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Dear Leader Key blames everyone else for Solid Energy’s financial crisis (Part Rua)

9 March 2013 8 comments

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national blighted hoarding 12 it's all labour's fault

Acknowledgement

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Continued from: Dear Leader Key blames everyone else for Solid Energy’s financial crisis

Opposition Party members of the Commerce Select Committee are demanding that  ex-CEO, Don Elder appear before the Select Committee to answer questions what went wrong at Solid Energy.

With unanswered questions about Solid Energy’s financial crisis; a murky history leading up to current events; big bonuses paid out as the company’s accounts were sinking into the red; and revelations that Don Elder is still recieving his  $1.3 million annual salary  – whilst working from home “serving out his notice” – pressure is mounting on National.

Solid Energy went from a multi-billion dollar company to being heavily indebited to $389 million.

How did this happen?

Did ministerial shareholders Bill English and Tony Ryall not notice?

Were they not receiving reports from Solid Energy’s Board of Directors?

Were no rumours or conversations floating around?

How does one keep a secret like that in a small country like New Zealand? (In which case  should Solid Energy take over our country’s security, from the GCSB and SIS?)

Why were we paying Don Elder for ($1.3 million p.a., plus bonuses no doubt) if not to be held to account?

On 8 March, Key was reported as saying,

“If he wants to go [to the Select Committee hearings] and they want him to go he is not going to get any opposition from my office.”

Source

And SOE Minister chipped in with this,

“It’s a matter for the Commerce Select Committee, Solid Energy and Dr Elder whether or not Dr Elder attends, but I don’t have a problem either way.”

IBID

Good. Because the public – who own Solid Energy – deserve answers. Thus far all we’ve had is the usual finger-pointing by National, with childishly pathetic  attempts to blame Labour for Solid Energy’s woes. As if Labour was still in government and the 2008 and 2011 general elections never happened.

This statement from Key, on 26 February 2013, simply doesn’t wash,

“They  [Labour] can’t wash their hands of the fact that from 2003 on, they were intimately involved with the plans that that company had.

The argument that somehow we would have gone in, in 2009 when the company was performing well, its results were good, the valuation of the company was going up, and just gone and sacked the board on day one is a bit fanciful.

Maybe we should have re-tested those [Labour-approved] initiatives but actually we gave [Labour] the benefit of the doubt that they might get one thing right.”

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“2003”?

That was ten years ago!  What has National been doing in the meantime?

As far back as September 2011, the Nats were abundantly aware that Solid Energy was embarking on expansion plans,

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Solid Energy starts work at Mataura Briquette Plant

Friday, 9 September 2011, 2:57 pm
Press Release: Solid Energy NZ

9 September 2011

Solid Energy marks the start of work at its Mataura Briquette Plant

The Hon Bill English, MP for Clutha-Southland and Minister of Finance, today marked the official start of work at Solid Energy’s Mataura Briquette Plant, by “turning the first sod” at a small event on site with neighbours, local authorities, and other guests.

The $25 million Mataura briquette plant is planned to start production by June 2012. It will produce up to 90,000 tonnes a year of low-moisture and higher-energy briquettes from about 150,000 tonnes of lignite mined from Solid Energy’s New Vale Opencast Mine and trucked to the Craig Road site. The plant will use technology developed in the USA by GTL Energy.

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Here’s the photographic evidence, from National’s own ‘Flickr’ account, same date, 9 September 2011 – that’s Finance Minister Bill English, “turning the first sod of earth” for Solid Energy’s  Mataura Briquette Plant  in Southland. That plant was part of their expansion plans,

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solid-energy-chief-executive-don-elder-and-hon-bill-english-at-mataura-9-sept-2011

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Only three months earlier, in June 2011, Key himself was supporting Solid Energy’s explansion plans,

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national business review - nbr - Key supports Solid Energy's lignite plans

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Note Key’s comment in the above article in the National Business Review (hardly a leftist rag),

At the moment companies like Solid Energy are growth companies and we want them to expand in areas like lignite conversion.”

So for Dear Leader to blame Labour is not only disingenuous – it is cowardly.

It shows the entire country that the man who is supposedly or Prime Minister hasn’t got the balls to take it on the chin and admit that he and his Party f****d up. Big time.

Even the editorial from the Dominion Post said, with unconcealed exasperation on 2 March 2013,

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.

