Future of the Port of Belfast (Minutes of Evidence)

CONTENTS

MINUTES OF EVIDENCE

APPENDICES TO THE MINUTES OF EVIDENCE

1. Memorandum submitted by Belfast City Council

2. Memorandum submitted by CBI Northern Ireland

UNPRINTED MEMORANDA

The following memoranda have been received by the Committee but have not been printed. They may be inspected by Members in the Assembly Library, and by the public in the Regional Development Committee Office, by prior arrangement during normal working hours (Tel (028) 9052 1213)

Ballymena Borough Council 
Banbridge District Council 
Belfast Shipping Agents Association 
Institute of Directors 
NIPSA (Northern Ireland Public Service Alliance) 
Port of Belfast Trade Union Side 
Port of Larne

MINUTES OF EVIDENCE
WEDNESDAY 21 JUNE 2000

Members Present:

Mr Alban Maginness (Chairman)
Mr McFarland (Deputy Chairman)
Mr Byrne
Mr Bradley
Mr C Murphy
Mr R Hutchinson
Mr Hay
Mr Hussey

Witnesses:

Mr Frank Cushnahan ) Belfast Harbour Commissioners
Mr Gordon Irwin )

The Chairman: Good morning, Mr Cushnahan and Mr Irwin. You are very welcome to the Committee. This is a public session, and a record will be taken of the comments made by members of the Committee and, indeed, yourselves. This is an issue that has attracted the attention of the Committee for quite some time. Members have heard and read quite a lot on the issue, and we are very anxious to hear from you this morning.

Mr Cushnahan: Thank you very much. We are pleased to be with you this morning. I am sure that all members of the Committee know that Belfast Harbour has been engaged, since 1995, in seeking to establish a proposal that, in the view of our board, represents the best interests of the Port of Belfast and the Northern Ireland economy. I emphasise that it is not for the personal gain of any commissioner or employee.

As members are well aware, the Belfast Harbour Commissioners' preferred option is a public private partnership (PPP). We believe that it offers the best prospect of achieving what is, in our view, the vision of a strong Northern Ireland-based organisation operating and growing as a vertically integrated transportation business. We believe that this option would add value to the ongoing regeneration of the local economy. The Minister's Options Paper of February 2000 identified the PPP as one of the options - Option C - and also set out an Option D, which the Minister referred to as a restructured trust port with extended powers.

This was the first occasion on which those involved in Belfast Harbour became aware that such an option was being considered. Given that it is clearly the public route alternative to the public private partnership, it is essential that any response from the Belfast Harbour Commissioners be given careful and detailed evaluation. Our initial consideration raised more questions than answers. I will leave copies of examples of the issues that we believe require clarification.

In the absence of a Minister or the Assembly, we were unable to clarify various areas of concern. For this reason we were reluctant to proceed with a formal response to yourselves, because we considered that it would have incurred significant expenditure, particularly on professional advisors. Belfast Harbour Commissioners are of the view that a detailed and rigorous study needs to be carried out on Option D or some alternative public sector models, before a comparison can be made with a public/private partnership.

This is in contrast to a statement in the Options Paper which suggested that if Option D, or some alternative public sector model was favoured, then the Department would be required to undertake a rigorous study of the implications before bringing legislation forward. We believe this puts the cart before the horse.

However, if the real issue is one of political ideology which does not embrace the visions and benefits embodied in a public/private partnership, then it would be more sensible, and fairer to all concerned, for such to be made known, to ensure that we are all operating within the confines of government policy.

In summary, Belfast Harbour Commissioners brought forward their public/private partnership option in the knowledge that Labour Government policy embraced the concept. The public/private partnerships were accepted in principle in the Chancellor's statement of May 1998. Belfast Harbour Commissioners wish to know if it is the policy of the Northern Ireland Assembly to embrace the concept of public/private partnerships, and in particular, what is proposed for the Port of Belfast?

Belfast Harbour Commissioners recommend that the best way forward is to conduct a detailed assessment of public route options before a final decision on the Port of Belfast is reached. Finally, Belfast Harbour Board welcomes the Minister's statement that it is his intention to resolve this matter by the autumn.

The Chairman: Mr Irwin, do you wish to make any further comments.

Mr Irwin: No. I would just like to reaffirm that we did not make a formal response because we were unable to receive clarification on a number of issues - I can give you examples on what is an important and complex subject. I am also surprised that the Options Paper states that a detailed and rigorous study will be carried out only when the Committee indicates a preference for Option D. If I were on the Committee, I would want to have a detailed and rigorous study carried out on Option D to enable me to compare it to Option C - then I would tell people what I favoured. That is the normal way. No time has been given for that, and we are not aware of any study that may have taken place, or if any external advice was obtained and we will be placing a very strong emphasis on that point in our summary remarks.

Finally, at the start of this long process we knew what government policy was. However we are not clear on what the policy of the Northern Ireland Assembly is towards public/private partnerships. If policy is not to favour them, then we can go back and make a detailed study of public route options. Whatever way you look at it, a detailed study on public route options is required to compare them to a public/private partnership, or if a public/private partnership is not government policy I think port users and, indeed everybody, needs to be informed and the study will have to cover various public route options, because there is more than just Option D.

Mr Cushnahan: I want to endorse that. We started this process in June 1995, and we submitted our public/private partnership option to the Government in December 1997. It took a considerable amount of our time to reach that stage.

It also reflected our concern that such a decision would ultimately be taken by the Assembly, so timing was important because the Assembly would be associated with it. Since December 1997 we have been engaged in dialogue with some of this Committee's members who attended our presentations. The process was properly considered and debated. It seems odd to us that in a few weeks' time a decision might be taken on a matter which, as Mr Irwin said earlier, has not had an appropriate hearing. We consider it vitally important that an evaluation be done as quickly as possible. We have, after all, taken great pains on this subject.

The Chairman: Have you a document on Option D? I have not seen it if you have.

Mr Cushnahan: No. We feel that it would be helpful to your Committee if we presented you with some of the issues which we believe need to be considered. They represent general views, prima facie observations that we feel need detailed analysis. They are not a detailed list of what the Harbour Commissioners consider to be problems, rather an indication of what issues we believe should be considered in an evaluation. We are more than happy to leave those with you when we leave. We do not intend to debate any particular issue - that would require a study.

The Chairman: We understand that you have put a lot of effort into the development of a public/private partnership approach to dealing with the Port of Belfast, and it is fair to say that the Harbour Commissioners are wedded to that. If the Government - and we are not the Government - or the Department said that it did not favour the PPP option, but Option D, a restructured trust port with extended powers, how would you react?

Mr Cushnahan: Before we responded we would have to be assured that there had been sufficient evaluation on the matter to address the concerns of the Commissioners particularly on our vision of a fully integrated transportation business. It would have to assure us that Option D would provide us with commercial, financial and managerial freedoms. These are a few of our concerns.

The Chairman: The Department said in its Options Paper - and I know that you take exception to this - that it would make a full and vigorous study of the implications before bringing forward appropriate legislative proposals on Option D. The Chief Executive has referred to that.

Knowing that that is the position of the Department, and knowing that you cannot wish that away, what would the position of the Harbour Commissioners be in the event of the Department's saying that Option D was the preferred option? And it would have a full and rigorous study of the implications before bringing forward appropriate legislative proposals. What would you say in those circumstances? It seems to me that you are not going to get the full and rigorous study that you are looking for, particularly when the Department and the Minister have indicated that they wish to try to resolve this matter.

Mr Cushnahan: We have put our proposals in the manner in which we believe they would be best managed. That has been done with integrity and sincerity. We are as keen as everybody else to ensure that this is dealt with conveniently. So, we are not in any way seeking to frustrate any process proposed by you. Indeed we would seek to co-operate, and I assure you of that. It is our preferred methodology, and it seems that the appropriate way to do this is to engage very quickly in an evaluation now rather than on a post-event basis. In that way, what you have on all sides is the co-operation and mutuality of the parties concerned to complete it as quickly as possible. But I emphasise that we would of course co-operate with the Department if that was its expressed requirement.

Mr McFarland: The Harbour Commissioners, as I understand it, have been looking at this since 1995. We first had a meeting with you, the Chairman and me, and then you came and spoke to the Committee. I recall that you explained at some length that you had spent five years or so developing your PPP strategy. And you said that in that five years you had looked at all the options in detail. You had examined them individually, discarded the other options, and chosen PPP as the best option. I recall that one of the options we discussed at that stage was extended powers, an option that, I think, you had set since PPP appeared the best option on two counts: one it was government policy, and, two, it was best for your business given your vision of the future. How, at this stage, five years down the line, is there a suggestion that there has not been enough study into the extended powers option, when in fact you had studied it in detail?

Mr Cushnahan: That is a fair summarization of the discussions that took place previously. What has changed basically is that the word "restructured" has been put in. We have looked at a trust port with extended powers, but what does a restructured trust port with extended powers actually mean? And in that context, what is meant by a restructure? We did look at a trust port with extended powers because there are parallels for us to consider. So it is really -

Mr Irwin: That is absolutely correct, and the matter is even more confused now because in departmental publications, the phrase "trust port with extended powers" is used in the context of Londonderry and Warrenpoint and the phrase "restructured trust port with extended powers" is used in the context of Belfast.

Are there two different policies being adopted in respect of the ports? Is this loose language, or very accurate language? We do not know because we have had nobody to ask what the difference is between a trust port with extended commercial powers and a restructured trust port with extended commercial powers. Nor do we know whether it applies to Londonderry, Warrenpoint and Belfast Ports? We have seen a departmental publication that suggests it only applies to Belfast.

We never considered a restructured trust port but, as our Chairman said, we examined trust ports with extended powers, as did Londonderry and Warrenpoint. They submitted that as their preferred option in December 1997. It was our second preferred option.

Mr McFarland: I have taken "restructured" in this context to mean the transfer of land from your ownership into other ownership. The detail may not be clear but the general thrust is clear. If I had been a Harbour Commissioner and it had dawned on me that the Department was looking at four or five options, I would have been hotfoot to the Department to ask what they meant? Did you ask the Department to clarify it?

During the period when we were stood down and direct rule Ministers resumed responsibility, I saw you, Mr Irwin, on television saying that you had been in discussions and had urged that the Port be sold immediately. I think that that was the thrust of what you said at the time: a decision had been reached, and your favoured option was a public and private partnership. Clearly, at that stage, there had been some discussion with the Department.

So, when this happened, did you rush to the Department asking for clarification? If you did not, why did you not? Is it not strange that, at this point further down the line, the Harbour Commissioners are still confused about what the detail means when a quick phone call to the Department would clarify the matter?

Mr Irwin: You have to go back to the report and read and dissect it, particularly if you are up to the back axles in the subject, as we are, and note that it says that this option goes further than a trust port with extended powers. It explores ways in which the Port's assets - which are more than land, I have to tell you - might be used to raise the required finance, whatever that is, while retaining the Port in public ownership. Is that trust port ownership? We cannot get the answers to these questions. There are as many definitions of restructuring as there are people to speak to. An exercise to determine definitions is required. People all understand the terminology "trust port with extended powers", but once we move away from that to "restructured trust port" then we open an enormous box of possibilities as to what we are seeking to do.

