Key was wrong – they wanted $27b not $1b

March 15th, 2013 at 12:52 pm by David Farrar

The Herald reports:

Prime Minister this morning released documents detailing ’s ambitious expansion plans which would have required capital investment of $2-3 billion a year until 2021 or a total of up to $27 billion.

Key released the papers in response to Labour’s claims he misled the public about Solid Energy approaching his Government about a $1 billion investment to become the “Petrobras” of New Zealand, a request he says his Government turned down.

However, in his appearance before a parliamentary committee yesterday, John Palmer who was Solid Energy’s chair at the time, said while the company made the approach, there was never any expectation the Crown would bear the cost of the required investment and a figure of $1 billion was never mentioned.

I admire the ambition of the Solid Energy directors and staff, but this just shows again how unsuited it is to be owned by the Government.

When you are 100% Government owned, there are only two sources of funds for capital – the Government’s or borrowing. The Government’s contributions can be either direct capital investment or reduced (or no) dividends.

It is simply not possible that the desired expansion could be done purely through borrowing. A Government contribution was absolutely necessary and implicit.

Of course if private shareholdings were allowed, then Solid Energy may have been able to access capital without it coming from the Government. This entire episodes reinforces dramatically for me the undesirability of having these commercial companies state owned.

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32 Responses to “Key was wrong – they wanted $27b not $1b”

  1. flipper (4,056 comments) says:

    Dear oh Dear..

    $27 B…. NOT $1B

    Now who will be scrambling to save face?

    The “whole tribe of highly intellectual left wing scribblers”, as W.S.Churchill once described the media.

    Such good sport. :)

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  2. barry (1,317 comments) says:

    DPF – so you…”I admire the ambition of the Solid Energy directors and staff”

    Jeez – you should be frightened shitless that such halfwits are running any sort of company – private or public. They were running a small coal company rather badly – and they wanted investment monies of 27 billion.

    There must have something in the water, the air and the food at their headquarters. Lunatics.

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  3. In Vino Veritas (139 comments) says:

    From what I have seen of the questioning of Elder and Palmer, Labour have had egg splattered fair and square on their face. Somehow, TV1 managed to turn this into a story about Key and National when it seems clear that both Elder and Palmer exonerated them. Cosgrove clearly dismissed what he didn’t want to hear and came out with a sound bite “they were asleep at the wheel”. I suppose we shouldn’t expect anything more from an almost lifetime politician with a few years in a PR firm. I wonder why Labour think its acceptable to have their ranks filled with people with virtually no experience outside political activism?

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  4. hannity (152 comments) says:

    So Solid Energy ased Key for 27 billion, at the same time Power was demanding a bigger dividend, even tho he knew they desparately needed extra funds.
    Why did Key not inform Power?
    What a 389 million sized incompetent.

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  5. Nookin (3,341 comments) says:

    Hannity
    Where is your reference to the “deparate need” for funds at the time of the request for more dividends? I interpret the request for $27b as attributable to a proposed massive expansion, not borrowing attributable to financial constraints.

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  6. ross69 (3,652 comments) says:

    I wonder why Labour think its acceptable to have their ranks filled with people with virtually no experience outside political activism?

    Yeah I think we’ve established that it’s all Labour’s fault and that National isn’t responsible for anything.

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  7. YesWeDid (1,048 comments) says:

    The document is a ‘proposal’ which is a long long way from a request for funds.

    Anyone with any real world project experience knows there is a huge difference a proposal and a capex.

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  8. ross69 (3,652 comments) says:

    Why did Key not inform Power?

    And why didn’t Power talk to Key? Seems communication isn’t a priority for this government.

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  9. ross69 (3,652 comments) says:

    Let’s not forget that in 2009, then SOE Minister Simon Power told SOEs that they had to act like commercial enterprises. He said that he would, among other things, “set clear expectations, including financial performance targets for SOEs, and hold boards accountable for achieving these”. So, what (if anything) did Power do, and where is the accountability?

