May 2009

The Con­tainer Ter­mi­nals at Fer­gus­son and Bledis­loe will strike this Fri­day, this story has been per­co­lat­ing along largely behind the scenes. That is all set to change this week.

Behind the pres­sures is the desire of the Port Com­pany to make labour reforms, and alter work prac­tices at the behest of the left con­trolled ARC. What has not been reported on is the weak finan­cial posi­tion Ports of Auck­land is in.

When the com­pany was pri­va­tised, and taken within the Auck­land Regional Coun­cil (Auck­land Regional Hold­ings) the bal­ance sheet was healthy. Since then the com­pany has “pur­chased” the Maersk busi­ness, and been viewed as a prime fund­ing source for the Regional Council’s social agenda in order to posi­tion favourably Mike Lee’s per­sonal cru­sade to be the first Super City Mayor. These two fac­tors have com­bined to put the Port Com­pany into a dif­fi­cult posi­tion. Add a reces­sion, and the out­look is not very good. Be pre­pared for the Port Com­pany to try and slug its cus­tomers in every way for any­thing that they do. This may come in the form of increased charges or decreased ser­vice lev­els, both of which are cur­rently being expe­ri­enced by Port users this blog has spo­ken to.

The Port Com­pany have been very hard nosed with their trad­ing terms and con­di­tions, and it is obvi­ous that they will seek to “tax” busi­ness to replace the funds sucked out to sat­isfy the Regional Council’s social agenda. I do not know exactly where the money has gone, but I would haz­ard a guess that the Regional Coun­cil has effec­tively been pre­pared to sac­ri­fice the Port Com­pany to build some train lines and some other “empires”.

The Port response to “tax” busi­ness by increas­ing charges is effec­tively a tax on the pro­duc­tive sec­tor to fund a social agenda.

The pro­posed merger between Tau­ranga and Auck­land was dis­missed by the Regional Coun­cil as they con­sid­ered that the Auck­land Port was a much bet­ter busi­ness than Tau­ranga, and they wanted a dom­i­nant posi­tion (pre­sum­ably so that they could suck more money out?). Now the sit­u­a­tion is vis­i­bly turned, and Tau­ranga (who report pub­licly) will show a profit of around $40,000,000 while Auck­land is look­ing to be around $8,000,000 if they are lucky. There will have to be some rear­rang­ing of num­bers to achieve that! Four years ago the posi­tion was reversed and Tau­ranga was lucky to break ten mil­lion. Tau­ranga now prob­a­bly has the money to bail Auck­land out of the mire.

This doesn’t even con­sider the debt moun­tain referred to in yes­ter­days Sun­day Star:

A $105.5 mil­lion debt time bomb is putting pres­sure on Ports of Auck­land owner Auck­land Regional Hold­ings to inject cash into the com­pany for the first time.

The money must be repaid by Decem­ber 18, and Ports of Auck­land chief finan­cial offi­cer Wayne Thomp­son told the Sun­day Star-Times he is “highly con­fi­dent” the debt will be refi­nanced in time.

Ana­lysts and indus­try sources have wel­comed those assur­ances, given the fact that the $105.5m debt has blown the Port’s cur­rent lia­bil­i­ties out to $131.3m, more than four times its cur­rent assets of $28.3m and, accord­ing to the text­books at least, a posi­tion of sig­nif­i­cant tech­ni­cal insolvency.

There is spec­u­la­tion the bal­ance sheet cri­sis was a fac­tor in the depar­ture of Ports chair­man Gary Judd, forcibly dumped by ARH just over a week ago.

In the four years since it bought the Ports shares it did not already own, ARH has stripped out more than half a bil­lion dol­lars from the for­mer listed ports com­pany, earn­ing the invest­ment arm of the Auck­land Regional Coun­cil the sobri­quets of “cor­po­rate raider” and “asset stripper”.

It could be a long cold hard win­ter on the Port. Watch for extreme con­di­tions, with some cold winds and a lot of hail, not to men­tion wail­ing from the unions. One thing cer­tain is that there will not be a lot of warm weather for indus­trial set­tle­ments for some time (unless they merge with Tauranga!!)

There is a real case to release the Port from its polit­i­cal hand­cuffs, and get out in the mar­ket again, and per­form like a busi­ness, not a social service.

Auck­land Regional Hold­ings has effec­tively neutered a very effi­cient organ­i­sa­tion, and left no money for the Unions to get in wage settlements.

I wouldn’t hold much hope for the Unions in obtain­ing any con­ces­sions. The irony is that the left wing poli­cies of the ARC and ARH have effec­tively destroyed the left wing aspi­ra­tions of the Union in this case and ulti­mately Mike Lee’s aspo­ra­tions to become the Super City Mayor.

Merg­ing with Tau­ranga would make so much more sense now. It could even free up a goodly por­tion of Auckland’s water­front for mean­ing­ful devel­op­ment allow­ing cash to be released to build bet­ter infra­struc­ture between Tau­ranga and Auckland.