It is not just a case of land. One view, according to the report, is that it would, in theory, be possible to legislate to give government access to cash held by BHC to use for increasing expenditure on local services and that legislation could also be introduced to enable the harbour estate to be restructured. When we spoke there was the issue of an ongoing subvention that port users were going to have to pay for. Is that to be a tax on their invoice? It could not be regarded as a port charge. It is a Northern Ireland Government tax on Port of Belfast customers. But if you are at the Port of Larne then you do not pay that tax. It is a Northern Ireland Government tax on a Port of Belfast customer. In Larne, that tax is not paid. We asked people if there will be an ongoing public dividend? Is that what restructuring means?

The Chairman: Could I clarify a point with you before I call Mr Hay. You said that you are concerned about the concept of restructuring and what that means. Are you saying that the Department was unable to give you clarity or definition in relation to the concept of restructuring?

Mr Irwin: Yes.

The Chairman: And you sought the views of the Department?

Mr Irwin: We have spoken to the Department. Restructuring is a concept that, as they have quite rightly said in their own language - and it is just a matter of where it takes place in the process - requires a detailed analysis.

We asked if restructuring would apply to Londonderry and Warrenpoint, and we were told that it will only apply to Belfast. Belfast will be a restructured trust port with extended powers and Londonderry and Warrenpoint will be trust ports with extended powers. What the differences will be between the two organisations requires a study. It has to be worked out.

Mr Cushnahan: Mr McFarland is correct. We had a very useful discussion with the Committee in considering the issue of trust port status with extended powers.

The restructured trust port proposal came forward, as Mr McFarland will remember, during the last days of the Assembly. One issue for us was that we would have had to engage advisors, as always, at great cost, to carry out the examination and, with great respect to Mr McFarland, we were not sure when the Assembly would come back into play. We were very keen to ensure that when it did so we could get those matters addressed in their entirety. There was no other reason whatsoever. The issue has just resurfaced. As I said earlier, we will leave a number of examples of issues with you. You will see that they open a box - and it is quite a large box. We would not have had this problem if the issue were as simple as having a trust port with extended powers.

Mr Irwin: One defining singular difference between a trust port with extended powers and a restructured trust port with extended powers, subject to clarification and study, that could emerge is the business of a restructured trust port, being part of the means of providing funds for the public sector, and thus becoming part of the PSBR accounting system. That has been confirmed to us. That would mean an enormous difference in the running of the Port of Belfast as a restructured trust port and when compared to the Ports of Larne, Warrenpoint and Londonderry. If you are a provider of funds into the public purse you are clearly caught up in the government accounting system and all that goes with it. We all know what that is like.

Mr Cushnahan: To attain our vision, one issue quite rightly raised by Mr McFarland - and it concerned me - was if we needed debt and equity. The consequences of having a restructured trust port with extended powers were that we would have accessibility to debt, but not equity.

The extent of the debt that we might require, given our vision, might also raise the issue about whether government would underwrite such debt. It is very common in the United States for ports to be supported by government. Would that be applicable to Belfast Port under a restructured port proposal as distinct from it being a trust port with extended powers?

Those are just some of the many issues that arose, and you can see that they are quite complex.

Mr Hay: I am a Commissioner for Londonderry Port and it is very important that I inform the deputation of that fact.

Mr Hay: There is some confusion over extended powers to trust ports and over the issue of a restructured transport system. There is no doubt that this is something for the Department and the Minister to clear up quickly. We should take a step back from this. At one point this was driven by the announcement of the Chancellor of the Exchequer, Gordon Brown, about raising money to improve the infrastructure of the roads in Northern Ireland. We were told that if the money, £70 million could not be raised, a number of road schemes could not go ahead - Gordon Brown told us that. Gordon Brown did not just decide one Monday or Tuesday morning that he would make an announcement to look at the sale of Belfast Port to raise initial funds for the road infrastructure. Somebody had to prompt him with that idea. We were told that many schemes could not go ahead if the necessary money was not raised, but I think we have moved on from that.

Some people were driven to look at the idea of selling off Belfast Port to raise the necessary funding for roads. However, it no longer drives us because a lot of the schemes that people said could not go ahead are now going ahead, and we should clarify that as well. Trust ports in Northern Ireland generally, Londonderry, Warrenpoint and Belfast have operated in a narrow commercial field but have been reasonably successful. I do not think anyone could tell us any one of them has not been reasonably successful in operating within its narrow commercial fields. To have a turnover of more than £19 million and a reserve fund of over £21 million is not bad, even in the straightjackets of the commercial environment.

Leaving the issue aside, if there were real powers extended to trust ports in Northern Ireland, do you feel that what you are offering in private partnership would allow you to operate in a wider commercial field? You would have to raise the necessary finance and look at a number of commercial operations to get involved in. I am convinced that if the extended powers were restructured appropriately, that would give you the necessary powers to enable you to operate on a wider commercial field and still have the vision for Belfast port.

Mr Irwin: I welcome what Mr Hay says. He is accurate in saying that the trust ports have done very well. They are all efficient, and, as stated earlier, all have a role to play. The market is small but mature, and transferring traffic between ports will be reasonably difficult from now on. Therefore, for any business to push on, it must have other objectives, targets and motivation, and that is where the extended powers come in and where commercial, managerial and financial freedoms need to be maintained. It is these freedoms which have driven the trust ports forward, in our case for 153 years.

Perhaps a trust port with extended powers offers that same concept. I am deliberately leaving out the word "restructured" here, for I speak of ports like Warrenpoint and Londonderry and what they consider is on offer to them. My understanding is that they do not know of the word "restructured" in those Ports.

Mr Hay: That is right.

Mr Irwin: I cannot envisage treating Belfast any differently from other trust ports in this country. If we speak of sensible, significantly extended commercial powers, without bureaucratic meddling every time we wanted to buy a pencil sharpener, allowing us to get on with our job, with a transparency and accountability, then the differences between such a trust port with extended powers and the PPP would enter into the margins of debate.

In the long run, the PPP will deliver something better for Northern Ireland, and it is more a political matter if one ends up not being prepared to take that last jump. However, that debate would be in the margins. Provided that the Port does not find itself in the position of "always being subject to ministerial approval". It sounds very simple, but once one enters the system to get a commercial decision, it can be a long time before one emerges, and the world may have moved on.

With those important statements and the understandings that Mr Hay and I have on the nature of the trust port with extended powers, I have answered the question openly and honestly.

Mr Byrne: As Assemblyman Hay has said, we were all dealt a difficult hand about a year and a half ago because of the Chancellor's initiative. However, the Ad Hoc Committee and this Committee have had to take into consideration the wider public interest, for this is a substantial public asset, not just for the people of Belfast, but for Northern Ireland. It is therefore important that we make the right decision, one we can all live with. The problem with the PPP is that, in order to make it viable and successful for a flotation, it will have to incorporate a great deal of non-port-related land, and that is the issue which concerned us primarily.

I welcome the point Mr Irwin made that he could live with extended trust port status like the other two ports, but there then arises the issue of the activities in which the Port of Belfast is engaged that the other two are not, but which constitute valuable assets - for example, the business park and lands with economic potential. Have you any thoughts about living with an extended trust port status? Would you like to retain the entire entity as it is at the moment, or would you be willing to countenance the sale of some parts of the non-port-related land?

Mr Irwin: It is very difficult to answer that question. I understand the point that you are making. In general terms I would say that someone has to run the estate. We put forward some proposals on land relationships in the PPP, and the thinking of the Committee is bound to be influenced to some extent by that. When you come to evaluate the degree of restructuring that Belfast Port requires, we need to sit down and clarify what restructuring means.

You are saying that I have picked up on how I answered Mr Hay, but I want to take you down the road of restructuring. The first point in restructuring is land. Who knows what the next person will bring up, and what the next person will bring up. As our Chairman has said, if you wish to examine the proposal for a trust port with extended powers, but you would like us to look at one or two others as well, you must tell us what you have in mind. Then we can consider the issues and give you a detailed response.

Mr Cushnahan: In response to Mr Byrne, and following on from what Mr Hay identified, we have £21 million of cash reserves. When one looks at land, one may look at cash, and, having looked at cash, say that we would like a dividend. Having lifted the land, and lifted the cash, we get back to Mr McFarland's concern - and it is our concern too - that the Port has to expand in some form. As Mr Irwin has said, we are in a mature market and organic growth is not necessarily the means to an end. We require as much reserves - and by that I mean cash and profit - to enable us to sustain investment in the port for the purposes of our vision.

If the land, for example, is removed, however much that may be, what also is taken, and, by the way, do the Government intend to keep milking the cow? If that happens, given that we have no access to other markets for profit, what is the future for the Port? These are the very issues that Port commissioners deal with, as best we can and with integrity. Mr Byrne has asked a pertinent question, but it moves us away from the matter of what could happen to the reserves. Our reserves and profit are the most critical features for us. If you strip out assets that are earning assets, you have less profit and fewer reserves to do the things you wanted to do, and that is commerce.

Mr Byrne: Obviously we are trying to explore the best possibility for all the people. We cannot be selective or subjective, so when you raise concerns about restructuring, you also have to define what your worries are. That is if you accept the principle that you could live with extended powers for a trust port, as would be the case with Warrenpoint or Lisahally. Finally, it is also incumbent on you to explain how you could develop the integrated transport system which you envisage for the future Belfast Port.

Mr Irwin: When we move to the issue of the land, what we said was that if there is a trust port with extended powers option - which is the Derry or Warrenpoint option - the difference between that and a PPP in Belfast is a debate in the margins.

Once you put the word "restructured" in front of it, it ceases to be in the margins - it is not apples to apples. I listen to you talking about the land as though it is there to be developed - it is not. It is developed; it is a revenue flow. Some other person is not going to come in and bring the public dimension to the development of it. The development is agreed; the Sydenham Business Park is let. It is a revenue flow to either a PPP or a trust port with extended powers.

Substantial areas of land were left behind in the PPP. They are there for the record and are in the Options Paper. If they are taken away from the trust port with extended powers, who is going to manage them? Who is the estate agent? Who is the estate manager, and who is the recipient of the revenue flows? It would be different if there were large tracts of undeveloped land, and people were saying, "For the development of those lands, we would prefer if it were under a more governmentally managed body". That is not the case. We have demonstrated that in the Harland and Wolff and Shorts lands. We have a very open mind on those and have stated that. That is the large amount of land that should concern the public. Clearly there are issues round the Harland and Wolff situation, and we all hope that goes the right way. The Sydenham Business Park is virtually let in its entirety.

Mr Hussey: I am sure you would accept that the structure of Warrenpoint and of Londonderry, is fairly similar and that the Port of Belfast's is different. When one thinks of restructuring, perhaps one is thinking in terms of an equalising of the various trust ports. From that point you are going forward on an even footing as a trust port with extended powers in line with the other two named ports, Londonderry and Warrenpoint. Do you not see that as a way forward? Do you not see Port of Belfast operating with similar structures to Warrenpoint and Londonderry, and being economically viable?

