Galway Harbour Company s Submission on the Transfer of control of Ports of Regional Significance to Local Authorities

Transcription

1 Galway Harbour Company s Submission on the Transfer of control of Ports of Regional Significance to Local Authorities Submission prepared for: The Department of Transport, Tourism and Sport 4 th October P a g e

2 GHC s Submission to DTT&S regarding the Transfer of Regional Ports to Local Authorities Table of Contents 1. INTRODUCTION 3 2. BACKGROUND/CONTEXT 4 3. THE PROPOSED LEGISLATIVE AMENDMENTS 6 4. POLICY OPTIONS AND RELATED ISSUED 7 5. EMPLOYEE VIEWS 10 This document was prepared in consultation with DKM Economic Consultants Ltd., 6 Grand Canal Wharf, South Dock Road, Ringsend, Dublin 4, Ireland. Telephone: info@dkm.ie. Website: 2 P a g e

3 1. INTRODUCTION The Department of Transport, Tourism and Sport (DTT&S) has invited submissions on its consultation paper Regulatory Impact Analysis (RIA) published in August 2013, which deals with the transfer of control of the remaining five State-owned port companies of regional significance to local authority control. The RIA sets out four options which separately provide for the transfer of control of the five port companies to local authorities by amending the existing Harbour Acts Galway Harbour Company (GHC) is one of the five ports of regional significance listed in the National Ports Policy of This submission 1 examines the options as set out and the issues considered relevant to the future sustainability of the port s business. This document concludes that Option 2(b) is the preferred option. It sets out a number of key concerns for GHC regarding the legislative arrangements under Option 2(b). This submission is set out as follows: Section 2 sets the background and context for Galway Port and why it has been designated as a port of regional significance in the National Port Policy. Section 3 identifies what the proposed legislative amendments must achieve to ensure that the ports continue to generate a commercial return. It also sets out the core objectives of GHC and acknowledges that the port company believes that whatever legislative framework is selected, it must ensure that the port s business is sustained and enhanced in the medium to long term. Section 4 addresses the options and raises a number of concerns and questions which the port company have under the following headings: The transfer of regional ports from central to local government Corporate governance issues Future development and the Galway Harbour Extension project 2 Other issues Section 5 set out the views of GHC staff on the RIA and acknowledges that the staff have been a key component of the successful performance of the company in its current format over the past 17 years. This submission sets out the initial views of GHC on the RIA. GHC look forward to further engagement with the DTT&S and the local authorities as the legislative framework is developed over the course of the next two years. 1 This submission has been prepared by Galway Harbour Company in consultation with DKM Economic Consultants. 2 Galway Harbour Company (GHC) is currently preparing a planning permission application to An Bord Pleanála (ABP) regarding a major extension of the port. This is designed to enable the relocation of commercial activities out of the Inner Dock area and essentially free the port from the tidal and capacity limitations imposed by the latter. A Business Case and cost Benefit Analysis for the Galway Harbour Extension project has recently been submitted to the Department of Transport, Tourism and Sport. This extension project will be of significance to the future governance and operations of GHC as well as for the local and regional economy. 3 P a g e

4 2. BACKGROUND AND CONTEXT Galway Harbour Company (GHC) has been designated as one of five Ports of Regional Significance in the National Ports Policy 2013 because it is considered to meet the following criteria 3 : The port company currently handles just 1% of the total tonnage through Irish ports while the five ports in question handle 3.78% collectively of the total tonnage (2012 data) 4 ; It serves a substantial hinterland and supports regional development; GHC, in particular, is an important strategic regional hub, in a national contect for petroleum importation, storage and distribution; It is limited in terms of its future potential as a centre of commercial shipping. (as defined by the NPP). It is also the case that declining throughout levels over the period has led to increasing reliance on non-core port activities, with over 50% of its revenue in recent years derived from non-core port activities 5. However the port company is currently in a period of transition as it is planning a major extension of the port which will significantly change the prospects for the company over the next five to ten years 6. For example, following development of the Galway Harbour Extension (GHE) project, the proportion of the company s revenues from non-core port activities is expected to diminish to less than 20% 7. Similarly its traffic throughput will significantly exceed 1% of the total tonnage through Irish ports 8. Thus while its designation is currently warranted, the port company is concerned that, following development of the GHE project, its designation as a port of regional significance will jeopardise its future capacity to win new business. This is due to the fact that GHC under the new legislative framework will be competing with Shannon Foynes, which has been designated as a Tier 1 port of national significance, with clear potential for commercial development. Tier 1 ports will also be eligible for European funding, while GHC will not. This may adversely affect competition between ports. The findings of the forthcoming Competition Authority study on port competition will be important here. GHC is concerned that its classification (above) as a port with limited potential for commercial shipping in the future will 1) jeopardise the GHE project before it actually begins and 2) result in limited support for the development should the port company transfer to the local authority. By contrast, the GHC believes that the proposed GHE project is testament to the port s potential as a centre for commercial shipping. Indeed it is clear that the realisation of national policy requires the project to proceed, specifically in terms of: 3 National Ports Policy, 2013 page The corresponding figure was 3.4% in 2011 (CSO Statistics of Port Traffic). The NPP states just 3% of total tonnage. 5 The port s throughput in 2013 is expected to increase by 10%. 6 DKM has produced a Business Case and Cost Benefit Analysis (CBA) for Phase One of Galway Harbour Extension (August 2013) which confirms not only the commercial viability of the project from GHC s point of view, but also the very substantial wider economic benefits of the project. 7 As per the Business Case and CBA for the project. 8 Op cit. 4 P a g e

