As proposed by the HB Regional Council? Maybe … maybe not!

If appropriate measures are included to ensure its public accountability, as discussed below, the proposed Investment Company (Invesco) could be a useful approach for meeting several reasonable objectives of the Regional Council:

1. Securing funding for needed strategic infrastructure investments in the Bay;
2. Achieving (potentially) higher returns for the HBRC investment portfolio (translating into more subsidization of rates);
3. Tapping business expertise for activities that are commercial in nature;
4. Facilitating private investment in needed infrastructure through joint partnerships;
5. Securing tax advantages that potentially free-up additional income.

Those opposed to Invesco should be challenged to indicate how they expect the future infrastructure needs of Hawke’s Bay to be financed. That said, with the possible exception of water harvesting (still supposedly under feasibility assessment), HBRC has done a poor job of indicating what those needs might actually be, and the costs involved, even hypothetically. Left with a blank slate, nervous ratepayers will conjure up all sorts of speculative investments on which Invesco might squander the HBRC’s (i.e., ratepayers’) wealth. Unless HBRC convincingly establishes the need, to many Invesco represents a solution in search of a problem … and musters no enthusiasm.

Even then, all of the benefits noted above, except the last, can be secured by establishing the individual subsidiary companies envisioned in the proposal – such as Waterco – just as those benefits presently are captured in the effective model of the Port of Napier.

This raises the question as to whether Invesco is needed at this stage, or whether it would simply add an unnecessary layer of oversight (indeed, duplicative oversight if the Invesco Board is comprised of HBRC Councillors wearing different hats on the day).

The Port of Napier, to most observers, is prudently managed and appropriately accountable to its public owners. With the single possible exception of potential tax benefits (which by itself should not drive the decision on structure), it is not clear that adding Invesco would improve either the Port’s management or accountability.

The same would be true of any new operating company, such as Waterco. Any new such companies should be sanctioned directly by the HBRC, who will be responsible for – and give policy guidance through – approval of their statements of intent. The operating companies are where the rubber will meet the road. Their establishment and charter(s) should be mandated by a public body, the HBRC.

At the same time, there are risks associated with Invesco. And here, it might be useful to separate the investment strategy from the proposed structure (Invesco).

Those who are wary of the underlying investment strategy are concerned chiefly about two things: 1) the greater financial risk they fear in the kind of active business investments the Council has in mind (versus the traditional ‘safer’ term deposits, property leaseholds, etc); and 2) privatization – they fear the strategy, which welcomes private partners as investor/owners, will lead to assets that should be forever public (according to some) passing into private (even foreign!) hands.

But the creation of Invesco does not create these risks. The risks do not arise from the structure, although the structure could either amplify or mitigate them. The risks are inherent in the strategy, which has already been adopted with public consent, and could be acted upon today, were HBRC so inclined. With respect to the big issues that most worry people, the buck stops at HBRC today, and would still stop at HBRC tomorrow if Invesco were created.

If Invesco is to be created, these risks/concerns should be addressed by the groundrules officially established in Invesco’s founding statement of corporate intent. Various accountability measures, reporting requirements, and stipulated investment policies (or constraints, if you prefer) can be devised that will protect the public’s interest in its nest egg. Among them:

  1. Placing at most one or two elected Councillors on Invesco’s Board of Directors to keep a first-hand watch on the ‘public good’ aspects of Invesco’s mandate and to provide unfiltered reporting to Council. A majority of Directors must be private sector/commercially experienced, otherwise the most important objectives of Invesco are compromised … at that point, why bother?
  2. Explicit transparency rules aimed at maximizing public access to Invesco Board meetings and information. Not every matter before Invesco should be routinely deemed commercially sensitive and hidden away from public scrutiny!
  3. Stipulated policies regarding permissible investments, investors and directors. For example: prescribed ratio of Invesco’s holdings to HBRC’s directly controlled financial assets; borrowing ratios and limits (e.g., no ‘double borrowing’ against assets); percentage limits on private investment in individual projects; perhaps even limitations on investors or Directors from outside the region (on the theory that living in the Bay adds ‘skin’ to the game).
  4. Regular performance and policy reviews by HBRC, conducted in public session. In this respect, the practice at Hastings District Council of conducting its reviews of the annual statement of intent and financial performance of its holding company and subsidiary HB Opera House Board deserves emulation.

To sum up, BayBuzz suggests that HBRC:

  1. Establish the need for new financing/operating structures (i.e., the subsidiary companies in the current proposal) on a case-by-case basis.
  2. Put those in place when needed, run by non-HBRC Directors, and directly accountable to HBRC, as in the Port of Napier model.
  3. Consider the establishment of Invesco, including the mandatory public accountability safeguards outlined above, after the viability of subsidiaries is known, and additional benefits of Invesco can be more clearly evidenced.

What’s your view? You have only until Friday, April 29, to make your submission to the HB Regional Council. The relevant HBRC background documents are here.

Tom Belford

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1 Comment

  1. My major concern about the investment company proposal, which I have conveyed in a 5-page submission to HBRC, is there is no clear information about why the council holds its current investments, let alone any new ones.

    The purposes for council investments, as set out in the operative 10-year plan, are too general and could be interpreted to support any proposed council investment at any time. For example, there is no explanation in either the 10-year plan, or the investment company proposal, of why owning 100% of the shares in Port of Napier Ltd is considered important. Yet this would be considered by many ratepayers to be the Council's major strategic investment on behalf of the people of the Hawke's Bay region.

    This situation confirms, to my mind, there has been little progress on developing a strategic investment policy since I was last a councillor in 1995. My submission says, in effect: withdraw the current proposal; develop a strategic investment plan; consult the public about the plan; and only then – if the plan confirms the case for an investment company – put up a revised proposal.

    If a council-owned investment company is required to implement a major new investment, that forms part of a widely-approved strategic investment plan, with no increased risks to the council or ratepayers, I'll back it.

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