The Christchurch City Council needs to decide if it should invest an additional up to $150 million to enable the project to continue as planned, stop the project altogether or pause and re-evaluate the project.

Rate-payers are being urged to have their say.

The price of building an arena with 30,000 seats and a roof is now $683 million. That means if the project is to proceed, additional funding of up to $150 million will be required.

Before the Council makes its decision, it legally needs to ask the community what it thinks.

Rates increase

If the council goes head with a stadium it will cause a 4.6% rates increase, which translates to $144 per annum per average residential property occurring progressively between 2025 and 2027.

If the Council discontinues the project it would avoid the financial impact, including potential rate increase and the impact on Council’s debt headroom.  Council would also be able to decide if the remaining Te Kaha budget should be allocated for other projects and/or be used to reduce forecast borrowing and rates.

However, there would be $40 million sunk cost (investment already incurred that could not be recovered). This is the money spent on design development, the Pre-Contract Services Agreement and enabling works.  The Council may be liable for some further costs because of agreements that it already has in place.

Large sport and entertainment events would have to continue using the temporary stadium in Addington.  The temporary stadium is made of a scaffolding structure originally intended to have a life of around five years.  Constructed in 2012, the venue is now 10-years-old and, whilst structurally sound and subject to quarterly structural assessments, it will in due course require decommissioning.  

On this basis, if Te Kaha is not built, there will be no venue in Canterbury suitable for large sporting or entertainment events in the medium to long-term.

The Crown investment would be withdrawn. 

What is the current budget for the multi-use arena?

$533 million.

What is the expected cost of the arena now?

The current project cost is $683 million. The Project Team is working with BESIX Watpac to reduce this cost through value management and contract negotiations.

What are you doing to get cost certainty?

We have asked our lead contractor for a fixed price and to bring the price down.

Does the revised price include any contingency for further cost escalations?

Yes, but we cannot disclose the amount for commercial reasons.

What is the reason for the cost escalation?

Escalating construction costs are being driven by a number of interrelated factors, including international shipping constraints, increasing global commodity prices (for materials such as oil, copper and steel), and international supply chain disruptions.

The global response to the COVID-19 pandemic has led to these issues. International supply chains have experienced further disruption and material prices have increased further in the first quarter of 2022 due to the war in the Ukraine and China’s zero tolerance COVID-19 strategy, which has led to ongoing lockdowns. The construction boom in New Zealand is also pushing up prices. Demand is outstripping supply and there is high wage and salary inflation within the construction sector.

Overall, these factors are contributing to combined construction cost escalations of just over 10 per cent for the 12 months up until 31 March 2022.

Some small additions have also been made to the scope of the project to improve guest experience, operational functionality and commercial viability, resulting in about $10 million of extra costs.

What has been added to the scope?

The developed design includes provision for a Distributed Antenna System, a second goods lift, broadcast cabling, blue or dimmable concourse lighting, and a mother grid to suspend lighting and sound equipment for concerts.

These items were excluded from the project scope initially to minimise costs.

However, they have been put back in because users would expect them to be in the facility. The total estimated cost of these items is about $10 million.

Are there any other factors pushing up the costs?

BESIX Watpac’s structural engineering team have identified through their testing that the ground conditions at the site for the arena are worse than anticipated.

As a result, the structure has had to be engineered differently to compensate for the ground conditions. This has added to the cost of both the ground works and the arena itself.

Are other large infrastructure projects experiencing similar cost escalations?

Our cost consultant has advised the cost escalations that we are experiencing with this project are consistent with what they are seeing in other projects across the market. However, because of commercial confidentiality, they cannot provide specific examples.

If we pause the project for five years, is it likely the costs would come back into line?

As it is likely that prices will continue to rise, pausing the project for five years is unlikely to resolve the budget issues. Even if the rate at which prices are escalating reduces, the cost for the arena would not come back into line with the budget.

Weren’t the early works on site meant to help contain cost increases?

The early works have given us a clear understanding of where potential issues with the project could arise and have allowed us to factor these into our planning and budgeting. This means that once construction gets under way, we are less likely to encounter issues that could lead to costly delays and further price escalations as the project progresses.

Would the increase in the total project cost also increase the annual operating levy required for Te Kaha?

The forecasts in the operating business case have been refreshed based on detail design elements to include updated lifecycle cost estimates, increased insurance on higher capital values, revised operating revenues and costs including facility maintenance.  The revised annual operating subsidy is still comparable to the original business case of $4.2 million per annum updated to 2023 dollars.

How much has the Council spent on the project to date?

About $40 million has been spent, mainly on design development, professional fees, the Pre-Contract Services Agreement with BESIX Watpac, and enabling works such as relocating existing services on the site.  The Council may be liable for some further costs because of agreements that it already has in place.

If we decide to go ahead with the arena, when will it open?

