The ghost of Hugo Chavez is hovering far too close for my liking when it comes to the recommendations that the Wayne Brown-led working group has made to effectively purloin Auckland's port business and shift it to Northport without any compensation.
The recommendations from the portentously named Upper North Island Supply Chain Strategy working group — finally out in public — will be galling to Auckland Council.
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The working group effectively invites central government to ride roughshod over the commercial interests of Auckland Council and its 100 per owned Ports of Auckland Limited (POAL) business, and legislate to achieve the group's strategy. That's if the council and the ports company don't agree to implement the thrust of their recommendations by a drop-dead deadline of December 1, 2020.
The final report contends there is no case for compensation, given the value for Auckland Council's balance sheet and rating base that its recommendations — effectively to shift much, if not all, of POAL's freight business to Northport — will deliver to Auckland City in less than 15 years. And also because the port has posted a low dividend and hence the business presents an opportunity cost for the city when it comes to alternative land uses.
What Brown and the group — Mondiale Freight director Noel Coom, Professor Susan Krumdieck from the University of Canterbury, KiwiRail chief executive Greg Miller, economist Shane Vuletich and former marine sector manager Vaughan Wilkinson — neglect is the strong counterfactual for Auckland Council to be financially compensated for a business built by Auckland ratepayers' investment over many decades and/or to have an increased shareholding in the ultimate ownership structure for an enlarged freight business at Northport.
Ports of Auckland is also a 19.9 per cent shareholder in the listed Marsden Maritime Holdings, whose major shareholder is the Northland Regional Council (53.61 per cent) but also includes other minor shareholders such as ACC (2.18 per cent). Marsden Maritime Holdings and the publicly listed Port of Tauranga each own 50 per cent of Northport.
A sensible outcome would be to invite discussions to focus on forging a commercial solution which would lead to an IPO at Northport to raise capital to enlarge operations — if that is where Cabinet finally lands.
The reality is that there will be substantial cost to Auckland to remediate the land (much of which is wharves) before it can be put to other uses.
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Refusing to compensate Auckland Council for the loss of the freight business also forecloses on other options that might be in front of the city for alternative land uses — such as investing in public developments — and instead shunts this city-owned asset into the arms of financially well-heeled property investors who can fund developments which may increase the rateable base. This should be thoroughly debated.
But the working group says legislation may be needed to require the divestment, purchase and consolidation of shareholdings in relevant ports to enable growth at Northport, arguing along the way that Northport has felt constrained in its growth ambitions by its port shareholders.
Within the document trove released on Thursday is advice from Treasury and the Ministry of Transport which shows clear scepticism towards some of the working numbers produced by EY (which advised Brown's group).
Treasury requested the full analysis undertaken by EY in order to better understand the assumptions. But a note to ministers said the "Chair of the Working Group refused this request on the basis the report stands for itself" and asked them to request the chair to provide the full analysis and evidence base when the final report was delivered.
Treasury and the Ministry of Transport were also concerned at the risk posed by the directive approach the working group was recommending and its implications for private property rights (ie POAL and Auckland Council).
Officials were also concerned that shifting Auckland's port freight business to Northport could result in a stranded asset as support from the shippers and carriers was not guaranteed.
All this has landed up back with officials and the Infrastructure Commission for a rigorous review, running alongside discussions with affected interests.
There is another example of over-reach.
The group cites as a potential risk a possible plan to separate Ports of Auckland into an OpCo (operating company) and a LandCo (land ownership company), with the floated operating company holding a long-term, low-value lease over the port land and then being privatised based on the value of the lease. The group claims this is a defensive strategy to prevent the implementation of its recommendations and recommends the Government and Auckland Council oppose it and if necessary take steps to prevent it.
This neglects the reality that separation of the port and land assets will ultimately be necessary. Even when the freight business goes, there will still be a commercial port in Auckland servicing cruise ships and other operations.
These are not the issues that have been highlighted in much of the commentary about the future of Auckland's port.
But the array of advisers who are now chiming in on the report will hopefully take a less antagonistic stance to Auckland's commercial interests.
Fundamentally, invoking legislation to force the working group's recommendations without compensating Auckland Council will send a strong adverse signal internationally that the Coalition is prepared to confiscate assets if it can't arrive at a pre-ordained solution.
Even Chavez — the late Venezuelan leader who put nationalisation at the centre of his presidency — came to learn that paying some compensation caused less of a headache in the long run than expropriating other people's assets.