The Chairman:

Let us be clear. You have been given no clear indication by the Department that funding will not be available from the EU towards this?

Mr McIlvenny:

There is a suggestion that no funding will be available post-1999 for the ports, but we have not heard anything definitive on that.

The Chairman:

What you are saying is similar to what the Belfast Harbour Commissioners were saying though it is at variance with what other people have said.

Mr Cobain:

I have a number of questions. I think the three ports have argued that extending the legislation in some way would assist them. Belfast Harbour Commissioners said it would free them up to a certain extent. It would cover some, but not all, of their difficulties. You have referred to the possibility that there is sufficient scope within the present legislation for borrowing and for ensuring that a more commercial aspect is brought into the whole thinking of the ports in Northern Ireland.

There are a number of issues that people have not really looked at. We do not want to ensure that the public sector is a cover for uncommercial operations. People, even those in the public sector, have commercial targets. It seems to me that the Belfast Harbour Commissioners were saying - and I think Mr Campbell mentioned it before - that as far as they were concerned they had really reached a plateau, and they did not expect any growth in the field within the foreseeable future.

There is a dark cloud on the horizon in the shape of Dublin port. Over the last two or three years Dublin has become more commercially active, and this will increase in the next three or four years with the help of the Government down there, the opening of the new tunnel and the reduction in the number of people working in the port. These factors are driving costs down to such an extent that it will become as commercially attractive to people in Northern Ireland as some of the ports here.

In the future, with the restrictions in the EU grants to ports, it is likely that some of the trade going through the ports here will move south to Dublin. The derv issue is an additional difficulty, with enormous benefits being generated south of the border. Indeed, some companies are thinking about relocating in or near Dublin because of the enormous savings to be made in that field.

If we are talking about making ports more commercially active, then why not be totally commercial, come out of the public sector altogether and compete? What is the difficulty in saying that we have a product that cannot compete and that therefore we should remove all public interference and go totally commercial?

Mr McIlvenny:

There are merits in that. There is already intense competition among the ports in Northern Ireland and the ports on the island of Ireland. Belfast does compete with Dublin, but it is not necessarily the port itself which determines where the traffic goes. Most of the competition is not necessarily among the ports per se but among the shipping companies. That is what drives competition.

The port provides the infrastructure and, in Northern Ireland terms, provides a liberal charging regime. It is largely the ferry companies that create the competition, and the ports' primary function is to create the necessary infrastructure. Port charges are not necessarily a major portion of the cost of shipping. For example, there is the cost of getting a box from the middle of Ireland through one of the ports to Great Britain. The major factor is the shipping cost, and the competition lies within the shipping industry.

Mr Cobain:

That is one of the costs. The other costs are in getting the box to the port.

Mr McIlvenny:

Yes, transport costs.

Mr Cobain:

The point that I am trying to make involves the differences in the commercial cost of fuel for taking the box from here to the port. The differential between here and Dublin is so massive that I am sure it is going to affect commercial operators - even ferry companies - once it reaches the point where it is cheaper to ship a box through Dublin than Belfast. People are looking at this from a commercial aspect.

Mr McIlvenny:

It is difficult to understand how a privatised Belfast port would operate any differently from a Belfast port in the public sector to alleviate haulage costs. It is something that the port has no influence over.

Perhaps I could return to the question of difference. If Derry and the other ports had more modern legislation to allow them to act almost as commercially as a privatised company and Belfast port went into the private sector, the difference would be that the profits of Belfast port would be distributed among its shareholders but the profits in Derry would be retained for further investment in the port. That is the only difference - it is private profit and public loss.

Mr Cobain:

That is not the question that I am asking. You are talking about driving this to almost the point of commercialisation but still within the public sector. What would the benefit be of those companies going totally commercial? The benefit to people who live in Northern Ireland is that there would be no public subvention at all, yet corporation tax and income tax would have to be paid.

There seems to be a belief - and I am not saying that it is necessarily wrong - that everything, including in this instance all the ports, must be kept within the public sector because that is the only way to ensure a benefit for all the people of Northern Ireland. Might it not be the case that it would be more beneficial to the people of Northern Ireland if all the ports were privatised?

Mr McIlvenny:

I suppose it could be the case. All commercial judgements include an element of choice.

Mr Beggs:

The size of the landbank at Belfast has been a major issue. Can you tell us what size of landbank the Londonderry Commissioners control, and whether you consider that the 2,000-acre landbank controlled by the Belfast Harbour Commissioners creates an unfair advantage with regard to any private development of that port, given the potential of that land for development and for the subsequent generation of what could be substantial profits?

Mr McIlvenny:

With regard to the first part of your question, in the city of Derry we retain an area of about 14 acres which is on long-term lease to the Ministry of Defence. At Lisahally, we have contracted to buy 10 acres, subject to planning; and we have another area of approximately 16 acres situated just slightly above the port, although its topography is not awfully good, and it would be quite difficult to develop.

The landbank at Belfast has been acquired by the port over the years, and one can see the benefits to the city of developments such as Laganside. There is, without doubt, a significant and valuable landbank there. We hope, however, that, if Belfast port were to transfer to the private sector, any extraordinary profits that might be made from that land would not be used to reduce charges and undermine the ability of other ports to compete. Nevertheless, that landbank has grown up around them - they have reclaimed it, and it is part of their complex.

Mr Hutchinson:

I should like to change tack, because, so far, we have talked only about privatisation. What would your view be if it were to become a semi-state body or a trust port with extended powers. I should not want you to get the impression that we have already taken a decision to privatise it. Other things could happen, and we need to explore those as well. If it were to become a semi-state body or a trust with extended powers, what would that mean for the Province as a whole, and what effect would that have on competition with other ports?

