Home > A Little Blue Marble Called Earth, Dollars & Sense, The Body Politic > National caught out over Solid Energy – changes story on coal prices, debt, and other matters

National caught out over Solid Energy – changes story on coal prices, debt, and other matters




When Solid Energy’s financial crisis became public on 21 February 2013, Bill English, Tony Ryall, and John Key were quick to apportion blame. Their high-paid (by the taxpayer) media strategists had done their dirty work.

They blamed;

  1. Solid Energy mis-reading trends in coal prices
  2. The previous Labour government
  3. The Board and management of Solid Energy
  4. The Global Financial Crisis
  5. Mrs Teagle, the tea-lady
  6. Sunspots

Everyone was to blame. National’s hands were clean. The world is a bad place.

So, let’s go through the points above.



1. Solid Energy mis-reading trends in coal prices

One of National’s constant lines –  in an attempt to smear  Solid Energy’s Board as incompetant – was the SOE’s  inability to “read trends in world prices for coal”.

As Dear Leader, John Key said on 25 February,

Asked at his post-cabinet press conference why Solid Energy was in such dire straits, he said its directors grossly over-estimated what they thought coal would be worth.

“They got it completely and utterly wrong, and up to the middle of 2012 they still rejected the international view of where coal was likely to go,” he said.

Source: Solid Energy got coal price wrong: Key

On 21 February, Little Leader, Bill English said,

“World coal prices have dropped significantly which has contributed to the deteriorating financial position that Solid Energy is in now.

“These discussions are required because the position of the state-owned enterprise has continued to deteriorate despite the restructuring that has already taken place,” Mr English says.

Source: Bill English & Tony Ryall – Statement on Solid Energy

And as Baby Leader, Tony Ryall also said on 21 February,

State-owned Enterprises Minister Tony Ryall said a number of factors had weighed against the company, in particular world coal prices dropping by 40 per cent.

“It is facing very serious financial challenges,” Ryall said.

Source: Debt-laden Solid Energy talking to banks

So the narrative  being spread by senior National ministers was that Solid Energy was incompetant and couldn’t understand world coal price trends.

Which, for a company that lives, breathes, and farts coal seemed… unlikely.

#1 – Rebutted

But then, on 13 March, Bill English was reported on Radio New Zealand with this statement,

But Finance Minister Bill English says it wasn’t clear that coal prices were declining, and the Government can’t be held responsible for how much debt Solid Energy eventually took on.

Source: Labour says Govt forced Solid Energy to borrow more

Okay… so despite Key, English, and Ryall insisting that Solid Energy had mis-read trends in global coal prices, he is now saying that “it wasn’t clear that coal prices were declining”?!

Well, I’m glad that’s been cleared up.

After all, it’s not like National was initially claiming that world coal prices [were] dropping by 40 per cent  to make Solid Energy’s board look bad – and then suggested  it wasn’t clear that coal prices were declining for National to save their own arses.

That would be… contradictory.



2. The previous Labour government

National has blamed the previous Labour government for everything, from the decline of the British  Empire, to the sinking of the Titanic. (And trying to pin both World Wars on Labour – but that’s a work-in-progress.)

On 26 February, Key said,

“They can’t wash their hands of the fact that from 2003 on, they were intimately involved with the plans that that company had,” Mr Key said.

On 13 March, English said,

At the time, it was not clear that coal prices were declining. In fact, the best advice from the company—with which the Government ended up disagreeing—was that coal prices would continue to rise. But, as I said, that decision was made in the context of the mess that the previous Labour Government left with the State-owned enterprises.

Source: Parliament Questions and Answers – March 13

Ah, the inhumanity of it all… The dastardly tentacles of a previous government, from four years ago, reaches into the present day to thwart National’s good works. It’s amazing that with such power, that Labouir ever managed to lose two elections in succession, from 2008…

One has to wonder though… is National really so powerless? If so, why are they in government?

