CURRENTLY THROUGH IT’S, investment company, HBRIC, the Regional Council owns 100% of the port, valued at around $300 million. Last year the dividend to Council was $7.9 million, which subsidises the rates of the benefi cial owners, the people of Hawke’s Bay.
The issue has arisen because the port needs up to $150 million over the next ten years for expansion. How to fund the expansion has bought up the proposal of selling shares, one of a variety of available options. And here the contention begins. Selling publicly owned assets is politically charged. And it’s an election year.
Politics and business
Member of Parliament for Napier, Stuart Nash, was quick to highlight his stance by erecting billboards. He is unequivocal. “My bottom line is the port has to stay in community ownership.”
In Havelock North, Jim Scotland, former chairman of Napier Port and currently director on HBRIC, is a long time advocate of selling port shares. “I’m sure when you speak to him [Nash] he’ll admit to you that it’s election year and he’s using the issue to get votes.”
When asked, Nash replies, “Absolutely. I’ll make sure this is a major issue. Selling shares in the port is not an option.” Here is the core of the matter. Both parties agree the port needs funding for expansion.
“They need a new container wharf for the new generation of ships,” says Scotland. “We have to spend the money,” Nash concurs. “We need the port to be as e cient as possible and the $100 million investment has to happen.
The question isn’t should we, it’s how do we, fund the expansion of the port.” The potent di erence between the two parties is whether funding should include the sale of port shares to the private sector.
First impressions
From his billboards and media releases, it’s easy to get the impression Stuart Nash is ideologically opposed to the sale of all publicly-owned assets. He says he’s not.
“If the port was moribund, not making much money, and didn’t have much of a future, and the only way to raise money for expansion was from the private sector, I’d be supportive,” he says. “But this port is performing really well, the management team have done a really good job of smoothing out the seasonal highs, and the growth projections are impressive.”
“My view is there are enough examples of councils selling assets to raise short term capital to fi nance expansions, and they turn around later and regret that decision.”
Nash is also sentimental. “What worries me is in thirty years, when my kids are my age, they’ll say, ‘Shivers, Dad, see all these private investors are getting great dividends from the port. Why did you let that happen?’”
Lasting achievements
“Custodian of the assets” is how Jim Scotland sees his responsibility as a company director.
Formally chief executive of HBF Dalgety, Scotland “made his way in the agri-business as a professional director” after “Brierley Wrightson bought us out in 1985”. He sat on the boards of Seeka Kiwifruit Industries, HortReasearch, Plant and Food Research, Hawke’s Bay Airport, and many private companies.
A highlight in Scotland’s career is his chairmanship of Napier Port 2007-2012. During his tenure profits grew steadily, and the value of assets more than doubled, as he oversaw expansion to meet the demand of exporters.
Also, “A main focus when I was chairman was to make sure the shipping lines kept coming to Napier … all bar one are still coming … one of the reasons being they make more money out of chilled cargo than dry cargo.”
No one is more familiar with the complexities of operating Napier Port. “The big issue is seasonal demand,” says Scotland. “The problem is the port has to set up all the infrastructure, all the capital, and all the people, to service the peak – February, March, April.” He points out that “The port will do a record number of containers this month [March] and if you annualised that fi gure over a year, it would be doing over 400,000 containers”, which is nearly double 2016 container movements. “The capital intensifi cation is all about the peak. To service the peak they have to have two container berths. The major question is who pays.”
When Scotland was port chairman, capital for expansion “was raised through retained profi ts and bank loans”, but current needs exceed the port’s capacity to borrow in that manner. Furthermore, as a director of HBRIC, Scotland is mindful that the investment company’s Statement of Intent requires: ‘to improve the diversifi cation and return of HBRC’s investments to fund the organisation’s strategic agenda without increasing general rates.’
“The big issue is seasonal demand. The problem is the port has to set up all the infrastructure, all the capital, and all the people, to service the peak – February, March, April … To service the peak they have to have two container berths.” JIM SCOTLAND
There’s pressure on HBRIC to fi nd solutions to the funding demands, for both Napier Port and other infrastructure investments.