Mr Doherty:

We wish the port of Derry to remain a trust port. We believe it brings particular benefits, the principal one being that we can retain our profits for reinvestment. We operate as a trust port, and those profits are not our money. They belong to our customers and, under the legislation, there is an expectation that they will be reinvested for the benefit of our customers and of the public.

We favour the option of a trust port with extended powers. This is not because of the impending privatisation of Belfast port, but because of the new legislation enacted in the Republic which gives extremely wide powers of discretion as regards commercial activity to their ports, which were essentially trust ports, albeit with semi-state sector status. The legislation in the Republic grants these ports freedom to act commercially. They may be semi-state bodies, and they may have to cope with the heavy hand of the relevant Minister, but they have the ability to do just about anything they wish. It is similar to what we are proposing for the draft legislation to allow us to act commercially.

Our draft legislation is framed in a style that is not normally used by parliamentary draftsmen. In the report that was published by the Department of the Environment, Transport and the Regions, Glenda Jackson says quite specifically that trust ports have operated round the legislation. An examination of some of the activities in which we get involved shows that we do that, and such a practice is not good for a modern business. We agonised over whether we should frame the draft legislation in a way that only parliamentary draftsmen would understand, but elected to draft it in a style that everyone would understand so that there would be no doubt as to what we could or could not do.

The Chairman:

I have a question which relates to a comment by Mr Beggs. One of the matters that we have had difficulty in establishing is the value that would attach to the port if it were privatised. You have included a useful public profit and loss account paper. It startled me to learn that the profitability of some private companies is lower than the profitability of some of those that have remained in public ownership. Your figures show that within a year of privatisation the value of some concerns had increased because they were sold again for about 100% more than the amount received on privatisation. Why it is difficult to attach a value to a port? Belfast Harbour Commissioners could not specifically state the value of Belfast port. We have had wide variations, ranging from £100 million to well over £200 million. Why should there be difficulty over such valuations?

Mr Doherty:

Historically, because of the restrictions under which we were working, we operated strictly as a port on port-related business. A private investor has a much wider vision of assets. Within our legislation there is a sort of community care factor, and that would disappear with a private investor who would simply assess each asset and estimate its maximum value. The people who are involved in takeovers or privatisations are experts. There are examples of public companies that are not exposed to the wider world.

The value of Belfast port is anybody's guess. It could be based on rental income, but whatever criteria are used, the private investor who buys it would certainly look at its potential rather than at its current earnings. A private company would have the ability to close the port if it did not work. That is an extreme case, but if it had trust port status it could not close. Perhaps that answers your question to some extent.

Mr McIlvenny:

My chairman says that I also have a vision. We also have entrepreneurial skills, but what restricts us is the legislation under which we operate. The port should be seen simply as a facility, a place to which ships come and go. That is what we are about, and that is the core of our business. However, all ports, including those in Belfast, Warrenpoint and Derry have assets that are utilised for other purposes.

Mr Cobain:

You spoke about the need to expand the business. It is clear that not all your energies are devoted to the port. People in Belfast say that if the port is to survive, we need to look at it as a whole and not just at the facilities. Is that what you are saying?

Mr McIlvenny:

I think that vertical integration was mentioned in connection with Belfast.

Mr Cobain:

Are you saying that for these ports to survive, not just port facilities but other linkages into the port need to be looked at?

Mr McIlvenny:

I can speak only for Derry. Ports have to act more commercially and there will always be restrictions on what can be done. We had a massive injection of public funds, albeit European structural funding, to produce a new port after many years of decline. It was an old inner-city trust port, and there will always be a conflict between civic aspiration and port activities. It was right to move the port. If we are not to be a drain on the public purse, whether it be a European purse or a local one, it would be better to allow us to act more commercially so that we could replenish our assets over the years.

Mr Cobain:

Could you expand on the impact of Dublin continuing to grow as it has grown over the past three or four years. Will ports north of the border be completely isolated or insulated against the commercial drive in Dublin, or will Dublin be bound to take some business away from ports here?

Mr McIlvenny:

The renaissance of Dublin port probably stems from the reorganisation of its labour force under Noel Shandley about seven years ago. Dublin port is also shackled by the appalling traffic problems around Dublin, but those may be alleviated by the tunnel. It has managed to bring its costs down quite significantly over recent years and has become more entrepreneurial.

Mr Cobain:

Will it be a threat?

Mr McIlvenny:

I do not see it being any more of a threat in the future than it is now. Part of Dublin's success is due to the "Irish tiger" economy, which has grown by 8% to 10% per annum over the past five or six years. That in itself gives massive impetus to transport. Added to those factors are lower costs. There will always be competition. There is currently intense competition between Dublin and Belfast, and the business of both ports continues to grow. The acid test may be if the Irish economy, north and south, declines in future years. One might then see a better picture of which port the hauliers prefer to take their business through. I do not see Dublin as a particular threat. It is certainly not a major threat to Derry. I can see Belfast, Warrenpoint and Drogheda and perhaps Waterford and Cork having difficulty with the port of Dublin. In terms of Belfast, I really cannot answer the question as I do not honestly know. There is intense competition between them now and they hold their own. I do not see any reason why Belfast port should lose out significantly to the port of Dublin.

Mr Cobain:

Even though the transport costs are enormous?

Mr McIlvenny:

Even though the haulage costs, currently, are significantly higher.

The Chairman:

That is the important point. Varying fuel prices and the changing value of the pound come into play. Much significance has been attached to the current position without the recognition that such values can fluctuate very rapidly. Not so long ago the benefits operated in the other direction.

