Time to wind up Auckland Regional Holdings

The Auckland Regional Council's treasury - Auckland Regional Holdings (aka ARH) - has been getting some bad press lately: Ports profits down; huge losses on global bond and global equity investments; property industry decline impacting returns from proposed waterfront developments. I accept that this downturn has been significantly worsened by the global financial meltdown. But the seeds were sown for this failure 2 and 3 years ago. That was when ARH recommended to ARC:

1. that sweet-heart deal with Maersk (driven by an absurb combative attitude to Ports of Tauranga, and which has led to Ports of Auckland almost subsidising container handling the prices are so low, and Maersk laughing all the way to the bank - Cllr Walbran told us: "it's all about volume" - I say: "a million times bugger-all is still bugger-all..."), and
2. that around $300 million of carefully garnered public cash (set aside for public transport investment), be thrown to the wolves of international fund markets.

There was advice then, in front of councillors, that there were risks with these courses of action. Votes were taken in confidential meetings where there was significant opposition. But the majority won, and now the region reaps the consequences.

The problem now is that these reduced assets are not able to generate the returns anticipated and expected to fund the region's share of either the purchase of an effective electric rail system, nor its operation. Desperate measures are being considered including the rapid windup of the global investments - when paper losses will become real, but the region will have most of its money back.

So what to do?

It has always been an option for ARC to significantly reduce the role and workload of ARH, by transferring assets and responsibilities back under the direct control and management of ARC. ARC has a highly experienced and skilled bunch of financial managers, as well as those whose job it has been to monitor the performance and effectiveness of ARH itself. There is significant duplicated effort. There is also a lot of cost associated with the monthly, quarterly, and annual processes currently required between ARC and ARH.

ARH has already transferred one significant asset to ARC, and that is the waterfront parkland at the end of Wynyard Point (half under control of Auckland City Council, and half with ARC).

It is time to cut the losses imposed by the relationship between ARC and ARH, and by the conflicting purposes inherent in ARH:

• by transferring Ports of Auckland Ltd to ARC;
• by transferring all cash and financial investment assets to the ARC's own highly effective treasury function;
• and by moving Sea + City to the ARC, where it would be governed by the ARC's Transport and Urban Development Committee and expert staff.

The Port company would retain its own board (as would Sea + City) - as at present - and operate somewhat akin to the way ARTA now runs - governed by ARC, but at arms length.

Running Auckland Regional Holdings costs the region annually about $2.3 million in admin expenditure, it spends about $2 million annually in managing its falling global investments, and has authorised significant planning and consulting costs in their efforts to "optimise" return from private development of Auckland's waterfront. There's also the cost of running a whole layer of governance and the ARH Board whose responsibilities would largely shift to ARC and existing staff.

It's time to fix this.