Battle rages over plans to float Napier's port in partial privatisation

Saturday, 4 May 2019

The public private debate around ownership models is still alive and kicking, and New Zealand's ports are the battleground.

The proposed minority share float of Napier Port on the NZX will be voted on in the next four to six weeks, and while the Hawke's Bay Regional Council has stressed that a final decision is yet to be made, it appears to be the most likely result.

After consultation, 57 per cent of submissions were in favour of the proposed float, and last month the regional council voted for additional protections for its majority stake in any future float.

The council's decision to explore a move away from public ownership comes at a time when the business structure of three other North Island ports is being debated.

Associate Transport Minister Shane Jones recently announced he wanted to create a single authority, a 'mega-holding' between the relevant regional councils to control and operate Ports of Auckland, Northport in Whangarei and the Port of Tauranga, because 'the interwoven nature of port ownership has restricted ports from developing in New Zealand's best interests'.

* Hawke's Bay's most valuable asset may be for sale

* Lyttelton Port workers call for council to help resolve employment dispute**

The Employers and Manufacturers Association responded by warning against the creation of monopolies.

The potential sale of Napier Port has elicited a range of views from supportive to deeply cynical, but if voted for, an initial public offering (IPO) could strike the right balance for such an important strategic asset. The alternative was unpopular rate hikes, independent economist Shamubeel Eaqub said.

'If you look at the Napier Port its been growing for 20 years and it's been doing well. Their biggest problem is how do they keep growing because they need a lot of capital and the ratepayers don't want to front up.'

But Victoria University economist Geoff Bertram said that the partial privatisation of the electricity generating and retailing companies – Meridian, Mercury and Genesis – provide cautionary case studies on mixed ownership.

What the public didn't pay for in rate hikes was paid for in the cost of electricity, he said.

Eaqub said while political sensitivity in New Zealand about asset stripping runs deep, 'realistically, there's no evidence around ownership model having a big impact'.

The privatisation of the power companies under the previous National government hadn't been a disaster.

Shamubeel Eaqub says the mixed ownership model allows the council to maintain control over the strategic asset.

'They're doing fine. They're not better as a result of it, but they're not worse.'

But Bertram said the Government was now unable to regulate the industry effectively, because it was reliant on dividends.

'That's why the public estate is so important. It's a huge protection in the long run for the general public.'

Hawke's Bay Regional Council says that the port is at capacity and that doing nothing will stifle growth. It now wants to fund redevelopment of the port so that more and bigger cargo and cruise ships can berth. As well as funding earthquake strengthening and the construction of a new wharf without increasing existing debt.

It wants to spend up to $350m over the next 10 years to bring the asset, considered by many to be the crown jewel in the region's economy, up to scratch.

Victoria University economist Geoff Bertram says the sale of Napier Port should be put to a referendum.

The council proposes the sale of up to 49 per cent of the port to fund this growth, while giving locals the opportunity to invest.

In early April, however, the council announced a revised amount for the development of a new wharf, adding an estimated $30m to $50m to the initial cost of $142m, arguing it would be an even bigger hurdle for ratepayers.

If the regional council goes ahead, Napier wouldn't be the first port in New Zealand to list. But external capital is not the only option. Just a year ago the regional council's preferred option for the port's redevelopment was a long-term lease to another party, not an IPO.

Bertram speculated that port charges would probably go up under a 'money driven port company', which in turn would indirectly hurt farmers, manufacturers and consumers in the region.

Port of Tauranga is now the largest and most profitable in New Zealand, with net profits in 2018 of $94m

But has listing worked for other ports?

Following port sector reforms in 1988, which meant boards had to transfer commercial operations into limited liability companies, the Port of Tauranga was the first to publicly list in 1992, selling a 44 per cent stake.

Today the Bay of Plenty Regional Council retains 54 per cent of shares, after issuing additional shares in 2014, something Hawke's Bay councillors have taken off the table with last month's vote.

Port of Tauranga is now the largest and most profitable in New Zealand, with net profits in 2018 of $94m. Management works closely with the Bay of Plenty Regional Council and last year returned a dividend of over $62m.

Since listing, the port has increased the volume of cargo from 61 million tonnes in 1991 to 24.5 million tonnes in the 2018 financial year. Profit after tax has increased from $9m to $94m.

Port of Tauranga chief executive Mark Cairns says the mixed ownership model has worked well for Tauranga.

The number of shareholders has grown too, from 3500 at listing to 13,400 in February, with more than 95 per cent of staff owning shares in the company. The market value has gone from $78.8m at listing to $3.5 billion in February.

The move to list on the stock exchange had been good for ratepayers and shareholders alike, Port of Tauranga chief executive Mark Cairns said.

It's helped drive sound investment decisions while giving it the freedom to pursue a 'vertically integrated supply chain' with interests in ports in Whangarei and Timaru, inland freight hubs in Auckland and Christchurch and subsidiaries in cargo handling services.

'The public-private ownership model ensures that the residents of the Bay of Plenty continue to benefit from the port's success. The total [dividend] payout since listing has been more than $700m', he said.

