Newsroom Pro's 8 Things: A public partnership money-go-round; NZ Super model just the beginning; Dairy review details out

The news that mattered this morning

Expensive chalice? - The Super Fund's bid to build and own Auckland's light rail lines is a political gift for Labour, but disguises a potentially expensive money-go-round between state-owned entities. See more on that below from Thomas Coughlan.

Middlemore's offices - The always excellent Phil Pennington at RNZ has uncovered another building mess at Middlemore. He reported this morning that Middlemore Hospital built an office building with a 250 seat lecture theatre for $12 million without approval from Treasury or the Ministry of Health while facing ward shortages and dealing with leaky buildings.

Just sitting around - Newshub's Michael Morrah is always worth watching too. Last night he reported migrant workers flown here specifically to help with Auckland's construction boom had barely picked up their tools. A group of 16 Filipino carpenters, welders and steel fixers were brought here by AWF - one of the country's biggest labour hire firms. They told Morrah they had only been given two days' work in that time. Instead of building houses they've been going fishing to feed themselves.

Immigration and workplace relations minister Iain Lees Galloway said he expected proposals to stop this situation would be available for consultation within weeks and he had asked officials to urgently investigate. (Stuff).

Freed - North Korea freed three American prisoners overnight and handed them over to US Secretary of State Mike Pompeo, clearing an obstacle to a summit between Kim Jong Un and Donald Trump. (Reuters)

We bring in the excellent reporting of BusinessDesk, including Pattrick Smellie, Jonathan Underhill, Paul McBeth, Rebecca Howard and our very own Nikki Mandow, who works half and half with BusinessDesk and Newsroom. All their articles are now available immediately on Newsroom Pro's website. I welcome your feedback.

2. Coughlan: A public partnership money-go-round

The Super Fund's bid to build and own Auckland's light rail lines is a political gift for Labour, but disguises a potentially expensive money-go-round between state-owned entities, Thomas Coughlan writes.

In a week crammed with Budget announcements, the revelation that the NZ Superannuation Fund made an unsolicited bid to build, own and run two light rail lines comes as a nice surprise for the Government.

In exchange for up to $1.8 billion of its own money, the Government and the Auckland Council would get two light rail lines costing an estimated $6 billion up to 20 years earlier than is currently planned. That’s a good deal for a Government wanting to position itself as “transformational” without breaking its self-imposed Budget responsibility rules, and for a council already up against its own debt limits.

As the managers of a $38b fund, the New Zealand Super Fund guardians will be the first to say there’s no such thing as a free lunch. Further details emerged later on Wednesday of just what the project might look like.

Firstly, the bidding process hasn’t properly ended yet. Transport Minister Phil Twyford said he expected this to take six to eight months, during which time a number of bidders with better offers may come to the table. Construction could then take a further six years, he said.

The fund itself hedged its bets, saying that it had not agreed to any of the proposed rail projects and would be reviewing the entire project to determine the most commercially feasible option.

“The options that have been presented to date may not be those that are decided upon,” a Super Fund spokeswoman told Newsroom.

It looks like the winning bidder will receive revenue through a mixture of value capture uplift rates and fare revenue, as well as a possible guaranteed income from the Crown.

This 'public private partnership' or 'public public partnership' (PPP) model does pose political risks for the Government, given it opens up the potential for foreign ownership of publicly used assets. Prime Minister Jacinda Ardern also refused to rule out any prohibition on foreign bids for the network, either now or should the winning bidder wish to sell it on in the future.

But there are other benefits to a partnership with a public or private entity.

A study published by Auckland Transport in 2016 found light rail had the highest maintenance costs of all the options surveyed. A PPP model allows the Government to defray those costs, along with any other liabilities, onto another party. Of course this could create an even bigger problem for the Government if it transpired that the Super Fund had been tapped to plug a light rail funding gap.

Captured by value capture

The issue of value capture is the perhaps the most interesting. It allows the Government to raise revenue from the increase in the value of a property after important infrastructure has been built nearby. It could be paid annually, or potentially as a lump sum when the property is sold.

Value capture revenue would mean the Government taxing the Government to pass revenue to a fund owned by the Government in exchange for a transport network run on behalf of the Government.

Value capture also reveals another interesting quirk of the proposed line. The most significant property owner along both routes is the Government itself.

