The SOE challenge

June 18th, 2010 at 7:47 am by David Farrar

The Herald reports:

The chairman of says at least part of the state-owned coal miner should be sold off to raise billions of dollars needed for new projects, including more mines.

– who is also chairman of partially privatised Air NZ – said Solid Energy needed up to $10 billion in additional capital over the next five years, and should be partially privatised if National wins a second term in office.

That was the best way to provide the money, given the state of the Crown accounts, he told the Herald yesterday.

“I don’t think it makes a lot sense for the Crown to put several billion dollars into a company like Solid Energy where it can retain all of its existing ownership and leverage and external capital can provide the opportunities for growth. It’s very much a win-win situation.”

Solid Energy is not a monopoly like Transpower or NZ Post. It is not a utility- it is a competitive business undergoing commercial activities that are not guaranteed to be profitable.

If Solid Energy can not access extra capital, it will not be able to reach its potential, which may mean less tax revenue and less jobs in NZ.

But do we want the NZ taxpayer borrowing money to invest in Solid Energy, and assuming all the risk? I think Palmer makes a good case for that risk to be shared around.

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39 Responses to “The SOE challenge”

  1. berend (1,709 comments) says:

    DPF: But do we want the NZ taxpayer borrowing money to invest in Solid Energy, and assuming all the risk? I think Palmer makes a good case for that risk to be shared around.

    Now all we have to do is find a video of John Key promising not to do this.

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  2. American Gardener (556 comments) says:

    Selling off part of Solid Energy would make sense as long as some of the money raised was used investing in research & development into energy sources that would avoid/reduce greenhouse gas emissions to mitigate anthropogenic global warming.

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  3. davidp (3,581 comments) says:

    American G… Errrr, the point is to raise more capital so that Solid Energy can develop some new mines. Are you advocating that new investors be sold on mining, and then the money used for something else?

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  4. Mike (3,234 comments) says:

    Why can’t our Cullen fund do it?

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  5. Neil (586 comments) says:

    I was extremely disappointed to hear Mr Brownlee and Mr Key’s reaction to John Palmer’s suggestion.Those comments I believe are very short term reactions and applicable until Election 2011
    I come from an area where there there are massive plans for Solid Energy which could transform our area from a rural farming area to a significant player in the chemical and fuel industry-plans appear to be massive, much greater than ever expected.
    Within ten years thousands of new jobs can be expected, creating social policy problems for our small rural town.
    Capital will be one major problem. The SOE will not have sufficietly deep pockets, so why not involve NZ investors, and eventually an overseas stakeholder.
    However it seems the 2011 election will be a major fight over the involvement of the public. There will be a big battle over this project between the Greens and the people who want some development using technology never thought of years ago. Clean coal ? Have a look on the web for some of this clean coal technology.
    NZ investors deserve better, our current market lacks any real growth companies

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  6. toad (3,674 comments) says:

    @davidp 8:43 am

    Errrr, the point is to raise more capital so that Solid Energy can develop some new mines.

    Exactly. Which is one reason why I don’t want it to happen. We need new coal mines like we need a hole in the head – it is the least sustainable form of energy, and we should be working to phase out our reliance on it, not increase it.

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  7. davidp (3,581 comments) says:

    Toad… Margaret Thatcher closed down a number of coal mines and the Left treated her as a monster. But you’re saying she was an environmental hero. That’s very fair minded of you.

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  8. mattyroo (1,027 comments) says:

    Toad, Stop it!!!!!

    This coal is not used for energy, and you know that! It is used for steel making.

    You continuously mis-represent the debate whenever coal is mentioned. This is why the majority of us can’t stand your politics.

    I’m willing to bet I’m a bigger conservationist than you, and have done untold more for the environment than you – all through private enterprise.

    Now run-off back to your circle jerk where your spouting’s are treated as gospel.

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  9. toad (3,674 comments) says:

    @Neil 9:04 am

    Clean coal ? Have a look on the web for some of this clean coal technology.

    There are several problems with carbon capture and storage. The technology itself requires the use of up to (depending which particular technology is used) 40% of the energy generated by a coal fired power station to capture and store the emissions. It is expensive – depending on the technology used the energy generated cost between 1.25 and 2 times that of a coal fired power station without carbon capture. And most significantly, while it substantially mitigates C02 emissions, it results in significant increases of other pollutants – most notably oxides of sulphur and nitrogen, which contribute to acid rain.

    If this technology were the silver bullet, then surely its use would be far more widespread than it is.

    @mattyroo 9:36 am

    This coal is not used for energy, and you know that! It is used for steel making.

    No, much of Solid Energy’s development plans are into Southland lignite. You don’t use lignite in making steel.

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  10. virtualmark (1,523 comments) says:

    mattyroo, pretty much all of the coal that Solid are referring to in their expansion plans is Southland lignite, which is totally unusable in steelmaking.

