POWER BOARD LOAN

Gisborne Times, Volume LXVIII, Issue 10728, 27 October 1928, Page 6

POWER BOARD LOAN

i ELECTRIC RETICULATION IN POVERTY BAY.

PROBABLE AMOUNT £21,750.

OFFICIAL REQUIREMENTS

A .supplementary loan of £21,750 for the completion of electrical reticulation in tho Poverty Bay district will probably be sanctioned by tho Lbcal Government Loans Board, according to a report by the,chairman (Mr F. R. Ball) to the Board yesterday. 'The Power Board applied to the Loans Board for authority to raise £2B*ooo, being 10 per cent of the original loan of £280,000 sanctioned by the ratepayers three years ago, but the Loans Board is unwilling to grant more than £21,750, and in addition, requires a 3 per cent, sinking fund. over the 20 year term of the loan/ the latter requirement, however, being considered by the Power Board, however, as too heavy, and a reduction of the rate in the earlier years of. the loan’s currency is being songht. ' Negotiations oft behalf of the board’s- application to raise the loan were carried on in Wellington by Messrs F. R. Ball, chairman, and H. F. Toogood, consulting engineer, i Th* chairman of the Loans Board, Mr R. E. Hayes, in reply to the Power Board’s application to raise the ■supplementary loan „* of £28,000. wrote in the following terms : “‘Tho proposed'sinking fund of 1 per cent, will be insufficient to reclaim the loan in the 30 year per T iod. Further, in tho recent cases of loans for electric reticulation considered Hy the Loan Board an estimated “life” of 20 years has.been considered reasonable, and a sinking fund of three per cent, imposed, sufficient to redeem the liability within such term. “It is noticed that the proposed supplementary loan has been calculated as 10 per cent, on the full * £280,000 authorised by the ratepayers, whereas £67,500 of that amount was allocated to the purchase of the Gisborne Borough Council’s undertaking of £15.000, for -financial assistance and trading leaving; only £197,000 for new construction works. The supplementary loan .under section 19 of tho Local Bodies Loan Act 1926 for the purpose of completing the undertaking js apparently required for construction works only and should, therefore, he computed on the item of- £197,000.”“ v “It does not .appear from the proposals submitted that -any further moneys are required for the purchase of the undertaking from the Gisborno Borough Council and for. financial assistance and trading. It is suggested, therefore, that tho present applications should be reduced to .£19.750. “It is noted that the sinking fund on five of the outstanding loans appearing on the board’s debt table is less than 1 per cent, and the Loans Board would like to be advised if any steps can be taken to increase the sinking fund on these loans to a minimum of 1 per cent.” The issues raised have been answered by the board in the following terms: On the question of sinking fund, the Power Board could comply as the Loans Board directed.. The Power Board, however, considered that the provision for the repayment of a loan for reticulation . purposes with 20 years was neither in the interest- ■ of ratepayers nor hydroelectric development. While an estimated life of 20 years might be considered reasonable the fact remained that in interest of the distributing authorities and the safety -of the public the lines must always be kept in, an efficient state.. Replacements had to be made from time to time and provision for replacements was mado by means of the depreciation fund. If in the early years the board had to provide 3 per cent, sinking fund in addition to a substantial depreciation fund its resources were going to he heavily taxed. Dealing with the amount of the loan, the Power Board pointed out that the Loans Board showed that . £67.€00 allocated for the purchase • qi the Gisborne Borough Council’s undertaking, whereas £47,500 was for £> thelpurcha.se, of 4 £20,000 was for the taking over the borough loan of £20,000 raised but not spent. This loan was raised for increasing the capacity, of tho generating station and extending the reticulation of the . borough, This ;£20.000 was not. sufficient'for the.work and therefore onetenth of this amount should be added to. the amount of £19.750, making a . total of £21,750, as the minimum amount on which the 10 per cent, supplementary loan should be calculated, and if the board could not sanction the. full amount, the board requested that at least the sum of £21.750 should be allowed. Tho minimum sinking fund on the five outstanding loans had not yet /' been, considered. The chairman was of opinion that it should not have any bearing on the present application hut ho would discuss the matter with the chairman of the Loans Board with a view to making arrangements to meet*the latter’s suggestions. - Outlining the results of the conference which he and Mr Toogood had in Wellington with head officials of the Loans Board, the Treasury, the Audit Department and the Chief Electrical Engineer concerning the application V raise, the loan the chairman said that the Loans Board had apparently based their decision that a 3 per cent, sinking fund was required on the ; statement of tlm Chief Electrical Engineer (Mr F. T. Kissell) that the life of reticulation lines was 20 years. However, -the speaker pointed out that estimate was made for the purpose of the depreciation fund, a line’s life being much longer tlTan tliat. He contended that, three' per cent, sinking fund was not justified, and Mr GCissej-ag-reed that it was not necessary to have such a large sinking fund since the l'nes were taken regular care of by regular replacements and the provision of depreciation. However, he believed that the Board would he granted some easement of the condi- , tions, so that if no reduction were granted in the 3 per cent, sinking fund a reduction might be made in the early years, starting at li per cent., finally rising to 3 per cent. This point would be discussed by the consulting engineer with the Loans Board at the next 'meeting. . Concerning the amount. of the loan and the Loans Board’s conten-tion-that the Board could raise only £19,750, he had taken the matter up with ’the Audit Department arid had succeeded m proving' that- the Board was"entitled to raise'£2ooo more, so that' 'it could be regarded definitely thgi' the loan of £21,750. would Vie sanctioned, it had been suggested to 'him that' instead of raising the full' amount of the loan for a term of 20 or 30 years, the balance' of'tlib sum set aside in the principal loan for “financial'assistance,’.’ and not required .for this purpose"; should ho used for the construction programme. It" was , suggested’, also, that this money ’shoiihL be raised by hypothecation .of'debentures to'the bank. It pointed' out' -that, moist. pf the money granted in financial assistance" would'. Ue’ repaid in " ten years, and "the 'funds would thus be on the hands of the . Board until the term pf'th'eXlo'an expired. This.'of course, would bo ■ invested- with sinking fund, commissioners, but the Board would lose *£ -Tier cent"’ interest, ’-representing the : difference between the . interest fa'te'Tlie Board have-to pay -and the rate pavabfe to the Board on sink-, ifcri funds'. '* He' 'considered' that the: Board would' have ’to review " the; whole v Hi after 6f- “financial/ assist-. an<fc.” : it' being now .'apparent that;

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