Mr Irwin: If I understand that question there is clearly the view that they are equal ports, equal businesses. I would disagree.

Mr Hussey: Could you define the term "equal"?

Mr Irwin: Equal in what they do. The Port of Londonderry has a local hinterland niche. Time and time again we have demonstrated that it has cargoes which we could not take away from them because of the cost of road haulage - even if we charged nothing. Warrenpoint is the same. Belfast is the major gateway port for this Province. The other main port in Northern Ireland is Larne. It concentrates primarily on roll-on roll-off and passengers. P & O run it, and P & O shipping and transport businesses generate the majority of its traffic. It is a very singularly minded organisation, where the interest of P & O is the main objective.

Belfast offers the complete range of port facilities, including depth of water. Currently, for modern port maritime safety, we have to spend £7 million widening the channel. Warrenpoint will not have to widen its channel. The other ports do not have fast ferries, sailing in and out. This is one of the busiest ports in the United Kingdom, the second busiest passenger port after Dover. It is the ninth biggest port in the United Kingdom. If you look at all the major ports, there is a massive infrastructure that must be serviced between land and port.

Mr Hussey: Therefore should the Port of Belfast not concentrate upon port activities?

Mr Irwin: No. If we want to concentrate on port activities we may have to raise port charges to recompense for the money lost from the rentals to cover common infrastructure. We are not competing with Derry and Warrenpoint.

Mr Hussey: You are not competing, but they have to work off their port activities.

Mr Irwin: But they will be getting extended powers.

Mr Hussey: So will Port of Belfast.

Mr Irwin: They might become involved in land then.

Mr Hussey: Are you going to stop them?

Mr Irwin: Under extended powers I am quite certain that they will be able to move outside the Port limits.

Mr Hussey: Similar to the site of Port of Belfast.

Mr Irwin: We will also be involved in land so why take the land off us?

Mr Hussey: Go from the same starting point.

Mr Cushnahan: We talked earlier about marginality. It comes back to the famous words that are now used in all corporate entities, "mission" and "vision". Vision determines winners and losers. History shows that the businesses that survive do so because of the vision of the leadership. My board looked at what was the vision for the Port of Belfast. We took account of the infrastructural applications that Mr Irwin has mentioned and took account of the facts that we are in a mature market and that organic growth is limited. What will we need to ensure the ongoing sustainability and viability of this Port, given that it is the major gateway to the Province?

With that vision in mind, and having taken advice from external bodies, we decided that access to third-party finance will be required to enable us to do things which would not have been permitted under a trust board, even with extended powers. That is why we have taken so long to get here.

To take account of the public sector and public safeguards, we have since December 1997, taken these points on board so that we could address public concern. We have now reached a PPP as the best means of accommodating public concerns. Our concern was to ensure that public safeguards are regarded as critical to the success of the Port. It was the marriage of the two that, as Mr Irwin said, made that marginality.

To summarise if you strip out all of this land you are left with a port which has very little revenue stream growth. Therefore, if you are on our board you ask whether you want a small manned port? Does it compete with Dublin and other ports? After all, the Good Ship Lollipop has to pass Dublin bay, and we are the port that has to handle that. That is what our board had to do. It is our vision, and our vision could be wrong, but that is our best shot.

Mr Hussey: Will the proposals reduce the amount of dockage available? Will they reduce the amount of storage available behind the dock fronts? I may be an inlander who does not understand fully the operations of ports, but I would have thought that your dockage front and your space behind is what is important.

Mr Irwin: It depends on how you define a port. No port in the world fits that description. Small ports, normally called harbours, would fit that description. Belfast is a major port and a major institution. It manages a significant piece of infrastructure and a lot of public expenditure inside its boundary. If you strip away the estate side of it, someone else is going to have to pick it up. It cannot be port users because they will say "I am only interested in the water, the quay and the storage land behind." This means that the Northern Ireland Government will have to pick up the rest. Believe you me, there is significant ongoing expenditure, year in, year out, in Belfast harbour on basic infrastructure in the estate. I am sure you can find that information.

Mr C Murphy: You seem to be surprised that there has been an added degree of confusion with regard to restructuring and no full explanation for it. Public opinion seems to think that any examination of this should be carried out by Belfast City Council, by the Ad Hoc Committee of the Assembly, which took quite a bit of evidence, and by this Committee. All were in favour of retaining the Port in public ownership, of enhancing its commercial powers but also of increasing its accountability. They all pointed in that direction and we, as elected representatives, are reflecting that.

Option D is also favoured by other groups. Quite rightly, most of the public Committees that I have looked at have not been swayed by what I would regard as the sweetener from Gordon Brown's promised package for roads. It may have affected some of the district councils in the areas where those road improvements were to take place, but by and large, the public mood has been to retain public ownership of the port and to increase its power and accountability. I just feel that the Harbour Commissioners are refusing to engage in this option in the hope that it will go away, but I do not think that it will. We now have to decide what is meant by restructuring.

The Harbour Commissioners must accept that the public mood is that the Port should be kept in public ownership with increased accountability and increased commercial powers. There is legislation in the offing to deal with trust port powers, and I cannot imagine that Derry and Warrenpoint Ports are going to remain unaffected by that, and I imagine that there will be restructuring in their powers as well. The debate is going to decide what powers the trust ports will have, and I would like to see some acceptance of the public mood that is in favour of the retaining the Port in public ownership. Let us examine the options within that.

Mr Cushnahan: First, I strongly refute any suggestion by Mr Murphy that we have not sought to make progress here. Nor have we been against any suggestion, in relation to the proposal on the table, for a restructured trust port. We have been applying democratic principles throughout. Prior to December 1997 a direct rule decision could have been taken by the Secretary of State. In fact, she was so minded. But we insisted that it be left to a local Assembly. Under no circumstances have we sought to act contrary to the public mood. Indeed, in putting the proposals to previous committees, we stated plainly that the options which were fully considered by us did include, as the Chairman well knows, that of a trust port with extended powers.

Now that you are considering a restructured trust port it would be remiss of me and my board in discharging our fiduciary obligations not to consider what is in the best interests of the Port of Belfast.

As I said before, we will of course seek to co-operate. The cart is before the horse. If the Department were to make a decision, we would co-operate, Mr Murphy. All of us here are working towards the best interests of Northern Ireland and, particularly, the Port of Belfast. I am interested, firstly, in the Port of Belfast, and, of course, in what is best for Northern Ireland. I am sorry if I seem sensitive, but I do not accept that that is not the case.

Mr Irwin: This point needs to be picked up from what Mr Murphy said. The understanding in the Londonderry and Warrenpoint harbour boards - I would like Mr Hay to comment on this - is that restructuring will not apply. It will purely be an exercise in extending their commercial powers -

Mr Hay: That is right.

Mr Irwin: - and he has confirmed that. That is not what you are saying. That adds to the confusion. This term "restructured trust port" only emerged in February 2000. There are one and a half pages in this document setting out some of the thoughts and concepts of restructuring:

"this option goes further, in that it explores ways in which the Port's assets might be used to raise the required finance while retaining the port in public ownership."

That is an enormous subject. The Port's assets - its ongoing profitability, its reserves, its land - might be used to raise the required finance for other public services. Our board cannot dismiss something as serious as that. It needs to be examined.

Mr R Hutchinson: You seem very touchy on this subject. Mr Murphy's comments seem to have rattled you.

Mr Cushnahan: Mr Murphy was suggesting -

Mr R Hutchinson: I do not appreciate the lecture.

Mr Cushnahan: I apologise. It was not meant that way. We did not come here to lecture the Committee. At the same time, Mr Murphy suggested that perhaps we are seeking to frustrate the process in some way. We have been waiting for this since 1995, and it gets very painful. That is the last thing in the world we would do. I apologise if people think we are seeking to lecture them. That is not our intention. We are trying to act honourably.

The Chairman: I am not going to stand in the way of robust exchanges. They are often useful.

Mr McFarland: You are right. There is some confusion. We need to clarify the business of the small ports and Belfast. We should set the small ports well aside. We are looking at the biggest port in Northern Ireland. It is big stuff. It is not a small port. Whatever trust port status is given to the small ports, we are looking at the problem of Belfast.

We need clarification of several principles here. The first area is this. This situation arose, in part, because Gordon Brown wanted £70m for roads. That has clouded the issue. We need to work out if that money is still needed from the port. In theory, if only a percentage of that is needed from the port, or if we go to Option D, then the whole business of hiving land away was originally made against the PPP only in order to safeguard the ownership of the land. If land ownership is no longer an issue, the whole business of taking land away needs to be re-examined. It may not be necessary at all. In my view, you need enhanced powers if we are not going the PPP route; in order to be commercially viable you need to be freed up. However, if some money is required to go towards the Department for Regional Development's roads budget, I presume some sort of deal could be worked out.

It may be possible to work out a deal whereby funds are transferred to meet difficulties. Earlier we mentioned the Westlink, and it is clearly in the Port of Belfast's interests to get this running because the lorries come through there. If things are snarled up there, then there will also be a problem at the Port. Another question is whether the Treasury will take the balance of the money from the PPP. This is a matter for concern. If, for example, it sold for £170 million then the Treasury gets £100 million and we receive £70 million. This situation is objectionable. However if we take Option D then this is no longer a problem.

We need clarification as to what the situation would be if we took Option D. In principle are we going for Option C or Option D? Once this is decided we need to investigate what this means in practice. Will there be a problem with working out a deal to meet the requirement of the DRD to get money for roads and, in turn, to ensure that the Port of Belfast becomes a commercially workable port?

Mr Irwin: What you have said reflects, in an indirect way, what Mr Murphy said earlier. He mentioned that the views of people throughout this debate have come down on the side of not embracing a PPP, and I would accept that that is the general view. However, there are times when the Government have to govern and take a detailed analysis and make their decision. This is the process they are in at the moment. Our document states that if the political view is that you do not want a PPP, or Option C, then we have to focus on Option D. We come back to Mr McFarland's point: what are the issues surrounding Option D from the Port's point of view, and from the public's point of view?

In the past we have said that if there were a preferred route - reflecting the political process and the people's views - then this would be the route taken. We have identified that one of the key issues for the Port is the Westlink. This is a job that needs to be done. In working out a way forward under Option D we would like to see ourselves as a trust port with extended powers at day one. In the same way as the Chancellor undertook a one-off exercise, investigations into how the Port of Belfast could facilitate a Westlink improvement, this would also be a one-off. If we are restructured to fit in with the Public Sector Borrowing Requirement (PSBR) we could not call it a trust port. We would have to remove the words "trust port" from the definition of our title because trust ports by definition, do not fit into PSBR regulations.

Mr Byrne: Mr Irwin and Mr Cushnahan, since this has been a protracted discussion has it impeded the development of the Port? In the present situation how soon would you like to see a final decision made?

Mr Irwin: Within the organisation the application of management - as we look ahead through our normal five-year plan this is not throwing up many exciting commercial opportunities in our present physical location with our present powers.