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  11. virtualmark (1,523 comments) says:

    Personally I’m intrigued by the “Solid Energy needed up to $10 billion in additional capital over the next five years”. Really??? $10 billion???

    That just sounds like a grand random assertion of ambition to me. If true it would make Solid Energy the largest company in New Zealand. By far.

    I’m sure that Solid’s execs can dream up all sorts of plans which, in total, would cost $10 billion to implement. But I’d be surprised if many of those plans were more than exotic pipedreams and tilts of fancy. Meanwhile I think their commercial credibility is ebbing quickly on the back of grandiose statements like that.

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  12. vibenna (305 comments) says:

    I think Solid Energy is a much better candidate for partial privatisation, as it does not hold such market power.

    Toad – while I am sympathetic to your point, I think the Greens have zero credibility on this. The reason we need coal is because the Greens (worldwide) refuse to back nuclear – not even the new generation of small, safe reactors, or the potential of thorium reactors. If Greens were serious about global warming, they would back nuclear.

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  13. mattyroo (1,027 comments) says:

    toad said:

    No, much of Solid Energy’s development plans are into Southland lignite. You don’t use lignite in making steel.

    Correct toad, but this Lignite is not being used for energy directly, but for UCG, which results in even less of your dreaded carbon emissions. In fact it even has lower emissions than conventional natural gas. Perhaps this should be something that a true environmentalist could support? I don’t hold you in this category of true environmentalist though little green frog.

    For the record toad, even I would be against mining lignite to burn in power stations. But, the problem with you horrid little watermelons, is that you frame and twist the debate to meet your agenda. This may work with the ignorant public, but it won’t wash with those of us that actually know and understand these processes.

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  14. mattyroo (1,027 comments) says:

    virtualmark, I realise that – In my first comment I was referring to their current operations and expansion of those – which toad has always tried to say is used for energy production.

    I should’ve made the distinction, which I have now done in my response to toad.

    Finally, I would also back any calls for nuclear. The new generation reactors are as safe as possibly can be made. But, as always with the luddite greens, they sensationalise major human fuck-ups such as Chernobyl and Three Mile Island, which can be completely designed around with modern technology.

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  15. backster (2,171 comments) says:

    Solid Energy’s problem is the same as Kiwibanks they can’t go anywhere without more capital. The government can’t supply it. If we continue down this Socialist path the nation will stagnate. Privatisation and both local and overseas investment are pre-requisites if we are to hold the line in comparative living standards against Australia.

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  16. Jack5 (5,137 comments) says:

    If the Government wanted to part-privatise Solid Energy it would be better to split it first.

    The Green appeal of Solid Energy’s mad rape-seed oil growing for biofuel (which itself is one of the great cons of the 21st century), the moderate risk of its coal-seam gas plans, and the very high risk of its dreams of economic diesel from Southland lignite, would, with the company’s export coalmining, give four different risk profiles. It would also provide smaller bites from NZ’s very small investor market.

    But really what is Palmer trying to do? Scuttle National? Privatisation is a highly sensitive issue with NZ voters, and National needs to keep its promise and find a way of making part-privatisation acceptable to voters, such as share ownership only by NZ investors, limits on share percentages in single hands, and perhaps even barring holding by entities such as limited liability companies, holding trusts etc.

    Palmer was a director of Air NZ from 2001, and Air NZ made some disastrous investments before the Government had to bail it out. Perhaps National should sell off Air NZ before Solid Energy. Within Solid Energy, there is the huge salary of the chief executive and the weird biofuel venture that also raise eyebrows.

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  17. virtualmark (1,523 comments) says:

    vibenna, in a rational world many of the SOEs would be fully or partially privatised. I’d suggest that Solid Energy and at least 1, if not 2, of the 3 state-owned gentailers could be sold off completely.

    I do not see the rationale of the Government owning a coal company. Anyone?

    And under Government ownership it has been able to get away with some … interesting … commercial activities such as land banking a massive amount of land which I suspect commercial owners would not have supported (given it drives down Solid’s RoA to pretty dismal territory). Personally I think the taxpayer should be happy to get out of it.

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  18. virtualmark (1,523 comments) says:

    Jack5 … John Palmer became the Chair of Air NZ after the Government recap. He was appointed to replace Jim Farmer, who was the Chair presiding over Air NZ’s slow spiral into the ground. Prior to be being Chair of Air NZ John had been Chair of Wrightsons.

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  19. toad (3,674 comments) says:

    @Jack5 10:48 am

    The Green appeal of Solid Energy’s mad rape-seed oil growing for biofuel (which itself is one of the great cons of the 21st century)…

    There is no Green appeal (not even with a small “g”). I agree with you that using land that can be used to grow food for fuel production is a seriously crap idea.

