

    Richard, the understanding of this whole project by council is appalling, yet they have consistently voted for it time after time. Sucked in by a bunch of snake oil salesmen, As the saying goes, if it looks like a duck, if it waddles like a duck and if it quacks like a duck, odds are that it is a duck.

  51. Richard

    You are correct, Calvin, re the original intention that both DCVL (Dunedin City Venues Limited)and DVML (Dunedin Venues Management Limited) were to be CCTOs.

    The change of DVML to a CCO occurred during 2009 (not earlier as I thought yesterday) and is, of course, shown as such in the DAP for 2010-11.

    It is the current intention that DCVL also be a CCO when it is activated.

    The original intention was for only one company to be set up but both DCVL and DVML were very much “in the picture” at the time you spoke with AS. With similar initials, you can be excused for any confusion. Another good reason to have a different name for DCVL!

    Whatever, it does not make any difference to where DCVL and DVML (which will be ‘sister companies, probably with the same board of directors) sit in The COUNCIL Group, neither are to be part of Dunedin City Holdings Limited. They do not have to be.

    It is THE COUNCIL GROUP which is the entity.

    Council in its governance role understands the status of these companies very well. To say it has been sucked in by ‘a bunch of snake oil salesman’ reflects only on those who advise council and/or are tasked with managing the companies.

  52. Richard

    Extract from the DCC Long-term Council Community Plan 2009/10 – 2008/19 (Page 14).

    “Who will own the Stadium?”

    “Dunedin City Council will own the stadium directly up to its completion. It will then be transferred into the ownership of a 100% council owned company. The Council has now decided, following the public consultation on the Draft Plan and further professional advice, to form two companies.

    The first company, Dunedin Venues Management Limited (DVML), will be responsible for the management of the stadium and other venues such as the Dunedin Centre and the Edgar Centre. DVML will be established as per the statement of intent published in the Draft Plan and will be formed from 1 July 2009.

    The second company, provisionally named Dunedin City Venues Limited (DCVL), will be responsible for the ownership of the stadium, but will not acquire the property until its completion in August 2011. The statement of intent for DCVL will be consulted upon in the 2010/11 Annual Plan consultation.

    The Council believes that the management of the stadium by a Council Controlled Trading Organisation (CCTO)* in a business-like manner will better ensure its commercial success, at the same time ensuring that the benefits of public ownership are retained. This will remove the debt servicing costs from being a direct charge on ratepayers, but it will have the effect of reducing the dividends from the companies. This shortfall in the Council’s income is made up by the
    additional general rates.

    The ratepayers’ contribution will cover the $5 million shortfall in dividends from Council-owned companies over the 20 years it will take to pay off the stadium loan.”

    *subsequently changed to a CCO.

  53. Richard, thanks for all that. But it is only confirming my understanding of the situation. As it says, DCVL will upon completion, take ownership of the stadium from DCC. Understood.

    DVML will, and is, undertaking the management and operation of the stadium plus other complexes. It will, out of operating revenue, pay all operating costs plus receive the private funding monies through to 2021. These monies will go to the DCC to pay down its overdraft created to fund the construction of the stadium.

    The operating surplus (if any) will go to pay interest and costs of the $108+ million debt created by the DCC to fund the construction of the stadium.

    The capital repayment of the debt is to be paid by DCHL out of revenue surpluses of the group, at $5m per year. As a result of this, DCHL’s dividend to DCC will be reduced by $5m per year. This shortfall is to be made up by the ratepayers at the ‘mythical’ $66 per year. That much is clear.

    Now Richard, you say that DCVL will not be a CCTO under DCHL. If DCVL remains a CCO, under the management of the DCC, how then can the DCC disappear the stadium debt from its books in 2011? Indeed, as it clearly shows in the debt schedule the reduction of around $100m where does it go? As DCHL is going to be paying the debt it seems obvious that it must have accepted it in the first place. So does this not suggest that DCVL must be a CCTO in the DCHL group?

    I am sorry for being a pain about this, but I am convinced that this whole project is misunderstood by you and your council. The plain fact of the matter is that whether DCHL pays the debt or not, the ratepayers are the fall guys. The $66 was a scam to placate the masses. In fact, if the stadium hadn’t happened, the DCC would have received the $5m dividend to defray rates. The ratepayers would not have had to pay the $66, so it could be argued that they have really paid twice, or $132. Pedantic? Possibly, but it just goes to show how convoluted this whole thing is.

