Comment
Government Interest
19. Central government is interested in the future use of Whenuapai because of its interest in the long term growth and sustainable development of the Auckland region. The government also has an interest in minimising the economic impact of the RNZAF's withdrawal from Whenuapai. Future use could also impact on the government's return from the land.
20. Because Waitakere City Council (WCC) has stated its preference to have a commercial airport at Whenuapai, and that under the PWA it can request the transfer of the Whenuapai site, this paper focuses on the potential use of Whenuapai as a commercial airport operated by, or in conjunction with, WCC.
Possible Land Use Options
21. Land use options are constrained by existing local and regional planning documents and strategies. This includes the fact that Whenuapai's current underlying zoning is rural residential and lies outside Auckland's Metropolitan Urban Limit (MUL). The MUL, which was established by the Auckland Regional Growth Strategy through the Auckland Regional Growth Forum3, is designed to encourage urban intensification and has a time frame to 2050. While the strategy would allow for the establishment of a commercial airport outside the MUL (subject to designation changes and/or RMA resource consents) it appears to rule out any residential or commercial development in the short-term. This situation has been confirmed by WCC and the Auckland Regional Council (ARC). The Local Government Amendment Act 2004 outlined government's acceptance of the Regional Growth Strategy by requiring that local authorities' RMA and planning documents be made consistent with that strategy.
22. Nevertheless, the strategic location and characteristics of the land would appear to make the area suitable for commercial/industrial use in the longer term. A commercial airport in the short term may be consistent with this long term outcome, as it would likely remove pressure for residential development of the area. Residential development has been identified by WCC as its least favoured outcome, even in the long term, because of its objectives to attract business and to encourage urban intensification, and because intensive residential development is likely to result in the most significant negative environmental impact.
23. A joint officials group comprising officials from a number of Auckland's territorial authorities considered a range of options for the best use of the Whenuapai site in June 2004. They considered urban development, countryside living, open space, a public work, airport and ancillary activities, airport and urban development, and land banking. Their conclusion was that an airport with ancillary activities was the option most consistent with existing regional strategies, while noting the adverse environmental effects. In addition, a number of other proposals have emerged for the land, however, these have not gained the support of WCC or the wider region, and have tended to be very preliminary in nature.
Airport - Necessity
24. If it is considered that Auckland is likely to run out of airport infrastructure capacity in the foreseeable future there may be a case for government to play an active role in facilitating the establishment of a commercial airport at Whenuapai, including the option of establishing an airport as a central government public work.
25. Estimates of capacity in Auckland are available to 2030. Based on a second runway being constructed at AIAL, allowing approximately 310,000 aircraft movements per year,4 these estimates find with a reasonable level of reliability that Auckland region will have sufficient airport capacity to meet forecast demand until around 2030. AIAL have stated that they have capacity to meet demand until at least 2050.
26. It is possible to say that Auckland may need additional airport capacity at some time in the future. However, the planning horizons are a long way out, and there are many variables that could affect supply and demand in the meantime, for example technology changes in aircraft and air traffic control. Therefore, officials have concluded that the case for a second commercial airport in Auckland at Whenuapai is not sufficiently compelling from an air transport necessity perspective to justify central government playing an active role in establishing one.
Desirability
27. The desirability analysis considers the principal impacts, benefits and costs of a commercial airport at Whenuapai.
Economic Development
28. Waitakere is recognised as a dormitory suburb with relatively high levels of deprivation and fewer employment opportunities than other parts of Auckland. WCC is keenly aware of these issues and is actively seeking to address them. In particular it has adopted a strategy of developing employment opportunities close to where people live.
29. The relocation of the RNZAF from Whenuapai is likely to lead to some economic loss for Waitakere City. In a report commissioned by WCC, NZIER estimates a loss of up to $256 million per annum and over 500 jobs in the local economy (not including the 1,000 FTEs at the base).5 However the magnitude of this loss and its impact on the local region appear to be overstated given the reducing economic contribution of the Airbase over recent years, the extended and well publicised transition period that would enable local business to make early adjustments, and other business growth trends in the area.
