Archive
Solid Energy – A solid drama of facts, fibs, and fall-guys
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Cast of Charachters
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The story, thus far
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30 June 2008
Nil dividend paid to government, for year ending 30 June 2008.
Source: 2008 Annual Report
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8 November 2008
General Election
National-led government elected. John Key becomes New Zealand’s Prime Minister; Simon Power is Minister for State Owned Enterprises; Bill English becomes Minister for Finance.
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May 2009
“The Government, in its first term, looked at SOE [state owned enterprise] balance sheets and decided many of them could carry more debt… it made a decision to allow Solid Energy to take on more debt,” Mr English said.
Mr English acknowledged that in 2009 he signed a letter to Solid Energy approving a higher debt level.
Source: Solid Energy was allowed to increase debt
The letter, as follows,
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Source: CCMAU & Treasury
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Thus was set in motion a decision that would have serious consequences four years later; the near collapse of an efficient and highly profitable State Owned Enterprise.
Not only did Minister Power demand higher dividends from Solid Energy, and instructed the SOE to borrow heavily to achieve that goal, Power also demanded that Solid Energy “release all surplus capital to the shareholder as special dividends“.
In case the reader is wondering that that means, in plain english, National Ministers wanted all spare cash to be handed over to the government.
They were looting SOEs.
Accordingly, Solid Energy’s gearing ratio rose from 13.8% cent in 2009 to 41.7% by 2012. National’s demands had been met (see: Ministers pressured Solid Energy, Parliament told ).
Mission accomplished – the pillaging of Solid Energy (and other SOEs) had begun.
Note: On 26 February 2013, John Key would try to insist that Solid Energy was “out of control” and was borrowing wildly.
He would say, “the Government was worried about Solid Energy’s ambitious investment plans and rosy view of coal prices as far back as 2009 but was unable to order the company to steer a safer course.”
So not only did SOE Minister Simon Power direct Solid Energy to borrow more; pay higher dividends; and hand over all spare cash – but four years later, Key would blame the coal company for the consequences; it’s inevitable financial melt-down,
The causes of the financial crisis at Solid Energy are the usual suspects in failing businesses – too much debt, unsuccessful investments and no reserves to weather a slump in coal prices.
Prime Minister John Key’s comments yesterday indicated these problems and pointed the finger at an imprudent amount of debt and investments that have not returned any cash yet.
Key said the debt had climbed to $389 million when “typically coal companies do not have a lot of debt on their balance sheets”.
Source: State miner to return to coalface
Powers’ letter also put the lie to National ministers claiming that they were powerless to intervene in Solid Energy’s activities. As Simon Powers’ letter clearly demonstrated, Ministers were exhibiting a total hands-on control over SOE’s finances, borrowings, investments, and dividend payments.
As Key himself claimed (without evidence) on 25 February 2013,
The government blocked proposals in 2009 from its coal mining company Solid Energy for a billion dollar capital injection to allow it to become “the Petrobras of this country,” Prime Minister John Key says.
National ministers had control alright, no two ways about it.
Power might as well have been sitting in Solid Energy’s Christchurch head office, in the CEO’s chair, with his fingers in the cash register till.
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30 June 2009
$59.9 million dividend paid to government, for year ending 30 June 2009.
Source: 2009 Annual Report
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30 June 2010
$54 million dividend paid to government, for year ending 30 June 2010.
Solid Energy paid a dividend of $24 million on 30 September 2009. In accordance with the company’s dividend policy, the Board is proposing a dividend of $30 million to be paid by the end of March 2010 bringing total cash dividends paid during the current financial year to $54 million.
Source: Small half year loss for Solid Energy
Source: 2010 Annual Report
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27 August 2010
Treasury Report shoots down Solid Energy National Resource Company’s expansion proposal
To: Bill English, Gerry Brownlee, Simon Power, Steven Joyce
5. In order for SEL to develop into a NRC, SEL has sought the following:
[…]
• indicative approval for total capital investment (including dividends and cash flow)
of $2-3 billion per annum with cumulative investment of $27 billion…
Source: Treasury Report: Solid Energy National Resource Company Response
Note the figure referred above: $27 billion. Two and a half years later, Key would refer to that figure.
The question is, does the statement – “SEL [Solid Energy Ltd] has sought the following: indicative approval for total capital investment (including dividends and cash flow) of $2-3 billion per annum with cumulative investment of $27 billion – actually state where the $27 billion would be sought from?
Answer: no.
And yet, by 15 March 2013, Key would insist that the Solid Energy chairman, John Palmer, sought $27 billion from the government.
See: Key says Solid Energy papers show $27b plan
John Key’s flexibility with truth is now legendary.
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8 September 2010
Then-SOE Minister Simon Power writes to Solid Energy – states support for developing resources –
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Office of Simon Power
MP for Rangitikei
Minister for Justice
Minister for State Owned Enterprises
Minister of Commerce
Minister Responsibilble for vthe Law Commission
Associate Minister of Finance
Deputy Leader of the House08 SEP 2010
Mr John Palmer
Chair
Solid Energy New Zealand Ltd
PO Box 1303
CHRISTCHURCH 8140Dear Mr Palmer
National Resource Company (NRC) Proposal
I would like to thank you and your Chief Executive, Don Elder, for meeting me
on 31 August 2010 to discuss the Government’s response to the Solid Energy
Ltd (Solid Energy) NRC proposal.Ministers are encouraged by the vision of Solid Energy in developing the NRC
proposal. We also appreciate the efforts of the Solid Energy Board,
management and staff that have gone into preparing the proposal.Shareholding Ministers have carefully considered the proposal and at this stage
do not support the development of a single NRC to maximise the value of New
Zealand mineral resources.Shareholding Mnisters are, however, supportive of Solid Energy developing its
current natural resources, including lignite and unconventional gas. As
discussed with you, we expect that Solid Energy will develop resources on a
project by project basis.We also expect to be consulted on significant projects, and have the opportunity
to discuss the proposals with you. The proposals should be supported by a
business case and assessed against standard business case investment
criteria.Yours sincerely
Hon Simon Power
Minister for State Owned Enterprisescc: Don Elder, Chief Executive Officer, Solid Energy
Source: Letter from Simon Power to John Palmer (NZ Herald website)
Interesting… The Minister, Simon Power, was;
A. Supportive of Solid Energy “developing its current natural resources, including lignite and unconventional gas. As discussed with you, we expect that Solid Energy will develop resources on a project by project basis”. No reference whatsoever of the Minister directing Solid Energy not to invest “developing its current natural resources“.
