Labour on Solid Energy

March 14th, 2013 at 7:00 am by David Farrar

It seems to me that there were two major factors that led to the problems at Solid Energy. One was the fall in global coal prices, and the other was the borrowing to fund alternative energy projects which haven’t led to a return.

In terms of the first, I’d be very keen for an MP to ask John Palmer and Don Elder some questions along the lines of:

  • What global price for coal was used each year in your 2008 to 2012 business plans as the projected price?
  • For each of the following years, what was the worst case scenario that was used for global coal prices, and how did that compare to the actual price?
  • How often did you update your business plans and revise the assumed coal price?
  • Did Solid Energy undertake any hedging – why or why not, and at what level?
  • Were the decisions on alternative energy projects contingent on a certain level for the coal price? If no, why not?
  • What was the company’s risk management strategy around a coal price slump?

These are not gotcha question, which I suspect some MPs will try and do. They’re questions that would actually help us understand why the company has got into so much trouble.

It will be interesting if Labour attack John Palmer, considering what Trevor Mallard said when he appointed him Chairman:

“John Palmer is widely regarded and respected as one of New Zealand’s leading governance practitioners,” Trevor Mallard, SOE Minister, December 2006, announcing Mr Palmer’s appointment as chairman of Solid Energy

We also have Helen Clark on Don Elder:

The PM did however point out that Solid Energy’s CEO Don Elder had assisted in turning around a struggling enterprise into one that was now greatly benefiting the NZ taxpayer. – Scoop in 2007

Also of interest is what Trevor Mallard said about the influence of the Government on Solid Energy’s operations:

“If we’re doing planning going forward we’re making sure that we do have both security [of supply] and a good mix of renewables then it’s easier to influence that with ownership as well as with general regulation,” Trevor Mallard on AGENDA, TV1, June 2007, speaking about Solid Energy

And if you want a great reasons for why the Government should not be the owner:

“Well I think in some areas for example Solid Energy would do some investment in research in renewables for coal and in gasification and carbon sequestration in a way that a private sector company wouldn’t.” Trevor Mallard on AGENDA, TV1, June 2007

For example the money wasted on biofuels. Even Damien O’Connor complained about it in August 2012:

Hon Damien O’Connor: Why should miners in Huntly and on the West Coast lose jobs to save money for Solid Energy, when the company has wasted millions of dollars on a biofuels project that has failed, and now threatens to destroy the high-value vegetable oil industry in New Zealand?

It was pointed out:

Hon STEVEN JOYCE: I think the point that was being made was that the biofuels obligation was created by the previous Government

And in case you don’t believe Mr Joyce:

Hon Trevor Mallard: That’s right.

Maybe it should be Trevor Mallard answering questions, not just John Palmer and Don Elder. Especially considering this statement:

Trevor Mallard: I was the Minister in charge of Solid Energy when they bought land with lignite resources. This was done on purpose so that it would come under control of the SOE – so you can work that land in a way which is socially responsible. I understand that that area could be very valuable in the future; that it could provide 400 years’ worth of vehicle fuel power.

It is absolutely correct that John Palmer and Don Elder front up to the select committee. I imagine some will try and turn it into a public crucifixion. Once that pantomime antics are out of the way, I hope we get some insightful questions into what they regard as the factors that led to the company’s failure, what critical mistakes that Solid Energy made and what would they have done differently in hindsight.

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Labour’s asset sale

June 1st, 2012 at 11:00 am by David Farrar

An excellent letter, reminding people of the facts.

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The SOE challenge

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

The Herald reports:

The chairman of Solid Energy 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.

John Palmer – 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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