Alasdair Thompson: ARC swimming against the tide with its port holdings

The Auckland Regional Council's loss of nearly $2 million on the David Beckham football match fiasco attracted enormous scrutiny and public concern.

Yet a much larger $37.6 million loss on share and bond investments by the council (ARC) in the last six months has scarcely drawn a protest.

The Herald reported on March 19 that Auckland's regional nest egg had taken a $50m hit on its investments, at a time of deep funding uncertainty for key public transport projects.

Of this $50m, $37.6 million of public money invested in shares and bonds was lost in the last six months, from a total pool of $262 million.

These losses would not have happened if the council had invested its $1.15 billion that is in assets in public infrastructure instead.

For example, the council could have put a proportion of these funds into electrifying the Auckland rail network.

If the ARC had done so, it would not have had to go crying to Government when the regional fuel tax was scrapped in favour of a national fuel tax increase.

The Auckland public does not elect the ARC to run an investment company.

The ARC has a chance this year through its 10-year Long Term Council Community Plan to retrieve the situation by divesting itself of its holding in the Ports of Auckland (POAL). It should also sell the foreign and domestic shares and bonds it owns.

Then the council should set out a list of infrastructure projects in which to invest the money.

Even more pressing is that ARC ownership of the port business presents a risk to the company successfully meeting its commercial objectives and meeting the needs of its customers.

This is so because far larger ships are coming into service, and going to fewer ports and sector hubs.

To meet these shipping requirements, the port company is likely to need more capital or even to merge (partly or wholly) with other port businesses around the country.

New Zealand does not have a container hub port and we need one. Otherwise our sector hub could be an Australian port, resulting in longer supply lines for our exports and imports. ARC's ownership of POAL makes it hard for the company to raise capital and even negotiate business mergers.

This puts New Zealand's interests at risk.

POAL reported a reduced profit for the latest interim six-month period, down on the corresponding period last year by a normalised 16 per cent to $9.25 million: actually not a bad result given the 23.7 per cent recession-induced drop in car imports. Nevertheless, POAL's profitability has been declining for a number of years as its debt has increased to pay its owner (the ARC through Auckland Regional Holdings or ARH) substantial dividends.

The port company also divested the Western Reclamation land and building assets to the ARC/ARH. In the past four years, POAL profit has fallen from around $57 million a year to $20 million in 2008.

ARC has taken lots out of the ports company but isn't in a position to put capital in when it's needed, as POAL's debt is beyond the level banks like lending on.

Realistically the way for the port company to reduce its $250 million bank debt would be not to pay the ARC any dividends for some years.

The other options - a public bond or share issue - are limited by the ARC's ownership of the company.

I expect to hear cries of outrage from Auckland ratepayers questioning the wisdom of tying up $1.15 billion of their money in shares and bonds and the port business that is losing value while we all wait endlessly for better roads, better public transport and lower costs of local government overall.

* Alasdair Thompson is chief executive of the Employers & Manufacturers Association (Northern) Inc.