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Non-Departmental Statements and Schedules for the Year Ended 30 June 2009
Notes to the Non-Departmental Financial Statements
1. Statement of accounting policies for the year ended 30 June 2009
Reporting entity
These non-departmental schedules and statements present financial information on public funds managed by the Ministry on behalf of the Crown.
These non-departmental balances are consolidated into the Financial Statements of the Government. For a full understanding of the Crown’s financial position, results of the operation and cash flows for the year, reference should also be made to the Financial Statements of the Government.
Accounting policies
These non-departmental schedules and statements have been prepared in accordance with the Government’s accounting policies as set out in the Financial Statements of the Government, and in accordance with relevant Treasury instructions and Treasury circulars.
Measurements and recognition rules applied in the preparation of these non-departmental schedules and statements are consistent with New Zealand generally accepted accounting practice as appropriate for public benefit entities.
The accounting policies set out below have been applied consistently to all periods presented in these financial statements
The following particular accounting policies have been applied:
Foreign exchange
Foreign currency transactions are translated into New Zealand dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of the monetary assets and liabilities denominated in foreign currencies are recognised in the schedule of non-departmental income or expenses.
Goods and services tax
All items in the financial statements, including appropriation statements, are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. In accordance with the Treasury instructions, GST is returned on revenue received on the behalf of the Crown, where applicable. However, an input tax deduction is not claimed on non‑departmental expenditure. Instead, the amount of GST applicable to non-departmental expenditure is recognised as a separate expense and eliminated against GST revenue on consolidation of the government financial statements, except where GST is paid on behalf of the Crown for emission reduction services provided by the parties to the Project to Reduce Emissions agreements. An input tax deduction is claimed as a refund from the Inland Revenue Department.
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.
Land is recorded at fair value less impairment losses. Valuations undertaken in accordance with standards issued by the New Zealand Property Institute are used where available. Otherwise, valuations conducted in accordance with the Rating Valuation Act 1998, which have been confirmed as appropriate by an independent valuer, have been used.
Land is revalued every five years in line with Crown accounting policies. The previous valuations were carried out in the 2003/04 financial year and the new valuations received as at 30 June 2009 are included in the 2008/09 financial year.
Debtors and other receivables
Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less any provision for impairment.
Loans at nil, or below-market interest rates are initially recognised at the present value of their expected future cash flows, discounted using a rate for loans of a similar term and credit risk. They are subsequently measured at amortised cost using the effective interest method. The difference between the face value and present value of expected future cash flows of the loan is recognised in the statement of financial performance.
Commitments
Future expenses and liabilities to be incurred on non-cancellable contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations.
Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel are included in the Statement of Commitments at the value of that penalty or exit cost.
Budget figures
The budget figures are those amended by the 2008/09 Supplementary Estimates.
2. Debtors and other receivables
Actual 30/06/2009 $000 |
Actual 30/06/2008 $000 |
|
|---|---|---|
Loans receivable |
0 |
3,899 |
Other receivables |
1,378 |
0 |
| Total debtors and other receivables | 1,378 |
3,899 |
Represented by: |
||
Current |
1,378 |
1,392 |
Non-current |
0 |
2,507 |
Loans receivable represent loans given to third parties on behalf of the Energy Efficiency and Conservation Authority (EECA).
The face value of these loans outstanding is $0 (2008: $4,722,677).
The carrying amount of other receivables approximates their fair value.
As at 30 June 2009 and 2008, all loans and other receivables have been assessed for impairment and appropriate provision applied, as detailed below:
2009 |
2008 |
|||||
|---|---|---|---|---|---|---|
Gross |
Impairment |
Net |
Gross |
Impairment |
Net |
|
Not past due |
1,378 |
0 |
1,378 |
3,899 |
0 |
3,899 |
Past due 1 – 90 days |
0 |
0 |
0 |
0 |
0 |
0 |
Past due 90 – 180 days |
0 |
0 |
0 |
0 |
0 |
0 |
Past due 180 – 360 days |
0 |
0 |
0 |
0 |
0 |
0 |
Past due > 360 days |
0 |
0 |
0 |
0 |
0 |
0 |
Total |
1,378 |
0 |
1,378 |
3,899 |
0 |
3,899 |
No provision has been made for doubtful debts as all debtors are current. There were no indications at balance date that these debtors are impaired.