B. Insisting that he be kept advised “on significant projects“. It would be interesting to know if Solid Energy advised National ministers of all projects? Including the ones that have been heavily criticised by Key, English, and Ryall.
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3 June 2011
Key endorses Solid Energy expansion plans
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“At the moment companies like Solid Energy are growth companies and we want them to expand in areas like lignite conversion,” Mr Key said.
[…]
“We know there is lots of resource there and we know they potentially have the capability [to convert lignite to urea or diesel] and so we will see how that progresses, but the briquette plant is a good starting point.”
Source: PM backs mining south’s lignite
Key is stating with crystal clarity; “we want them to expand in areas like lignite conversion” and “…so we will see how that progresses, but the briquette plant is a good starting point“.
Which would be in stark contrast to Key’s statements nearly two years later, when on 23 February 2013, he condemns Solid Energy’s “… unsuccessful investments” and ” and pointed the finger at an imprudent amount of debt and investments that have not returned any cash yet”.
Two days later, on 25 February 2013, Keywould again condemn Solid Energy – this time specifically distancing himself from the SOE’s expansion plans,
The government blocked proposals in 2009 from its coal mining company Solid Energy for a billion dollar capital injection to allow it to become “the Petrobras of this country,” Prime Minister John Key says.
It’s hard to keep up with a Prime Minister like John Key.
You have to wonder what his views will be in three, six, or twelve months time?
Key also said at his Invercargill speech,
However, Mr Key said companies were controlled by Government regulations and so there were always environmental obligations that needed to be met.
Which, again, totally contradicts what he said on 26 February 2013,
The Government was worried about Solid Energy’s ambitious investment plans and rosy view of coal prices as far back as 2009 but was unable to order the company to steer a safer course, Prime Minister John Key says.
Stories, eh? They’re so hard to keep straight sometimes.
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30 June 2011
$20 million dividend paid to government, for year ending 30 June 2011.
Source: 2011 Annual Report
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9 September 2011
Bill English – Don Elder – Opening new Mataura briquette plant
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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: Solid Energy starts work at Mataura Briquette Plant
Which demonstrated to anyone (if demonstration was needed) that National was in no doubt about Solid Energy’s expansionary plans.
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4 November 2011
Treasury Scoping study reveals Solid Energy’s financial problems to Government Ministers
Ministers were officially made aware of Solid Energy’s severe financial problems. This would not become public knowledge until two years later, on 21 February 2013.
See: Treasury Report T2011/2373: Solid Energy New Zealand Scoping Study Report
The Scoping Study is noteworthy on these points,
- The considerable number of redacted items which the reader has no way of knowing what they refer to. They could be sensitive commercial data. Or they could refer to political matters.
- In Paragraph 36, the Report states, “The scoping study also recommends that Solid Energy should have no debt at the time of IPO.”
- In Paragraph 46, fourth item, the Report states, “Indentified that the company’s free cash flow has been reinvested in the business, particularly the Renewable Energy and New Developments. As a result dividend payments to the government have been funded by increasing debt.”
In two sentences, Treasury has just confirmed what all the evidence has pointed to; “dividend payments to the government have been funded by increasing debt“.
The very same increased debt demanded by SOE Minister Simon Powers in his letter in May 2009.
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17 February 2012
Bill English – Asset Sales – Proceeds “just a guess”
Finance Minister Bill English is attracting political flak over suggestions that some figures in yesterday’s budget policy statement for the proceeds of share floats of state-owned enterprises were “a guess”.
The Government has long estimated that the sale of up to 49 per cent of five SOEs would collect between $5 billion and $7 billion.
[…]Mr English said the Treasury “had to pick a number” so they picked the mid-point of the range.
“If we did get $6 billion, that would be a gain of sale [of $800 million] which is just a product of the accounting.
“I just want to emphasise that it is not our best guess; it’s just a guess. It’s just to put some numbers in that look like they might be roughly right for forecasting purposes.
Source: English admits his SOE figures just a guess
Well. Now we know why it was “just a guess”.
Because by now, the Treasury scoping study on Solid Energy had revealed to National Ministers that the SOE’s finances were a mess. There was no way English could’ve responded to journalist’s queries without either telling the truth – or outright lying (which they do anyway, but he would’ve been caught out on this particular ‘porky’).
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18 May 2012
Subsidy on bio-diesel canned – Biodiesel New Zealand – Price increase for bio-diesel
National removed it’s subsidy on bio-diesel – which Solid Energy was producing through one of it’s subsidiaries, as part of it’s expansion plans.
Biodiesel prices in Queenstown are likely to rise after a Government subsidy to develop production of the fuel was scrapped.
The subsidy, worth 42.5 cents a litre, was introduced by the National-led Government in 2008, but was not renewed in this year’s Budget.
The Queenstown Biodiesel Consortium has more than 20 companies running more than 70 commercial vehicles on the fuel.
The consortium’s provider, Allied Petroleum, is supplied by Biodiesel New Zealand, a Solid Energy subsidiary that makes the fuel out of canola seed and used cooking oil, in Christchurch.
Source: Biodiesel loses subsidy, prices to rise
This thoroughly undermined Solid Energy’s business projections for income and profits, as they could no longer rely on the subsidy to produce bio-diesel on a viable basis.
So not only were National ministers stripping Solid Energy of it’s cash reserves and demanding higher and higher dividends – they were now tying it’s hands and undermining potentially profitable ventures.
A year later, on 22 February 2013, English (as well as Key and Ryall) would be blaming Solid Energy’s financial collapse on, “… a drop in world coal prices, and spen[ding] too much investigating other sources of energy”.
It would be safe to say that undermining a company’s commercial venture, by moving the goal posts half-way through, and changing rules, is also not particularly helpful.
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23 June 2012
Solid Energy Chairperson, John Palmer resigns
John Palmer is quitting as chairman of state-owned Solid Energy because at the age of 65 he is unwilling to stay on and see it through to partial privatisation.
Mr Palmer, who is also chairman of Air New Zealand, took up a strong public position in calling for the partial privatisation of state-owned companies and he welcomed the government’s plan to sell down stakes in electricity companies and Solid Energy.
Source: Solid Energy chairman quits over asset sales
Palmer resigned some 18 months before his contract was due to expire. The question, as always, is,
Was he pushed?
Or did he jump?
Writing on 16 March 2013, Tracey Watkins suggested a Great Big Shove helped Mr Palmer on his merry way,
There is, of course, nothing unusual about SOE chairmen and chief executives being subjected to a lengthy interrogation. But it is rare for committees to offer a platform to SOE bosses who have been manoeuvred out of their jobs by the Government.
