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.

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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.