Keep­ing port as it is will cost jobs and slow our econ­omy

Hawke's Bay Today - - Opinion - By Rex Gra­ham

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 $320m and $350m of in­vest­ments over the next decade. The first stage of this cap­i­tal spend is the new wharf — Wharf 6 — which will cost ap­prox­i­mately $142m. 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.

The full con­sul­ta­tion doc­u­ment will start ar­riv­ing in ev­ery let­ter­box in Hawke’s Bay cov­er­ing the new wharf and the cap­i­tal rais­ing op­tions.

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