    Regarding my discussions with AS as you mention. His is the task of putting together a financial plan to show the least possible cost to the citizens. In that sense he has done well, but it is not possible to hide this indefinitely. The truth will out. Watch when the operating surpluses are not forthcoming. Only crazy optimism can believe that this stadium will run operating surpluses.

    Watch also, if DCHL’s operating surpluses shrink in these difficult times. Recent past years when terms of trade have been healthier, DCHL have only managed to meet the dividend requirements of the DCC by increasing its debt, largely through revaluing its assets. Indeed, it is only those dividends which have prevented the continuing rate increases from being much greater.

    All in all, Richard, it would be fair to say that you and your fellow councillors have set this city up for a very rough ride. A stadium and a conference centre [Dunedin Centre Redevelopment Project – Eds], with their associated costs are simply not affordable for a population our size. It means that all and anything else in the way of capital amenities in the future will not be able to be considered. Talk about “all your eggs in one basket.”

  54. Richard

    Draft Annual Plan – CX’s Introduction: page v:

    “When the stadium is complete it will be transferred to the Council-owned company Dunedin Venues Management Limited. The company will then repay the Council the debt which accrued during the stadium construction.”

    Whether DVML and DCVL are CCTO’s or CCO’s they would still sit as separate companies in the COUNCIL Group and not within the DCHL structure.

    The advantage of a CCO and taking $5m of the dividend instead of direct rating ($27 less for the average residential ratepayer), is set out in the AP for 2008-09: http://www.dunedin.govt.nz/__data/assets/pdf_file/0016/28204/Final-Annual-Plan-as-adopted-online-version—2008_06_241.pdf

  55. James

    Richard — sorry, a slightly different tangent to Calvin, but there is a point I’d like clarified. I’m happy that my ‘$66’ is part of $5m from ratepayers, which after some sharp accounting yields around $7m of paying power. AS (and my own figures) suggests that the annual payment for the loan is ~$10m, and I’m pretty sure various sources have suggested that the remaining $3m is going to come from company ‘cashflow’. If DVML makes its projected $3m surplus, is that money available to pay that $3m in debt servicing?

    {For readers: “AS” stands for Athol Stephens, DCC Finance and Corporate Support General Manager. -Eds}

  56. James: your calculations might make sense to you, but whoever owns the stadium seems not to matter to Richard.

    But don’t forget DVML first has to generate enough revenue to cover its operating costs. Then it has to pay the interest on the debt. $108m at 7% over a twenty-year term would be some $3.2m per year. But also it is to collect the private funding and pay it to the DCC to pay down its overdraft covering the delayed flow of the private funding. There is also the interest on that overdraft. So you see it is a mighty big ask of the events schedule for the stadium.

    Particularly when the prime user, rugby, will only hire the place per event. It will take the gate. Not much left for DVML I wouldn’t have thought. Obviously, if DVML is to meet its full commitment then it will have to make a gross profit in excess of $4m per year. HUH?

    Richard, you say now that the stadium when finished will be transferred to DVML. So are you saying that DCVL is not going to happen? It is according to the Annual Plan. Besides, if DVML holds it as a CCO, then the $108m debt must still reside on the DCC’s books. If this is so, please explain how the DCC’s debt reduces by over $100m in 2011? Also, if DCHL doesn’t hold the debt, why should it be paying down the capital at $5m per year? So I ask again, where will the debt lie?

    I see four inherent risks in this venture, all of which are to the ratepayers.

    1. What if the final cost exceeds the budget? Presently there appears to be no funding for the temporary relocatable seating. There is some doubt about the pitch lighting being provided for. There is no provision for big video screens. There is the cost of the turf. Is that included in the main contract?

    2. What if DVML’s revenue fails to reach required targets?

    3. What if DCHL, by paying the $5m per year off the stadium debt, doesn’t generate sufficient profit over and above being able to pay the budgeted dividends to the DCC?

    4. What if the private funding is not forthcoming?

    Again, I say it is a very complex set of actions to try to justify and conceal the financial risks from the citizens.

    Richard, could you please at least answer these questions.

  57. Richard

    James: The cashflows referred to relate to those of all the 100% owned companies that are part of the COUNCIL GROUP not just DVML.

