OPUNAKE POWER BOARD.

Taranaki Daily News, 18 July 1930, Page 10

OPUNAKE POWER BOARD.

(To tho Editor). Sir,—Mr. J. S. Tosland’s letter in your issue of the 11th is largely an evasion of the questions I addressed to him. Had Mr. Tosland given answers, brief but to the point, instead of laboriously retailing a mass of detail while'evading the main point, more light would have been thrown on the actual state of af-. fairs. For instance, I asked how much had been spent on office furnishings and equipment. Mr. Tosland could have given the precise amount and left it at that. Instead he particularises at length the equipment bought (which was not asked for) and instead of an exact figure gives “about £250.” Again, I asked by how much office expenses had increased in the last four years. Mr. Tosland takes 27 lines of space to discourse on office expenses in general, but leaves my question unanswered. I asked whether the board would have any alternative to levying a rate forthwith in the event of the’bank'calling for a reduction of the overdraft. Mr. Tosland does not answer my question. Instead he states that the bank “would not be so stupid” as to require a reduction, but Mr. Tosland knows quite well that such an eventuality is by no means impossible in the present uncertain financial position. Again, I asked if Mr. Tosland was satisfied, that the administration of the board’s business was as efficient as possible, and again Mr. Tosland failed to answer. Obviously he must realise there is something wrong somewhere when board members can be so hopelessly in the dark as to the true financial position as they admittedly have been. I asked Mr. Tosland whether the board had in the past exercised “every reasonable economy,” or whether expenditure had been incurred which might have been avoided had. the board realised the true financial position. Mr. Tosland says, “I know of no extravagance on the part of the board," but a few lines further on he mentions the engineer’s car. Tho board gave this a life of 10 years. It lasted a little over two. He then proceeds to admit, “When we again need to replace the engineer’s car a Baby Austin would do and be a distinct saving in running costs.” He omits to mention that the present car cost over twice as much as a Baby Austin, so we may assume that had he answered my question directly he would have been obliged to admit that tho board has been more lavish than it would have been had the real position been known. And the car is only one case in point. Dealing with the general financial position of the board, Mr. Tosland forecasts an annual saving of £1340 as a result of the renewal of a loan for £44,000 due in 1932. The secretary in his report to Friday’s meeting predicted a saving of £1280? Mr. Tosland gives the present rate of interest as 7 per cent. At the public meeting he gave it as GVz per cent. He predicts that it may be possible to renew the loan in 1832 at 5 J per cent. Whether this expectation will be realised or not remains to be seen. Present indications of the financial trend provide no guarantee that the board will be able to borrow at 5% per cent, in 1932. Indeed the possibility is by no means remote that by that time 6 per cent, or even more may have to be paid on local body loans in New Zealand. On Mr. Tosland’s figures as given in his letter there is a saving of 1% per cent. Taking the figures given at the meeting (6% per cent.) and allowing for tho uncertainty of the rate in 1932, the saving may easily bo as low as i per cent, (instead of per cent.), and may even be nil. Should the rate of interest continue to rise the only possibility of saving would be in respect of the smaller capital sum on renewal (£27,090 insteau of £44,000). The emphasis which the board is placing on this prospective saving of interest —a very bad case, of “counting one’s chickens before they are hatched” —only serves to emphasise the unsatisfactory state of the finances at the present time. Mr. Tosland and the secretary both ma,ke much of the prospective saving in interest. But is this the whole of the story? It will be noted that when the £44,000 loan falls due in 1932 only £27,000 will have to be reborrowed, as £17,0*00 of the loan will bo repaid out of sinking fund. But both Mr. Tosland and Mr. Stephenson omit to mention that this £17,000 sinking fund which will be available in 1932 has not been set aside in respect of the £44,-. 000 loan exclusively. It is the. total sinking fund in respect of the .board’s loans of £lol,o*oo. It is obvious, therefore, that if the whole of the £17,000 is applied to the reduction of the £44,000 loan, the other loans due in 1944, 1945 and 1960 will be robbed of their share of the'sinking fund. To provide for the repayment of these loans, and also of the renewed loan of £27,000 it scerus likely that ah increased annual sum will have to be paid into .the sinking fund after 1932, as the original term of the loans will by 1932 have been reduced by several years in each case and the sinking fund will have been completely wiped out. It seems therefore extremely unlikely that the £l3lO saving in interest will be a net reduction of the board's annual liability, but it will probably be largely offset by increased annual charges on account of sinking fund. Are not the board and Mr. Tosland using this prospective saving as a means of attempting to prove that the board s position is better than it really is?

