A bright future for Delta?

Such is the current image of  Delta that there must be many wondering why the Dunedin City Council even owns the company.

It has a history of  failed development speculation — Luggate, Jacks Point and Yaldhurst, costing it many millions.  It has been caught in the side-wash of sister company Aurora’s  underfunding of assets and it has lost Dunedin contracts for parks maintenance and the Green Island landfill.  The size and number of its senior salaries have staggered the public, and its chief executive is leaving.

Dig a little deeper, however, and Delta’s position is not so dire.  The company, with the right leadership, has the opportunity to consolidate as a competitive contractor not just for Aurora’s business but elsewhere as well.

According to its 2016 annual report,  the company had 607 employees and returned to its parent company, Dunedin City Holdings, a  $2.5million dividend.  It had various contracts scattered through the South Island.

Last year it lost half of the Dunedin parks maintenance contract to Christchurch City Council-owned City Care, while winning the other half and securing other competitive tenders.

What has some observers puzzled, nonetheless, was the recent loss of the Green Island landfill contract to Chinese-owned Waste Management Ltd.

The city should, indeed, tender such contracts on the open market and cannot unduly favour its own company.

But in this case the savings in the $20.6million deal over eight years are just $500,000,  about $60,000 a year.  Given the advantages of continuity and the costs of changing contractors, it would seem surprising Delta could not be kept on. Perhaps Waste Management Ltd scored better on the 70% "non-price" attributes. Perhaps not.  But Dunedin ratepayers could lose jobs and Delta’s dividend to the city is likely to be smaller.

In contrast, the case last year for the Waitaki District Council to switch its parks contract was overwhelming.  Council-owned Whitestone Contracting was paid about $2.1million a year and Downer came in about $450,000 less.

Following a review last year,  Delta and Aurora will have their own boards and chief executives (although that will mean an extra chief executive salary).   Delta remains the primary Aurora contractor, and has the chance for a fresh beginning and fresh focus uncoupled from dual concerns.

Its new board needs to include not just the standard financial expertise but business people who  know thoroughly contracting and the operational side of businesses. 

The council and councillors, for their part,  need to stay out of any involvement  and let the experts do their stuff. It is under such circumstances council or taxpayer-owned businesses can work successfully. 

Port Otago, for example, has benefited from its independence from owner the Otago Regional Council.  Notably, it has not suffered from demands for excessive dividends (so far at least), pressures that did Aurora no favours.

Delta, which grew in part from the council’s works department via the company Citiworks, over-reached in its time as an ambitious expanding infrastructure company. 

  All is far from lost, however, and it has the chance  to control its overheads, be led well and concentrate on areas in the tough world of contracting where it has expertise.  Although this primarily is electrical contracting, it spreads beyond that.

But, like any other company,  if it cannot compete successfully it will have no future.  It was not that many years ago the council owned a bus company.  Citibus was sold in 2011, and Dunedin ratepayers are not particularly worse off.

Aurora, meanwhile, can target its huge maintenance catch-up. That will restrict the dividends it can pay to the city council for several years.  But there is no reason, especially as a monopoly electricity lines company, that it cannot have a healthy profitable future. 

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