View all publications

Notes to the non-departmental financial statements

1. Statement of accounting policies for the year ended 30 June 2010

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.

There have been no changes in accounting policies during the financial year.

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:

Revenue

The Ministry collects revenue on behalf of the Crown. This revenue includes the waste disposal levy which is legislated under the Waste Minimisation Act 2008 and from the surrender of units under the Emissions Trading Scheme.

The waste disposal levy revenue is recognised when earned and is reported in the financial period to which it relates.

Revenue arising from the surrender of units by participants in the Emissions Trading Scheme for deforesting their post-1989 forests is recognised on the assessment of valid returns by the relevant agency.

Expenditure

Grant expenditure

Non-discretionary grants are those grants awarded if the grant application meets the specified criteria. They are recognised as expenditure when an application that meets the specified criteria for the grant has been received.

Discretionary grants are those grants where the Ministry has no obligation to award on receipt of the grant application. They are recognised as expenditure when approved by the grants approvals committee and the approval has been communicated to the applicant.

Allocation of units

Units allocated under the Emissions Trading Scheme are recognised at the time the applications are received by the relevant agency.

Settlement expenditure

An expense and an associated provision is recognised for settlement agreements with Waikato River iwi and other iwi on the initialling of the deeds of settlement by the Crown and the relevant iwi.

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.

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.

Kyoto Protocol

The Crown has an obligation under the Kyoto Protocol to ensure 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. If the Crown does not meet its obligations it will be required to make up the difference and will incur additional penalties. To the extent that New Zealand exceeds or betters its emission targets, the Crown will have surplus units which can be used to offset future obligations or be exchanged with other countries.

To the extent that New Zealand is not forecast to meets its target emissions rate, a provision is recognised. To the extent New Zealand is forecast to exceed its target emissions rate, an asset is recognised.

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. Further details are provided in note 7 to the financial statements.

Provisions

A provision is recognised for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that an outflow of future economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.

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.

Contingent liabilities

Contingent liabilities are disclosed at the point at which the contingency is evident.

Budget figures

The budget figures are consistent with the financial information in the Main Estimates. In addition, these financial statements also present the updated budget information from the Supplementary Estimates.

2. Debtors and other receivables

Actual 2009
$000
  Actual 2010
$000
1,378 Debtors and other receivables 6,575
1,378 Total debtors and other receivables 6,575

The carrying amount of debtors and other receivables approximates their fair value and are all current.

As at 30 June 2010 and 2009, all debtors and other receivables have been assessed for impairment. 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.

  Gross
$000
2010 Impairment
$000
Net
$000
Gross
$000
2009 Impairment
$000
Net
$000
Not past due 6,575 0 6,575 1,378 0 1,378
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 6,575 0 6,575 1,378 0 1,378

3. Crown land holdings

  Land and buildings
$000
Forestry
$000
Total
$000
Cost or valuation
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
 
Balance as at 1 July 2009 5,880 3,330 9,210
Additions 0 0 0
Revaluation increase 0 0 0
Disposals 14 (5,880) (3,330) (9,210)
Balance at 30 June 2010 0 0 0
 
Accumulated depreciation and impairment losses
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
     
Balance as 1 July 2009 2,594 832 3,426
Depreciation expense 0 0 0
Disposals (2,594) (832) (3,426)
Impairment losses 0 0 0
Balance at 30 June 2010 0 0 0
Carrying amounts
At 1 July 2008 3,871 2,942 6,813
At 30 June and 1 July 2009 3,286 2,498 5,784
At 30 June 2010 0 0 0

4. Creditors and other payables

Actual
2009
$000
  Actual
2010
$000
5,159 Creditors 9,577
0 GST payable 752
5,159 Total creditors and other payables 10,329

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. Financial instruments

The carrying amounts of financial assets and financial liabilities in each of the categories are as follows:

Actual
2009
$000
  Actual
2010
$000
  Loans and receivables  
6,265 Cash and cash equivalents 12,063
1,378 Debtors and other recievables 6,575
7,643 Total loans and receivables 18,638
  Financial liabilities measured at amortised cost  
5,159 Creditors and other payables 10,329

Credit risk

Credit risk is the risk that a third party will default on its obligation, causing a loss to be incurred. Credit risk arises from debtors and deposits with banks. Funds must be deposited with Westpac, a registered bank.

The maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash and cash equivalents and net debtors. There is no collateral held as security against these financial instruments, including those instruments that are overdue or impaired. Other than Westpac bank, there are no significant concentrations of credit risk.