5 The servicing of Galway s substantial hinterland. The accommodation of larger vessels in deeper waters. Continued function as a strategic hub for petroleum logistics and storage. Refocusing of the Inner Harbour towards leisure and tourism, and reconnection with the city. Servicing the offshore renewable energy, oil and gas sectors. The need for a competitive port in the region to ensure the viability & development of specialised businesses. The development of the cruise line business and its impact on the regional tourism industry & employment generation GHC consider it is in a period of transition and that its proposed GHE project will significantly enhance its potential to operate as a major port for commercial shipping. The company is concerned that its current designation will see it competing with ports which have an unfair advantage. GHC considers, in circumstances where a port performs much better than its current classification in the NPP, that there must be a mechanism for such ports to be upgraded to a Tier 1 or a 2 port in the future. 5 P a g e

6 3. THE PROPOSED LEGISLATIVE AMENDMENTS Notwithstanding its declining throughput in the period , the GHC is a strong and profitable company with a very positive future. Testament to that is the upward trend in business in The proposed legislative amendments must ensure that commercial independence is maintained and that the port company s future is safeguarded. In this regard the Business Case and Cost Benefit Analysis (CBA) for Phase One of the GHE project 9 demonstrate how the port will secure substantial additional business which will reinforce the profitability of the company in the medium to long term. GHC believes that the existing Harbours Act has served the port s sector well to date 10. Any proposed legislative amendments must now take the following into consideration: They must retain the requirement, as in the existing Act, that the purpose of the business is to generate a commercial return. The diversity of the ports under consideration with each case treated on its own merit. Will there be different options/solutions for each port? In circumstances where a port performs much better than its classification in the NPP warrants, there must be a mechanism for such ports to be upgraded to a Tier 1 or 2 port in the future. The criteria for Tier 2 port refers to tonnages of unitised cargo. Where does that leave bulk only ports and in particular those which envisage a substantial increase in the volume of bulk traffic? The changes proposed will take considerable time to implement and will require ongoing consultation with the port companies and the local authorities. The NPP acknowledges that legislative proposals will be developed and published by In this regard is it to be business as usual in the interim? Any changes as a result of any legislative amendments must not jeopardise the opportunity for GHC to proceed with the GHE project as quickly as possible and to continue to expand its operations and improve its profitability. 9 DKM Business Case & CBA of Galway Harbour Extension, August The view was expressed that Pilotage legislation needs to be simplified. 6 P a g e

7 4. POLICY OPTIONS AND RELATED ISSUES 4.1 Policy Options In regard to the options sets out in the DTT&S s RIA document, the port company wishes to pursue the option which will best sustain and enhance the port s business in the medium to long term. The consensus option amongst the GHC Board, management and employees is Option 2b, which envisages the continuation of existing legal entities with share capital owned by local rather than central government. However, it is also acknowledged that opportunities for private investment, (Option 2d) should they arise, should not be ruled out. GHC does not support Options 2a or 2c which would add further to the on-going administration burden of local authorities in these challenging economic times of fiscal retrenchment. Either option would be to the detriment of the longer-term development of all ports to be transferred to local authorities. The RIA document raises a number of general and specific concerns and questions which the port company has and these are outlined below under the following headings: The transfer of regional ports from central to local government Corporate governance issues Future development of the Harbour Other issues. 4.2 Transfer of Regional Ports from Central to Local Government Option 2b envisages a transfer of the current shareholding to the relevant local authority. Is this referring to Galway City or could it potentially involve a different local authority or indeed a regional authority or a combination of authorities? GHC would be concerned that local authorities have no experience in the day-to-day running of commercial port companies. Where is the evidence in relation to the existing four ports under the ownership of local authorities 11? Generally, for example, the local authorities track record in regard to the collection of Harbour Dues is poor. Under Option 2b, issues for the ports in question include whether the relevant local authority will take over responsibility for borrowings/liabilities? The RIA, under Option 2b, refers to the opportunity cost in not focusing those ports which have a limited future in commercial port activities on other areas for future development. GHC is keen to stress that it has a very strong future in commercial port activities, and indeed has been designated as having a strategic national role with respect to petroleum in the NPP. Option 2b must ensure that the decision making process is effective and efficient in the context of a business required to generate a commercial return. The commercial independence and strategic and operational management of the port should in no way be compromised under the new arrangements which materialise from National Ports Policy, Table 2.8 page P a g e

