Infrastructure Report: A new port of call?

New Zealand's sea ports handle the movement of 99% of the country's exports by weight. Photo / Dean Purcell

New Zealand's ports and airports have long been viewed as a public good, with public sector ownership often seen as the best way to retain control and direction. But is it now time to explore alternative approaches?

Ports and airports are the front door of an economy. They are vitally important to a region's growth and a key ingredient to its outlook. They drive international competitiveness and are the front line in trade and tourism.

New Zealand's sea ports handle the movement of 99 per cent of the country's exports by weight, worth $36 billion a year, and 15 per cent of domestic freight. Our airports move $6 billion a year of time-sensitive exports and are critical to the $5.6 billion tourism industry.

Because of this importance, and their requirement to occupy large tracts of land, often strategically located close to the CBDs of major cities, these important assets have traditionally been viewed as a public good, and ownership has often remained in the public sector to maintain control and to drive their direction.

But, have the assumptions and options that have driven infrastructure ownership changed -- and are there now other ways to achieve the desired outcomes?

The recent publicity over the Ports of Auckland expansion highlighted the potential for inherent conflict with a consenting or regulatory authority also being an owner.

This conflict is not unusual for councils when providing consents for public infrastructure like roads and pipes, which do not normally have a commercial purpose in their own right. But the expectation of a return from investment in an asset like a port focuses attention on the potential for conflict.

An historical advantage of public ownership has been a reduced cost of capital, with the public sector being able to source finance at lower rates than the private sector.

This assumes, of course, that public funding is not scarce and public "equity" is free. With increased demands on the public purse, this is no longer the case.

And with an abundance of global liquidity, the perceived difference in the cost of capital continues to reduce. Is there an opportunity to improve the productivity of the country's port and airport assets through a different approach to funding and ownership?

The mixed ownership model implemented by Government appears to have brought a change in focus and discipline. The Government has confirmed that the taxpayer, as a 50 per cent shareholder in these companies, is now receiving greater dividends than previously as a 100 per cent owner.

The placements delivered $4.7 billion into the Government's Future Investment Fund, which will be invested in infrastructure as varied as wharf improvements in Waitangi and Ultra-Fast Broadband. These projects will further boost New Zealand's productivity and earnings.

Auckland Airport and Port of Tauranga have both performed well for some time with a material degree of private ownership. As successful organisations they have contributed significantly to their respective regions and to the New Zealand economy. Auckland Airport has maintained an ambitious forward investment plan, while still being able to return $454 million to shareholders at the end of 2013. Auckland Council retains its 22.4 per cent shareholding in this company.

But other approaches to ownership have worked well too.

The port privatisations in New South Wales in 2013 were carried out via a long term lease, where land remains in public ownership and control of its use can be exerted through the lease terms.

This released significant capital that was earmarked for use in other infrastructure projects in the region. Due to the long-term nature of the lease, which was awarded for 99 years, the new lessees can invest in the long-term viability and growth of the port. Port of Botany and Port Kembla contributed A$4.3 billion to the state Treasury of New South Wales, boosting the affordability of their future spending plans.

Industry body Infrastructure Partnerships Australia welcomed this arrangement, saying the sale funds would help New South Wales tackle an infrastructure backlog and represented "a win for taxpayers, commuters and the state's freight sector".

Though much of New Zealand's transport infrastructure is well developed by global standards, there are some key pressure points, including at our ports and airports, and local and central government are working to address historical under-investment.

The income generated in New Zealand by public owners from key frontline port and airport assets has historically provided a consistent source of revenue to support other public sector expenditure.

But what other projects are now being deferred or sacrificed as a result of the dependency on these returns and the public capital invested in infrastructure assets, which could deliver benefit in other areas of the economy? How much of this potential could be unleashed by alternative approaches?

Given the size and strategic importance of port and airport assets to New Zealand, growing demand for their use, and the evolution of ownership models for them, this is a topic which is certain to be debated over the coming years.

?David Green is Managing Director Institutional at ANZ New Zealand