The proposal has dragged out more than a year longer than first envisioned, because of massive changes in New Zealand's shipping industry during that period, and, all the while, the merger has been shrouded in secrecy, because of LPC's sharemarket listing and requirements for disclosure.
A report commissioned from consultant Antipodes by the port companies is due to be delivered to Port Otago and LPC next week.
It is likely to be formally considered by the respective boards in late-January, Port Otago chairman John Gilks confirmed yesterday when contacted.
"There should be some activity by February or March, but not necessarily a [overall] decision," Mr Gilks said.
Port Otago took a contentious $37 million blocking stake in LPC more than three and a-half years ago.
LPC is 75%-owned by the Christchurch City Council, Port Otago 15% and the balance by shareholders with stakes of 1% or less.
Calls during the past two years for port sector rationalisation have seen little activity, but during that period shipping lines have slashed calls, amid massive financial losses, and major users such as Fonterra have changed transport routes, prompting huge cargo losses for the ports of Timaru and Taranaki, with a negative flow-on effect for Port Otago.
While the southern ports remain silent on the merger issue, a country-wide report by Ports of Auckland's 100% shareholder Auckland Regional Holdings (ARH), sheds some light on the southern proposal, which it appears to back.
The 29-page report Long term optimism of the New Zealand port sector, dated October 2009, gives an overview of the country's port sector, including changes, risks and operating environments, plus comment on the Port Otago and LPC's merger proposal.
ARH chief executive Pater Casey called for a national action plan and co-ordination between all stakeholders because of overcapacity of ports, declining profitability and weak freight rates.
New Zealand's port structure was "relatively fragmented" as they were "piggy in the middle" between large consolidated exporters and international shipping lines.
"Improved co-ordination within the sector is needed to minimise bottlenecks and unnecessary duplication of investment, as well as increased bargaining power with international shipping lines.
"This would enable ports to earn sustainable financial returns necessary to invest in New Zealand's significant long-term infrastructure requirements," Mr Casey said in the report.
New Zealand's port sector was at present "neither efficient or sustainable", international competitiveness was "under threat" and the industry was dominated by a small number of shippers taking up an almost 80% market share.
"Given the large number and close proximity of ports, shipping lines play one port off against another, often on the basis of price, such as Auckland versus Tauranga, or Lyttelton versus Otago," Mr Casey said.
The country needed at least one major South Island port to consolidate export volumes, either for coastal or international delivery, with Port Chalmers and Lyttelton the major candidates because of existing investment and proximity to export production bases.
"An alliance between these two ports could enable optimisation of South Island container capacity and cargo flows," he said.
Container movements for Otago are 23% imports and 77% exports while Lyttelton's is 55% imports and 45% exports, and assuming "only 3% annual growth", both were needed to cater to South Island capacity, Mr Casey said.
Unlike other analysts who have said the country has too many ports, Mr Casey said it was not about the number of ports but how each contributed to the supply chain.
The other ports were likely to become "regional feeder ports".
However, Mr Casey cautioned that at present New Zealand port returns were insufficient to justify future investment - noting the country's 11 ports were majority council owned - and called on already "scarce public sector funds" to be invested into port and supporting transport infrastructure to remain competitive.
There was a longer-term risk New Zealand containers would be increasingly "hubbed" through Australia if larger new-generation ships could not be handled here, he predicted.
Port Otago is 100% owned by the Otago Regional Council and has delivered more than $60 million in dividends since 1988, including a record $9.4 million in 2008, incorporating a special payment.