30. In reports commissioned by Infratil and Enterprise Waitakere, BERL estimates that a commercial airport operation at Whenuapai could result in a total economic contribution of $245 million per annum to national GDP, of this $211 million per annum is estimated to accrue to the Auckland region. This report finds that a commercial airport could be expected to employ up to 400 people, and indirect employment effects in the Auckland region, mostly in the tourism/service sectors of up to 900 jobs. This report also finds that the employment generated would be a range of high to lower skilled jobs. However, officials are again reluctant to accept the magnitude of this impact as, most notably, this assumes a successful airport that attracts an additional 118,000 international visitors who would not have otherwise come to Auckland and New Zealand. It seems likely that additional visitors would be generated, particularly if the cost of flying continues to decline, but whether such this level of additional visitors might be achieved is unclear.
31. The BERL report also finds that a commercial airport at Whenuapai would result in the attraction of business to the area, particularly business services that tend to require access to an airport.
32. In a report commissioned by AIAL, Market Economics estimated that the duplication of airport infrastructure and services at Whenuapai would result in a net economic cost of $9.5 million per annum, in the most likely scenario. While accepting that duplication may result in some additional costs, officials consider that the study has not taken full account of the likely economic and competition benefits of a commercial airport at Whenuapai.
33. Officials' assessment is that an airport located at Whenuapai is likely to have some positive economic benefits to Waitakere City, and would replace the lost economic activity associated with the RNZAF. In the short term, the airport proposal is the only feasible option on the table for bringing the land into productive use. The impacts at a regional level are more difficult to assess, as they appear to critically depend on whether and how much additional tourist traffic is generated. The impact at the national level appears to be very small.
Land Transport
34. The potential impact of a second commercial airport on Auckland's land transport has been assessed as small, with studies undertaken for WCC and AIAL finding average annual savings of between $8 million to $13.6 million per annum. However, the location of a commercial airport at Whenuapai is likely to provide improved access to those in the north west of Auckland for the air services provided by Whenuapai. Few people are likely to be willing to travel between Whenuapai and AIAL (Mangere) to make connecting flights, so there is unlikely to be additional cross-town congestion from this source.
Competition Impacts
35. A second commercial airport at Whenuapai, if feasible and significant enough in scale, is likely to provide some competition benefits to offset AIAL's dominant market position and potentially increase the supply and quality of airport services available to consumers for some destinations. WCC/Infratil has estimated that a commercial airport at Whenuapai could capture up to 15% of Auckland's air traffic market in 10 to 15 years time. AIAL has estimated this may be as high as 20%. However, the direct impact on AIAL may be of a smaller scale, if this is new traffic rather than simple diversion from AIAL (Infratil estimates only 4% of AIAL's traffic would be diverted to Whenuapai). AIAL's position in terms of long haul flights and as a hub should not be greatly affected, as there is a degree of segmentation of services in the aviation industry and Whenuapai is only able to take smaller jets (i.e. 737s), and is likely to focus on the low cost carrier market.
AIAL's Response to Competition
36. AIAL plans to build a second runway along with new domestic terminal facilities. Consents for the second runway are in place until 2012, and planning for its construction is currently underway. AIAL have raised the issue of the potential impact a commercial airport operation at Whenuapai could have on its investment decisions. AIAL has indicated a second commercial airport in Auckland may require it to revisit these proposed investments and that the uncertainties may be of such a scale that, in the interests of its shareholders, it may be preferable to postpone or cancel investment in a second runway. In such circumstances, it would likely come under pressure to maximise returns from the second runway land bank. This might involve divestment or development of other activity on this land, which could permanently eliminate the potential to build the second runway.
