DCC Council Companies to remain in the too-hard-basket?
Seven years. It has been seven years since our Dunedin Council-controlled Companies have provided us with a dividend from profits.
Many decades of many millions invested in our Council Companies have given us little but massively increased debt since our last dividend in 2015.
Even those dividends before 2015 were often debt-funded, like the $10 million ‘Special Dividend’ that was needed to push Stadium construction funding over the line, later revealed to have been facilitated by Company borrowing of $13 million.
Transparency, and clearly identifying what our DCC problems are the best ways of beginning to solve those problems in my experience.
The status quo does not like change or solutions that involve loss of jobs-for-the-boys or the derailing of traditional gravy trains, but our current course and annual $100 million increase in debt is unsustainable.
So why is the DCC amassing so much debt despite record rates increases of many times the rate of inflation, and why no DCC Company dividends?
Local Directorships, some exceeding the 3 term limit are part of our Companies’ problems as the recommended use of independent non-local Directors has usually been ignored.
Easy profits from City Forests have been used to subsidise our incompetently run Lines Company Aurora and Infrastructure Company Delta, who for far too long shared the same board of directors that gave fat Aurora maintenance contracts to Delta making both companies top-heavy and inefficient on the backs of Otago electricity users.
Worse, Aurora indulged in the public ownership disease of short-termism, failing for decades to maintain its electricity distribution network resulting in failures of everything from power-poles to transformers and cables that should have been replaced decades ago. On-going electrical supply and safety failures, some fatal, have resulted in the Commerce Commission fining Aurora $5 million, but both the Cull and Hawkins Councils have looked the other way, instead spending on pet planet-saving cycleway projects while DCC Group debt has increased by nearly $100 million every one of the last 3 years.
DCC spin has allowed our $1.2 BILLION combined Company and DCC Debt to look less by only highlighting DCC book debt of around $400 million, having bounced our Stadium debt into the Companies’ books to keep up appearances.
The DCC has also found many ways of subsidising the loss-making Stadium to make things look less worrying in Annual reports.
These annual subsidies include: Event attraction funding, local event discount funding, a special Stadium rates differential, and an annual purchase of $2.55 million of Stadium shares by the DCC despite DCC already owning 100% of Stadium shares – and this is described in DCC accounts as “Investment”!
The annual total of this accounting duplicity is close to $9 million every year for a Stadium that struggles to get a major event for many months at a time and won’t even do that once Christchurch Stadium is available.
What to do?
1 – Admit and clearly identify the problems:
The DCC has failed to control or get returns on our massive investment in our Council Controlled Organisations. Like the Cull Council, the Hawkins Council has left our companies in the too-hard-basket, preferring to borrow instead.
The Stadium has ludicrously high $9 million+ annual DCC subsidies to keep it inflated with few events and fewer forecast.
Council Companies still fail to deliver dividends or proper rates of return after 7 years of massive injections of borrowed capital that were supposed to make them profitable.
The DCC has lumbered Council Companies with $2.5 million annual losses just to delay inevitable decisions on Taieri Gorge Railway and keep it mothballed for each of the last 3 years.
City Forests has been conjuring profits from revaluations and carbon credits rather than just efficiently harvesting timber.
The Hawkins’ Council itself has gone on an unprecedented spending spree on transport changes and cycleways including George st that will amount to more than $150 million of unsustainable spending on unproductive investments.
2 – Obvious solutions include: stopping or deferring cycleway and transport changes saving $150 million. Prevent City Forests from buying further farms for forestry carbon credit speculation and get them selling more trees more efficiently.
Accept that the Taieri Gorge Railway line to Middlemarch with its 37 bridges is beyond anybody’s ability to maintain safely and let a limited main-trunk line service be run locally or by an outside company if a local service cannot break even.
Get new independent outside directors for Aurora and Delta and explore partial sell-off of the Central Otago lines area for which there is competitive interest.
Spend $1 million on a low-maintenance tough artificial turf for the Stadium so that it can be used daily, cut staff overheads and allow the main ground to get used constantly by local sports/events groups. It will still lose millions but at least we will get good community use out of it.
With rapidly rising interest rates, world tensions, and cost of food, Dunedin Council must make hard decisions and make them now. We must prevent further decision delay on DCC Company restructuring, Taieri Gorge Railway, Sammy’s, Mayfair, Athenium and Fortune Theatres, groynes, the One-Way system, and a Unitary Council.
A lot of talk about Dunedin’s potential will only be realised by decisive informed course-corrections over the next 7 years.