    DPF’s criticism of government ownership seems to be a direct criticism of Power.

    http://img.scoop.co.nz/media/pdfs/0903/aaaaSKMBT_C353_09031314580.pdf

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  10. flipper (4,056 comments) says:

    Yes we did…
    .
    Is it not true that this is the situation?

    1. Govt tells all SOE’s to up their game and improve dividends to Govt which is trying to reduce deficit.
    2.. Sol En pays dividend to Govt ( legal responsibility of Directors who have legal responsibility NOT to pay from borrowing).
    3. Sol En puts $27b plan to Govt.
    4. Govt says no Govt cash injection.
    5. Sol En board goes ahead and borrows based in projections that later prove wrong (coal prices actually yo yo).
    6. Sol En goes belly up.

    Key/English/Joyce/Ryall – 10
    Tribe of left wing scribblers – NIL.

    ++++

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  11. joe bloggs (126 comments) says:

    YesWeDid @ 1:38 pm
    “Anyone with any real world project experience knows there is a huge difference a proposal and a capex”

    And anyone with real world business experience would know that one leads to the other if successful.

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  12. ross69 (3,652 comments) says:

    And even though Solid Energy was telling Power that the next 3 years were looking bleak, he was wanting more dividends and more debt. But somehow that’s Labour’s fault.

    http://img.scoop.co.nz/media/pdfs/1303/Letter_from_Ministers_to_Solid_Energy_May_2009.pdf

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  13. Carlos (683 comments) says:

    If Russel Norman was running things, it would be economically successful. :)

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  14. JeffW (326 comments) says:

    “When you are 100% Government owned, there are only two sources of funds for capital – the Government’s or borrowing”.

    To my mind, the Government has no money of its own; it only has ours. Too many people but especially politicians and their bureaucrats think it is theirs, when clearly and money in their bank account is there on trust. There might be a little less waste if it was stopped being thought of as “Government money”.

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  15. In Vino Veritas (139 comments) says:

    Poor old Ross69. It is the shareholders absolute right to ask for more dividends. It is the Board’s responsibility to set and pay the dividend within the constraints that exist at the time, and with due consideration of forward forecasts. The Board have to sign certificates of solvency based on what their management team predict will happen in the future. However much Power demanded dividends, it was still up to the Board to declare them, and pay them. What you are implying is a socialist model where the government can tell a company it owns to do whatever it says. Sort of like instead of letting the Board and management getting on with it, insisiting on having them invest in biofuel and other mickey mouse sustainable energy sources that don’t make any money. See the difference?

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  16. Viking2 (11,467 comments) says:

    What is abundantly clear is that being a director or Manager for any Govt. funded or owned outfit is a career disaster.
    Any Govt. business is subject to the whims of any minister and the PM. For a so called commercial PM Key is rather light weight and certainly hasn’t the necessary nuts to sell what he should or encourage the enterprises to gain other shareholders. Perhaps had SE had the chance to grow properly we would now be thinking that we had a decent resource company instead of a one trick constrained organization with a less than ideal track record.

    Key has shown that once again he is a gambler and a money shifter and certainly not a business builder. Nor for that matter is he very insightful when it comes to Govt. business. Of course he blames his lack of balls on having to ask the electorate, most of who either don’t care or would rather he just got on with the job. Typical useless game playing NAT.

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  17. emmess (1,428 comments) says:

    And why didn’t Power talk to Key? Seems communication isn’t a priority for this government.

    Maybe they were otherwise pre-occupied with other things like running the country.

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  18. OneTrack (3,089 comments) says:

    “Carlos (594) Says:
    March 15th, 2013 at 2:01 pm
    If Russel Norman was running things, it would be economically successful.

    Would he have lent them his printing press :-)

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  19. Carlos (683 comments) says:

    @ One Track

    Exactly.

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  20. ross69 (3,652 comments) says:

    Maybe they were otherwise pre-occupied with other things like running the country.