37. PricewaterhouseCoopers (PWC) was commissioned to assess any possible effect on AIAL's investment plans and in particular the second runway. PWC note that AIAL's arguments were still at a conceptual level. AIAL had not yet undertaken detailed scenario analysis and/or modelling. It is clear that Whenuapai does introduce real uncertainties for AIAL. The construction of the second runway is a fundamental part of AIAL's long term business strategy. As an infrastructure business with high fixed costs, profitability is heavily influenced by marginal activity. The impact on profitability of competition from Whenuapai could therefore be disproportionate to the volumes of business captured by Whenuapai, and thus heavily influence decisions to commit capital in a competitive environment. Further, current investment decisions (e.g. as regards to the existing domestic terminal) are predicated on assumptions as to whether or not the second runway proceeds. Uncertainty is therefore created around immediate decisions as well as long term plans. PWC find that it is difficult to establish the magnitude of the risk and uncertainty, but consider it to be high and potentially unusual. But PWC also note that AIAL does have a range of options available to it to respond to the introduction of competition.
38. At this stage, it is not obvious that AIAL's long run shareholder value would be maximised by cancelling the second runway and selling off the existing land bank. It seems equally plausible that AIAL would accelerate its plans for development as a competitive response to Whenuapai's entry into the market.
39. The government has an interest in discouraging uncertainty in the market and the unnecessary duplication of aviation infrastructure. That said, intervening to actively discourage competition against a dominant provider would be an unusual and extreme measure for the Crown to take. These factors suggest that the government should remain neutral and not artificially either impose competition on AIAL (e.g. through subsidising the development of a commercial airport at Whenuapai) or prevent competition with AIAL (e.g. through imposing significant additional costs).
Infrastructure Resilience and Emergency Management
40. A second airport located at Whenuapai would be desirable for emergency management and civil defence purposes. However, given the existence of other airports in Auckland and the wider region, the case would not appear compelling enough for government to assist in retaining airport capacity at Whenuapai.
Environmental and Social Impact
41. It is likely a commercial operation would have a greater impact on local residents than current Air Force operations, even if total aircraft movements remained at existing levels. This reflects that under a commercial operation, there is a regular scheduled pattern of use 7 days a week, possibly up to 18 hours a day, whereas current military operations are irregular, usually 5 days a week, and up to 10 hours a day. A number of potential environmental and related impacts have been identified, the most significant of which would appear to be noise, with related impacts such as a possible negative effect on house prices. Social impacts would appear to be closely related to the economic impacts such the creation of employment opportunities, along with potential negative environmental consequences. Environmental impacts would be fully considered as part of any RMA resource consent process and officials do not consider it appropriate to attempt to assess the likely outcome of this statutory process.
Ongoing Defence Interest
42. Should Whenuapai become a commercial airport, it would appear to be an option for locating the Naval Support Flight and possibly other small scale air movements capability there, although other options are being considered by the NZDF.
Border Control - Cost to Crown
43. [...]6
44. [...]7
Conclusion Regarding Desirability
45. If a commercial airport operation proves successful, officials expect positive net benefits will accrue. The size of these benefits is uncertain, and it is considered likely that they will be largely confined to the local level with limited impact at the regional and national levels.
Feasibility of the WCC/Infratil Proposal
46. Feasibility can be broken down into three interlinked elements: technical, regulatory and commercial feasibility. Technical feasibility largely deals with infrastructure and basic physical operational requirements for civilian commercial airport operations. Regulatory feasibility relates to the consents required from the Civil Aviation Authority (CAA) and under the RMA and any relevant local government regulations to operate Whenuapai as a commercial airport. Commercial feasibility looks at issues such as the financial issues relevant to the establishment of an airport operation, and its ongoing viability.