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  20. Jack5 (5,137 comments) says:

    VirtualMark posted at 11.10am:

    …John Palmer became the Chair of Air NZ after the Government recap….

    Fair enough, but Palmer was on the board of Air NZ from November 2001. If he disagreed with chairman Jim Farmer on the airline’s direction he could have resigned and alerted shareholders and the public generally.

    VirtualMark also said:

    …I’d suggest that Solid Energy and at least 1, if not 2, of the 3 state-owned gentailers could be sold off completely…

    That makes good economic sense, VM, but there is the question of political reality. If National wants to be more than a one-term government it can’t adopt the election-suicide policies of ACT.

    As for VM’s point on gen-retailers, what’s the point of having Government-owned entities competing with each other? Wouldn’t it make economic sense to merge them?

    We have to accept that we New Zealanders have a socialist bent. We like co-operatives (Fonterra) and State-owned ventures. The sensible approach, IMHO, is to find ways of blending these, especially the latter, with investment by NZ retail shareholders. That would mean minority stakes for NZ mums and dads, but that’s better than nothing.

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  21. Viking2 (11,470 comments) says:

    That makes good economic sense, VM, but there is the question of political reality. If National wants to be more than a one-term government it can’t adopt the election-suicide policies of ACT.

    Well that’s not so.
    If National had the balls they could frame the argument easily, but they don’t even wish to begin the process. They still think that Labour will beat them. Only losers think that way.
    There needs to be lots of discussion and lots of idea’s promoted and more importantly their needs to be a future senario promoted. This versus that. If Key would scuttle the ETS right now and start promoting growing our wealth , it could be done in such a way as to negate the screaming mad greenies and capturing the minds of those that are marginal greenies and those that make daily decisions on their lack of wealth and how they are going to pay the next bill.

    Its not even a hard ask given the conversations people are having these days.
    In fact it would be better done sooner rather than later.

    The reason; the better feelings people have about their future the less they will make the controversial decisions and ones that most need making. If your belly is full do you worry about the next feed. Absolutley not and it is the same with these decisions. If “Nanny” is going to prop you up with benefits etc are you going to worry how the money is raised to pay you.
    Remember we are borrowing 250 mill a week and have 10 years of debt according to the Nats.
    The real question is:
    When are they going to do something about that and what are they going to do? So far not much,wait and hope that everything turns out just fine, which is why unemployment is rising again, wages are stagnant etc etc etc.

    Well all know this and have waited two years for some decent sort of program to return NZer’s to the wealth we are capable of.

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  22. virtualmark (1,523 comments) says:

    Jack5,

    but Palmer was on the board of Air NZ from November 2001

    Nah, John Palmer came on to the Board when the Government stepped in. I was there. Saw it happen.

    Ralph Norris was on the Board pre the Air NZ mess, and then later became CEO.

    That makes good economic sense, VM, but there is the question of political reality

    I agree on the political realities, to some extent. But there is also an onus on the Government to explain what it’s doing and why it’s doing it. There is a strong rationale for selling, say, Mighty River Power and Genesis … after all, TrustPower and Contact are privately owned and the sky hasn’t fallen in. But I do suspect that Govt’s – and I include the current Nats in this – aren’t up for the work to present why they think there’s merit to NZ Inc in selling these businesses.

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  23. virtualmark (1,523 comments) says:

    Viking2 … you beat me to it.

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  24. virtualmark (1,523 comments) says:

    Jack5

    As for VM’s point on gen-retailers, what’s the point of having Government-owned entities competing with each other? Wouldn’t it make economic sense to merge them?

    I agree with your first sentence. But I’d recast the second sentence to be … “Wouldn’t it make economic sense to sell 2 of them to new owners so there was true competition in the marketplace between 5 gentailers each with unique ownership?”

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  25. Redbaiter (13,197 comments) says:

    SOEs are an exercise in Fascism.

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  26. virtualmark (1,523 comments) says:

    You know ‘baiter … in a strictly technical sense you’re probably right.

    Probably not going to get a great reception in NZ though if you frame a discussion of SOEs in terms of fascism.

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  27. Redbaiter (13,197 comments) says:

    “Probably not going to get a great reception in NZ though if you frame a discussion of SOEs in terms of fascism.”

    Quite correct, because most NZers are so politically ignorant they wouldn’t know if Benito was up them with a wheelbarrow full of bricks.

    The reality is that this country is deep in the throes of fascism in many ways, and because the perpetrators of this are careful to ensure the word is never spoken, people don’t know it. SOE’s are political/ government control of industry. That’s Fascism in a nutshell.

    Its why the political catchcry should be small government. And we should always be demanding it is made smaller. Then there can never be any Fascism, or Communism, or Socialism or any of those evils. Small government means government out of industry, and that is how it should be.

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  28. Jack5 (5,137 comments) says:

    Re VirtualMark 12.35 and earlier post on Palmer of Air NZ:

    Whoops! You are right VM, and apologies for suggesting Palmer was to blame.