Mr McIlvenny:

It was the opposite a few years ago. Most haulage companies have taken steps to avail of cheaper fuel in the Republic. That is certainly the case in the north-west and the south-east. I suspect that some of the larger hauliers in Belfast have put some infrastructure in place to allow them to avail of fuel in the Republic.

The Chairman:

Let us say that privatisation of the port of Belfast does not go ahead. The Government have placed a sword of Damocles over our heads because a lot of the changes in the infrastructure, such as the Toome bypass, et cetera, hinge on money being made available from privatisation. Would that have any impact on the port of Londonderry? Would the building of a bypass around Toome have an impact on the port?

Mr McIlvenny:

The recent changes at Toome have greatly alleviated the situation there. There are roads in the Province with traffic difficulties. But on the infrequent occasions when I am caught in the massive traffic jams on the M25, on which millions of people conduct their business daily, I wonder how they get their goods from A to B. From time to time there are difficulties with the road at Toomebridge and with other roads in the north-west, but it is hard to quantify the impact of these difficulties on the port - all I can say is that it would be awfully nice to have them fixed.

Mr Maginness:

The potential extension of natural gas to the north-west and the drop in demand for animal feed are fixed factors that seem to affect adversely the port of Derry. These two bulk cargoes represent a fairly significant part of your port's tonnage. The port of Derry is going to be adversely affected by the predicted decrease in the tonnage of these two cargoes whether or not the port of Belfast is privatised or its powers extended. These factors are going to affect your port adversely, and, on looking at ERM's analysis, these factors seem to be constant and inescapable. How do you react to these predictions?

Mr McIlvenny:

Like any other manager I have to find ways of enabling our business to go on in the face of competition from other ports. I do not think that we face a fait accompli.

With regard to animal feed, our port serves a rural and agricultural community, and it is expected that some level of animal feed will continue to come through the port- particularly since the port serves the west coast of Ireland as opposed to south Derry or the rest of Northern Ireland. This remains our expectation. Coolkeeragh power station will finish anyway - it has a generation contract until 2002 with a possible extension to the year 2004. We have recognised this fact in our long-term corporate plan. These are threats, and we may have to face them, but we will have to manage the process as best we can.

Mr Maginness:

Looking at the ERM report I could not see where the actual decrease in the use of the port would occur as a result of the port of Belfast being privatised. Can you clarify this for me, leaving aside animal feed and coal which we have already discussed?

Mr McIlvenny:

We would worry about unfair predatory competition, the sweetheart deals which are not unheard of in industry and business. Rather than discussing specific matters, it is these deals that would concern us generally as they could result in a complete commodity, rather than part of a cargo, being lifted out of the jurisdiction of the port.

Mr Maginness:

ERM talked about a decrease in the business of the port of about 5% over a number of years and said that if the port were not privatised there would be an increase in business in the port of Derry of about 16%. What I cannot understand is, leaving aside coal and animal feed, what is the factor that would cause the decrease?

Mr McIlvenny:

The ERM report was compiled without any input from us, and I too wonder where some of the figures came from. It would have been nice to have been approached by them.

Mr Maginness:

That seems to be a serious flaw in the compilation of the report. If Belfast port were privatised or, indeed, if its powers were extended and Belfast was able to compete - to use your term - "more aggressively", and given a situation where you also had extended powers, do you not think that you would be able to compete with Belfast on a level playing field?

Mr McIlvenny:

I have no difficulty whatsoever with a level playing field. However, it is the redirection of resources - and I have to choose my words very carefully - that might, perhaps, encourage the lifting of a complete commodity out of one port and placing it into another.

Mr Maginness:

If there were no predatory deals or activities on the part of Belfast port and if legislation and controls were in place to prevent that happening in any event, would you then be in a position to compete with Belfast port in whatever new form it had adopted?

Mr McIlvenny:

Yes, that is right. However, perhaps I could add one thing.

We do not consider that the Competition Act is sufficient in itself. A person who has been mugged will feel gratified when the mugger is subsequently apprehended and sent down, but he will still have been mugged. For example, Volkswagen was recently fined $64 million - or Deutschmarks - for anti-competitive practices. They had no difficulty paying the $64 million, because they had already acquired the business anyway. The Competition Act can, in our opinion, only be used after the fact, and that is too late.

The Chairman:

Thank you all for the presentation. The written and oral evidence has helped with our deliberations. We will be hearing further evidence from others and will be making a report at the end of the process.

MINUTES OF EVIDENCE THURSDAY 29 APRIL 1999 (Mr S Wilson in the Chair) Witnesses:
Mr D Connolly, Mr Q Goldie
and Mr E Curtis
(Warrenpoint Harbour Authority)

The Chairman:

Mr Connolly, Mr Goldie and Mr Curtis, I welcome you to the Committee. You were present during the previous session, so you will be aware of the format. Perhaps you would give a brief summary of your views for five or ten minutes, after which members of the Committee will, no doubt, have some questions for you.

Mr Connolly:

As chairman of Warrenpoint Harbour Authority, I wish to thank you for the opportunity to address the Committee about the proposed privatisation of the port of Belfast. May I introduce Mr Quintin Goldie, our chief executive, and Mr Edwin Curtis, who is the enterprise development officer for Newry and Mourne District Council and an expert on economic conditions in our area. We also have in our team Mr Jim McCart, a member of the board and the council.

The board of Warrenpoint Harbour Authority is opposed to the privatisation of Belfast harbour. We believe that such a course of action would not be in the best interests of Northern Ireland for the following reasons.

