Govt writes off $25M in loans

Press, 4 April 1989, Page 2

Govt writes off $25M in loans

By

PATTRICK SMELLIE

in Wellington

The Government has been forced to write off $250.2 million to quit itself of loans relating to several uneconomic local authority hydro-electric schemes.

The move was announced yesterday by the Associate Minister of Finance, Mr Neilson.

Under the deal, the National Provident Fund will buy the loans, which have a face value of $382.2 million, for $132 million.

The $250.2 million difference reflects the poor performance of the schemes, and the heavy exposure to foreign exchange losses faced by the Government because of the way they were funded.

The chief executive of the National Provident Fund, Mr John Perham, said the fund had resolved the local hydro loans deal “without any risk being borne by contributors.” Refinancing the loans to the schemes had made them much more viable, he said.

The schemes were established under a policy announced in the 1977 Budget, prepared in a climate of uncertainty about future energy needs, and the price and availability of oil and petrol. The policy was to encourage the construction of small hydro schemes. But a report last year by the Auditor-General found that lower than expected demand

for electricity made such developments questionable from as early as 1978. In his report, he found that almost all the schemes, apart from Aniwhenua, Branch, Teviot, and Wheao, had not been able to generate power as cheaply as the target of 3c a kilowatt. The majority would provide no benefit for power consumers, he found. In addition, the Government continued to make Supplementary Operating Loans until March, 1987, to help ailing schemes keep going. However, the biggest problem was that initial borrowing to build the schemes was in Swiss francs, for which no foreign exchange cover was taken out.

While the National Provident Fund administered the loans by lending to the hydro schemes in New Zealand dollars, the Government bore the cost of the depreciation of the New Zealand dollar against the Swiss franc. This, along with the Supplementary loans, caused loan costs of $195 million to swell to $382.2 million. “The sale of the local hydro loans marks the end of yet another chapter in the sad saga of National’s “think big” energy projects,” Mr Neilson said. "The scheme was a “think big” project which went badly wrong and now the taxpayer is paying heavily.” National Provident had subsequently arranged commercial refinancing of the loans, he said.