6. Notional account for the Waste Minimisation Fund

Actual
2009
$000
  Actual
2010
$000
  Provision for statutory information  
0 Balance at 1 July 2009 0
0 Revenue from waste levy collection 18,897
0 Expenses (11,546)
0 Balance at 30 June 2010 7,351

On 1 July 2009, the Ministry established a notional account to record the accumulated surpluses and deficits incurred in maintaining the Waste Minimisation Fund. The revenue represents the levy that is collected by waste disposal facilities. The expenses represent the disbursement of the received levy to territorial authorities, the Waste Minimisation Fund and the administration cost incurred by the Ministry. These transactions are included as part of the Non-Departmental Schedule of Income and Expenses.

7. New Zealand’s obligation under the Kyoto Protocol

Analysis of the Kyoto Protocol obligation Actual
2010
$ million
Actual
2009
$ million
Opening position (provision) 207 (562)
Change in the price of carbon (30) (41)
Change in net projected emission units 35 810
Closing position (provision) 212 207
     
  Emission units15 Emission units
Kyoto Target (Assigned Amount Units) 309.6 309.6
Less AAUs allocated to emission reducing projects 5.0 6.8
Total commitment target 304.6 302.8
     
Projected emission units    
Agriculture 177.6 184.0
Energy (including transport) and industrial processes 184.9 185.7
Waste 8.2 8.3
Solvent and other product use 0.2 0.2
Total projected emission units 370.9 378.2
Removals via forests 89.1 92.3
Deforestation emissions (9.2) (7.3)
Net removals via forests 79.9 85.0
Net projected emission units 291.0 293.2
Less net transfers of AAUs 2.4 0
Surplus (deficit) in units 11.2 9.6
     
  $ million $ million
Surplus (deficit) in $ millions 212 207

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. New Zealand’s Kyoto Protocol compliance over the first commitment period will not be finalised until 2015 when the annual submission covering the period 1990 to 2012 is submitted and internationally reviewed. 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 2010 of $NZ212 million (2009: $NZ207 million) is based on the projected surplus of 11.2 million Kyoto Protocol emission units and a carbon price of €10.75 per unit. The carbon price in New Zealand dollars equates to $NZ18.94, using the 30 June 2010 exchange rate of €0.5677 = $NZ1 (30 June 2009: €0.46280 = $NZ1, and a carbon price of €10.00 per unit).

The carbon price has been determined by the Ministry for the Environment based on international market transactions that have occurred.

The projected balance of Kyoto Protocol units (the net position) is compiled by the Ministry for the Environment using sectoral projection reports from across government. This includes reports on Agriculture emissions and net removals from eligible forests from the Ministry of Agriculture and Forestry; energy emissions (including transport) and industrial processes emissions from the Ministry of Economic Development, and emissions from the waste sector from the Ministry for the Environment. Details of the net position can be found on the Ministry for the Environment’s website: www.mfe.govt.nz. The sectoral reports from other departments can also be found by following links on this website. 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 2010.

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 a price of 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 also impact the financial statements of government. Foresters opt-in to the ETS and are allocated units. Because units are allocated free-of-charge, the Crown incurs an expense. When the forests are harvested, the foresters may use the units to meet their carbon obligations.

During the first commitment period, MAF estimate that 89.1 million tonnes of credits will be generated by carbon removals via forests (2009: 92.3 million tonnes). Of this amount, 5.1 million tonnes has been allocated to foresters through the ETS as at 30 June 2010. To the extent that these forests are harvested (in subsequent commitment periods), and a future international agreement is negotiated, there will be an associated liability 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 of the Crown in respect of future commitment periods has been reported as a separate contingent liability. Using the carbon price as at 30 June 2010, this contingent liability can be measured at $NZ1,590 million (ie, 84 million x $NZ18.94) (2009: $1,995 million).

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.

8. Provisions

Actual
2009
$000
  Actual
2010
$000
  Current portion  
0 Waikato River Clean-up Fund 20,294
0 Waikato River Initiatives Fund 40,000
0 Waikato River Co-management Fund 5,798
504 Indemnity payments 1,132
504 Total current portion 67,224
  Non-current portion  
0 Waikato River clean-up Fund 91,303
0 Waikato River Co-managment Fund 46,126
16,421 Allocation of New Zealand Units 74,074
16,421 Total non-current portion 211,503
16,925 Total provisions 278,727
  Waikato River Clean-up Fund $000 Waikato River Initiatives Fund $000 Waikato River Co- management Fund $000 Indemnity $000 Allocation of New Zealand Units $000 Total  $000
Balance at 1 July 2008 0 0 0 210 0 2,101
Additional provisions made  0 0 0 294 16,421 16,715
Amounts used 0 0 0 0 0 0
Unused amounts reversed 0 0 0 0 0 0
Balance at 30 June 2009 0 0 0 504 16,421 16,925
Balance at 1 July 2009 0 0 0 504 16,421 16,925
Additional provisions made  111,596 40,000 51,925 1,233 81,07316 285,827
Amounts used 0 0 0 -605 -23,420 -24,025
Unused amounts reversed 0 0 0 0 0 0
Balance at 30 June 2010 111,596 40,000 51,925 1,132 74,074 278,727