First, it is our opinion that such action would be detrimental to regional economic development within Northern Ireland and would impose additional financial burdens on businesses in the south-east and the north-west of the Province.

Warrenpoint Harbour Authority was established by parliamentary Order in 1971, and the port of Warrenpoint was reconstructed by the Department of the Environment for Northern Ireland during the period 1972-74. The construction of the port was intended to be a catalyst for economic regeneration in an area which was, and remains, one of the most socially-deprived areas, not only in United Kingdom but in Northern Ireland terms. Mindful of this, the authority has adopted a mission statement consistent with our objectives. It states

"Warrenpoint harbour will seek to operate profitably within fair and competitive tariff arrangements so that the port is economically sustainable. Its aim is to contribute as much as possible to the generation of economic wealth in the port and its regional hinterland. Consequently, profit optimisation to achieve its primary mission rather than profit maximisation will be pursued."

That is, or should be, the essence of trust port activity.

Over the past 25 years the port of Warrenpoint has played a key role in facilitating the economic regeneration of south Down and the border counties. Currently, 200 people are directly employed within the harbour complex, and these jobs are supported by more than 800 others in transport and related service industries. The fact that the port contributes to an efficient cost base for the area is of great importance. This facilitates local business keeping overall supply costs as low as practicable. This effect is difficult to measure accurately, but what is certain is that it is important to local business, as the economic agencies can confirm. Any action which places in jeopardy these jobs and the significant contribution which the port of Warrenpoint makes to keeping the supply-chain costs of local business as low as possible is to be deprecated.

Our second main objection is that Northern Ireland as a whole may be better served by the retention of Belfast harbour as a trust port with additional powers, as recommended for trust ports following the recently completed review of trust ports. Mr Goldie will explain further our reasons for some of our statements.

Mr Goldie:

It is widely recognised that a network of modern and efficient ports is a key element in the promotion and facilitation of the creation of economic wealth in any region. Nowhere is this so important as in an island economy such as our own. The key element of economic development strategy at European Union national and local level has been the development of such a network in Northern Ireland and substantial investment in the ports of Belfast, Larne, Derry and Warrenpoint.

Warrenpoint operates profitably and provides local companies with access to Great Britain via the daily roll-on/roll-off service. Access to continental Europe is facilitated through a twice weekly container service to Rotterdam, a weekly service to Norway, Sweden and Denmark, and a scheduled service to Finland. The management of Warrenpoint port is concerned that the port's viability would be irretrievably damaged by a privatised Belfast port.

An independent report, which is enclosed in your papers at section 9, was prepared by ERM Economics for the Department of the Environment in Northern Ireland. It indicates the following potentially critical impacts that could threaten the survival of Warrenpoint harbour were Belfast to be privatised.

First, the planned privatisation of Belfast port would pose a considerable threat to the commercial viability of Warrenpoint, and that would have an impact on the cost base of local businesses with consequent danger to fragile economies. Secondly, the privatisation of Belfast and its consequent competitive behaviour, notwithstanding the protection that will be afforded by the Competition Bill, would adversely affect Warrenpoint's current price advantage with implications for port throughput. ERM estimates that 25% of Warrenpoint's traffic could be displaced within a 10-year period.

Thirdly, Warrenpoint will consequently be increasingly restricted to niche markets serving local hinterlands, and its ability to offer a comprehensive range of port services is likely to be adversely affected.

Fourthly, if as the result of the privatisation of Belfast a number of shipping services relocate from Londonderry and, in particular, from Warrenpoint to Belfast, existing users of those ports will suffer longer road haulage distances than previously. For users of Warrenpoint those additional costs are estimated to amount to some £2·5 million per annum less any net reduction that is implicit in the relocation. In reality, if Warrenpoint harbour were to lose 25% of its revenue, the port would no longer be economically viable in the long term. It is Warrenpoint Harbour Authority's view that the future of the port and its ability to act as a catalyst and contribute to the economic regeneration of south Down and the border counties will be seriously jeopardised by the privatisation of Belfast harbour.

So that the port could continue to contribute fully to the economic welfare of Northern Ireland while remaining a trust port, Warrenpoint would seek the commercial powers and the increased borrowing capacity that were recommended following the review of trust ports in GB and Northern Ireland. That matter is addressed in detail in sections 7 and 8 of our submission.

To protect the existing traffic and provide the facilities that are necessary to meet future demands, Warrenpoint port has spent two years in the conduct of studies aimed at creating a deeper berth and additional half standing, and at reducing ongoing dredging requirements at the harbour. Projected costs of the project, which is currently at the planning stage, will be about £6·5 million for which we will seek grant aid. We are convinced that if Northern Ireland is to continue its economic growth and benefit from membership of the European Union, it is essential that regional ports receive the Government support that is necessary for the developments that are needed to meet current and future business requirements.

For all those reasons, Warrenpoint Harbour Authority opposes the privatisation of Belfast harbour and asks for your support in enabling us to fulfil the role for which the authority was created.

The Chairman:

You referred to the ERM report in your submission. It says

"a privatised Belfast harbour due to its size, resources post privatisation, and revenues derived from non port activities would be in a position to distort competition within the Ports sector and effectively assume a monopolistic position."

The ERM report states that at present your port has an advantage in that your charges are lower and that enables you to operate in your niche of the market.

Is it possible that, whether you have privatisation or not, if the port of Belfast, as a trust port, a private port, or a semi-private port, wished to engage in aggressive marketing, it could take trade away from your port? Is your complaint not really about the size of Belfast port rather than about the kind of legal status that it might have?

