Council clings to assets as quake bills mount

Last updated 09:40 09/06/2012
bobbyp
Chris Skelton
Mayor Bob Parker

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Much lower dividends have come from Red Bus, City Care and nothing has come from Enable.

Another company is EcoCentral, a former struggling private sector company running the new wheelie-bin recycling operation which the council bought for $19m two years ago.

Enable, a five-year-old company laying a fibre-optic telecommunications network in the city, will not pay dividends until at least 2022.

The council pressed on with the very big commitment to Enable last year despite the destruction from the February 22 earthquake. It had the choice of pulling out and other players would have done the job in Christchurch.

The Enable development will require up to $440m, most of which the council is funding through borrowing. However, that burden will ease a bit if Chorus, formerly part of Telecom, buys into Enable.

Red Bus is struggling to make decent profits.

EcoCentral, Red Bus and City Care, all face plenty of competition from private sector operators. Only City Care is starting to produce good dividends.

The city council has listed most of the trading companies as "strategic assets".

Mayor Bob Parker says councillors ask a range of questions to decide what "strategic" means.

One of the most important is what or how significant the companies are to the region's economy, environment and culture. It also asks what would be the impact on the council, its finances, if the companies are "disposed of". He admits there is subjectivity in these decisions.

Why not sell down to 51 per cent and bring in some cash for the council and reduce rates?

Parker says it would mean a fall in dividends. In addition, the companies' values were an important part of the council's financial strength.

He was not sure if EcoCentral was considered strategic and Selwyn Plantation Board was being sold.

Parker says the community will view Orion, the airport and the port as strategic assets. They were established with public money over many decades. While other councils had sold their counterparts in the 1990s, Christchurch chose to keep them.

The council considers the infrastructure companies long- term investments, Parker says.

The Press put it too him that Wellington and Auckland airports have not suffered from being owned by the private sector, and Parkers replies Christchurch Airport has not suffered from local government ownership.

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Official documents released to The Press show the Government wants the council to see if its trading companies have enough debt and if not the companies should borrow and pay that cash to the council. Debt is seen as a discipline on companies enabling them to expand and useful when interest rates are low.

Parker indicates that if the council sells anything in the future it is more likely to be the "contracting" companies - City Care, Red Bus and EcoCentral.

"Where it gets less clear, I think, is when we start looking at City Care or a Red Bus and these are contracting companies that sit alongside a lot of other contracting companies. So you can't use the argument they are a natural monopoly. So I think it is possible to look at those and see them in a different context.

"But that doesn't occur just because a minister pops up somewhere and says you should sell your assets to pay the bills. That occurs naturally all the time. It's part of good governance."

The question the council asks itself is, is it and the community better off with the dividends or selling and taking the capital gain, Parker says.

Despite the council's debt rising, it is still a conservative amount for a council and there is no need to sell "at this moment".

Borrowing is cheap. Interest costs for the council are about 4.5 per cent. "We can get inexpensive money."

"If we can borrow at 4.5 per cent why would we give away a return of about 15 per cent a year."

Selling assets cut off its options for the future, is a short- term solution and means one generation pays for the rebuild, he says.

"If we were in a position where we needed to shed some of the silver it is not going to be hard to do."

CCHL has in the past had several parties knocking on its door with "a deal".

"They never stack up in the real benefit of the ratepayer," Parker says.

- The Press

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