See: Solid questions still remain unanswered
I tend to agree with her. This has all the makings of a politically-inspired, fall-quietly-on-your-sword, exit.
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SOE Minister, Tony Ryall comments on Palmer’s resignation – Acknowledges company’s developments
State Owned Enterprises Minister Tony Ryall announced Mr Palmer’s departure from Solid Energy on Friday.
“While it is disappointing to lose such a senior director, I wish to recognise Mr Palmer’s commitment to the company since his appointment in 2006, and the developments the company has made under his leadership,” Mr Ryall said.
Source: IBID
Two months later, Bill English would be announcing that Solid Energy had “…some fairly substantial issues” and would not be saleable.
Another six months after that, and the sh*t would be hitting the Big Fan. “Fortuitously”, Palmer would have been long-gone by the time English announced that Solid Energy was insolvent and $389 million in debt.
Palmer would return, however on 14 March 2013, for an encore performance before the Commerce Select Committee, to answer some hard questions.
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30 June 2012
$ 30 million dividend paid to government, for year ending 30 June 2012.
Source: 2012 Annual Report
Note that two months before English announced that “Solid Energy faced “a number of commercial issues” and was “rethinking its business”, National ministers were still taking dividends from Solid Energy.
Did English, Ryall, and Key not read the 2012 Annual Report which listed Solid Energy posting a Net Profit after Taxation (NPAT) of a $40.2 million loss – on Page 2, under bold headlines, “FINANCIAL PERFORMANCE“???
Even though he maintains that “we wouldn’t be planning to float it any time soon”, they were still taking money out of what would prove to be a financially stricken company. This alone indicated that English and Ryall were being financially irresponsible in their role as Ministerial shareholders. As such, Key was either ignorant of what was happening under his nose, or was irresponsible in not taking action.
Perhaps his adopted affectation as a “typical, non-political kiwi-bloke” who didn’t get his hands dirty with politics; grinned and shrugged off problems; and left matters to his sub-ordinates – had become a dangerous vulnerability for him? (See Tim Selwyn’s blogpost on John Key’s political/management style: Rudderless Within The Great Game)
Either way, 30 June 2012 is an important date. This is when National Ministers should’ve known that something was seriously amiss.
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21 August 2012
English announces “issues” with Solid Energy
In August 2012, Bill English announced that Solid Energy had “…some fairly substantial issues” and was not ready for sale.
Solid Energy “certainly isn’t” in shape for a partial sell-down, Finance Minister Bill English says.
English today said Solid Energy faced “a number of commercial issues” and was “rethinking its business”.
“We would only take any of these companies to the market if they are in good shape for investment and Solid Energy right now certainly isn’t. It’s got some fairly substantial issues that they have signalled. Whether it ends up being able to be floated would depend on whether they can get in suitable shape for public investors,” English said.
“We wouldn’t be planning to float it any time soon.
[…]
English said Solid Energy needed to be in “considerably better shape than it is now” before it could be floated.”
Source: English: Solid Energy not ready for sale
Perhaps National Ministers should have keep their fingers out of Solid Energy’s petty cash box?
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9 September 2012
Coalminers redundancies – $200 million revenue shortfall – first mention of a ‘bailout’
Steven Joyce says Government capital for Solid Energy has not been ruled out.
The minister met with the company’s group manager of coal on Friday to discuss the situation. Mr Joyce says he has not promised a bailout, but if Solid Energy has a good business plan there may be funding options.
“Ministers get approached by state-owned enterprises to invest capital at different times. The thing that they would be interested in would be what’s the reason for doing it and what’s the opportunity.
“There’s a number of things that are up in the air with Solid Energy’s business plan at the moment that they need to work through with the new chair.”
Source: No decision on Spring Creek workers – Solid Energy
If National bailed out Solid Energy, they would – in effect – simply be returning the dividends and spare cash that Simon Powers demanded way back in May 2009.
It would not be “new” money. It would be giving back what was looted from Solid Energy’s coffers, as National desperately tried to balance the government’s books, and return to surplus by 2014/15.
This entire sad, incompetant, wasteful, exercise has provided no benefit to anyone. National Ministers have ended up looking inept, manipulative, deceitful, and grasping. All for what?
The sole outcome has been to damage the reputations of businessmen who were hired for their business acumen (and who had been successful in their own fields), and destroy the name of Solid Energy.
In a bizarre twist, by sending Solid Energy into near-bankruptcy, National successfully delayed the partial privatisation of that SOE. Something that asset-sale opponants would welcome with delight.
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21 February 2013
Solid Energy in crisis – debt revealed to the public
The depth of Solid Energy’s financial woes have been laid bare with the Government confirming the company is in talks with bankers over its debt levels.
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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.
Ryall declined to say whether Don Elder received a payout on his departure as chief executive on February 4.
Solid Energy’s debt stands at $389 million and its interim result, which is due shortly, will show additional losses.
Earlier this week Prime Minister John Key said it was very unlikely Solid Energy would be sold in the near future.
Source: Solid Energy in debt crisis talks
Time to duck – the poo has hit the fan.
Watch Ministers scurry for cover; invent fictitious tales; and blame anyone/anything they can think of. John Key’s fingers will be moving at supersonic speeds, pointing at others, to apportion blame.
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22 February 2013
English blames Solid Energy management, bonuses, coal price fall, and expansion projects
Mr English said Solid Energy’s woes have two primary causes: it failed to predict – and adjust to – a drop in world coal prices, and spent too much investigating other sources of energy.
“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.”
Source: No more bonuses at Solid Energy – English
And yet, English and former SOE Minister, Simon Power had actively encouraged Solid Energy to expand. (see comments 8 September 2010 and 3 June 2011)
But if there was a cause for Solid Energy’s financial woes, a $389 million debt most certainly accounted for most of it.
Even the most profitable, efficient, well-managed company will collapse if it is over-geared (borrowed too much) and too much capital is extracted in dividends (as well as tax).
Therefore, when English blames Solid Energy’s problems on “world coal prices, and spen[ding] too much investigating other sources of energy”; and when Key and Ryall blame Labour; massive debt; bonuses; mis-management; etc – the facts show otherwise.
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23 February 2013
Key blames too much debt and unsuccessful investments
The causes of the financial crisis at Solid Energy are the usual suspects in failing businesses – too much debt, unsuccessful investments and no reserves to weather a slump in coal prices.
