Covid-19 coronavirus: Dunedin Railways shutdown partly to blame for council deficit

Putting Dunedin Railways Ltd into hibernation has resulted in a loss for the Dunedin City Council's trading companies. Photo / Peter McIntosh

The struggles of Dunedin Railways in a year afflicted by Covid-19 has led to a group of companies owned by the Dunedin City Council posting a deficit.

Dunedin City Holdings Ltd (DCHL) recorded a net deficit of almost $5.2 million in the year to June 2020, which was about $6.7 million worse than budgeted.

Much of that flowed from the decision in April last year to put Dunedin Railways Ltd into hibernation.

DCHL directors decided to write down the investment in Dunedin Railways to $450,000, as this was the best estimate of the recoverable value, a report for Dunedin city councillors at a meeting today says.

That resulted in a loss of about $5.3 million for impairment, reflecting a decline in the assets' fair value.

Dunedin Railways had forecast ongoing losses and a need for more equity and its board was preparing a turnaround plan when the forecast effects of Covid-19 on the tourism sector made the challenge of carrying on too difficult.

The company was put into hibernation as an alternative to closure.

Train trips have since been run on a trial basis to test whether a domestic market could be established.

DCHL's debt was also forced up.

Total term loans were almost $24.5million at June 30, 2020, or $3.5million higher than budget.

This was because of increased investment in Dunedin Railways, allowing the company to repay its debts.

The effect of Covid-19 also resulted in lower-than-expected dividend income from City Forests.

The actual dividend was $4.5million against a budgeted $6.5million.

This is expected to be recovered in the 2021 financial year.

Delta Utility Services' dividend was $1.5million, as expected.

Aurora Energy did not produce a dividend, as expected.