Auckland Mayor Phil Goff told Newsroom that central Government would be one of the biggest beneficiaries of rising values along both routes.

“Value capture would be captured largely by central government, which means it is more likely to contribute to the cost of it because it has a lot of properties along the routes that are designated for light rail both to the North-West and to the South,” Goff said.

"Mt Roskill, Mangere, Onehanga - a lot of those are Housing New Zealand properties - so they get the value capture, and that will help them meet the cost of funding the project,” he said.

It all seems a bit complex.

Value capture revenue would mean the Government taxing the Government to pass revenue to a fund owned by the Government in exchange for a transport network run on behalf of the Government.

This raises a further concern. If the Government opts for a popular form of value capture which only yields revenue when the home is sold it would have to sell off the social housing stock along the routes to raise value capture revenue.

This could also raise some uncomfortable questions about who will benefit from the rail line: tenants who currently live along the route, or upwardly mobile young professionals moving into the area looking for a decent house with a good commute time.

Twyford has not ruled out a much simpler way of funding the project, which would be using the Government's balance sheet to borrow to pay for the lines. The Government can currently borrow at 2.79 percent, which would be much cheaper than the capital costs used by the Super Fund-led consortium. It would need to build in a profit margin and a higher cost of capital in its assumptions, and therefore its price and demands for revenue.

Twyford said the procurement process would compare competing bids against the simpler debt-funded model, although the Government's own self-imposed debt target of reaching 20 percent of GDP within five years would currently prevent it from taking this option.

An intensification contradiction

The southern route is itself steeped in controversy.

Auckland councillor and former head of Auckland Transport Mike Lee warned against a light rail line running along Dominion Road.

He said that the only feasible long-term option was heavy rail, which could handle the growing needs of Auckland airport. He said a light rail line would reach capacity too soon, given the rising passenger numbers expected by Auckland airport.

“People shouldn’t get confused with property development along Dominion Road and a fast and convenient journey to Auckland airport,” Lee said.

A light rail link would lead to intensification along the Dominion Road corridor, which Lee argues will mean journeys to and from the airport become more difficult.

“Some people thing oh great we can put in high-rise buildings and jam in a whole lot more people because there’ll be trams running outside and at the same time think it’s going to be better than trains in getting to the airport — that’s nonsense, there’s a contradiction,” he said.

Lee is also doubtful that the Dominion Road corridor has the necessary infrastructure to deal with the intensification light rail would bring.

“Before they jam any more people along that corridor, they need to sort out the sewage system, that’s already over-committed,” he said.

But others say its possible for the Government to have its cake and eat it too.

Matt Lowrie, of Greater Auckland, which advocates for better public transport in Auckland said the current proposal would only run on the road for around seven kilometres, from the Civic Theatre to the bottom of Dominion Road. Light Rail would have signal priority along these sections to help it keep to an efficient and regular schedule.

Most of the rest of the project from Dominion Road would be off-road, allowing significant time efficiencies. Taking this into account, Lowrie said the light rail route was as fast as the heavy rail route, given the heavy rail route would need to take a less direct path to the airport.

“Heavy rail can travel faster, but it has to travel further,” he said.

3. NZ Super model for light rail just the beginning

The Super Fund's surprise bid to build and run two Auckland tram lines may create a model for similar projects in Wellington and Christchurch, Thomas Coughlan reports.

The Government could roll out public private partnerships to fund infrastructure projects across Auckland and Wellington, Transport Minister Phil Twyford and Finance Minister Grant Robertson said after the surprise launch of a plan for light rail lines in Auckland that could be funded by a New Zealand Superannuation Fund-led consortium.

The Fund made an unsolicited bid with a consortium that includes a Canadian pension fund to build, own and run light rail lines from Auckland city centre to the airport and from the city to North West Auckland. This has forced the Government to open up a tender process that could last six to eight months.

Twyford said the projects could cost $8 billion to build and take six or seven years to complete once started. If successful, the Super Fund-led bid would be a 'public private partnership' (PPP) where the 'private partner' was effectively a publicly-owned body. It uses the same model as the previous government used to sell 49 percent of Kiwibank.