April 2026.

What is the risk of costs escalating once the contract is signed?

There is always a risk of further escalations with projects of this nature. Te Kaha Project Delivery Ltd is seeking to limit this risk by getting a fixed price for the construction.

Will the delivery company for Te Kaha or Council hold any contingency to manage the risk of further cost escalations?

Some contingency is being held to manage any risks or variations from the contract. To protect our financial position, we cannot disclose the size of the contingency.

What happens if no alternative funding is secured?

If the Council decides to proceed with the arena and enter into a contract, it will need to underwrite the additional costs.

What is the impact on the Council’s debt headroom?

Council’s Financial Strategy targets Debt Headroom to be held greater than $400 million.  The purpose of our debt headroom is to have the ability to borrow in the event of an emergency and remain within debt covenant limits. 

Our LTP had Council maintaining a Debt Headroom minimum of $400 million.  The table below shows the impact of adding $150 million on our Debt Headroom.  It should be noted that our Annual Plan for FY22/23 has not yet been adopted, but the projected headroom is based on our current projection. 

We are in an improved starting position (from LTP) because of the impact of COVID/supply chain having delayed delivery of our full capital programme and operational surpluses giving us the ability to not borrow/early repay the balance of our COVID borrowing.  Note future years will also be impacted by Water Reform which will be adjusted for in the FY24/34 LTP..

Could a decision to increase the funding for the project impact on other projects?

The decision would bind the future Council to the cost increase.  The future Council could decide to fund the project increase from borrowing and rates, or to stop or reduce other planned capital and operational projects and services as substitution for the increase.  This would mean other community projects may be impacted.

Is there a risk of further cost increases?

There is the risk of future cost increases which will be dependent on the D&C negotiations between the Project Delivery company and BESIX Watpac.

If a new arena is not built, can Orangetheory Stadium in Addington continue to host large sporting and entertainment events?

The temporary stadium was built for the purposes of providing a transitional venue to hold rugby and other major events in Canterbury while a replacement for Lancaster Park was designed and constructed.

The temporary stadium is made of a scaffolding structure originally intended to have a life of around five years. Constructed in 2012, the venue is now 10 years old and, whilst structurally sound and subject to quarterly structural assessments, it will in due course require decommissioning.  

On this basis, if Te Kaha is not built, there will be no venue in Canterbury suitable for large sporting or entertainment events in the medium-to-long-term.

Pausing and re-evaluating the project

What would be re-evaluated

The key fundamentals and the priorities for the project, along with the associated costs and benefits could be re-evaluate. These were last fully assessed in the Investment Case in 2019 and the context and expectations may have changed along with the affordability issues. There is a possibility that the re-evaluation could identify an option which reduces the quantum of the cost overrun and still delivers the identified priorities.

Would the Crown continue to fund the project?

If an option compromised the key deliverables in the Funding Agreement, the Council would attempt to renegotiate the Funding Agreement with the Crown.  If the Crown did not agree to this change and withdrew its funding, we would be unable to proceed with the project. 

Could we reduce the cost of the arena back to $533 million through value management? 

We have done extensive value management work in both the preliminary and developed design phases of the project to keep costs as low as possible. It is clear at this point that we cannot build the arena for $533 million without significantly compromising on size, functionality and design.

If we reduce the scale of the arena to keep the project on budget, will it affect the completion date?

Yes, it would push out the completion date for the arena by about nine -12 months as, given the extent of the changes required, we would need to go back to the start of the three-stage design process.

Have we explored the option of building an arena without a roof? Would that bring the project back into budget?

We have investigated the option of removing the centre oculus of the roof, which would save about $35 million. If we did this, we would have the option of building a roof at some future date.

If we scaled right back and only built a ‘dripline’ roof there would be greater savings, but this has not been quantified.

What kind of arena would we get for $533 million?

Because of the investment we have already made in the current design scheme, the actual budget available for a scaled-back arena would be less than $500 million. We have not planned for this scenario, but our cost consultant has advised that, based on BESIX Watpac’s Design and Construct tender, we could only afford to build an arena with around 17,000 permanent seats and 3,000 temporary seats.

This option would compromise a key fundamental in the funding agreement with the Crown and it may decide to reduce its $220 million for the project.  This option would mean the arena would not be completed until the beginning of 2027.

Would reducing the size of the stadium to 17,000 permanent seats plus 3,000 temporary seats impact on the operational viability of the stadium? 

Venues Ōtautahi has advised that at 17,000 permanent capacity Te Kaha would be the smallest stadium in New Zealand, with the exception of Palmerston North. This would significantly compromise both the ability to attract large scale events, including concerts and All Blacks matches and the attractiveness of Te Kaha to commercial partners.

With asset management and maintenance costs still relative to the larger scale venue and compromised commercial and operational viability, the annual operating levy required by Council would need to increase by an estimated 70%, from $4.2m to $7.5m per annum.