3. Crown land holdings
Land and Buildings $000 |
Forestry $000 |
Total $000 |
|
|---|---|---|---|
| Cost or valuation | |||
Balance as at 1 July 2007 |
3,871 |
2,942 |
6,813 |
Additions |
0 |
0 |
0 |
Revaluation increase |
0 |
0 |
0 |
Disposals |
0 |
0 |
0 |
Balance at 30 June 2008 |
3,871 |
2,942 |
6,813 |
Balance as at 1 July 2008 |
3,871 |
2,942 |
6,813 |
Additions |
0 |
0 |
0 |
Revaluation increase |
2,009 |
388 |
2,397 |
Disposals |
0 |
0 |
0 |
Balance at 30 June 2009 |
5,880 |
3,330 |
9,210 |
| Accumulated depreciation and impairment losses | |||
Balance as 1 July 2007 |
0 |
0 |
0 |
Depreciation expense |
0 |
0 |
0 |
Impairment losses |
0 |
0 |
0 |
Balance at 30 June 2008 |
0 |
0 |
0 |
Balance as 1 July 2008 |
0 |
0 |
0 |
Depreciation expense |
0 |
0 |
0 |
Impairment losses |
2,594 |
832 |
3,426 |
Balance at 30 June 2009 |
2,594 |
832 |
3,426 |
| Carrying amounts | |||
At 1 July 2007 |
3,871 |
2,942 |
6,813 |
At 30 June and 1 July 2008 |
3,871 |
2,942 |
6,813 |
At 30 June 2009 |
3,286 |
2,498 |
5,784 |
Land holding valuations received were undertaken on a market value basis as at 30 June 2009 by following independently contracted registered valuers: AgFirst Valuations Ltd, Quotable Value Ltd and Kohntrol Forest Services Ltd.
As the land use is restricted to soil conservation purposes, the purchasers in the market would only be the local authority or through a Māori interest protection mechanism. The market value is therefore unlikely to reflect the amount that could actually be recovered through the sale of the land. Consistent with the values recognised in 2003/04, an estimate of the loss on sale of each of the parcels has been factored into the recoverable amount recognised in the 2008/09 financial statements.
4. Creditors and other payables
Actual 30/06/2009 $000 |
Actual 30/06/2008 $000 |
|
|---|---|---|
Creditors |
5,159 |
11,252 |
| Total creditors and other payables | 5,159 |
11,252 |
Creditors and other payables are non-interest bearing and are normally settled within 30 days, therefore the carrying value of creditors and other payables approximates their fair value.
5. Provision for New Zealand’s obligation under the Kyoto Protocol
Analysis of provision for Kyoto Protocol obligation |
Actual 30/06/2009 $ million |
Actual 30/06/2008 $ million |
|---|---|---|
| Opening provision | (562) |
(704) |
Change in the price of carbon |
(41) |
(226) |
Change in net projected emission units |
810 |
368 |
| Closing provision | 207 |
(562) |
Emission units 1 |
Emission units |
|
Kyoto Target (Assigned Amount Units) |
309.6 |
309.6 |
Less AAUs allocated to emission reducing projects |
6.8 |
7.0 |
| Total commitment target | 302.8 |
302.6 |
| Projected emission units | ||
Agriculture |
184.0 |
198.5 |
Energy (including transport) and industrial processes |
185.7 |
185.6 |
Waste |
8.3 |
7.2 |
Solvent and other product use |
0.2 |
0.2 |
| Total projected emission units | 378.2 |
391.5 |
Removals via forests |
92.3 |
84.1 |
Deforestation emissions |
(7.3) |
(16.9) |
| Net removals via forests | 85.0 |
67.2 |
| Net projected emission units | 293.2 |
324.3 |
| Surplus (deficit) in units | 9.6 |
(21.7) |
$ million |
$ million |
|
| Surplus (deficit) in $ millions | 207 |
(562) |
1 One emission unit is equivalent to one tonne of greenhouse gas emissions converted to carbon dioxide equivalents by the global warming potential.
