Simon Wilson: Wayne Brown, the Auckland port and his questionable ‘future fund’

Mayor Wayne Brown has proposed a new Auckland Future Fund, but do the numbers stack up?

This column has been updated since it was first published

OPINION

The battle for Auckland is on: Mayor Wayne Brown has a big bold new plan for the city’s budget and future finances. He presents it as a fresh and manageable way for the city to meet the pressing demands on its very limited funds.

That’s good. We definitely need some fresh thinking. But Brown’s numbers don’t – at least as yet – make a lot of sense.

He wants to set up a wealth fund: A kind of smaller version of the high-performing New Zealand Superannuation Fund, to be known as the Auckland Future Fund (AFF).

To do it, he proposes that Auckland Council sell its remaining 11 per cent shareholding in Auckland International Airport and offer a 35-year lease to a third party to run the Ports of Auckland (POA).

Brown is being consistent about the airport: He’s always wanted to sell those shares. But the port lease would lock the containers, cars, cement and other cargo into the existing site for the foreseeable future.

In my view, it’s not credible that a private operator would take on the lease for the port operation without being granted full use of Bledisloe Wharf. It’s valuable for vehicle imports, cruise (in future) and other cargo.

This is a 180-degree reversal of one of Brown’s key goals when he stood for mayor in 2022. Brown used to be the champion of plans to move the port. But a long operating lease will destroy the chance of that happening – and the mayor has not explained why he has changed his mind.

The new proposals are contained in his draft long-term plan, also known as the 10-year budget. Higher rates, cuts to services and many other changes to current operations are also proposed.

Public submissions opened last week and will close on March 28.

The proposals are easy to find on the council website. They cover everything the council does, from buses to business development, playgrounds to property. There’s a lot to digest and a lot to debate. Right now, though, let’s focus on the Future Fund and the port.

Mayor Wayne Brown has proposed a new Auckland Future Fund, but do the numbers stack up?

Brown says that with the asset sales he proposes, the fund could start with between $3 billion and $4b and would return an average 7.5 per cent a year. Some of the money would be used to pay for some of the city’s ongoing expenses.

There are several key questions Brown has not adequately answered, and this is the first: What kind of calculator did consultants use to come up with those figures?

The airport shares are currently worth $1.2b. After fees and other sale costs, that would probably reduce.

Which leaves some $2b to $3b for the port to contribute.

No one knows what the port operation is worth. But we do know POA made a net profit of $40.5m last year and paid a dividend of $30m. It hopes to pay a dividend of around $52m in the 2026 financial year.

We also know that operating revenue in the last financial year was $320m and that under the relatively new chief executive and board, the port has improved its performance. That $52m dividend target will be a good result.

But good enough? By comparison, Port of Tauranga (POT) last year returned a profit of $117m on revenue of $421m.

Tauranga is bigger and doing better: Its profit in 2023 was 28 per cent of revenue, compared with 13 per cent at the Auckland port.

These figures suggest POA could and should continue to improve its performance, but they also reveal it’s worth less than the Tauranga port.

POT is valued on the stock exchange at $3.68b. According to the auditor’s report, “property, plant and equipment” make up $2.6b of that. Most of that value is in the land, which leaves only about $1b worth of value for the operation.

Why would the smaller, less profitable Auckland operation be worth more than Tauranga?

The AFF, this all suggests, is more likely to start life with $2b than the $3b-$4b Brown has staked his case on.

Should the Auckland port be handed to a private-sector company to run for 35 years? Photo / Michael Craig

Next: The past four reports on the future of the Auckland port have reached the same conclusion: That it will outgrow its present site in between 20 and 30 years. Brown himself chaired one of the groups that came to that conclusion.

The capacity constraint relates to the size of the wharves, but that’s a relatively minor issue. If the port does stay on its present site, the reports agree, the road and rail networks that service it will need massive upgrading. Connectivity is the key.

The 2016 Port Future Study put the indicative cost of this upgrade at about $1b. Since then, construction costs, freight and population have all ballooned. It’ll be a lot higher now.

A private port operator will not be doing that work. But it will want a guarantee that it gets done.