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This blogger welcomes Don Elder fronting up to the Commerce Select Committee.  However, that is simply not sufficient. In the interests of full justice, the following should occur,

  • John Key should front up and answer questions as well,
  • Bill English should front up and answer questions,
  • Tony Ryall should front up and answer questions,
  • All documentation should be made available to the Committee,
  • The Chairperson of the Select Committee – National MP Jonathan Young, should stand aside and  be replaced by a non-partisan senior judge or Queen’s Counsel,
  • If necessary, if the Committee is unable to answer questions, a full Royal Commission in Inquiry should be held.

National prides itself on being the party of ‘personal responsibility‘. It is no such thing. It is the party of personal advantage and not much more.

Thus far all we’ve had are evasiveness  and pathetic attempts to blame others. We’re also seeing more of the same from our Prime Minister;  bullshit.

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Previous related blogposts

National under attack – defaults to Deflection #2

Dear Leader Key blames everyone else for Solid Energy’s financial crisis

Taking responsibility, National-style

References

NZ National Party: Solid Energy chief executive, Don Elder and Hon Bill English at Mataura (9 Sept 2011)

Scoop.co.nz: Solid Energy starts work at Mataura Briquette Plant (9 Sept 2011)

NBR: Key supports Solid Energy’s lignite plans (3 June 2011)

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

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

TVNZ: Pressure grows on Don Elder to front over Solid Energy (8 March 2013)

Fairfax media: Minister, PM fine for Elder to appear for grilling (8 March 2013)

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That was Then, This is Now #18 (Solid Energy)

24 February 2013 8 comments

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That was then…

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September 2011,

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Solid Energy chief executive, Don Elder and Hon Bill English at Mataura  - 9 sept 2011

Source

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Solid Energy starts work at Mataura Briquette Plant

Friday, 9 September 2011, 2:57 pm
Press Release: Solid Energy NZ

9 September 2011

Solid Energy marks the start of work at its Mataura Briquette Plant

The Hon Bill English, MP for Clutha-Southland and Minister of Finance, today marked the official start of work at Solid Energy’s Mataura Briquette Plant, by “turning the first sod” at a small event on site with neighbours, local authorities, and other guests.

The $25 million Mataura briquette plant is planned to start production by June 2012. It will produce up to 90,000 tonnes a year of low-moisture and higher-energy briquettes from about 150,000 tonnes of lignite mined from Solid Energy’s New Vale Opencast Mine and trucked to the Craig Road site. The plant will use technology developed in the USA by GTL Energy.

Source

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This is now…

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February, 2013…

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No more bonuses at Solid Energy - English

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State miner to return to coalface

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A year and a half  later, neither Dear Leader Key nor Little Leader Bill English seemed terribly keen to be associated with  any more  photo-ops with Don Elder.

In fact, the much vaunted sod-turning in September 2011, to build a brand-new $25 million  briquette plant at Mataura, was no longer quite so glamous. Despite probably still having Southland dirt on his shoes, both Bill English and John Key were at pains to distance themselves from Solid Energy’s highly publicised energy projects,

“Four or five years ago they set out on a big programme of expenditure on alternative energy, including researching into lignite down south to coal gasification and other research-based speculation, and that hasn’t turned out the way they thought.” – Bill English, 22 Feb 2013

“The second thing is that they made a number of investments which have proved not to be very valuable and the Government has been working on that process for the last couple of years.” John Key, 23 Feb 2013

It’s amazing how politicians seem to have this ability – verging on a preternatural super power – to distance themselves from something  they had only recently embraced and supported with whole-hearted gusto.

Interesting to note that as well as the $23.5 million in bonuses paid  over the past two years to 950 employees,  Solid Energy also paid out considerable dividends to the government;

 

30 June 2009 – $59.9 million (source)

30 June 2010 – $54 million (source)

30 June 2011 – $20 million (source)

30 June 2012 (paid at 30 Sept 2011) – $30 million (source)

Total: $163.9 million

Plus millions more paid in company tax.

With the data above, I have some questions;

  1. It seems remarkable that National only discovered a couple of days ago that Solid Energy’s financial position was not sound. What was Bill English doing last year?
  2. How could Solid Energy’s financial position go from a pre-tax profit of  $127.5 million (see: Solid Energy shines despite earthquakes) in August 2011 – to a massive $389 million debt this year? Did National gouge one of our cash-state-cows?
  3. With Solid Energy’s expansion projects (which Bill English must’ve known about, as he turned a sod of earth in Southland on 9 September 2011), were the dividends paid since 2009 realistic?
  4. With National’s track record of constantly shifting responsibility away from themselves, who are pointing the finger at? With all the highly paid Ministers, board members, and executives – will the office cleaner be held to account?
  5. Is the corporate model, with big salaries and bonuses paid to executives and an evident  lack of transparency, appropriate for state owned enterprises?
  6. Will workers be made to suffer job lossses and subsequent economic hardship, because of the actions of  Solid Energy’s executives and Crown Ministers? Why aren’t the workers offered the same ‘golden parachute’ that ex-CEO Don Elder most likely received?