Prime Minister John Key’s comments yesterday indicated these problems and pointed the finger at an imprudent amount of debt and investments that have not returned any cash yet.
Key said the debt had climbed to $389 million when “typically coal companies do not have a lot of debt on their balance sheets”.
Which is supreme irony – as nineteen days later, a letter will emerge showing that the former SOE minister, Simon Power, instructed Solid Energy to borrow heavily and pay huge dividends to the National government. National was intent on using Solid Energy as a ‘cash cow’.
Source: State miner to return to coalface
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25 February 2013
Prime Minister discloses Treasury scoping study of Solid Energy
The PM was asked when the government first became aware Solid Energy was accruing big debts, given that such businesses were not normally expected to take on large amounts of debt.
He replied that the government had undertaken a “scoping study” when they were preparing the formulation of the Mixed Ownership Model and that their examination of Solid Energy’s accounts at that time indicated a degree of poor investment, over-valuation of the expected price of coal–which neither the industry nor government agreed with—and related financial problems stemming from this.
Source: PM Press Conference Dominated by Solid Energy Debacle
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Key claims Solid Energy wanted $1 billion cash injection
The government blocked proposals in 2009 from its coal mining company Solid Energy for a billion dollar capital injection to allow it to become “the Petrobras of this country,” Prime Minister John Key says.
Source: Govt blocked grandiose Solid Energy plans in 2009
Key’s claim is later rejected by ex-Chairman, John Palmer.
Documents released by Key – in an attempt to back up his claims – wound up shooting the Prime Minister in his foot. The documents do not show that Solid Energy (or it’s CEO or Board) asked National ministers for anything. The documents show only that the government was informed that Solid Energy would have to borrow from somewhere.
As usual, Key had been bending facts to suit himself. (And he thought no one would notice?!?!)
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26 February 2013
Ryall confirms Treasury scoping study
Tony Ryall confirmed that the scoping study was carried out in “late 2011″,
Hon TONY RYALL: The member can repeat whatever he likes. The simple fact of the matter is when Ministers became aware of the issues raised in the scoping study at the end of 2011 we took the appropriate steps to address the issues that were raised. As the member knows, the company now has a new chair and new board, and we are currently dealing with the banks to resolve those issues.
Source: Parliament Hansards – State-owned Enterprises—Commercial Expertise
Despite that Treasury scoping study on 4 November 2011, National was still extracting dividends from Solid Energy, right up to 30 June 2012 ($ 30 million).
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Key blames Labour
He said his support for the project in 2011 came four months before a scoping study revealed the true state of Solid Energy’s financial woes, and the former Labour government needed to take some responsibility for the situation.
“They can’t wash their hands that from 2003 on they were intimately involved when they purchased the land for lignite,” Key said.
Source: Govt forced to defend handling of Solid Energy
2003?
How far back does this man want to go in history as he tries to deflect responsibility for his government’s incompetance? It seems strange, but one gets the distinct feeling that John Key never learned how to take personal responsibility as a child.
Continually blaming others is not the mark of a mature individual. After a while, the public begins to notice.
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Key blames Solid Energy’s expansion plans
Mr Key says his Government was cautious about Solid Energy’s expansion and said it could “take some baby steps”.
Really? Key’s government was “cautious”?
Funny, that’s not how it looked on 8 September 2010, when then-SOE Minister, Simon Power, endorsed Solid Energy’s expansion plans in a letter, stating,
“Shareholding Mnisters are, however, supportive of Solid Energy developing its
current natural resources, including lignite and unconventional gas. As
discussed with you, we expect that Solid Energy will develop resources on a
project by project basis.“
Or on 3 June 2011, when John Key supported Solid Energy’s expansion, when he gave a speech in Invercargill,
“At the moment companies like Solid Energy are growth companies and we want them to expand in areas like lignite conversion.
We know there is lots of resource there and we know they potentially have the capability [to convert lignite to urea or diesel] and so we will see how that progresses, but the briquette plant is a good starting point.”
Or on 9 September 2011, when,
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.
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Key blames inability to control Solid Energy
The Government was worried about Solid Energy’s ambitious investment plans and rosy view of coal prices as far back as 2009 but was unable to order the company to steer a safer course, Prime Minister John Key says.
[…]
But after getting advice on the company’s plan, Mr Key said his Government rejected it, “but of course under the SOE Act the company had the right to draw down debt and make investments and could do that without reference to the shareholder”.
Source: Govt worried about Solid Energy in 2009
Two things jump out about that statement,
A. If National ministers were so “worried about Solid Energy’s ambitious investment plans ” – why did they not change the Board of Directors? Or issue a new Ministerial Directive?
After all, Simon Power did just that in a letter dated 8 September 2010 (see above), when he issued an instruction to Solid Energy’s Chairman, John Palmer, not to proceed with a specific expansion plan,
Shareholding Ministers have carefully considered the proposal and at this stage
do not support the development of a single NRC to maximise the value of New
Zealand mineral resources.
B. Why did Tony Ryall acknowledge “Mr Palmer’s commitment to the company since his appointment in 2006, and the developments the company has made under his leadership” on 23 June 2012, when John Palmer stood down as Solid Energy’s chairperson – if “Government was worried about Solid Energy’s ambitious investment plans and rosy view of coal prices as far back as 2009…“?
C. How can Key state that “the Government was … unable to order the company to steer a safer course” – when legislation states otherwise? As the Crown Ownership Monitoring Unit (COMU) states,
Most SOEs are subject to ministerial direction in relation to the content of certain aspects of the company’s Statement of Corporate Intent and the level of dividend payable to the Crown. Shareholding Ministers may remove board members by shareholder resolution under the Companies Act 1993. Under the Companies Act 1993, an alternative process may be followed if allowed by the company’s constitution.
Source: COMU: State-Owned Enterprises
As stated above, then-SOE Minister Simon Power did just that: issued a Ministerial Directive.
Of course, “steering the company to a safer course” should have included reducing National Minister’s demands for hefty dividends.
That might have helped.
Either Key is grossly ignorant about SOEs and their ministerial oversight – or once again he’s deliberately misleading the public to suit himself.
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Key Blames Solid Energy
At that point, the company approached his Government seeking a capital injection “in the order of about a billion dollars to turn this company into the [Brazilian state-owned energy company] Petrobras equivalent in New Zealand”, Mr Key said.
Source: IBID
As a 27 August 2010 Treasury report – released on 15 March 2013 – showed, Key’s claim that Solid Energy approached the government for “a billion dollars to turn this company into the [Brazilian state-owned energy company] Petrobras ” would prove to be false.
