Reports and Publications

• Annual Report 2005
  • Contents
  • Part 1 Overview
  • Part 2: Statement of responsibility and audit report
  • Part 3: Departmental financial statements
  • Part 4: Non-departmental schedules
  • Part 5: Other information

Within this section

Output Class - Management of equipment procurement (continued)

8. Upgrade of P-3 mission systems for the Air Force

9. Acquisition of a light armoured vehicle for the Army

10. Replacement of Boeing 727 aircraft for the Air Force

11. Replacement or upgrade of tactical communications for the Army

12. ANZAC Ships

Annual Report for the year ended 30 June 2005

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Part 3: Departmental financial statements (continued)

Output Class - Management of equipment procurement

8. Upgrade of P-3 mission systems for the Air Force This project will upgrade the sensors and mission management systems required for the Royal New Zealand Air Force P-3 Orion maritime patrol aircraft to conduct surface surveillance tasks.
Target	Delivered
The intention is to complete the evaluation of the Best and Final Offer from the preferred tenderer by 31 July 2004, and following consultation, make recommendations to the Government in the negotiating and awarding of a contract.	A contract was signed with L3 Communications Integrated Systems on 5 October 2004. Preliminary Design Reviews for the Mission Planning System and Group B equipment were completed in May and June 2005. Some early system installations began on the first aircraft at Safe Air, Woodbourne in June 2005. This aircraft is due for acceptance in August 2005.

Financial summary of pre-acquisition costs charged to departmental output class - Management of equipment procurement in 2004/05 (GST exclusive)
	$
Budget for pre-acquisition costs	163,172
Expenditure to 30 June 2005	163,172
Financial summary of project costs charged to non-departmental appropriations as at 30 June 2005 (GST inclusive)
	$
Project approval	373,069,314
Foreign exchange variances to date and forecast to complete	(26,024,279)
GST	46,633,667
Total approved cost	393,678,702
GST exclusive
Expenditure to 30 June 2004	-
Expenditure 2004/05	65,617,789
Future commitments and forecasts	280,869,126
	346,486,915
GST
GST to 30 June 2004	-
Expenditure 2004/05	325,148
Future commitments and forecasts	46,441,712
	46,766,860
Total forecast cost to complete	393,253,775

• Foreign exchange variances at 30 June 2005 are favourable by $26.024 million due to the purchase rates of the USD currency being better than the USD exchange rate used in the Cabinet paper for financial approval.
  
  USD approval rate = 0.6107
  USD forecast average rate = 0.6633
• Commitments and forecasts are valued using an average exchange rate of forward contracts still to be settled, plus the actual exchange rates for currencies in the bank. The exchange rate used to calculate commitments and forecasts at 30 June 2005 was USD = 0.6600.

9. Acquisition of a light armoured vehicle for the Army These Army vehicles are intended to provide protected mobility for light infantry manoeuvre groups in combat or when undertaking peace support operations.
Target	Delivered
The project milestones in 2004/05 are to: complete delivery of the light armoured vehicles and special tools and test equipment by November 2004 accept the final vehicles by January 2005 close the project by June 2005.	104 vehicles were in service with the New Zealand Army at 31 December 2004. 99% of spares and special tools were delivered at 30 June 2005. A delay in deciding armour requirements will extend the closure date of this project to June 2006.

Financial summary of project costs charged to non-departmental appropriations as at 30 June 2005 (GST inclusive)
	$
Project approval	580,296,353
Foreign exchange variances to date and forecast to complete	14,703,406
GST	72,537,044
Total approved cost	667,536,803
GST exclusive
Expenditure to 30 June 2004	563,503,741
Expenditure 2004/05	21,520,539
Future commitments and forecasts	9,231,262
	594,255,542
GST
GST to 30 June 2004	45,071,115
Expenditure 2004/05	7,167,154
Future commitments and forecasts	52,631
	52,290,900
Total forecast cost to complete	646,546,442

• Foreign exchange variances at 30 June 2005 are unfavourable by $14.703 million due to the purchase rates for the CAD and USD currencies being less than the CAD and USD exchange rates used in the Cabinet paper for financial approval.
  
  CAD approval rate = 0.6600
  CAD forecast average rate = 0.6490
  
  USD approval rate = 0.4400
  USD forecast average rate = 0.4247
• Commitments and forecasts are valued using an average exchange rate of forward contracts still to be settled, plus the actual exchange rates for currencies in the bank. The exchange rate used to calculate commitments and forecasts at 30 June 2005 were CAD = 0.8413 and USD = 0.6600.