Twyford and Robertson said the model could be used for light rail and other transport projects in Auckland, Wellington and Christchurch. However, the PPP model does pose political risks for the Government, given it opens up the potential for foreign ownership of publicly used assets.

Prime Minister Jacinda Ardern also refused to say whether she had any objection to transport infrastructure falling into foreign ownership, which has opened the door for foreign companies bidding for key transport projects. NZTA later confirmed that parties from both New Zealand and overseas would be invited to register interest.

Ardern’s comments also leave open the possibility of the NZ Super fund selling the light rail lines to a foreign buyer in the future.

The New Zealand Transport Agency would run the process to explore a range of possible procurement, financing and project delivery options.

Twyford told reporters the offer from the Super Fund suggested that it would both operate and own it in perpetuity and it would not revert back to public ownership after a specified time.

Twyford also hinted that a guaranteed income would be part of an agreement, although he declined to comment on specifics.

“You would expect an arrangement like this any investor would want a revenue stream,” Twyford said.

He expected value capture uplift rates to be used to help generate revenue for the winning bidder. Value capture allows the council to generate revenue from the increase in property values from important infrastructure built nearby.

Twyford would also not say how much of the $1.8 billion the Government had set aside for Auckland light rail would be spent on these two lines projects.

The Super Fund told Newsroom that it approached the Government last month with an unsolicited offer to develop the project alongside CDPQ Infra, a wholly owned subsidiary of Caisse de depot et placement du Quebec. The Super Fund has not worked with CDPQ before, but said CDPQ had experience in infrastructure development, having built and operated Montreal’s 67-km light rail network.

The Super Fund confirmed to Newsroom that it would be reviewing the entire project to determine the most commercially feasible option.

“The options that have been presented to date may not be those that are decided upon," it said.

Controversial plan

The light rail option to the airport has faced criticism, with some calling for money to be spent on improving busways or investing in improved heavy rail.

Light rail is like a tramway, but runs on its own dedicated right-of-way. This means it’s not affected by traffic speeds.

A 2011 multi-agency study recommended investment in a heavy rail loop, including a new 10 kilometre stretch from Onehunga to the airport. The study described that as the "most economically efficient” solution.

This was championed by Auckland Councillor Mike Lee - himself a former director of Auckland Transport - in the New Zealand Herald last month.

But other reports have recommended the light-rail option, arguing it would open up more of the city.

A report from 2016 was in favour of light rail, concluding it to be the better option ahead of two heavy rail options: heavy rail direct to the airport, and a ‘hybrid’ option which would upgrade the connection between the city to Onehunga with a connecting bus service to the airport.

The report concluded that light rail provided the most benefit, adding five stations at “major employment nodes” compared with two stations at one employment node for heavy rail and five for the hybrid option.

Both light rail and full heavy rail are faster than the current bus time; the hybrid option was estimated to be five minutes slower, taking transfer time into account.

Good for Mangere too

Light rail was also considered the best option for improving connectivity in Mangere.

Light rail fared slightly worse when considering ‘constructibility’. The report found it would require three years of “tracks, power, major bridge construction” as well as “large off-line sections”.

Full heavy rail would require three years of significant works, including tunnelling in a “difficult environment”, while the hybrid option was the most straightforward, taking just two years to build “straightforward” infrastructure.

The construction cost of the plans varied widely. Light rail and the hybrid model were the cheapest, costing $1.2 billion and $1.1 billion respectively, although this is probably at the low end of the spectrum. The cost for heavy rail was estimated to be $3.1 billion. Light rail was estimated to have the highest maintenance costs.

The current light rail option promises two-carriage vehicles carrying up to 420 people. This compares favourably to the 180 double-decker bus passengers carried by a comparable two buses. Trams will arrive every 5-10 minutes.

The trams will also have ‘signal priority’ allowing them to pass through traffic more quickly, although this will presumably cause significant traffic disruption.

A representative for NZTA said that detailed costs and the level of disruption and construction times would be laid out in a detailed business case to be released once funding and priorities are confirmed.

Auckland Mayor Phil Goff welcomed the announcement, saying it could accelerate the building of a rapid transit network by a decade or two.

“It’s billions more than we or the Government could have afforded to put in using a traditional funding mechanism,” Goff said.

“I don’t have an ideological view about PPPs," he said, pointing to Auckland's population growth of 45,000 people per year.

