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Ports overcharge another $60m

13 September 2004

Ports overcharge another $60m

The Captive Port Customers Group Ports is estimating that New Zealand ports have earned another $60m in monopoly profits since the Government decided in 2002 not to intervene to stop the ports from using their market power over shipping operators.

"In 2002 the Government did nothing to stop the ports from ripping customers off, and we have found that they are still at it," Paul Nicholas of the Captive Port Customers Group (CPC Group) said today.

"Record level profit announcements from ports recently prompted us to update our assessment of one of the ports we examined two years ago - Lyttelton.

"We found Lyttelton is still earning around a 20% rate of return each year - that is much more than the 8% rate of return judged by the Commerce Commission as warranted for a similar monopoly service- airports.

"If the other five ports we studied in 2002 have also maintained the rates of return they were achieving then, shipping operators have had to pay around $60m more than they needed to over the past two years.

"It is an appalling price to pay for the Government's lack of courage in relation to ports," Mr Nicholas said, given that the Government has protected itself from monopoly pricing in respect of Track Co.

The latest research, by Simon Terry Associates (STA), discovered that over the post-corporatisation period 1988-2004 Lyttelton had secured an internal rate of return of 15.6% real, post-tax. This figure was calculated using the methodology set out in Portly Charges (2002), with the book value of assets providing a terminal value for the analysis.

If the market value of the assets at June 2004 is taken as the terminal value, STA estimates that the IRR over 1988-2004 would be of the order of 20% real post-tax (a current market valuation of the assets was not available for this report).

That means Port Lyttelton is currently collecting around $20 million of excess revenue (and hence profit) each year, relative to the amount which it would have been allowed to charge under rate-of-return regulation that provided for an 8% rate of return. Excess profits on this basis are estimated at $19.8 million in 2002, $19.1 million in 2003, and $19.9 million in 2004.

Mr Nicholas said the CPC Group wanted the Government to convene an industry group made up of all parties, to develop a cost effective system to deal with the captive part of the port market.

"We are not talking about whole industry regulation, but a way of stopping the monopoly abuse in a well defined part of the industry. It would help to have a system for information disclosure in negotiations and a dispute resolution mechanism," Mr Nicholas said.


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