47. The feasibility analysis is based on the model proposed by WCC/Infratil.8 The main elements are:
- an airport catering for budget airlines flying to and from Australia and the Pacific Islands as well as providing domestic services;
- traffic is estimated to reach up to 24,000 aircraft movements per year by the third year of operation, with around 1.6 million passengers per year. Infratil claims that at least this level of activity would be required for the airport to be commercially viable in the long term;9 and
- freight operations at Whenuapai would be limited as the runway would not have the capacity to deal with large freight aircraft.
48. Officials are not aware of any technical reasons why commercial airport operations could not take place at Whenuapai. This is subject to significant infrastructure investments being made to upgrade the facilities and to CAA approvals being obtained. The runway in particular is at the end of its useful life, and requires significant upgrading. Similarly, should the required infrastructure investments be made officials are not aware of any issues that would prevent CAA approvals being obtained.
49. In a report to the Auckland Regional Growth Forum, local government officials considered that, subject to the full RMA resource consent process, the environmental impacts were unlikely to be of such a scale to render the airport proposal unfeasible. Nevertheless, the opposition to the commercial airport proposal is likely to result in challenges throughout the resource consent process.
50. Commercial feasibility is difficult to determine given the number of uncertainties and hurdles that need to be overcome. Uncertainties that have been identified include:
- assumption of significant potential unmet demand (this has been disputed by Air New Zealand and to a lesser extent by AIAL);
- assumption that the land cost for Whenuapai will be low given the cost of remediation;
- potential for blow-out of costs to upgrade infrastructure to the levels required for commercial operations;
- potential significance of any additional costs resulting from an RMA resource consent process (such as noise mitigation);
- the business case rests on securing a "cornerstone" airline;
- the importance of allowing a period of joint use before the military leaves to determine commercial feasibility. It seems apparent that the joint use envisaged by Infratil does not line up with the NZDF's joint use principles. The RNZAF has signalled that it believes a new taxiway and terminal would need to be built to allow joint use to occur, Infratil believe that there are cheaper operational solutions;
- Infratil has claimed a window of opportunity currently exists, where there is an opportunity to "piggyback" on existing use rights to obtain relevant consents, and an airline new to Auckland has signalled interest in entering the Auckland market and potentially basing its Auckland region services at Whenuapai. Infratil argues that to take advantage of this situation full operations would need to be established within the next seven years, which in turn requires an early decision by central government and a relatively smooth regulatory approval process (WCC has indicated that it is less concerned about the timing for RNZAF's withdrawal, as long as current Air Force activity levels remain relatively consistent); and
- the extent to which ancillary activities and commercial development are able to take place around the airport.
51. It should be pointed out that while these uncertainties have been identified, some of the above may represent positioning for any future negotiations.
Conclusion Regarding Feasibility
52. There are significant uncertainties concerning the short term establishment and the long run viability of an airport at Whenuapai, ranging from the probability of obtaining consents through to commercial factors. The risk these uncertainties pose to the success of an airport are only likely to become apparent as the proposal progresses. Infratil's proposed investment strategy reflects these realities.10 The uncertainty and associated risks do not appear to be so great as to indicate that the government should seek to oppose the commercial airport proposal on the basis of feasibility. Rather the government should have due regard to these risks and should seek to minimise exposure to them.
Legal Analysis
Disposal of the Land
53. The land comprising the Whenuapai Airbase was compulsorily acquired in 1938 specifically for defence purposes under the Public Works Act 1928. The current Public Works Act (PWA) is the appropriate legislative disposal process. While the Airport Authorities Act 1966 (AAA) arguably provides an alternative process for the sale or transfer of Whenuapai for civilian airport purposes, officials have concluded that in the present circumstances use of the AAA in this way would be inappropriate. In particular, it is considered inappropriate because the land was compulsorily acquired for defence (not airport) purposes and the relevant AAA provisions are concerned with the corporatisation (and transfer) of existing civilian airport businesses. In addition, it cannot be said that there is a clear national (as opposed to a local or even regional) interest which might promote more interest in adopting the AAA process.
