One factor in crystallising the debate is the New Zealand Productivity Commission’s report on international freight transport services which suggested ports should be run as successful commercial operations and that local authority councillors should be precluded from being directors.

Councils should consider selling some shares so that open market discipline can be brought to bear on the port’s operations. And even if they don’t go for the share sell-down, councils should consider landlord port models in which land ownership is separated from port operations.

The commission says: “Council-controlled port and airport companies should concentrate on increasing productivity and maximising shareholder value … Port and airport companies are likely to be more productive and profitable with narrower, primarily commercial objectives and a governance structure to suit.”

Further suggestions from the commission are that port companies should regularly publish economic value-added analyses of their operations, and that to support benchmark competition between port companies, the Ministry of Transport should regularly publish an independent assessment of comparative financial performance between ports.

Port ownership has also become a focal point of the long drawn-out Ports of Auckland stevedoring dispute, where the port management has been seeking to get the Maritime Union of New Zealand to agree to much more flexible working arrangements.

The management has considered contracting out, thereby avoiding MUNZ involvement.

In response, MUNZ and the Council of Trade Unions have sought to bring political pressure on the port’s owners. The union argues that the Auckland Council is the parent of Auckland Council Investments Limited (which directly owns the port) and the union has therefore tried to pressure councillors and the mayor to replace the port board and management.

In Parliament, the Labour Party unsuccessfully launched a Private Member’s Bill aimed at defining port companies and their subsidiaries as council-controlled organisations, making them subject to official information requests.

These two very different views are contributing to an ongoing and hot debate.

“Port Otago Limited [POL] and Lyttelton Port Company of Christchurch [LPC] have today announced that a Memorandum of Understanding has been signed to explore a merger of their respective port operations.

A steering group representing both companies has been established to work with an independent
advisor to explore the potential benefits and recommend a path forward. The interests of all
stakeholders will be considered throughout the process.

This is a major step forward, however, whilst there is much support for this process from the two
Boards, it must be emphasised that this is the first stage and there is significant work to be done.
The focus is on operational integration to strengthen the performance and future of both companies.

The Boards believe that significant efficiencies and other benefits that could not otherwise be achieved will result from the proposed integration.

A key element with any future structure is that each port will retain ownership of its core physical
assets [such as wharves and land]. This is recognised as being of significant importance not only to shareholders but to local interests.

Core port assets will remain in local control. To achieve this, the structure being considered involves the legal separation of the infrastructure assets from the operations and commercial activities that occur at each port.

Key stakeholders including staff, unions and shareholders are being briefed and will be kept informed on progress.

The integration of the operations of POL and LPC would result in:

• Co-ordination of future expenditure to avoid duplication 
• Reducing the environmental impacts through co-ordinated road and rail use
• Increased productivity at each port
• Joint development of new services
• Significant efficiencies being achieved

The need for port rationalisation within New Zealand has long been recognised. This investigation
takes up that challenge. It will address both the interests of stakeholders and any legal obstacles to
integration.

An operational merger such as this could help future proof both ports and it is important for both LPC and POL to continue contributions to the economy at the same or better level than currently.

Customers have specific requirements that necessitate long-term infrastructure worth millions of
dollars and an operational merger could potentially allow for co-ordinated port development.

POL Chair John Gilks and LPC Chair Rodger Fisher are confident that there is a robust process in
place to ensure both companies give serious consideration to how they could work together in the
future in the interests of all stakeholders.

The Chairmen of the two companies are enthusiastic about the signing of the MoU, which is the first stage of this process. They are also committed to investigating all the options; the potential
challenges and benefits, and then recommend an appropriate path forward.

It would be inappropriate for the companies to make any further public comments during the
investigation process.”

The Otago Regional Council has rejected a suggestion Port Otago sell its 15.5% stake in rival Lyttelton Port Company, worth about $35 million, in preferance to borrowing $37.5 million to fund Dunedin’s proposed stadium.

Financial research by brokerage ABN Amro Craigs had suggested Port Otago, 100%-owned by the regional council, could sell its stake to fund the council’s share of the Awatea St stadium funding.

Regional council chairman Stephen Cairns rejected the suggestion when contacted yesterday, saying it “was never an option”.

