This coming week is an important one for Hawke's Bay. It's when we start the formal month-long consultation on how best to fund the growth of our port in Napier
The full consultation document will start arriving in every letterbox in Hawke's Bay covering the new wharf and the capital raising options. We released this document nearly two weeks ago and you can read it at www.hbrc.govt.nz now.
In a couple of weeks you will also receive a printed submission form that you can fill in and freepost back to the regional council. We are very keen to hear from you.
Two important points I want to make upfront - we need to act now, as doing nothing will cost jobs and slow our economy. And the regional council is committed to maintaining majority community ownership and control of our Port. These are non-negotiable.
It is now clear that almost everyone agrees that we need to build a new wharf. Our economy is growing exponentially and our Port is struggling to cope with the increased volumes. This is exacerbated by the international movement towards bigger ships and more cruise ships that want to visit our region.
As the size of these ships around the world grows, more and more ships have outgrown our wharves and will be routinely turned away if we don't act now.
As an example, we expect to turn away seven cruise ship visits next year at a cost to the HB economy of $3.5 million.
The Port is becoming congested and ships are now having to be moved from berths to allow other ships in and out. This is impacting productivity and is not sustainable.
The Port needs to make between $320 million and $350 million of investments over the next decade. The first stage of this capital spend is the new wharf – Wharf 6 – which will cost approximately $142 million. This wharf needs to be ready to use in 2022, meaning construction needs to start next year.
The Port can't borrow more without debt levels becoming uncomfortably high. The regional council could borrow but this would take council debt very close to its ceiling and limit its ability to borrow in times of real need - such as in responding to a natural disaster.
Also, ratepayers would have to cover the costs of additional council debt at a cost of roughly $956 per average ratepayer over the next nine years. We don't think that's right and I personally don't believe it is a commercially responsible model, but we want to hear what you think.
The regional council's preferred option is to float up to 49 per cent of the Port on the local stock exchange. This would enable the people of Hawke's Bay to maintain overall ownership and control, provide funding for the Port to grow, ensure no impact on ratepayers and allow the council to diversify its investments.
This is the model used at the Port of Tauranga, where the local council maintains a 55 per cent majority ownership position.
Proceeds from floating a minority stake would provide a capital injection to the Port. The remaining funds would be invested in a ring-fenced fund with the returns offsetting the share of dividends that would go to new investors. With its debt cleared or substantially reduced, the Port can start to invest with a clean balance sheet. The regional council expects dividends to increase as the cost of the Port servicing debt is reduced.
Under this model, Port staff, local iwi, and the local community will have the opportunity to invest directly in our Port and the council, on behalf of all ratepayers, maintains a strong but sensible exposure to a growing commercial asset.
There's no silver bullet and no single option will please everyone, but we have been looking into this for nearly two years now.
We've looked at leasing the operation of the Port for up to 50 years, as is common in Australia. This option would generate the most revenue, and would enable 100 per cent local ownership, but we are uncomfortable at giving up control of the Port for such a long time.
We've looked at selling a minority share in the Port to a cornerstone investor but we think a sharemarket listing will more accurately value our Port.
While we're stating a preferred option, we are consulting on all the options, including asking ratepayers if they are prepared to pay for this investment themselves.
This is a really important decision for our region and we want you to have your say.
* Rex Graham is chairman of Hawke's Bay Regional Council