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Municipality takes control - what now, Frederikshavn?

The municipality must rectify a billion-dollar debt when it takes over control of Frederikshavn Harbor on Wednesday. Søfart has spoken with Michael Svane, who knows the challenges with failed ports

- We're going to look to Hanstholm Harbor and Thisted Municipality. They've been in the same situation as us, where the harbor had to hand over the keys to the municipality. We're going to draw on all of those experiences.

The statement comes from Birgit S. Hansen (S), the mayor of Frederikshavn Municipality, and was made at the press conference at the end of April, where it was revealed that Frederikshavn Harbor will be under municipal control as of May 15th.

The harbor's debt is approaching 1.7 billion Danish kroner.

This year alone, bills totaling 35 million Danish kroner need to be paid, and with a turnover ranging between 75-100 million kroner, it's not feasible to allow the harbor to continue operating independently, as stated at the press conference.

So now the municipality will attempt to rectify the harbor.

Michael Svane is all too familiar with this type of situation. 

In May 2022, he was appointed as the chairman of Hanstholm Harbor, which was also on a collision course with bleeding financial statements and a debt of around 600 million Danish kroner.

Eight months later, he handed over the keys at the municipal office in Thisted and stepped down as chairman along with the rest of the harbor board.

So, what advice does someone who has been in the same position as Birgit S. Hansen and harbor chairman Karsten Dybvad have to offer?

- First and foremost, there is a task of signaling that the harbor is not closing. It continues its operations as a business, but the debt has been transferred to the municipality and ultimately to the taxpayers. This freedom means that one can use the time to signal that the harbor is open for business to both new and existing customers, Michael Svane tells Søfart.

It's not a situation I can recommend any mayors or municipalities to get into, and it's about not running away screaming, but rather staying on the bridge and showing determination. That's what I'll try to do Birgit Hansen, Mayor of Frederikshavn Municipality (S)

- One should reach out to partners and customers at the harbor as soon as possible because they are the ones bringing revenue to the quayside. Engage in a dialogue with them, reassure them, and emphasize that debt is one thing, but operations are another, and the latter is functioning, he says.

- As a municipal politician, you have an independent task to speak positively about the harbor and not negatively when something like this happens. That's something to take seriously, advises Michael Svane.

Continue the investments 

And, specifically, one should thoroughly examine the many loans.

- One should consider whether it's possible to reduce some of the debt by converting to other loans. That's what they did in Thisted Municipality, which cut about 100 million kroner. But one should be mindful if one ends up with a higher interest rate through that conversion - it typically happens, he explains.

He also mentions that the municipality can hardly count on cash contributions from the state, but they can go through the Ministry of the Interior to defer some of the deadlines for payments.

Something Birgit S. Hansen did already the day after the press conference.

Furthermore, it's important not to completely shut the cash flow, he says. It's necessary to continue investing in the harbor so it doesn't decline and become a worse business.

- One must remember that a harbor requires ongoing maintenance. Even though one may have taken out many loans, one must have a new plan for investments to keep the harbor in good condition. In the rush, one might forget to allocate funds for investments and maintenance, he says.

- Specifically, one needs to create an overview of what needs to be invested in urgently and what can wait, then establish an investment budget based on that. It's necessary to ensure future infrastructure that is attractive to keep customers coming back, says Michael Svane.

It has been worse

It was quite a cleanup job awaiting Michael Svane when he became chairman of Hanstholm Harbor on May 1, 2022, well aware that it was a harbor in trouble.

Two days later, the picture became clear indeed.

- Every time I asked about this and that, there were more skeletons in the closet than one would hope for. After 14 days, an economic report came, and it turned out to be worse than anticipated locally, Michael Svane explains. 

I made my recommendation to the municipality that we should transition to municipal harbor. There was no way around it. We couldn't service the debt, which is also the situation in Frederikshavn, he said. Michael Svane, Former chairman, Hanstholm Havn

And so the work began to thoroughly examine the operational basis in the pursuit of new business opportunities. But as he expressed it, it was difficult both in the short and long term.

And then it was just a matter of throwing in the towel. Five months after Michael Svane took the helm as harbor chairman.

I made my recommendation to the municipality that we should transition to municipal harbor. There was no way around it. We couldn't service the debt, which is also the situation in Frederikshavn, he said.

But the decision to transfer control to the municipal office can actually bring some peace to the harbor, says Michael Svane.

- You're somewhat sheltered by being placed under a unified budget in the municipal administration. It provides stability to work, he says.

When the keys are handed over at the Frederikshavn municipal office on May 15th, Michael Svane's recommendation is to find someone who knows the harbor well to continue its management.

- In Hanstholm, I appointed the acting operations manager as the harbor director, and I recommended that they continue with him even after the harbor was transferred to the municipality. It has proven to be a good decision. You need someone who knows the harbor, who has their finger on the pulse of daily operations, he says.

- The harbor is still a workplace for many employees, and we mustn't forget them in this situation. That's why structure is important, and having a thorough figure as a leader, says Michael Svane.

Avoid Panic

And even though the stories from Frederikshavn and Hanstholm are stark examples of harbors in crisis, Michael Svane urges calm on behalf of Danish harbors.

- Don't panic. Frederikshavn and Hanstholm are not indicative of the overall situation in the Danish port sector. Fundamentally, the health is good, and the vast majority of ports are run by sensible people with good insight into operations and finances, he says.

But something can be learned from the examples in North Jutland, and perhaps there are adjustments to be made so that more ports don't end up in financial distress.

- Loan regulations. Today, there are 25-year repayment deadlines for port investments such as new quays, basins, and other infrastructure that may last for 100 years. We should look at the framework for financing and ask ourselves if we can't pay back over a longer period for investments that are expected to last for many years, he says.

- But of course, it has to be a good investment from the start. A bad investment doesn't improve by extending the repayment period," he says.

View the harbor as a business

And he encourages the ports to see themselves as larger companies that need to be managed by the right competencies.

- I am a strong advocate for engaging professionals in the board and management who understand economics, markets, and capital. In short: ports and boards are not for amateurs, he says.

Don't panic. Frederikshavn and Hanstholm are not indicative of the overall situation in the Danish port sector. Fundamentally, the health is good, and the vast majority of ports are run by sensible people with good insight into operations and finances Michael Svane, former chairman, Hanstholm Havn

- The harbor today has significant turnover and needs to handle large investments. It requires a steady hand on the wheel to ensure that nothing goes wrong, he says.

He also points out that one should carefully evaluate the port companies' structure so that municipalities could avoid ending up with debts in the millions - and, in Frederikshavn's case, billions.

- If the harbor is operated as a public limited company, then the municipality is only liable for the share capital they have in the company, and there won't be a tax bill for the citizens, he says.

Mayor of Frederikshavn Municipality, Birgit Hansen (S), stated that she cannot guarantee that the harbor's billion-dollar debt will not impact the municipality's core services such as childcare and elderly care. However, she emphasized that the municipality will work hard to ensure that citizens do not feel the impact of the 35 million that the harbor owes creditors just this year.

- Making such guarantees would be unwise, as then the focus would shift to that. But it's important to emphasize that there are other options and other avenues before we touch upon the municipality's core tasks, she said at the press conference on April 24th.

- With a public limited company, there is the opportunity to set the framework for how you want to manage your ownership as a municipality and who you want in the board and management, he also emphasizes, clarifying that it is not a specific criticism of Frederikshavn Harbor's choice of leadership.

- We're not talking about petty cash here, it's a harbor. It requires the right people, he says.

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