    Calvin: in regard to the transfer of ownership, I am not saying anything, but quoting verbatim (remember that word) from the Chief Executive’s Introduction to the 2010-11 Draft Annual Plan.

    In due course, ownership of the FB Stadium, the Town Hall/Dunedin Centre/Edgar Centre etc will almost certainly be with DCVL but, as I understand it, the debt and repayment on the Stadium Loan will likely remain in DVML for various reasons. That is likely be determined by the time of the Draft Annual Plan for 2011-12 when the setting up of DCVL (or whatever it is to be called) is addressed.

  58. Richard

    Oh yes!

    2011-12 is the financial year in which the $5m from the dividend/investment income is utilised for the first time to repay the Stadium Loan dividend and the Levy for the Stadium ‘disappears’ from the General Rate.

    As the dividend investment income is distributed on the same percentage basis as the General Rate is collected, the effect on the ratepayer is ‘cash neutral’, as indeed has been explained on this site and in all relevant reports and documents.

    As I have already commented, there is a financial advantage in doing this through the Council Group but I suspect James that you probably know more about those mechanisms than me – or Calvin!

  59. Thanks for that Richard. Yes I do understand the meaning of subventions. I also note that what has been said is not necessarily so in as much we have to wait to see where the debt stops when the music stops.

    I do love your repeated use of the term ‘cash neutral’, suggesting that nobody actually is out of pocket. You will have really found the ‘holy grail’ when you can spend $108m but nobody pays.

    Finally, Richard are you going to answer my four questions?

  60. Phil

    My understanding of the turf installation works is that the work is to be carried out by a nominated contractor. At least, that was the talk at a recent NZIQS meeting. Someone (not looking at anyone) could straighten that one out. Anyway, it seems that the turf contractor will be working independently of the main contractor (that is, they are not a nominated SUBCONTRACTOR), but with the requirement that the two contractors are to work in cooperation with each other. As such, the main contractor’s price is likely not to include the work of the turf contractor, aside from some administration costs for the co-operation part of the agreement. All parties, including the project management and other consultants, should be reporting to the architect, who in turn, reports to the client. DCC contracts can be a little strange at times, with council often contracting head contractors directly, rather than through the project architect or consultants. Something I’ve never been in favour of as it leads to instructions being given by the client to the contractor, without the architect or specialist consultants being informed. It appears to be common practice within DCC, but I don’t know if this is one of those instances.

    The temporary seating question intrigues me also. I realise that Council is purchasing the main seating directly, outside of the contractor’s price. That was highlighted in one of the monthly progress reports. What seems a little odd to me, is the plan that the temporary seating will be stored off-site, and only erected as needed. That seems a little bizarre to me. Why unload 10,000 seats for an event, erect them, dismantle them afterwards, and then remove them from site? Every time they are needed. That must be incredibly wasteful and expensive. Why not simply erect them once, leave them in place, and remove them only if and when that space is needed? That has to be saving time, money, and storage costs. It costs nothing to leave them erected. If it’s the scaffolding support frame that is the problem, that too will be cheaper to buy than to rent, time and time again. And yet it seems to be mentioned again and again that the temporary seating will be stored partly in containers, and partly off-site. I struggle to understand why that would be the best and most efficient idea.

    The only possible reason that makes any sense to me is if the temporary seating is not being purchased, but rather being rented on a casual hire basis. If would be nice to get some feedback on that.

    The big screen television was reported quite some time ago by CST as being removed from the stadium build. For costs. It is to be hired in on an “as needed” basis, with the costs being met by the hirer.

  61. Richard

    Calvin: No.

    Firstly because it requires me to speculate.

    Secondly, because the risks (in construction and with the financials) have been addressed ad-infinitum in various council reports and papers, all of which are public.

  62. Richard, you say the $5 million a year to repay the Stadium loan is now going to come from investment/dividend income rather than rates. I understand that the payments for the Stadium loan are $10 million a year.
    Where is the other $5 million going to come from?

  63. Richard, your refusal to answer confirms my opinion that on the stadium issue council is ‘flying on a wing and a prayer’. Worse, the pilot is a committee, has only one eye, and the radar is down. The passengers (ratepayers) are being soothed by the flight attendants who are also being denied the true nature of the facts that the engines are sputtering, the fuel lines are severely constricted, and the tanks may very well be near empty.