Before 30 June 2010, the Crown signed Settlement Deeds with Waikato Tainui, Tuwharetoa, Te Arawa and Raukawa relating to the Waikato River co-management arrangements.

The Deeds require the Crown to make various payments over the next 27 years in relation to:

  • the co-management arrangements
  • the Waikato River Clean-up Fund
  • the Waikato River Initiatives Fund.

The total amounts of the payments have been provided for at 30 June 2010. The cash outflows have been discounted to recognise the present value of the future payments using the risk-free discount rate provided by the Treasury. The discounted value will be unwound based on the previous year’s provision and readjusted annually. The table below reconciles the provisions recognised with the cash outlflows that will occur over the next 27 years.

Indemnity payments relate to the Projects to Reduce Emissions and this is authorised under section 65ZG of the Public Finance Act 1989.

The Emissions Trading Scheme (ETS) was established to encourage reduction in greenhouse gas emissions. The ETS creates a limited number of tradable units (the NZ Unit) which the Government can allocate freely or sell to entities. The allocation of NZ Units creates a provision (and an expense if allocated for free). An expense is recognised in relation to the allocation of free units on the receipt of a complete application. The provision is reduced, and revenue recognised, as NZ Units are surrendered to the Crown by emitters. Emitters can also use international Kyoto units to settle their emission obligation.

The Government has adopted a phased approach for sectoral entry in the ETS. As at
30 June 2010 only the forestry sector had entered into the ETS.

Details of current climate change policies are listed at: http://mfe-refresh-upgdtest/climate-change/reducing-greenhouse-gas-emiss....

Recognition of future discounted cash flows for the Waikato River Funds
  Actual
30 June 2010
$000
Provision
2010-2015
$000
Provision
2016-2020
$000
Provision
2021-2025
$000
Provision
2026-2030
$000
Provision
2031-2035
$000
Provision
2036-2040
$000
Total

Co-management

 

 

 

 

 

 

 

 

Nominal 26,500 22,000 20,000 20,000 20,000 5,000 3,000 116,500
Discount         -      (2,474)

(6,750)

(10,185) (12,682) (3,633) (2,352) (38,075)
Recognised 26,500 19,526 13,250 9,815 7,318  1,367 648 78,425

Clean up

 

 

 

 

 

 

 

 

Nominal 0 49,000 35,000 35,000 35,000 35,000 21,000 210,000
Discount 0 (4,683) (11,812) (17,823) (22,193) (25,430) (16,462) (98,484)
Recognised 0 44,317 23,188 17,177 12,807 9,570 4,538 111,596

Initiatives

 

 

 

 

 

 

 

 

Nominal 0 40,000 0 0 0 0 0 40,000
Recognised 0 40,000 0 0 0 0 0 40,000

9. Events after the balance sheet date

As of 1 July 2010, funding for the Lake Taupo Protection Programme project is being transferred from Departmental Output Class, Environmental Policy Advice to Non-Departmental Output Expenses to align with other similar projects being funded from Non-Departmental Other Expenses.

On 27 September 2010, the Crown signed a Settlement Deed with Maniapoto iwi relating to the Waikato River co-management arrangements. This deed provides for funding to be paid annually for the next 20 years which will total $30.0 million. This Settlement Deed is not included in the statement of provisions or commitments because it was entered into after the balance date.

Apart from those described above, no other significant events which may impact on the results have occurred between year end and the signing of these financial statements.

10. 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
2010
$000
Variance
$000
Levies 24,973 30,000 5,027
Emissions trading 0 320,865 320,865
Change in estimate of Kyoto units held 64,015 0 (64,015)

Waste disposal levy collection estimates were based on the information gathered from waste disposal facilities. Since it was the first year of its inception, the actual net waste disposal was less than estimated.

The Ministry anticipated receiving NZ/international Units from emitters in the financial year ended 30 June 2010. 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 2011.

Changes in the estimate of Kyoto units held was higher than anticipated due to the revision in net position for Kyoto units in the financial year ended 30 June 2010.

There were no other significant variances to budget.

