Proposed sale of Network defended

Eastland Network drone picture supplied

Selling Eastland Network does not need a referendum but the community will get to have a say on how to spend some of the proceeds, Trust Tairāwhiti chairman John Clarke says.

He and Eastland Group chairman Matanuku Mahuika spoke to a crowd of 65 people at a Gisborne Chamber of Commerce-organised question-and-answer session at Lawson Field Theatre on Thursday night to explain the reasoning behind the proposed sale of the district's lines company.

Eastland Group and its owner Trust Tairāwhiti announced the plan to sell the trust's foundation asset last month — a decision that raised questions and hackles across the region.

Several people at Thursday night's meeting said the decision should have gone to a referendum.

Sam Hain said 70 percent of people voted to keep the network community-owned in 1993, “so why wasn't there a referendum?”

“That's a massive decision to take on your own shoulders.”

Mr Clarke said a clause in the trust deed allowed trustees to divest securities following a required three-yearly review.

“Trustees are appointed to make those decisions. That's how the trust deed was written.”

Mr Mahuika said he had been concerned about the people who worked within the business if there was a referendum before a sale decision.

“While I understand the community sentiment, I would be reluctant to do that for those reasons.”

That was not good enough for Andy Stevenson, who said it was like selling a “golden goose that lays a golden egg every day”.

“I'm not going to roll over and die, but we need a referendum and a vote of no confidence.”

Bruce Hall also questioned the lack of community involvement in the sale of an asset that affected the whole community.

“We have three streams of key infrastructure in this region. One of them is communications, the second one is roading, the third one is delivery of electricity to everybody's home.

“We are probably a little bit lucky you guys don't control roading and communications given now we are proposing to sell our core asset. The trustees have to reflect the view of the community and I don't believe the community understands the sale.”

The network was a core ingredient of the whole community, he said.

“There is a level of social good. It's more than just a network. It has a social backbone. That's the core of the issue. Is this the right thing — to sell this asset that we actually have some control and input over to an outside entity?

“We lose control totally. I think it's the core piece that you guys can't answer.”

Mr Mahuika said the trust and company were “certainly aware” of regional impacts.

“We didn't ignore that. I understand people have that concern.”

Mr Clarke said the trust was charged in making decisions it thought were in the best interests of beneficiaries.

“It was part of that process. We still had to discharge our duty as trustees.”

Mayor Rehette Stoltz told company and trust representatives a lot of people here had likened the sale to that of the Government's controversial Three Waters reforms due to the loss of “local input”. She asked if residents could rely on prices not going up.

Mr Mahuika said line charges were regulated by the Commerce Commission, as was the delivery of the service, pointing out a new owner would also be regulated to provide continued investment into the asset.

“You're right, the community will no longer own it. We will be relying on that regulatory framework,” he said.

It was suggested that if an existing network operator bought the district's lines company its scale might allow it to invest more in the network and be a better owner.

Russell Moylan asked if there was a risk that would allow the new owner to increase prices beyond what was affordable for many.

Mr Mahuika said that would require input from the Commerce Commission.

“That risk exists no matter who the owner is.”

He pointed out that lines charges were just one part of what makes up electricity bills.

Reasoning the sale, Mr Clarke said while the trust had a fund of $452m, including a $25m “rainy day” reserve fund, it had a “relatively small” amount of cash available to distribute to its beneficiaries. Selling Eastland Network would change that.

“The trust deed allows us to make this decision and we don't have to consult and we don't have to have any referendum. It's simply a responsibility of trustees,” he said.

“The challenge for us remains getting available cash to enable the trust to continue to make its community grants and direct investments, as well as economic development and tourism.”

The trust would engage with stakeholders following a successful sale before deciding what projects it would fund, meeting its commitment of two years ago to invest up to $100 million in community wellbeing projects by 2025.

“In this context (we) are talking about regional prosperity,” said Mr Clarke.

Eastland Group had ambitions to grow through investing in power-generation opportunities. That included the potential for another geothermal plant at the site of the 26MW TOPP1 plant at Kawerau it bought last year; Eastland Group was also looking at a wind farm project and two more solar projects in Tairawhiti, as well as the recently announced solar farm at Gisborne Airport.

Mr Mahuika said this needed a release of capital.

Eastland Group operations include Eastland Port, Gisborne Airport and Eastland Network — the electricity network for Gisborne, Wairoa and the East Coast — as well as Eastland Generation, which produces renewable energy from geothermal power plants in the Bay of Plenty and a hydro scheme near Wairoa.

The network accounted for 24 percent of group revenue last year, bringing in $28.4m.

Colin Alder questioned if the network sale was down to Eastland Group's debt levels and asked why the asset that was “most dear to all of us” was the asset to be put up for sale. “The port services a few people, the airport services a few. Why would you not sell one of these?”

The meeting was told the sale was not happening because Eastland Group needed to sell. “This is not a sale that has been forced on us.”

Mr Mahuika said there was no risk to the community in selling the network because it was a regulated asset. However, the port was not regulated and a sale would bring risk.

“So you still have a network. Whoever owns it still has to provide it.”

Mr Alder pointed out that in 2010 debt against the network was about $60m and as low as $17m in 2019. He asked how had it jumped so quickly to $80m.

Eastland Group chief executive Matt Todd said that in 2019 debt was apportioned to each of Eastland Group's businesses, and network businesses nationwide had about 40 percent debt-to-assets ratios.

“We're at about that level now.”

Asked if the sale was brought on by Eastland Group's $83 million purchase of the TOPP1 geothermal plant last year, Mr Mahuika said it was not. The rising interest environment did make it a good time to lower debt levels, but this sale was being considered before that.

Several people questioned how proceeds from a sale would be split between the trust and Eastland Group. Neither Mr Mahuika or Mr Clarke provided details.

“There's to be no winners or losers out of this,” Mr Clarke said. “We have to make sure the company is left in a position where it can operate and continue to grow, and the trust gets sufficient out of it to alleviate some of its concerns about redistributing its investments.”

The sale was “not just about price”.

“That was really important from the trust's perspective to ensure the sale was in the best interests of the beneficiaries going forward, and is a purchaser capable of doing that.”

The legal opinion about the sale received by the trust would be made available publicly at an appropriate time, Mr Clarke said.

Asked if service levels could be maintained if a foreign buyer stepped in, Mr Clarke pointed to the situation in Taranaki, where service had been maintained by an Australian owner.

The meeting was also told the sale contract would not include a requirement for local companies to be involved in providing a percentage of services to the new owner.

Mr Mahuika said there had already been “interest shown” by potential buyers.

Asked if a partial sale had been contemplated, he said it had but it was not feasible to sell a partial stake in a small network company.