No doubt neo-liberals will point to the failure of  ‘Solid Energy’ as proof-positive that governments cannot run state-owned businesses.

Not true.

This is proof positive that National (or other right wing) governments cannot run state-owned businesses.

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Acknowledgement

Tim Jones, Coal Action Network Aotearoa

Previous Blog Post

That was Then, This is Now #17

Other Blogs

Robert Guyton: Comments on Solid Energy

The Standard: Nats’ fossil fuel bet & culture of excess bankrupted Solid Energy

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The real cause for Solid Energy mass redundancies?

5 September 2012 5 comments

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4 September 2012: Citizens of Greymouth, protesting at impending job losses from Solid Energy mines.

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On 16 August, Solid Energy undertook a review of it’s operations and workforce. CEO, Dr Don Elder,  announced,

 “While many in the industry still expect demand, driven by Asia, to pick up again strongly sometime in 2013 Solid Energy needs to plan to withstand these market conditions for at least the next 12 months and possibly for 24 months or longer.” he says. “As a consequence, we are reviewing all areas of our business, including current and future operations, all fixed and variable costs, and the values of some of our assets, which will result in us taking significant impairments. Our aim is to preserve cash through reduced spending while, as far as possible, maintaining our longer-term value opportunities.”

See:  Solid Energy – Continuous Disclosure

By 29 August, Solid Energy announced  140 jobs to go and a suspension of  operations at Spring Creek mine on the West Coast. A further 123 jobs were  to be cut at Huntly East Mine in Waikato.

See: Spring Creek mine work suspended

The following day, that number had risen to 250 job losses on the west Coast, and as one Greymouth retailer put it,

Two-hundred-and-fifty jobs, we’ve got a population of 8000 – it’s probably the equivalent of 40,000 people in Auckland jobs getting affected, so that puts it in perspective. “

On the same day, Solid Energy  reported a “loss” of NZ$40.2 million in the year to June 30, 2012,  compared to  a profit of NZ$87.2 million in 2011. (More on this shortly.)

See: Solid Energy reports $40m loss on big writedowns

No one can rationally argue that job losses on this scale, with ensuing loss of wages and company spending, will  have a devastating impact of the West Coast economy.  The losses will cause incalculable harm.

Solid Energy has attempted to justify redundancies by pointing to a drop in international coal prices; a fall in demand from  China; and a $40.2 million “loss” in profits.

Two of the above reasons have a degree of merit – the third reason has been mis-represented to the public.

International Coal Prices

Coal prices have indeed dropped.

From a recent high of NZ$185.47 per metric tonne in January 2011 – to NZ$113.33 at the end of July, this year. This is a drop of NZ$72.14 per metric tonne.

However the July 2012 price (NZ$113.33 per metric tonne)  is not  much different to the November 2009 price of NZ$115.52 per metric tonne. As a result of the November 2009 low price, Solid Energy had minimal redundancies,

There were 18 redundancies in the year at a cost of $367,050.”

See:  Commerce Committee 2009/10 financial review questions: Solid Energy New Zealand Ltd

That figure of 18 redundancies is in stark contrast to the 360 redundancies  this year.

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Source

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Demand from China

There is no doubt; demand for coal from China has  dropped,

Globally diversified miner Anglo American PLC said the global thermal coal market looks bearish in the short term, partly due to displacement of U.S. coal demand by shale gas and an economic slowdown in China, but it is still an attractive market over the medium to long term.

“In the short term, we will have a bearish market,” Norman Mbazima, chief executive of Anglo American’s Thermal Coal division, told analysts at a seminar. But “there is very good demand outlook for coal. Coal will continue to be the mainstay of electricity production in the world and this will underpin good prices into the future,” he said.

Gareth Griffiths, head of Anglo American’s Thermal Coal Marketing department, said that the main reason behind the recent collapse in thermal coal prices has been a slowdown in Chinese coal consumption growth.”

See: Anglo American – thermal-coal outlook bright (14 June 2012)

Coal demand is also expected to be fragile amid a weak economic outlook for the rest of the year.

A Reuters poll forecasts this year to see the slowest full-year of economic growth since 1999 as demand for China’s factory goods falls due to the debt crisis in its biggest customer the European Union.

