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Annual Report of the Treasury for the Year Ended 30 June 2012

Management and Administration of Financial Operations on Behalf of the Crown

Scope of Appropriation

This appropriation is limited to the implementation of the Government's Export Guarantees policy, the operation of NZECO and the provision of advice on, and management of, Crown Guarantee Schemes, Crown Lending, Crown Bank Accounts and Crown Investment.

Significant Work Completed During 2011/12

New Zealand Export Credit Office

  • As at 30 June 2012 a total of 70 new policies were issued in 2011/12 - with total exposure of $104.130 million, supporting exports of $271.220 million. These results did not meet our forecasted targets, owing to exporters failing to secure new orders, delayed contract award or the successful negotiation of financial terms that have not required NZECO support. Positively, the number of new policies written and value of exports supported were both higher than NZECO achieved during 2010/11.
  • Sound underwriting criteria and standards were maintained. Repayments were regularly monitored and any delays were actively managed.
  • No claims were submitted or paid during the period. However, a $29.700 million provision was recorded. This will be actively managed during 2012/13 in order to minimise losses.
  • NZECO continued to engage regularly with other export credit agencies to ensure it provides support to New Zealand exporters consistent with its overseas counterparts, including: attendance at a conference in Indonesia with other lead export credit agencies and international financiers; attendance at a Prague Club meeting in Oman in November 2011; and Kazakhstan in May 2012.
  • As part of the Economic Growth Agenda, NZECO continued to work with cross-government officials to work on options for NZECO to generate greater export growth and strategically support New Zealand's Free Trade Agreements and the internationalisation of New Zealand firms. One specific outcome was Cabinet's approval in December 2011 to amend NZECO's delegation in order to add the Chinese Renminbi to NZECO's list of approved currencies that it can underwrite its trade guarantees in, and to substitute the requirement for a minimum 30% New Zealand content for a broader New Zealand economic benefit test.
  • During the year, NZECO had 498 face-to-face engagements with exporters, banks and agencies to improve awareness of how to use NZECO guarantees to mitigate risk and to improve competitive advantage.
  • Discussions are also underway with New Zealand Trade and Enterprise (NZTE) and MFAT on joint work to educate and improve information for exporters on trade finance options.

AMI Crown Support Agreement

  • The Treasury continued to monitor AMI Insurance Limited (AMI) under the Crown Support Agreement. In April 2012, AMI sold its ongoing insurance business to IAG New Zealand Limited (IAG) for $380 million. At that time, the Crown assumed majority ownership of the residual business of AMI, appointed a new board and changed the name of the company to Southern Response Earthquake Services Limited (SRESL). SRESL manages settlement of the residual claims, primarily related to the 2010 and 2011 Canterbury earthquakes not included in the sale to IAG.

New Zealand Debt Management Office

NZDMO provides Treasury services, and administers loans, to other parts of the Crown according to government policy. These services provide net cost savings to the Crown. NZDMO is the lowest cost borrower in New Zealand. Central borrowing by NZDMO, with on-lending to the wider Crown, results in a lower debt servicing expense for the Crown than individual entities borrowing separately. Central treasury management saves on transaction costs and provides risk management benefits to the Crown. During the year, NZDMO:

  • advanced $1,311.857 million distributed as follows: $652.400 million to DHBs; $179.457 million to Housing New Zealand; $170 million to the New Zealand Transport Agency (NZTA); $250 million to KiwiRail; and $60 million to Auckland Council. The advance to the Auckland Council was made up of three loans to enable it to develop the Auckland metro rail network through buying electric multiple units (EMUs) and building an EMU depot
  • managed risk on $280.500 million of interest-rate swaps transacted for Housing New Zealand, and
  • participated in the scoping of the possible tender of the Crown's transactional banking arrangements.
Performance Measures: Management and Administration of Financial Operations on Behalf of the Crown
Performance Dimensions for 2011/12 Target Performance for 2011/12
Policy advice complies with the Treasury's Quality Standards for Policy. Achieved Achieved

NZDMO

Compliance with risk management policies and parameters for management of Crown lending and Crown bank accounts. No breaches No breaches

NZECO

New policies underwritten. 88 70
Value of new exports supported. $202 million $271.220 million
New exposure. $140 million $104.130 million
Operating expense/earned premium plus Application fees ratio. Less than or equal to 60% Achieved
Compliance with International Guidelines (OECD and World Trade Organisation [WTO]) and Delegated Mandate. 100% 100%
Complaints received regarding delivery of services or complaints are owing to issues outside of NZECO's mandate. None None
Claims and provisions are maintained within year-to-date profit. Achieved Not achieved. This performance measure was not met owing to a $29.700 million provision being recorded.
Claims and provisions/Total exposure and Undrawn commitments ratio. Lower than or comparable to other Export Credit Agencies' (ECAs) long-run ratios of between 4% and 9% Not achieved. The ratio for 2011/12 was 19%. This performance measure was not met, for the same reason as the preceding measure.
Total external engagements. 420 498
Management and Administration of Financial Operations on Behalf of the Crown
2011
Actual
$000
Management and Administration of Financial Operations on Behalf of the Crown 2012
Actual
$000
2012
Main Estimates
$000
2012
Supp. Estimates
$000
- Expenses 6,893 7,522 8,222

Funded by:

- Revenue Crown 4,840 7,398 6,598
- Other revenue 2,053 124 1,624

Expenditure is $1.329 million under the Supplementary Estimates budget. Approval has been granted to transfer up to $940,000 of this under-spend to 2012/13. This will cover the completion of negotiations associated with defaults under the Retail Deposit Guarantee Scheme and contracts for the US Contract Bond facility and short-term credit insurance to exporters.

The output expense structure under Vote Finance was rationalised in 2011/12 and therefore comparative figures are not available. Refer to Information Supporting the Estimates 2012/13 Part 1.4 of Vote Finance for the reconciliation of Changes in the Appropriation Structure.

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