54. The PWA prescribes the process for the acquisition and disposal of land used for public works. Both the Crown and local authorities have the power to compulsorily acquire land under the Act, where that land is required for public works purposes. However where land that has been compulsorily acquired is no longer required for that public work it must be disposed of in accordance with the provisions of the Act. The requirement to dispose of surplus land in such a case is mandatory and will usually involve an initial offer back to the original owners of the land or their direct descendants.11
55. However s 50 of the PWA permits the transfer of surplus land between local and central government where that land is required for some other public work (including a local work).12 The usual disposal process, including the offer back requirement is deferred until such time as the land is no longer required for a public work.
56. WCC have indicated that they may invoke s 50 to request the land at Whenuapai for a local public work, namely for a civilian airport. A civilian airport at Whenuapai can be classed as a local work, provided WCC have statutory authority to undertake the work and provided it remains in control of the work. Our legal advice is that both those requirements are likely to be met in this instance.
Section 50 Process
57. Where the Crown receives a request under s 50 from a local authority in relation to surplus land, the Crown must consider that request. While the Crown has a discretion in deciding whether or not to grant the request and agree to the transfer, that discretion is in reality limited. On the one hand, it is legitimate for the Crown to inquire and satisfy itself the local authority genuinely "requires" the land for local work purposes. Thus a s 50 request could properly be refused if it transpired that the local authority merely thought it might in future have a use for the land or was in some other way simply seeking to keep its options open. On the other hand, in the event that a specific purpose is identified that meets the test of a local work, it would not be appropriate for the Crown to attempt to second-guess the local authority in any assessment it has done as to whether the proposed work is in fact "necessary" or in the interests of the local community it serves. [...]
58. While the Crown's discretion under s 50 may be limited, there remains scope for the Crown to seek to negotiate with the local authority the terms and conditions of any transfer. In particular there must be agreement between the Crown and the local authority over the sale price. There is no process prescribed in the PWA for resolving any dispute in that regard, however there are precedents for arbital processes in such situations. Other possible conditions of transfer are discussed later in this paper.
Protection of Māori Interests
59. The operation of the Cabinet directed processes for the identification of Māori interests in land proposed to be transferred to a local authority would be triggered, and would need to be taken into account prior to any concluded agreement to transfer.13 In the context of a proposed s 50 transfer these processes are a specific means by which Cabinet has determined that the Crown can meet its Treaty obligations.14
60. The current negotiations between the Crown and Ngati Whatua o Orakei also need to be borne in mind, and the Crown's obligation to act in good faith would suggest that it should keep Ngati Whatua o Orakei informed of its intentions in relation to Whenuapai. It should also be noted that the fact that there are Treaty claims15 involving the site makes it more likely than not that the activation of the Protection Mechanism and Sites of Significance processes will result in expressions of interest from Māori in relation to the land.
61. A decision as to whether, as a result of these processes, some form of protection of Māori interests in the land was required would need to be taken prior to any s 50 transfer.
Ongoing Obligations Arising from Transfer
62. Transfer to WCC under the PWA would impose a number of ongoing obligations on the local authority. First, the local authority must retain ownership of the land transferred. Secondly, the land must continue to be used for the purposes of the local work (the airport), and the local authority must retain control over that work. If these obligations are not met, entitlement to the land would cease and would be immediately subject to the PWA disposal requirements. In the present case, to the extent that WCC does not wish to be directly responsible for operating the airport, the "control" requirement could be met through the establishment of a Council Controlled Organisation (CCO) that would manage the airport on WCC's behalf.
Risks of Land Transfer: Lessons Arising from the Sale of Paraparaumu Airport in 1995
63. If the Crown transfers Whenuapai under s 50, it is likely that the local authority will seek to establish an airport company under the AAA. Transfer of shares and assets, including airport land, to private interests would not trigger the offer back requirements of the PWA. Where the airport is privately owned, the offer back obligation would be triggered when some or all of the land was no longer needed by that company for airport purposes.
