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Finance and Performance Committee
13 December 2023
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16. Recommendations
for future direction of Christchurch City Holdings Limited
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Reference / Te Tohutoro:
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23/2016937
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Report of / Te Pou Matua:
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Mary
Richardson, Interim Chief Executive (Mary.Richardson@ccc.govt.nz)
Helen White, Head of Legal & Democratic Services helen.white@ccc.govt.nz
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Senior Manager / Pouwhakarae:
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Mary
Richardson, Interim Chief Executive (Mary.Richardson@ccc.govt.nz)
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1. Purpose and Origin of Report Te Pūtake Pūrongo
1.1. Christchurch
City Holdings Limited (CCHL) has identified options for more active management
of its portfolio. CCHL is seeking direction from the Council on the next steps.
This report follows the receipt of a letter of recommendation from Christchurch
City Holdings Limited to the Council.
1.3. The
decision in this report is of low significance in relation to the
Council’s Significance and Engagement Policy as the recommendation is
that a further report be provided to the Committee to enable a decision in
2024.
2. Officer Recommendations Ngā
Tūtohu
That
the Finance and Performance Committee:
1. Receives the report.
2. Thanks Christchurch City Holdings Limited for
the work it has undertaken to inform and engage with elected members on
potential options for its future in line with the 7 December 2022 request by
Council.
3. Notes the receipt of the 4 December 2023
letter from the Chair of Christchurch City Holdings Limited that recommends
that the Council consults on an Active Portfolio Management operating model
through the draft 2024-2034 Long Term Plan (Attachment A).
4. Notes that Christchurch City Holdings Limited
has already begun implementation of the Enhanced Status Quo operating model
following the portfolio review.
5. Agrees that if Christchurch City Holdings
Limited’s recommended option of Active Portfolio Management proceeds to
public consultation, then:
a. this will be through a Special Consultative
Procedure after the 2024-2034 Long Term Plan Process; and
b. this decision supersedes Council’s 7
December 2022 decision CNCL/2022/00185 which requested the recommended option
inform the draft 2024-2034 Long Term Plan.
6. Requests that the Chief Executive, in
consultation with Christchurch City Holdings Limited, provides further advice
on either:
a. Developing the business case for Active
Portfolio Management by 30 April 2024 for Council to then consider as a Special
Consultative Procedure after the adoption of the 2024-2034 Long Term Plan;
OR
b. Ceasing further development of the business
case for Active Portfolio Management.
3. Background
3.1 In
December 2021, the Council provided its Letter of Expectations (LOE) to
Christchurch City Holdings Limited (CCHL). The LOE contained the
following:
“The Council is asking the CCHL
Board to consider the role of CCHL and asks you to reflect after nearly 30
years, whether its original core purpose remains relevant and/or whether it
could be enhanced to provide more support to the city. We ask that you
consider this in light of the current environment, our city’s experiences
over the last ten years and the future national and global challenges we are
all facing.
The Council sees this initiative as an
opportunity to work together to ensure CCHL’s future direction is aligned
to deliver our strategic priorities and community outcomes.”
3.2 In
August 2022, due to personnel changes at CCHL, the Council took over managing
the review and appointed Northington Partners Limited (Northington) to
undertake the review into CCHL and its operations (Northington Report).
3.3 On
7 December 2022, the Council received the Northington Report, and directed, by
way of resolution, that:
Council Resolved (CNCL/2022/00184)
2. In line with the recommendations from
Northington Partners in relation to the scope of CCHL:
a. The Council develop a
clear Value Strategy in relation to building and utilising income or value from
CCHL primarily informed by Council’s long term requirements;
((CNCL/2022/00185))
b. Working closely with
the Council, that CCHL be requested to scope and develop In line with the
recommendations from Northington Partners in relation to the scope of CCHL
detailed business cases which fully considers the costs and benefits of adopting
a hybrid approach to managing the portfolio, including rebalancing and
returning capital to council. Noting that this will include a spectrum of
options including rebalancing the portfolio.
That these two pieces of work are
prepared in time to inform and be considered as part of the Draft Long Term
Plan 2024-2034.
3.4 In
addition to the Northington Report, CCHL engaged KPMG to undertake a portfolio
review.
3.5 Following
the completion of the work by KPMG, elected members and CCHL held a series of
workshops. This was to facilitate the understanding of the current
position of CCHL and its subsidiaries to help to develop a business case in
line with the KPMG and Northington recommendations.
3.6 During
these workshops, the CCHL Board considered four options:
3.6.1 Option
1 - Status quo;
3.6.2 Option
2 - Enhanced Status quo;
3.6.3 Option
3 - Active portfolio management;
3.6.4 Option
4 - Divestment of all assets.
