It is impossible to look on the sorry state of insolvent Ruapehu Alpine Lifts – its assets on the block for a dollar or two, its future entirely in the hands of the Crown – and not hear the echoes of Shane Jones and Jacinda Ardern’s big-talking 2018 promises of help for the regions: to unlock economic growth, for jobs, and high-value tourism, all to be enabled through their bold new multi-billion-dollar Provincial Growth Fund.
For Ruapehu Alpine Lifts (RAL), the fund’s touted beneficence has proved to be a poisoned chalice. Five years after taking its first concessionary $10 million loan from the fund, and three years after taking its second ($5m), the little not-for-profit ski lift operator – the main purpose of which is to provide for amateur alpine sport on the slopes of Mt Ruapehu – is essentially kaput.
We know the Government’s efforts to keep RAL’s two ski hills operating (Tūroa and Whakapapa) have already cost taxpayers $28m in loans that are likely to be written off entirely. On top of that, Cabinet has approved a package of financial help for would-be purchasers of RAL’s assets that almost undoubtedly tops $100m. RAL is now operating under the authority of liquidator PwC.
A $100m cost to the Crown is conservative. It includes nullifying RAL’s liabilities to the Department of Conservation for returning its ski fields, which are on National Park land, to a natural state in the event of closure; the purchasing company or companies would have no responsibility to “make good” what is already on the mountain (this liability has an estimated cost of $50m to $100m).
It includes the forgiveness of Ministry of Business, Innovation and Employment (MBIE) debt of up to $28m, and the addition of considerable new Crown loans. These would be used to help pay out other creditors, to provide new working capital associated with operating both ski fields, and for new capital expenditure on both existing assets and new assets required for operation. The buyers would pay a purchase price of $1 each.
These provisions were spelled out in an MBIE briefing, delivered in June to iwi and hapū stakeholders in Mt Ruapehu, and provided to the Herald.
Cabinet agreed this Crown help would be spread across MBIE’s two preferred private company bidders: Pure Tūroa and Whakapapa Holdings Ltd (other potential bidders, including iwi, say the ministry froze them out). In addition, the Crown would own an equity stake, equivalent to 25 per cent, in each company. In the convoluted way of insolvency, these early bids failed to gain approval from enough RAL creditors to move ahead, but that’s not the end of the matter.
RAL’s liquidator PwC is now notionally in charge of deciding which bidders purchase RAL’s assets. Bids are due on Thursday. But make no mistake, MBIE’s regional and economic development arm, Kānoa – in which PGF investments sit – holds all the trump cards; it is in control of the mountain of Crown funds that will lubricate any ski field’s future.
You could be forgiven for wondering how this travesty of Crown cost and lost local control came about. The troubles of Covid-19 and the snowless winter of 2022 have often been blamed. There’s no doubt Covid, and the related Government restrictions, brought a litany of problems, from outright closure to staffing woes and a dearth of international visitors. And bad snow years are an unwelcome but known risk to the business. They happen fairly frequently.
But RAL has survived such lean years before: Mt Ruapehu, an active volcano, erupted in 1995 and 1996, and a warm La Nina year followed. It had a low-key but reasonably stable business model, and through all those years the company kept very low debt (life passes were sold to raise capital as needed).
That changed when RAL directors, local councils, iwi and others conceived an expensive gondola project, ultimately called “Sky Waka”. Sure, it would cost $25m, but it would attract more high-paying international tourists, goose the sluggish summer season, de-risk the business reliance on snow, expand the regional economy and create jobs. Or so they said. Regional boosterism is like that: always a promise to make the children laugh more gaily and the birds sing more sweetly.
The problem was the $25m price tag. RAL couldn’t borrow the money, especially as it was structured as a non-profit, and moreover because commercial lenders are wary of risking large sums of money on active volcanoes (debt-laden and looking for options, it made provision to adopt a for profit structure in 2021).
The solution, Government briefing papers tell us, was the Provincial Growth Fund. If central government led with a loan of $10m, then local councils, iwi and others would fall in behind with the rest: an additional $15m investment (i.e. loans) would be triggered by the central government funds.
Official advice to ministers at the time was to approve the loan, but documents appear to show that the economics were on a knife-edge: “... Based on an independent review we have commissioned, we concur with the analysis of [redacted] that Whakapapa Ski Area meets the test of commercial viability, but only just. The business is exposed to small swings in costs and revenue [redacted].”
The PGF loan for the gondola was approved in May 2018 with much fanfare. But it brings to mind the warning: beware Greeks bearing gifts. Debt can be like that. It appears in the guise of great possibility (as indeed it can be), but when it goes wrong, it does act much as a Trojan horse, from which creditors emerge to seize control of what they find; in this case, that creditor is the Crown.
By the time Covid hit in 2020, RAL’s long-term debt had risen from roughly $4m in 2017 to over $30m. That year, MBIE furnished RAL with another loan from the PGF; an “urgent” $5m this time, for ski lift maintenance on Tūroa.
Though MBIE has released no Cabinet material related to that decision – any mention of it appears to be entirely redacted from the relevant document – the loan anticipated an insolvent end for RAL.
Lawyers acting for liquidator PwC recently confirmed its terms included a provision for the loan to convert to equity. The conversion, however, would not convert to equity in RAL, but rather to equity in a successor company, or “NewCo”.
By late 2022 RAL was insolvent. Debts topped $44m, and when its directors sought voluntary administration and temporary relief from creditors, net assets were -$3.23m (meaning the company’s liabilities outweighed the value of assets). Moreover, it was out of cash to prepare for another season.
Since then, fresh Government loans have come thick and fast: $2m last November, $6m in December and $5m in June, all to keep the business a going concern until buyers are found. That moment appears to be close: several are prepared to pay a nominal dollar, commit an undisclosed equity injection and let the Crown do what will almost undoubtedly be the heavy lifting.
‘I’m from the Government and I’m here to help’ - those have been called the nine most terrifying words in the English language. That was in a different time, and a different place, but New Zealand seems determined to give the old adage fresh resonance.