#2 – Rebutted

In a rather strange moment of open honesty, Tony Ryall had this to say about Labour’s administration of SOEs, on 27 February,

Hon TONY RYALL: No, I am not going to launch some sort of independent investigation into the governance of Solid Energy. The governance of Solid Energy, much of which was appointed under the previous Labour Government, was running that company and it was doing very well up until 2011. We had the scoping study. It identified a number of issues. And I agree with Trevor Mallard: the collapse of world coal prices is a most significant factor in this matter.

Source: Parliament Questions for oral answer: 5. Solid Energy—Former Chief Executive

And a few days later, on  2 March of this year, Key let slip,

”On the face of it, at least what it had was rising profits. It had a situation where its valuation was going up, it had bankers lending it money, and it had an investment stream that had been set in place by the previous Labour Government,” Mr Key told BusinessDay.

Source: Solid Energy bail-out cost likely to rise


A look at the profits and dividends paid during Labour’s administration bear out their prudent management of SOEs. And confirmed by Tony Ryall and John Key.

In Labour’s  entire eight years, not one single  SOE suffered a financial collapse of the magnitude of Solid Energy – and Cullen was still posting surpluses, year after year. And paying down government debt. And finding time to play with his grandkids.

The Nats are in office for four years – and they lose a SOE on their watch?

How does that work?

Especially when, as Adam Bennett reported in the Herald on 13 March,

Mr Shearer later said Solid Energy had responded to the Government’s call, “returning $130 million over four years, including $30 million in late 2011 by which time coal prices had further declined and the company was in financial distress“.

He also pointed to the company’s increase in borrowing over that period, rising from $13 million in 2009 to $191 million the following year and $313 million by 2012.

See: Govt accused of milking Solid Energy for dividends

By contrast, the previous Labour government, took only  $64.4 million as a dividend to the  to the Crown – over an eight year period. (See:  Government defends Solid Energy payouts)

Which still baffles me as to why New Zealanders still have this misconception that National are “prudent fiscal managers” of the economy.

Personally, I wouldn’t let the buggers run a sausage sizzle outside Pak’n’Save.



3. The Board and management of Solid Energy

National’s culture of blaming others for their own mistakes is slowly but surely building in the public consciousness. (See previous blogposts: Taking responsibility, National-styleDear Leader Key blames everyone else for Solid Energy’s financial crisis) It has become de rigueur for National to immediately seek out, and blame others, for one of their cock-ups.

And when one minister – Kate Wilkinson – resigned immediatly upon the release of the report from the Royal Commission on the Pike River Coal Mine Tragedy, it was seen for what it was; tokenism. And a strategic attempt to close down (or minimise) media scrutiny of  National’s de-regulation in the 1990s, which led inevitably to  a culture of poor safety in our mining industry.

Practically every public comment by National has directly, indirectly, or in a covert fashion, attempted to sheet blame for Solid Energy’s financial crash on it’s Board and CEO, Don Elder.

Key even suggested – po-faced – that the SOE was practically out of control. On 25 February, Dear Leader stated,

While the New Zealand government was unwilling to back Solid Energy in that role, it appears to have been powerless to prevent the company from taking what Key described as “baby steps” towards such a future.

Source: Govt blocked grandiose Solid Energy plans in 2009

“The company did have the right to draw down debt and make investments without shareholder authority” up to a certain level, Mr Key says.

Source: Govt blocked grandiose Solid Energy plans in 2009

So, can someone remind me again – what, precisely, is the role of the Minister for State Owned Enterprises?

#3 – Rebutted

The above was nothing less than an attempt at total abdication of responsibility by Key and his Ministers. As an  incredibly insightful Dominion Post editorial of 2 March  stated,

There are always excuses when a company starts to fail. John Key’s explanation for the trouble at Solid Energy, however – he blamed the Labour government – was pitiful.

It was Trevor Mallard’s fault, apparently, for encouraging SOEs to spread their wings and fly. That was in 2007 or 2008.

This won’t do, and not just because Mr Key’s Government has been in power for more than four years. His argument also contradicts itself. A Labour government was seemingly omnipotent and could have its way with the state-owned coal company. But National had no such power.