Mr Goldie:

It is more involved than that. There are various aspects, as was indicated by the chief executive of Derry port, and I have made the observation in our report. The protections offered by the Competition Act are illusory. They are post-fact events in that a company can be fined 10% of turnover, irrespective of whether the competition is no longer in existence.

Port charges are one aspect. The service offered by the port is another - certainly the overall cost package. Belfast harbour does market aggressively. However, there are constraints which are imposed upon trust ports which do not apply in the private sector. First of all, they can be judicially reviewed, and, secondly, they are not subject to the demands of shareholders for a commercial return. As they are in the public sector they can be expected to adopt a course of action which is in the best interest of the public as a whole, as opposed to the commercial interest of shareholders. Also, the board is appointed by the Minister and is subject to reappointment every three years. So there is an element of control which can be exercised and under the remedies which are available would not be available to other ports transferred to the private sector.

The Chairman:

So, in your view, if Belfast port decided to adopt a really aggressive commercial approach to its activities it could do much more damage than at present?

Mr Goldie:

An unfair aggressive commercial approach would not be in the public's interest.

The Chairman:

And you feel that its present state constrains it from doing that?

Mr Goldie:

Yes.

Mr Murphy:

What effect would European funding have? Also, with regard to cross-border trade with Dublin, if Belfast were privatised and the road structure were upgraded - for example, we have discussed the Toomebridge bypass and the Newry bypass through Banbridge - would that help the haulage companies in the area?

Mr Goldie:

Well, let us look first at European funding. At section 4 I have indicated the funding which has been made available to the various ports since 1989, and the source of these figures was the Department of the Environment for Northern Ireland.

There appears to be a disproportionate amount of investment in the port of Belfast. With regard to development, it is difficult to see what they want to develop in terms of port facilities. They have new ro-ro facilities, new container facilities, new coal facilities, and so on, and there is a finite market to be served. Also, the European funding which has been made available could distort the issue if a transfer takes place into the private sector.

At the end of December 1997 the port of Belfast had on its balance sheet approximately £60 million in European grant aid, which was being released into its profit and loss account at the rate of over £3 million a year. If the port is privatised that £60 million will not go away. A private company will transfer it into its profit and loss account at the rate of £3 million a year for perhaps the next 15 to 18 years. The ports of Derry and Warrenpoint do not jointly make a profit of £3 million. In our opinion it is wrong that that level of European funding should be transferred to the benefit, substantially, of private shareholders.

The Chairman:

When you talk about funds being released do you mean when the return on the £60 million of EU money invested is released?

Mr Goldie:

No. If a company were to purchase an asset at £10 million and it got 75% grant aid it would receive £7.5 million. If the asset had a life of 10 years then the £10 million would depreciate at £1 million per annum, and that would be a cost of the business. However, if, over that same 10-year period, the company released the £7.5 million of grant aid at the rate of £750,000 per annum, the depreciation in charge over the 10 years would be one quarter of the real value of the asset.

This would mean that a private shareholder's depreciation charge over the life of the assets of the port of Belfast, to which the £60 million refers, would be substantially reduced with a consequent increase in profitability.

The other question asked was on the issue of roads. The difficulty of road improvements from a port's viewpoint is that roads have two ends, and traffic flows in two directions. The benefit of improving roads between Belfast and Dublin would, in fact, be of equal benefit to everyone. We could get traffic to Dublin more easily, we could get traffic to Belfast more easily and, equally, they could withdraw traffic from our region more easily. The Toome bypass would probably enable Belfast to access Derry traffic more so than it can at the moment.

Mr Campbell:

I welcome the deputation. I am interested in teasing out the opinions of the various harbour authorities about possible changes in Belfast. People have taken a particular view of what should, or should not, happen, but obviously no decision has been reached as yet.

Warrenpoint, like Londonderry, has created a particular niche market. Although they are small ports they have become vital to the economic regeneration of their own areas. However, if some sort of change in the status of Belfast port is to be contemplated, there is a fear that a radical change may allow Belfast to become so aggressive, so competitive that Warrenpoint will be hit dramatically.

Do you think that a change in the status of the port of Belfast, even one restricted by a safeguard which would allow it greater commercial freedom but which would not allow it to become a private entity and do the things that you are concerned it may do which would impact upon Warrenpoint, would impinge upon the niche market that you have? Do you think that even a limited change in status is something that would jeopardise Warrenpoint?

Mr Goldie:

No. We advocate a change in status. All trust ports should be allowed to operate commercially. However, the size of asset that would be created were Belfast Harbour to be privatised in its present form - and I appreciate what the Committee has said on the difficulties of evaluating this asset - and the potentials for development would be such that it would become the major economic determinant in Northern Ireland.

Belfast should have additional commercial powers, but it is currently making profits of £10 million to £11 million per annum, which will end up being distributed to shareholders as opposed to being retained for the benefit of the people in Northern Ireland. With commercial powers it will be able to grow and develop as desired. The major element of potential damage is the sheer scale of the operation as it exists at present, particularly with the land asset, which appears to be grossly undervalued.

Mr Connolly:

Further to that, my board's view is that while it is reasonable to expect changes, the landbank is a major factor. The landbank has a huge potential value, and we would respectfully suggest that it should be isolated and privatised. The money realised from that sale could go a long way to solving some of the problems regarding the road infrastructure. The port of Belfast should be retained as a trust port with enhanced powers. We are therefore suggesting a variation as a solution to the overall long-term problem.

The landbank would be difficult to value, but it could be done by independent valuers. Currently, the values of commercial sites in Belfast, as I think everybody knows, are on the rise, with no sign of abating. Private property and commercial sites are reaching colossal values.

