In deep discussionat the New Zealand Upgrade launch: Climate Change Minister, James Shaw; Finance Minister Minister, Grant Robertson; (back) Prime Minister, Jacinda Ardern; Chief Prime Ministerial Press Secretary, Andrew Campbell and Transport Minister, Phil Twyford.

In late January 2020, the first year of Covid, the Labour-led Government announced it would spend $12 billion on what Prime Minister Jacinda Ardern called a “once in a lifetime opportunity to invest in New Zealand” by modernising our infrastructure, preparing for climate change, and helping grow the economy.

They then followed that up just over two months later, asking a group of infrastructure industry leaders to seek out projects that would be ready to start as soon as the construction industry returned to normal to reduce the economic impact of Covid.

There would be another $3 billion for these projects grouped under the “Shovel Ready Projects” umbrella.

All up, the Government was proposing to spend $15 billion in 2020 on infrastructure, its largest expenditure in over 20 years.

The total spend would sit on top of the $7 billion already forecast in the 2019 Budget Economic and Fiscal Update to be allocated for capital expenditure in the 2020 Budget.

But an investigation released yesterday by the Auditor General reveals that in allocating the funds, Ministers often ignored advice and, in some cases, critical records are missing to show how decisions were made.

At times, it seems as though the Government simply decided to throw the money out the Beehive door with little regard for even whether it was needed, let alone what it might accomplish.

Questions of conflicts of interest were, in some cases, simply not addressed.

Auditor General John Ryan

The $12 billion fund was called the New Zealand Upgrade Project and was originally intended to counter what the Treasury had warned in September 2019 might be a slowdown in the economy during 2020, which was an election year.

However, the fund acquired added urgency with the development of Covid in early 2020 and on the same day it was launched with much fanfare in Auckland, with eight Ministers in attendance, the Government also announced plans to evacuate New Zealanders from Wuhan in China, where the Covid pandemic had originated.

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The Shovel Ready Projects fund was a response hurriedly put together in March as cases in New Zealand began to mount by Infrastructure Minister Shane Jones, working with Crown Infrastructure Partners chaired by Mark Binns.

The Auditor General, John Ryan, told POLITIK yesterday that he thought that given the size of the two funds, there should have been a proportionate response from the Government in how it administered it.

His report makes clear there wasn’t.

Central to the money allocated under both funds was the question of what advice Ministers received from officials.

“To achieve this, we expected Ministers to seek and consider advice from relevant officials,” the report said.

“Although Ministers are not obliged to follow advice from officials, they have an obligation to give fair consideration and due weight to free and frank advice provided by the public service.”

But what was not clear was what regard Ministers had for the advice they received.

“Officials consistently raised risks and uncertainties with both investment programmes to Ministers,” the report said.

“Ministers chose to proceed quickly despite the concerns that had been raised.

“It is unclear to us how these risks were considered and what steps, if any, were taken to manage or mitigate those risks.”

It seemed that politics prevailed.

POLITIK Prime Minister Jacinda Ardern launches the New Zealand Upgrade Programme at Chapman Tripp’s office in Auckland in January 2020.

“The desire to make early announcements appears to have been a factor,’ the report said.

“Ministers told us that these decisions were made “in principle” and were subject to further due diligence.

“In our view, decision-makers should be cautious when announcing projects before they make final funding decisions.

“Once project funding is announced, it can be difficult to withdraw funding, even when costs increase, or risks to benefits are identified.”

Ministers told the Auditor General that the funding allocations were guided by general Government priorities, which they said were “transport, health, education, decarbonisation, providing jobs, and improving productivity”.

“Apart from this, we have not seen any records that clearly explain the basis for the allocation of these amounts or why specific categories were chosen,” the report said.

“The programme of investment was developed quickly.

“This appears to have been, at least in part, to enable public announcements to be made as soon as possible.

“We saw references to early announcements in briefings and Cabinet papers and correspondence between Ministers’ offices and agencies.”

In December 2019, the Ministry of Transport and the Treasury informed Ministers that 11 of 27 transport projects being considered for the NZUP either did not have a business case or had significant necessary work outstanding.

They also advised Ministers that “there is a real risk of cost overruns, both at a project and package level, as well as delays to projects”.

Sector capacity was limited, and many projects were in the early stages.

“Despite this, Ministers chose to go ahead,” the report said.

“Announcements about these projects were made on 29 January 2020.”

POLITIK At the 2020 launch of the New Zealand Upgrade Programme; Housing Minister, Megan Woods; Educaiton Minister, Chris Hipkins and Transport Minister, Phil Twyford.

In January 2020, the Ministry of Health and the Treasury jointly advised Ministers that many of the proposed health projects under consideration for the NZUP were not ready to be announced. Treasury officials said that “due to the time and information available”, they had “low confidence” that the proposed projects for investment would be able to be implemented quickly in line with Ministers’ objectives.

About one week after the advice was provided, the Minister of Health David Clark and Associate Minister Julie-Anne Genter publicly announced several health projects. S

Six of these (worth $62.4 million) were projects that officials had advised were not ready to announce.