Goff said he preferred to do whatever was necessary to ease congestion sooner rather than later, even if that meant using a PPP.

"If the choice is later and funded in a traditional way, it might be a decade or two decades out."

"We don’t need it in two decades. We need it now when we’re facing gridlock and we need new forms of rapid transit that will reach parts of the city not reached by the heavy rail network."

4. Sachdeva: Washington dealings raise questions

That Donald Trump has upended the world of diplomacy is not up for debate. Yet the New Zealand embassy’s decision to engage a US lobbying firm with no prior foreign experience raises questions about the state of our affairs in Washington, as Sam Sachdeva writes.

Opinion: Announcing a budget boost for New Zealand’s foreign service this week, Winston Peters was unequivocal about the value of our diplomatic corps.

“As a small nation of fewer than five million people,” the Foreign Affairs Minister said, “skilled diplomacy has proven to be an essential part of protecting our vital national interests and securing domestic prosperity.”

Peters is right - and that’s why we need answers from our Washington embassy about the deal it struck with US lobbyist Robert Stryk and his Sonoran Policy Group.

Set against a nearly billion-dollar increase to our foreign budget, a $240,000 contract would not appear much to lose sleep about.

More concerning, however, is what the deal says about our diplomats’ ability to adapt to a changing environment, and to carefully choose who advocates on our behalf.

According to some, the embassy was in a state of near-mourning after Donald Trump’s election, having planned - even hoped - for a Hillary Clinton presidency (admittedly, they were not alone in doing so).

Caught out by an unpredictable president-elect and a chaotic transition process, it’s no surprise Ambassador Tim Groser and his team quickly jumped on anyone touting their ties to Trump.

Other countries had to employ unorthodox methods to reach the President: Australian golfer Greg Norman famously put Malcolm Turnbull in touch with Trump.

Nor is it unusual for foreign embassies in Washington to engage lobbyists to help them navigate Capitol Hill.

Yet New Zealand’s reliance on SPG may in part reflect a failure to build ties with Republicans and others close to Trump - an impression only boosted by the fact the embassy was using Stryk’s team to reach the President nearly three months after election night.

Then there is the question of how and why exactly SPG was chosen.

The firm had never before advocated on behalf of a foreign government, and reported no lobbying activity at all between 2013 and 2016.

Stryk, a country music fan, likened the leap to moving from small-town bars to Madison Square Garden.

The obvious question is, what kind of promoter would book a self-described “struggling artist” for the biggest stage around?

MFAT has also acknowledged “concerns in relation to some SPG staff” were discussed during the due diligence process.

It hasn’t elaborated, but a basic dig into Stryk’s past reveals some troubling accusations made against him - albeit accusations he denies and attributes to dirty politics.

The foreign clients SPG has taken on after New Zealand jar with our usual alliances, as does the firm’s work for an arms dealer on a UN travel ban list.

Even Stryk’s one-time colleague, Stuart Jolly, left the firm after expressing discomfort with its “auditions” for foreign clients.

MFAT insists New Zealand has benefited from the deal, but greater transparency about the due diligence process and the work done by SPG would be welcome.

There are broader questions to be asked about how our Washington embassy is being run.

Deputy head of mission Caroline Beresford’s (eventually deleted) tweets telling the US Democratic Party to “get your shit together or we will all die” showed a stunning lack of judgment from our second-highest ranking diplomat in the US.

Peters’ predecessor Murray McCully lashed New Zealand’s foreign officials over their failure to get to grips with Trump’s “Muslim ban”, while more recently some have (perhaps unfairly) questioned New Zealand’s inability to secure an exemption from US steel tariffs.

Change at the embassy is inevitable.

Beresford’s term in Washington ended last week, and while MFAT are tight-lipped on what punishment if any she received, it seems unlikely she will return to a high-powered role.

Groser’s stint as ambassador is believed to finish later this year, and Peters has all but said he will not be sticking around for a second stint.

Trump has ushered in a brave new world for politics in Washington, and our government may need to find brave new diplomats to fight for New Zealand’s interests.

5. Cowlishaw: Can polytechnics be saved?

The polytechnic sector is on the brink of collapse, fighting against low unemployment and a voracious private market. How did things get so bad, and is there a way back for our polytechs? Shane Cowlishaw reports.