As ex Chairman John Palmer was to tell the Select Committee on 14 March,
“Were we talking to the Government about the possibility of capital and receiving that from the Crown? The answer is no.”
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14 March 2013
Former chairman John Palmer and CEO, Don Elder appear before Commerce Select Committee
Now we start to hear the “other side” of the story – and much of it conflicts with what we’ve been hearing from English, Key, and Ryall.
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National confirms big dividends paid out
For the first time it is publicly acknowledged – Solid Energy has been used as a cash cow by National, to extract big dividends from 2009 onward,
The government concedes the pressure it put on Solid Energy to increase its debt is partly to blame for the company’s financial failures.
The state-owned coal mining company owes $389 million in debt, and is negotiating a rescue package with Treasury and banks.
Government documents reveal that in May 2009, then-State Owned Enterprises Minister Simon Power wrote to Solid Energy’s then-chair, John Palmer, saying he was disappointed its profitability and dividends were forecast to drop over the next three years.
At the same time, the government wanted the company to increase its gearing (debt to equity) levels to 40 per cent and its dividends to 65 per cent of operating cash flow.
A ministerial briefing paper shows Solid Energy’s gearing level in March 2009 was 10 per cent, and was forecast to reach 27 per cent in June 2010, while its dividend was 50 per cent.
Parliamentary Library figures show Solid Energy’s gearing leapt from 9.4 per cent in June 2008 to 34.4 per cent in 2010, dropping back to 29.6 per cent in 2011 and jumping again to 41.7 per cent in 2012 as coal prices began to slump.
Finance Minister Bill English admits the government pressure was perhaps too strong.
Source: Govt pressure on Solid Energy revealed
National had to come clean, as ex-CEO Don Elder appeared before the Commerce Select Committee to explain what went horribly wrong at Solid Energy. National’s ministers knew that the truth was coming out, and had to pre-empt any public disclosures of massive borrowings and payments of dividends,
Mr English says there was a pushback against the debt increase from Solid Energy, which he expected Mr Palmer and former chief executive Don Elder to explain when they fronted a select committee later on Thursday.
Labour leader David Shearer says the documents show ministers had a greater degree of involvement in Solid Energy’s failure than they were publicly letting on.
Source: IBID
“Push back against debt“? By now we all understand that English is lying his arse off to Heaven and back. There was no push back.
The only “push” was to increase dividend payments and gearing up to 40%.
The only reason politicians tell such howling lies is because they do not expect people to remember all the facts; to connect the dots; or for an under-resourced media to tell the whole story as a continuous narrative. Politicians expect people to forget; not hear all the facts; or become confused with too much non-contextual facts and testimony from the main players.
That’s how they get away with it; we’re not paying close enough attention.
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Don Elder appears before Commerce Select Committee – Confirmation of Govt wanting Solid Energy to increase debt – endorsed expansion
Firstly, former Solid Energy chairman, John Palmer, publicly confirmed that the National Government,
- wanted Solid Energy to borrow more, and pay higher dividends to government coffers,
- endorsed Solid Energy’s expansion plans
Labour’s finance spokesman David Parker asked whether the company was in any doubt that the Government wanted them to expand production, increase debt and dividends.
Palmer said it was “self evident” that increased gearing meant increased debt.
The Government was supportive of plans to expand, including into lignite.
Palmer’s comments contradicted Bill English’s comments on 22 February 2013 and John Key’s comments reported on 23 February, 2013, where both politicians lambasted Solid Energy for high debt and expansion plans.
According to Palmer, neither English nor Key were worried about Solid Energy’s expansion programme.
Next,
Palmer said that in late 2011 or early 2012, when it was clear what was going to happen, he spoke to minister Tony Ryall about a $200m revenue hole (twice the annual profits), which would have a dramatic effect on the balance sheet.
Which ties in with Bill English’s announcement on 21 August 2012, that Solid Energy had “some fairly substantial issues… We wouldn’t be planning to float it any time soon”.
Now we know what he was referring to: Solid Energy was broke. He knew it then, but did not disclose the full nature of Solid Energy’s status until forced by officials.
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Ex-CEO rejects Key’s assertion of Solid Energy requesting a $1 billion cash injection
“Were we talking to the Government about the possibility of capital and receiving that from the Crown? The answer is no,” Mr Palmer said.
“A specific $1 billion capital injection, I’m reasonably sure we did not ask for it in exactly those terms.”
However he said the company did have discussions with the Crown about potential large investment in lignite processing but it was also talking to potential overseas partners, “because it made no sense to us to think that Crown as the sole shareholder should finance that”.
He also said the company discussed with the Crown a national resource strategy that would have required large investment.
“My recollection is there was no dollars attached to that proposal.”
Source: Solid Energy opposed Government’s debt plan
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Curious case of politicians and executives receiving identical media-coaching
Meanwhile, National’s taxpayer funded media-staff had been busy coaching politicians and company executives;
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Don Elder – Blame, “Perfect Storm”
“This was the perfect storm.”
Source: Palmer: Elder deserves applause
Tony Ryall – “Perfect Storm” – blames downturn in coal prices – blames wrong investments
“State owned enterprises minister Tony Ryall blames the distressed financial state of Solid Energy on a “perfect storm” of events.
Mr Ryall says a wrong choice of investments, along with a worldwide collapse in coal prices, led to the coal mining company’s current state.”
“A wrong choice in investments, together with the most significant collapse in world coal prices in 2012 led to a perfect storm. The perfect storm has created the situation this company is currently in,” Mr Ryall says.
Source: Ryall blames ‘perfect storm’ for Solid Energy’s crisis
Bill English – “Perfect Storm”
On TVNZ’s Q+A, on 17 March, English refers – not once, but twice! – to the “perfect storm”,
“That’s right. Look, in retrospect, they would have been better off with lower levels of debt, but as I think Don Elder and John Palmer said at the Select Committee, the board is there to make the decisions about what the actual levels of debt are. Bear in mind, in 2011 their debt had peaked and was declining, and then they got hit by the perfect storm in 2012.”
And a moment later, again,
“…And in 2011 their debt levels were actually declining from that, and then they got hit by the perfect storm…”
Source: TVNZ Q+A
Lotsa ‘stormy weather’ around? I thought we were experiencing a drought.
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15 March 2013
Palmer says Solid Energy did not want to take on high level of debt suggested by the Treasury
Prime Minister John Key is facing claims he misled the public after former Solid Energy chairman John Palmer said the company resisted Government pressure to take on more debt – the very thing the Prime Minister said caused the company’s problems.
