Appendix 2 Good Practice for Involvement in a Major Project Lessons from the Opuha Dam Project
This report issued by the Controller and Auditor General in February 2001 outlined the following key messages for public authorities (City, District and Regional Councils) making equity investments or lending funds to major projects.
Messages for Equity Investors
"Before investing equity capital in a project, a public authority should:
- Identify and document it’s objectives and the rational for purchasing an ownership interest in the project, and ensure that these are in line with its long term strategies, investment policies and statutory powers.
- Satisfy itself that the risk of loosing its investment is minimised. For major projects this includes ensuring that the project has:
- Sound and effective contractual arrangements;
- A sound overall project management structure; and
- Adequate insurance cover.
- Satisfy itself that it will receive an acceptable rate of return from the investment over a defined period.
Having invested equity capital in project, a public authority should:
- Obtain sufficient information from the controlling body for the project to determine that the body is overseeing progress of the project in a responsible manner.
- Monitor its investment to establish that:
- The return on the investment (either being received and/or likely to be received) remains consistent with what is considered acceptable; and
- The vale of the investment is being maintained
- Monitor its investment for continuing consistency with its objectives and rationale for investing, and, when circumstances change, reappraise its financial involvement in the project.
Messages for Lenders
Before advancing money by way of loan for a project, a public authority should:
- Establish that the investment in the project is in line with its long term strategies, investment policies, and statutory powers.
- Satisfy itself that the risk in relation to the investment is minimised.
- Satisfy itself that it will receive an adequate rate of return from the investment.
- Having advanced the money by way of loan for a project, a public authority should:
- Monitor its investment to establish that:
- the interest due is received; and
- the value of the investment is being maintained.
- Monitor its investment for continuing consistency with its long term strategies, investment policies, and statutory powers, and, when circumstances change, reappraise its financial involvement in the project."
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