Reid Quinlan

www.geocities.com/reidfish

Hmm, I've had a look at the NRC website now, and I'm a bit clearer about what they are seeking. Fortunately, I am actually an expert in the area of public leasehold land. Here are my initial thoughts...

NRC has asked where should marine farms go and not go. Obvious concerns are raised and obvious exclusions are raised. Everyone can have input on that by submitting on that. We will need an objective test as to what is too much seabed to be covered in particular areas (ie, a percentage of enclosed harbour waters I guess). In the face of high demand, low supply and full economic pricing of the resources being offered (seabed) will reduce the level of actual marine farms.

The next question is how much should the marine farmers pay? The farmers are taking control of public land for private benefit. In the past, similar issues have been dealt with by the local authority issuing seabed or foreshore licences. Terms are usually quite standard, for defined terms with renewal periods (often 21, 50, 80 years etc), with a commencement licence fee and periodic licence fee reviews. Reviews are undertaken by valuers in much the same way as ground rents (my particular specialty). These permits or licences relate to marinas, reclamations, wharves, mooring areas, slipways, etc. The marine farms are no different whatsoever. Terms are similar sometimes to the Public Bodies Leases Act or other standard licence agreements. If the NRC does not follow a similar lease/licence structure, there is serious question over their competence at handling such an issue. Subsidies to encourage the industry should be a separate issue if that is what HRC wishes to do.

Should they elect not to charge a market related licence fee, they are underselling the common estate, and we should all - every one of us, make an application for as many sites as we can, because the NRC will be transferring wealth from the public to the licence holders (in this case private fishing companies who have in the past been given free allocations).

The issue I will make submissions on is my own professional observation that such licences (and indeed all leases issued under the public bodies leases act 1969) do transfer wealth to the private sector, as the licence tenure has value and is in fully tradable. That value is seldom fully captured when issuing a new licence at a 'market licence fee'. If new licences are agreed now, they will be trading at significant premiums in a short time (witness fish quotas). This is wealth that is transferred to the fishing companies, created by subdividing the public estate. To avoid this situation, to ensure the NRC receives full benefit of the licences now and in the future, to avoid transferring wealth to the fishing companies from the public, and to maximise the return on the public estate, I suggest the following system:

1. NEW licences be publicly auctioned at an annual licence fee. The sale of licences should be distinct from the resource consent process. True competition to be ensured in the process.

2. Licence fees to be reviewed periodically (normally say 5 yearly) to a market level, taking into account the full economic value of the licences and with specific guidance as to considerations to be taken into account (ie, evidence of value over and above the improvements value and licence fee payments). This is similar to the rent review process well established in all commercial property and leasehold portfolios, and is relatively efficient at maximising economic benefit. It is crucial that directives include a reference to amortising capital payments for existing licences, so NRC captures the maximum benefit. I have some additional specifications which will capture the best result for NRC.

3. Licences to be for a defined term such as 20 years to provide certainty of tenure, with several rights of renewal up to a maximum of say 80 years combined terms. At the end of each term, the licence fee is to be auctioned again, and the sitting licence holder can bid. If someone else bids higher, an assessment of the economic value of the remaining improvements (if any) to be paid to the outgoing licence holder. Provision to be made for NRC cancellation of licences with full compensation to licence holders.

4. An alternative would be for typical market related rent reviews, but if the licence is transferred, and every time it comes up for renewal, the premium attributable to the value of the licence should be transferred back to NRC, less an allowance for the former licence holder's improvements. (My concern is that the full economic value of licences and leases is not currently captured by the licence fee process).

5. EXISTING licences - it is ironic that we face another fishery allocation issue! The sitting licence holders must be given an opportunity to bid a rent on their sites and paid out for their improvements if they do not outbid all comers. Some concession may be required, however and this can be discussed further (previous examples of transitional arrangements such as fee reductions, stepped changes etc assist transition).

6. A responsible portfolio manager (as NRC should aim to be) would exploit the scarcity of the seabed locations, and not flood the market with licences all at once. Zoning to reduce permissible areas is one way to do this, commercial acumen when negotiating licences is another. The number of applications will certainly reduce if applicants are forced to pay for what they are getting, and pay the full price. Professional specialist management of the portfolio of seabed licences must be run properly, and NRC must ensure it has that expertise.

7. What I have proposed is a totally market-led solution, where NRC receives full economic benefits from issuing seabed licences for aquaculture. The farmers cannot complain they are being charged too much because if they don't pay that, someone else will. This system is similar to what has happened in the past, but is provides an improvement over the outdated public leases and licences which were issued by councils in the past.

Please take these comments ingto account if you are making submissions yourselves.