Mr Campbell:

There are a number of factors in relation to any change in status for Belfast, not least the roads infrastructure and the increasing competitiveness of the Dublin port. Obviously Warrenpoint is in a very invidious position - probably more so than any other port in Northern Ireland - but these factors may or may not open the door for a change of status for Belfast port, allowing it to become increasingly competitive. Do you believe that there is any way of restricting Belfast's appetite, which could impinge on Warrenpoint, or of curtailing the sort of open-ended privatisation which might eat into Warrenpoint's share of the market, but which would, at the same time, allow Belfast to develop a greater competitive edge to try to stave off Dublin's advances?

Mr Goldie:

I know of no legal mechanism, in terms of Companies' Act legislation or trust port legislation, which would guarantee these safeguards.

Mr Campbell:

At the moment.

Mr Goldie:

At the moment. In terms of benefits, the great difficulty is that companies seek limited liability status, and shareholders can invest in them in the knowledge that they have certain protections and powers established by the Memorandum and Articles of Association.

It would be difficult to isolate Derry and Warrenpoint or the trust ports. I do not see how legislation that allowed for the privatisation of the port of Belfast - or of any other port, apart from a trust port - could be framed in such a way that it would stick.

Mr Tierney:

In your response to Mr Campbell's questions, you seemed to suggest that you would be looking for extra powers for all the ports.

Mr Goldie:

Yes.

Mr Tierney:

That would be your preferred option. Are you saying that, even with the extra powers that would be given to all ports, including Warrenpoint and Derry, you would still be looking for extra safeguards?

Mr Goldie:

Irrespective of the extra powers, our view is that the port of Belfast should not be privatised, and, if it is, this will have such an impact that it will threaten the trust ports.

Mr Tierney:

And what would be your view if Belfast were to be given extended power status, along with yourselves?

Mr Goldie:

If Belfast, along with the other ports, were given extended powers then we would be in a situation similar to that in which we currently find ourselves - we would be able to compete. We are currently competing, but I would like to give you two reasons for seeking additional powers.

First, Warrenpoint Harbour Authority's current borrowing powers are limited to £10,000. I cannot buy computer software for £10,000.

Secondly, we are very aware of the competitiveness of the ports of Belfast and Dublin. A few years ago, we lost our ro-ro service, operated by Merchant Ferries. That caused a dramatic drop in our tonnage from about 2.5 million tonnes to one million tonnes. Fortunately, although we lost a lot of our tonnage, we did not lose much of our profitable tonnage. This made a difference, and the port's profitability continued to increase.

More recently we lost our coal business to Belfast, following the construction of their new coal facility and their conclusion of a lease agreement - which included shortfall arrangements - with the company that had been our importer. In view of the falling market, this company was anxious to concentrate its coal imports in Belfast. I can understand that.

After we lost the ro-ro service we sought to get another company up and running, and we took counsel's opinion. The port authority was prepared to make an initial investment to attract other monies - in a public and private partnership - in order to move things forward and get a replacement service in. Counsel's opinion was that we did not have the powers to do this. This is how you lose two thirds of your traffic overnight. The management of a trust port does not have the power to invest in a shipping company and must just hope that another company comes along. Fortunately, thanks to some very aggressive marketing, we found a replacement service within six months, and the tonnage of the port has continued to grow annually since that happened.

Mr Bradley:

I welcome the delegation from Warrenpoint. My question will be of interest to members of the Committee who may, one day, have to take major decisions - and it is addressed to the economic development officer. Looking beyond the question of the future of the port itself, I would like Mr Curtis to tell us about the importance of the survival of Warrenpoint harbour in terms of the district council's economic development strategy for the area.

Mr Curtis:

The council's economic action plan, which runs for the period from 1995 until the end of 1999, includes a section which states the importance of the harbour for the future of the Newry and Mourne area. It currently supports at least 1,000 jobs in the area, and we are concerned that, if the port of Belfast gets the status that it is looking for, that will have a significant detrimental effect on the Newry and Mourne area.

The ERM report states that the tonnage moving into the port or harbour inside our area would be reduced by approximately 25% over a five-year period. That would dramatically reduce the number of actual jobs being supported there at present and would also have a major effect on the large number of small and medium-sized enterprises that have set up in and around the harbour since its inception in 1971.

It would also have a major effect in respect of the council's efforts to secure inward investment. We are currently negotiating with two large organisations from the USA who have stated that one of the reasons they are prepared to look at the Newry and Mourne area is the fact that we have a port and that there is land available in and around the area. I must point out that the overall effect would be serious and would cause immediate hardship in and around an area that has had reasonable success since about 1971.

Mr Maginness:

Who is your greater threat - Dublin or Belfast?

Mr Goldie:

It is very difficult to look at two lions and say which is the more dangerous.

Mr Campbell:

Which has the bigger appetite?

The Chairman:

You did say lions, did you not?

Mr Goldie:

The scale of both is similar. As a commercialised port, Dublin received extremely wide-ranging commercial powers - powers which are so extensive that commercialised ports in the Republic of Ireland can invest outwith Ireland. They have the powers which would be available to a privatised harbour - including a privatised Belfast - although they are subject to some ministerial control. One took our ro-ro traffic, the other took our coal traffic. I have got them surrounded, however, and I am going to do my best.

Mr Maginness:

You are in a very vulnerable position: you are being squeezed between Belfast and Dublin. History, even recent history - indicates that Dublin has damaged you, and could damage you in the future. If Belfast is privatised or develops a sort of semi-state status, it could still damage you. Does that not have more to do with your geographic position rather than the status or the nature of the competing ports? Whether you like it or not, you are slap bang in the middle of two major ports, and you are going to suffer because of their relative successes.

