The Treasury

Global Navigation

Personal tools

Note 15:  Payables and Provisions

Forecast Actual
Original Budget $m Estimated Actual $m 30 June 2005 $m 30 June 2004 $m
5,425 7,476 Accounts payable and accruals 8,593 7,493
2,134 2,766 Taxes repayable 2,778 2,355
507 552 Provisions 466 485
- 310 Provision for Kyoto Protocol 310 -
882 944 National Provident Fund guarantee 944 891
1,179 1,285 Provision for employee entitlements 1,360 1,262
10,127 13,333 Total Payables and Provisions 14,451 12,486

The Crown guarantees the payment of benefits by the Board of Trustees of the National Provident Fund. The actuarial valuation report on these schemes as at 31 March 2005, prepared in June 2005 by PriceWaterhouseCoopers, has indicated the DBP Annuitants Scheme, which contains pensioners only, has an actuarial deficit of $944 million, an increase of $53 million from 30 June 2004.

Forecast Actual
Original Budget $m Estimated Actual $m 30 June 2005 $m 30 June 2004 $m
Analysis of Provisions
672 485 Opening balance 485 588
(25) 254 Additional provisions made in the year 310 96
(103) (195) Provisions used in period (243) (87)
(37) 8 Reversal of previous provision (86) (112)
507 552 Closing Balance 466 485

New Zealand’s liability under the Kyoto Protocol for the first Commitment Period

New Zealand’s obligations under the Kyoto Protocol

New Zealand is a signatory to the Kyoto Protocol, which imposes binding emission reduction targets on New Zealand, over the First Commitment Period (CP1 – 2008-2012). The Protocol entered into force on 16 February 2005, as a result of Russia's decision to ratify.

The position of each country for CP1 is calculated in an agreed manner. Countries may sell any surplus units to countries that need to purchase units to make up a deficit in meeting their Kyoto obligations through domestic action. Alternatively, they can choose to hold on to any surplus emission units to count against emission obligations in future commitment periods.

New Zealand projected net emissions position over the First Commitment Period

The most recent estimate of New Zealand’s net position is a net deficit of 36.2 Million tonnes of CO2 equivalent (under a “median” scenario).

Accounting for the estimated liability

In previous forecasts there was insufficient certainty around the robustness of the outcome in terms of some of the variables used. This did not allow the amount of the asset/liability to be reliably measured and, therefore, required disclosure of a contingent liability (as was the case in the 2004 Financial Statements of the Government and the 2005 Budget Economic and Fiscal Update) rather than an actual liability. In addition, at the time previous estimates were published, the determination of a market price was also less reliable.

Over the last year there has been extensive review of the robustness of the assumptions and methodologies underpinning the projections, including improvements to the energy forecasting model and the revision of the forest sink (forest meeting the definition of new forest plantings under the Kyoto Protocol) estimates in light of recent scientific research. This work has significantly reduced the uncertainty around the estimates of the quantum of the liability.

This reduction in uncertainty, combined with the Protocol’s entering into force, means that the value of New Zealand’s Kyoto estimated liability can now be measured with sufficient reliability as to require recognition in the Crown financial statements.

In determining the estimated liability reliance has been placed on information provided by Government Statistics and the agricultural and forestry sector.

There are three key aspects on the liability which are subject to fluctuation through time including:

  • assumptions underlying the calculation of the quantum
  • price per tonne of carbon
  • exchange rate of the United States dollar.

Any changes in the three aspects will impact on the value recognised in these financial statements.

Valuing the estimated liability

The fiscal cost of meeting this liability depends on the quantum of the deficit, the price of Kyoto compliant units and the $US/$NZ exchange rate. Assuming an exchange rate of $US0.701 = $NZ1 (based on 30 June 2005 exchange rate) and a carbon price of $US6 per unit, the current valuation for purchasing 36.2 million units on the international market would be around $310 million. It should be noted that provisions by their nature are more uncertain than most other items in the statement of financial position.

Assurances around the net position estimate

A number of peer reviews have been completed or are to be commissioned in the near future, in order to provide independent analysis of the various components of the net emissions projections:

  • a peer review of the 2005 net emissions position calculation has been commissioned by the Ministry for the Environment, with a draft report due 23 September. This review has been conducted by AEA technology, who have provided initial verbal verification of the estimate
  • Allen Consulting Group has undertaken a review of the Treasury’s carbon price assumption
  • a review has been completed by Covec of the Ministry of Economic Development’s Supply and Demand Energy Model (SADEM) total energy model, and confirmed its appropriateness for the intended purpose with recommended minor improvements to be largely implemented over the coming year. Castalia have completed a review of the electricity component of the 2005 energy greenhouse gas modelling results and recommended some improvements which are expected to have a small effect on emissions
  • in determining the estimate of forest sinks, reliance has been placed on information supplied by the forestry sector. This information has not been verified independently, however, where possible it has been reviewed for reasonableness and consistency. For instance, the estimates of new forest plantings have been reviewed by the School of Forestry at the University of Canterbury. Moreover, the various components of New Zealand’s Carbon Accounting System will be subject to international expert peer review throughout the system’s development and implementation, and
  • the Ministry of Agriculture’s livestock numbers projection model was re-developed by NZIER in 2003. The greenhouse gas emissions factors that are applied to the projected livestock numbers are based on research by AgResearch and other research institutes. This research programme was independently evaluated in 2005.

Future obligations

No liability or contingent liability for periods beyond 2012 has been recognised, as New Zealand currently has no specific obligations beyond the First Commitment Period. The architecture of any obligations in future periods has yet to be negotiated.

Page top