The New Zealand Government has committed under the Kyoto Protocol to ensuring that New Zealand’s average net emissions of greenhouse gases over 2008-2012 (the first commitment period of the Kyoto Protocol or CP1) is reduced 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 position will crystallise when the first Kyoto commitment period is settled up post-2012. These financial statements report on the New Zealand Government’s obligations for the first commitment period, but not for future commitment periods which are currently being negotiated.
New Zealand’s net Kyoto position as at 30 June 2009 of $NZ207 million (2008: $NZ(562) million) is based on a surplus of 9.6 million Kyoto Protocol emission units and a carbon price of €10 per unit. The carbon price in New Zealand dollars equates to $NZ21.61, using the 30 June 2009 exchange rate of €0.46280 = $NZ1 (30 June 2008: €0.48285 = $NZ1, and a carbon price of €12.50 per unit).
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 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 15 April 2009.
No liability for periods beyond 2012 has been recognised, as New Zealand currently has no specific obligations beyond the First Commitment Period. However, a view about the outcome of negotiations for future periods is intrinsic to the market price for carbon that has been used to measure the position.
Beyond 2012, the financial impact of New Zealand’s climate change response will depend on the global stabilisation goal, the global cap/emission reducing strategy, the rules regarding which activities can be used to achieve emission reductions and the target that New Zealand signs up to. Within New Zealand, the Emissions Trading Scheme (NZ ETS) will transfer the impact of world price for carbon through the economy. Determinations as to when sectors are covered under the NZ ETS and how much free allocation is made to these sectors will therefore impact these financial statements.
In addition, during the first commitment period, MAF estimate that 92.3 million tonnes of credits will be generated by carbon removals via forests. To the extent that these forests are harvested (in subsequent commitment periods), an associated liability is generated that will need to be repaid. As the forestry credits have been incorporated when calculating the current position for the first commitment period, the associated obligation in respect of future commitment periods has been reported as a separate contingent liability. Using the price as at 30 June 2009, this contingent liability can be measured at NZ $1,995 million (i.e. 92.3 million x NZ $21.61).
AEA Technology, an independent UK based firm, has previously assessed the robustness of the assumptions and methodologies underpinning the projections and found them to be sound and reasonable.
The movement in the projected balance of Kyoto Protocol units is set out in the Net Position Report 2009: Projected balance of Kyoto Protocol units during the first commitment period which is published by the Ministry for the Environment. The change from the previous projection is explained mainly by lower projected emissions from the agriculture sector and increased net removals from planted forests. Agriculture emissions projections are lower largely due to the effect of the 2007/2008 drought. The two key reasons for the change in net removals by post-1989 forests are that new information on post-1989 planted forests indicates that these forests are removing more carbon dioxide per hectare than assumed previously (8.2 million tonnes) and new information on intended deforestation emissions (9.6 million tonnes). A full copy of this report can be found on the Ministry’s website: www.mfe.govt.nz
The carbon price has been determined by the Treasury, based on market transactions that have occurred.
The measurement of the Kyoto position is, by its nature, more uncertain than a number of 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, movements in the price of carbon and the exchange rate with the European currency unit, and government policy changes.
6. Events after the balance sheet date
No significant events which may impact on the results have occurred between year end and the signing of these financial statements.
7. Explanations of major variances against budget
Explanations for the major variances from the Ministry’s non-departmental estimated figures in the Main Estimates are as follows:
(i) Schedule of non-departmental income
Actual 30/06/2009 $000 |
Main estimates 30/06/2009 $000 |
Variance $000 |
|
|---|---|---|---|
Vote Climate Change |
|||
Emissions trading |
0 |
308,320 |
308,320 |
Change in estimate of Kyoto units held |
809,798 |
0 |
(809,798) |
The Ministry anticipated receiving NZ/international units from emitters in the financial year ended 30 June 2009. Due to changes in the Emissions Trading Scheme and as a result of delays in adjustments around the forestry sector, liquid fuels and the inclusion of agriculture, they are now expected to occur in the financial year ending 30 June 2010.
Income was higher than anticipated due to the revision in carbon units in the financial year ended 30 June 2009.