He reiterated that Port Otago maintained a long-term view to holding the stake, which it bought in 2006.

Port Otago last year received $977,000 in LPC dividends, based on a 6.3c per share payout.

In the past year, the dividend had fallen to 4.2c per share, equating to a $664,000 dividend.

Based on yesterday’s share price, the Port Otago stake in LPC is worth $34.9 million.

The expected return of income through dividends compared with investment is 2.8% – negative, because inflation is almost at 4%, at a time when New Zealand has the highest interest rates in the developed world.

Mr Cairns agreed the investment was “not flash on that basis” but suggested any further comment on the holding should come from the port company.

Port Otago chairman John Gilks was unavailable for comment, but has always maintained the LPC stake was taken with a long-term view.

The Government moved late on Monday to effectively block the sale of Auckland International Airport to the Canadian Pension Plan Investment Board (CPPIB) by instituting a new national interest clause in legislation governing foreign ownership of major assets on sensitive land.

The move sent Auckland airport’s share price tumbling 48c yesterday, before recovering slightly to close 30c down.

CPPIB vowed to press ahead with its bid for a stake, saying it was not interested in a controlling interest in the airport.

However, Finance Minister Michael Cullen said a controlling stake could still be possible with less than majority ownership.

The pension fund wants about 40 per cent of the airport. Foreign shareholdings above 24.9%, or $100 million, already require approval from the Government.

Monday’s rule change is the first time effective “control” of an asset has been added as a consideration.

It follows tightening of overseas investment last year after an outcry over the sale of large tracts of South Island high-country land to foreign investors.

Cullen said nothing in the change ruled out the acceptance of any overseas investment application.

However, Forsyth Barr head of research Rob Mercer said the change made major foreign shareholdings in strategic assets more difficult.

Asked whether the rule change was likely to impact on South Island infrastructure, Cullen quipped: “The whole of the South Island is a strategic asset.”

He named major ports “and other significant assets” among infrastructure that could be included in the new test.

That could include Lyttelton, which has been the target of overseas ownership speculation on several occasions.

Last year, Danish shipping giant A. P. Moller-Maersk Group said it was interested in buying port terminals in New Zealand.

And in 2006, the Christchurch City Council attempted to tie up the port with Hong Kong operator Hutchison Port Holdings. The deal failed when Port Otago took a blocking stake in the company.

The city council also owns 75% of Christchurch International Airport, the country’s second-largest airport. The balance is owned by the Crown, which has previously attempted to sell its stake.

National leader John Key said Labour was changing foreign investment rules for political purposes and the move would impact on inflows of foreign capital.

“I would have thought the international community would be a little bit nervous.”

However, Key struggled to answer if National would block the sale of Auckland airport or other significant infrastructure assets if it was the government.

“If National is the government, majority control won’t be going to foreigners for strategic assets,” he said.

Key would not say what “majority control” meant, however, or whether that meant National would allow up to 49% foreign ownership.

He said the Canadian plan was not for a majority stake in any case and he was not opposed to the fund’s plan to take a stake in the airport.

Cullen said the decision was in response to overwhelming public opposition to New Zealand assets falling under foreign control.

Cullen rejected suggestions other strategic assets such as Telecom could be subjected to foreign ownership restriction, saying the move was not nationalisation.

“It only applies to those areas which involves sensitive land.”

New Zealand First and the Greens welcomed the change, although New Zealand First leader and Foreign Minister Winston Peters said more could be done to protect the country’s other important assets.

Green MP Sue Kedgley labelled the rule change a victory for the Green Party, and said she hoped it would have the effect of blocking the sale of other key assets as well.

However, Bruce Sheppard of the Shareholders’ Association, slammed the move as asset theft by the Government.

“What this does is undermine the effectiveness of our capital markets and it also increases the risk of investing in New Zealand if you are a foreigner.”

It’s been glaringly obvious for many months that the NZ public is up in arms at the prospect of Auckland Airport being sold overseas, be it to Dubai or Canada. And we expect to see these new overseas investment criteria used to block any renewed attempt by the Christchurch City Council via its holding company to sell the Lyttelton Port Company overseas.

