Source: https://oag.parliament.nz/2001/local-auth-governance/part5.htm
Timestamp: 2020-03-29 06:55:09
Document Index: 683563087

Matched Legal Cases: ['art 5', 'art 5', 'art 1', 'art 2', 'art 3', 'art 4', 'art 6', 'art 7', 'art 5', 'art5']

Part 5: The Canterbury Landfill Joint Venture Project — Office of the Auditor-General New Zealand
Part 5: The Canterbury Landfill Joint Venture Project
Part 1: Good Governance
Part 2: Overview of Governance Issues
Part 3: Watercare Services Limited
Part 4: Infrastructure Auckland
Part 6: Trusts and Other Non-profit Entities
Part 7: Commercial Trading Enterprises
Part 5: The Canterbury Landfill Joint Venture Project Local Authority Governance of Subsidiary Entities. https://oag.parliament.nz/2001/local-auth-governance/part5.htm https://oag.parliament.nz/@@site-logo/logo.png
Local Authority Governance of Subsidiary Entities.
The Risks Associated with the Landfill Project
On 31 March 1999 six Canterbury territorial local authorities and a private sector company, Canterbury Waste Services Limited (CWSL)13, incorporated a joint venture LATE – Transwaste Canterbury Limited (Transwaste) – to develop and operate a landfill to meet the Canterbury region’s waste disposal needs. At the time of our study, investigations were being carried out to find a suitable site for the landfill.
The six shareholding local authorities together hold 50% of Transwaste. The local authorities, and their shareholdings, are shown in Figure 4 below.
Local Authority Shareholdings in Transwaste Canterbury Limited
Christchurch City Council 757 37.85
Waimakariri District Council 78 3.90
Ashburton District Council 60 3.00
Selwyn District Council 60 3.00
Hurunui District Council 24 1.20
Banks Peninsula District Council 21 1.05
Totals 1,000 50.00
The organisation structure of the Canterbury landfill joint venture project is shown in Figure 5 on the next page.
Governance Framework of the Canterbury Landfill Joint Venture Project
The joint venture governance arrangements have two distinctive features:
Extensive collaboration between a number of local authorities, each of which is accountable to a different community and may share few political interests with its joint venture partners. Collaboration among the six authorities is vital for the success of the Canterbury landfill joint venture.
Bringing together parties with potentially opposing objectives and priorities. A durable joint venture depends on the local authority and private partners maintaining a working partnership that recognises the full range of goals they are seeking to achieve through their investment.
Our observations of local government developments indicate that, for local authorities, joint ventures will increasingly be seen as cost-effective regional solutions to common problems. Such arrangements can create significant risks but also offer major benefits. Their success rests, above all, on the governance framework within which the parties operate and the quality of their relationships.
In this study, we have identified the risks associated with such arrangements and assessed the extent to which they were addressed by the joint venture partners. We did not seek to determine whether governance arrangements were appropriate to the achievement of environmental goals or outcomes.
507 Drawing on our findings, we outline some key requirements for such joint ventures to work effectively.
The landfill project poses significant risks for the public and private joint venture partners. For example:
reaching agreement on a regional waste management strategy;
maintaining a balance of power;
fostering consensus decision-making;
achieving regional collaboration as shareholders;
discharging shareholder functions and powers;
establishing delegations, authorities, and lines of communication;
managing contractor relationships; and
maintaining the viability of the landfill operation.
Landfill governance arrangements should ensure that the desired environmental outcomes are achieved and statutory obligations met. The former include efficient resource use and environmental viability; the latter the duty of local authorities to promote waste minimisation. We did not analyse whether key governance arrangements, such as the regional waste management strategy and Memorandum of Understanding between the joint venture partners, are consistent with the achievement of environmental outcomes or with the requirements of environmental legislation.
Reaching Agreement on a Regional Waste Management Strategy
For any joint venture to work, there must be consensus as to the goals to be achieved. An agreed regional waste management strategy was clearly vital for all participating authorities.