8 Under Option 2b, the role and powers of the City Manager need to be clearly set out. Who will be accountable ultimately for the port company? For example, on behalf of the shareholder, the CEO and Board should be accountable for strategic and operational management of the port and the CEO and Board Chairman should report to the local authority as the new shareholder? Reporting mechanisms - what will the channels of communication be under Option 2b? For example, the current financial reporting line with regard to bank borrowings, which involves the DTT&S and the Department of Finance (DOF), works reasonably well. Under Option 2b, will the local authority or the councillors have the power to refuse such a request or will approval from the Department of the Environment, Community and Local Government (DECLG) and the DOF be required? The port company s ability to proceed with the GHE or other projects could be jeopardised should the local authority or the councillors obstruct a request from the port to borrow to build the port extension. Given the complexity in governance and the multi-functional role of local authorities, is there likely to be a conflict between the National Ports Policy and Local Government policy? In the case of a port seeking planning permission from a local authority, for example, might there be a conflict of interest with respect to the use port lands are put to? Local authorities have different priorities plus a local focus. Will the local authority support the GHE project when it has other priorities? Will it be willing to see a subsidiary undertake a project of this scale, with the attendant borrowings and commercial risk? 4.3 Corporate Governance Issues The NPP includes a section on corporate Governance issues. A number of points are raised below which are relevant in the context of Option 2b. How are ports of regional significance going to be governed under the new arrangements? In regard to the appointment of the Board, the NPP calls for transparency in the State board appointment process but it is not clear how port company boards will it be nominated and by whom? In regard to the composition of the Board, GHC feels strongly that the board must have the full range of skills necessary to run a commercial port. Who will be responsible for the appointment of the CEOs of the port companies? The port company should have an independent CEO and Harbour Master. Under Option 2b, who will undertake the port company s audit? Will it be the Comptroller and Auditor General? How and under what circumstances would the company be expected to pay a dividend to the local authority? Is there a danger of the port being treated as a cash cow? Could profits in the port company be diverted to areas in a local authority where public funds are constrained, to the detriment of the long term commercial sustainability of the port? 4.4 Future Development of the Harbour The new structure put in place following the transfer of control to the local authority must not jeopardise the port company s plans and their implementation regarding the Harbour Extension project. GHC would be concerned regarding the bankability of the project where the port is owned by the local authority. Banks may look for a Central Government Guarantee. In these circumstances, how might central Government react to such a request? 8 P a g e

9 4.5 Other Issues Related to the above point is whether the new structure will see ports of regional significance becoming second class citizens vis-à-vis Tier 1 and 2 ports. This raises issues around competition and a level playing field, issues which are likely to be addressed in the forthcoming study from the Competition Authority. To mitigate the above, impact, GHC considers that in the event that a Port of Regional Significance meets the minimum performance criteria consistently for a Tier 1 or Tier 2 port ranking, the legislation should allow for that port to be upgraded. Such a promotion should render the promoted port eligible to apply for EU funding. Section 2.5 of the RIA paper mentions some minor amendments to the existing legislation. GHC wishes to have these amendments clarified. GHC would question the paper s assertion that there would be minimal potential for customer uncertainty as regards future arrangements under Option 2b. The segregation of ports of regional significance from Tier 1 and Tier 2 ports may give rise to customer uncertainty. Local authorities are governed by the Local Government Acts while ports of regional significance will be governed by the Harbours Act , subject to the legislative amendments which arise as a result of this consultation. Could this give rise to areas of potential conflict? We would envisage that the DTT&S would set out the legislative/policy guidelines/recommendations for minimising conflict. 9 P a g e

10 5. EMPLOYEE VIEWS It is the strong recommendation of the employees of GHC that Option 2(b) be adopted. They are guided in their decision by the successful performance of the company in its current format over the past 17 years. They have been an active component of that success and despite accepting changed working conditions/practices over the past number of years, resulting in reduced income and adjusted pension entitlements; they firmly believe that a simple change of share ownership would be the best way forward. The important issue is protection of the company and its employees. The continuation of an employee representative on the board is considered essential. In line with agreements reached as a result of the corporatisation of the port, following the enactment of the 1996 Harbours Act, all employee entitlements, as agreed at that time, must be and should be maintained. The future success of the port company is substantially dependent on the staff and it is essential that they be party to any proposed changes. From a commercial viewpoint any dilution in the operating powers of the company should not be tolerated. The current structures which are in place served the company well and should be carried forward into the new relationship. The employees do not object to the implementation of the National Ports Policy but it must happen in a professional and well considered fashion. The ability of the company to develop and in particular proceed with the proposed port expansion must not be jeopardised by bureaucratic interference at any level. In a difficult economic climate any advantage that the Port of Galway can achieve must not be nullified by unnecessary shareholder s interference. The current shareholders relationship with the port epitomises how well Option 2(b) should operate. In addition the stripping of the company s balance sheet, reserves or profits must be guarded against and if possible enshrined in statute. The Ports of Regional significance are just that i.e. significant and they must be allowed to play their part in the on-going development of regional/national economic policies while at the same time protecting the rights of their employees. 10 P a g e