(ii) Schedule of non-departmental expenses
  Actual
2010
$000
Main estimates
2010
$000
Variance
$000
Grants awarded 245,501 95,707 149,794
Levy disbursement 12,487 15,000 (2,513)
Issue of NZ AAU’s to PFSI Participants 1,752 3,221 (1,469)
Allocations of New Zealand Units 90,009 471,240 (381,231)

Grants awarded were higher than budget due to the recognition of an obligation upon signing of the settlement deeds with Waikato Tainui and other iwi in respect of their Waikato Raupatu Claims (Waikato River) Settlement. This funding arrangement relates to the Waikato River Co-management fund $51.9 million and the Waikato River Clean-up Fund $97.6million.

Levy disbursements to the territorial authorities depend entirely upon the waste disposal levy collections. Since 50% of the levy collected is distributed the territorial authorities, the levy disbursements were lower than budget due to the actual net waste disposal levy collected being less than estimated.

The Ministry issued lower than anticipated NZ AAU’s in the financial year ended 30 June 2010 due to a lower level of uptake by Permanent Forest Sink Initiative (PFSI) Participants.

The allocation of New Zealand Units were lower than budget due to changes in the Emissions Trading Scheme and in the assumptions surrounding the timing of the allocation of New Zealand Units to various eligible sectors.

(ii) Statement of assets
  Actual
2010
$000
Main
estimates
2010
$000
Variance
$000
Cash and cash equivalents 12,063 17,309 (5,246)
Debtors and other receivables 6,575 0 6,575
Crown land holdings 0 6,813 (6,813)
Kyoto Protocol units 211,927 224,116 (12,189)
PRE units 617 7,000 (6,383)

The Ministry drew less funding from the Crown and used its excess cash balance to fund its outputs. This resulted in lower than the budgeted cash and cash equivalents.

Debtors and other receivables relates to the waste disposal levy collection from waste disposal facility operators, which wasn’t budgeted.

Crown land holdings were transferred to Land Information New Zealand (LINZ) during the 2009/10 year.

Kyoto Protocol units are lower than budget due to the change in the projected net position of Kyoto units, conversion of New Zealand Units to Assigned Amount of units and the issue of New Zealand Assigned Amount of units to Permanent Forest Sink Initiative Participants. The Kyoto Protocol provision is also affected by the carbon price per unit and fluctuations in foreign exchange rates.

The $617,000 non-departmental capital expenditure relates to the purchase of PRE units. Expenditure is lower than budget due to the timing of the purchase of PRE units under the committed contracts which span into out years beyond the final year of funding.

(iii) Statement of liabilities
  Actual
2010
$000
Main estimates
2010
$000
Variance
$000
Creditors and other payables 10,329 8,200 (2,129)
Provisions 278,727 173,219 (105,508)

Creditors and other payables are higher than budget due to the invoices being received after the accounts payable cut-off date and GST payable to Inland Revenue Department on revenue collected from the waste disposal levy.

Provisions include the Waikato River Co-management Fund, the Waikato River Clean-up Fund, the Waikato River Initiatives Fund, indemnity payments and the Allocation of New Zealand Units.

  • Provisions relating to the Waikato River funding are higher than budget by $203.5 million due to the recognition of an obligation for the payment of the funding upon signing of the deeds with Waikato Tainui and other iwi relating to the Waikato River Co-management Fund, the Waikato River Clean-up fund and the Waikato River Initiatives Fund.
  • Provision relating to the Allocation of New Zealand Units were lower than budget by $99.0 million due to changes in the Emissions Trading Scheme and in the assumptions surrounding the timing of the allocation to various eligible sectors, the Ministry issued lower than anticipated NZ Units in the financial year ended 30 June 2010.

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 2010.

[signed by]
Paul Reynolds
Chief Executive
30 September 2010

Countersigned by:

[signed by]
Rochelle Davis
Chief Financial Officer
30 September 2010


14  Disposals relates to the transfer of Crown land holdings consisting of land and buildings and forestry land to Land Information New Zealand (LINZ).

15  One emission unit is equivalent to one tonne of greenhouse gas emissions converted to carbon dioxide equivalents by the global warming potential.

16 The net increase in the provision for the allocation of NZ Units in 2010 of $57,653,000 reflects an allocation of 4,456,000 NZ Units less 1,237,000 NZ units converted into Assigned Amount Units (AAUs). In monetary terms, the additional provision made comprises of $84,378,000 for the allocation of NZ units less $23,420,000 for the NZ units converted into AAUs and less $3,305,000 for additional impacts such as the change in the carbon price and the impact of exchange rates between opening and closing balances