The six shareholding local authorities, together with four other local authorities in the region that are not shareholders, set up a joint standing committee to develop an agreed waste management strategy and to identify objectives for a regional landfill. The committee’s role is to ensure that the joint venture operation is consistent with the agreed waste management strategy. The joint standing committee subsequently established a subcommittee (the Canterbury Waste Subcommittee) to which it delegated all its functions, duties and powers.
Maintaining a Balance of Power
The six shareholding local authorities hold differing proportions of their 50% ownership of Transwaste, and have different populations and waste volumes. Although shareholdings differ, the governance arrangements are designed to provide a balance of power between the urban local authority (Christchurch City Council) and the rural local authorities, and between the local authorities and CWSL. This balance is preserved through
shareholding provisions in Transwaste’s constitution; and
equal representation on the board of Transwaste.
Fostering Consensus Decision-making
We assessed whether the governance arrangements provided the necessary framework for effective administration, decision-making, and consensus among the parties. All parties (shareholders and others) to the landfill joint venture project have a strong incentive to make the venture work. We expected governance arrangements to be consistent with the objectives of promoting collaboration and minimising the potential for conflict between the participants.
The governance framework for the joint venture incorporates two devices that together provide a strong impetus for collaboration:
Casting vote provisions. A casting vote is a device that can be used to resolve irreconcilable disagreements between the members of a committee or governing body. While the chairperson of the joint standing committee is authorised to exercise a casting vote, he or she may do so only in the best interests of the Canterbury community and of the local authorities collectively.
Avenues for dispute resolution. A Shareholders’ Agreement between CWSL and the six authorities contains detailed dispute resolution procedures to be followed in the event of a dispute among the directors of Transwaste.
Political consensus is vital for the effective discharge of the authorities’ obligations as shareholders in the joint venture. The subcommittee of the joint standing committee:
ensures that political consensus is reached at a regional level; and
serves as the shareholders’ group, exercising the shareholding rights of the individual authorities and managing their collective investment in the LATE.
Achieving Regional Collaboration as Shareholders
In any regional joint venture representing a range of interests, local authorities may find it difficult to exercise effectively their rights as shareholders, individually or collectively. To overcome this difficulty an arrangement is needed by which the common goals of the authorities can be achieved, and their ownership rights can be exercised effectively. This, in turn, requires appropriate delegations of responsibility and limits on authority.
The primary arrangement through which the shareholding local authorities sought collaboration was the joint committee. Other working parties and groups convened by elected members and officers were also important. The regional working parties or committees formed by the Canterbury local authorities played a vital role in developing an agreed governance framework for the joint venture.
The joint committee also had a direct role in:
selecting the joint venture partner; and
negotiating with the partner the legal documents central to the governance framework.
Discharging Shareholder Functions and Powers
The six Canterbury local authorities have agreed to work co-operatively as a regional group in managing their collective investment in Transwaste. Their shareholding rights are to be exercised through the joint committee.
The joint committee also undertakes a number of key tasks associated with the oversight of their financial and non-financial interests in the landfill project (such as environmental interests). These tasks include:
performing obligations under the Memorandum of Understanding and Shareholders’ Agreement;
appointing nominee directors to the board of Transwaste;
appointing local authority representatives at shareholders’ meetings of Transwaste;
considering and making comments, as appropriate, on Transwaste’s draft SCI;
promoting regional waste management objectives through the joint venture; and
authorising costs associated with site selection investigations and land ownership under a consultancy agreement between Transwaste and CWSL.
Establishing Delegations, Authorities, and Lines of Communication
The relationship between the individual local authorities and the joint committee is central to creating the trust and confidence necessary for effective governance. Each local authority needs to preserve the right to consider and endorse strategies or decisions affecting:
the management of its investment; and
the achievement of its waste management objectives at key stages of the project.
In examining the documentation held by individual local authorities, and in our discussions with local authority officers, we sought to establish the accountability relationship between the joint committee and the local authorities. The local authorities:
received minutes of meetings of regional working parties and the joint committee; and
were involved in key decisions and policy debates leading to formation of the joint venture, with consultation occurring at key decision points.