Of necessity, we have been making commercial contacts in the expectation that our powers are going to be extended, whether under PPP or trust port status. The difficulty is that with the process being prolonged, we have had to walk away from some of those initial contacts.

Mr Byrne: You have to accept that we are slow learners, but -

Mr Irwin: It is a process that was never going to be rushed. It is too important. The political process was getting up off its knees, and our process got caught up with that. It is number one on the list. Everybody understood that, and, as the Chairman said, we had to face the ups and downs of direct rule, then the Assembly, then suspension and back to direct rule again. We have been round the houses on this one.

People saw us as a body that did not know where it was going, could not answer some very straight questions and had to put its hands up and say "If you are in a hurry, you had better move on". Is it catastrophic? No.

Mr Hay: The discussion this morning has moved things on slightly. If the Department, the Committee, or the Minister goes for Option D, we are going to find out the implications for yourselves. That is before any new approval or regulations come through. If that is the option that we seem to be favouring, would you then get involved with us in looking at the finer detail? I am convinced that it is not just a matter of talking about the extension of powers at trust ports. It is quite easy to say that, but there is a lot more to it. It would be helpful to have a commitment that you would come along at that stage and look at the finer detail.

In looking at the restructuring of the Belfast Port with powers, we have to make sure that you will have the commercial freedom to operate and have that vision and mission for the future of Belfast Port, Belfast and Northern Ireland. We need a commitment, if we decide to go for Option D, that you will not stand aloft and say "Bring forward what you think needs to be brought forward to extend powers to trust ports, and we will come in on the back of it." For this to work, there must be a genuine partnership between us. We need to know, in a restructuring with extended powers, what you feel needs to be in place to allow you to operate in the way that you want in the future?

Mr Irwin: The point was made in the Chairman's statement. In a sense you are answering our question on political ideology or policy, albeit on an assumption basis. However, from the vibes I am getting, I think I can interpret unwritten government policy. I will not call it option D; I will call it the public route - perhaps along the lines of a trust port with extended powers. I cannot ignore Mr McFarland's point that you wish to explore ways and means in which issues relating to Belfast, like the Westlink, can be addressed. As was correctly said earlier, a number of the Chancellor's original road schemes are already announced and under way. The Westlink accounts for some £40 million of the £70 million.

As our Chairman said, once that sort of decision has been made, then we can come forward. We have to fight for public/private partnership until you decide that public/private partnership is defeated.

Mr Hay: That is appreciated.

Mr Irwin: We have identified that the difference between a trust port with extended powers and a public/private partnership is marginal. All the ingredients are here for a purposeful, constructive debate which can bring the matter to a satisfactory conclusion. I have been told by a number of politicians who believe that our business is a guaranteed cash cow. I refute that, and I do so based on my own personal experience. When I took over the business we made £300,000 a year. I am not going to tell you what we make now, you can read that for yourselves. Do you believe that that is guaranteed? The only thing that guarantees it is the human asset that drives the business on.

What happened to Marks & Spencer: wonderful stores, great locations, fabulous fixed assets, where are they now? What happened to C&A? They were in the middle of building a brand new store in the heart of Belfast, and now they are closing. In my opinion, the one thing you must do, no matter what structure is decided upon, is realise that is a totally commercial business. It is one of the biggest corporation tax payers in Northern Ireland. It is very efficiently run and you must not destroy that ethos. It must remain capable of attracting people who are interested in running commercial ventures - not bureaucrats. If the wrong structures are established, you will attract administrative bureaucrats, and they will create a port quite unlike the one we have now.

I deal with senior commercial players in the world of shipping and business. They do not have to stay in Belfast and they can look elsewhere. I want to make sure that this consultation process is not about asset stripping the Port of Belfast, or of trying to make sure that further down the road public dividends are still guaranteed. I do not believe that commercial businesses can operate like that. It is completely demotivating to work inside a business with that sort of environment. I know it would totally demotivate me, but you do not need to worry about me because I have only a couple of years to go. There are, however, people coming behind me who know the industry, and, I stress, please do not demotivate them. They can sit at work, take their money, and paddle every day, or, they can get up and work, and deliver commercially because they are rewarded accordingly. Too many times people say to me it is just there.

Mr Hay: It is good to hear about the commitment this morning; that is important. Whatever option we look at, whether it be the private sector or something else, and whatever route we go down, we need to keep you involved to make sure that we get it right. We have that vision for Belfast.

Mr Byrne: I support what Mr Hay has said. I also pay tribute to the management staff of the Belfast Harbour Commissioners and the way they have run the business; making it such an attractive port which can compete much more effectively with Dublin. In the long-term we want to see that Belfast port is allowed to develop sufficiently to compete successfully with Dublin port.

Mr Bradley: Today we opened with the word "restructured", which is, perhaps, playing a large part in the debate so far. In answer to what Mr McFarland said, you were talking about the Port of Belfast rather than smaller ports. I come from Warrenpoint and am very conscious of that. Do you see Warrenpoint, Lisahally and Larne as opponents or as partners in the port industry?

Mr Irwin: The Port of Warrenpoint has some shipping services that compete with us, primarily the roll-on/roll-off service. Operators will always want to fill that ro-ro facility in Warrenpoint. It is an obvious niche. We have accepted that it will always be there.

We will compete with Warrenpoint in bulks and break bulks and they will compete with us. Road haulage distance rules us out of some trade and Warrenpoint out of others. For example, timber coming right into the Port of Belfast comes through Warrenpoint. That might surprise you, but it comes into Warrenpoint because we just cannot get that traffic, even though it is in our own backyard.

In the case of the port of Londonderry the competition is chiefly in bulk cargoes. The only way in which we would ever score on bulk cargo is if the importer seeks to buy a very large tonnage consignment and needs a very large port with water deep enough to handle, for example, a 30,000-40,000 ton shipment of coal. That is the only area.

The Port of Belfast does not really compete with Larne. Roll-on/roll-off shipping services in Belfast compete with P&O shipping services. It will always be there. There will always be ro-ro out of Larne and there will always be ro-ro out of Belfast. We have seen Stena move about a bit. It came to Belfast, and now it has gone back to Larne. That proves the point that these companies are primarily concerned with their profit and loss accounts. We were not able to satisfy Stena's requirements on certain elements of their business, namely their conventional ferries. However, I have no wish to discuss these in an open forum.

The competition between Warrenpoint and Belfast and Londonderry and Belfast is minimal and we see them as part of an overall port structure. Dublin is obviously a major competitor, but that is a different kettle of fish. The Republic of Ireland is now saying that it wishes to see a north/east port authority formed, which will stop the squabbling between the small ports of Drogheda and Dundalk. Now that Mr O'Rahally has passed on in Greenore there will be an opportunity for some rationalisation and focusing. When that happens Dublin will feel it, as will we all. Your home port will feel it very significantly, because there will be an escape valve from the Dublin pressure pot and it will not be as far up the road as Warrenpoint: it could be Drogheda.

Warrenpoint's main opposition is not Belfast, it is below Warrenpoint. Look south to see the opposition.

The Chairman: Your answers and general presentation have been very useful to us. The Committee would like clarification on what a restructured trust port would involve. We know the general outline, but what does it actually entail? I must assure you that we have not reached any conclusions yet.

In our statement of 9 February we said that we were conducting a formal inquiry into Option D of the options paper. That was without prejudice to the other options, and I want to emphasise that to you. We do not formulate government policy, or indeed, the Department's policy. We hope to strongly influence, however, and we hope that the Department and the Government will accept our views on issues, but, unfortunately, for the time being, we do not formulate government policy.

In relation to PPP I want to raise one last point in relation to the golden share. It is very clear from the options paper that the golden share was put forward as a permanent protection, and we were all working on that basis. The Harbour Commissioners, the Department and ourselves, as politicians, were working on the basis that the golden share would permanently protect the port and prevent it's being taken over by a predatory company. It is clear from the Options Paper, and from what has happened in relation to the British Airports Authority case, that the European Commission does not view the golden share as being a permanent protection. But you could have a qualified golden share which would provide temporary protection. In view of that, and the emphasis which you put on the golden share as a protection to prevent predatory take-over, do you have any comment to make, given what you know now - rather than what you and others knew or thought you knew several months ago?

Mr Cushnahan: You are absolutely right that we, as part of our plank, were obviously seeking a retention of the golden share. Indeed, we like to use the words "in perpetuity" which, of course, would not be the case. But certainly that is what we had and as subsequent events have proven, and as you have quite rightly described, that basically is not the same as the original thoughts that we had on it.

In looking at the golden share again what we do believe is that it would be available to us for a period of not least five years. That, in itself, does not satisfy us, but in conjunction with other things, it means that the management of the Port of Belfast has five years to demonstrate through its prowess that it can develop the Port substantively thus making it very difficult for anyone to make a bid for the Port during the period that we have a golden share in its form.

The second thing that we majored on was the fact that to overcome that weakness, we were looking for government - and by that I mean the Northern Ireland Assembly - to take a greater stake. We thought the stake might have been 15%, 22% or 25%. Of course, if you associate that with a local placement which would probably be in the order of 15% or 20% for local residents, it follows that the control elements effectively are already in place. I argue that the Government, if it is the Assembly, has the controlling element of that. One would not like to think, although we have addressed this previously with Assembly Members, that one would sell the golden assets as a result of holding that equity stake. So it was a combination of the equity by government and retention by local people, and there would also have been, additional to that, a small minority interest by members of the staff in the port. Effectively, we saw that control was still resident here. The golden share, if it had been in the Order, would obviously have been the gilt on the gingerbread. Our board looked at it that way, and, having done so, we are still of a mind to support the PPP. Gordon, do you want to add to that?

Mr Irwin: Many other things, when coupled together, offer assurance. They are not the same as our watertight, evergreen golden share - and, if they were to be set out side by side on paper, nobody would ever claim that they were. As the Chairman said, it is difficult to see the company's being taken over, but the Government might have decided to use their golden share and permit a take-over - there is no guarantee against it. The public are against take-overs, but because of the European Union view on golden shares, they are no longer a viable way of stopping it from happening.

You are correct about the five-year period. Her Majesty's Government clearly have an ambitious public/private partnership programme, but they have been thrown back on their heels by the golden share position of the European Union, and so the best of brains are working on an alternative.

The Chairman: Thank you for your attendance. Your contribution has been useful, and the exchanges have been good. We will consider Option D very seriously, and without prejudice to any of the other options. We will make our minds up as soon as we can, taking into account all the information we have been given and the time available for our deliberations.

Mr Cushnahan: Thank you, Mr Chairman.

TOP

APPENDIX 1

MEMORANDUM SUBMITTED BY BELFAST CITY COUNCIL

FOREWARD
EXECUTIVE SUMMARY
1. Purpose
2. Background
3. Examination of the option for a restructed Trust Port with extended powers
4. Consideration of the extent that commercial powers of the Trust Ports could be enhanced
5. Consideration of options there may be to produce funds to benefit public expenditure
6. Enhanced Proposals by Belfast Harbour Commissioners: A Critique
7. Conclusions and Recommendations

FOREWORD

Belfast City Council welcomes the opportunity to further comment on the proposed privatisation of the Port of Belfast. The Council places a great deal of importance on the future of the Port and its impact on the economy and citizens of Belfast and Northern Ireland.

