Report of the Ministry for the Environment for the year ended 30 June 2006

1 Overview

2 Statement of Service Performance for the Year Ended 30 June 2006

3 Financial Statements for the Ministry for the Environment

4 Non-Departmental Schedules

5 Environmental Report

6 Management of the Ministry

7 Contact Information

4 Non-Departmental Schedules

The following non-departmental statements and schedules record the expenses, revenue and receipts, assets and liabilities that the Ministry manages on behalf of the Crown. The Ministry for the Environment administered approximately $391 million of non-departmental payments, $2 million of non-departmental revenue and receipts, $30 million of assets, and $664 million of liabilities on behalf of the Crown for the year ended 30 June 2006.

These non-departmental balances are consolidated into the Crown Financial Statements and therefore readers of these statements and schedules should also refer to the Crown Financial Statements for 2005/06.

Statement of Accounting Policies

Measurement and recognition rules applied in the preparation of these non-departmental financial statements and schedules are consistent with generally accepted accounting practice and Crown accounting policies.

Land holdings

With the disestablishment of the Ministry of Works and Development in 1988, the Ministry for the Environment inherited a large number of land holdings consisting of:

• reserves that have been taken for flood protection purposes
• soil conservation reserves.

Crown Revenue and Receipts for the Year Ended 30 June 2006

(GST inclusive where applicable)

Actual 30/06/2005 $000		Actual 30/06/2006 $000	Main estimates 30/06/2006 $000	Supplementary estimates 30/06/2006 $000
	Vote: Environment
	Current revenue
	Non-tax revenue
1	Catchment Works Loans - interest	0	0	0
877	Coastal royalties	469	400	400
878	Total non-tax revenue	469	400	400
	Capital receipts
675	Catchment Works Loans - principal	645	643	643
675	Total capital receipts	645	643	643
1,553	Total Crown revenue and receipts for Vote: Environment	1,114	1,043	1,043
	Vote: Climate Change and Energy Efficiency
	Capital receipts
1,088	Crown Energy Efficiency Loans	1,226	1,265	1,265
1,088	Total capital receipts	1,226	1,265	1,265
1,088	Total Crown revenue and receipts for Vote: Climate Change and Energy Efficiency	1,226	1,265	1,265

Schedule of Expenses for the Year Ended 30 June 2006

The schedule of expenses summarises non-departmental expenses the Ministry administers on behalf of the Crown. Further details are provided in the Statement of Non-Departmental Expenditure and Appropriation.

(GST inclusive where applicable)

Actual 30/06/2005 $000		Actual 30/06/2006 $000	Main estimates 30/06/2006 $000	Supplementary estimates 30/06/2006 $000
	Vote: Environment
19,009	Non-departmental output classes	17,583	17,721	17,721
1,784	Other expenses to be incurred by the Crown	1,558	1,831	1,831
0	GST input tax credit expense	2,430	2,387	2,387
20,793	Total non-departmental expenses: Vote: Environment	21,571	21,939	21,939
	Vote: Climate Change and Energy Efficiency
12,445	Non-departmental output classes	13,671	13,671	13,671
314,206	Other expenses to be incurred by the Crown	352,395	6,225	118,319
0	GST input tax credit expense	2,244	2,485	2,555
2,000	Capital investment in organisations other than departments	1,242	2,000	2,000
328,651	Total non-departmental expenses: Vote: Climate Change and EnergyEfficiency	369,552	24,381	136,545

Schedule of Assets as at 30 June 2006

The schedule of assets summarises the assets that the Ministry administers on behalf of the Crown.

Actual 30/06/2005 $000		Actual 30/06/2006 $000	Main estimates 30/06/2006 $000	Supplementary estimates 30/06/2006 $000
	Current assets
13,731	Cash	14,844	2,877	7,961
1,839	Accounts receivable	1,931	1,633	0
17	Pre-payments	18	0	0
	Non-current assets
2,408	Investments in Crown Entities	2,408	2,408	2,408
4,207	Term receivables and advances	3,486	4,471	6,136
6,813	Crown Land	6,813	6,813	6,813
29,015	Total non-departmental assets	29,500	18,202	23,318

In regards to the implementation of New Zealand International Financial Reporting Standards (NZ IFRS) refer to Note 16 on Page 52.

Schedule of Liabilities as at 30 June 2006

The schedule of liabilities summarises the liabilities the Ministry administers on behalf of the Crown.

Actual 30/06/2005 $000		Notes	Actual 30/06/2006 $000	Main estimates 30/06/2006 $000	Supplementary estimates 30/06/2006 $000
	Liabilities
9,980	Trade creditors and accruals		8,979	4,000	4,200
309,843	Kyoto Protocol provision	1	655,748	0	561,799
9	GST		0	0	0
319,832	Total non-departmental liabilities		664,727	4,000	565,999

Statement of Commitments as at 30 June 2006

At 30 June 2006 there were no operating or capital commitments in relation to the activities undertaken by the Ministry on behalf of the Crown (2005).

