By Pam Graham of NZPA

Wellington, Oct 30 NZPA - A step has been taken to integrate the operations of Lyttelton Port Company and Port Otago Ltd, to the applause of many in the transport sector.

The two South Island ports have signed a memorandum of understanding to explore a merger of their operations.

Port Otago is wholly owned by Otago Regional Council and owns 15 percent of Lyttelton, which is listed but is majority owned by the commercial arm of Christchurch City Council.

"One thing that is quite certain is that the infrastructure assets will not be sold. They will be retained by the regional council and Christchurch City Council," said Port Otago chairman John Gilks.

"It will be the operating businesses and the operating assets that will be sold into a merged company," he said.

The wharves and land remain in public ownership while the cranes and straddle carriers are regarded as operating assets.

The prospect of a merger is being welcomed as a way of stopping shipping companies like Maersk playing one port off against another and a way of getting sensible investment in new equipment to service the next generation of large container ships.

But questions are being asked about where it leaves Timaru and Southland's port and whether it will spur Auckland and Tauranga to do something after their merger talks failed.

The Maritime Union of New Zealand today offered qualified support but said the relationship between the new entity and Timaru and SouthPort -- the Southland port company -- needed to be considered.

"We are pleased to see local control as the union has long been opposed to the loss of key infrastructure to overseas interests," said general secretary Trevor Hanson.

A port merger on the face of it reduces competition.

A spokesman for Finance Minister Michael Cullen's office said the current government was supportive of mergers if they were in the interests of "New Zealand Inc" but any legislation would allow mergers generally rather than facilitate a particular deal.

Mr Hanson called for a national ports plan and some form of national ownership to avoid the tendency to parochial competition and duplication of resources under the current model.

"Could it be time to consider KiwiPort?"

Port of Tauranga chairman John Parker said port mergers did not mean the closure of ports.

"You are establishing in a sense a hierarchy of ports," he said.

There was likely to be one major hub port in the South Island and one in the North Island and others would feed them and service their own regions.

Mergers of ports made absolute sense, he said.

"The issue has only ever been a question of how long it was going to take," he said.

"It's just common sense," he said.

Mr Gilks said an adviser would be appointed in the next few weeks and the process of getting approvals was part of a work stream over the next two to three months.

"What we have done today is start a process that is going to work and identify what are the value gains in a merger. We will only proceed to a merger if there are significant gains.

"No one has done the work. The process will tell us what we have never known before," he said.

The port has a proposal to deepen its channel for the next generation of ships but it is still in planning stages.

Mr Gilks said the port would not push a button on that until it was clear where it was going with the merger.

Port Otago has always spurned the use of the word hub but the growth of dairying in its hinterland and trade flows from it has been noted by a number of industry observers.

Lyttelton has been experiencing strong growth in coal exports and this will be further boosted when Pike River Coal mine starts production.

NZPA WGT pjg kn