[…]
Appearing the day after Labour revealed former State-Owned Enterprises Minister Simon Power told the company to take on more debt and pay higher dividends, Mr Palmer said the company opposed that request.
The debt levels or gearing suggested by Mr Power and Treasury officials were higher than “we thought was an appropriate level of gearing given the nature of the industry we were involved in”, Mr Palmer said.
Source: Key under fire over Solid Energy claims
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Key claims Solid Energy wanted $27 billion
Prime Minister John Key this morning released documents detailing Solid Energy’s ambitious expansion plans which would have required capital investment of $2-3 billion a year until 2021 or a total of up to $27 billion.
Key released the papers in response to Labour’s claims he misled the public about Solid Energy approaching his Government about a $1 billion investment to become the “Petrobras” of New Zealand, a request he says his Government turned down.
[…]
Key this morning said the documents showed the proposal “absolutely required, as Treasury pointed out, somewhere between two and three billion dollars of Government money”.
Source: Key says Solid Energy papers show $27b plan
Remember the Treasury report, dated 27 August 2010, referred above? Key is saying that the Solid Energy proposals would have required “between two and three billion dollars of Government money”.
Yet the 27 August 2010 Treasury report said nothing of the sort. Solid Energy could have obtained that money from the same commercial sources it was already borrowing from.
And don’t forget, Solid Energy had already been borrowing significant amounts – pushing it’s ‘gearing‘ (debt to equity ratio) up:
Solid Energy’s gearing ratio [borrowings] was 13.8 per cent in 2009, but that rose to 34.4 per cent in 2010 and 41.7 per cent last year.
Source: Ministers pressured Solid Energy, Parliament told
To this day, Key continues to mis-represent the truth.
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Key – Solid Energy wanted foreign investment and shareholders
“Key this morning said the documents showed the proposal “absolutely required, as Treasury pointed out, somewhere between two and three billion dollars of Government money”.
He said Palmer proposed selling a stake in Solid Energy to an offshore cornerstone investor “and that would involve taking more than 10 per cent of the company and not putting mums and dads first.”.
“I made it quite clear to him that we had campaigned on a mixed ownership model which didn’t involve someone having more than 10 per cent in the company”.
Solid Energy’s proposal “didn’t involve a situation where kiwi mums and dads would be first and so the only way to get that money was through the Government.”
Source: Key says Solid Energy papers show $27b plan
Now this is yet another contradiction from Key. First he tells us that Solid Energy executives wanted $1 billion (or was it $27 billion?) from Government.
But in the next breath – on the same day – he say Solid Energy wanted foreign investors/shareholders to buy 10% stakes in the SOE.
So which was it Dear Leader?! Government funding? Foreign investors/shareholders? Pixies at the bottom of the garden?
One can only conclude that former CEO, John Palmer, was correct, when he rejected any assertions that Solid Energy was looking to borrow money from government,
“I cannot recall that we have ever asked him explicitly for $1 billion dollars.”
Source: Key Must Front Up With $1 Billion Evidence
It was also interesting to note that Key derided Solid Energy’s plans for 10% foreign investors/shareholders blocks by stating that it contravened National’s policy of putting “kiwi mums and dads would be first“.
Which contradicts a statement that John Key made in a speech in 2005, on 4 March, where a private partner was something that National would welcome,
“In respect of Solid Energy, if an opportunity arose to introduce a private sector partner, we would consider that seriously.”
Source: John Key Speech: State Sector Under National
And how does Key reconcile that with other Public Private Partnerships (PPPs) such as Wiri Prison,
Corrections Minister Anne Tolley says a contract has been signed allowing the SecureFuture consortium to design, finance, build, operate and maintain the new 960-bed public-private partnership (PPP) prison at Wiri, South Auckland.
The new prison will deliver value for taxpayers and support the Government in reaching the target of a 25 per cent reduction in reoffending by 2017.
The 25 year contract is worth approximately $840 million, which is 17 per cent less than if the prison was procured through conventional means, representing a $170 million saving for taxpayers.
Fletcher Construction will build the new facility which will be operated by Serco and maintained by Spotless Facility Services. Construction will begin soon, with the prison set to open in 2015.
“The PPP will allow Corrections to draw on the experience and expertise of SecureFuture’s international partners,” says Mrs Tolley.
Source: Beehive – Contract signed for new PPP prison at Wiri
How many “mums and dads” invested in Wiri Prison?
There are many more PPPs of this nature where “mums and dads” have nil investments, and instead are the sole preserve of corporate investors – many from offshore.
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Palmer denies Solid Energy wanted to borrow $1 billion from government
“Were we talking to the Government about the possibility of capital and receiving that from the Crown? The answer is no,” Mr Palmer said.
“A specific $1 billion capital injection, I’m reasonably sure we did not ask for it in exactly those terms.”
Source: IBID
Palmer is correct. According to the 27 August 2010 Treasury Report (referred to above), Solid Energy did not ask Government for that money. The money could have been borrowed from any source – just as Solid Energy had already been doing.
This was also confirmed by a spokesperson for Bill English,
“We told them all to improve their performance and that, if they wanted to expand, they had to pay for it off their own balance sheet, rather than asking the cash-strapped taxpayers for money.”
Source: Ministers pressured Solid Energy, Parliament told
So it has becoming apparent that our Dear Leader Key is attempting to re-write recent history to suit his own agenda by shifting the blame elsewhere…
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Key attempts to spin Assumption into “Fact”
“I think it is pretty self explanatory that when you come to the Government with such a very large proposal, we’re the 100% owner, that’s what’s required.”
Source: Details of Solid Energy’s expansion bid released
So let’s get this straight…
(i) Solid Energy management presented an expansion plan to National Ministers
(ii) The plan includes figures for said-expansion.
(iii) National Ministers had been encouraging of Solid Energy’s expansion plans (see comments 8 September 2010 and 3 June 2011)
(iv) There was no mention made of where borrowings would be made from – though up till now, Solid Energy had borrowed from private sources, and not the Crown. (See comments 27 August 2010)
(v) And from all that, the Prime Minister suggested that “ it is pretty self explanatory that when you come to the Government with such a very large proposal ” that Solid Energy expected finance from the Crown?
I have one question: how on Earth did Key manage to amass a personal wealth of $50-$55 million when he makes up such fancifuul “leaps of logic”?!?!
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And the cover-up starts?
The head of the committee that grilled Solid Energy’s former bosses says he is unconvinced a full inquiry is needed.