4. Options
4.1 At
the conclusion of the Portfolio Review, the CCHL Board identified two options:
4.1.1 Enhanced
Status quo (not recommended by the CCHL Board).
4.1.2 Active
portfolio management (recommended by the CCHL Board).
4.2 CCHL
identified the key features of ‘Option 2 - Enhanced Status Quo’
as continuing to operate within the existing mandate and existing
assets, while seeking to lift returns over time through stronger oversight of
capital management and operational improvements.
4.3 CCHL
identified the key features of ‘Option 3 - Active Portfolio
Management’ as:
4.3.1 Acknowledging
CCHL as a key Strategic Asset owned by the Council, with capital remaining
fully invested in meeting the Council’s long-term investment objectives,
unless otherwise requested by the Council.
4.3.2 Modifying
current arrangements between the Council and CCHL to add an investment
governance framework, through the adoption of an Investment Policy Framework.
The Investment Framework would give CCHL a mandate for greater investment
flexibility.
4.3.3 The
Investment Policy Framework would also include ‘guardrails’ which
seek to preserve the public interest in accessing sustainable, inclusive and
affordable economic infrastructure assets.
4.4 The
CCHL Board has written to the Mayor and Chief Executive recommending that
Council progress with Option 3 - Active Portfolio Management and consider a
business case for this option as part of the draft 2024-2034 Long Term Plan (Attachment
A).
5. Alternative Options Considered Ētahi atu Kōwhiringa
5.1 During
the workshops, CCHL and Councillors considered two further options which were
not advanced:
a. Status
quo. This option was not progressed as it was considered untenable by external
advisors for both CCHL and the Council.
b. Divestment
of all assets. This option was not progressed as it was not supported by the
Council or CCHL.
6. Current Status
6.1 Council
has also been progressing two other workstreams:
6.1.1 The
draft 2024-2034 Long Term Plan to be considered in February 2024; and
6.1.2 A
Value Strategy for CCHL with Northington Partners to inform the draft Long Term
Plan.
6.2 The
draft 2024-2034 Long Term Plan is now in the process of being finalised for
Council consideration on 14 February 2024.
6.3 In consultation with the Mayor, as lead for the Long Term Plan,
Council staff are now seeking guidance on what assessment and advice elected
members would like prepared in response to the recommendations from the CCHL
Board.
6.4 The Council has resolved that the outcome of the Portfolio Review
would inform the draft 2024-2034 Long Term Plan.
6.5 A
decision to progress with ‘Option 3 - Active Portfolio Management’ would require a public consultation process to be conducted in
accordance with the requirements of the Local Government Act 2002 (LGA).
6.6 The
Long Term Plan currently identifies the shares held by CCHL in various
companies as a strategic asset. The LGA imposes procedural safeguards and obligations in relation to any
decision to transfer the ownership or control of a strategic asset. This
requires that the Council must not make a decision to do so unless:
6.6.1 the
decision is explicitly provided for in the long-term plan; and
6.6.2 the
proposal to provide for the decision was included in a consultation document.
6.7 An
amendment to the Long Term Plan would be needed to make provision for any sale
or transfer of shares in a strategic asset. Consultation would be required to
amend the Long Term Plan.
6.8 The
appropriate level of information to ensure compliance with decision-making
requirements under the LGA would be required. The consultation would need to
appropriately identify a detailed proposal, the reasons for the proposal and
the reasonably practicable options and their advantages and disadvantages. For
strategic assets a description of any accountability or monitoring arrangements
to assess the performance of any person to own a strategic asset (if this can
be identified); and whether there are any conflicts of interest arising from
the proposed transfer of the control or ownership of the asset, and if so, how
they will be managed.
6.9 Any
amendment to the Long Term Plan must also be audited prior to notification.
6.10 Failure
to meet these requirements before a decision is made may risk a breach of the
legislative requirements.
6.11 Council
has been advised that this risk can be fully mitigated by resolving to consider
the business case for ‘Option 3 – Active Portfolio
Management’ through a special consultative procedure that occurs once the
final 2024-2034 Long Term Plan is adopted.
6.12 The
CCHL Board, in light of this advice, has sought direction from Council on
whether to:
6.12.1 continue
developing their recommended business case for the Active Portfolio Management
option; and
6.12.2 whether
this would still be considered as part of the draft Long Term Plan or through a
special consultative procedure at a later date.
6.13 Given the implications for the draft Long Term Plan, elected members
are now asked to provide direction on what assessment and advice they would
like prepared in response to the request and recommendation from CCHL’s
Board.
7. Next Steps
7.1 Given the level of public interest and scale of work required, it is
not feasible to include a substantial proposed change to CCHL’s operating
model as part of the consultation on the draft 2024-34 Long Term Plan.
