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Port Rationalisation Debate Stoked By Auckland Investment

Fuseworks Media
Fuseworks Media

Wellington, Sept 15 NZPA - The propping up of the finances of the country's biggest port by its council owner today has business people wondering if investment in the port sector will ever be rational.

A listed company argues the case for new cash publicly, produces documents for a rights issue and gets the approval of a range of shareholders. The market sets the price of the new money invested.

A council, or its commercial arm, can consider large financial decisions behind closed doors and ratepayers are none the wiser.

A council-owned port may get a new crane that will never earn the cost of capital. Councillors want their port to be the biggest.

Ports of Auckland today revealed that Auckland Regional Holdings, the commercial arm of Auckland Regional Council, has purchased 40 million new shares at $1 each and there is scope for another 10 million shares to be purchased if needed.

ARH is also lending the port $20 million at an unknown interest rate. Rivals wonder if any interest is being paid at all.

ARH said it is an investment company that made an investment decision that will not change its commitments to the council.

Advocates of council ownership of ports argue that it stopped foreign ownership and that Port of Tauranga, the model listed port, is actually majority council-owned.

ARH has just put $60m into Ports of Auckland but in the last five years it has taken $522.5m out in dividends and other payments.

The debate is complicated, acknowledges Northland Regional Council chairman Mark Farnsworth.

"The route cause of the philosophical difference is more than just council ownership," he said.

Ports of Auckland had liquidity issues because of the "insane" competition between Port of Tauranga and Ports of Auckland.

He said the two ports had spent hundreds of millions of dollars dredging their harbours for the same trade.

"Quite honestly there needs to be port rationalisation. I just think we are playing around the edges of a key piece of national infrastructure, and if the Government wants to get the best for New Zealand Inc ports should be rationalised."

Mr Farnsworth said he was "easy" about the issue of ownership but councils were more likely to take a long term view while listed companies took a short term profit view.

"A strategic planning environment of 15 to 25 years does not fit comfortably with a company profit environment of one to two years," he said.

Port of Tauranga chief executive Mark Cairns said his port had held the view for many years that port rationalisation would occur naturally if ports invested to ensure a return on the cost of capital.

A rejig of Fonterra's supply chain this year demonstrated the fragility of ports' businesses. Fonterra will reduce its exports through PrimePort Timaru by 80 percent and its exports through Port Taranaki by 65 percent.

In the upper North Island some people argue it is madness to have a big port in downtown Auckland and that Port of Tauranga has a sandy bottom that requires dredging.

The port at Marsden Point in Northland has a natural deep harbour but no rail link and no large container cranes. It might become a large port one day but do you really want to take exports from Waikato through Auckland?

So the debate goes on and doesn't really need to be resolved until the next generation of big ships arrive.

Some port bosses say their arrival is imminent, while others say privately they are five years away.

Ports of Auckland managing director Jens Madsen said today that it was expected that the next step in ship size would be from the 4100 teu ships that call now to ships capable of carrying between 6500 and 7000 containers.

"You could well see it happening in stages. Rather than jumping straight from 4100 teu to 6000 or 7000 teu you could see a type emerging which already exists out there. That could be in the size from 5000 teu to 5300 teu or there about," he said.

Fonterra has been centralising its loadings.

"What is happening out there is quite important. There is a concentration of volumes over some of the ports. That will eventually create the right economies of scale to start berthing the larger ships.

"I wouldn't say when they will arrive," he said.

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