Former councillor says $110m port loan risky without Crown guarantee

By Maia Hart

Marlborough District Council asked the Crown to guarantee its proposed loan of $150 million to Port Marlborough for the ferry precinct development, but it was refused.

Instead, according to its statement of proposal, the government rejected the Crown guarantee because it was already committed to supporting KiwiRail, so Port Marlborough recalculated its borrowing to $110m to "reduce the level of risk" involved.

There were 27 submissions made during consultation on whether the MDC should raise the $110m loan to finance Port Marlborough's share of the ferry precinct redevelopment.

Of the submissions, 11 people supported the proposal, seven partially did, and eight did not.

Consultation hearings are set down for February 17 and 18, of which 12 submitters are expected to speak on their submissions.

One of those is former Marlborough District councillor and former Port Marlborough chairman David Dew, who did not support the council's proposal. Dew said his concern was the council was not being honest about the risk of borrowing - given it did not have a Crown guarantee.

"They're making the assumption that you can trust the Crown, and trust state-owned enterprises," he said.

Dew turned to state-owned coalminer Solid Energy as an example. Then Prime Minister John Key said in 2013, state-owned enterprises were not government guaranteed and banks that lent to Solid Energy should expect to wear the loss of its accumulating debt.

"All they have to do is decide KiwiRail is not a successful enterprise. If the government said we've had enough of this ... they could effectively liquidate KiwiRail, which cancels all the contracts, including the contract with the port company here [Picton]," Dew said.

In his submission, Dew said if the Crown restructured KiwiRail and created a new operating entity, Port Marlborough's contract "will be worthless".

"There is then no security for payment to Port Marlborough," he said.

"So the soft lender becomes the council and therefore the ratepayers. There is a better option and that is to refuse to fund without a Crown guarantee.

"In any event council should not 'punt' with borrowed money that could impact on ratepayers."

The first of the new Interislander ferries was expected to arrive in New Zealand by September 2025. But two new ferry terminals, either side of Cook Strait, were needed to accommodate them.

The Waitohi Picton Ferry Precinct Redevelopment was being implemented through a partnership between KiwiRail, Port Marlborough, MDC and Waka Kotahi NZ Transport Agency.

The council was approached for comment, but in response said to refer back to page 11 of the consultation document/statement of proposal.

In its statement of proposal, council said the reduced $110m figure was done on an evolved design for the precinct with a reduced environmental impact.

"The port has also secured, from KiwiRail, securities in the form of an irrevocable letter of credit covering six months' worth of fees and ground rentals, as well as a parent company guarantee to ensure the port has a claim on all KiwiRail cash flows and assets in the event of non-performance," the statement said.

It said the redevelopment was an opportunity to cement a 60-year agreement with KiwiRail, comprised of two 30-year lease terms.

"The port is only interested in strategic assets that are not specific to KiwiRail's operations.

"If KiwiRail decides not to renew the contract after the first 30-year period, it is obligated to pay the port a substantial termination 'balloon' payment of 39 per cent of the value of port's assets."

In a statement on February 8, Marlborough Mayor John Leggett maintained the "significant" proposal would not increase rates or cost ratepayers, but rather increase dividends to the council to over $6m, offsetting the need for future rates increases.

Under the proposal, council would raise debt through its existing arrangements with the New Zealand Local Government Funding Agency (LGFA). The agency specialises in financing the local government sector, to provide lower costs and alternative funding sources for local authorities and council-controlled organisations.

If Port Marlborough sought financing through private lending, the council estimated interest to be 1 percent to 1.5 percent higher, which would take longer to service the loan and lower future dividends to the council.

Public submissions on the proposal can be found here.

Following the hearings the council will meet during the afternoon of March 4 to make its final decision on the financing proposal.

Local Democracy Reporting is Public Interest Journalism funded through NZ On Air