Ports of Auckland releases reviews of Upper North Island Supply Chain study

6 MinutesBy NZ Trucking magazineNovember 27, 2019

Ports of Auckland has released reports from two leading economic consultancies it commissioned to review the second interim report of the Upper North Island Supply Chain Study Group.

The independent analysis has revealed major problems with moving the port‘s operations to Northport.

Ports of Auckland a decision on the location of expensive and vital infrastructure such as a port for New Zealand‘s largest city should be based on facts, and that is the reason it has released the reviews. 

“Both reviews speak for themselves. We will make no comment other than to say that they show that there are major problems with the EY study and that the idea of moving Auckland‘s port to Northland is seriously flawed.”

The New Zealand Institute of Economic Research found it surprising Northport moved from being an outside contender (12th in the Port Futures Study) to being preferred, with no explanation.

They were also concerned the cost of maintaining and investing in POAL appears over-recorded and benefits in terms of capacity were not counted, while the cost of building new infrastructure appears under-recorded, with the base case incorporating significant unbudgeted costs.

The NZIER report said while it was possible to move the port to Northport, the following reasons made it “extremely unclear” whether it was a good idea:

  • Moving freight between 160kms (road) to 215kms (rail) before it enters the Auckland transport system is an heroic proposition.

  • Far too many components of the supply chain do not appear to have been costed or are under-costed, and these costs will be material.

  • Permitting the population of New Zealand‘s largest urban area and 35% of its population to be dependent on a long and fragile supply chain [88 bridges, 13 tunnels], is likely to decrease resilience compared to the base case, or other scenarios.

  • GHG emissions will be at least 400% higher using land-freight from Northport.

NZIER said that while as the study revealed there were higher value uses the land could be put to, these uses don‘t seem to recognise the range of benefits the Auckland region gains from short and efficient transport linkages to its port.

“On balance, NZIER is of the view that the report has failed to address the feasibility question with sufficient transparency to provide a credible basis for advice to Ministers…”

Castalia Limited said the net cost of $1.7 billion has been stated to relocate the port to Northport, while the gross cost is estimated to be $6 billion.

“Given the underestimation of the gross costs and inappropriate netting, our preliminary view is that the net cost of the Northland project is likely to be in the region of $4 to $5 billion. This is based on the construction cost estimates used in the report. We will work to refine these numbers further, but the key conclusion is obvious: even if we accept the black box benefit number of $3.5 billion, the net benefit is likely to be negative.”

At present, POAL has a commercial enterprise value of about $1.2 billion, supported by revenue from customers. If revenues from customers remain unchanged after the move to Northport, the new port will have about the same enterprise value. Castalia said in reality, much of the existing business would be lost to Tauranga, so the total enterprise value will be shared between Northport and Port of Tauranga.

“At a high level, let us assume that the net cost of the project will be $5 billion and its commercial enterprise value will be $1 billion. This means that port relocation will require $4 billion in fiscal subsidy, which would not need to be spent without the relocation. The key question then is whether releasing some land for more apartment/commercial development closer to Auckland CBD is worth spending this much taxpayers‘ money compared to all other social objectives that can be achieved with the same amount of subsidy.”

While the government subsidy will be needed to enable the relocation to proceed, this subsidy will not compensate Auckland Council for lost value.

“As we explained, MVAU valuation of port land of about $800 million represents an accurate reflection of the present value of revenues from potential alternative land use. In other words, under the proposal, Auckland Council will lose the value of its investment in POAL ($1.2 billion) and in return will get the value of land ($650m including wharves) – a loss of $550 million. In addition, Auckland Council may be required to repay outstanding POAL debt. In other words, for Auckland Council to be made whole financially, it will need to receive approximately $1 billion in fiscal subsidy from the government.”

The full reports can be found here: https://drive.google.com/drive/folders/12epT9Ww2QQ8M-ql4DHu2XhXbpkyUx92b