An interesting piece from Stuff in relation to Ports of Auckland and Auckland Council. I have commented extensively on the POAL issue especially around dividends, Returns On Investment and political interference in the port. All that can be seen in the Port of Auckland Index here at VOAKL.
This piece from the article got my attention and the following transcript (embedded below) which I will embed below caught my attention the most:
The political manoeuvring behind the council’s drive to double Ports of Auckland’s profitability were revealed on Tuesday night when council chief executive Doug McKay and mayor Len Brown gave presentations to a meeting of the Auckland Property Investors Association at which they outlined their position on the port’s future and the industrial action it is facing.
Could this drive for a 12% Return On Investment be the primary catalyst for all the industrial relation disputes going on between POAL and Maritime Union New Zealand – VOAKL believes as a CATALYST (not a direct cause) so. This next quote would seem to confirm my stance:
On the basis of that advice, the council’s “political wing” – its elected representatives – set the port company the goal of lifting its return on investment to 10 to 12 per cent over the next three to five years. That led the company to review its costs and propose new working arrangements for its wharfies, leading to the recent series of strikes on the wharves.
Brown then addressed the meeting and said he accepted the need for the port to earn the higher rate of return as the price that needed to be paid in order to retain the company in public ownership.
However, doubts are being raised about whether the council’s profit objectives are achievable.
When asked whether a 10 to 12 per cent rate of return for the port company was realistic, Michael Lorimer, the founding director of merchant bank Grant Samuel’s New Zealand operation, was unequivocal.
“No,” he said
Interesting response however even I could answer that in the same manner as Mr Lorimerl’s – and if you want to know why, consult the entire Port of Auckland Index and all its posts. My commentary makes it very clear on the entire issue and why I would say “no” without even blinking.
Lorimer has some unique insights into Ports of Auckland because Grant Samuel prepared the independent report on the old Auckland Regional Council‘s takeover offer for the company in 2005.
He believes the problem is not that the port company hasn’t paid enough in dividends, but that it has paid too much.
“They’ve taken out of that port $514 million in dividends since July 2005,” he said. “Doug’s [McKay's] view is that they can squeeze it harder and I don’t think they can.”
Now that is an interesting fact pointed out – some basic math tells me that if you take the $514m and divide that over six years (2012 dividend is not paid out yet) that makes the dividend on average payable to the former Auckland Regional Council – now Auckland Council around the $85.67m PER YEAR. Bloody hell that is a lot – I would also call that near Asset Stripping as that has to be way beyond what POAL could or should pay without cannibalising its operating books.
Here is another interesting admission:
Lorimer is heading a group of business people who believe the council needs to rethink its attitude to the port, and it includes heavy hitters such as Mainfreight managing director Don Braid and Council of Trade Unions president Helen Kelly.
“Our beef is not with the company. It’s got an excellent board and is probably well managed. It’s with the council and the approach they are taking to squeeze it for more money,” he said.
Although McKay may like to refer to the council’s benchmarking report to justify its decision to require the port company to lift its profits, he appears unwilling to share the information with the public.
When the Sunday Star-Times asked for a copy of the report, the request was declined on the grounds that it was “commercially sensitive”.
Well blow me down that really does confirm what I have believed all along – political interference and Auckland Council being the catalyst to the current situation at POAL. Why I do not believe MUNZ should be acting in the thuggery way that they are – I can understand some concerns when the workers becoming whipping boys to feed more and more dividends to an inept Auckland Council.
I will try to file an Official Information Act request for the report that the Sunday Star Times was refused and see how it goes – if I do get it I will review the report with an electron microscope, if not I wonder if a request with the Ombudsman is required as that information should be public – and especially public if my enquiry (into POAL) was held.
At the bottom of this post I will embed a transcript courtesy of stuff.co.nz – but lets take a look at what was said.
First from Auckland Council CEO (The Town Clerk) Doug McKay.
“The challenges we are confronting on the port at the moment are long standing
challenges of many years in the making.
“When the new Auckland Council was formed the port was earning about a 6%
return on its investment and the council decided, the political wing of the council
decided that the port needed to earn better than that.”
Yep, thanks to Councillor Mike Lee, since 2005 the entire saga that is now POAL has been in the making. 6% ROI is a pretty decent return I would think – ok 10-12% would be nice but the Port is either going to need to be relocated or over $6 billion worth of infrastructure upgrades to get the POAL ROI even near the 10% mark (and I even have not considered doing a sell down to bring in private expertise nor capital – which I think is needed). Does the Port need to earn better than 6% – let the market decide that one please.
“It was in a privileged monopoly position and we looked around the world and gave
advice back to council that this asset should be earning between 10% and 12% return
on investment at the very least.
“So it’s running at about half what any reasonable benchmark would be.