    Palmer was appointed to the board on 29 November 2001, and Farmer left the board on 26 Feb 2002, but the overlap was clearly transitional.

    Still: Why do Palmer and his board pay the Solid Energy chief executive so well, and why are they into biofuel?

    Another point on privatisation is can you trust politicians when they sell a State asset? Look at Telecom with billions of shareholder wiped out by mandatory unbundling of the copper network and subsequent government mandates.

    And re Redbaiter at 12.40pm:

    …SOEs are an exercise in Fascism…

    do you include the police, the armed services, the post office, the fire service in that?

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  29. Paulus (2,627 comments) says:

    I would be happy to buy Shares in any of our Utility companies.

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  30. Redbaiter (13,197 comments) says:

    “do you include the police, the armed services, the post office, the fire service in that?”

    No I don’t, because unlike yourself (apparently) I know and understand the definition of Fascism.

    (And there’s no reason anyway to include the Post Office or the Fire Service. Government should not be running these services, and there is no logical reason why they are. It just opens the door to further excess.)

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  31. Jack5 (5,137 comments) says:

    Okay Red, give us the Fascism definition please.

    And re Paulus at 1.49:

    I would be happy to buy Shares in any of our Utility companies….

    You can buy shares in Infratil, Vector, and several other utility companies now (I think airports can be regarded as a utility, though I doubt Infratil’s new stake in service stations fits the bill – Vector and the other lines companies are utilities, and so are Telecom and Telstra and the NZX-listed port companies).

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  32. Redbaiter (13,197 comments) says:

    “Okay Red, give us the Fascism definition please.”

    I don’t do things for free. If you’re truly incapable of finding a definition of Fascism, then fine, I’ll do it for you, but first I’d like you to agree to donate $20 to my favourite charity. (US Afghanistan Snipers support).

    Deal?

    When I provide it for you, I’ll be using the one in Jonah Golberg’s book “Liberal Fascism”, as I think that is one of the most accurate of any I know.

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  33. Jack5 (5,137 comments) says:

    Fair enough Red (2.03).

    There doesn’t seem to be universal firm agreement on a definition of fascism, but most agree at the centre were violence advocating, ultra-nationialistic, uniform-and-parade loving airheads who, among other things, were, like the Marxists, mad about planning. Fascists apparently also thought they had an economic policy separate from both capitalism and socialism but which was never put into effect. Fuck them any way, they lost.

    But don’t you agree Red, that minority private ownership of an SOE is better than no private ownership of it at all?

    Open them up to continuous reporting requirements, NZX rules, and general criticism and we would at least get a better picture of them.

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  34. American Gardener (556 comments) says:

    Jack5 – you could ask for “his” definition of Fascism.

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  35. Luc Hansen (4,573 comments) says:

    Clean coal – the most misleading and vicious oxymoron ever?

    I have a suggestion for John Key, especially if he would like to go down as a particularly visionary and courageous politician:

    Close down Solid Energy. Outlaw coal mining. Make it a criminal offence.

    Tell the world, although this will hurt our economy and us, we do this for you and our future generations.

    Another thing: announce a phased close down of all fossil fuelled power stations, say over the next 20 years, and challenge the private sector to develop alternative solutions. As any working journalists will tell you for free, deadlines concentrate the mind!

    And just watch the beauty of the invisible hand of the market accomplishing it’s most important mission – saving civilisation.

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  36. Viking2 (11,470 comments) says:

    Luc Hansen’s forward vision for NZ.

    More than 50,000 jobless in Auckland
    About 51,000 Aucklanders are jobless, with job-market observers warning that figure is unlikely to fall any time soon, reports The Aucklander.

    Thats right now.
    more to come.
    More at;
    http://www.nzherald.co.nz/employment/news/article.cfm?c_id=11&objectid=10652333

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  37. Viking2 (11,470 comments) says:

    ….My last question involves a little story. Not long before Milton Friedman’s death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. “The challenge for my generation,” Friedman had told me, “was to provide an intellectual defense of liberty.”

    Then Friedman had looked at me. “The challenge for your generation is to keep it.”

    http://lindsaymitchell.blogspot.com/2010/06/optimistic-view-on-future-of-freedom.html

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  38. Luc Hansen (4,573 comments) says:

    Ah, Good ol’ Ronnie. Cut spending you say, but the deficit tripled under his watch! How did that happen?

    http://www.huffingtonpost.com/2008/04/10/mccain-ill-cut-deficits-l_n_96011.html

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  39. Redbaiter (13,197 comments) says:

    “Ah, Good ol’ Ronnie. Cut spending you say, but the deficit tripled under his watch! How did that happen?”

    You’ve had this crap discredited so many times but you just keep posting the same old shit. You’re a brain damaged troll.

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