Mr Goldie:

If you examine the figures which we have provided, you will find that as the ports of Dublin and Belfast have become more aggressive and have grown, the profitability of Warrenpoint Harbour Authority has increased year in, year out. That is not based solely on the fact that our prices are more competitive. The level of service that we offer is superior as well. We have grown a number of commodities very successfully and profitably.

Equally, it has to be very clearly stated that Warrenpoint will never become either a Belfast or a Dublin - you cannot do that with 33 acres of land and 700 metres of quay - but in terms of the economic status and well-being of south Down and the border counties area, it is absolutely essential that the port of Warrenpoint continue in existence; and it will.

Another important factor is that the port of Warrenpoint has been in existence for 25 years and has never had a strike. Although it has not happened all that often, we have benefited from strikes in Dublin and Belfast.

Mr Connolly:

I will add one final point to that. There is a natural hinterland to Warrenpoint that extends north and south of the border. If we could be assured of a level playing field - and that is all we are asking for - Warrenpoint will continue to trade and trade handsomely.

Mr Maginness:

There are plans for a deep-water quay, but they are still in the pipeline. They have not been fully approved yet.

Mr Goldie:

A planning application is in process at the moment along with a submission for funding. The deep-water quay is needed due to the increased size of vessels being used by a company which has been operating out of Warrenpoint for 24 years. The company provides the service to Rotterdam.

Mr Maginness:

You would be in great difficulty if you did not obtain this.

Mr Goldie:

We would not achieve our full potential.

Mr Maginness:

In the long term it would be a very serious situation?

Mr Goldie:

Yes.

Mr Beggs:

In your submissions one of the reasons you cite for opposing the privatisation of Belfast port is the revenue it derives from non-port activities. You say that this could distort competition from other ports. What revenues, if any, do you generate from non-port activity?

Secondly, what prevents unfair competition currently? All the ports have said that there is intense competition. What failings are there in the current mechanisms to ensure fair competition and what would you deem necessary, in the future, to ensure that there is fair competition between all ports?

Mr Goldie:

We derive no revenue from non-port activities - absolutely none. Unlike the other ports, we are involved in stevedoring, which I regard as a port activity - the dischargeof cargo from the ships. The ports of Belfast, Larne and Londonderry all license stevedores. That is a historical thing. The port of Warrenpoint has no non-port revenues.

The ports have been looking, over the past 10 to 15 years, to the receipt of European funding. If you are going to get involved in uncompetitive or unfair trading, there is the possibility that you will be obliged to forego, or lose, that level of grant aid. That would certainly give one cause for concern.

The Competition Act is not a reasonable future safeguard - it is too little, too late. There is the potential, which did not exist with private corporations, for either control of board membership or judicial review.

Mr Beggs:

What revenue does the port of Belfast receive from non-port activities?

Mr Goldie:

It receives substantial rents, and an examination of the last two sets of published accounts will show that just under £2 million was derived from trading in the port's land holding. The value of this land was considered to be minimal, yet the port appears to have made some £2 million from the sale. I do not know what money would be derived from the sale of land that the balance sheets argue is worth £15 million.

These are major factors. However, there could be other factors. A privatised port of Belfast could decide to invest in west coast Great Britain ports. Many of the trust ports in Great Britain which privatised have grown as a result of the acquisition of other businesses, including other port businesses. If the port of Belfast were to exercise control on the west coast of Great Britain, it could impact on the direction of traffic to Ireland.

Mr Beggs:

What effect would that have on your port, and how would such an acquisition be considered unfair competition?

Mr Goldie:

In order to suggest that there would be unfair competition one would have to examine the purpose of trust ports. If the trust ports in Northern Ireland have been set up as economic regeneration catalysts, then the Assembly will have to consider whether it wants that to continue.

For example, the privatisation of the port of Belfast could have an immediate and direct effect on the port of Heysham. Warrenpoint's roll-on/roll-off service operates to Heysham, and other services from Belfast and Dublin also go there. If the port of Belfast were privatised, it might decide to buy the port of Heysham. That could affect the service to Warrenpoint, and it could equally affect the service to Dublin.

When Warrenpoint lost the roll-on/roll-off service to the port of Dublin - to an EU-funded new terminal - many of the haulage companies in the south Down and border areas came close to going out of business, because the owner-drivers could not handle the incremental costs of having to drive to Dublin or Belfast and perhaps having to stay overnight. Had we not found a replacement service in less than six months, many of these companies would probably have gone to the wall.

The Chairman:

I have two questions concerning the letter you received from the Department of the Environment on 8 April. One is to do with your request for a harbour order that would enhance your powers. I notice that for such a legislative change the Department of the Environment requires you to submit a policy and commercial case to justify the full commercial powers that are reflected in the draft harbour order. Are they looking for further submissions from yourselves or from other ports, or is this an assessment that is being done by the Department?

I also notice that the Department produced a report - and the letter refers to it - following its review of trust ports. The Department indicates that the report is not being published and that it is not being made available because it contains information of a commercial nature. Are you aware of what information in relation to your port is contained in this report, and would the release of this information be damaging to you?

Mr Goldie:

The full content of our submission to the trust ports review has been given to the Committee in the papers. I understand that the Committee has been given the full submission from Derry, so that only leaves Coleraine and Belfast. I do not think that it will damage Coleraine - as it has only a limited commercial operation. Therefore, I do not know who will be damaged by the release of the information.

