10 March 2012

Port of Auckland - Background

The Maritime Union drove a group of its members to redundancy and appears determined to continue the heroic struggle to preserve work practises that the rest of us left behind in the Seventies. How did it come to this?

The Productivity Commission is conducting an in-depth review of the transport sector. Their report noted, “New Zealand’s transport and storage industry experienced strong productivity growth in the 1990s, but virtually no productivity growth in the 2000s.” That’s the problem with lost decades. They come with hefty bills.

Back in 2005, Ports of Auckland was majority-owned by the Auckland Regional Council. The elected chairman of that body at the time, Mike Lee, justified a decision to buy out the private shareholders by saying, ”The Ports of Auckland will be a prized legacy for future generations and the wealth generated will be vital for funding Auckland’s infrastructure for years to come.”

This is what actually happened: the cost of buying out the 20% then owned by other shareholders was $170 million; that transaction effectively valued the whole company at $850 million; but the book value of the company shown in the Auckland Council transition documents in 2010 was just $394 million.

Even after allowing for inflation and differences in valuation methods, $456 million is an awful lot of money to disappear in just five years. We probably haven’t seen destruction of shareholders’ wealth on this scale since Hugh Fletcher. Mr Lee’s vision of the port as a cash cow to fund local government projects appears to have turned very sour, very quickly.

The Productivity Commission seems to understand only too well where the problem lies: “Publicly-owned organisations are also, in effect, spending other [people's] money [and] are not well placed or sufficiently incentivised to monitor performance of such investments.” The Commission went on to say, “To manage conflicts of interest, elected representatives and council staff should be precluded from being a director of port and airport companies.”

The main issue is that ports are an important part of our infrastructure and we can't afford the risk of having their management overseen by local body politicians and town clerks. The Commission said, "To improve the efficiency of ports, councils should consider increasing the degree of private ownership in them. Councils should evaluate whether they can still achieve important community aims with lower ownership stakes." Perhaps, just perhaps, had Auckland had not made the decision to go for 100% ownership in 2005, we would not now be in this predicament.

The Productivity Commission also understands very well the origins of the archaic work practises that the Union is fighting to retain, and management to overcome: "Many of these work practices stem from past management decisions that were pragmatic and relevant to the working of ports before the advent of widespread containerisation and bulk material handling." In the Seventies, that was.

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