The Solid energy failure

June 12th, 2013 at 11:00 am by David Farrar

Adam Bennett at NZ Herald reports:

withheld financial information from when challenged on its business plans in what an independent report says was a pattern of disrespect the company showed to officials monitoring its performance.

Treasury yesterday released a review by accounting firm Deloitte of its monitoring of Solid Energy which appears likely to be broken up and sold off after overextending itself and almost failing under the weight of $390 million in debt and low coal prices.

Deloitte said it did not believe “that the failure of Solid Energy has highlighted a material failure in Treasury’s monitoring processes”.

However, the report goes on to raise questions “whether Treasury’s response was forceful enough or occurred soon enough given that the company provided cause for concern over an extended period”.

Deloitte said several Treasury staff it interviewed “identified a sense of tension from the chair and chief executive particularly when challenged on more fundamental aspects of their business and strategy”.

The problem is that the sack the Board option is a very heavy step to take.

Deloitte was also given examples of the company’s “lack of respect for commercial expertise that set the scene for difficult interactions, particularly surrounding core issues with Solid Energy’s governance”.

The first written evidence of this was in April 2011 when a Treasury analyst requested financial information underpinning Solid Energy’s evaluation of one of its projects.

Deloitte understood Mr Palmer told Treasury the request was unprofessional and Solid Energy would not provide the information.

“Following robust disagreement from Treasury, the chair instructed the Solid Energy management team to provide the analysis. It is our understanding it was never provided.”

The Deloitte report comes just a few weeks after Treasury released documents showing Mr Palmer fought against Treasury’s wish to have an independent advisor appointed to the company’s board last year as the state owned coal miner’s problems mounted.

Deloitte’s report concludes that the removal of Mr Palmer and Dr Elder “may have been warranted.”

However it noted that for Treasury to initiate such action “would have required it to effectively form the view that it lacked confidence in a board and executive with a sound track record in a technically complex industry”.

Perhaps something needed for the future is an agreement between Board and share-holder, where they agree on what sort of information will be provided to Treasury on request. While the Board can be the only governing body, it is important Treasury has enough information so it can independently advise Ministers on the company’s performance and plans.

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9 Responses to “The Solid energy failure”

  1. peterwn (3,294 comments) says:

    As the Crown is the sole shareholder, it can ‘impose’ any agremment it wants on the Board including provision of extra financial financial information. In this instance, the shareholding ministers would want the shareholder – Board relationship to follow as closely as possible normal listed company relationships, including limited access to detailed company information by shareholders. Hence there would be reluctance to impose additional reporting requirements of the Board. A National government is between a rock and a hard place on this sort of thing – the remedy being to sell off the organisation. A Labour Government would simply direct the company what to do (eg be a welfare agency) and use board seats as sinecures for its cronies.

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  2. metcalph (1,433 comments) says:

    The first inkling that I had that something might be wrong with Solid Energy was with Don Elder’s performance at the Pike River inquiry. There was something in his attitude then that I found quite astonishing. He was putting the boot into a company that was already lying in the gutter whereas a more caring tone would have been more appropriate for the occasion.

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  3. lazza (382 comments) says:

    If we had half-way decent bodies of public watchdog-regulators (with people properly recruited, trained and paid well) then any one of their number from the CCMAU stable, Treasury, the OAG, PSC et al would be given meaningful watching briefs for the Minister over SOE activities.

    And whatever happened to the “No Surprises” rules?

    Obviously the arrogance/hubris of Palmer/Elder and Co was allowed to override … all of the above! … or the watchdogs were asleep in their cozy Lambton Quay latte-laden kennels … or MOST likely … both!.

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  4. JeffW (327 comments) says:

    “Perhaps something needed for the future is an agreement between Board and share-holder”. Perhaps what is needed is for government to get out of business, and let the private sector take the risk/reward balance.

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  5. hmmokrightitis (1,595 comments) says:

    “Deloitte’s report concludes that the removal of Mr Palmer and Dr Elder “may have been warranted””

    OK, ouch. Thats pretty damning. Mr Palmer knows corporate governance very well, or at least he should given his various roles. Thats a huge slap.

    Dr Elder, well, for him to direct, or be a party to not complying with a Treasury request is appalling.

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  6. Black with a Vengeance (1,865 comments) says:

    The sum of the parts is greater than the whole.

    Look the other way while gouging it for dividends and scapegoat the board when it all turns to shit but still pick over the carcass and flog of the assets to your mates then socialize the loss on the taxpayers dime.

    Well done boys. Well done!

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  7. scrubone (3,103 comments) says:

    Look the other way while gouging it for dividends and…then socialize the loss on the taxpayers dime.

    Yea, funny how the crown takes both profit and losses from it’s companies.

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  8. liarbors a joke (1,069 comments) says:

    “If we had half-way decent bodies of public watchdog”

    Cue Penny Bright…

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  9. Keeping Stock (10,398 comments) says:

    I wonder if Clayton Cosgrove discussed Solid Energy with anyone whilst he and Kris Faafoi were in the SkyCity box at Eden Park on Saturday night :P

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