Chalk this up as a massive hidden cost, which neither the mayor nor the Government has yet mentioned. It’s certainly not included in Transport Minister Simeon Brown’s just-announced list of Roads of National Significance.

Why is the work necessary? You’ll know the answer if you’ve driven on the Strand in lower Parnell, negotiating the river of container trucks, car transporters and bulk freight carriers coming in and out of the port. How much more of the Auckland roading network do we want to be turned into that?

Leaving the port where it is and not fixing its transport woes is unthinkable.

Next problem: An average 7.5 per cent return on the fund suggests it will rely on some high-growth investments. The global consultancy firm PwC says such investments will be “more volatile” but the targeted return “may be achievable”.

Do these gravy-train consultants have no shame? Unlike the Super Fund, which manages most of its investments in-house, the mayor’s AFF will contract out the work. To companies like … well, PwC.

In fact, does Brown himself have no shame? He used to rail against this kind of jobs-for-the-consultants back-scratching.

Another question. If the council ends up with a $2b fund, and even if it earns 7.5 per cent per year on average, that’s about 5 per cent after tax, which means an income of $100m a year.

Why would Brown be pleased about that? It’s roughly what the airport shares and port dividend return now.

Then there’s this: What’s to stop the council, now or in the future, raiding the fund for projects it’s not intended for?

Brown’s proposal suggests the council will have rules about this. But the only way to do it properly is by an act of Parliament. That way, on the off-chance that we ever did elect an unscrupulous mayor or councillors, they couldn’t get their sticky fingers into the money.

The Government has not said if it’s amenable to this idea.

And another thing. Wealth funds like the Super Fund and, presumably, the proposed AFF, make much of their money by investing in long-life infrastructure. Like, say, ports and airports.

In other words, Brown is proposing to sell council assets in order to establish a fund that will invest in assets like the ones he’s just sold.

Perhaps he’s right. Perhaps there is a better way to manage council assets and use them to help shore up the future of the city.

Honestly, I’d really like to think that is true.

But he’s going to have to produce better analysis than he’s given us to date. And if he wants to win over the doubters, he’s going to have to stop calling them “financial illiterates”, which he did repeatedly last year and the year before, just because they don’t accept his own financial literacy.

Another problem with the AFF is that it’s presented as a magic bullet.

The council needs a strategy that sorts out spending priorities and identifies realistic ways to raise the revenue to pay for them. Much of that thinking does exist in the draft long-term plan, and Brown’s to be applauded for it. But magic bullets are a distraction.

One more thing: Isn’t this the mayor who wanted just seven months ago to build a saltwater swimming pool and other recreation facilities on and around Bledisloe Wharf? Why on Earth would he think a private port operator would let that happen?

A seawater pool and wetland areas feature in new proposals for the Auckland waterfront being promoted by Mayor Wayne Brown. Image / Nick McKay, Eke Panuku

But it should happen. Not necessarily the actual swimming pool. But we do need a plan to open the downtown port land to public use, gradually and with splendour, for recreation, for civic events and activities, and for commercial operations that will pay for it.

That was your own dream, once, Mayor Brown. What happened?

Clarification and correction:

• Mayor Wayne Brown has challenged Simon Wilson’s argument that a lease of Port of Auckland’s operation would lock it into its current footprint. Wilson’s view is that it’s not credible that a private operator would take on the lease for Port of Auckland’s operation without being granted full use of Bledisloe Wharf. It’s valuable for vehicle imports, cruise (in future) and other cargo.
  
• This column originally said that returns from the future fund would be to pay some of the city’s ongoing expenses. It is proposed about three-quarters of these returns would be used for expenses.
  
• This column originally said that POA was on track to pay a $52m dividend this year. POA hopes to return a dividend of around $52m by FY26.
  
• The column originally said that $200m in the sale of Auckland Airport shares would be lost in fees/transaction costs. This was overstated.
  

Simon Wilson is an award-winning senior writer covering politics, the climate crisis, transport, housing, urban design and social issues, with a focus on Auckland. He joined the Herald in 2018.