Belfast City Council, in aiming to provide civic leadership, has had a responsibility to fully investigate and respond to the Belfast Harbour Commissioners' proposals. This has entailed a considerable amount of research and detailed analysis, the findings of which have previously been presented to the Ad Hoc Committee in Belfast City Council's second submission.

The Council maintains that the most appropriate option for the continuing success of the Port does not lie with privatisation but in extending the powers of the current trust status, to improve the Belfast Harbour Commissioners' ability to act commercially and in the best public interest.

This third submission to the Northern Ireland Assembly specifically addresses Option D - that of a restructured trust post with extended powers, and is structured to meet the agreed Terms of Reference for the inquiry.

EXECUTIVE SUMMARY

This third submission from Belfast City Council builds upon the detailed analysis which the Council has previously provided in it's second submission to the Northern Ireland Assembly. The Council had in fact highlighted the option of a trust port with extended powers as it's preferred option in the second submission, and would re-iterate many of the factors which satisfied the Council that this was and remains the preferred option.

The Port continues to play an important role within the economies of Belfast and Northern Ireland and is widely recognised for its strategic significance in the planning and development proposals for the region. Indeed the latest performance figures from Belfast Harbour Commissioners would emphasise its continued success.

In this paper we examine the option for a restructured trust port with extended powers and in particular concentrate our analysis on the experiences of public and private ports in the UK. The evidence indicates that the experience of port privatisation elsewhere causes some concern and should be taken into serious consideration when deciding upon the future of the Port of Belfast.

The analysis of other ports with extended powers has lent this paper, by way of example, a means of illustrating the lengths to which extended powers can be taken. The ability to act commercially, develop the range of business activities, enter into joint ventures, access competitive finance and safeguard the public interest are all considered in the extended powers drafted by the Port of Londonderry and Warrenpoint Harbour.

This paper also addresses the Department for Regional Development's request to suggest alternative means for producing funds to benefit public expenditure. The Council has investigated and listed a range of options employed in other parts of the UK and would offer them for consideration. The impact of the privatisation of the Port must be examined in the linking of the sale of the Port to proposed infrastructure developments.

The Council has considered the enhanced proposals by Belfast Harbour Commissioners and would highlight in this paper that the modifications are not sufficient enough to persuade its Members that a public private partnership is the right option for the future of the Port.

1.0 PURPOSE

1.1 The purpose of this paper is to provide Belfast City Council's response to the Options Paper prepared by the Department for Regional Development to the DRD Committee. This information re-enforces and is in addition to Belfast City Council's Submission II to the Northern Ireland Assembly's Ad Hoc Committee (Port of Belfast) and in response to the Belfast Harbour Commissioners' reviewed and modified proposals for a Public Private Partnership, announced on 2 February 2000.

1.2 The focus for this paper is Option D - Restructured Trust Port, with Extended Powers. The analysis centres around the agreed Terms of Reference for the inquiry namely:

• to examine the option for a restructured trust port with extended powers;
• to consider to what extent the commercial powers of the trust ports could be enhanced;
• to consider what options there may be to produce funds to benefit public expenditure; and
• having considered this and other options, to report to the Assembly making recommendations to the Minister.

2.0 BACKGROUND

2.1 Belfast City Council provided an initial response to the NI Assembly Ad Hoc Committee (Port of Belfast) in March 1999 and subsequently gave oral evidence to the Committee in April 1999, in direct relation to this paper. A more detailed examination was carried out in May 1999 with Belfast City Council's Submission II to the Ad Hoc Committee recommending that the Port retains the current trust status, but with extended powers. Members and Officers of Belfast City Council further presented oral evidence in support of this view and recommended that a rigorous independent consultation and appraisal process be undertaken.

2.2 There is no question over the importance of the Port of Belfast to Belfast and Northern Ireland as a whole. The contribution the Port makes to the economy of Northern Ireland cannot be overstated. Varying sources report that between 15,000 and 17,000 people are employed within the Harbour Estate, providing up to 10% of the Belfast City Council area employment. Additional employment opportunities are also created throughout Northern Ireland through the multiplier effect - the increase in factors such as capital investment or earnings of direct employees which ultimately have an effect on the employment levels of others. Belfast is the primary gateway to Northern Ireland for tourism and trade and therefore sustains and creates substantial direct and indirect employment in Belfast and the region.

2.3 The Port and its land ownership currently represents a considerable asset, which should not be divested for short-term gains. Every significant planning and development proposal for Northern Ireland further highlights the strategic significance of the Port as a regional gateway, an employment resource, an environmental haven, the main artery for external trade and an area with major potential for further industrial and commercial development.

2.4 The Port continues to perform very successfully, with the Accounts for 1998 showing a turnover of £19,232,000 (an increase of £394,000 over 1997) and an operating profit before exceptional items of £10,197,000 (an increase of £1,710,000 over 1997).

3.0 EXAMINATION OF THE OPTION FOR A RESTRUCTURED TRUST PORT WITH EXTENDED POWERS

3.1 Belfast City Council's second submission to the Ad Hoc Committee examined in detail the various options with particular reference to the performance of the privatised and public ports in the UK. This involved a full examination of the option for a restructured trust port with extended powers and was conclusive in recommending that this, in the view of Belfast City Council, represented the best option for the future of the Port.

3.2 A comparison between private and public ports in the UK was undertaken by Richard Saundry and Peter Turnbull from the University of Cardiff. The findings are outlined in their paper entitled 'Private profit, public loss: The financial and economic performance of UK ports', the analysis of which concentrates on Capital Expenditure, Financial Performance, Business and Traffic.

Capital Expenditure

3.3 One of the main claims of the Government's privatisation programme, and indeed the Belfast Harbour Commissioners, is that privatisation will allow greater access to private capital and therefore increase investment. Saundry and Turnbull compared capital expenditure in public and private sector ports between 1981-92. These dates were chosen deliberately to exclude the impact of the Government's trust port privatisation programme as they state that the evaluation of recently privatised port is difficult given the relatively short period of private ownership. The measure used was capital expenditure as a proportion of gross revenue. Within both periods, the average trend was upwards, although there was considerable year on year variation. However, their evidence suggested that average private sector investment was generally below that for public sector ports.

3.4 Saundry and Turnbull also compared the capital expenditure by Associated British Ports against public sector ports. Again this evidence suggested that public ports on average invested a greater proportion of their turnover as opposed to the privately owned Associated British Ports. Indeed, the years following the change of status for British Transport Docks Board to Associated British Ports private status saw lower levels of capital investment.

3.5 The trust ports contacted during Saundry and Turnbull's research generally did not view their trust status as a powerful constraint of investment. One former trust complained that in fact investment was now hampered by their private status due to the demands of financial institutions for quick short-term returns.

Financial Performance

3.6 The Government argued that privatisation would generate higher levels of investment and a more commercial approach to the management of UK ports would increase profitability. Saundry and Turnbull's comparison of the growth in average annual operating profit/surplus of public and private ports between 1975-92 suggested that the performance of public ports was superior to their private counterparts.

3.7 This is confirmed by British Transport Docks Board/Associated British Ports results which indicate that levels of operating surplus were generally higher pre- as opposed to post-privatisation.

Business and Traffic

3.8 Saundry and Turnbull's research also indicates that between 1982-92 there was virtually no difference between public and private ports: the average growth in turnover of public ports was 87.9% compared to an average of 87.6% in the private sector. Again focusing on the pre- and post- privatisation record of British Transport Docks Board/Associated British Ports, turnover (measured at 1993 prices) fell by almost 13% between 1983-93 compared to 3% growth under public ownership between 1970-82.

3.9 Another measure used by Saundry and Turnbull is traffic share. The combined traffic share of the five trust ports privatised in 1992 fell from a high of just under 29% in 1990 to just over 24% by 1994.

3.10 They cite the decline of traffic passing through privately owned Sealink as a good illustration of the disadvantages of privatisation where the beneficial owner is also the major port user. They state that;

"competition might attract additional business to Sealink ports and would increase the regularity of ferry sailings and thereby improve customer service. But Stena AB has little incentive to attract other ferry operators to its ports, in fact quite the opposite as competition might reduce its market share" (p.322).

3.11 It is furthermore not unreasonable to speculate that one of the main reasons why Dover Port was not privatised was that the Ferry Operators were uneasy about the possibility that one of the operators would buy it and essentially create a monopoly, at the expense of the others.

Port of Dover

3.12 As outlined in Belfast City Council's Submission II to the Northern Ireland Assembly's Ad Hoc Committee, Port of Belfast the Port of Dover continues to operate as a successful and expanding concern whilst retaining its trust status.

3.13 The Port of Dover has continued to flourish and increase its level of traffic. It has successfully diversified its operations and has encountered no difficulties in raising finance. As a trust with extended powers it has the freedom to act as a commercial body. It clearly recognises, however its role in contributing to the general well being of the area and consults widely on all proposals. It also has engaged in a number of projects that have benefited the local community such as the development of the cycle track and the increased tourism generated by the marina and cruise ships.

3.14 Recently Belfast Harbour Commissioners publicly stated that Dover Port, existing as a trust port with extended powers, was not performing commercially as successfully as had been anticipated. Discussion with Dover Port Authorities has established that this in fact is not the case. Having prepared their third performance review, the Government has labelled them as a shining example of a trust port with extended powers.

Port of Tyne Authority

3.15 The Port of Tyne Authority has found that the decision not to privatise has been advantageous - fundamentally the assets of the Authority have not been dissipated and have remained in and for the region. Tyne Port Authorities feel that they are in control of their destiny and are not subject to the vagaries of shareholders - a port is a business that has to look long-term and often this conflicts with the desires of shareholders. The Authority cannot be bought and sold, therefore remaining a regional asset. The Port of Tyne Authority has found this beneficial for both port users and prospective customers.

3.16 The Port of Tyne Authority has concluded that the major objectives which may have been achieved by privatisation are already met by the Authority and are forecast to continue for the foreseeable future. Indeed points 1-6 outlined below can only complement this view.

1. Development of potential in a commercial environment

The Port of Tyne Authority's circumstances are such that it operates in an intensely commercial environment. Its management structures are designed to achieve a thoroughly commercial approach to all aspects of the business. The Authority's recent achievements in attracting new business and facilitating regeneration, and its future plans clearly demonstrate that the authority is developing - and will continue to develop - its potential at least as fully as if it had been in private ownership. The Authority and its management have the confidence of the Port's customers, including those of significant regional and national importance.

2. Access to share as well as loan capital

The Authority's financial situation is such that it has no need for access to share capital, nor has the Authority encountered any difficulty in its ability to borrow from the financial markets were it commercially sensible to do so.

3. Attraction of Companies looking at joint ventures

Parliament has conferred on the Authority ample powers to join with joint venture partners, for any purpose.

4. Stimulation of development/disposal of land

The Authority has already taken steps to secure the regeneration of virtually all its surplus development land. The Authority has ample legal powers to secure further regeneration, should this be necessary in the future.