It is surely a unique occurrence fora local body to find itself, in the position that the Opunake Power Board found itself in at last meeting. It was necessary for the secretary to enter into a lengthy explanation to make clear to members an elementary fact which was one of the first things they should have been acquainted with, namely, that the board is not paying its way. It is interesting to learn that for the first three years interest and sinking fund were paid out of loan money. .. I understand that the total amount of loan money so paid was about £lO,OOO. This means that of the £lOl,OOO borrowed by the board only some . £91,000 actually went into the undertaking. This means that even if the amount of the debt is reduced by £17,000 in .1932, the board will still owe over £84,000 on a concern that cost £91,000. .To. have paid off a net amount of approximately £7OOO in

10 years is not a very remarkable achievement. Yet at the recent public meeting Mr. Goodwin spoke in enthusiastic terms of the £13,000 that had been paid into the sinking fund as if this represented a great achievement to the board’s credit. He, of course, omitted to mention that a large part of this £13,000 was paid out of the money originally borrowed and that of the balance the largest portion had been paid out of ‘‘accrued profits, which would never have existed had not the first three years’ interest, amounting to some thousands of pounds, been paid out of loan money. Tho position was neatly, summed up by Mr. Green in his statement: “Up to. 1928 the board made its profit by payments out of loan money.” High finance, forsooth! Unfortunately for the board, “accrued profits” have dwindled in three years from £5121 to £1768, so that the possibility of squaring the annual balancesheet from this source will only be open to the board for another year or two. Moreover as the “accrued profits” do not exist at all except on paper the apparent effect of drawing on “accrued profits” for the payment of sinking fund is to increase the overdraft. It would appear then that the only difference between the first three years of the board's history and the last three is that in the first three the sinking fund was paid out of loan and in the last three it has been paid mainly out of overdraft. Obviously . the possibilities of these financial methods are limited. . Therefore the secretary has kindly estimated for the present year a “profit” of over £2OOO (£2400 is the precise figure, I believe). This prospective .“profit” the board has swallowed as readily as it accepted the £l4OO “profit” of the 1929 balance-sheet. But like the £l4OO “profit” the £2400 will be sadly depleted when sinking fund is allowed for. Moreover, since the ./‘profit” for last year was £869 10s it is obvious that, without allowing for one penny increased expenditure, revenue will have to increase by some £l5OO to realise, the “profit” of £24,00. The actual figures show that for the months of April and May the revenue, was £2039, as against £1922 for ,last year—an increase’ of, £ll7 for two months. At this rate the increase will be £702 for 12 months—or less than half of what will be necessary to realise the estimate. Moreover, as tho board during the summer months has already been selling all the power it can generate and can only sell more by increasing its purchase of bulk power, it is difficult to believe that a net increase of revenue at the rate of £ll7 every two months can be maintained throughout the year. It would seem then that the £2400 “profit” for this year is another case of “chickens counted before they are hatched.” Is it any wonder that before the board is allowed to load the undertaking with another £19,000 of capital expenditure some ratepayers desire a little more information The need for such is now realised even by board .members themselves and, whatever the outcome of the £10,009 loan scheme, it will have two eminently desirable results: (1) A keener interest on the part of ratepayers in the affairs of the board, and (2) a little sadly-needed enlightmenfc of board .members in regard to the elementary details of the board’s finances.—l am, etc., W. A. SHEAT. . Piliama, July la, 1930.