There were no other significant variances to budget.
(ii) Schedule of non-departmental expenses
Actual 30/06/2009 $000 |
Main estimates 30/06/2009 $000 |
Variance $000 |
|
|---|---|---|---|
Vote Environment |
|||
Non-departmental output expenses |
19,170 |
25,534 |
6,364 |
Non-departmental other expenses |
28,742 |
12,456 |
(16,286) |
Vote Climate Change |
|||
Non-departmental other expenses |
57,886 |
749,387 |
691,501 |
Non-departmental capital expenditure |
140 |
3,500 |
3,360 |
In Vote Environment, non-departmental output expenses are lower than budget due to the transfer of funds from 2008/09 to 2009/10 for Tui Mine and other contaminated sites remediation funds.
Other expenses to be incurred by the Crown are higher than budget due to following new appropriations in 2008/09 year: Waikato River Initiative fund $10m: Waikato River Co-management fund $6.5m and Clean-up of Patea Freezing works $1.5m.
In Vote Climate Change, non-departmental other expenses were lower than budget as a lower amount of NZ/international units were allocated to emitters due to changes in the Emissions Trading Scheme and as a result of delays in adjustments around the forestry sector, liquid fuels and the inclusion of agriculture.
The $140,000 non-departmental capital expenditure relates to the purchase of PRE units. Expenditure is lower than budget due to the Government’s decision to stop the programme. Before making this decision the Crown had entered into several forward contracts with units sellers which obliges it to pay when units are delivered. These will see delivery in later years.
(ii) Statement of assets
Actual 30/06/2009 $000 |
Main estimates 30/06/2009 $000 |
Variance $000 |
|
|---|---|---|---|
Cash and cash equivalents |
6,265 |
15,952 |
(9,687) |
Debtors and other receivables |
1,378 |
0 |
1,378 |
Crown land holdings |
5,784 |
6,813 |
(1,029) |
Kyoto Protocol units |
206,683 |
0 |
206,683 |
Pre units |
140 |
3,500 |
(3,360) |
The Ministry drew less funding from Crown and used its excess cash balance to fund the outputs. This resulted in lower than the budgeted Cash and cash equivalents.
Debtors and other receivables relates to the GST receivable from the Inland Revenue Department and other receivables from Department.
Crown land holdings were revalued in the 2008/09 financial year with a resulting net decrease in value recognised of $1.029 million.
The $140,000 for Pre units represents payments on committed contracts that were entered into before the Government decision to stop the programme. The Ministry also had entered into several other forward contracts with units’ sellers which obliges the Crown to pay when units are delivered over the next four years.
(iii) Statement of liabilities
Actual 30/06/2009 $000 |
Main estimates 30/06/2009 $000 |
Variance $000 |
|
|---|---|---|---|
Creditors and other payables |
5,159 |
8,200 |
3,041 |
Kyoto Protocol units |
0 |
481,560 |
481,560 |
Allocation of NZ Units and AAU’s to Forestry and PFSI participants |
16,421 |
440,665 |
424,244 |
Creditors and other payables are lower than budget due to the delay in work programme around the Contaminated Sites Remediation Fund. The Ministry has sought an expense transfer of $5.8m to 2009/10. The Ministry also paid the majority of creditors before year-end.
As a result of the change in the projected net position of emission units from a deficit to a surplus, the Kyoto protocol provision is now reported as an asset. The Kyoto Protocol provision is affected by three factors: projected net position; carbon price per unit; and fluctuations in foreign exchange rates.
Due to changes in the Emissions Trading Scheme and as a result of delays in adjustments around the forestry sector, liquid fuels and the inclusion of Agriculture, the Ministry issued lower than anticipated NZ Units and AAU’s to Forestry and PFSI participants in the financial year ended 30 June 2009.
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 statement of service performance, and for the judgements made in them.
I have the responsibility of establishing, and I have established, a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting.
In my opinion, these financial statements and statement of service performance fairly reflect the financial position and operations of the Ministry for the year ended 30 June 2009.
[signed by]
Paul Reynolds
Chief Executive
30 September 2009
[countersigned by]
Rochelle Davis
Chief Financial Officer
30 September 2009