64. Any request for an Order in Council to establish an airport company under the AAA would need to be considered on its merits at the time it was made. However in the event that the Crown acceded to such a request there is a risk that some of the difficulties experienced following privatisation of Paraparaumu could be experienced. These risks and potential mitigation strategies for them are discussed below.
65. The Paraparaumu sale highlights two potential risks. The first is the risk that subsequent airport owners do not comply with the offer back obligations in the event that some or all of the airport land becomes surplus.16 In Paraparaumu, the privately owned airport company sold surplus land on the open market and there was a perception that the offer back requirement had not been complied with. It proved extremely difficult for the Crown to establish whether the offer back process had in fact been properly followed. Moreover, even in the event that the Crown could establish that the requirement had been breached, there was doubt as to what steps (if any) the Crown could have taken to remedy the situation.
66. There are a range of mitigation strategies for addressing this risk. The strategies below are listed in terms of least to most intrusion on the negotiation process:
- ensuring which land is needed for the airport, and which land is not, is clearly identified and agreed. Any surplus land identified would then be disposed in the usual way (including offer back) under the PWA. Thus the possibility that there would later be land that was found to be surplus would be minimised. This is likely to be the most effective and least risky mitigation strategy;
- maintaining Crown influence through the imposition of conditions either on the initial transfer, or in the Order in Council under the AAA. Such conditions could range from a contractual restatement of existing statutory offer back obligations to additional information disclosure requirements. The precise nature of these conditions would require further consideration, as would the appropriate mechanism for transferring obligations to any privately owned airport company;
- amending the AAA to strengthen the offer back requirements on airport companies (this could include provisions such as the offer back process being overseen and/or approved by Land Information New Zealand (LINZ)). Officials agree that the provisions of the AAA should be strengthened either as a result of the PWA review (see paragraph 71 below) or through a review of the AAA.
67. The second principal risk relates to the potential windfall gains from the sale of all or part of Whenuapai land. For example, if the land was sold in the future under a different designation or zoning (commercial, residential, etc.). Again, there are a range of mitigation strategies for addressing this risk including:
- ensuring, as above, clear identification of which land is needed for the airport and which land is not. Surplus land would be disposed of under the PWA. Again, this is likely to be the most effective and least risky mitigation strategy short of amending legislation;
- maintaining, as above, Crown influence through the imposition of conditions either on the initial transfer, or in the Order in Council under the AAA. Conditions could include imposing a "claw back" provision, whereby a proportion of any windfall sale proceeds would accrue to the Crown.
68. Any parameters the Crown may wish to develop for negotiations with WCC would need to be clearly defined and thoroughly tested during the next stage of the disposal process.
69. Officials are comfortable that the risk mitigation strategies outlined above are likely to be sufficient in the circumstances. Officials are confident they will significantly reduce the risk of problems with offer back occurring in the future, particularly if the AAA is amended to strengthen offer back requirements on all airport companies. Officials advise that while the issues with possible windfall gain can be largely addressed, particularly through clearly identifying which land is required for the airport, there is a residual risk that windfall gains may accrue at some time in the future. The only way that this residual risk could be fully mitigated would be for the Crown to retain ownership of the land, requiring either that it keeps the site as public work in the long term, or alternatively, that legislation is amended to permit the retention of ownership. However officials agree that the risks associated with this course of action would outweigh the benefits of eliminating any residual risk that a privately owned airport company could make a windfall gain from the sale of land.
70. Cabinet has recently decided to invite the Office of the Auditor-General to undertake an inquiry into the Paraparaumu sale process. The Office has not yet set its Terms of Reference. The Ministry of Transport has indicated its intention to review the Airport Authorities Act in light of the Select Committee report into the Paraparaumu sale, and a review of the Public Works Act has been completed, but with policy decisions yet to be taken. Each of these reviews could impact on any negotiations or process for the disposal of Whenuapai, and could result in the risks associated with land disposal being largely minimised. However, in the absence of completed reviews, officials recommend that the risk mitigation strategies outlined above are progressed. These risk mitigation strategies have some unique features that may not be considered in these broader reviews, particularly the notion of separating out core and non-core airport land.