“So that goal has been given to the port company to achieve over the next three to
Yes it (POAL) is in a very privileged monopoly position – or is it in full competition with Port of Tauranga? Umm Mr McKay what is this benchmark and how do you define reasonable? Could you please release proper and credible information please so that we as ratepayers AND ACTUAL OWNERS of POAL we can interpret and analyse what you call a reasonable benchmark please. And three to five years to achieve the goal of 10-12% ROI? Mr McKay you are contradicting Mayor Len Brown’s comment in the very same transcript which I quote:
“Every time they have a problem, do I step myself into that? They are going to come
knocking at my door every second day and you are one step away from a dictatorship
rather than a proper, fair, commercial, corporate operation that operates with some
Mr McKay nothing short of a dictatorship will assist in achieving the 10-12% ROI demanded by Comrade Lee and his thirst for cash to build transportation projects in Auckland. As I have said here in this very post and also at VOAKL you will need over $6 billion of cold hard cash to build the required infrastructure to rid the port of its transport constipation that actually cripples it from achieving a higher ROI. Can you Mr McKay right here right now tell me that by 2017 that the following will be completed:
- Eastern Highway as a 4-lane expressway with a speed limit set at 80km/h and partial grade separation as an alternative for trucks to reach the port without further congesting Grafton Gully and Newmarket Viaduct
- East-West Link connecting State Highway 20 at Neilson Street Interchange with State Highway One and The Eastern Highway at Mt Wellington Interchange
- Third Rail Line with crossovers between each rail station between Port of Auckland and Papakura on The Eastern Line via Westfield Junction - this includes widening the Meadowbank Tunnel
- Relocating Wiri Inland Port further south to a mothballed spur line near Kerrs Road – Wiri so that freight operations do not conflict with passenger operations
- Selling council ownership of the port to 51% to allow private expertise and capital to fund the above and get POAL operations efficient as possible including labour?
Relocate the Port of Auckland to south-east Auckland where the port is free of urban constraints and transport constipation?
Can you reassure me Mr McKay of the above questions? I think not!!! So how is POAL meant to achieve the ROI of 12% if the above can not happen? I do not see pixies at the bottom of the Auckland Council garden – just the odd occupier.
“So they are now looking across all of their areas of operation, all of their cost base,
all of their efficiency numbers and targets, and benchmarking them. And we, like you,
are disappointed that the conversation between the employees and management of the
company has broken down at this point.”
I wonder why?
“I don’t think any sort of political interference is going to progress this
conversation very far and it’s better that we look for a negotiated outcome that both
parties are happy with. And we remain confident that that’s still a prospect.”
That could not be further from the truth if one tried – there is political interference otherwise Cllr. Lee would not insist on heavy demands from POAL and that enquiry would be started by now.
Now this next bit is from Mayor of Auckland Len Brown
“Ok, so from my view, its starts with the ports themselves.
“I was very clear during te campaign and I maintain a very, very, solid commitment
that we own the ports 100% and I want to keep them in public ownership.
“It is very much the family silver, 37% of the nation’s trade goes through there, and
yep, it’s not performing as well as I want it to perform. But for me, that’s the price.
Good to know Len and applaud you for commitment and conviction – however The Enquiry needs to be held especially if you want your (ahem Cllr Lee’s 12% ROI).
“On the basis we hold on to the port, we have got to get a good commercial return
and are going to reinvest some of that return back into port development. Maybe not
to the extent you saw on the front page of The Herald, but certainly we want to
develop the port and make it a great commercial port.”
Len, $6 billion or relocating the Port – that is the minimum investment you need for POAL to get anywhere near 12%
The rest is equivocal stuff.
Someone asked where I stand on POAL – the answer again is this and one could consider it “policy” of I were ever to run for office.
First The Enquiry outlined per my letter to Auckland Council must be held in answering six questions about the health of Port of Auckland Limited. Once The Enquiry has released its report, then consideration, deliberation and consultation with wider Auckland must be gauged before confirming a position thus action on what to do with POAL.
In my personal opinion I believe Port of Auckland should be sold down from 100% Auckland Council ownership to 51% Council ownership with 49% for private holdings to attract private sector expertise and capital for reinvestment into the port and supporting infrastructure (Infratil and Mainfreight would be perfect candidates for minority holdings). With that Port of Auckland should be relocated to south-east Auckland for reasons I have made HERE.
However I wish to make it fundamentally clear that if The Enquiry and/or consultation does not support the sell down and/or the relocation then that is it – I go with the call of Then Enquiry or consultation remarks and that would be it.
Oh and as a side note to Stuff, your title “Mayor demands monopoly rent” might be a tad misleading; try “Transport Committee Chairperson Demands Monopoly Rent” then the article might be bit more spot on