The Chairman:

You have no difficulty because you released the information yourselves?

Mr Goldie:

We have put our information into the public domain.

With reference to your question regarding additional powers, notwithstanding the DETR report and the Secretary of State's statement, the feeling is that trust ports should have full commercial powers. It has been the Department of the Environment's position that both Derry and ourselves should give full reasons for wanting individual and particular powers. If I knew what the circumstances would be at Warrenpoint Harbour Authority in 30 years time, I would probably be able to do that.

The Chairman:

Do you see this as a delaying tactic on the part of the Department?

Mr Connolly:

Very much, Mr Chairman.

Mr Maginness:

Did ERM consult you before it issued its report?

Mr Goldie:

 I was here during the Derry session and am aware of the concerns.

ERM did not consult us during the preparation or prior to the preparation of the report for the Department of the Environment. However, I should make it very clear that 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.

Mr Beggs:

Does ERM have an intimate knowledge of the Belfast port?

Mr Goldie:

Yes, ERM has been used by the Department of the Environment to draft the transportation programmes for Northern Ireland for the past few years. That cannot be done without gaining knowledge of Belfast harbour.

Mr Beggs:

It is curious that it was not used as a vehicle for creating a view on Belfast port; perhaps there are other reasons?

Mr Goldie:

Mr McIlvenny said that the Department has asked ERM to re-examine this. I am obliged to say that this is not the full ERM report. During other discussions with DOE I became aware that this report had been commissioned and insisted on seeing it. In fairness, ERM was instructed that I should see the report insofar as it related to Warrenpoint, although obviously in the conclusions there are cross-references. The heading at section 9 is "Privatisation of Belfast Port: Strategic Issues (WHA)". It is, however, a report that has been signed by one of the directors of ERM and therefore has some status. Derry included the report in its submission to the Committee and if it had not been for that, I would not have seen its section. I do not know what is said about Larne and Belfast.

Mr Morrow:

According to the report, coal tonnage dropped dramatically in 1996 to 87,000 tonnes. But the table that you have provided shows that it got even worse, because it fell to 70,000 and then plummeted to 18,000. Will that worsen in 1999?

Mr Goldie:

We budgeted for no coal in 1999, so it can get worse. Unfortunately, the figure will not rise. To date we have handled one cargo of about 4,000 tonnes, but I have no expectations of any more.

Mr Morrow:

Is this having an adverse effect overall?

Mr Goldie:

We have been able to deal with this catastrophic decline. We have been actively involved in the investments undertaken in the port in the last few years. The tonnage increase in other cargoes has been significant, and these are cargoes which might provide more revenue.

Mr Morrow:

I am aware that the section that I refer to has a health warning on it: it says that the report contains confidential commercial information. How many people do you employ?

Mr Goldie:

Warrenpoint harbour has about 44 full-time employees at the moment, and we employ about another 20 people on a part-time basis.

Mr Morrow:

According to your report there are 48 employees, 20 of whom you employ directly.

Mr Goldie:

I am sorry, on which page is that?

Mr Morrow:

On page 2 the number of employees is given as 48. In section 5, page 7, it states that you directly employ 20 people.

Mr Goldie:

They are stevedores. Of the 48 employees, 20 are employed as stevedores, crane drivers, dockers and so on.

Mr Morrow:

I read on page 17 that Warrenpoint harbour found a site on which Hayes Chemical Distribution Ltd constructed a bulk liquid chemical reception and storage facility at a cost of approximately £1·5 million. Did you receive £1·5 million?

Mr Goldie:

No, the construction cost Hayes £1·5 million.

Mr Morrow:

Could you clarify the following for me? Question 21: Do you plan to undertake any investments jointly with the private sector? The answer is yes. Question 23: Do you have any plans to use or sell your surplus land? The answer is no?

Mr Goldie:

We do not have surplus land. The investments in the joint venture arrangements which we are considering would be very similar to those with Hayes. The purpose of providing a site for Hayes to build on was so that Hayes would send the ships to Warrenpoint; we would handle the cargo and get the ships to use the dues on the goods. The other developments that we are considering are of a similar nature: to get involved with a company which is moving a product and needs a port facility. We can provide a site in order to get its cargo through the port, but we are not interested in supermarket manufacturing set-ups. We are interested in cargo-related business.

Mr Morrow:

Have you no surplus land?

Mr Goldie:

We have only 33 acres in total.

Mr Morrow:

Are they being fully used?

Mr Goldie:

Yes.

Mr Morrow:

You cannot expand?

Mr Goldie:

That is part of the project that we have in mind. We want to create additional land immediately behind the quay for port-related purposes.

Mr Morrow:

How much land?

Mr Goldie:

About six acres.

Mr Campbell:

I have a question about the figures. Mr Morrow mentioned the confidentiality "health warning"; does that apply to table 2 at the beginning?

Mr Goldie:

Those figures are from our audited, published accounts, so they are already in the public domain.

Mr Campbell:

I see from table 2 that Warrenpoint has a turnover of £2·75 million, making a profit before tax of £750,000. You also state that the company is valued at about £12 million. Did you also say that you have an overdraft facility of £10,000?

Mr Goldie:

Yes. At the moment I have about £2·6 million in cash.

Mr Morrow:

You are a good risk for £10,000, then.

Mr Connolly:

To put that in perspective, if we had to replace a gantry crane on the dockside tomorrow, it could cost us between £2·5 million and £3 million.

The Chairman:

Thank you for your submissions and for answering our questions here today. Your answers have been very helpful to us.

Mr Goldie:

Thank you, Mr Chairman, and good luck in your deliberations.

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