    Richard, happy landing for you and all your colleagues.

  64. Richard, I forgot to ask in my last post, would the flight finish as “crash neutral”?

  65. James

    [Alistair Mackay says] I understand that the payments for the Stadium loan are $10 million a year. Where is the other $5 million going to come from?

    Around $2m from a reduced tax bill for the Council Group, and the other $3m possibly from an operating surplus (pre-interest payments) from the stadium*. Spelled out on the second last page here (sort of):

    Click to access Affidavits.pdf

    *If the stadium doesn’t make the expected profit, then the other $3m comes from out of the Council Group.

  66. Calvin

    I suspect Richard and his mates would fancy themselves more as heroic kamakaze fighters ever ready to go down in a glorious, blazing fire in order to build their stadium. Such are the vainglorious ambitions of middle aged and elderly men. So much better than committing ritual harikari to atone for their shame.

  67. Richard, your response to the answering of my four questions was to say no, firstly, because it would require you to speculate. Now, that overwhelms me! Surely Richard, the whole project is based on speculation, so why stop now?

    Malcolm and his mates speculated that they could build a new stadium for not a cent over $188m.

    They also speculated that it would not involve the rate payers in any extra expense, but be done out of existing budgets.

    They then speculated that the NZRFU would, on completion, grant A category tests, even though the capacity was only 30,000. The minimum requirement by NZRFU is 35,000 seated.

    They then speculated that they could purchase the land required for $15m. It finally cost some $37.5m.

    They also speculated on private funding of some $45m being part of the construction finance. We now know it will only be $30m, and will take until 2021 to all come in (assuming it does).

    They did not speculate that the Government would come up with $15m, but latched onto that in order to reduce the private funding total down from $45m to $30m.

    They did speculate on the possibility that the stadium would generate an economic benefit to the region of $20m per year.

    They did speculate that the stadium would bring another 500 students to the University.

    They did speculate that the DVML operation would generate sufficient revenue to pay all interest costs on the debt, of both the stadium and the DCC’s underwriting of the private funding.

    They did not speculate on where the money would come from to cover the temporary seating, the turf establishment, the pitch lighting and the supply of the big screens. None of which appear to be included in the construction contract.

    They did not speculate on the cost of the purchase of Carisbrook being $7m, but rather just $2.5m.

    They can’t speculate on what if any return the city will obtain from the ownership of Carisbrook.

    We (the citizens) can only speculate on what the additional costs for realignment of [State] Highway 88 will be in order to make way for the stadium.

    We cannot speculate on what effect the stadium has on other facilities such as the Regent Theatre, the Fortune Theatre, the effective repairs of the St Clair sea wall, ramp and railings (due to consultants’ design failures) nor many other future requirements of the city.

    They have not speculated on the effects overall on the city of the burden of $300m plus debt as well as the DCHL’s nearer $400m of debt.

    So come on Richard, speculate a little please. It would at least help clarify the situation for a lot of people who may be somewhat perplexed as to who they should be voting for come October.

    As the only councillor who is prepared to at least front up to these types of forum it will do you no harm while your colleagues shelter in their bunkers.

  68. Well, Calvin, in your succinct summary of speculative pronouncements by Richard and his mates, concerning the stadium, you have somewhat undermined their credibility, haven’t you.
    We have heard there are now more former strong supporters of the stadium in the business community who are now having doubts. The Plan Change 7 business is also indicative of their concerns about the direction of this city. The response to Mayor Chin at public occasions, when the stadium is mentioned by him, have also drawn ire from the audience. People it seems are waking up. The perception is out there that the council is…..( choose your own adjective)

  69. kiwifly

    peter and calvin your mutual love affair that you two have for each other is frankly nauseating

  70. Come on, kiwifly, you’re just sick with envy.

  71. kiwifly? It that something one should spray for, or simply tread underfoot?

  72. Richard

    THE $5 MILLION
    from tax and cashflow

    James’s helpful response to Alistair is right about the $2m tax saving and partly right about the stadium’s pre-interest surplus. The full text of the clause that James refers to in the Court of Appeal Affidavit sworn by Athol Stephens says: “Council-owned companies would contribute $3 million from their available cashflow”. (see Clause 28)

    It is intended that all the companies contribute, not just the Stadium operating company.