Back in 2003, every town with a population greater than 20,000 had its own polytech.

The industry was booming. In 2004, the ITP subsector (short for institutes of technology and polytechnics) boasted 178,000 students, the largest share of the tertiary system.

But today, those once-thriving institutions are struggling.

There are now just 16 ITPs, down from a peak of 25 in the 1990s. Those that remain are scrambling to survive by seeking out mergers and cutting costs.

The most vivid picture of this spiral is Tai Poutini Polytechnic on the West Coast, which is in such dire straits that it has received not one, but two Government bailouts.

The future for its counterparts is not much brighter. A Cabinet paper released after Tai Poutini’s latest bailout noted four out of five ITPs would be in debt by 2022 under the current funding system.

So, how did things get so bad and why have student numbers dropped by a third in the last decade?

There is a multitude of reasons, but a shift away from community and adult education to a focus on young people studying towards their first qualification is one.

Compounded with a move to competitive funding in 2012, it led to ITPs being out-competed on all sides for students by a robust labour market and other tertiary institutions such as universities and private training establishments (PTEs).

ITPs have found themselves barely keeping their heads above the water, left with no cash to invest in infrastructure and the modern learning environments demanded by today’s learners.

A roadmap to the future

To find a way forward, two separate yet intrinsically linked pieces of work are underway.

Led by the Tertiary Education Commission (TEC), the ITP Roadmap 2020 project will look at ways to immediately address the crisis facing the sector and report back to the Government on possible solutions.

More broadly, the Ministry of Education is working on a wider review of vocational education that will look at how it is funded and the relationships between providers and industry training organisations.

It’s the former that will be of immediate interest to polytechs, who will be involved but find their future left in the hands of Education Minister Chris Hipkins.

Facing a heavy infrastructure bill in the portfolio, Hipkins is unlikely to simply open the Government’s wallet and stuff ITPs full of money as a stopgap measure.

He has indicated that while funding issues will be considered in the wider review, he favours streamlining the ITP sector and has not ruled out further closures.

While in opposition, Labour’s general preference was to shift more vocational training back from PTEs to the polytech network.

Hipkins told Newsroom that he wanted to see strong polytechs in the regions but the industry would be responsible for doing the hard yards itself.

“We’re not going to force the private sector out, they’re going to have to compete with the private sector and my challenge to them is what’s stopping them doing that now and how can we fix that.”

Hipkins believed ITPs had found themselves in an unsustainable position and it was not simply because they lacked funding.

Many were cumbersome and there was massive duplication across different institutions.

“In the polytech sector I’ve never said we should favour the public over the private, but what I have made clear is the private sector has been able to be more nimble and responsive to industry needs and we need to look at why that is. Why is it that they have been able to eat into, quite significantly, the polytechnics market share and is that something we want long term?

“Clearly having 16 quite small organisations all with their own systems and processes isn’t a particularly efficient way of running the system. If you look at it there’s a number of programmes, there might be 10 to a dozen variants around the country but they’re all essentially trying to deliver the same educational outcomes.”

Other decisions soon to be announced by the Government will also be closely watched by the sector.

Crucially, the final form of Labour’s restrictions on international student work rights will determine if an important revenue stream dries up for polytechnics.

Pre-election, Labour promised to remove the work rights of sub-degree level international students, both those still studying and those recently graduated.

But Immigration Minister Iain Lees-Galloway’s stance has softened in recent months, and he has refused to commit to the measures.

There has been strong lobbying from international education groups, who have highlighted the potential economic hit of making New Zealand a less attractive destination.

A reduction in overseas students would hammer ITPs, who have to an extent relied on the money they bring in to subsidise a falling domestic roll.

ITP revenue from international students grew from $67m in 2008 to $162m in 2015.

But international students are not necessarily the silver bullet many people think, according to Tertiary Education Commission CEO Tim Fowler.

While the students paid high fees, once expenses such as marketing and an agent’s slice of the pie were deducted they were often not much more valuable than a domestic enrolment.

The main issue was the huge drop in student numbers, something any business would struggle to deal with.

Funding was an important issue to consider, but Fowler noted that there had actually been an increase over the long term.

“There must be something more fundamental at play here if one-third of the students who used to study in the system no longer want to.