And for those “experts” who endlessly lecture that NZ must become more like Australia to “be competitive”, we’re pleased that the Government has listened and partially adopted the Australian prohibition of foreign ownership of airports. Except that Australia prohibits foreign ownership of all airports, not just international ones or “strategic” ones. So CAFCA is happy to join the “experts”in urging the Government to become more like Australia and ban foreign ownership of any airport.

But don’t stop now. We’re delighted that the Government, which rammed through the 2005 Overseas Investment Act, is finally starting to see sense about the whole foreign “investment”scam. It’s never too late to admit your mistakes and make good the damage done by decades of slavish adherence to this fundamentalist cult which has reduced us to tenants in our own home.

There’s plenty more stolen property to be reclaimed. The Government is dropping hints that it might be about to resume ownership of the nation’s railways system (it had the chance only a few years ago when TranzRail finally fell to bits, but got cold feet and let Toll buy the trains and ferries while it bought back the track network). Good, and the sooner the better we say. The sticking point with Toll is about money. Why? The country has just waxed indignant about the very likely possibility of the thieves of the Waiouru Army Museum medals being paid all or part of the reward money, thus profiting from their crime. The suggestion of having to buy back what belongs to the people of New Zealand, namely former public assets, raises the same question. Why should those who are in possession of stolen property be allowed to profit from that fact? Take them back.

For those who wring their hands saying “where will we find the money now that all the foreign investors have been frightened off”? (not that we’ve noticed any sudden stampede to the first class departure lounges), how about using the billions accumulating in the Super Fund to actually be invested in this country rather than playing, and currently losing, on foreign stockmarkets. Now there’s a radical thought – using New Zealanders money to develop New Zealand.

Murray Horton
Secretary/Organiser

CAFCA
Campaign Against Foreign Control of Aotearoa
Box 2258, Christchurch, New Zealand
cafca@chch.planet.org.nz
www.cafca.org.nz

Murray Horton, Spokesperson
Keep Our Port Public
Box 2258, Christchurch, New Zealand

International trade union website Labour Start are promoting this email campaign at their website – send a message here!

Lyttelton Port is 75 per cent owned by Christchurch City Council.

Port Otago – which holds a 15 per cent stake, worth almost $40 million, in listed rival Lyttelton Port – is tipped to lead changes which could see a merger between the South Island operators.

Port Otago chairman John Gilks has rejected reports this week there had been working committee talks between the ports.

He said Port Otago’s board members had not had talks with LPC counterparts. Port Otago’s management was not authorised to enter into merger discussions, but they had held meetings with their Lyttelton counterparts.

When pressed about initiating any preliminary talks, Gilks would only say Port Otago remained comfortable with its LPC stake and would maybe make the first move.

The environment was right for talks to start, he said.

Port Otago has repeatedly fought off Lyttelton to retain its ship calls, scoring a coup in October 2002 by securing the P&O east round-the-world service ahead of LPC.

In December 2005, it secured the preferred South Island port status for the replacement pendulum service to Europe and the US via the Panama Canal and return, following the $4.1 billion Maersk and P&O merger.

A report by broker ABN Amro Craig said it expected Port Otago to be at the forefront of change, given the strength of its operations and strategic stake in LPC.

Port Otago’s blocking stake was taken at a time when LPC, owned by the Christchurch City Council, wanted to promote a takeover and delist, so a sale could be made to a Hong Kong port management company, a plan widely criticised in Christchurch at the time.

The raid has since netted it more than $1 million in LPC dividends.

ABN investment adviser Peter McIntyre said the respective ports’ return on capital had not been high and the companies could achieve better value for their assets.

Port Otago is 100 per cent owned by the Otago Regional Council and has delivered $44.5 million in dividends since 1988.

LPC is a listed company, owned 75 per cent by the Christchurch City Council, via a subsidiary, 15.5 per cent is held by Port Otago and about 10 per is in public hands.

The concept of port rationalisation around the country has been simmering for more than three years.

The ports of Auckland and Tauranga have considered and then rejected a merger scenario which could have given some guidance to other port companies.

LPC shares yesterday closed 8c higher at 248c, a new peak in their 12-month range which saw them as low as 190c. Shares in South Port, based in Bluff, closed 10c higher at 250c, equalling this month’s record peak.

Port of Tauranga rose 14c to 699c, just off the top of its 12-month peak of 700c.

Read full story here.