'Secret' sale of ship line a threat to tiny nations

Murray McCully
Murray McCully

A Government plan to sell a state-owned asset considered vital to Pacific development is expected to be rubber-stamped this week.

The Sunday Star-Times understands an urgent meeting took place last week in Tonga, to be followed by another this week in Fiji, finalising plans to sell the 35-year-old Pacific Forum Line (PFL) to Singaporean firm Sofrana.

The move has drawn strong criticism from the Labour Party with foreign affairs spokesman Phil Goff claiming small island nations would bear the brunt of a decision made behind closed doors.

"It is being conducted not simply privately, but in secret without the chance for those people who will be deeply affected by the decision to have a say," he said.

Founded in 1978, PFL was intended to encourage economic development in the islands and provide competition to ensure private shipping operators were unable to create a monopoly in the Pacific.

New Zealand and 11 island countries have equal voting rights in PFL, but practical control is exerted by New Zealand, Fiji and Papua New Guinea which between them own around three-quarters of the company's shares.

It is understood these three majority shareholders are behind the push to sell, with the board having already signed off on the plans. The Ministry of Foreign Affairs manages New Zealand's 23 per cent stake in PFL, and is responsible for appointing this country's director.

Foreign Affairs Minister Murray McCully said the decision to sell was not solely New Zealand's. "Any decisions relating to the future of PFL are for all 12 shareholders," he said.

Last August, in a speech celebrating the 40th anniversary of the Pacific Forum in Auckland, Prime Minister John Key said PFL was a success and had "helped to build trade bridges between isolated island countries".

Goff questioned what had changed in the year since that speech. "It's the smaller Polynesian countries most at risk here - what guarantees have they got that services will be maintained that are not simply on the basis of strict commercial profitability - what about the economic development of the Pacific?"

The upcoming sale had wide ramifications for small island nations and no debate had been had over the plans that could leave them in the lurch, he said.

"We don't want to end up in a situation where commercial shipping lines can name their own price and leave Pacific countries struggling," he said.

Goff said the sale seemed to be driven by a short-term desire to cut costs, and called for a wider debate on PFL and Pacific development.

McCully defended the decision to sell and said PFL no longer fitted its purpose.

"PFL was established to fulfil an important need, namely to offer regular shipping services that the private sector was not able to provide in the Pacific," he said. "Since that time a great deal has changed, to the extent that the PFL no longer fulfils a number of its obligations. It now owns and operates no ships and participates in what is effectively a code share relationship with private sector shippers." Despite once being a profitable enterprise, PFL has recently financially deteriorated, with losses totalling $14 million in the two years to June 2011.

McCully blamed the decline since 2007 on "some poor decision-making in earlier times".

Net assets of the line declined to $5.1m by June 2011, and while it is understood performance in the year since has slightly improved, shareholders have been faced with a choice between selling or recapitalising.

Independent shipper, the New Zealand-based Reef Group, said repeated cutbacks in recent years had led PFL to wither away.

Reef Group director Phillip McNicholl said the market for selling PFL was "very limited" as the company relied on partnering with other shipping lines - including Sofrana - which would be able to discourage competing bidders.

The Ministry of Foreign Affairs' 2011 annual report values New Zealand's stake in PFL as being worth $1.17m.

Sunday Star Times