What happens to "terminating organisations?"

I hadn't heard the term "terminating organisation", or not really HEARD it, until an ARC meeting of its Finance Committee on the 22nd July. We were advised that Auckland Regional Holdings (ARH) is to be a "terminating organisation" in the restructuring of Auckland local government.

ARH is owned and governed by ARC (through a board of directors). ARH is known for for main asset classes, whose values at 1 July 2010 are below:

• it owns all the shares in Ports of Auckland Ltd (POAL) value: $566 million


• it owns NZ property (mainly Tank Farm/Western Reclamation land) value: $195 million


• it has a diversified fund (golbal equities, bonds etc) value: $219 million


• it has NZ short-term cash value: $89 million

These assets generate returns, depending on the state of the economy, shipping industry, global finance industry etc. There have been criticisms on ARH's diversified fund, but I won't go into those in this blog.

For the past 6 years or so, ARH has been a significant source of funds for Auckland's public transport services. Both operating costs (bus and rail subsidies), and capital costs (things like rail and ferry terminals).

Many will remember that ARH grew from an entity called "Infrastructure Auckland". It was legally restrained to fund ONLY public transport and stormwater. Those objectives transferred to ARH, but I recall that while ARH needed to meet outstanding obligations relating to existing agreed stormwater projects (especially those initiated by Auckland's councils), there was a recognition that in order to progress public transport, then ARC and ARH needed to prioritise that area for funding. And so it came to pass.

But it is a terminating organisation. On November 1 this year, it will cease to exist. A bit like Monty Python's Parrot. The question is, what will happen to these assets?

I have been advised the following:

• the waterfront land will transfer to the new Waterfront Development Agency (WDA) CCO


• the cash and the diversified fund will pass to Auckland Council (a cool $300 million)


• the POAL shares will pass to a new entity called rather ominously the Investment CCO

This will pose some interesting policy questions.

For example, is the $300 million still notionally tagged as "for public transport"? Or will it be quckly used to pay the debts that have been racked up through transition (redundancy payments, reorganisation costs, new computers, fit outs, the list is huge and expensive).

And how safe is the POAL with an "Investment CCO", rather than being directly owned by Auckland Council (POAL has always been a difficult entity to manage by the ARC at arms-length through ARH). And how will strategic issues such as how Auckland's waterfront develops be resolved with POAL again at arms length?

I guess we will have to wait and see. But these are both very large policy questions for the Auckland Council to engage with. It is critical that the cash asset is not frittered away on transition costs.

I know it all comes out of the same jam jar, but I think sometimes it's better to keep money in the jam jar labelled "Home Made Public Transport", rather than tipping it all into a common pool.