“WAS WORTH WHILE"

Evening Star, Issue 20556, 7 August 1930, Page 14

“WAS WORTH WHILE"

V NEGOTIATIONS FOR WAIPORI SALE SOUND BUSINESS DEAL WAS POSSIBLE MR LEWIN'S OPINIONS ON ABORTIVE DISCUSSIONS “ Despite the effort expended on the task, I still think it was worth while and that it should have been possible to achieve a sound business deal that held advantages to the State and likewise to the city—at least, at the time the question was first raised—but obviously some of these advantages were dissipated as our heavy capita] expenditure at Waipori proceeded, while negotiations went forward in so halting a fashion.”

That is the opinion of the town clerk on the abortive negotiations between the Government and the City Council for the sale of the Waipori hydro-elec-tric headworks. In his annual report Mr Lewin exhaustively deals with the transactions and the ultimate abandonment of the sale in a manner which can be readily assimilated by all citizens.

The negotiations wifi) the Public Works Department of tho State regarding the proposal that the headworks of the undertaking should be transferred to the Government were continued during the year. The initial stages of the discussions are set out in last year’s report, and when the year opened we were awaiting an opportunity to confer with the officials of the State Department in a discussion on the terms of the proposed transaction. Several conferences were held, and the general terms of a contract were settled, but the all-important matters of the actual capital sum to be paid to the city to represent the cost to us of the headworks, and likewise the price wo were to pay for the bulk supply, were left in abeyance pending an exhaustive investigation into the accountancy phase of the whole subject. This investigation proved to be of a very complex nature, and, owing to the limited opportunities available for meetings between the parties, took much longer than had been anticipated. The inquiry embraced a wide range, and included the adequacy of the provision that had been made by us since the inception of the undertaking for depreciation, sinking fund, obsolescence, and the proper treatment in the accounts of quite a considerable portion of the origiual assets that had already ceased to function. To these considerations, each of which afforded scope for considerable diversity of opinion, was to be added an estimate of the probable rate of future capital expenditure to meet the growing demand on the station.

When it is remembered that the nature of the whole transaction was based on the fact that botli parties to the deal were buyers—the State was to buy the headwords and the city was to buy power in bulk at a price which was of necessity to be very, largely based on the purchase price it received—it would at once appear that the maxim “ Let the buyer be aware ” played a very important part in the minds of both sides to the issue.

It was not until September 19, 1929, that the officials of the Public Works Department were able to submit a definite proposal, and when it came to hand it was promptly rejected as being unsatisfactory. The committee reported, inter alia: “ It is, however, chiefly in respect of the purchase price by us of the bulk supply from the department that we aro not in accord with the proposals, regarding, as wo do, the price named as higher than it is costing us to generate, and higher, too, than we may reasonably expect to generate in the future should the maximum demand on the station increase at anything approaching our own estimates. In view of this fact, your committee now recommends that the negotiations be abandoned with a view to forthwith proceeding with the development of the station on the lines necessary to ensure the maximum economic capacity of the river—32,000 kws. Should this recommendation bo acceptable to council, the committee will forthwith apply to the Government for authority to develop Nos. 3 and 4 stations, and reinvestigate the subject of the ultimate height it is necessary to lake the dam, as this phase of the matter ijas been to some extent altered by the recent purchase of the Lawrence water rights, by which the average flow of the river has been increased. In making this recommendation your committee has in mind the fact that to continue the negotiations, even if it were found possible to bring them to hnality in time to permit of the agreement being validated by Parliament during the present session, would allow of insufficient time to give that publicity to the terms that is advisable; while to delay the matter for a year and go on expending money at Waipori would obviously be to largely defeat the very object of the proposal, and would materially reduce the benefits both to the city and to the State.” [following upon the adoption by coum oil of the committee’s recommendations a deputation consisting of the Mayor, Councillor Shacklock, and the city electrical engineer, proceeded to Wellington and interviewed the Minister of Public Works. They again renewed the request for authority to proceed with the development below the main generating station—that is, for authority for the construction of Nos. 3 and 4 powerhouses, in which the waters of the river would be used a third and fourth time on their way to the sea.

The outcome of that interview was that, at the suggestion of the Minister, a further effort was to be made to negotiate on the major proposition—i.e., the purchase by the State of the headworks This time it was agreed that an outside accountant should be called in to investigate the position and report to both parties, the idea being that an impartial outside expert might be able to reconcile the divergent views of the respective officials of the State and the city who were handling the matter. Mr W. LI. Nicholls, a public accountant, practising in was appointed to make the investigation, and ho came to Dunedin towards the end of January for that purpose.

His report is dated February 14, and it can, I think, b© claimed that while ho differed in some respect from both sides, the general trend of his conclusions was very decidedly towards the contentions for which we had stood in the discussions on the subject. In support of that view, it need only be said that as the result of Mr Nicholls’s report, the Public Works Department submitted an amended set of proposals, in which they added £15,500 to the purchase price of the headwords, and at the same time reduced the price at which they would supply power by 6s per k.w. The value or that concession on the basis of the ultimate load represented just about £10,500 per year. Substantial as this reduction was, the figure quoted was still regarded as too high. The amended offer by the Public Works Department is dated April 10, and under date of April 28 the committee intimated to Wellington that the terms were still unacceptable, and that unless the de-

partment could see its way to reduce tho proposed purchase price to £4 per k.w. in lieu of their figure of £4 6s, it was futile to further discuss the matter. During May the department replied that it was not prepared to consider a contract for supply on the terms suggested, and the final step was then taken by the E.P. and L. Committee reporting to council on May *2l in the terms following:— “ The negotiations which have been proceeding with the Government for some time on the subject of the suggested sale of the Waipori headworks have now been brought to a finality, the Government havine intimated, under date of the 9th instant, that the council’s proposals in the matter are not acceptable. The termination of these negotiations now leaves the way clear for the council to proceed with the original proposals for obtaining authority for the construction of the additional statoias—Nos. 3 and 4—lower down the river, and this matter is receiving immediate attention.” There tho matter stands at the time of writing, and it is intended to promote a local Bill during the forthcoming session of Parliament seeking statutory authority to proceed with the down-stream development.

An immense, amount of work has been involved in the long-drawn-out negotiations that have now proved abortive. That such a result was not regarded as improbable from the inception can, I mink, be gleaned from the following reference taken from my report when the matter was first introduced. I then wrote on page 80 of last year’s report;—

“ . . . Should it be answered in tho affirmative, the isues raised in (a) and (b) of the question are very largely matters of accountancy, and provide points of very considerable importance and no little complexity to be discussed in the negotiations that would follow. ... It may be that the intricate negotiations that are involved in the provisos I have attached to the question may break down even should the council answer it in the affirmative. I am, however, fully persuaded that the proposal is one that is worthy of the fullest investigation.”

And despite the effort expanded on the task, I still think it was worth while, and that it should have been possible to achieve a sound business deal that held advantages to the State and likewise to the city—at least at the time the question was first raised—but obviously some of these advantages were dissipated as our heavy capital expenditure at Waipori proceeded, while negotiations went forward in so halting a fashion. The disposal of the proposal for parting with the headworks has now paved the way to the full development scheme at Waipori, which null finally represent an outlay of just about £1.250.000 as the cost of the generating end of the undertaking, and which is calculated to provide a capacity for the output of 32,000 kws.