Funding pressure, however, is not the only reason Scotland advocates partial sale of port shares. “I’ve been talking to the regional council for many years about the risks associated with owning 100% of the port.”
Scotland has a fundraising model where HBRC retains control, reduces some of its risk, gets a cash bonus, and provides for port expansion.
He’s pragmatic. If shares are to be sold he wants the best money for value, which is the open market for private investors. And he points out that HBRC’s Long Term Plan requires that “any sale of port shares has to be subject to consultation. That’s the time we should hear all points of view from all sides of the discussion.”
Man the barricades
Aiding the discussion is the reason Stuart Nash gives for getting the hoardings up.
“I say this about my hoardings, and at the street corner meetings. No one is saying at this point in time that we are going to sell the port. No one is suggesting the whole of the port is for sale. What is being talked about is that a share of the port may be sold to fi nance development. What are your views on this?”
Born and educated in Napier, Stuart Nash returned in 2007 as a member of parliament, fi rst on the Labour Party List, then as the elected representative (2014).
He says, “One of the things I found when I came back to Napier was that a lot of decisions were being made behind closed doors, and the fi rst thing the public heard about them was when they read the decision in the paper.”
From the outset, he says he wanted to “get the issues out there and have the debate. We should include everyone not just those sitting on councils. Many people in the community have an opinion and I think the politicians have a mandate to listen to them.”
Of course, it’s election season, and Nash is using the port issue to get attention. But his wider message may resonate with many in Hawke’s Bay exasperated by local authority mismanagement, especially concerning transparency and public consultation. “I can’t infl uence the council but I can infl uence people to put pressure on council.”
Nash is clear about his strategy. “We’re going to hold a public meeting on the 23rd of June. However, the signs will come down and the meeting will be cancelled if the chair of the Regional Council comes out and says, we’ve considered this and decided no share in the port will be sold and the community have 100% ownership.”
The implied threat, and closure of discussion – that no port shares should be sold – runs contrary to Nash’s assertion, “We should get the issues out there and have the debate.” If he were sincere, Nash would facilitate open discussion of all points of view.
Economics 101
“People don’t like me thinking these ideas,” says Jim Scotland. He’s been stopped in the street by strangers accusing, “You’re the guy who wants to sell the port.”
Indeed he does, and reducing the regional council’s exposure to risk has been his main reason for advocating releasing capital from the port for other investments. Around 41% of HBRC’s wealth is vested in the port.
Spreading risk in an investment portfolio is Economics 101.
Further risk comes from natural disasters like an earthquake or tsunami, and Scotland cites the railway network as vulnerable. “Imagine,” he says, “if tomorrow night you hear on the news that KiwiRail is closing the Palmerston to Napier railway line. A decision like that, which we can do absolutely nothing about, would really hurt the port.”
If the regional council had the funds, Scotland suggests they consider buying the Napier to Wellington track. “The benefi ciary of that is the port [continuance and e ciencies]” and the regional council would get return on their investment from rail user charges.
With the port needing massive capital injection, Scotland’s model for funding, and reducing risk, deserves to be considered. “There needs to be two stages to the transaction,” he says.
“There needs to be a sell down of the regional council share in the port. That money goes to the regional council. And there’s an issue of new capital by the port. That money stays with the port.”
Scotland’s model, “for arguments sake,” would see the regional council sell 15% of their shares, worth around $45 million, and the port issue 18% new capital worth around $54 million. “The new port capital provides the extra equity they need in order to borrow the additional $100 million or so.”
He wants Napier Port shares (33%) listed on the Stock Exchange and freely tradeable, similar to the Port of Tauranga, where the Bay of Plenty Regional Council owns 54% of the shares, and 46% are in public ownership.
Scotland is not concerned about loss of control. “As long as the regional council has more than 50% of the shares, and no fancy shareholder agreement that diminishes their rights, they have control.”
Good for my the port-folio
At one of his street corner meetings, Stuart Nash was asked, “When are you going free up some shares in the port. It’d be great for my port-folio.”
“Of course I laughed,” he says, “but taken seriously, yes, maybe he could a ord to buy shares, but most people can’t. How it is at the moment, is everyone has an equal share in the port, but take it to the market, and an Australian infrastructure investor, or a Canadian teachers pension fund, see the return, and buy up big on the stock exchange.”