    The origins of the $3m go a long way back to a time when the funding of the stadium was to be sourced from an additional $3m of dividends pa. This $3m would have been in addition to the planned increases in dividends that were indicated in pre-stadium days. In the end Council chose not to add $3m to dividends. Instead it reduced them by $5m and left the $3m of cash with the companies.

    As a matter of record, I note that Athol’s affidavit was not challenged in the court by anyone including counsel for STS.

    THE $5 MILLION
    from the ratepayer

    As the above shows, Calvin’s claim that $5 million is being taken from the DCHL dividend and that ratepayers are still stumping up with an additional $5m by way of ‘a disguised’ rate, or words to that effect, is not correct. As I have endeavoured to explain as simply as I can several times before – my post of the 20 March being the most recent – the levy for the Stadium is no longer collected as part of the General Rate from the 2011-12 financial year but by way of the $5 million reduction in dividend. I described this as “cash neutral’ which, Calvin has some difficulty with. I have previously referred to it as “RATES neutral” which is a much more accurate term because that is precisely what it is. As far as the ratepayer is concerned, there is only ONE $5 million.

  73. Richard

    Dunedin City Venues Limited
    and Dunedin Venues Management Limited

    In my post for March 20, 2010 I quoted an extract from the DCC Long-term Council Community Plan 2009/10 – 2008/19 (page 14) headed “Who will own the Stadium?”

    Trying to read all the posts before my response, I even managed to confuse myself – to a point anyway – especially by what now turns out to be ‘a typo’ in the CEO’s introduction to the 2010-11 Draft Annual Plan where he refers to DVML as owning the stadium.

    So, let me clarify.

    There are TWO companies, both CCO’s as set out in the Community Plan referenced above.

    Dunedin City Venues Limited (DCVL) will own the stadium and Dunedin Venues Management Limited will operate it under a lease agreement.
    DCVL will carry all the debt relating to the stadium construction and private sector funding.

    Calvin raised the question of the difference between a CCO and CCTO and where the debt is carried.

    A CCO may be the beneficiary of a Council guarantee whereas a CCTO may not. So DCC could issue a guarantee in favour of DVML but cannot for Delta or Aurora or Citibus etc.

    In every other respect a CCO can act commercially like a CCTO and for tax purposes is no different at all.

    In regard to the debt involved in constructing the stadium, as has been previously explained, this will be repaid by Dunedin City Venues Limited when it takes ownership of the FB Stadium, i.e. DCVL assumes the debt.

  74. Richard

    WE ARE NOT ON AUTO-PILOT

    At first, Calvin and Peter’s colourful references to “crash landings” and “heroic kamikaze fighters” is amusing. Levelling them at what Peter called “middle aged and elderly men” was rather rich though. I certainly fall into the former but I find it hard to accept that Calvin and Peter do not look in a mirror occasionally.

    As Calvin says – in borrowing a quotation I use quite frequently with adaptations – “if it looks like a duck, walks like a duck, and quacks like a duck … it is a duck”.

    Having introduced the term, it does surprise me that neither Calvin nor Peter – whether they agree with a project of this size or not – can accept that something major like this would not encounter turbulence somewhere on the flight path.

    Any pilot or frequent air traveller would expect that and know how to handle it.

    More seriously though.

    Here we have in their own words (and word pictures) their determination to bring down (or crash) this particular ‘aircraft’.

    That explains, of course, a lot of things. The mission must fail, by whatever means!

    It is the kind of ‘violent language’ that STS turned so many off with. Why people ‘stopped listening’.

    Given what has been posted, I cannot resist observing that it seems, ‘What if? Stadium’ has the distinction of hosting the world’s first ‘terrorist bloggers’!!!

  75. Richard

    Mm..hh. Well then, New Zealand’s?

  76. Richard

    Whatever happened in between your 11.39 am and 12.06 pm posting? The reasonable tone changes to an unreasonable one. Mind you, what you say about people like myself and Calvin being ‘terrorist bloggers’ is funny and at least shows a sense of humour.

    We don’t need to bring down the aircraft, Richard. You and your mates are doing a fine job already. The turbulence you speak of, and experiencing, is the resistance of people who are fed up with this stadium scam.

    Yes, I am middle-aged. I’m 55. You are 73. No problem with that. Just to say it would be nice to see a greater variety of people on council – younger men and women from different backgrounds who base their decisions in an ethical way and put Dunedin before themselves. Some ‘grey/white hairs’ are still welcome!