"Throwing more money at a system that is producing far fewer students is just not the answer, and I think the sector gets that.”

Great, but we still need more money

Most ITPs and the union representing their staff welcome the review and admit things have to change.

The largest polytechnic in the country, the Manukau Institute of Technology (MIT), lost $7m last year after restructuring and haemorrhaging students.

Its chief executive Gus Gilmore said despite its size it needed more scale to generate efficiencies and was in talks with other institutes about how to do that.

While some ITPs were doing good work, others had not moved quickly enough to adapt and there were still too many, Gilmore said.

“This country does not need 16 ITPs. There’s eight universities, I can’t comment whether that’s the right number.”

A funding shortfall could not be dismissed, however, and it had contributed to the sorry state of things, he said.

“Each year labour rates were going up, the CPI has been one to two percent but there has been no recognition of increasing costs and that’s put massive pressure on the ITP sector.”

Gilmore said that with projects like KiwiBuild underway there was a desperate need for money to be pumped into the trades and vocational education.

Tertiary Education Union national secretary Sandra Grey agreed many ITPs had been slow off the mark but said the industry had struggled as it increased marketing budgets to compete with private providers.

“You only have to walk into these institutions to see empty classrooms, classrooms that are not really fit for teaching in with equipment that’s not fit to teach with and a lack of staff.”

Both significant investment, and some hard conversations about how ITPs were structured, needed to be had, she said.

“We can’t let the market determine this, we have to strategically say ‘should there be a polytechnic in Northland, it’s a community that needs training, it needs these things, are we prepared to invest the money?’”

6. Political concerns denied on China steel

The government says political considerations about New Zealand's relationship with China aren't the reason why it chose not to tax Chinese steel imports, as local steel producer New Zealand Steel attempts to have that decision overturned in the High Court, BusinessDesk's Sophie Boot reports.

In July 2017, then-Commerce and Consumer Affairs Minister Jacqui Dean decided not to impose countervailing duties on imports of galvanised steel coil from China, following an investigation by the Ministry of Business, Innovation and Employment which found that Chinese subsidies on the steel were too small to have injured the domestic industry.

NZ Steel, which is a wholly-owned subsidiary of Australia's Bluescope Steel, lodged an application for judicial review of the former minister's decision in September 2017. It says Chinese steel flooded the local market and cut into its profits, and wants the court to quash the decision and have it be reconsidered by going back and re-investigating the matter. The hearing began on Monday, and is set down for the rest of the week, in front of Justice Jillian Mallon.

In opening the government's reply yesterday, the Crown's lawyer James Every-Palmer QC said all relevant considerations were taken into account in making the decision, based on information that was available to it and that it considered to be reliable, and that it provided full reasons and correctly interpreted the act and did not act unreasonably.

"The application for judicial review here attacks matters that are really for the decision maker - the process of inference, the weighting of evidence, and the evaluative judgements it made," Every-Palmer said. "In our submission it's fair to characterise the application as seeking a merits review of the decision that was made, effectively an extra round of the decision-making process, but one in which there's only one interested party participating, and so the new material and evidence presented hasn't been tested in any systematic way."

Every-Palmer stressed the decision was "absolutely was not affected by any concerns about how China might react", and later referred to an affidavit from former minister Dean on her making the decision not to impose duties.

Dean noted that "during the investigation, I recall noting media reports about the visit by the Premier Li Keqiang to New Zealand around March 2017, but the matter discussed in those media reports did not affect my decision in any way", Every-Palmer said.

7. Vector's Stiassny loses Entrust support

Vector chair Michael Stiassny says he won't seek re-election at this year's annual meeting because he no longer has the support of controlling shareholder Entrust Trustees, which owns 75.1 percent of Vector and represents its electricity network customers.

Stiassny has been on the board since 2002, chairing the Auckland lines company through its merger with UnitedNetworks and its $593 million initial public offering in 2005, when it sold a 25 percent stake. He issued a statement today in response to media speculation over his tenure as chair saying he's always served with the full support of Entrust Trustees, the old Auckland Energy Consumer Trust, but doesn't have that backing anymore.

"I can confirm that I have not been asked to step down," Stiassny said. "However, it appears that I no longer have the support of the Entrust Trustees, in which case I will not seek re-election later this year."