Review of the Public Works Act
71. The comprehensive review of the Public Works Act 1981 has been completed and the policy proposals for new legislation are awaiting decision by Ministers [EDC(03) 122-128 and EDC(03) 132]. A number of the risks identified in the disposal of Whenuapai would be mitigated by the proposals if enacted by the time any substantive disposal actions are required. [...]
Key Decisions/Next Steps/Crown Objectives
72. The following is based on the assumption the RNZAF will definitely be relocating the majority of its operations from Whenuapai to Ohakea, and that no other central government public work has been identified for the land.
73. Government needs to decide its stance with respect to the establishment of a commercial airport at Whenuapai, and particularly whether it will adopt a neutral (neither encouraging nor discouraging) stance, or will seek to actively enable airport establishment, or will seek to actively discourage the development of an airport. As noted below all three approaches carry with them a relatively high litigation risk.
74. The desirability analysis outlined above indicates that there will be net positive benefits, particularly at the local level, should a commercial airport at Whenuapai prove successful, compared to the likely counterfactual of the land reverting to rural residential use. However, given the lack of national and strategic interests, the commercial uncertainty and litigation risks, it is considered the Crown should adopt a neutral (neither encouraging nor discouraging) stance with respect to the establishment of an airport.
75. In light of this officials believe that the Crown's further actions in relation to Whenuapai should be based on the following broad objectives and principles:
- ensuring the legal process is followed in letter and spirit;
- ensuring that the Crown receives a market value for the land; and
- negotiating in good faith, having regard to commercial imperatives.
76. Having determined these principles and objectives our analysis has identified a number of other steps and key decisions that the Crown should take.
77. The Crown would need to indicate to WCC that Whenuapai is likely to become surplus and it would consider WCC's request for a transfer of land for a local work at Whenuapai in the meantime, to take effect when the land is declared surplus. Our legal advice suggests that the Crown must then consider (and has a limited discretion to decline) a request from WCC. The processes for the protection of Māori interests in the land would be activated at this stage.
Negotiating Parameters
78. The Crown's negotiating parameters for the transfer of the land would need to be determined, including its specific objectives in this respect. Officials' analysis has identified a number of potential terms and conditions the Crown may seek to include as part of any transfer. These are as follows:
Determining Land Required
- WCC's s 50 request would need to specify the land required for the local work. The Crown would need to determine whether the amount of land requested was legitimately required for this work. Early signals from WCC indicate that they are unlikely to seek all of the land. Non-core airport land would be disposed of under s 40 of the PWA;
Price and Valuation Issues
- It is likely there will be a sizeable range of what might be considered the market value for the site. Valuation of land is an inherently difficult process; however LINZ has established guidelines and processes by which valuations are determined. It is proposed that the price of the land would not be finally determined until shortly before the RNZAF vacates (although agreement on a pricing methodology could potentially be negotiated earlier). This will provide the opportunity for more rigorous analysis of the underlying and future land value;
- As noted above the provision of a "claw back" clause would form part of the negotiations, and would be specifically aimed at addressing the risk of future windfall gains;
- Infratil have argued that the value of the land as either rural residential or as an airport is low. While our analysis confirms that at face value in its current state the land may have limited value, it is clearly strategically located and has the potential to accrue significant value. It is proposed that the Crown should seek a market return for the land, in accordance with standard land disposal objectives and sound valuation principles;
- To the extent that the price of the land impacts on commercial viability, there is always the option that WCC, as the owner of the land, could reach an arrangement with its commercial partner that results in initial low returns on capital to enable a commercial airport to be established;
Reiterate Statutory Obligations
- The Crown may wish to reiterate certain existing statutory obligations as a means of reinforcing its interest in issues such as WCC's retention of control of the public work and application of offer back should any of the land no longer be required. As noted above this may help to mitigate the risk of problems with offer back;
