I was both mystified and concerned to read Paul Bailey's opinion piece advocating a "user pay" approach as a solution to the Port of Napier's future capital needs.

I do acknowledge that the port management and board and the regional council have put an enormous effort into producing the consultation document on this very important issue.

The document is of necessity high level but very clearly sets out the options and the consequential impact of each option.

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What will not be obvious is the extent of the underlying work undertaken to produce a relatively brief but high quality document and that includes our own elected councillors who I am certain will have listened and participated in many presentations and workshops to arrive at their preferred option.

I do have to state, however, that the additional option presented by Mr Bailey has some serious flaws.

He suggests that one solution might be to somehow isolate the debt from the port's balance sheet which would then be secured by guarantee over the regional council's assets, freeing up the port to raise replacement loan capital.

The underlying purpose of a limited liability company structure is just that - to limit the liability of any catastrophic failure of the company (the Port of Napier Ltd ) to the company and not to the ultimate shareholders, the ratepayers of Hawke's Bay.

The provision of a guarantee over the assets of - HBRC such as they are- directly exposes the council and therefore the ratepayer.

While failure or even a serious financial event is highly unlikely, it is not impossible. It is entirely possible for example that insurance would not cover all of the consequences of a catastrophic earthquake.

Infrastructure companies in earthquake prone areas will be sometimes obliged to take part of a major event risk on their own balance sheet. If that was the case then the guarantee the regional council has given could be called up, with the ratepayers exposed.

Who would then service the loan, presumably not HBRC who would on present indications have no financial headroom and even if that was possible there would be a direct impact on rates.


If the port takes on the servicing obligation then it must service this loan and the additional borrowing that Mr Bailey suggests the Port would then undertake which is simply not credible.

Mr Bailey does, however, pose a solution. He suggests a levy on total container equivalents (TCEs) of $35 per TCE.

This is intended to generate a fund of around $10 million per annum to repay the current port debt of $86m over a 10 year period. The levy of course would be subject to taxation so that around $7m would be available not $10m, however, of more significance in my view is the impact on the port's business.

The Napier Port does not operate a monopoly. The shipping business like any business in an open economy is subject to fine margins and stiff competition. Exporters will have a range of transport solutions.

A shipping company sending just 10,000 TCEs annually through the port would be subject to an additional annual cost of $350,000, sufficient I suggest for them to look elsewhere.

I do also take issue with Mr Bailey's suggestion that port users should be offered a seat on the board. That would simply make the board unworkable as meetings would be completely dominated by conflict of interests on just about any issue typically considered by a board.

I do though compliment all of the councillors and management on the care and effort put into producing such an important consultation document.

The consultation process allows for participation by way of submission, public hearings and then a final decision by council.

That I believe is a well considered and appropriate process providing plenty of opportunity for a variety of views to be considered, whereas a decision by referendum is in my view simply not the right process.

I hear the democracy argument but this is not a simple yes/no question.

Ratepayers have the opportunity to apply considerable rigour by submission to the process and I would urge those interested to do so.

* John Palairet is a former director of Unison Networks main board, a former director and chair of Hawke's Bay Airport and a chartered accountant.