7.2 Should a business case for ‘Option 3 – Active Portfolio
Management’ be progressed, this would need to be progressed through a
special consultative procedure following adoption of the final 2024-2034 Long
Term Plan in June 2024.
7.3 The appropriate level of detail of information to support this
consultation, and meaningful engagement with mana whenua, the public and other
stakeholders, will require time and resource to prepare.
7.4 An indicative timeframe for this process could be:
7.4.1 May
and June 2024 – Council receives the business case and assesses the
information provided to ensure it is sufficient for a special consultative
procedure.
7.4.2 July
2024 – Council considers the business case and whether to undertake a
special consultative procedure to amend the 2024-2034 Long Term Plan.
7.4.3 By
30 November 2024 – Council concludes the special consultative procedure
and makes its final decision on the business case.
7.5 The
LGA allows for any Long Term Plan, once adopted, to be amended at any time by a
special consultative procedure. Council has used this procedure in the past.
7.6 Separating
these processes would not impact on the delivery of the draft Long Term Plan
which will include dividend projections based on the current operating model of
CCHL.
7.7 It
is recommended that Committee acknowledge and thank CCHL for the work the Board
and staff have done on the Portfolio Review, including the engagement with
elected members through workshops. It should be noted that CCHL is undertaking
this review in accordance with the Council resolution on7 December 2022.
8. Policy Framework Implications Ngā Hīraunga ā- Kaupapa here
Strategic
AlignmentTe Rautaki
Tīaroaro
8.1 This report supports the Council's Long Term Plan (2021 -
2031):
8.2 Not in Plan
8.2.1 Activity: Not in Plan
· Level of Service: Not in Plan
Policy
Consistency Te Whai
Kaupapa here
8.3 The decision is not inconsistent with Council’s Plans and
Policies as it is seeking an indication of preference to support a further
report.
Impact
on Mana Whenua Ngā
Whai Take Mana Whenua
8.4 There is no information available to conclude whether proposals in
this report will have any impact on mana whenua.
Climate
Change Impact Considerations Ngā Whai Whakaaro mā te Āhuarangi
8.5 There is no information available to conclude whether proposals in
this report will have any impact on climate change or emissions reductions.
Accessibility
Considerations Ngā
Whai Whakaaro mā te Hunga Hauā
8.6 Not applicable.
9. Resource Implications Ngā Hīraunga Rauemi
Capex/Opex Ngā Utu Whakahaere
9.1 Not
applicable.
Other He mea anō
9.2 Not
applicable.
10. Legal Implications Ngā Hīraunga ā-Ture
Statutory power to undertake proposals in the report
Te Manatū Whakahaere Kaupapa
10.1 The
Local Government Act 2002 (LGA) provides the framework to progress either of
the proposals put forward by CCHL.
10.2 Section
77 of the LGA provides that:
A local authority must, in the course of the decision-making
process,—
(a)
seek to identify all reasonably practicable options for the achievement of the
objective of a decision; and
(b) assess the options in
terms of their advantages and disadvantages
[…]
10.3 Notwithstanding
the advice and information provided to date by CCHL in Attachment A, staff
consider that the Council requires further information as to either one or both
of the options identified by CCHL prior to being able to make a decision in
accordance with section 77 of the LGA.
10.4 After
obtaining further advice and information, the Council will be able to fully
consider the benefits and disadvantages, including financial implications, of a
preferred option.
11. Risk Management Implications Ngā Hīraunga Tūraru
11.1 Not
currently known.
12. Next Steps Ngā Mahinga ā-muri
12.1 After
receiving direction from the Committee, a further report may be made in 2024 to
enable a decision on a preferred way forward.
Attachments Ngā Tāpirihanga
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No.
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Title
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Reference
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Page
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a ⇩
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Letter from
the Chair of CCHL dated 4 December 2023.
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23/2040664
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14
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In addition to the attached documents, the following background
information is available:
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Document
Name – Location / File Link
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Not
applicable
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Confirmation of Statutory
Compliance Te Whakatūturutanga ā-Ture
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Compliance with Statutory Decision-making
Requirements (ss 76 - 81 Local Government Act 2002).
(a) This report contains:
(i) sufficient information about all reasonably practicable
options identified and assessed in terms of their advantages and
disadvantages; and
(ii) adequate consideration of the views and preferences of
affected and interested persons bearing in mind any proposed or previous
community engagement.
(b) The information reflects the level of significance of the
matters covered by the report, as determined in accordance with the Council's
significance and engagement policy.
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Signatories Ngā Kaiwaitohu
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Authors
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Boyd Becker -
Principal Mayoral Advisor
Helen White -
Head of Legal & Democratic Services
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Approved By
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Mary
Richardson - Interim Chief Executive
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