Frank Newman: Memorandum of Understanding and confidentiality

Last week the Northland Regional Council (NRC) signed a Memorandum of Agreement (MOU) with a Chinese state-controlled company to investigate infrastructure investment opportunities. According to the NRC press release, "It builds on a relationship that began in June last year when the council hosted a delegation from China Railway Zhongji Holding Group..."

It seems that delegation was on a NZ road trip as the Chinese group is reportedly also looking at relationships in Gisborne - and last November Fairfax media reported it had entered into an agreement with Wellington property investors Chow Group Management to provide up to $100 million in funding for construction ventures.

So who exactly is China Railway Zhongji and what is the understanding they have entered into with NRC? The who question is not an easy one to answer.

A company with a similar name to the one that has entered into the MOU was incorporated in September last year. It has one NZ resident director and one shareholder, China Railway Zhongji Third Engineering Bureau Co which is owned by the Chinese government. 

According to Fairfax media Zhongji has a "multi-billion dollar portfolio across a wide range of sectors including investment, real estate, construction and building materials."  What is clear is that it is a huge entity with massive financial resources at its disposal.

The NRC's press release includes this comment about the details of the agreement with China Railway Zhongji.

Council chairman Bill Shepherd says the MOU essentially formalises an agreement to identify and develop business opportunities for the benefit of the Northland economy and its people.

One of council’s roles is to advocate for economic development and attract investment and jobs into the region; the MOU makes it easier for us to do this by providing potential Chinese investors with advice about who they should be talking to when they are looking at potential developments.

The MOU simply outlines a proposed, high-level strategic relationship between ourselves and China Railway Zhongji Holding Group and enables us to maintain a warm, strong and mutually beneficial relationship.

What the press release does not mention is the information sharing and confidentiality clauses which form a large part of the 16 clause agreement.

For example, clause 8 says, "The parties will meet as and when required to share information and to further the relationship between them."

Clause 9. "Subject to the Local Government and Official Meetings Act 1987, any exchange of business information between the parties is to be regarding as confidential."

Clause 10 then says that if council is to release information under the Act, then the NRC will consult with China Railway Zhongji so it can advise the Council of the implications of the intended release.

Clause 11. "For its part, China Railway Zhongji agrees to keep confidential any business information provided to it by the Council."

Clause 12. "The existence of the Memorandum of Understanding and its terms are not confidential information."

An MOU is often the first stage in the formation of a formal contract. It is quite obvious from the agreement itself that it gives China Railway Zhongji the inside running on getting involved with infrastructure projects, and ensures those discussions are confidential, unless disclosure is specifically required under the Official Information...Act. In practice, I expect the NRC will decline information requests about its discussions with China Railway Zhongji on the grounds of commercial sensitivity.

I also expect questions will ask whether the NRC should be entering into an agreement to engage in what will be largely behind closed door discussions with a largely unknown overseas business. The fact that it happens to be a Chinese company is irrelevant. What is relevant is the agreement gives them a privilege that is not available to local companies.

While it’s admirable that the NRC would wish to enter into a warm, strong and mutually beneficial relationship with China Railway Zhongji, one would have thought the NRC would take the same approach to everyone it deals with - especially local businesses, it’s residents, and ratepayers.

If these MOU's are such a good thing then the NRC should also have a Memorandum of Understanding with ratepayers - an understanding and commitment to a warm, strong and mutually beneficial relationship; and refresh that understanding every three years at the time a new council is sworn in.