Statement of Contingencies as at 30 June 2006

At 30 June 2006 there were no known contingent liabilities or assets. No indemnities or guarantees were given under the Public Finance Act 1989 in relation to the activities undertaken by the Ministry on behalf of the Crown (2005: NIL).

The Ministry for the Environment is owner of a contaminated site at Otaki, Kapiti District. At this stage the liability cannot be valued until further investigation of the site takes place.

Notes to the Financial Statements 30 June 2006

1 Provision for New Zealand’s Obligation under the Kyoto Protocol

Analysis of provision for Kyoto Protocol Obligation	Actual 30/06/2006 $ million	Actual 30/06/2005 $ million
Opening Balance	310	0
Additional provisions made in year	346	310
Closing Balance	656	310
	Emission Units [One emission unit is equivalent to one tonne of greenhouse gas emissions converted to carbon dioxide equivalents by the global warming potential.]	Emission Units
Kyoto Target (Assigned Amount Units)	307.6	307.6
Less AAUs allocated to emission reducing projects	7.5	7.5
Total commitment target	300.1	300.1
Projected emission units
Agriculture	198.7	202.0
Energy (including transport) and industrial processes	193.0	194.4
Waste	6.5	5.3
Solvent and other product use	0.3	0.0
Total projected emission units	398.5	401.7
Less net removals via forests	57.2	70.9
Add statistical adjustment	0.0	5.5
Net projected emission unit	341.3	336.3
Deficit in units	41.2	36.2
	$ million	$ million
Deficit in $ millions	656	310

 

New Zealand ratified the Kyoto Protocol in December 2002. This international agreement commits New Zealand to reducing its average net emissions of greenhouse gases over 2008–2012 (the first commitment period of the Kyoto Protocol or CP1) to 1990 levels or to take responsibility for the difference. New Zealand can meet its commitment through emissions reductions and use of the Kyoto Protocol flexibility mechanisms such as Joint Implementation, the Clean Development Mechanism, and offsetting increased emissions against carbon removed by forests.

The estimate of New Zealand’s net obligation at 30 June 2006 is $NZ656 million (2005: $NZ310 million). This obligation is based on a deficit of 41.2 million emission units measured using an exchange rate of $US0.6063 = $NZ1 (based on 30 June 2006 exchange rate) and a carbon price of $US9.65 per unit (30 June 2005 $US0.7010 = $NZ1, and carbon price $US6 per unit).

In December 2005, the quantum of the deficit was adjusted upwards from 36.2 Mt to 64.0 Mt. This reflected the Government’s decision not to proceed with the carbon tax and also a reassessment of likely levels of deforestation in the first Kyoto commitment period. The subsequent change to 41.2 Mt from the figure of 64.0 Mt reflects the re-estimation of likely levels of emission as discussed above.

Provisions by their nature are more uncertain than most other items in the statement of financial position. Fluctuations in the value of the estimate may occur through changes in the assumptions underlying the quantum, through movements in the price of carbon and the exchange rate of the United States dollar.

The quantum of the deficit has been compiled from agricultural, forest sink and deforestation projections provided by the Ministry of Agriculture and Forestry, energy (including transport) and industrial processes projections from the Ministry of Economic Development, and waste projections from the Ministry for the Environment. The estimate includes the effects of refinements in modelling processes and updated assumptions on variables such as economic growth, population growth and oil prices as at May 2006. The projections use the latest information from the national inventory of greenhouse gas emissions and removals submitted to the United Nations Framework Convention on Climate Change Secretariat on 13 April 2006. The net removals via forests is reported after deducting 21 million tonnes for estimated deforestation. This estimate assumes policy interventions to operationalise the Government’s policy to cap its liability at this amount. In the absence of policy interventions, and assuming current market conditions prevail, a deforestation intentions survey conducted in 2005 indicated likely deforestation of 38.5 million tonnes, which would result in an increase in the provision of $279 million.

AEA Technology, an independent UK-based firm, has assessed the reasonableness of the assumptions and methodologies underpinning the projections in 2005. The review team’s key finding was that “the methodologies employed to project emissions and sinks across the different sectors [are] generally sound and reasonable in their approach”. This report was finalised in October 2005.

The carbon price has been determined by the Treasury based on a consultant’s report. The Allen Consulting Group has reviewed this work.

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

2. Comparative Financial Statements

Certain comparative numbers have been restated to enhance comparability with current year numbers. This relates to the Schedule of Assets where “Investments in Crown Entities” has now been separately disclosed.

Statement of Responsibility

In terms of the Public Finance Act 1989, I am responsible, as Chief Executive of the Ministry for the Environment, for the preparation of the Ministry’s financial statements and the judgements made in the process of producing those statements.