“The coal market will remain challenging,” said Ivan Lee, a coal analyst at Nomura Bank.

FACTORY-DRIVEN REBOUND

Chinese coal prices can only rebound if demand recovers considerably, which requires the manufacturing purchasing managers index (PMI) to rise above 50, economic growth to climb above 8 percent and power plants’ coal stocks to fall by half, Lee said.

The data, however, is not encouraging. The latest PMI showed China’s manufacturing sector contracted at its sharpest pace in nine months in August, with the index falling to 47.8 from 49.3 in July.

Even if China decided it needs more coal, which is unlikely, it will not seek it abroad as imports have become more expensive than domestic supplies, traders said.

Australian imports, based on the globalCOAL index, now cost around $3 per tonne more than Chinese prices, although some traders are selling blended material at lower rates.

See: Reuters – Output cuts help steady China’s coal prices, outlook (29 August 2012)

Whilst this may impact on Solid Energy’s profits (as compared to this year and 2011), Solid Energy’s viability does not seem threatened.

The only threat to Solid Energy is it’s saleability.  The more profit Solid Energy makes – the higher the share price when it is floated on the Stock Exchange. By contrast, the lower the the profit, the lower the share price.

Which may explain Bill English’s comment in the media item below, “English – Solid Energy not ready for sale”.

Solid Energy Profits

According to Solid Energy’s own Results Announcements 2012 report,  the company’s income was actually better than the preceding year,

Good operating performance overtaken by asset write downs

• Trading performance was good in a deteriorating market with strong NZD. Underlying earnings were $99.7 million (2011: $86.2 million).
• Asset write downs of $110.6 million net of tax and other adjustments have resulted in a $40.2 million loss after tax (2011: $87.2 million).

See: Solid Energy New Zealand Ltd Results Announcement 2012

In plain english (not the mumbled  Prime Ministerial  version), Solid Energy made an after-tax profit of $99.7 million – an increase from $86.2 million in 2011.

Employing a  book-keeping, accountancy “trick”, Solid Energy  reduced their own asset values by $110.6  million. (That’s like saying your house was worth  $300,000 in 2011, but only $250,000 this year. You still have your house and you’re living in it – nothing else has changed. Only the theoretical valuation has ‘reduced’. Next year that valuation could rise back to $300,000 or even more or maybe less. That’s creative accountancy for you.)

The point is that Solid Energy’s profit rose from $86.2 million to $99.7 million.

In fact, Solid Energy’s revenue in 2012 was $978.4 million – almost a billion dollars – an 18% increase from the previous year.

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See: Ibid

“Good earnings” indeed!

Any “loss” by Solid Energy is there a paper loss only; an accounting mechanism to revalue assets.  It’s profits remain unchanged.

Solid Energy therefore cannot rely on an imaginary “loss” to justify redundancies – because there was no loss.

It is noteworthy that Solid Energy’s decision to “mothball” Spring Creek mine and reduce staff at Spring Creek and Huntly follows one week on from this event,

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Full story

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Don Elder rejects all allegations that planned  redundancies are a covert attempt to increase Solid Energy’s profitability by reducing it’s labour costs,

This restructuring is not about increasing value, this is about saying `we have to do what we can afford to do.”

See: Mining job losses unrelated to asset sale: Elder

To which this blogger replies,

  1. There has been a downturn in international coal prices, and,
  2. Despite that, Solid Energy is profitable and it’s 2012 revenue exceeded last year’s, and,
  3. Bill English stated on 21 August that  “We wouldn’t be planning to float it [Solid Energy] any time soon”, and,
  4. A week later Solid Energy announced 250 redundancies and the closure of Spring Creek mine and,
  5. By contrast, there were only 18 redundancies in November 2009, even though the price per metric tonne was similar.

Coincidence? I think not.

Despite Elder’s protestations to the contrary, this blogger has no doubt whatsoever  that Solid Energy employers and the entire West Coast are paying dearly for National’s privatisation agenda.

There are some very dirty back room deals going on, and the wafting smell ain’t methane escaping from West Coast mines.

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Additional

English: Solid Energy not ready for sale

NZX: Solid Energy responds to very tough market

Solid Energy: Business Sustainability Principles

Good operating performance overtaken by asset writedowns

Hundreds turn out to support Spring Creek workers

Solid Energy reports $40m loss on big writedowns

Outlook for coal market worse than at the bottom of the GFC, Solid Energy says; ‘Reason why full Crown ownership is not suitable’

Index Mundi: Coal, Australian thermal coal Monthly Price – New Zealand Dollar per Metric Ton

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