5. Diversification

Parliament has conferred wide powers on the Authority to allow it to diversify into non-port activities in order to ensure its continue viability

6. Accountability

The level of accountability to customers has in fact increased with the abolition of the Dock Labour Scheme.

3.17 The aforementioned information on the Ports of Dover and Tyne is in addition to the considerable detail given in Belfast City Council's Submission II to the Ad Hoc Committee.

3.18 Saundry and Turnbull's overall assessment of the recent performance of private and public ports concluded that when compared to publicly-owned ports, the financial and economic performance of the UK privatised ports has failed to live up to expectations. They argued that given their detailed comparison of public and private ports, the sale of further ports should be questioned and the current ownership, administration and operational structure of the UK's port transport industry should be reconsidered.

7. Trust Ports Privatised

3.19 Belfast City Council have previously detailed examples of a number of UK ports which took advantage of the 1991 Port Act (3.16-3.20 in BCC's Submission II to the Ad Hoc Committee).

3.20 Saundry and Turnbull suggest that:

"this experience suggests that privatisation can represent a public loss and a significant profit for the managers of former nationalised and trust ports. Indeed, the government has been severely criticised for the sale of these ports at prices substantially below their true market values" (p.323).

3.21 Further research by Dr A J Baird relates to privatisation and public ownership on an international scale, and we have found, having examined much of this research, that most of the major ports in the United States are not privately owned; they are publicly owned. Most of the successful ports on the European mainland are also publicly rather than privately owned, as are many of those in Thailand, Indonesia and Australia.

4.0 CONSIDERATION OF THE EXTENT THAT COMMERCIAL POWERS OF THE TRUST PORTS COULD BE ENHANCED

4.1 Option D examines the possibility of retaining the Port in the public sector and extending its powers to give it greater commercial freedom. In relation to commercial powers the Department's initial proposals will amongst others enable trust ports in Northern Ireland to:

"do anything which the Port Authority considers necessary, or expedient to facilitate the proper carrying on, or commercial development of the undertaking".

4.2 It is noted however in the DRD paper (page 16) that:

"while such powers would primarily be designed to enable all Northern Ireland's Trust Ports to compete on more level terms with their competitors, particularly in the Republic of Ireland, those provisions allowing them to enter into joint ventures and undertake capital projects of direct benefit to a port would, in the case of Belfast Harbour, empower BHC to undertake projects such as the planned improvements to the Westlink. They would not however give Trust Ports the same commercial freedom as a private port nor enable them access to equity finance".

4.3 Following the review of trust ports both in GB and NI there was agreement however from both reviews that action was required to extend trust port powers and to relax the financial constraints under which the ports worked. A review of trust ports was undertaken by DETR Ports Division in 1998. The review concluded that:

"the concept of a trust port had stood the test of time and continues to perform a valuable role in support of the local, regional and national economy. A trust port is a valuable asset presently safeguarded by the existing board. They have a duty to hand it on in the same or better condition to succeeding generations. Boards have an obligation to transact port business in the interest of the whole community of stakeholders openly, accountably and with commercial prudence".

4.4 Many trust ports have delivered a clear message of confidence in their ability to deliver the most effective service to their stakeholders. Some private sector ports take a different view, arguing that only profit driven commercial management can provide the necessary stimulus to grow a port into an effective and efficient operation.

4.5 The Ports of Londonderry and Warrenpoint have undertaken to develop new legislation by means of Harbour Revision Orders under provisions contained in the Ports Act 1970 as the most expeditious method of achieving the Government's intent. Both Ports would argue that the initial proposals for a restructured trust port with extended powers suggests that the Port authority "can do anything it considers necessary or expedient to facilitate the proper carrying on or commercial development of the undertaking". It would seem on the face of it that you can "do anything" however, this does not appear to be the case.

4.6 Warrenpoint Harbour Authority's Position includes achieving competitiveness based on improving accessibility and communications to and within the Region. Following consideration of the needs of all their stakeholders Londonderry and Warrenpoint have elected to remain in the public sector and by the acquisition of additional commercial powers, as proposed by government, continue in their role as catalysts to economic regeneration within the area in which they are situated.

4.7 Despite commercial pressures in recent years and changing traffic patterns, with increased competition, Warrenpoint Port has continued to develop and expand both its customer base and the range of commodities handled. Development plans exist for the enhancement of facilities, which will generate additional revenues.

4.8 Warrenpoint further highlight Blyth and Poole as examples of enterprising trust ports:

"Blyth in Northumberland is a good example of an enterprising Trust Port, and indeed proudly promotes itself as such. Blyth managed to get through Parliament a new Blyth Harbour Act in 1986, which would appear to give the Commissioners considerable commercial freedom. Following passage of the new Act, Blyth Harbour Commission acquired a local engineering firm and also took over a ship repair and ship building company and a wind farm on one of the jetties. The point of all this diversification is to make the Port authority a one stop shop for customers wherein the Authority is able to provide a through - transport service and quote a consolidated price for handling cargo from ship's hold to final destination.

Poole Harbour Commission also has powers to acquire new businesses, though its ability to diversify is somewhat constrained by the very sensitive environmental area around Poole Harbour which it administers. Nevertheless it is one of the few trusts to operate its own road haulage fleet - set up by the Commission in 1995 and bearing its own livery. While its main role is to handle port traffic, non-port traffic (ie general road haulage) is not precluded and the Commission do promote the service to general users. Poole also have their own ship repair company which they acquired as a subsidiary".

4.9 There is no general rule as to what trust ports can and cannot do. Some have very wide powers as a result of numerous Revision Orders or new Acts; others have seen no need to extend their powers and may still be operating under their original constitutions. There is generally nothing in the trust port concept that precludes diversification, although some trusts may have to extend their constitutions before they could make the most of commercial opportunities. Indeed, the Chief Executive of the Belfast Harbour Commissioners informed the audience at a conference organised by the Greater East Belfast Partnership that BHC had in fact built an airport in 1938 which was formally known as the Harbour Airport.

4.10 It is important, at this stage, to cast our minds back to the Belfast Harbour Commissioners' original rationale for developing the Port of Belfast by way of a public private partnership. The Commissioners' wish to ensure the long-term viability of the Port of Belfast and realise its full potential. To achieve this they believe the Port must:

• maintain a modern, efficient and cost effective infrastructure for port users;
• have commercial powers which will enable it to develop its range of business activities encompassing ports, transport, logistics and port property;
• have power to make acquisitions or enter into joint ventures or other similar arrangements;
• obtain access to competitive finance, in an appropriate mix of debt and equity, to fund its future investment needs;
• have the ability to attract and retain an entrepreneurial management team to sustain and enhance the business; and
• have adequate safeguards to ensure that the Port of Belfast is operated in the best public interests.

4.11 They have outlined four prerequisites to achieve this vision:

1. The Port must have wider powers to enable it to diversify its activities.

2. It must have access to substantive forms of finance with relevant emphasis upon the mix of debt and equity.

3. It must be able to attract and retain an entrepreneurial management team capable of implementing plans.

4. There must be adequate safeguards to ensure the Port acts in the best public interest.

4.12 Belfast City Council would argue that the attainment of extended powers, such as that already drafted by the Ports of Londonderry and Warrenpoint would provide the necessary vehicle with which the Port of Belfast could achieve its vision

5.0 CONSIDERATION OF OPTIONS THERE MAY BE TO PRODUCE FUNDS TO BENEFIT PUBLIC EXPENDITURE

5.1 There has been considerable emphasis put on a link between the sale of the Port and proposed infrastructure developments. The Chancellor of the Exchequer announced in May 1998 that the proceeds from the proposed sale of the Port of Belfast, valued at that time at approximately £100 million, would be used to finance major infrastructure improvements in Northern Ireland. A Major project in the proposed infrastructure developments includes the building of a flyover at the Westlink to ease traffic congestion.

5.2 The Belfast Harbour Commissioners continue to emphasise their concern with the Westlink, with the recent publication of their Annual Report for 1998. They state that:

"... the Board anxiously awaits the commencement of the upgrading of the Westlink which is the most serious infrastructure problem facing the Port".

5.3 The Harbour Commissioners and the private sector have a significant interest in lobbying for the Westlink improvements. It would significantly improve access to and from the Port and as a direct result increase profitability and competitiveness.

5.4 There is no doubt that the range of infrastructure improvements proposed throughout Northern Ireland would benefit the public. However, Belfast City Council continues to be concerned that a valuable public asset is being sold with the money realised being directed towards the building of roads that will be of principal benefit to the private sector.

5.5 It is surprising that the Commissioners have placed such an urgent emphasis on the Westlink improvements over the last number of years, and yet have offered little in the way of a range of options for securing such improvements as soon as possible.

5.6 The Council would offer the following, as options for consideration as alternative means for raising funding to finance the infrastructure developments:

(Please note that the options are not listed in any particular order of merit.)

1. Introduction of Toll Roads.

2. Zoning of a parcel of non-port land for development by a regeneration organisation with the profits, after development, being used to finance infrastructure.

3. Zoning of a parcel of land for straight private sale.

4. Existing tenants could be given the opportunity to buy the land which they currently lease.

5. Infrastructure developments could be funded by the primary beneficiary - using in this case the Westlink as an example, Belfast Harbour Commissioners could fund the cost of the Westlink improvements, with the new road leased to BHC for a period until they had recouped their initial outlay, and then signed back over to the relevant public authority.

As stated by the Department for Regional Development's Options Paper (p.17), Belfast Harbour Commissioners are understood to hold a cash reserve of £21.8 million. The Commissioners have full authority to use these funds as they see fit in developing the Harbour and indeed with extended powers could justify the expenditure of such reserves on infrastructure development which will ultimately benefit the Port.

6. There are also opportunities to access EU structural funds for infrastructure development. The Toome Bypass would be one relevant example that would meet funding criteria.

6.0 ENHANCED PROPOSALS BY BELFAST HARBOUR COMMISSIONERS: A CRITIQUE

6.1 Belfast City Council would continue to question, in the best interests of the people of Belfast, how Belfast as the economic hub of the province can continue to grow and develop if the Port is no longer in public hands. The Council has not obtained notable additional information that would persuade its members that the Port of Belfast should be changed to that of a listed public private partnership. The Council is not anti-privatisation. However, in this situation it continues to be of the opinion that the evidence which the Council has gathered is persuasive that the establishment of a public private partnership (even in its revised state) is not the most appropriate form of action.

6.2 The Commissioners' reviewed proposal for a public private partnership essentially focuses on 2 key areas:

1. An increase in the stake held by Government from 20% to 25%; and

2. A revision in the split of land between the Government and the BHC successor company.

6.3 Whilst an increase in the Government share by 5% would raise the public stake in the successor company, it still isn't at a significant enough level. Belfast City Council have sought advice on this issue and would subsequently argue that this stake should be raised to a minimum of 33.3%, with the preferred level being 40%.

6.4 The Commissioners have revised their proposals by offering to transfer the ownership of the entire Harbour Estate to the Government. Belfast City Council must question the idea of handing land that currently belongs to the public back over to the public. The Commissioners seem to be under the impression that it is their land to give away.

