There seems to be a misunderstanding about Hawke's Bay Regional Council Rates (HBRCR) vis a vis port expansion options, and alarmist comments that rates could rise by up to 45 per cent.

Here are the facts.

Currently the Port of Napier (PON) pays a dividend to its parent company which, since June 25, 2012, has been Hawke's Bay Regional Investment Company Limited (HBRIC), which in turn is owned by the Hawke's Bay Regional Council (HBRC).

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Most, but not all of the dividend received by HBRIC is passed on to the HBRC, for distribution as a subsidy to HBRCR. Why dividends in does not equate to dividends out is a separate but still newsworthy subject.

The amount passed from by HBRIC in the financial year 2017 to HBRC was $9.5 million. (There are no figures publicly available for financial year 2018).

The dividend paid is the result of the PON's Net Profit, less Taxation and its requirement to reinvest some of its profit into the maintenance/upgrade of its assets.

Port Expansion Options:

There are four generic options - Do Nothing/Lease/Sell/Borrow

Do Nothing: PON is seeking to expand by building another wharf to accommodate its growing activities, and let no one be under any illusion - PON activities have increased dramatically - there are numerous articles to support this since 1988 so "Do Nothing" is NOT an option.

The first problem with expansion is trying to identify its cost. So far in the past 12 months four different figures have been stated - $122 million (sometime last year), $142m (the article by Ewan McGregor in the Hawke's Bay Today not so long ago), $181m (article in the Dominion Post a few days ago) and up to $250m (HBRC Capital Structure Review dated March 23, 2018 - this is not a public document but one of the worst kept "Confidential" documents I have seen for a while- so since this a Confidential Report" I am inclined to believe the figure quoted is the true figure)

An Option: Lease PON to an operator for 50 years. The figure quoted in this option is $450m. My calculator makes 450/50 = $9m a year, some $500,000 less than 2017. Therefore less subsidy - therefore HBRCR rise.

An Option: Sell part of the shareholding of the PON. It is doesn't matter what percentage you sell - the dividend will be reduced accordingly. QED - less subsidy. Therefore HBRCR rise.

An Option: Borrow More: Net result - Until the new wharf is built and producing income - interest and other costs means the Net Profit falls - so the dividend is reduced - so HBRCR rise.

HBRC Subsidy:

This year that subsidy will be $140.00 per property, as shown in the yellow coloured section near the top of the rates demand that ratepayers will have received.

It is a flat rate so if your property is a valued at $100,000 or $10,000,000 - the same rate applies.

How much will my rates go up depending on the option chosen?

Difficult to calculate but it will increase the lowest ratepayers rates - on a percentage basis - the most.

For example - a $10,000,000 commercial property in the CBD will be paying around $4000 per year so losing all of the subsidy of $140 - the owner will not notice (less than 1 per cent).

A $600,000 residential home in the likes of Greenmeadows attracts a HBRC rate levy of $368 so the loss of the entire subsidy would mean a 38 per cent increase for them. However, a residential property in Marewa which pays $226 - the loss of the entire subsidy would mean a 62 per cent increase.

Mr McGregor's article suggested that this matter was too complicated for a referendum. I suggest that this matter is far too important to be left to nine elected officials (where a simple five to four majority may change the entire economic landscape of the Hawke's Bay for generations to come) and who may not be elected officials after the next elections - to decide.

* Mark Brown-Thomas lives in Napier and is a self-employed commercial property investor.