NRC advised to stop making risky loan investments

Northland Regional Council changed its loan investments criteria to focus on sectors such as tourism after concerns on the calibre of applications it received. Photo/Supplied

"Poor business case" was among reasons criteria for Northland Regional Council's ability to make loan investments was changed to focus on projects that benefited the region.

Just one disastrous loan application was made from NRC's Investment and Growth Reserve (IGR) before the criteria was changed, with more emphasis on supporting agriculture, horticulture, marine, tourism and digital sectors.

Marsden Pt-based Resource Enterprises Ltd (REL) was lent $750,000 in 2014 but the company went belly up three years later - forcing NRC's previous councillors to record the amount, plus the outstanding interest of $69,933, as an "impairment loss".

The loan was approved despite red flags being raised in a review of REL's proposal for funding.

Information held by NRC indicates that 19,600cu m of sawn timber and half-round slab were exported from the mill up to March 31, 2016.

NRC has no information on the volume of exports for the period from 1 April 2016 until the mill ceased operation in October 2017 as the sawmill wasn't obliged to provide such statistics.

In 2017, the four Northland councils undertook a joint review of their economic development activities, including tourism and destination marketing services.

The review report, prepared by Auckland-based business consultants MartinJenkins, said the broader benefits and impacts were not well articulated especially in relation to commercial investments, by those that applied for funding from IGR.

"The arguments are generally that the projects will be good for the communities and generate jobs but the reasons why local government should contribute funding for these benefits relative to other parties (and the levels of funding sought) are not well made.

There has not been a prioritisation of the projects – they have been assessed and considered for local government support as they have developed.

"It's not clear that all of the projects are the most important for the region and how they fit within regional economic development priorities," the report said.

The provision of funding directly to firms through the IGR, the report mentioned, could be regarded as potentially inconsistent with appropriate roles of local government, given that benefits were captured privately and that there were other funding providers.

The review was aimed to give delegated authority to NRC's economic development agency Northland Inc to allocate funding for business case assessments, remove the ability of NRC to make loan or equity investments from the IGR, and provide greater clarity about what projects can be funded.

NRC will redirect $1.7m of its investment income into the IGR each year, in line with its 2018/28 Long Term Plan.

It is able to make discretionary additional injection from the Community Investment Fund as needed, provided the IGR does not fall below $12.5m.

Since 2013/14, NRC has invested almost $7 million from the IGR on a number of projects throughout Northland. They include $900,000 to help complete the Twin Coast Cycle Trail from Opua to Horeke, $832,600 over six years to lift the on-farm performance and profitability of 350 Northland farms and $1.5m to the Hundertwasser Art Centre and Wairau Maori Art Gallery in Whangārei.

A further $500,000 was approved towards a Hundertwasser Park Centre in Kawakawa, $400,000 on stage two of the Waitangi Mountain Bike Park, and $70,000 to The Orchard— a business and event hub located in central Whangārei.