Auckland Council's 'mistaken' belief in its commercial expertise: former port and airport watchdog

Ports of Auckland is to write off $65m and counting from a failed automation project. Photo / Michael Craig

Auckland Council's "mistaken belief" it had the expertise to govern and monitor commercial entities is a major reason why it's taken so long for the disastrous Ports of Auckland automation project to get "proper scrutiny".

This is the view of John Crawford, former chief executive of Auckland Council Investments Ltd (ACIL), which managed the council's major investment assets, the port and its shareholding in Auckland Airport, until its dissolution in 2018 to save money.

Crawford, a former associate Commerce Commission commissioner and former head of Treasury's Crown Ownership Monitoring Unit which monitored entities with a combined value of more than $100 billion, told the Herald he agreed with the decision to end ACIL, but had misgivings when he left.

"In the discussions around the dissolution of ACIL, the lack of expertise and experience in monitoring commercial entities was made clear to the mayor's office, the council executive and a number of councillors.

"A lack of understanding of the need for, and value of, this experience meant no steps were taken to ensure that Auckland Council had access to this type of expertise when it was needed, or even that it would know when such expertise was required.

"This is a major factor I believe in the delay bringing the port automation project under proper scrutiny.

"The mistake (Auckland Council) made was to believe that they had the expertise to govern and monitor these entities. They did not.

"Their finance function has expertise in debt markets but little or no capital markets expertise. They showed no signs of being able to monitor subsidiary boards, or complex IT projects ... In contrast the board and CEO of ACIL had substantial experience in these areas."

Asked if he had a sense of this lack of understanding during ACIL's winding up, Crawford said: "I absolutely got the sense that there was a total lack of understanding of the need for the expertise and experience required to monitor commercial entities."

The Auckland port is New Zealand's main imports gateway and a critical piece of the national supply chain. The container terminal automation project was started in 2016, during ACIL's oversight. Last month, six years on, it was still unimplemented after a string of delays and issues, when the port company, 100 per cent owned by Auckland Council, said it was dumping the project with a write-off of $65 million.

The likely cost doesn't stop there. The port will run up further costs converting up to 27 straddle carriers, designed to be autonomous and costing $70m, to manual operation capability - a job sector experts say will be expensive.

It wasn't until October last year that the port company, by then under new leadership, reported to council how much had been spent on a container terminal development project - $330 million - to which automation was central.

The Herald put Crawford's claims to outgoing Auckland mayor Phil Goff for response.

In a written response Goff said: "I have asked for a review of the decisions made around committing to the automation project to ensure robust processes were followed, to determine whether decisions were made based on adequate information and advice, and to ensure that similar failures cannot occur again in the future.

"An independent reviewer with competence and expertise in this area, Mark Binns, has been appointed to carry this out and report back to the port board and council in the coming months. The review will look at all aspects of governance and decision-making around the automation project.

"At the point at which the decision to automate was made in 2016, (the port) was still under the oversight of ACIL. Since the dissolution of ACIL, the council has taken strong steps to provide greater oversight of the port through the limited tools available to us under the Port Companies Act, including a substantive refresh of the port's leadership."

"(The port's) new board, board chair, and chief executive are clear on the council's expectations around improving performance to ensure that the port delivers effectively for Auckland and New Zealand."

The Herald asked the council, as sole shareholder, whether it was taking any responsibility for the project failure and losses.

The council's response: "The decision to pursue the automation project was undertaken by the previous board of (the port company). Under the Port Companies Act, the board of directors is responsible for running the port company and the shareholder has limited ability to intervene in operational matters.

"At the time of the decision an intermediary body - ACIL - was the shareholder and kept the port at arm's length from council oversight ... Mayor Goff has consistently expressed the view that the automation project involved a high degree of risk and he is concerned [whether] sufficient due diligence [was taken] to determine how these risks would be managed before undertaking the project.

"The review will determine whether the processes that led to the decision to initiate the automation project were adequate. Until the review is carried out it is not appropriate to comment further."

ACIL's part

Crawford said ACIL had understood "the strategic imperative" for the port to increase its container throughput.

"ACIL took a keen interest in the automation project. There was significant discussion on how the project would be financed (partly through lower dividends to Auckland Council) and several discussions and presentations on the business case for the automation project.

"ACIL's board and management were well aware of the risks associated with the project and would have put in place mechanisms for monitoring those risks."

Crawford said ACIL was given an estimated cost for the project but he could not recall the details.

He said he had agreed with dissolving ACIL because the overhead of maintaining a separate entity "which only held 100 per cent of the shares in Ports of Auckland and around a 20 per cent share in Auckland International Airport was not necessary".

"It would have been far more cost-effective to contract specialist resources to assist in the monitoring of these rather than have a CCO (council controlled organisation) dedicated to this task."