Solid Energy and $1 billion

May 22nd, 2013 at 6:21 pm by David Farrar

The Herald reports:

Newly released papers raise fresh questions over Prime Minister ’s claim that asked for $1 billion of taxpayers’ money to fund its transformation into a massive resources company.

Mr Key made the claim earlier this year when it was revealed the state-owned coal miner was on the verge of collapse under the weight of almost $400 million in debt.

Former chairman John Palmer, who approached the Government with the plan in 2010, denied asking for the money but later said he understood why Mr Key might have said the proposal involved “those sorts of costs”.

But Solid Energy documents released by Treasury yesterday detailing the proposal contain noreference to a request for the money.

Solid Energy’s business proposal said the Government’s willingness to forgo dividends from Solid Energy and Kupe were essential for the project to proceed, and it would require extra equity of up to $1 billion on top of that to fund the expansion.

However, it did not seek that from the Government in the proposals, saying: “All this can be achieved … without requiring a direct Government equity contribution (other than forgoing dividends from Solid Energy and Kupe for up to 5-10 years).”

This is being pedantic, and the PM’s interpretation of Solid Energy seeking $1 billion (in fact up to $3 billion) of equity is entirely consistent with being interpreted as a potential call on taxpayers. The difference between not taking dividends and a capital contribution is semantics. Both increase the Crown’s equity in the company.

Thank God, the Government said no.

Also interesting to note in the released papers that what forced out into the open the lack of substance to Solid’s forecasts was in fact the mixed ownership model preparation. It was only the preparation for potential partial float that got the detailed coal price forecasts out of Solid Energy. Without that policy, the extent of their optimism may have gone unnoticed for much longer.

Solid Energy is a superb example of why the Crown should not be the sole shareholder of a risky commercial business. The transparency and discipline you get from being listed on the NZX is significant.

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18 Responses to “Solid Energy and $1 billion”

  1. Right_Wing_Dad (62 comments) says:

    “Solid Energy is a superb example of why the Crown should not be the shareholder of any commercial business.”

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  2. Sir Cullen's Sidekick (839 comments) says:

    Wait for the pathetic Labourers and the Greens to demand an enquiry into this and for TV3 to run a special Campbell Live episode on this. John Key should simply ignore this and carry on with the good work he is doing. People will see right through these side shows.

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  3. mikemikemikemike (319 comments) says:

    The government also shouldn’t be involving itself in efforts to manipulate the housing market but that isn’t stopping it is it?

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  4. Johnboy (15,586 comments) says:

    The government also shouldn’t be involved in efforts to assist the Darwinian naturally selected incompetents and their offspring to survive either.

    But they do! :)

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  5. kowtow (7,953 comments) says:

    King Coal will rise again.

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  6. Sir Cullen's Sidekick (839 comments) says:

    kowtow (4,424) Says:
    May 22nd, 2013 at 8:23 pm

    King Coal will rise again.

    I love it!!! Why can’ we export this coal to China and India?

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  7. mikemikemikemike (319 comments) says:

    @JohnBoy – that all depends on what your view of a governments job should be (some think that is exactly what a government should do). I think that its pretty average when a party that preaches giving markets the freedom for the forces within it to dictate prices for goods and services, then tries to tamper with the housing market so everyone can buy their own house

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  8. Johnboy (15,586 comments) says:

    Dead right mmmm. The useless bastards should have to live in a hole in the road like I did before I became wealthy.

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  9. Jack5 (4,905 comments) says:

    While we are stuck with SOE’s, there needs to be a better way for Governments to keep under control boards, and through them the companies.

    Too often the boards quickly begin to act as though they are the owners.

    Remember TVNZ’s directors appearing more or less to defy MPs on a Parliamentary committee a year or three ago?

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  10. UglyTruth (4,551 comments) says:

    Why can’ we export this coal to China and India?

    Because they can get better value for many from nickel?

    A third-party report on tests performed by European scientists has confirmed anomalous excess heat from Andrea Rossi‘s E-Cat HT, a thermal energy generator based on nickel-hydrogen exothermic reactions developed by Leonardo Technologies.
    http://coldfusionnow.org/rossi-e-cat-ht-energy-density-off-the-chart/

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  11. frankdb (150 comments) says:

    Maybe because Don Elder was being a egotistical dickhead had something to do with it.

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  12. tvb (4,255 comments) says:

    The have a lavish new headquarters, they have an arrogant attitude to the owners except when they want money. Both the Board and the Chief Executive would find it difficult to find appointments in the commercial and Government sector.

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  13. Bogusnews (461 comments) says:

    Of course this is a non story, but it is troubling. Simply because it’s another example of the media looking for angles to shaft National or put National in a bad light.

    Even though thinking people will see through it, I’m not so confident with the great unwashed who also get to vote.

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  14. scanner (340 comments) says:

    Why has no one asked questions of the board members who resigned as the whole sorry saga started to unfold into the train wreck it has become.
    All very well to lay the blame at Don Elder’s feet, but these were the people making the decisions and being paid handsomely for doing just that, in the mean time these directors have walked away from the carnage, without a word said.

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  15. Dave Mann (1,190 comments) says:

    What a stupid fucking country we live in.

    People at the top of our state owned coal conglomerate wanted to massively expand their operations and exploit our rich resources in order to turn their company around and, in the process, help drag our economy out of the shit. So what does the government do? It tells them to fuck off because in their view the country doesn’t need an economy, industry or development; it needs kokakos, native snails, and a nice unspoiled habitat to wank over. You see, industry is a vicious dirty concept and we don’t need any of this horrible nastiness in OUR country, thank you very much.

    No, its much better to make beds and dance around sticking our tongues out for foreign holidaymakers than actually do anything productive with this country’s vast mineral resources, isn’t it? As our fine host here said “Thank God, the Government said no.”

    I would laugh… but really it is just too tragic for comedy.

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  16. YesWeDid (1,044 comments) says:

    ‘It was only the preparation for potential partial float that got the detailed coal price forecasts out of Solid Energy. Without that policy, the extent of their optimism may have gone unnoticed for much longer.’

    I doubt this was the reason Solid Energy’s problems became apparent. They were probably putting together budgets for the next financial year and realized they were going to make a big lose based on expected revenue. I doubt they could have hidden this for very long as they would have run out of money.

    I like the way you are spinning this DPF, it’s now a ‘success’ for the asset sales program because it dug up the problems rather than a failure because the asset is now worthless.

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  17. RJL (145 comments) says:

    Solid Energy is a superb example of why the Crown should not be the sole shareholder of a risky commercial business.

    What utter drivel.

    Solid Energy is a superb example of why the current fools in government should not be trusted with a library card, let alone our country’s economy and legislation.

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  18. flipper (3,847 comments) says:

    Look, let’s face it. It is a stuff up beginning to end.

    Let’s also face and understand this: Whatever Elder proposed to his Board, it did NOT emerge from the mist.
    Elder would have discussed with, then formally briefed, his Board on executive thinking.
    Ergo, the blame does not rest solely with Elder.

    Palmer is a patsy, Labour-oriented director who has done a poor job in several organisations. He may be a “made man”: in political and financial terms, but he is now shown to be a dickhead.

    For the whole dung heap to realise their orgasmic dreams, Elder, Palmer et al required the taxpayer to underwrite anything up to $3 Billion.

    Let’s have done with all SOEs. Lets sell the bloody lot – lock, stock and barrel.

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