6.5 Indeed, the DETR document on Modernising Trust Port states that:

"Trust Ports are independent statutory bodies, each gained by its own unique, local legislation and controlled by an independent board. Their common feature is their unique status as trusts. There are no shareholders or owners. Any surplus is ploughed back into the port for the benefit of the stakeholders of the trust. The stakeholders are all of those using the port, employees of both the port and its users and all those individuals, organisations and groups having an interest in the operation of the port.

Harbour Authorities serve a public right to use the harbour and a public interest in the harbour".

6.6 The Commissioners continue to state that in fact BHC would relinquish completely its financial interest in those non-port lands not leased back to it by the Government; 75% of the non-port lands would be retained by Government and the remaining 25% of the non-port lands would be retained by the BHC successor company.

6.7 This 25% of non-port land would contain the Sydenham Business Park (100 acres), the airport terminal lands (60 acres), the D5 site (55 acres), and the Titanic Quarter (100 acres). There is no doubt that these sites in particular are the most valuable in the Commissioners' portfolio - with the greatest potential for development. This naturally makes them the most attractive sites to potential port investors. Belfast City Council would argue that they should therefore be attractive to other property investors, and could raise considerable finance without the need to privatise the Port.

Belfast Harbour Commissioners need this land to privatise the Port, not to run the Port.

DOE Review of Trust Ports

6.8 Belfast City Council continues to be concerned that the Department of the Environment has not released the review of trust ports. This has inevitably hampered the Council's ability to respond to the recommendations for the Port of Belfast. However, we are aware that the Department has concluded in the review that there is a need to broaden and extend powers to allow increased commercial and financial flexibility to ports in Northern Ireland.

Golden Share

6.9 The Belfast Harbour Commissioners believe that a Golden Share is a key component of any sell off of the Port of Belfast and that it is a fundamental element of the public private partnership. The Commissioners feel that a Golden Share would protect the public interest by allowing the Assembly to veto take-over bids and by restricting investors to holdings of less than 15%. While in theory Golden Shares sound effective, in practice they are generally not and could change with a new Government or a change in legislation. Recent research has suggested that they are not regarded favourably by the EU. However, the Council is aware that the Department for Regional Development state that they can ensure the Golden Share element does not contravene EU law, and would be interested in examining the detail of this should the need arise.

6.10 The Belfast Harbour Commissioners in their revised proposals have stated that they have taken account of the expressed public interest concerns. However in the main component of their revised proposals they have stated that the DRD is;

"to hold a Special Share to protect against a take-over in the early years of the new company - ideally 7 years".

Seven years is not a long time and the Council would have concerns that after the seven years there is no control or protection. This would therefore not be in the best interest of the public.

Accessing Finance

6.11 The Belfast Harbour Commissioners ruled out the option of a trust with extended powers stating that financial institutions would be less prepared to lend the Commissioners sufficient monies to enable their plans to reach fruition and because commercial deals which the port could undertake would be limited. The Commissioners have not been specific about the amount of capital they wish to raise, but research on other trust ports would illustrate that they have had no difficulties in this regard. Indeed, Dover Harbour Board has been successful in borrowing substantial amounts from the Bank of Nova Scotia, through its extended powers.

EU Funding

6.12 The Port of Belfast has benefited substantially from the level of investment of EU funds over the past 10 years. Between 1989 and 1999 the Port received over £50 million grant aid from the EU. The Council questions whether it is fair that the advantage of the developments which this money was used to finance should be transferred to a private company.

6.13 The Belfast Harbour Commissioners continue to argue that they are unlikely to receive any further funding. This has no solid basis, given the fact that a definitive programme for Northern Ireland has not been agreed. Negotiations are still ongoing with the Commission and until that process is complete, no organisation or authority can dismiss their ability to access EU funds.

7.0 CONCLUSIONS AND RECOMMENDATIONS

7.1 Belfast City Council has already recommended to the Ad Hoc Committee, its preferred option for the Port of Belfast - that of a trust port with extended powers. The Council retains this original view and contends that the case for privatisation has not been made.

7.2 It is with this in mind that Belfast City Council would like to take this opportunity to re-enforce the recommendations made in Submission II to the Ad Hoc Committee.

7.3 The Council recognises that the current legislative framework under which the Port operates is excessively narrow and restrictive and inhibits the range of port services in which the Port could engage to ensure further development and expansion. The Council therefore believes that such obstacles could be overcome through the adoption of extended powers similar to those already drafted for the Ports of Londonderry and Warrenpoint.

7.4 Given the significance of the Port in the Northern Ireland economy, the option of a trust with extended powers will ensure that the Port remains an independent statutory body with all decisions being made in the interests of the Port and the Northern Ireland economy as opposed to a private organisation that is principally motivated by the need to return profit to shareholders.

7.5 It is also worth noting that an article in the Business Telegraph on 22 February, 2000 reports that:

"A new report has claimed the creation of a public-private partnership (PPP) at the Port of Belfast would not damage the prospects for business at Larne, Londonderry or Warrenpoint".

7.6 Belfast City Council has noticed in the analysis of the minutes from oral evidence presented to the Ad Hoc Committee by Warrenpoint Harbour Authority the following extract:

".. ERM has been involved in the evaluation of Warrenpoint Harbour Authority's capital investment programmes for the past eight years and is, therefore, intimately familiar with our business traffic.

ERM has also been involved with Londonderry and has carried out considerable economic development work for the Department of the Environment, so it is intimately familiar with that too. That being said, Belfast Harbour has submitted a report by Transmodal, which said that there would be no impact on the other trust ports. This is a fascinating document - I have never had any conversation with Transmodal. Transmodal has no knowledge of the background of Londonderry Port or Warrenpoint Harbour yet appears to be qualified to say that there would be no impact, whereas ERM has had an intimate knowledge of the development status of both ports for a considerable time".

7.7 The Council is concerned with the findings of the Transmodal Document given the reported lack of consultation with Warrenpoint Harbour and Londonderry Port, and would recommend that the methodology behind the report prepared by MDS Transmodal is examined.

7.8 The Council is further concerned to note in the introduction of the 'Future of Belfast Harbour - Independent Assessment of Options by PricewaterhouseCoopers', the following statement:

"Our assessment is based upon limited financial and commercial information provided by BHC. We have discussed this information with BHC but have not independently audited or verified it. Much of this information is now old, relating to, or having been prepared in the year ended 31 December 1998. We have not had access to detailed financial information on BHC's performance in the year ended 31 December 1999 or any detailed projections for 2000 or subsequent years. We have also not seen any detailed assessments of the financial or commercial impacts of either the Ad Hoc Committee's proposals or the enhanced PPP option. In addition, the Department has limited information on the prospects for further development of BHC's property portfolio. A more thorough analysis of property opportunities, which DRD intends to commission closer to the date of any sale, could have a material effect on estimates of the port's value.

For these reasons our assessment of the options, particularly our views on value and potential proceeds, are provisional and should be taken as indicative only. Our value and proceeds estimates do not constitute a detailed benchmark valuation of the sort that would normally be undertaken immediately prior to the sale of a public sector business".

7.6 On the basis of this the Council contends that before any final decision is made regarding the future of the Port, a full economic appraisal of all the proposed options should be carried out following the guidelines in the Treasury Green Book. This should be carried out independently so that all the options are given equal and fair consideration as opposed to simply focusing on a favoured option as has clearly been the case in the Belfast Harbour Commissioners' proposals. Such an independent options appraisal is also necessary to avoid any conflict of interest.

February 2000

TOP

APPENDIX 2

MEMORANDUM SUBMITTED BY CBI NORTHERN IRELAND

PROPOSALS FOR BELFAST PORT - A VIEW FROM CBI NORTHERN IRELAND

EXECUTIVE SUMMARY
INTRODUCTION
KEY PRINCIPLES
THE LANDMARK
OPTION D-RESTRUCTED TRUST PORT WITH EXTENDED POWERS
OPTION C-ENHANCED PUBLIC/PRIVATE PARTNERSHIP
CONCLUDING REMARKS

EXECUTIVE SUMMARY

• CBI Northern Ireland favours a Public Private Partnership (PPP) for the Port of Belfast
• We believe the PPP route will be in the best interests of the port, port-users and the Northern Ireland economy as a whole
• Option C of the Department for Regional Development's Options Paper is favoured - however the Belfast Harbour Commissioners must work closely with port service providers and tenants to allay their concerns that the greater powers of a PPP (or indeed a restructured trust port with extended powers) will not be used to unfairly compete or leverage uncompetitive practices
• We support the inclusion of part of the non-port landbank in the creation of the PPP. This should include underdeveloped land within the Harbour Estate - we accept that the public interest concerns we raised in March 1999 regarding the landbank have been addressed in the current proposals. We are not in a position to comment on what size or location of non-port development land may be required to facilitate a successful flotation.
• Where land which is not leased to the PPP is currently occupied for long-term existing use on long leases, consideration should be given by Government to selling the freeholds to the existing tenants (ensuring appropriate market values are reflected in the proceeds) or revising the leases to ensure that economic regeneration and development are maximised.
• The £70m cap set by Treasury on the retention of proceeds in Northern Ireland must be removed. Otherwise there is danger that an option designed to raise a maximum of £70m may not be in the best interests of the long-term development of the Port, or in maximising the proceeds from the sale of the Port.
• The Assembly should proceed with some urgency in progressing concurrently the PPP and in giving more extensive powers to the other trust ports (Londonderry and Warrenpoint).

INTRODUCTION

1. At the beginning of February the Department for Regional Development (DRD) issued an Options Paper on the Future of Belfast Port. On 9 February the Regional Development Committee announced that it was holding a formal enquiry into Option D (Restructured Trust Port with Extended Powers), without prejudice to other options. The Assembly was subsequently suspended on 11 February but was re-established on 30 May. Drawing on the submission CBI Northern Ireland prepared in 1999 for the Assembly Ad Hoc Committee (Paper NI 06 99 A Response to proposals for the Future of Belfast Port) this paper reflects the current CBI Northern Ireland position, particularly with regard to the two updated options.

2. Prior to addressing the revised options which consist of the "Enhanced Public/Private Partnership" (PPP) or the "Restructured Trust Port, with Extended Powers" (Trust Port) we set out the key principles which underpinned our views in 1999. The paper then addresses each of the two options, taking into account the PricewaterhouseCoopers' Report and the views of CBI members. We also wish to reiterate at the outset the importance, and indeed urgency, of giving more extensive powers to the other two main trust ports of Londonderry and Warrenpoint - we welcome the commitment in the Options Paper to extending these powers but are concerned that the proposals set out in the Options Paper are unnecessarily narrow and restrictive. Furthermore it is important that the model of a trust port with extended Powers as applied to Londonderry and Warrenpoint would also apply to Belfast (assuming a PPP does not proceed).