I have the responsibility of establishing and maintaining, and I have established and maintained, a system of internal control procedures that provide reasonable assurance as to the integrity and reliability of financial reporting.

In my opinion, these financial statements fairly reflect the financial position and operations of the Ministry for the year ended 30 June 2006.

Hugh Logan
Chief Executive
29 September 2006

 

Countersigned by:

Fiona Morgan
Chief Financial Officer
29 September 2006

Audit Report

To the readers of the Ministry for the Environment’s financial statements for the year ended 30 June 2006

The Auditor-General is the auditor of the Ministry for the Environment (the Ministry). The Auditor General has appointed me, Ajay Sharma, using the staff and resources of Audit New Zealand, to carry out the audit of the financial statements of the Ministry, on his behalf, for the year ended 30 June 2006.

Unqualified opinion

In our opinion the financial statements of the Ministry comprising the Statement of Service Performance, Performance Indicators, Statement of Financial Performance, Statement of Financial Position, Statement of Movements in Taxpayers’ Funds, Statement of Cash Flows, Reconciliation of Net Operating Surplus to Net Cash Flow, Statement of Commitments, Statement of Contingencies, Statement of Unappropriated Expenditure, Statement of Departmental Expenditure and Appropriations, Statement of Non-Departmental Expenditure and Appropriations, Statement of Accounting Policies, Notes 1 to 16 to the Financial Statements, Statement of Non-Departmental Accounting Policies,  Schedule of Crown Revenue and Receipts, Schedule of Expenses, Schedule of Assets, Schedule of Liabilities, Statement of Commitments, Statement of Contingencies and Notes 1 to 2 of the Schedules:

• comply with generally accepted accounting practice in New Zealand; and
• fairly reflect:
  • the Ministry’s financial position as at 30 June 2006;
  • the results of its operations and cash flows for the year ended on that date;
  • its standards of delivery performance achieved, as compared with the forecast standards outlined in the statement of forecast service performance adopted at the start of the financial year and its actual revenue earned and output expenses incurred, as compared with the forecast revenues and output expenses outlined in the statement of forecast service performance adopted at the start of the financial year; and
  • the schedules of non-departmental activities fairly reflect the assets, liabilities, revenues, expenses, contingencies and commitments managed by the Ministry on behalf of the Crown for the year ended 30 June 2006.

The audit was completed on 29 September 2006, and is the date at which our opinion is expressed.

The basis of our opinion is explained below. In addition, we outline the responsibilities of the Chief Executive and the Auditor, and explain our independence.

Basis of opinion

We carried out the audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the New Zealand Auditing Standards.

We planned and performed the audit to obtain all the information and explanations we considered necessary in order to obtain reasonable assurance that the financial statements did not have material misstatements, whether caused by fraud or error.

Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the financial statements. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.

The audit involved performing procedures to test the information presented in the financial statements. We assessed the results of those procedures in forming our opinion.

Audit procedures generally include:

• determining whether significant financial and management controls are working and can be relied on to produce complete and accurate data;
• verifying samples of transactions and account balances;
• performing analyses to identify anomalies in the reported data;
• reviewing significant estimates and judgements made by the Chief Executive;
• confirming year-end balances;
• determining whether accounting policies are appropriate and consistently applied; and
• determining whether all financial statement disclosures are adequate.

We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements or statement of service performance.

We evaluated the overall adequacy of the presentation of information in the financial statements. We obtained all the information and explanations we required to support our opinion above.

Responsibilities of the Chief Executive and the Auditor

The Chief Executive is responsible for preparing financial statements in accordance with generally accepted accounting practice in New Zealand. The financial statements must fairly reflect the financial position of the Ministry as at 30 June 2006 and the results of its operations and cash flows for the year ended on that date. The statement of service performance must fairly reflect, for each class of outputs, the Ministry’s standards of delivery performance achieved and revenue earned and expenses incurred, as compared with the forecast standards, revenue and expenses adopted at the start of the financial year. In addition, the schedules of non-departmental activities must fairly reflect the assets, liabilities, revenues, expenses, contingencies and commitments managed by the Ministry on behalf of the Crown for the year ended 30 June 2006. The Chief Executive’s responsibilities arise from sections 45A and 45B and 45(1)(f) of the Public Finance Act 1989.

We are responsible for expressing an independent opinion on the financial statements and reporting that opinion to you. This responsibility arises from section 15 of the Public Audit Act 2001 and section 45D (2) of the Public Finance Act 1989.

Independence

When carrying out the audit we followed the independence requirements of the Auditor General, which incorporate the independence requirements of the Institute of Chartered Accountants of New Zealand.

Other than the audit, we have no relationship with or interests in the Ministry.

Ajay Sharma
Audit New Zealand
On behalf of the Auditor-General
Wellington, New Zealand