Opposition MPs are pressuring for a full inquiry into the collapse of the state-owned coalminer, which is now reliant on government support to manage its $389 million debt pile.
Commerce select committee chairman Jonathan Young allowed yesterday’s appearance by former Solid Energy chairman John Palmer and former chief executive Don Elder to run for an hour longer than was originally expected.
Young, the National MP for New Plymouth, said this morning that he believed the committee now had “a very clear picture” of what had happened to Solid Energy, which was hit by falling coal prices, a strong New Zealand dollar and poor investment decisions.
In recent days it has emerged that the Government leaned on the company to take on more debt, after it warned it may pay less dividends.
Young said that “in hindsight we can look back and see if they didn’t have debt they would be in a better situation”.
Despite this, Young said he was yet to be convinced that a full select committee inquiry was needed into the collapse, saying there were “multiple levels of inquiry” already under way, with the company talking to its financiers, and the Government “looking at all of the issues”.
He told TV3′s Firstline: “I am personally yet to be convinced that we are going to uncover anything new or different that wouldn’t be uncovered” anyway.
Source: Solid Energy probe call rejected
“…the National MP for New Plymouth, said this morning that he believed the committee now had “a very clear picture” of what had happened to Solid Energy…”
That statement boggles the mind; drops the jaw to the ground; and is so, so, wrong on many levels. But wholly expected from a National member of Parliament; chairing a Select Committee; stacked with five National MPs out of nine committee members (see: Commerce Select Committee members); supposedly ‘investigating’ wrong-doing/ineptitude by National ministers.
Let’s see… what part of that is wrong? A government investigating itself and coming up with a verdict of nothing-to-see-here-folks-move-along-please? How is Young’s assertion that the Government was “looking at all of the issues” supposed to reassure us?! By what measure of common notions of justice is a Government “looking at all of the issues” supposed to be a non-partisan, transparent, and objective investigation into this issue?
It would be like directors of failed companies (many of whom are either in jail or waiting to be tried in Court or sentenced) investigating their own actions and coming up with the same comments as Young made,
“In hindsight we can look back and see if they didn’t have debt they would be in a better situation…”
Directors are “looking at all of the issues”.
“We are personally yet to be convinced that we are going to uncover anything new or different that wouldn’t be uncovered”
Yeah, right, Mr Young. You can stop putting lipstick on that pig.
Listening to the main players – especially John Key, Bill English, and Tony Ryall – there are too many conflicting statements to believe that an Inquiry is not needed. National ministers are simply unable to get their stories straight and have contradicted each other (and themselves) on numerous occassions.
Young asserts that the committee now had “a very clear picture” of what had happened.
Bollocks.
The only thing even remotely “clear” about all this is that remains remain to be asked – and answered.
As Tracey Watkins wrote on 16 March 2013,
“But something clearly went seriously wrong if those talks were not enough to stop the collapse of an SOE on an unprecedented scale.
Beneath the flurry of claims and counter claims that is the question which has still not been properly answered.”
See: Solid questions still remain unanswered
Indeed.
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17 March 2013
Bill English – TVNZ Q+A
The following is a transcript from Corin Dann interviewing Finance Minister (and half shareholder in Solid Energy) on 17 March 2013,
CORIN
All right, if we could move on to Solid Energy. Can you give us an update on where things are at with the banks? When will we know whether the government is going to have to bail out Solid Energy?
BILL
Well, that will be some months yet. There’s discussions going on with the banks now about stabilising Solid Energy. Some of the information around its cash flows is a bit more positive than we might have expected. But we will get a period of two to three months through to the end of June where we can look at all the options for recovering value for the taxpayer in the first place and, secondly, to decide whether there is an on-going viable business in the middle of this-
CORIN
Are you saying it’s making a bit more money than you thought now and that it might be able to get itself out of trouble?
BILL
Well, I wouldn’t go that far. All I’m saying is the cash flow numbers are just a bit more positive than we expected. I mean, if you look back, Solid Energy made some very substantial investments in some of its mines. Some of those worked out, such as in Stockton; some of them didn’t, such as in Spring Creek. But where they have invested, they’ve got capacity for production and for value, and if coal prices are at some kind of reasonable level, then there is a business there.
“All I’m saying is the cash flow numbers are just a bit more positive than we expected. ” – In which case, Mr English, keep your sticky hands of that cash.
I sincerely hope that if National Ministers attempt to gouge SOEs again, that Board Directors resign on masse and publicly disclose political attempts at such interference.
The public is entitled to be reassured that politicians will not use SOEs as “cash cows” simply to balance their books. Especially after two unaffordable tax cuts – a glorified ‘lolly scramble’ – left a gaping hole in government accounts.
CORIN
Do you want the banks to take some of the heat on this?
BILL
Yes, I think that’s really important. They’ve lent money, and as lenders, they take risks. And if they lend to a company that’s affected by a very sharp downturn in coal prices and then loss of a quarter of their export sales, they’ve got the same risks as banks who leant to resource companies all around the world that have got in trouble.
CORIN
You can see the irony in that, though, because you told them to borrow more.
BILL
Well, and you were talking about it as a revelation. We did a press conference back in 2009 about the need for our SOEs to take on-
And it took Labour to advise the public, Mr English. Bill English, Key, and Ryall were more than happy to keep that 2009 letter from Simon Power under wraps.
That was part of National’s ‘spin’ that the massive borrowings and debt were a ‘creature’ of Don Elder’s and John Palmer’s making. But as Corin Dann pointed out;
CORIN
But you know that timing is everything with these things, and that was a revelation coming at this time, given your government had tried to distance itself from this issue. You even blamed Labour for it, for what they said in 2007.
BILL
No, I don’t agree with that. In 2009, the government was facing a decade of deficits because of the Labour Party and the recession. And we quite reasonably said that our taxpayer-owned companies should contribute more cash to the coffers. That’s the point of owning them. And Solid Energy had paid barely- had paid almost no dividends for the previous five or six years, and they had very low levels of debt compared to their asset value. So, look, in retrospect-
Here we go again; more blame-gaming,
“ In 2009, the government was facing a decade of deficits because of the Labour Party and the recession.“
English blames the recession?
In which case why did National Ministers extract 163.9 million in dividends from Solid Energy, during the worst recession since the 1920s/30s?
Is this what National calls “prudent fiscal management”?
Notice also that English lied by blaming “ a decade of deficits because of the Labour Party” – even though Cullen was posting surpluses from 2002-08 Labour-led period?! And paid down sovereign debt from 33.4% of GDP to 17.4% GDP? (See previous blofpost: Bill English – do you remember Colin Morrison?)
