DCHL dividends to council in doubt

Sue Bidrose.
Sue Bidrose.
The Dunedin City Council expects dividends from its companies to "flatline" as Aurora grapples with the $720million cost of rebuilding its electricity network.

But Dunedin Mayor Dave Cull says improvements in the health of the rest of the council’s books means it is up for the financial challenge.

His comments came after council chief executive Dr Sue Bidrose, speaking at this week’s council meeting, said the council faced fresh uncertainty over future dividends.

Council-owned companies like Aurora paid an annual dividend to their parent body, Dunedin City Holdings Ltd, which in turn made dividend and interest payments to its shareholder, the council.

The money helped ease the pressure for rates rises, but since 2011 DCHL’s total annual payment — including dividends, interest and subvention payments — had been slashed from $23.2million a year to $15.7million in 2013.

The following year, it was announced the payments would drop again, to $11.152million beginning in 2015-16, when the dividend component ceased completely.

The change reflected the need to get DCHL’s books in order — after years of borrowing to pay dividends — and reinvest in Aurora’s network, it was said at the time.

DCHL had predicted a gradual increase in dividends to the council again, from $946,000 this year to $1.3million by 2018-19.

But, speaking this week, Dr Bidrose said the projected dividends were at risk because of Aurora’s investment plan.

"We will be reviewing that, in light of the high level of asset maintenance required by Aurora.

"It seems it would be a fair assumption it will be at least longer before that dividend payment recommences," Dr Bidrose said.

Council acting chief financial officer Gavin Logie said it was too soon to say how long the zero dividend would continue, but "it won’t be a one-off".

The council and its companies were still working through the impact of Aurora’s asset renewal plan, but statements of intent confirming the position were expected next month, he said.

He was confident the lost dividends for this year and 2017-18 would be offset by higher interest payment from DCHL, but could give no guarantee for future years.

"I don’t know what the outcome’s going to be."

Dr Bidrose said the council did not yet know when it could expect dividend payments to return, but "what we really don’t want, ever again, is to have DCHL borrow to pay a dividend".

"We would rather budget to not have a dividend."

She was confident the council would be able to manage the budget implications.

"We’ve gotten pretty good at this."

"We don’t have any choice but to manage it."

Mr Cull said he expected overall payments to the council, from interest, dividends or both, to "flatline from here on".

The council’s budget resilience, helped by accelerated debt repayments and reduced debt-servicing costs, meant the council had "some room to move".

"I’m under no illusions that the need for Aurora to invest in renewals, to the extent that they’re going to over time, will constrain their ability to pay dividends.

"But we are already in a constrained situation and we’ve got some buffer in the system," he said.

chris.morris@odt.co.nz

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