The Government certainly said no when Solid Energy asked for a billion dollars to turn itself into a super-company along the lines of Petrobras, the Brazilian giant. Mr Key says it had grave doubts about the company’s expansion plans. His political opponents point out that he and Bill English had publicly backed Solid Energy’s big plans for lignite conversion and briquetting.

So what was really going on? Mr Key says the company didn’t require the Government’s approval for the investments. Nor did the Government have a good reason to sack the board, as it could have done under the SOE legislation. So: nothing to see here, apparently.

If all these excuses were valid, it would be hard to know how any government could be held to account for what its state-owned companies were doing. Mr Key’s Government cannot get off so lightly. Nor can his officials. It is unclear just what kind of “monitoring” Treasury was doing, but it obviously wasn’t effective.

Source: Editorial: Solid Energy excuses fuel anger

And then, on 13 March – the bombshell,


Labour says Govt forced Solid Energy to borrow more



So now we’re getting at the answers.

Now we’re starting to build up a clearer picture as to not how Solid Energy got into debt – but why.

As with most things, the anwer is simple.

National needed cash to balance it’s books by 2014/15. Not content to flog off state assets to raise x-billion dollars, it used Solid Energy as as cash cow, to extract maximum dividends.

Just as Brierleys extracted maximum dividends from Air New Zealand in 2001, stripping the airline of it’s cash reserves in the process and bankrupting it.  (see previous blogpost: A Clear Warning to Investors in SOEs)

More importantly, it used Solid Energy as a front to borrow.

If a government borrows cash, it shows up on their balance books as a liability.

If a SOE borrows cash; then pays it to a government as a “dividend”, it shows up on the books as a profit.

That was why National was forcing Solid Energy to borrow hundreds of millions of dollars and then demanding it to be paid into government coffers as a “dividend”.

My immediate thoughts on this are,

  1. All three ministers – Key, English, and Ryall – should appear before the Commerce Select Committee to answer questions. To this blogger, there appears to be serious implications of  questionable behaviour by National Ministers and their dealings with Solid Energy.
  2. There is more to come out on this isssue, such as why Solid Energy’s Board allowed this cash-stripping by National Ministers to be carried out.
  3. And this is the most important: I think every New Zealander who is considering investing in Mighty River Power – and other SOE shares – should look very carefully at their books.  The question has to be asked; have National Ministers done the same thing to other SOES? Are they also heavily “geared” (borrowed against assets) and highly vulnerable to market downturns?
  4. The auditor-general, or some other forensic accounting firm, should immediatly be called in to to assess the books of all SOES.

At this point in time, I wouldn’t touch a single share of any SOE, with bio-hazard gloves.

They may be financially toxic.





Fairfax media: Debt-laden Solid Energy talking to banks (21 Feb 2013)

Building a Brighter Future: Bill English & Tony Ryall – Statement on Solid Energy (21 Feb 2013)

Scoop: Govt blocked grandiose Solid Energy plans in 2009 (25 February 2013)

MSN News: Solid Energy got coal price wrong: Key (25 February 2013)

TV3: Govt, Labour squabble over Solid Energy (26 Feb 2013)

Otago Daily Times: Solid Energy bail-out cost likely to rise (2 March 2013)

Dominion Post: Editorial: Solid Energy excuses fuel anger (2 March 2013)

Southland Times: Government defends Solid Energy payouts (12 March 2013)

Radio NZ: Labour says Govt forced Solid Energy to borrow more (13 March 2013)

NZ Herald: Govt accused of milking Solid Energy for dividends (13 March 2013)

Parliament: Questions for oral answer: Ministers—Confidence (13 March 2013)

Parliament: Parliament Questions and Answers  (13 March 2013)



= fs =

  1. SC
    14 March 2013 at 1:57 am

    LOL National. Typical.

  2. MQC
    14 March 2013 at 1:59 am


  3. Possum
    14 March 2013 at 10:07 am

    yes frank, and if you asked the business. Q wld they tell you the truth about where they are at and if they had 2 do like mrp? probably not.

