Reactions split on the Government’s draft transport plan, why the immigration minister is ordering a review of the work visa scheme and one of the most recognisable faces on British television, Sir Michael Parkinson, dies at 88. Video / NZ Herald / Getty
An Australian firm of consultants is pocketing a secret fee of NZ$1.425 million from the decision by Auckland Council to sell an $800m-plus shareholding in Auckland Airport.
The fee was triggered the moment councillors voted in June to sell a 7 per cent stake in the airport, a controversial issueput forward by Mayor Wayne Brown in his first budget to pay down debt and reduce interest costs.
Up until councillors approved the sale of shares, Melbourne-based Flagstaff Partners was being paid $75,000 to provide advice on options to sell the council’s full 18 per cent shareholding in the airport or a partial sale.
Now Flagstaff is being paid nearly 20 times as much to provide advice to the council on the sale process and analysis to ensure it goes ahead efficiently, cost-effectively and successfully.
Council Treasurer John Bishop said “that’s true” when asked if Flagstaff only receives the $1.4m fee once the council authorises the sale of shares to proceed.
He said that was a step before the sales process where Flagstaff is on a fixed-price contract and not incentivised about whether a sale of the shares goes ahead or not.
A lot of contracts are structured with incentives based on the sale price, said Bishop, but in this case, the council has been careful to avoid that “so there’s no incentive on whether we sell, at what price etc and Flagstaff get a fixed fee regardless”.
Bishop said officers have long believed selling the shares in Auckland Airport was the best strategy for the council’s finances, and given consistent advice going back to 2015, if not earlier.
He said the council would pay $1.4m to Flagstaff once its work on the sale was completed, and no later than December 31 this year as set out in the contract.
Flagstaff was selected in a competitive tender in February to provide independent advice on options for a full or partial sale of the airport shares, with the tender document saying the successful company would be expected to provide advice on the sale itself.
Bishop said depending on the process, one or more investment banks will sell the shares, “which obviously will not be Flagstaff”. Currently, UBS New Zealand is looking for buyers, he said.
Acting Auckland Council chief executive Phil Wilson. Photo / Jason Oxenham
Secrecy has swirled around the role of Flagstaff in the sales process, with acting chief executive Phil Wilson not answering a series of questions from the Herald earlier this week.
Among the questions he did not answer is whether there was anything in the contract with Flagstaff that could constitute an incentive, how much the consultants had been paid as an adviser, and why the council was using a foreign company.
Wilson also would not say if councillors were aware that Flagstaff would benefit financially when considering the sale of shares, and how that squared with the council’s governance manual that stipulates councillors receive “impartial advice” and be informed of “potential conflicts of interest”.
In a statement, Brown said councillors were confidentially provided with a copy of the contract and a written explanation of it three days before the decision on June 9.
He believed the contract details could have been “more proactively” brought to councillors’ attention, saying the council’s audit and risk committee was being asked to review the process relating to the sale of the shares.
Auckland Mayor Wayne Brown pushed hard for the sale of airport shares. Photo / Michael Craig
“Councillors had all of this information in advance of their decision, but I think it could have been better highlighted to me and them. In the scheme of things, this is an $800 million-plus sale and these advisory costs are not material,” he said.
Brown, who pushed hard for a full sale of the airport shares, believed councillors received good advice from Flagstaff and other sources on the sale of the shares.
Plans for a quick sale of a 7 per cent stake in the airport were initially expected to raise $866m to pay down debt and save $36m a year in interest costs.
However, six weeks after the sale could have taken place on July 1, the share price dipped from $8.55 to $8.32 yesterday and the additional interest cost is about $4.5m.
The incentive fee to Flagstaff comes as homeowners have been hit with a 7.7 per cent rate rise and service cuts in Brown’s first budget during the cost-of-living crisis.
Last month, the Herald revealed the “Big 4″ global accounting firms and top New Zealand law firms have been paid $190m over the past five years, which Brown described as symptomatic of widespread and uncontrolled spending”.
