‘Decommissioning’ on the table for the Chateau Tongariro, as search for new operator called off

The Department of Conservation (DoC) has scrapped a plan to seek expressions of interest from parties interested in commercially operating the now shuttered Chateau Tongariro Hotel.

DoC had planned to test investors’ interest in the Chateau both domestically and abroad; the process was expected to be complete by the end of this month.

However, Mike Tully, deputy director-general organisation support, told the Herald: “Following advice from DoC, the minister [Tama Potaka Minister of Conservation] has decided not to proceed with the expression of interest process. DoC is now working on advice to the minister on the long-term options for the Chateau.”

Tully declined to provide reasons for the change of heart, but it is possible that preliminary interest in running and investing in the leaky and seismically unsound Chateau – which requires an operating concession from DoC, which local iwi hope to limit to a term of just five to 10 years – was not promising.

He said the department is preparing advice on the long-term options for the Chateau, which the Cabinet will consider.

Potaka confirmed that one option is “decommissioning” the 100-year-old neo-Georgian building.

A DoC briefing for Potaka of last December, released under the Official Information Act, noted that decommissioning would entail an up-front cost of $1.27 million to board up the doors and windows of the Chateau and shutdown systems, but thereafter would stop the ongoing $2.2m annual cost to the Crown for maintenance and light, ad hoc repairs of the empty building.

The document warned that a decommissioned Chateau would “deteriorate rapidly”, “core building systems would not be operational or compliant (including fire sprinklers)”, and “insurance would no longer be valid”.

It also warned that the public, iwi and stakeholders, including Heritage NZ, would hold DoC, “to account for damage caused”.

Decommissioning would also be a further blow for communities in the Ruapehu area, where recently soaring electricity prices have contributed to the planned closure of two timber mills, which employ several hundred locals between them.

The briefing noted that even under the current maintenance regime, “significant deterioration of the building is still occurring and will accelerate without required additional weather tightness repairs”.

Officials recommended seeking funding for this work through Budget 2024 (the cost was redacted), however Budget documents show that no additional funds were provided.

Minister of Conservation Tama Potaka is considering "decommissioning" the Chateau Tongariro, stopping maintenance costs and allowing the heritage building to slide toward ruin.

The 100-year-old Chateau, situated on the flank of Mt Ruapehu in Tongariro National Park is among New Zealand’s best known historic buildings – it is a Category 1 Historic building listed by Heritage New Zealand.

It has stood empty since March 2023, when the previous operator KAH New Zealand relinquished its lease on the property, and handed responsibility for it back to DoC.

At the time, KAH said the main reason for the closure was a seismic assessment that indicated the main building was “earthquake-prone” and failed to meet safety standards (though it could have continued to operate for decades).

The Government is reviewing the rules for assessing earthquake-prone buildings, but it’s not yet clear whether this will affect the Chateau.

It is estimated that the main building could take as much as $100m to repair and strengthen, and to make it a desirable modern amenity, especially if it keeps its heritage designation.

In closing the hotel, KAH also cited the slow tourist recovery following New Zealand’s Covid-19 border closure and poor snow, which harmed the local Ruapehu skifield business.

The Chateau was also dogged by staffing difficulties and KAH was issued three improvement notices by WorkSafe in its final year of operation.

Possible legal dispute brewing

Official documents note that last year the Government served KAH with a notice that it had breached its lease terms.

Asked if DoC has lodged any legal claim against KAH related to the lease termination, Tully said only that: “matters relating to the lease are currently under active consideration”.

The cost and extent of the Chateau’s needed repair had complicated negotiations between the parties.

The terms of KAH’s lease required that it return to the Crown the site and buildings in “good repair and condition”. DoC holds that the Chateau is in a “severe state of disrepair”, and plagued by water ingress and leaks.

A 2023 “building condition appraisal” of the rundown hotel, commissioned by the department, found that some $5.4m of repairs were “urgent” and “required”.

Complicated ownership of the Chateau

The Chateau’s ownership is complicated. It sits (along with 26 ancillary buildings) within the Tongariro National Park. The land belongs to the Crown and was leased to KAH.

The buildings, however, belong to KAH, bought through a sale and purchase agreement from the New Zealand Government-owned Tourist Hotel Corporation in 1991. Furthermore, KAH appears to hold a right to the value of the buildings, should the Crown find a new lessee.

That value, however, can be reduced to the extent that the buildings are not handed back to the Crown in good repair and condition, according to the 1991 agreement released by Land Information New Zealand.

KAH provisions for Chateau repair costs

KAH, owned by Malaysian interests, has made a $4.89m provision against the future cost of Chateau repair work.

The company’s 2022 annual report (its financial year matches the calendar year), released earlier this month, said the provision was made in 2023. The company is private and the 2023 annual report is not yet published.

The 2022 report also noted that in 2023 the company registered an “impairment loss” of $6.32m against the net book value of its fixed assets.

This appears to be a write-down of the value of the Chateau and ancillary buildings.

The book value of the Chateau alone isn’t clear. KAH also owns and operates the Wairakei Resort in Taupō; the 2022 accounts gave the book value of all buildings, before depreciation and impairment losses, as $33m.

The provisions are prudent, the report said, in light of the “uncertainty surrounding the recoverable value of fixed assets…”

The amounts have yet to be, “settled with or paid to the lessor [the Crown] and there remains uncertainty as to the final settlement or whether further obligations exist,” it said.

A KAH representative did not respond to emailed questions.