Government was proactive on $12m 'soft loan'

The Government has admitted it shoulder-tapped 3D graphics company Right Hemisphere, the recipient of a controversial soft loan from the taxpayer.

It announced last month a US$8 million ($12 million) interest-free loan to the company, which is headquartered in Silicon Valley but has most of its staff in Auckland, in order to keep the major part of its operation in New Zealand.

Responding to a parliamentary question from National's Katherine Rich, Economic Development Minister Trevor Mallard said ministry officials had "brought the Right Hemisphere opportunity to [his] attention".

After meetings with company representatives, Mallard had invited it to make a formal proposal.

The purpose was to devise a form of Government assistance that would work for the company and ensure New Zealand gained maximum benefit for its potentially very significant success.

The deal, which will cost the taxpayer about $3 million in interest forgiven, went ahead despite Treasury advice it had a "low probability of resulting in net benefit to New Zealand".

Critics questioned whether there was a market failure that warranted this kind of ad hoc intervention by the Government and deplored the precedent it set.

"Many thousands of other Kiwi companies would be delighted to receive a special Government shoulder-tap but aren't so fortunate," Rich said yesterday.

Officials and ministers should not be searching the country for such "opportunities", she said.

But an unabashed Mallard said the Government was "prepared to be bold and seize significant opportunities to grow our economic base".

The initiative would help some of the country's best brains and entrepreneurs stay in New Zealand and had spillover benefits, he said.