KEY PRINCIPLES

3. In assessing the future of the Port of Belfast we believe that the past framework should not determine its future. The status quo is not satisfactory nor in the best interests of the Northern Ireland economy. The future shape and structure needs to ensure four requirements:

• price competitiveness (on a sustainable basis)
• efficient and modern port infrastructure (which will need continuing investment)
• capability of the Port to exercise without constraint commercial, financial and managerial freedom so as to sustain and enhance it's long-term viability
• excellent access

4. The CBI believes that the future structure of the Port should assist in the delivery of the following key objectives:

• the delivery of a range of high quality services (port related) commensurate with the strategic importance of the Port to Northern Ireland
• the provision of services offering best value for money to users with a benchmark of being in the lowest quartile of UK major port charges - cost effectiveness and value for money must be key objectives
• a fair, transparent and sustainable charging regime responsive to customers and with adequate protection of user interests - users should not be put at risk by port diversification into other non-core activities
• a financially viable and sustainable port
• adequate environmental protection and safeguards
• a strategic and long-term approach to the utilisation of the port-related and non-port-related landbanks

It is vital that the core business of Belfast Port remains the operation, maintenance and development of the Port to benefit the people/business community in Northern Ireland. We welcome the proposal to have a provision in the company's Memorandum of Association to this effect. Experience of other ports in the UK suggests that greater commercial freedom will lead, in time, to developments in other port and transport-related activities, and property development where land assets have been under-utilised - additional commercial developments and opportunities are to be encouraged.

5. To deliver the above objectives CBI Northern Ireland believe the following requirements will need to be met.

Capital Investment Programme

• the Port should embrace state of the art facilities and have the ability to invest in assets which improve the transport and logistics capabilities of Northern Ireland businesses
• unhindered flexibility to raise adequate capital, either loan or equity, will be important
• future asset replacement and priorities should be subject to strong commercial tensions recognising that future EU grant aid is unlikely to be available
• the structure should enable future investment in a variety of forms including partnerships, joint ventures etc.

Operational Efficiency

• the port must remain a strong and viable operating entity which will necessitate unhindered, commercially driven management
• the Port must continue to reduce prices in read terms
• extensive use of internal and external benchmarking to establish challenging performance targets based on best practice
• where the abuse of monopolistic power is feasible, consideration of a loose form of regulation or customer assurances needs to be considered. There are some safeguards (under the Harbours Act (NI) 1970) which currently operate although we understand these powers have never been called on, as well as EU and UK Competition Law - the Options Paper indicates that these would continue. We also suggest that a condition could be put in place to ensure that port operations are segmented in the accounts, with adequate transparency to reflect cost allocations, so that any abuse could be identified and regulated by the Office of Fair Trading (see paragraph 6)
• services must be responsive to customers' needs - this requires transparency and good communications with customers

Accountability and Transparency

• the Board should be accountable to, and meet the requirements of, stakeholders
• the Board should have the necessary skills, and impartiality is vital
• cross-subsidisation should be avoided, and as a minimum, any cross-subsidies made transparent

6. This last issue of cross-subsidisation is important. A concern of many port service providers is the potential for unfair competition from the Port once it's powers have been extended under either of the options. CBI Northern Ireland supports and indeed encourages policies and initiatives which encourage fair competition. We believe competition drives innovation leading to higher quality services and lower costs. Other ports are also concerned that property derived profits could subsidise port activities thereby leading to distortions in competition. However we also recognise and accept that other ports (including those in the Republic of Ireland) may already be in a position to cross-subsidise port activities. However our members believe that further efforts by the Belfast Harbour Commissioners are needed to clarify and reassure port service providers that unfair competition and anti-competitive practices will not be permitted and that effective means of addressing such matters are in place - there is scepticism about the effectiveness of the new Competition Act. Transparency in the accounts will help. Overall the aim must be for the development of a level playing field where all ports and port users/providers can compete fairly. Furthermore under the PPP option the DRD will have a vested interest in Belfast Port through it's share holding. The Department needs to make clear that will not give preferential treatment to the Port.

THE LANDBANK

7. When the CBI reviewed the proposals for the Port in 1999 we emphasised the strategic importance of the significant landbank. In deciding the future of the entire landbank, we stressed that the three following aims in order of preference need to be met:

• firstly, to facilitate future port development
• secondly, to act as a catalyst for economic regeneration and development including the creation of an environment to promote future inward investment
• and thirdly, to release funds for re-investment elsewhere

We identified a number of reservations regarding the original proposals for the non-port landbank including:

• the need for a full audit of the landbank
• the need to avoid transferring the freeholds as a single unit to a private company
• the difficulty in valuing certain parts of the landbank
• the need to avoid distorting the local property market
• consideration given to establishing a "land development agency" to develop and regenerate as least parts of this landbank where profit maximisation would take second place to economic regeneration
• certain sites eg D5 or parts of D4 could be developed straightforwardly as commercial sites
• the need to ensure that "clawback" provisions would be in place to cover "excess profits" which may materialise from the sale of port-related land.

The Options Paper indicates that most of these issues have been recognised and addressed through:

• a commitment to undertaking an independent valuation of the port assets including the non-port landbank
• provision for statutory claw-back arrangements and other provisions in the lease(s) of lands leased back to the Port
• all freehold to be transferred to the public sector (with port land and certain non-port land leased back to the PPP)
• the proposal that the Titanic Quarter should be included in an extended Laganside Corporation designated area
• a commitment that the full market value of the non-port lands (leased back to the Port) be reflected in the proposed flotation

We also suggested that the freeholds of part or all of the lands currently occupied could be sold to their tenants ensuring that appropriate values are reflected in the proceeds. We welcome the Options Paper commitment to consider this opportunity, recognising that this is likely to become a more attractive option for Northern Ireland if the £70m threshold currently set by Treasury (see para 9) is raised.

8. Another issue linked to the above also needs to be raised - land-use outside the current BHC landbank. There is a significant area of land for development adjacent to the M2 at the Fortwilliam roundabout. This is a key transport node and an important strategic location for the development of transport-related activities eg warehousing, distribution and logistics centres etc. It will be important for Government to ensure that these requirements are fully considered in determining the future land-use of this area.

9. There is one other issue which we wish to comment on and that is the agreement from Treasury to allow £70m of the sale proceeds to be retained in Northern Ireland for expenditure on much needed transport infrastructure investment. It is essential that agreement is reached with the Treasury to allow all the proceeds from the sale of the Port, or indeed from the sale of any assets (should it be decided to maintain the Port in the public sector) to be reinvested in Northern Ireland - indeed we would argue that additional proceeds could be used to buy-out the electricity generating contracts which the Treasury continues to benefit from or reinvested in the transport infrastructure, including addressing currently access problems to the Eastern Harbour Estate. We believe that the original cost estimates for the projects associated with the Chancellor's package are now too low taking into account necessary environmental improvements and inflation. Furthermore designing an option to raise a maximum of £70m may not be in the best interests of the long-term development of the Port, or in maximising the proceeds from the sale of the Port.

OPTION D - RESTRUCTURED TRUST PORT, WITH EXTENDED POWERS

10. We have assessed the proposals for the trust port and comment on both the positive aspects and negative aspects. We believe that the trust port with extended powers model adopted for Londonderry and Warrenpoint should also apply to the Port of Belfast (assuming the PPP does not proceed). On the positive side:

• this is an option favoured by some of our members. We are unclear on how extensive the extension of powers can be and what flexibility the Assembly will have in establishing the necessary new legislation. We believe that there is scope for widening the powers of the Port, creating greater financial flexibility and providing the necessary freedom to broaden its commercial activities. We welcome the Committee's intention to consider to what extent the commercial powers of the Port could be enhanced
• an example given of a particularly successful trust port is Dover, which has opted to remain as a trust port despite its significant size. It has diversified away from its traditional ferry terminal status into a range of activities and appears to have considerably more freedom than the Belfast Harbour Commissioners
• while the freedoms which can be provided may not be as extensive as in a transfer to the private sector some members argue that some restriction will reduce the risk from core business diversification which may not be in the interests of users or the broader population

However on the negative side

• there is a strong concern across the business community that unnecessary political interference may impact on management's decision-making process and there is a risk that the Government of the day could appropriate certain assets and on an ongoing basis avail of future port revenue streams for other government expenditure projects. This creates unnecessary uncertainty for the Port and it's customers.
• the Options Paper does indicate that the Port would not be given the same commercial freedom as a private port - this needs to be clarified and the impact on the Port's development assessed
• it remains unclear what borrowing powers the Port would have and whether there will be sufficient funds to allow the Port to undertake the necessary investments in the future without increasing port charges recognising that future EU grant aid is unlikely to be available
• this structure will impact negatively on the ability of the Port to attract and retain high quality management

OPTION C - ENHANCED PUBLIC/PRIVATE PARTNERSHIP

11. We have assessed this revised option and comment as follows:-

• we believe this option needs to be seriously considered - it is the favoured option of CBI Northern Ireland, particularly with the proposed changes to the handling of the landbank
• we welcome the opportunity of ensuring that the Northern Ireland community will be able to purchase a stake in the new company
• from the Port's perspective there are clear benefits in having the freedom and ability to borrow or raise equity capital
• a transfer to the private sector will obviously allow much greater commercial freedom and indeed management freedom is guaranteed to operate the business
• a review of other GB trust ports which have moved into the private sector reveal that significant growth and development has been unleashed as a result of the transfer with significant improvement in asset utilisation
• if this route is to be pursued it will be essential to ensure that legislative safeguards set out in the Options Paper to protect users' interests are put in place to ensure that the Port operates in the interests of the broader Northern Ireland population. Users will need reassurances with regard to port charges - this if of particular importance due to the large market share held by Belfast Port and the monopolistic nature of certain port traffic.

12. If this option is selected we recognise the importance of securing a successful flotation and providing an adequate asset base and growth prospects for the long-term development of Belfast Port. We welcome the transfer of the freehold of the entire landbank to the Government. We note the advice that it is necessary to lease back to Belfast Port part of the non-port land. We accept this in principle but are not in a position to assess the size or location of this non-port development land which will be needed to secure a successful flotation.

13. We also note that there are existing tenants of land proposed for leaseback who wish to acquire the freehold in the interests of the future development of their businesses. We would emphasise the importance of providing existing tenants with the right environment to encourage growth, expansion and additional investment. We are prepared to support leaseback of land to Belfast Port and hope that means can be found to accommodate the wishes of existing tenants. The challenge to everyone is to achieve a Belfast Port operation successfully in a PPP context which is compatible with also ensuring a successful future for those tenants in the Harbour Estate. It will of course be important to ensure that the full market value of this which is leased back is achieved taking account it's development potential.

CONCLUDING REMARKS

14. Having considered the Department's Option Paper and consulted with CBI members we believe that taking all the issues into consideration the Public Private Partnership is the preferred option. There are reservations from some port users and tenants about the proposed changes and genuine concerns from port service providers that whichever option is taken the new port entity may be able to unfairly compete to leverage unfair practices. We believe these issues should be openly addressed by the Belfast Harbour Commissioners and indeed by government. The creation of a PPP will help to create the enterprise culture which Northern Ireland requires if it is to grow and thrive in the 21^st century.

May 2000