  77. Richard

    I’m not actually.

  78. Phil

    Richard, thank you for the clarification surrounding the make up of the 2 new organisations. If I have this right, DCVL will take title ownership of the stadium. They will also take title ownership of the Edgar Centre etc from DCC. Will they also take over the role of building maintenance, currently carried out by City Property? Or will that remain business as usual with maintenance being funded by CP? I can see a little bit of a bun fight there as CP would be paying for costs, while no longer receiving income. If my next assumption is correct.

    CP currently looks after the tenancy issues for those venues. I assume that this task will be transferred to DVML, who will take over the internal operations of the building. DVML will lease the premises and collect the rentals. Correct?

    Possibly DVML will contract CP to maintain the buildings, solving the funding issue should CP remain in the loop. That would be a sensible move.

    DCVL, as the new property owners, will be responsible for the debt carried by those properties, but DCC stands behind DCVL as a guarantor. So DCC will step in and cover any shortfall in the debt repayment if necessary.

    How did I do?

  79. Phil

    And, guys, I’m going to say this… I enjoy this forum very much. I believe it contains an excellent group, with a high level of understanding and experience of the various issues we discuss here.

    HOWEVER, every time I see a posting starting to get personal, I simply stop reading it. So, there might be some valuable information within that posting, which is completely lost. Which I’m sure is not the poster’s intention. Frustration is part and parcel of the central topic for this forum. Accepted. But, the moment things become personal, there’s the risk of a corresponding drop off in perceived credibility. Godwin’s Law illustrates this trend well.

    Let’s try to stick to the gems, and leave the trash behind. Myself included.

  80. Phil: Points taken. DCVL, when set up in 2011 will assume ownership of the stadium but it won’t be holding the debt. The money to pay down DCC’s funding to completion will be obtained by the issuing of bonds to third parties via DCVL. The purchasers of these bonds will in all probability be preferred strategic investors. The bonds will carry a negotiated rate of interest and will be guaranteed by DCC. That is how the debt disappears off DCC’s books. It has already been done with the land purchases. Bonds were issued – probably via CST – and guaranteed by DCC. They carry interest of around 8.5% and mature in 2011. That is why you cannot find the $37.5m on the books anywhere. Interestingly, the land was valued initially at some $15m while the price settled was $37.5m. Now, if the third parties were in fact the vendors, it would be a straight swap, land for bond. At 8.5% on $37.5m this would equate to 21.25% on the $15m value. A nice little earner. At maturity, these bonds will either be rolled over or paid up by the issuing of new bonds. The story is even more complex than that, but I am not yet ready to tell all. What I can say is that it doesn’t matter whether the stadium runs profitably or not.

  81. Richard; I notice that you still sidestep discussion of my speculations. To do so, yet expect us to accept without question your sliding around the points is a bit much. Why you won’t address points eludes me, other than you can’t satisfactorily explain them away.

    Yes I know you are not 73, but to put yourself in the former of “middle aged and elderly men” is drawing a fairly long bow. Myself, I have no problem with being classified as elderly, what’s yours?

    • Elizabeth

      Further to Phil’s comments:

      Interesting query to Richard about where City Property fits once Dunedin City Venues Ltd is incorporated. No doubt Richard will find some time – not sure how he does this given all his responsibilities – to provide reply at this website. Leaving opinion aside, or what each of us deems to be fact or fiction about the stadium, once again the two What if? author-editors thank Richard for his visits here – which clear up not a few gaping holes in our education on council activities.

      ****

      Jests aside, What if? has no wish to discriminate on the basis of age. We’ve been relaxed today in contemplating flight training and that’s about it. We skimmed over low sweeps.

      {Ah-ha, Richard snuck in before me}

      • Elizabeth

        The following comments have been moved here from the thread Compromise can be painful and empowering for Heritage: DCC on Former Art Gallery

        ****

        wirehunt 2010/03/25 at 9:08pm
        In fact I’ll add to that Australian story. The company wanting the pipe is in fact a steel supplier from China….

        ****

        wirehunt 2010/03/25 at 9:06pm
        Steel as we speak is still hard to get. I know of one pipeline that was meant to start in November, they have enough to do 10km, the line is 75km, this is in Australia where the raw products come from. Steel in New Zealand is still hard to lay your hands on, this is not 2003 but 2010. I know of companies in NZ in the last month buying the last supplies of steel stock in the country.
        Until a very few months ago companies struggled with getting steel, even BHP for their own jobs.
        But we can pull it out at the time we want when we want.
        Then you wonder why I doubt?