He cites an offshore case where shareholders sued a company for not maximising profits. “Do we want to be fully in charge of our future, or do we want to sell a chunk of it o to the private sector, and lose some control?”
There’s an element of fear-mongering in Nash’s message, that sale of shares to the private sector is perilous. “We could be opening a can of worms,” he says.
“Imagine if tomorrow night you hear on the news that KiwiRail is closing the Palmerston to Napier railway line. A decision like that, which we can do absolutely nothing about, would really hurt the port.” JIM SCOTLAND
So how to fund?
Nash suggests Napier City Council could buy into the port. “They’ve got reserves and a strong balance sheet. It would be a long term investment with dividends coming into the community.”
And an idea conveyed to him by “a prominent businessman” is “worth considering”.
It is the creation of a new infrastructure company comprising the port, the airport, and Unison. “All three are performing really well,” says Nash, and by amalgamating, “the risk to any one entity is spread over three”.
“Combined they would have an extremely strong balance sheet and the ability to borrow on good terms. If the port needs money, then it has the airport and Unison assets to use as security, as well as its own.”
And what of Jim Scotland’s suggestion HBRC buy the Napier to Wellington railway line? “Wow, that’s a good idea,” says Stuart Nash.
Short term pain
If keeping the port in community ownership is a “bottom line” for Stuart Nash, his options are limited. Napier City Council might be interested but they haven’t got $100 million.
The port/Unison/airport mega infrastructure company is, as Nash says himself, “pretty left field”.
And he rejects iwi buying into the port. “Ngati Kahungunu is just another private entity with a set of key stakeholders that the majority of people don’t have access into,” he says.
Scotland views iwi “in the same way I feel about the apple growers”. Some have indicated an interest in buying into the port. “We have to be careful they don’t come along with a feeling of entitlement. If they want to buy a passive investment, that’s fi ne.” The passive investment would most likely “be a debenture at 6% for 10 years. It’s not a shareholding.”
Scotland supports the notion that, “Users of the port invest in bonds. They are providing money for the port to expand to fi t their needs, and showing their faith …”His model for how the port could raise $150 million is to issue $50 million new capital (shares), borrow $50 million from the bank, and a $50m bond issue.
Stuart Nash is “not against issuing bonds because we maintain ownership.” But without capital input, he accepts that, “if the port borrows for expansion the dividend will go down. There might be some short term pain, because the dividend might not be $7.9 million, but in 10 years time the dividend could be $15 million.”
The ‘short term pain’ would be borne by Hawke’s Bay property owners, with increased regional council rates compensating for the dividend loss.
Stuart Nash’s hardline on ownership will cost the rate payer.
The process
If HBRC propose a sale of port shares, they are required under the Local Government Act 2002, to follow the Special Consultative Procedure.
Studies would be commissioned and reports written, and after consideration by Council, a Statement of Proposal would be presented for community feedback, inviting submissions. The hearings would be held in full council. The decision will be made by the regional councillors.
But not if Stuart Nash has his way. “If the regional council make the decision they want to sell a stake in the port, then let’s have a binding referendum, and let the people of Hawke’s Bay decide.” He suggests a referendum could be tagged to the 2019 local authority elections.
Nash is fuelling the issue. He warns, “If the decision is made to sell a stake in the port, before the next local body election, then we would fi nd candidates to challenge those councillors who voted for the sell o .”
Politicising the port issue is not conducive to sound decision making about its future.
Regional councillors are required by the Local Government Act “to seek to identify all reasonably practicable options for the achievement of the objective of a decision.” (s.77 1a) And they are obliged to receive points of view, “with an open mind” and in making a decision, “give due consideration” to submissions. (s.82)
Statements by councillors can indicate a preference or point of view, but any statement which indicates a closed mind or predetermination, is contrary to the act governing the Special Consultative Procedure.
Stuart Nash has painted his stance on his billboards. Napier Port Not for Sale.
Regional councillors are prohibited from being so one sided. They are required to consider all points of view.
And there are many well-informed voices in the community deserving of a fair hearing in an atmosphere of goodwill and respect.