Would reducing the size of the stadium to 17,000 permanent seats plus 3,000 temporary seats impact the expected economic benefit to the region?

As per the (CMUA) Investment Case, Te Kaha is expected to deliver $462.2m of economic benefit to the Canterbury region over 25 years. This includes (but is not limited to) $10m of economic benefit per annum from three large scale concerts and $3.6m from large sporting events including the All Blacks.

Venues Ōtautahi has advised that reducing permanent capacity to 17,000 (plus 3,000 temporary seats) and concert capacity to an estimated 27,000 would significantly compromise both the ability to attract large scale events including concerts and All Blacks matches. With revised assumptions reducing the number of large concerts to one per annum and no longer having the ability to attract All Blacks matches without a significant bidding incentive fee, the expected economic return to the region would reduce by around 45%.

What are the Key Deliverables required in the Funding Agreement with the Crown?

The key deliverables are:

• A roof that covers the entire arena.

• A minimum of 22,500 permanent seating capacity.

• Multi use, being that the predominant “mode” is an indoor arena, not a sports field or a stadium within which other events need to be tolerated, and capable of hosting:

  • Turf based sports – e.g. rugby;

  • Non-turf based sports and events – e.g. concerts, Nitro Circus; and

  • Non-event day functions – e.g. social events, seminars, meetings.

What could be built if the Crown withdrew its funding?

A high level estimate indicates that the remaining funding would be sufficient for a stadium without a roof and fewer seats than the current Orangetheory stadium. Council would also need to identify an alternative site as the land is part of the Crown contribution.

Alternative funding options

Will the Crown provide additional funding?

No further Crown funding will be made available beyond the $220 million allocated from the Christchurch Regeneration Acceleration Facility to the arena project. This is consistent with the Funding Agreement the Council signed with the Crown in 2020.

The Crown has already contributed significantly to the project through:

• $10 million for land decontamination.

• $220 million towards construction costs.

• Funding of the Investment Case and Prefeasibility Study.

• Cost of the land purchase – Between 2013 and 2022, the Crown acquired 58,048sqm of land for the stadium. The total cost was about $59m, including operating costs such as demolition.

Are you looking at options for getting funding from elsewhere?

Te Kaha will deliver significant social, cultural and economic benefit to the entire Canterbury region. It is on this basis that discussions with other Canterbury councils in respect to contributions of capital, operational or bid incentive funding have begun.

Venues Ōtautahi as the operator of Te Kaha will also be seeking commercial third party partnerships including, but not limited to, naming rights, sponsorship, ticketing and pourage partnerships and other activations outside of the venue itself to both maximise the opportunity of Te Kaha for these key partners but also to deliver positive revenue outcomes for the venue.    

Could you raise funding through the sale of the Orangetheory Stadium in Addington?

The sale of the Orangetheory site could generate revenue to contribute to the Te Kaha project.

Council staff have undertaken a preliminary review of the 4.9 hectare site against Council’s retention criteria and have not identified a need to retain the site.

The site is ideally located to provide for a medium-to-high-density residential development with about 250 homes.

Because the site has been used mainly for recreational purposes, if the Council decides to dispose of the land, it will need to go through a public consultation process.

Has Council spoken to neigbouring councils about  the project?

Neighbouring councils have been briefed on the multi-use arena (Te Kaha) on a number of occasions, both at a political and staff level, including:

• Attendance at workshops as part of the Investment Case process

• Informal discussions with the Mayoral Forum during the early investigation phase

• Discussions between officials about a potential regional rate for ongoing operational costs

• Correspondence in August 2021

• Briefings from Te Kaha/CMUA project team in 2021 and earlier 2022

• Meetings with the CE of Venues Ōtautahi.

No formal proposal was made to the councils for capital funding as, given the Crown contribution and the Council’s financial commitment, there was no gap in the funding for the project.

The discussions had also suggested that operational funding was the priority, either via a regional rate or direct contribution.   Until the Council had detailed operational models, it was unable to assess the operating cost model on which to base any formal proposition.

The Council contacted other regional Councils again in mid-May 2022, when it was initially advised by Te Kaha Project Delivery company that the $533 million budget for the arena was under pressure due to cost escalations.  They were also advised in the last week of May about the quantum of the escalation.  We hope to have further discussions with neighbouring councils before making any formal proposal. We are interested to hear any suggestions about how we could overcome the funding gap so that we can deliver a great arena for our region. 

Te Kaha will be a regional facility. The economic benefits from having a modern, covered multi-use arena will be felt beyond the boundaries of Christchurch and will lead to increased visitors and economic activity across our region. From our earlier discussion with other Councils, we are also aware that they have features and facilities in their districts that also contribute to the vibrancy of the region.