Eaqub said Port of Tauranga had benefited from long-term strategic thinking, patience with investments and being coordinated with the council.

Bertram, on the other hand, said that while Tauranga had performed brilliantly as a profit making operation, it wasn't a particularly union friendly port.

Organiser for the Rail and Maritime Union at the Port of Tauranga, Phil Spanwick said that much of the port work in Tauranga was contracted out to three different stevedoring companies that compete against each other.

'They see themselves doing the same job as the bloke working next to them but they've got a different set of overalls,' Spanwick said.

Lyttelton Port's workforce came under attack after the port was privatised, former worker at the port Gren Christie says.

'Three different groups working the same cranes, all on three different sets of pay and allowances and conditions of employment.' .

About 80 people were working directly for the port but around 400 workers came through one of the three stevedoring companies, C3, ISO and ISL.

The health and safety policies of each contractor was also different.

The union had asked for a health and safety regime to cover all three of the contractors so everyone could be as safe as possible irrespective of which one they worked for, but was met with opposition, Spanwick said.

Spanwick said he had told Hawkes Bay Regional Council chairman Rex Graham of the resistance to a single health and safety regime when he visited to consult last October.

However, Cairns said that Port of Tauranga's safety record compared favourably with other New Zealand ports.

Last year the port had two injuries, both back strains, with two injuries the previous year as well.

Lyttelton Port Company chief executive Peter Davie says health and safety has improved significantly over the last decade.

The number of injuries per million hours worked at the end of the 2018 financial year had fallen by 69 per cent amongst contractors and 62 per cent between the port and its contractors combined, year on year Cairns said.

And what of the South Island's major port?

Lyttelton Port Company was listed on the NZX in 1996 with a public offering of 19 per cent but reverted to Christchurch City Council full ownership in 2014.

The council said at the time that this gave it greater flexibility in its relationship with the port company, and last year Lyttelton Port agreed to a request from the council to build a cruise berth at the cost of $56m, which it had previously argued was financially unviable.

The port's performance, based on after tax profit between 2008 and 2013, when it was still listed, was comparable to its performance after de-listing, annual report figures show, bar a large insurance payout in 2014 and a post-quake accounting impairment in 2016.

Lyttelton Port paid a dividend of $8.5m in the 2018 financial year, but warned the council dividends would fall as a result of the cost of the cruise berth.

Gren Christie, an ex-port worker and union representative who worked at Lyttleton through the port reforms of the 1980s, said the workforce came under attack after the privatisation.

Will the Napier port's ownership stay with the people?

Conditions went backwards, health and safety went out of workers hands and into management's hands, casualisation of the workforce occurred, Christie said.

'It was far from a happy time,' he said.

Lyttelton Port chief executive Peter Davie said casual staff made up less than 3 per cent of the port's workforce and health and safety had improved significantly over the last decade.

The last fatal accident was in August 2014 when a scissor crane toppled killing the operator, Brad Fletcher, who was untrained to operate the crane.

Christie now lives in Waipukurau, and was keen to point out that as a resident he is also a part owner of Napier Port.

He harboured fears that the same race to the bottom would happen to port workers at Napier under a partial privatisation.

But Napier Port's culture and community general manger, Viv Bull said listed companies have more reporting obligations than non-listed companies.

The port had been working with third party operators on an operating license, which would legally bind them to a common health and safety standard at the port, she said.

About 550 people work at Napier Port, with 250 of those people directly employed by the port company.

Eaqub said it would continue to be an important employer in the region, but maintaining the controlling stake was crucial because it was a key strategic asset.

'You can't just leave it up to investors who may be motivated by short-term profits, whereas the council is not just looking after the current investors and citizens but future citizens too,' he said.

But Bertram said that the regional council would not be able to maintain control even with a significantly smaller listing.

'If you're driving a money agenda, 25 per cent is enough to swing all sorts of stuff in your favour in a listed company. If your driving a public interest or long term agenda, 51 per cent does not give you the leverage to prevail against these guys.'

The growth that the council is looking to finance is based in part on the need created by hefty increases in cargo volumes over the last few years and a further 57 per cent projected increase out to 2028.

Regional Council chairman Rex Graham said Napier needs a strong, modern port that directly connects the region's economy to global markets. In particular high-quality, time sensitive cargo.

There was also an opportunity for locals to invest in the port, which the regional council would prioritise if an IPO went ahead, he said.

Eaqub said that local investors were likely to 'pile in,' and would tend to be more patient, looking for long term returns rather than trading in an out.

'I don't think that you're going to get the kind of volatility that you get in the mid-size stocks,' he said.

Bertram, lamenting decades of asset sales, said the public should hold on tightly to the port as a priority.

The additional protections that the regional council had voted on were not worth the paper they were written on. Any potential sale should be put to a referendum, he said.

'That is simply because the council will be under huge pressure from very well funded articulate consultants coming from the sharebroking fraternity who will have a strong vested interest in floating shares.'