        Quote from Phil: “It’s not uncommon practice for a developer to pre-order a key item in order to secure supply and price.” Does this say it all???

        ****

        Phil 2010/03/25 at 8:23pm
        Steel supply is not so much of a problem today as it was, say, 6 or 7 years ago. Driven solely by the demand in China who, at one stage, had purchased all the scrap steel that was available on the international market. I recall panic within the Fletcher Steel ranks (around 2003) when a steel carrying cargo ship turned around and sailed out of Lyttleton harbour just prior to docking, as a higher price had just been bid for the contents. They were frightening times. Thankfully, about 18 months before the Beijing olympics, things settled down a lot, and the supply became more stable. Iron ore extraction is carrying on as normal around the world, but the raw material is being stockpiled as the major steel production factories scale back their output to meet the current reduced demand.

        In 2003, you couldn’t get a fixed price for plate or structural steel. You had to pay what it was selling for on the day. I’m sure that we’ll one day return to that but, thankfully, it’s not today.

        It’s not uncommon practice for a developer to pre-order a key item in order to secure supply and price. Sometimes it might be a special item that takes 6 months to be fabricated and shipped from overseas. Like special floor tiles, for example. It usually gets included within the contractor’s price as a fixed sum. Without seeing a copy of the contract specifications, it’ll remain as one of those juicy urban legends.

        ****

        wirehunt 2010/03/25 at 7:07pm
        To me the really impressive part of the whole thing is that the stadium could have been done a lot cheaper with a better ended result.
        Instead council picked about the worst location there is. Expensive land price and ground works that are not guaranteed to work, shut down industrial areas with their poor location choice so they could get a bit of money out of the varsity……

        ****

        Elizabeth 2010/03/25 at 6:46pm
        It’s been stated in reports from CST/DVML what the breakdown of work is going to ‘south of the Waitaki’ and further north. I won’t repeat the same information again here. It’s all available by online search. The reason(s) for work going out of the region has also been elucidated.

        I’m against the extent of public funding going into the stadium project (and the whole scenario predicated on ‘Rugby’ – what an ERROR OF JUDGEMENT), nevertheless it doesn’t mean the Dunedin City Council has to stop spending on all other assets and operations. If the Council did stop [fairyland alert], it would be goodbye to all revenue generation.

        Suggest people read the DCC Draft Annual Plan 2010/11 and the LTCCP – these provide useful balance to the wider picture of Council activities, even though the debt structuring is somewhat maxed.

        How many times can we chase our tails at What if? Indignation is still rightly in the mix, along with a lot of resentment for the stadium project. It’s a bit like this situation on the ODT front page today:

        “There has been criticism of the changes from many community groups and opposition political parties, but Ms Bennett said reaction to the reforms had been “hugely” popular.” ODT Link

        Social Development Minister Paula Bennett is as thick as two planks. Denial is who you surround yourself with these days, it appears.

        ****

        wirehunt 2010/03/25 at 5:52pm
        @Richard, So with the massive steel shortages going on these companies still managed to get everything they needed at the drop of a hat, even though projects that are a lot bigger than this are struggling?

        ****

        wirehunt 2010/03/25 at 5:36pm
        And why didn’t council take the job on themselves instead of subbing it out to a management firm that just takes the cream anyway????

        ****

        wirehunt 2010/03/25 at 5:32pm
        @James. How much more was their price?

        So to save $5-10 million, hell, $20-30 million, it just doesn’t matter, on local prices you would instead prefer to send all the money out of the district???

        Yep that makes sense, even though the $5-10m would still have been in the area so being spent locally, employing local labour, helping to keep jobs in the area at this time by keeping companies afloat. Instead you would rather see that money saved. A shame so many engineering companies are on the line here.

        But then we know council doesn’t want any of that evil industry here keeping the city alive.

        ****

        Richard 2010/03/25 at 5:20pm
        In response to ‘Wirehunt’: The claim that the steel for the stadium was brought “18 months” ago i.e. before the final decision to proceed was made by council last year and before any contracts were let is simply a fabrication.