Last month, more than 100,000 homes and businesses lost power during severe storms in Auckland, and more than 1,000 houses were still without power more than two weeks later. Electricity retailers whose customers were left without electricity are understood to be insisting on involvement in an internal process Vector is undertaking to review what is widely regarded as the Auckland network company's darkest hour since the extended black-out of 1998.

Entrust's trustees are chaired by financier and former Auckland councillor William Cairns, who is joined by Ricoh executive Michael Buczkowski, Energy Trust NZ executive James Carmichael, former MP Paul Hutchison and commercial lawyer Karen Sherry. Carmichael and Sherry are the trust's representatives on Vector's board.

The lines company is scheduled to hold its annual meeting in September.

Vector has been branching out into new lines of business in recent years to reduce its reliance on its regulated electricity and gas distribution unit, adding telecommunications, home ventilation and solar power to its suite, and investigating battery technology.

In Vector's 10-year asset management plan published this month, the company said it expects to spend $982.9 million changing its network maintenance practices to address root causes of service gaps. The $887.6 million business-as-usual scenario was rejected due to the risk of service deteriorating further.

The company lifted its projected capital sending $451 million to $2.39 billion over the decade, of which $193 million was in asset replacement and renewal "to address Vector’s aging asset population that poses significant risks to Vector’s ability to meet its service levels, health and safety requirements and environmental commitments in the next 10 years" and $190 million "to reflect the sustained growth in residential development activity exhibited in Auckland in the past few years, and expected to continue over the 10-year horizon."

Vector's report said it was uncertain about the future impact of climate change, but "recent events have shown that certain parts of our network is vulnerable to extreme weather".

8. Retail spending drops more than expected

New Zealand retail spending on electronic cards was lower than expected in April as consumers spent less on groceries, liquor and fuel in what Statistics New Zealand described as "unusual" figures, BusinessDesk reported.

Seasonally adjusted total retail spending on credit and debit cards fell 2.2 percent in April after lifting 1.5 percent in March, Stats NZ said. Economists had expected the number to be flat, according to a Bloomberg poll. Core retail spending, excluding fuel and vehicles, fell 2.3 percent after lifting 2 percent in the prior month.

"The fall in retail card spending is unusually large. It was driven by a drop in sales of groceries and liquor, as well as an unexpected dip in fuel,” Stats NZ business performance senior manager Peter Dolan said in a statement. “The drop in fuel sales was unexpected because petrol prices rose as much as 9 cents a litre during the April month."

Stats NZ said it looked closely at the "unusual retail sales figures for April". Dolan said the results may be affected by changes in consumer behaviour, payment methods, or the way the electronic card transactions were processed.

"We will continue to explore the data with our suppliers to further understand these movements," Dolan said.

Consumables spending, which covers grocery and liquor retailing, fell 3.6 percent in April. Spending on durables - which includes hardware, furniture and appliances - lifted 0.1 percent in the month while hospitality fell 0.9 percent. Apparel spending lifted 0.1 percent on the month. Spending on vehicles rose 2.9 percent while spending on fuel fell 2.9 percent.

Actual total retail spending rose 0.8 percent to $5.07 billion in April from the same month year earlier.

Card-holders across all industries made 139 million transactions in the month, down from 151 million in March. The average value of $49 was unchanged on the month and the year.

Bonus: Lines companies warned on EV chargers
The Commerce Commission is warning monopoly electricity networks not to treat electric vehicle chargers as assets they can charge all electricity users for, BusinessDesk's Pattrick Smellie reports.

“The main purpose of EV chargers is to charge cars, not transport electricity," the commission's deputy chair, Sue Begg, said in an open letter on a wider issue that is causing tension between electricity retailers and network owners, both of which see business opportunities emerging from selling new technologies such as rooftop solar units, batteries, EVs and home management systems that use digital technology to revolutionise household and commercial energy management.

"Our starting point is that we do not expect the costs associated with (EV) chargers to be included in their regulated asset bases, as they are not a cost of providing regulated services that consumers ultimately pay for through their power bills,” Begg said in a letter that unregulated electricity retailers are counting as a win in their campaign to prevent monopoly lines network owners from subsidising new technology business with income from their regulated asset bases.

