The controversial Coffs Harbour Regional Airport lease with Palisade investments is soon due to formalised as a contract by the parties and Palisade is due to start managing the operation of the airport thereafter.
By the Editor and Rob Sturmann
This issue has been given renewed life this week with a question on notice to Council Executive from Councillor Paul Amos. The following question on notice was received from Cr Amos (pictured below).
“The recent awarding of the long term lease over the Coffs Harbour Regional Airport was supported publicly by a forward cumulative ‘forecast’ based on projections provided by the bidder over 99 years.
Due to significant variations in the continuity of when income is expected to be received, what is the actual net present value of the income stream, as presented to counsellors and applying the diligence of consultants KPMG for the Coffs Harbour councillor’s ultimate consideration?
That is, what is value to the community expressed in today’s dollars, of the proposed 99-year lease term?”
The net present value of the negotiated 50 year airport lease and 49 year option is calculated to provide a benchmark to compare to valuations and to other offers received as part of the evaluation process. The net present value is between $127.5 million and $132.3 million and is significantly higher than two independent valuations, the net asset value recorded in the Coffs Harbour Airport’s balance sheet, and also higher than the binding bids received in October 2019 before the COVID-19 pandemic.
The airport lease has not been structured for Council to receive a single upfront lease premium (such as the net present value) but as a combination of an upfront payment, deferred payments and a share of revenue each year. The cumulative value of these payments are estimated to be in the order of $500 million, in nominal dollar terms, over the lease and option periods.”
Let’s first consider the answer given to Cr Amos. Council’s executive states that the cumulative value is estimated to ‘be in the order of $500 million”.
Interestingly Council doesn’t state how that figure is arrived at. But judging by Council’s own press release last December reported on here by Triple M and Coffs Coast Outlook the figures are based on a 99 year ease overall.
Council’s press release states; “The agreement includes $81.5 million in fixed payments over an initial period including for the development of the Airport Enterprise Park, a 23-hectare greenfield employment precinct adjacent to the airport.
Council will also receive a share of revenue earned from both the Airport and Enterprise Park, forecast to be in excess of $400 million over the term of the lease and option. Palisade will be able to take up the 49-year lease extension option subject to a range of legal and commercial requirements being met.”
There is one small problem with an assumption based on 99 years and that is the agreement is for 50 years and then Palisade have an option as to whether they want another 49 years. So basing assumptions and figures on 99 years presumes everything will ‘sail on smoothly’ well past anyone reading this article’s lifetime.
But what the heck let’s use 99 years as an assumption for figures on the basis that is what Council used in their press release presumably on the basis they considered most residents and ratepayers were not sophisticated enough to understand figures minus the uptake of the 49 year option.
Is the ‘deal’ as good as Council says it is?
Remember the airport was paying $4.5m in net profit from air side operations only on average over the four years before 2020 when Covid19 hit. Land side revenue and profit from assets such as car parks and leases are estimated by some to be between $3.5m and $4.5m p.a. on top.
Let’s split the difference and say current land-side net profit averages at $4m p.a. So airside and land side net profits could be $8.5m over the past four years on average. Over 99 years that is $841.5m. That is $341.5m above what Council says the deal is worth over 99 years.
OK, aviation has been battered from pillar to post due to Covid 19. Let’s make some allowance for that then.
Let’s remove the $41.5m to cover the years 2019 to 2024 inclusive. That still leaves $800m over the 99 years which, of course, is still $300m above what council claims the lease deal is approximately worth.
But wait there is also this;
Item BS/21-05 of this week’s Council agenda states;
“In November 2017, Council resolved to advance the initial stages of the Airport Enterprise Park (AEP) development and seek ministerial approval for internal loan funding from the Water and/or Sewer Funds of $10.5 million. The funding has been subsequently approved by the minister from the Sewer Fund and included in Council’s budgets.
At its meeting of 14 November 2019, Council received an update report on preliminary works, cost breakdown and funding for the full AEP development of approximately $25 million. At that time, to enable the construction of the full project to proceed, Council resolved to adopt a funding model of $10 million Federal Government Grant, $10.5 million internal loan from the Sewer Fund and $4.5 million through an interim internal loan from the Plant and Vehicle Replacement Reserve, noting that the final funding model would be determined following the outcome of Council’s grant application to the State Government.
With a final State Government grant outcome now confirmed the final funding for the AEP development is as follows:
· $10 million Federal Government Grant (Regional Growth Fund)
· $10 million State Government Grant (Restart NSW Fund)
· $5 million Council Internal Loan (Sewer Fund)”
So $25m of taxpayer and ratepayer monies has been used to subsidise this long-term lease and the final agreement that is to be signed off on soon?
In regards to the $5m (or is it $15.5m?) ‘loan’ from the ‘sewer fund’ ask yourself “how can the council justify this action when there are areas to the west of the highway without proper water and sewerage”?
Ask ratepayers in the Orara Valley, or parts of Boambee for example, if they have “proper” sewerage. Some parts of the CHCC LGA may have running water provided. But not all places. During the bushfires people in many parts of the LGA had to truck in water.
Also people in areas such as the western side of the highway near the northern beaches and elsewhere do not have water and sewerage running past their doors.
Does this resetting of priorities to the advantage of a large investment company show how little council cares about local residents?
So on that admittedly very simple basis ask yourself “Is the deal as good as Council says it is?”
We would argue the answer, based on current information, is “No”.
We would argue this looks very much like a ‘dash for cash’ in the sort term but when the medium to long term is appraised, albeit in reasonably simple terms, the figures remain problematic.
CHCC GM Steve McGrath has stated; “this deal is great news for the community as this revenue stream will allow the Council to fund strategic community projects into the future. This will also allow us to invest in improved services for current and future generations.”
We presume this relates to the “$81.5 million in fixed payments over an initial period including for the development of the Airport Enterprise Park.”
It might be an idea for the Mayor and the GM (pictured above) to tell residents and ratepayers what these future strategic community projects in the future are.
We are presuming the money won’t go to the proposed CCS in Gordon Street because it was reported that this was promised in order to obtain the vote of Cr Rhoades and possibly others?
But can that be guaranteed is a key question of course.
Next week: The unknowns about the airport lease.