By February 2022, seven of eight of the mental health projects (worth a total of

$101.9 million) that were approved as part of NZUP still had no estimated “go live” dates, and business cases for at least three of those projects were not expected to be approved until mid-2022.

“The Ministry of Health has subsequently told us that, as at October 2023, one mental health project (Whakatane) still does not have a business case approved,” the report said.

Most of the NZUP funding was allocated to transport projects.

Waka Kotahi and KiwiRail had proposed possible projects directly to Ministers.

The Ministry of Transport was not given an opportunity to advise on the approach to selecting projects.

“The Ministry of Transport told us that by the time it was asked for advice, Ministers had already largely agreed to a list of projects costing an estimated $6.7 billion,” the report said.

“Some project approvals surprised agencies who first learnt about them in the media.

POLITIK New Zealand First Ministers, Winston Peters who had responsibility for State Owned Enterprises, particularly Kiwi Rail and Infrastructure Minister Shanes Jones.

“Auckland Transport also told us it learned about the NZUP through the media.

It had not been formally advised of the Cabinet’s decisions.

“It had no knowledge of how the decisions to select projects were made, and it was not asked for business cases or information about the projects or what the impact might be if they were included in the NZUP.”

The report said Auckland Transport said it would have recommended prioritising different projects because, in its view, some that were selected were too complex to be progressed quickly or were of a low priority.

If the New Zealand Upgrader Project’s problems were a disregard for (or lack of) advice, that was not the problem with the Shovel Ready Projects, which was run from the office of Infrastructure Minister Shanes.

These projects were initially selected and proposed by Crown Infrastructure Partners (CIP), chaired by Mark Binns, the former CEO of Fletcher’s Infrastructure division and CEO of Meridian Energy.

“I thought given the context that they were in, and we were all locked down, Crown Infrastructure Partners did a fantastic job of actually bringing together industry and providing a process for ministers to get a list of eligible projects in pretty quick time that were responding to the criteria that the ministers set,” Ryan told POLITIK.

“I thought they did a great job.”

In the space of just over two months in 2020, CIP reduced a list of 1926 applications for funding totalling $134 billion to a “long list” of 802 applications for $33 billion.

Ultimately, the Cabinet Economic Committee reduced that to 177 projects for $3.3 billion of funding.

But at the same time, additional projects were added by Ministers without reference to CIP, and some proposed by the CIP were removed.

The information available to us indicates that projects to the value of about  $260 million were introduced from outside of the Infrastructure Reference Group process,” the report said.

“The criteria and processes used to identify those projects is not clear.

“Some of the projects ultimately selected for funding had not received the highest ratings against criteria, and we were told that some prioritised projects did not appear to be “shovel ready”.

“In our view, the lack of documentation explaining why these projects were prioritised exposes the process to potential criticism of a lack of transparency and fairness.”

POLITIK 2019: The key infrastructure Ministers; Finance Minister Grant Robertson; Infrastructure Minister , Shane Jones; State Owned Enterprises Minister, Winston Peters and Transport Minister, Phil Twyford.,

There are questions about conflicts of interest hanging over the decisions by the Minister or Ministers to subtract and add projects.

The Ministers would have included Infrastructure Minister Shane Jones, Finance Minister Grant Robertson and Transport Minister Phil Twyford.

“Concerns about a potential conflict of interest for a project that was considered as part of the SRP were raised with us in October 2022,” the report said.

“We carried out an inquiry, and we published our response in May 2023.”

(This was a consequence of a complaint to the Auditor General from ACT leader David Seymour that Infrastructure Minister Shane Jones had received a $5000 election campaign donation from Aimex Ltd who had been awarded a $9.8 million loan for a new ship slipway in Nelson.)

“We found that, although an actual conflict had not eventuated, a potential conflict had not been identified when investment decisions were being considered.

“In our view, given the speed and volume of decisions Ministers were being asked to make, more thought could have been given to whether managing conflicts according to usual Cabinet Office guidance would be enough.”

Ryan told POLITIK the principle was that if you were spending public money, then the process needed to have integrity.

“That includes conflicts of interest, but it also includes robust processes that include transparency of how the decisions have been made; consistency of process where you’ve gone through contestable processes and ultimately transparency,” he said.

“I think the other thing that we point out, particularly in the Shovel Ready Projects, but other parts of the well, is making sure that there are adequate records sent for people to see why the decision was made at the time, what the basis of it was.

“We did ask about conflicts of interest, and agencies described that they had followed their processes as did Ministers.

“There wasn’t a lot of records that pointed to that in final decision documents.

“But we were assured that those processes were going on.”

Ryan’s report is one of the most damning we have seen from an Auditor General.

In many respects it will vindicate those, particularly in the National Party, who have been claiming that the Labour government was profligate with money.

Labour (and New Zealand First) might respond that those were extraordinary times that required an extraordinary and rapid response.

The Auditor General has made a series of recommendations that he has designed to try and ensure there is proper process and accountability if there is a next time.

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