    Yeah alllowing one of your SOEs to run up nearly $400 million of debt is small change when there are taxes to be cut for the wealthy.

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  21. All_on_Red (1,582 comments) says:

    Yeah alllowing one of your SOEs to run up nearly $400 million of debt is small change when there are lobbying quangos to be paid so they can lobby the government for even more money.

    There, fixed it for you.

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  22. Viking2 (11,467 comments) says:

    As Mainzeal and a number of other companies that have failed show clearly, a politician on the board is a disaster.

    Worse, most of those failures at board level happen to be National Pollies.

    Graham, Shipley, Richardson, Fallon,, lots of them.

    Can’t actually name any from the dark side.

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  23. Michael (909 comments) says:

    The board is empowered to work only in the best interests of the company, not (despite the persistent and untruthful assertion) the shareholders. If the Board got a directive from the Minister to take a risky path they can tell them to sod off.

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  24. Keeping Stock (10,337 comments) says:

    Tony Ryall delivered an absolute masterclass yesterday as be batted away question after question on Solid Energy. But his best performance was against Gareth “I’ve been everywhere, man” Hughes; well worth the investment of a few minutes of your Friday evening:

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  25. Viking2 (11,467 comments) says:

    KS. while I agree with most of what Ryall says he didn’t answer Hughes questions and Carter returned to the bias speaker mode that Lockwood Smith got rid of by letting Ryall off.
    Listen carefully again.

    If ya going to preach hollieir than thou ya better be.

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  26. Nostalgia-NZ (5,195 comments) says:

    So if Key wasn’t right about 1 b, the fact that it was 27 b makes him right?

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  27. Viking2 (11,467 comments) says:

    Sorry but reading between the lines Key has been rather disengenuos with the support of Ryall.

    “Solid Energy states that the objective of the NRC proposal is to stimulate an accelerated development and use of New Zealand’s natural resources and to capture maximum value for New Zealand.

    Key sacked The previous Mines Minister without really explaining why, so perhaps we now know.

    Given it was a plank in the Nats last election to get mining going its somewhat ironic that the very people who wanted to progress that have been shat on by this Govt. and this PM.

    Clearly Key is freightened of offending the Green electorate and getting dumped. Instead he has pissed off NZ business with the way he has treated business people.

    Starting to be a bit of a list of people that have been treated this way.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10871442

    Its now at the point where many will not beleive anything that is said anymore. Not a great place to be.
    Que the howls of the followers.

    Labour Leader David Shearer said Key had “scored an own goal” by releasing the paperwork.

    “The documents actually show the company wanted to chase billions of dollars from private investors not the Crown.”

    “These documents don’t show Solid Energy asking for a billion dollars and the letter from Simon Power doesn’t show him rejecting a request for a billion dollars. So who is telling the truth?”

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  28. Islay Malt (3 comments) says:

    An important point that seems to have been overlooked here is that the SOE Act allows the shareholding Ministers to determine the amount of any dividend by notice to the Board (s13(1)(b)). Might help explain the Board’s reaction to Power’s letter.

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  29. Johnboy (16,516 comments) says:

    The board should be sacked and Sir Cullen put in charge. $27,000,000,000 is petty cash to him! :)

    Mock as you wish but wait till you see what he does to reverse the failing profits from NZ Post!!!!! :) :)

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  30. Yvette (2,813 comments) says:

    Isn’t $27 billion about half the national debt? What do Solid Energy people have for brains?

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  31. Johnboy (16,516 comments) says:

    Hint Yvette. It’s brown and it gives off sulphurous gaseous odours and nobody wants it anymore! :)

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  32. Viking2 (11,467 comments) says:

    Well Evete, there was mention of iced methane which is found undersea and NZ has a big supply of. Japan just yesterday announced that they had cracked the mining of this sufficient to give them security of gas supplies for many years in the future. Something we just might aspire to. Well perhaps under some other Govt. but for sure not under this spineless PM.

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