CWSL and the local authorities’ representatives on the board of Transwaste have also made presentations to the councillors of shareholding local authorities. These presentations keep the local authorities informed on the site selection process and on solid waste management issues. We note that ongoing briefings of the shareholding local authorities will need to be continued to keep councillors fully informed.
The two councillor directors of Transwaste nominated by their respective shareholders (Christchurch City Council and the rural local authorities) take their directions from the Canterbury Waste Subcommittee. This is largely informal as both representatives attend meetings of that subcommittee. However, we were advised that, on one issue, the local authority representatives had received a formal voting instruction from their nominating local authorities. This practice is expected to be followed on other issues as necessary over the future course of the project.
Transwaste has contracted CWSL to select a suitable landfill site on its behalf and obtain the necessary consents for operating the landfill. CWSL will also design, build, and manage the landfill and transport waste from transfer stations to the landfill.
For the private sector partner in the joint venture, such a contract can offer significant commercial and strategic opportunities. For the local authorities, the private sector partner brings proven expertise in undertaking such activities. However, awarding long-term exclusive contracts creates the potential for the chosen contractor to exploit their position. We looked for evidence that the authorities had identified and addressed this risk through the governance arrangements concluded with their private sector partner.
We found that the Memorandum of Understanding:
recognises those activities in respect of which there is limited contestability;
provides for an independent assessment of costs by a party appointed by the joint venture company board;
records the right of access to all information necessary for such independent reviews and assessments to be undertaken; and
outlines detailed criteria by which to determine a reasonable rate of return to the contractor.
Either the joint committee or CWSL may seek independent verification of the basis for aftercare and contingency funds associated with closure of the landfill and the possibility of environmental accidents.
At the time of our investigations the joint venture parties had not begun negotiations to determine an appropriate rate of return for Transwaste. However, each partner was intending to take professional advice as a first step. We consider this a prudent course of action for the shareholding local authorities.
Maintaining the Viability of the Landfill Operation
Many different factors will have a bearing on the viability of the landfill once it is operating. The joint venture agreements contain the following important provisions designed to promote the viability of the landfill operation:
a prohibition on the joint venture partners being involved in competing landfills; and
a commitment by the local authorities and the shareholders of CSWL to transport their total waste volumes to the landfill for a fixed period.
Control of the waste stream is important in:
securing the commitment of the partners;
safeguarding waste volumes at an economic level; and
providing a viable basis for investment.
The shareholding local authorities also have an interest in ensuring that the activities of Transwaste are compatible with the regional waste management strategy and with their own waste management plans. The Memorandum of Understanding recognises the commitment of the joint venture partners to waste minimisation. It also gives the parties flexibility to consider feasible alternatives other than landfills.
Our examination indicates that the local authority shareholders in the joint venture have established a sound and workable governance framework for the project. The governance framework will provide a sound basis for an ongoing working relationship between the parties for the achievement of common regional goals. The framework and practices associated with the joint venture’s formation and day-to-day operation should provide a useful model for other authorities considering collaborative solutions to regional issues.
However, the joint venture is in its early stages and circumstances and relationships are bound to change over time. We are unable to provide any view on the likely future viability of the landfill; nor on the durability of the joint venture as a vehicle to achieve the goals of the local authority investors.
Reaching agreement on governance arrangements required lengthy and extensive negotiation between the parties. At the time of our review, the decision-making framework for the joint venture had yet to be fully tested on a variety of issues and in a range of circumstances. In particular, negotiations were about to begin on the appropriate rate of return for the LATE and a suitable landfill site had yet to be found.
As regional arrangements become more common, local authorities will increasingly look to collaborative models. The Canterbury joint venture parties may find it useful to draw on the experience of the Auckland shareholding local authorities (as described in Part Four) for lessons relevant to future management of the landfill joint venture.
13: CWSL is owned by two waste companies – Envirowaste Services Limited and Waste Management New Zealand Limited.
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