10. Replacement of Boeing 727 aircraft for the Air Force This project replaces the Boeing 727 aircraft with Boeing 757 aircraft to provide greater range and payload capacity. Two aircraft have been purchased. The intention is to modify them to provide a dual passenger/freight capability.
Target	Delivered
In 2004/05 it is planned to: commence negotiations with identified suppliers to undertake the conversion. enter into contracts and commence the conversion.	The modifications required to provide a combined passenger/freight capability were finalised in July 2004. Mobile Aerospace Engineering and Boeing are approved as the preferred tenderers. Due to the complexity of the programme the documentation took six months to finalise and was released to industry for final costing on 1 April 2005. Industry responded in late April. Final Cabinet approval for the conversion was being sought at 30 June 2005. A revised start date for the modification programme is June 2006. Subsequent to 30 June 2005 Cabinet approval was given to additional funding of $45.675 million to meet the modification programme without making major tradeoffs. The increase in cost is due to an increased need for engineering analysis; additional costs for certification, data licences and documentation; inflation and foreign exchange movement.

Financial summary of project costs charged to non-departmental appropriations as at 30 June 2005 (GST inclusive) including approval for additional funding
	$
Project approval	220,603,000
Foreign exchange variances to date and forecast to complete	(12,623,885)
GST	27,575,000
Total approved cost	235,554,115
GST exclusive
Expenditure to 30 June 2004	108,233,771
Expenditure 2004/05	236,460
Future commitments and forecasts	99,365,445
	207,835,676
GST
GST to 30 June 2004	13,048,133
Expenditure 2004/05	6,959
Future commitments and forecasts	14,520,002
	27,575,094
Total forecast cost to complete	235,410,770

• Foreign exchange variances at 30 June 2005 are favourable by $12.624 million due to the purchase rates for USD currency being better than the USD exchange rate used in the Cabinet paper for financial approval.
  
  USD approval rate = 0.54251
  USD forecast average rate = 0.5901
• Commitments and forecasts are valued using an average exchange rate of forward contracts still to be settled, plus the actual exchange rates for currencies in the bank. The exchange rate used to calculate commitments and forecasts at 30 June 2005 was USD = 0.6600.

11. Replacement or upgrade of tactical communications for the Army This project replaces and/or upgrades existing Army short range communications systems to provide high band width (higher capacity) digital theatre communication systems to support command and control requirements of the New Zealand Defence Force Battalion Group operations.
Target	Delivered
The final delivery of radios is expected by September 2004. Ancillary equipment is expected to be complete by March 2005.	The delivery of radios is complete. Ancillary equipment is still being purchased. Delays in supply and obtaining export licenses will extend the expected completion date to December 2005.

Financial summary of project costs charged to non-departmental appropriations as at 30 June 2005 (GST inclusive)
	$
Project approval	119,223,000
Foreign exchange variances to date and forecast to complete	4,786,625
GST	14,903,000
Total approved cost	138,912,625
GST exclusive
Expenditure to 30 June 2004	118,801,182
Expenditure 2004/05	1,560,436
Future commitments and forecasts	3,456,544
	123,818,162
GST
GST to 30 June 2004	11,205,187
Expenditure 2004/05	304,275
Future commitments and forecasts	3,386,452
	14,895,914
Total forecast cost to complete	138,714,076

• Foreign exchange variances at 30 June 2005 are unfavourable by $4.787 million due to the purchase rates for USD currency being less than the USD exchange rates used in Cabinet paper for financial approval.
  
  USD approval rate = 0.4300
  USD forecast average rate = 0.4126
• Commitments and forecasts are valued at an average of the exchange rate of forward contracts still to be settled, plus the actual exchange rates for currencies in the bank. The exchange rate used to calculate commitments and forecasts at 30 June 2005 was USD = 0.6600.

12. ANZAC Ships This project is to procure two ANZAC class frigates from the 10-ship build programme, to replace two existing surface combatants complete with spares and training facilities. New Zealand ships, HMNZS Te Kaha and HMNZS Te Mana have been delivered and are in service.
Target	Delivered
In 2004/05 it is planned to discontinue New Zealand's involvement in this project and settle any outstanding obligations.	The Ministry has requested the Australian Department of Defence to identify final Treaty obligations with a view to settlement by 30 June 2006. There are no other matters to report.

Financial summary of project costs charged to non-departmental appropriations as at 30 June 2005 (GST inclusive)
	$
Approved contract at base rates	938,949,321
Approved escalations at base rates	252,391,118
Foreign exchange variances to date and forecast to complete	125,151,984
GST	153,808,491
Total approved cost	1,470,300,914
GST exclusive
Expenditure to 30 June 2004	1,241,795,590
Expenditure 2004/05	840,089
Future commitments and forecasts	500,000
	1,243,135,679
GST
GST to 30 June 2004	157,476,992
Expenditure 2004/05	1,589
Future commitments and forecasts	-
	157,478,581
Total forecast cost to complete	1,400,614,260

• The ANZAC Ship approval was stated in 1989 base exchange rates against a basket of currencies. A Treaty with Australia recognised contract escalation and currency variances, and agreed the methodologies for calculation.

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