Published: 07 Nov 2018
The Timaru District community is being asked to have their say about a $110 million plan to reduce council debt, better diversify its investments and future proof council finances.
The commercial arm of the council, Timaru District Holdings Limited, is proposing to sell its 47.5% share in the company Alpine Energy, which will enable the council to lower its external debt by a proposed $22 million dollars.
The remaining $88 million will be reinvested by TDHL in other growth assets, which will offer the same or higher returns than the current Alpine stake.
Mayor and TDHL Chair Damon Odey said that the plan allows the district to realise the increased value of its shares and use them to contribute to the long term prosperity of the district.
“While the council is comfortable with its debt levels, and it meets all internal and external standards, feedback from the community has been that they want us to lower our levels of debt,” he said.
“As a council we cannot solely rely on increasing rates income to fund everything we need to do to ensure Timaru District remains a great place to live, we need to work our investments harder to get better returns.
“TDHL has a lot of money tied up in Alpine Energy, it’s the single biggest investment by far, dwarfing both its holdings in Prime Port and other investments.
“The situation means that the majority of our investments are tied up in a company which we have limited control over, which is operating in a heavily regulated market and whose future growth prospects we don’t have the technical knowledge and expertise to properly support.
“Having nearly two thirds of our entire fund in one single company also doesn’t meet our needs when it comes to risk and growth opportunities.
“Alpine Energy is a good investment, but it would be better suited to a larger investor with specialist knowledge of the energy distribution market, and we feel that it’s time for the community to reinvest the value that has been built up over the years.
“This would instantly lower the council’s external debt by nearly a quarter, which would have both short and long term benefits.
“The majority of the proceeds will be invested in by TDHL high quality growth assets to provide better long term returns to the community.”
Timaru District Council’s stake in Alpine Energy was allocated to it following the energy reforms of the 80s and 90s. It reflected the council’s ownership of the former Municipal Electricity Department, which had serviced Timaru City.
Forty percent of the shares were allocated to LineTrust South Canterbury (formerly the South Canterbury Electric Power Board, which serviced areas outside of Timaru) and the remaining 12.5% were allocated to Waimate and Mackenzie District Councils jointly.
Despite being the largest shareholder, TDHL has two seats representing on the Alpine Board, the LineTrust also has two and one board member represents Waimate and Mackenzie Councils.
Alpine Energy owns the part of the electricity network between the national grid and homes and businesses. Its charges are regulated by the commerce commission, so the sale of shares would make no difference to people’s power bills.
The community will continue to own 40% of the company through Lines Trust South Canterbury.
The consultation, which launches Thursday asks if people support the proposal, the main aspects of which are:
- Some of the sale proceeds from this transaction being used to repay $22.1M of external Council debt. This will also reduce the Council’s interest costs by $1.1 million per year and with compound interest after 10 years it would equal approximately $13.3 million of additional money in our Reserve Funds
- The balance of the funds, which is approximately $88 million, would be put into a range of investments which would earn income for TDHL.
“Many will have an instant feeling that we shouldn’t be selling any assets, or that we’re ‘selling off the family silver’,” said Damon.
“At the end of the day, Council interests in Alpine Energy have been purely financial for some time, and we feel that the time has come to reinvest that money in more appropriate assets.
“We would really value your views and advice on whether you think it is a good idea to sell the Alpine Energy shares and use the money to repay debt and reinvest the funds in a range of income producing investments.
“This is a once in a generation decision which we feel could benefit our community now and long into the future.”
The consultation opens on Thursday. You will be able to read all the consultation documents and have your say at timaru.govt.nz/aelproposal, which will go live tomorrow.
You can request a hard copy of the consultation document by calling 03 687 7200 or emailing email@example.com or by dropping into the council building or our Temuka and Geraldine service centres.
The consultation closes at 5pm, 10 December 2018.
Publish Date: 07 Nov 2018