Private sector running Auckland port on council-owned land an option, report says

Monday 4th July 2016

Auckland should consider letting a private company run a relocated port's operations, with Auckland Council remaining at least a part landowner, says the study on the port's future.

The report made public last week found the council-owned port is likely to need to move in the long-term and identified two favoured sites in the Manukau Harbour and Firth of Thames for further investigation. It also said, in the interim, the port will require extra berth space at Bledisloe Wharf, which is likely to re-ignite community concerns about the port’s encroachment into the Waitemata Harbour.

With capital costs of an estimated $4 billion to $5.5 billion for relocating the port depending on which site is chosen, the report said infrastructure investment is constrained. Internationally there are many funding/ownership models around major infrastructure investments such as a port which vary from full council ownership to full private sector ownership, the report said.

Consideration could be given to funding the land component of the new port separately from the operating company, which might enable equity participation in the “Landco” by council and iwi, it said. The proposed sites are subject to Treaty of Waitangi settlement negotiations that could result in iwi co-governance and/or co-ownership interests.

Rick Boven, chair of the council-appointed Consensus Working Group, said the separation suggestion would only be considered as part of the funding and governance solutions for a relocated port rather than under the status quo.

A consultant’s report prepared for the study group by EY said a number of ownership considerations would have to be taken into account for a new port. Options included establishing a port operations company (Opco) and a land holding company (Landco), with a contract outlining and governing land use between the two.

“Separating operating assets and land assets can provide independent and more robust decision-making that will optimise outcomes for both companies,” said EY, noting a trend in recent Asia-Pacific port transactions for private sector involvement.

Advantages of separating ownership of land and the operating company would include lease proceeds providing some funding for the new port location, on-going capital development would be funded by the lessee, decisions could be made outside operating to accommodate best use of the land assets, operational risks would be transferred to the operating company, and a potential lease agreement would oblige the private sector to coordinate and execute the relocation.

Disadvantages outlined in the EY report included potential loss of dividends and income, loss of operating control though that could be mitigated to an extent by other regulatory controls, and accounting and tax implications.

The report provided a case study on private sector involvement in the Port of Darwin in Australia, where the government retained ownership of the land and the leased port assets are returned to the government at the end of the 99-year lease period.

The port was leased for A$506 million with 20 percent held by the government with the intention of transferring that to an Australian investor in time. The state territory receives a share of future revenue where trade performance is better-than-expected and the lessee is committed to sponsoring community initiatives.

BusinessDesk.co.nz

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