        ****

        James 2010/03/25 at 4:57pm
        Then to really rub the salt right into the bottom of the wound the work doesn’t go to local companies.

        Assuming the current contractors were the cheapest, how many more millions would ratepayers have been prepared to pay for local contractors?

        ****

        wirehunt 2010/03/25 at 3:52pm
        When is the council going to stop spending? Or would they rather see us broke?

        Street sweepers that come around every two or three years. No playgrounds for kids. Council roads being GIFTED to private companies.

        I could go on and on.

        But instead we need a purpose built rugby ground that is not big enough to play cricket on, not that it is important anyway as the rugby union wouldn’t want cricket there. Then to really rub the salt right into the bottom of the wound the work doesn’t go to local companies. WTF.

        If this goes one dollar over budget then the whole council should be sacked.

        By the way, how come the steel was bought for this around 18 months ago before it had been approved?

        ****

        James 2010/03/25 at 3:09pm
        I might have missed it, but I didn’t see this piece in the paper today (so maybe it’s an online only thing, running by different standards). Also, interesting thought from the commentator at the bottom that if Carisbrook’s lights are made redundant, then they could possibly be shifted?!

        {James, in print and digital editions of ODT, it headlined the Sport and Racing section (page 23) -Eds}

        ****

        Elizabeth 2010/03/25 at 11:46am
        Here’s an odd opinion piece – written by the reporter who carried two of the (positive) news stories yesterday about the old art gallery and the Oval – expressing doubt. A strange freedom of the press?!

        And, what has the sidelong comment about Dunedin resident Peter Entwisle got to do with any of it – absolutely nothing. I note Peter has not been quoted directly, so why include the passing reference? I don’t know Adrian Seconi, or his journalistic skills, maybe he’s having a bad week.

        ### ODT Online Thu, 25 Mar 2010
        Is expanding the Oval worth the price tag?
        By Adrian Seconi
        It is the envy of every English village but is the proposed expansion of the picturesque, tree-lined University Oval worth the $5 million price tag? If the Dunedin City Council gets the go-ahead to remove a section of the former Dunedin Art Gallery situated at the northern end of the ground – and it seems a fait accompli – then the Otago Cricket Association can push on with a planned expansion which it believes will future-proof the venue.
        Read more

  82. Richard

    I didn’t. Others have including a medical professional! As recently as last evening to be precise! I stopped counting in my mid-50s or thereabouts.

    What part of ‘NO’ do you not understand.

    I am not ‘sidestepping’ anything. Virtually everything you choose to speculate has been addressed in one form or another over the past two years. And sorry, I just do not share your obsession.

  83. Richard

    Phil:

    The assumption is that City Property will be contracted by DCVL to undertake maintenance issues.

    Early days yet as to how the management structures will evolve when the other venues are planned to be brought in.

  84. James

    you would instead prefer to send all the money out of the district???
    Not at all. I was just questioning whether others would have been prepared to pay.

  85. Richard

    Phil: Sorry for this belated response to your post of 23/3. It has been a busy week.

    “DCVL, as the new property owners, will be responsible for the debt carried by those properties.” Yes.

    “DCC stands behind DCVL as a guarantor”. That would depend on the circumstances and, of course, the property/properties.

    The situation on the FB Stadium is clear cut and covered in previous posts. Council has already arranged the funding, or most of it. The payments made to date include all property purchases that relate to the stadium site plus, of course, the former ORFU Carisbrook properties.

    As I have previously posted, all payments are made by Council not the CSCT.

    All borrowing is undertaken by Dunedin City Treasury Limited who effectively act as ‘banker’ for the Council Group.

    When DCVL pays Council to complete the transfer of ownership of the stadium, the amount will be removed from what is called ‘The Public Debt’, i.e. debt related to CORE Council activities, and essentially related to rating.

    It does not simply ‘disappear’ as any examination of the Council Financials shows, including the regular reports that go to Finance and Strategy.

    Nothing is considered in isolation. The overall position within the Council Group is always “upfront.” It has to be for all sorts of reasons. Standard & Poors in their annual assessment always look at the total debt of THE COUNCIL GROUP and comment accordingly.

    The advantages that accrue to the benefit of council – and thus the ratepayer – by placing debt with the companies, as will be the case with DCVL in the case of the stadium, are very convincing as will be hopefully clear from James’ and my earlier posts!

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