Council asset sales mooted to help raise $900m
The public will be consulted about possible asset sales as the Christchurch City Council warns rate rises will not be enough to plug a funding hole of up to $883m by 2019.
However, the Green Party says "selling the city's strategic assets to fill the financial hole does not have the long-term interests of the city at heart".
The scale of the financial black hole has been unveiled this morning in a long-awaited report into the council's finances by corporate finance advisory firm Cameron Partners.
It questions whether the council needs to continue to own all its commerical assets, saying the financial reasons for doing so, in the majority of cases, are weak.
It claims between $21m and $314m could be raised by partially selling some of the commerical assets held by Christchurch City Holdings Ltd (CCHL).
The extra money would allow the council to pay-off some of its debt and give it the capacity to take on new borrowing of between $21m and $265m.
As it stands the council has little capacity to borrow because it is getting close to its debt ceiling.
The Cameron Partners report was commissioned by the council as part of the ''opening the books'' exercise initiated by Mayor Lianne Dalziel when she took office and follows on from a report released earlier this year by KordaMentha.
That report looked at the council's finances as they were laid out in the 2013-15 Three Year Plan (TYP) and identified a potential funding shortfall of at least $534m.
The job of Cameron Partners was to look at the council's financial forecasts for the years between 2015 and 2022 and to review the organisation's funding options.
Its calculations, released this morning, show at least $256m in extra funding will be needed by 2019.
That figure could increase depending on a number of factors, including the outcome of the council's insurance negotiations, decisions being reached on the scope and scale of the central city anchor projects and the repair of the Town Hall, and savings being identified in the horizontal infrastructure rebuild programme.
The council could raise the extra money through rates but with ratepayers already facing a cumulative rate increase of more than 50 per cent between now and 2022, Cameron Partners is suggesting other avenues need to be explored.
It says given the council's difficult financial situation and that its core business is to provide services rather than own assets for financial return, the council needs to assess its future asset ownership.
Through CCHL the council owns assets worth about $2.6 billion. They include electricty lines company Orion, Christchurch International Airport Ltd, Lyttelton Port, Enable, and Red Bus.
''The financial reasons for CCC owning assets are weak and instead we consider that the primary rationale for CCC owning assets is to control them in order to pursue objectives that may not be value maximising and to receive non-financial benefits,'' Cameron Partners says in its report.
It questions whether the council needs to retain ownership to meet those objectives or whether they could be met by a third party if appropriate regulations or contractural arrangements were put in place.
It does not specify which assets the council should sell but notes that Orion and CIAL are the largest investments and even a partial sell-down of them could materially improve the council's financial position.
The report also recommends the council replace CCHL with a new commercial entity, Commercial Co, which would manage all of the council's commercial assets and assist with some rebuild projects.
PUBLIC WILL BE CONSULTED
Mayor Lianne Dalziel said it was clear that releasing capital was the only way the council could address uncertainty around its finances.
"From the financial reports we have received and subsequent analysis of those reports, we would look at releasing up to $400m from CCHL. Measured agains the $8.3 billion council balance sheet, we believe this is a moderate but prudent proposal.''
Dalziel said the council would be looking for options which ensured the city maintained strategic control of its key infrastructure assets - Christchurch International Airport, the Lyttelton Port Company and electricity supplier Orion.
The mayor said before any decision was made about releasing capital from the city's commercial assets, public consultation was vital.
The period of consultation would begin on September 4, the fourth anniversary of the earthquake sequence.
"Creating financial certainty will attract much-needed investment in the rebuild. We want to work alongside the Canterbury Earthquake Recovery Authority (Cera) to scope the possibilities for a one-stop landing point for both local and foreign investors.
"This would help speed recovery by providing a long-term focal point for economic development and a clear stable point for joint venture, private and public investment and could take a proactive approach to development projects that can drive economic, social or special interest outcomes,'' Dalziel said.
The mayor said she and the chief executive planned on setting up a think tank or advisory group to work with the council on developing a Long Term Plan that would shape the city over the next decade and beyond.
In a joint statement council chief executive Dr Karleen Edwards and chief financial officer Peter Gudsell said there was no easy or simple solution to a funding gap of the size the council was facing.
"Even with budgeting restraints, rates rises over the next three years will be necessary to support the debt we need to carry from 2017 to 2019."
Rates rises alone were not a palatable solution for dealing with the funding shortfall because of the very large increases required.
"We need to make hard choices to address the issues we face before we look elsewhere for assistance, but we will undertake public consultation before final decisions are made,'' the statement said.
FINANCIAL UNCERTAINTY OVER COST OF ROAD AND PIPE REPAIRS
Earthquake Recovery Minister Gerry Brownlee said the Crown and the council were totally committed to rebuilding Christchurch.
"The Cameron Partners report makes it clear some major areas of financial uncertainty are causing headaches for Christchurch City, including the cost of repairing and replacing the city's essential horizontal infrastructure [pipes, roads, waterways].
"When we signed the cost-sharing agreement with the council in June 2013 we foresaw this and undertook to do a thorough review of where the shared costs of the rebuild lay by 1 December this year."
Brownlee said knowing the final cost of and replacing Christchurch's horizontal infrastructure was always going to be better understood as authorities got closer to the end of the task.
"Once we have this information we can consider if any amendments are required to the cost-sharing agreement.
"Officials from CERA and the Treasury are working with the council already to ensure the review provides Christchurch City with the clarity it needs to help make some of the big decisions ahead of it."
GREEN PARTY URGES COUNCIL NOT TO SELL ASSETS
Selling off the council's assets is not in Christchurch's best interests, the Green Party says.
Green Party Christchurch spokeswoman Eugenie Sage said the strong push to either partially sell or sell the council's commercial assets was not surprising, but was not in Christchurch's interests.
"Selling the city's strategic assets to fill the financial hole does not have the long-term interests of the city at heart," she said.
Sage said the report showed there was an urgent need for the Government to step up and show flexibility toward the council.
"There needs to be a genuine partnership in applying the cost-sharing agreement between the crown and the city council in light of this information about the Council's financial position and the hole in its budget from 2019.
"Easing the pressure on the council to fund the anchor projects will mean more scope for helping the city council with priority projects in rebuilding community infrastructure," Sage said.