"We need to ensure that consumers benefit from advances in technology, while at the same time promoting the development of competitive energy markets. Regulated monopolies should not have an unfair advantage over existing and future competitors in this space,” the commission said.

The letter "reminds electricity lines companies about how emerging technology costs and revenues should be accounted for in order to comply with their regulatory requirements" and "includes new guidance on when investments in electric vehicle chargers can be included in their regulated asset base, which they can earn a return on from their customers".

Auckland-based network owner Vector has been at the forefront among network owners in positioning itself for the electrification of the national transport fleet, the rise of embedded generation systems, such as rooftop solar and home energy storage through batteries that are starting to become more affordable, and in home automation systems using the so-called "Internet of Things".

The commission now plans to gather information from regulated electricity network owners to gain a better understanding of how they are planning, investing and accounting for such new technologies.

The letter also reminds electricity lines companies about their obligations under the Commerce Act to "ensure they do not enter into agreements which will substantially lessen competition, or take advantage of market power for an anticompetitive purpose in unregulated and competitive energy services markets they are seeking to enter or already participate in".

Bonus: Dairy review eyes water, climate
Agriculture Minister Damien O'Connor wants officials to keep Kiwi consumers, climate change and water quality in mind in a review of the regulatory regime governing Fonterra, BusinessDesk's Paul McBeth reports.

The minister today released the terms of reference for a review of the Dairy Industry Restructuring Act, which enabled the 2001 creation of Fonterra, which is expected to lead to legislative changes next year. The government passed temporary legislation to delay the expiry of provisions requiring Fonterra to accept milk from any South Island farmer wanting to join the company to allow a deeper look into the industry.

The review will be split along export and domestic lines, which are seen as separate but connected, and include whether the dairy sector is operating in the long-term interests of New Zealand consumers in terms of prices, availability, quality and product range. While it will focus on the DIRA legislation, officials will account for the wider regulation system including the Resource Management Act, Animal Welfare Act, Health and Safety at Work Act, Immigration Act, Overseas Investment Act, Financial Markets Conduct Act and Commerce Act.

"In particular it will look at open entry and exit for farmers, the raw milk price setting process, contestability for milk, the risks and costs for the sector, and the incentives or disincentives for dairy to move to sustainable, higher-value production and processing," O'Connor said in a statement. "The whole dairy sector needs to look ahead to see what trends and potential disruptions are coming our way and get ahead of consumer trends."

The Ministry for Primary Industries will lead the review with support from the Ministry for Business, Innovation and Employment, Treasury, the Ministry for the Environment, the Ministry for Foreign Affairs and Trade, the Commerce Commission, and external experts.

Holding legislation to prevent the expiry of Fonterra's contestability and efficiency provisions was needed after independent processors collected 22 percent of all milk solids in 2015, triggering a review of the law.

The previous administration had planned to relax some of the conditions on Fonterra to accept milk supply from new dairy conversions and would phase out the need to sell regulated raw milk to large rival processors. Those proposals followed a Commerce Commission review that found Fonterra's market dominance still warranted regulation.

In a cabinet paper, O'Connor said he expected the main concerns will be the open entry and exit provisions requiring Fonterra to accept milk from all-comers and their impact on the industry's environmental outcomes and Fonterra's ability to invest in value-add processing, and the requirement for Fonterra to sell milk to rivals and how that affects the future structure of the industry.

Fonterra's milk price-setting processes and their impact on land use, land values, and incentives to invest in innovation were also seen as a likely focus, as was Fonterra's cooperative structure and how that weighs on the company's ability to raise capital, and how the changing dynamics of wholesale domestic supply affects the long-term interests of New Zealand consumers.

Officials will meet with stakeholders and identify issues and options between May and August, before considering potential options for change in the final three months of the year. Government is expected to receive a report early next year with legislation tabled in Parliament in 2019, the terms of reference say.

O'Connor told cabinet the dairy herd improvement supporting national genetic gains would be excluded from this review and would be part of a separate process. The terms of reference also exclude the financial, environmental, and animal health and welfare performance of dairy farming which came under MPI's farm systems change project, international trade and access rules that fall under the new trade agenda, and quota access allocations in foreign markets.

One fun thing

Sometimes those American church billboards can be fun, via You had one job.

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