  4. 14 March 2013 at 10:27 am

    Even if I had the money and was a dickhead National supporter – you have to be to vote for those dickheads – I wouldn’t invest in those SOE’s..

  5. WEM
    14 March 2013 at 10:27 am

    Betcha there are ticking bombs alright in SOE’s and sure gotta be some in Mighty River, still does not mean we have to agree to sell,n referendum bring it home, so people can voice vehemently opposition to this particular Govt and Key. Egg on face Key and your supporters.

  6. Possum
    14 March 2013 at 10:27 am

    and whilst we at it, Q what about the huge profit some of these companies are making a yr, true result or fiddling the books?

    • 14 March 2013 at 10:30 am

      The shares could yet be reclaimed at cost, if they are sold. No profits, interest etc, just the COST price. Too risky…

  7. 14 March 2013 at 10:34 am

    @ Peter: “The shares could yet be reclaimed at cost, if they are sold. No profits, interest etc, just the COST price”

    I concur, Peter. An announcement like that from a united Opposition would torpedo the entire asset sales programme. No one would be mad enough to buy.

    And the Nats would be left thoroughly neutered.

  8. SpaceMonkey
    14 March 2013 at 11:32 am

    Frank… I think you’re on to it but I’m also wondering if National have engineered Solid Energy’s demise for another reason. Does this now enable Solid Energy to be sold off to one of Key’s mate, like Bathurst, at a bargain basement price, in much the same way that AMI was “given” to IAG? The transfer of AMI to IAG saw the people pick up all current and future liabilities asociated with the earthquake.

    I smell a neoliberal rat.

    • 14 March 2013 at 5:38 pm

      ” Does this now enable Solid Energy to be sold off to one of Key’s mate, like Bathurst, at a bargain basement price, in much the same way that AMI was “given” to IAG?”

      The thought had crossed my mind, SM.

      If National went ahead and did that, it’s not the criticiasm that they’d have to endure – but public perception denting their reputation as “sound fiscal managers”.

      The Nats would be incredibly stupid to do such a thing… but since when has that ever stopped them?

      My overall belief is that the Nats have nearly killed the Coal Goose that laid lots of dollars for them, andf they didn’t count on falling coal prices from undermining Solid Energy’s ability to sustain high borrowings (paid to government as dividends).

      In short; conspiracy or cock-up? I’ve my my ten bucks on cock-up…

      • Green Meadows
        15 March 2013 at 10:21 pm

        I still think conspiracy Frank. Did you see him squirm on the news tonight, caught out telling porkies, again. How many more will he get away with?
        1 billion, 3 billion, what’s the difference John? Asking for money from the government, or not asking but stating the investment needed from unspecified sources?
        When he is caught in the act of deceit the look on his mug is priceless. How the fools that support him can’t see it is beyond me.

  9. 14 March 2013 at 2:13 pm

    Yes Space monkey I smell the same rat.

    Sabotage all the state assets to create a storm and a bullshit reason to sell them off and we the tax payer be the ones paying for ever and a day for the 1% to cream off.

  10. Nigel Y
    14 March 2013 at 3:19 pm

    Thanks Frank, it almost looks like they were not only trying to make the government books look good but drive the value of Solid Energy down just before sale so they could buy it cheaper.

  11. Vagabundo
    15 March 2013 at 12:22 pm

    So, uh, it looks like Key may have been caught further out than initially thought. He did a replay of the land deal between SkyCity and TVNZ that only existed in his imagination.

    Don Elder seems set to be the fall guy and I hope he goes down slinging as much mud at the Nats as possible. There’s also been some excellent work by Labour and the Greens here as well.


    • samwise
      16 March 2013 at 5:01 pm

      Key has been well and truly caught out. Nearly everything he’s sauying is being contradicted by others. The man couldn’t give a straight answer if a gun was held to his head.

  1. 14 June 2013 at 8:03 am
  2. 17 August 2015 at 8:51 pm

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