Coober Pedy council has been forced to offer its water system as collateral for a debt refinancing deal, as talks continue over its future.
- Coober Pedy council was forced to use community assets as collateral for a loan
- He refinanced $8 million of debt under strict conditions
- Talks are underway about when the council can exit administration
The council has been in administration since 2019 after a finding of maladministration by the Ombudsman and concerns about its ability to manage its finances.
He was seeking to refinance about $8 million in debt through the Local Government Finance Authority (LGFA), the body that lends money to the councils.
The LGFA agreed to a deal, but with a term of six months instead of the standard five years, and on the basis that council assets were used as collateral for the loan.
“It’s unusual,” said council administrator Tim Jackson.
“Typically, council rate revenue is the collateral for the loan. Our rate revenue is quite low compared to our overall operations, due to the fact that we manage electricity and water.
Water network in difficulty for sale
One of the assets used as security was the water supply system, which was in dire need of repairs and upgrades.
He said potential bidders should be told before the sale that the asset was being used to secure a loan.
“We can certainly fix this, but it needs to be sorted out before the tenders close so that bidders know what is going to happen – that the assets are currently LGFA security encumbered and what would happen if and when they purchase the assets from us. »
Given that the proceeds from the sale of the water system would be used to pay off the council’s debt, Mr Jackson said this was unlikely to be a problem for the bidders or the LGFA.
He was convinced that there was no chance that the council would default on its loan and would have to hand over the community’s assets.
Possible new model of elected council
Residents of South Australia will go to the polls in November to elect new councilors across the state.
Mr Jackson said the LGFA’s nervousness was mainly due to uncertainty over the possible return of an elected council after the election.
“Our level of debt is actually not at the limit… so that’s not the issue, the issue is how this council is going to be governed in the future?” he said.
“Is it going to go back to how it was before I arrived?
“Essentially a company that could manage all the commercial activities of the commune [with] a board that had the appropriate skills – not elected, appointed.”
Mr Jackson said the municipal side of the business, made up of elected councillors, would be “relatively small”.
“If we go back to an elected board, I’m certainly in favor of that, but we need to have a board that can run a $16 million business, power and water.”