Openness and Transparency
- The selection of a commercial partner is a decision for WCC to make. However, the Crown may wish to explore the possibility of requesting that in the interests of openness and transparency that WCC run a public tender process for an airport operator.17 This may not change the outcome as WCC are confident of the robustness of its selection process, though it may help enhance acceptance of the deal;
Joint Use
- The Crown would need to more thoroughly explore the option of joint use during any interim period. In particular, whether joint use is practicable in the short term needs to be investigated given the apparent gap in the views of the RNZAF and Infratil. In addition, with the poor state of the runway, and the necessary costs associated with keeping it operational, the costs of joint use may be higher than currently envisaged by WCC/Infratil. There appear to be a number of legislative and operational means by which joint use could be accommodated. The issue of ongoing joint use should a commercial airport be established would also need to be assessed. Should joint use arrangements be agreed for any interim period leading up to RNZAF vacating the site, any leasing during this period should be based on commercial rates.
79. The factors above would need to be further refined and tested prior to final confirmation of the Crown's negotiating parameters. It is proposed that officials report to the Ministers of Finance, Economic Development, Defence and Land Information on these matters in February 2005, with these Ministers charged with confirming the Crown's negotiating parameters and as the group of Ministers that officials would report to, as appropriate, during any negotiations. It is also proposed that NZDF would be responsible for undertaking any negotiations.
80. Preliminary discussions with WCC could take place prior to Cabinet's final decisions on the consolidation to Ohakea, which is due to be determined in March 2005. However it may be prudent not to progress too far down a negotiation path until final decisions on consolidation have been made, given that these decisions will determine the timing of the consolidation.
Timing
81. Given the commercial and public interests, removing uncertainty concerning the future use of Whenuapai at the earliest practicable opportunity is desirable. While certainty over outcome and timing cannot be provided at this stage, some degree of certainty of process can be. That is, the government could confirm that the land will become surplus to Defence requirements, that it intends to follow the PWA disposal process and consider a request from WCC to transfer the land, and that initial negotiations on issues such as joint use will commence in the New Year. I propose to alert key stakeholders such as WCC and Māori interests, and then to issue a short public statement once Cabinet has determined the way forward.
Failure of the Airport
82. Our analysis has identified a number of stages during the airport development that the decision could be made that an airport cannot progress or is unfeasible. These critical points include:
- if the processes for protecting Māori interests in the land resulted in encumbrances being placed on the land that were unacceptable to WCC;
- during negotiations between the Crown and WCC over the transfer of the land;
- during or at the conclusion of the resource consent process;
- during an initial joint use/feasibility testing phase; and
- once airport operations have begun.
83. In the short term, if the airport was deemed to be unviable before transfer of the land to WCC occurs, the PWA disposal process would then apply to the entire Whenuapai site. If this was the case the most likely scenario would be that the land would revert to rural residential zoning, which would leave any economic loss to Waitakere resulting from the departure of the RNZAF unmitigated in the short term.
84. Once in WCC's ownership, should the airport fail the Council appears to have two immediate options: seek another airport operator to manage perhaps a scaled back airport operation, or initiate disposal under the PWA. While the airport is in WCC's control, the Council would be exposed to the commercial risk of airport failure. If the land is transferred to a private airport company, the risk would be borne by the company owners.
85. Given the statutory framework it appears that government ability to develop a "plan b" should the airport not proceed or fail is limited. Any central government response to the failure of a commercial airport at Whenuapai would need to occur within the boundaries of the PWA. WCC would be similarly constrained. The land is therefore most likely to revert to rural residential use in the short term. However, future use of the land for commercial/industrial would not be precluded.
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