This is symptomatic of a National-led government that is desperate to avoid all responsibility.
CORIN
But there was a good reason for that, wasn’t there? Because they were a coal company.
BILL
That’s right. Look, in retrospect, they would have been better off with lower levels of debt, but as I think Don Elder and John Palmer said at the Select Committee, the board is there to make the decisions about what the actual levels of debt are. Bear in mind, in 2011 their debt had peaked and was declining, and then they got hit by the perfect storm in 2012.
“Look, in retrospect, they would have been better off with lower levels of debt“… “In retrospect“?!?! Little wonder that Solid Energy’s board and management resisted National’s demands for higher and higher dividends (as English concedes in his next statement).
That statement – ”Look, in retrospect, they would have been better off with lower levels of debt“ – totally destroys the argument put forward by Key, English, and Ryall that Solid Energy’s debt and subsequent crisis was of it’s own making.
Quite simply, National was desperate for cash to pay for the 2009 and 2010 taxcuts, and were prepared to bleed SOEs dry to get it’s hand on their money. Even if those SOEs had to borrow to do it.
This is ministerial incompetance at best – or outright economic sabotage at worst. (No wonder ACT and Libertarians maintain that politicians can’t run businesses. Correction: National politicians can’t run businesses.)
CORIN
But you were telling all SOEs to raise their debt to a 40% gearing, and Solid Energy told you they were not comfortable with that, and there was a good reason: because they were a volatile coal company. Surely that was too much pressure you were applying to them.
BILL
Well, clearly not, because their debt peaked at under 35%, which was the level the board set, which was lower than what the government was expecting. And in 2011 their debt levels were actually declining from that, and then they got hit by the perfect storm. So, yes, would they have been better off with no debt? Yes, just like lots of businesses and households would be better off with no debt. Then they got hit by these circumstances which may well have put the company into trouble even if it had no debt.
Yes Mr English, Solid Energy did get hit by “a perfect storm”. A storm largely made up of rapacious politicians.
It appears that by not gearing up to the full 40% demanded by National, that Don Elder and John Palmer may have done their best to prevent the collapse of Solid Energy.
CORIN
The issue also, of course, has been around their investments. Now, your government must take some responsibility, surely, for the oversight of what they were investing in. You were the one down in Southland turning the first sod with the lignite plant. You knew what they were up to.
BILL
Well, and it’s yet to be seen just whether that particular investment has on-going potential or not. Clearly, some of them don’t. Some of them may do. That’s what’ll happen over the next two to three months. But what you’ve got to keep in mind here is that under the SOE model, politicians are not there to run the companies. We do not make the investment decisions. The boards make the investment decisions, and the weakness in the model is that there’s no market scrutiny of those board decisions, and that is why the partial sell-down of the electricity companies will help with the monitoring and the performance of those companies.
“But what you’ve got to keep in mind here is that under the SOE model, politicians are not there to run the companies. We do not make the investment decisions. ” – Really, Mr English? And yet Simon Power felt he had the ministerial authority to write to Solid Energy demanding higher dividends.
In reality, under the State-Owned Enterprises Act 1986, shareholding Ministers can and do issue directives to SOE Boards. So English is being disingenuous when he tries to indicate that Ministers are powerless. They are not powerless,
13. Powers of shareholding Ministers in respect of new State enterprises
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(1) Notwithstanding any other provision of this Act or the rules of any company,—
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(a) the shareholding Ministers may from time to time, by written notice to the board, direct the board of a company named in Schedule 2 to include in, or omit from, a statement of corporate intent for that company any provision or provisions of a kind referred to in paragraphs (a) to (h) of section 14(2); and
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(b) the shareholding Ministers may, by written notice to the board, determine the amount of dividend payable by any company named in Schedule 2 in respect of any financial year or years,—
and any board to whom such a notice is given shall comply with the notice.
(2) Before giving any notice under this section, the shareholding Ministers shall—
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(a) have regard to Part 1; and
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(b) consult the board concerned as to the matters to be referred to in the notice.
(3) Within 12 sitting days after a notice is given to a board pursuant to this section, the responsible Minister for the company concerned shall lay a copy of the notice before the House of Representatives.
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Source: State-Owned Enterprises Act 1986 – Section 13
They have the power.
It’s the responsibility for their stuff-ups that seems to elude them.
CORIN
And are you confident there will be much better decision-making, that these MOM companies, in general, are going to have better board making decisions?
BILL
I think mixed-ownership companies will, but there’s a real challenge for government with the lessons from Solid Energy. When you look ahead, the companies that the government will own all have their challenges – NZ Post with the shrinking postal market, TVNZ and the digital media environment, a coal company if there is still a coal company. And we are going to have to change the way we work with these companies to ensure that we don’t lose taxpayers’ money. Because the taxpayers’ money in these companies doesn’t come out of the sky; it comes from the PAYE and the GST paid by NZ households. And we have a strong responsibility for the stewardship of that money.
Source: TVNZ Q+A
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22 March 2013
The NZ Herald reported that “seven years’ worth of documents about Solid Energy have been released by Treasury… It has been released after a number of Official Information Act request centred around how much the Government knew about the financial troubles the state owned coal miner was in“.
Source: Big Solid Energy document dump from Treasury
[Note: This blogger has viewed only a fraction of documents. There’s no telling what other revelations and incriminating evidence is contained therein. Perhaps something to be re-visited on a quiet, wintry evening?]
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25 March 2013
Papers confirm Govt pressure on Solid Energy
A week after English’s attempt to ‘spin’ the collapse of Solid Energy and blame everyone under the sun, Radio NZ reported,
Official papers confirm the Government put pressure on Solid Energy to increase its debt and then appeared later to criticise it for borrowing too heavily as it got into difficulty.
The state-owned coal company is in debt to the tune of $390 million.
The papers released on Friday also show that despite strongly disagreeing with the company’s business plan, the Government left it late to act.
In 2009 the then State-Owned Enterprises Minister, Simon Power, wrote to Solid Energy chair John Palmer recommending the company raise its gearing ratio – a measure of debt – to 40%.
By June 2012, when it was clear the company was in trouble, the ratio had risen to 37% and, according to the Treasury, Solid Energy had taken on significant debt.
It was only at that point, after arguing with the company for three to four years about its business plan, that the Government decided to make changes.
Source: Papers confirm Govt pressure on Solid Energy
By this time, public attention and media focus had waned. There were other issues and problems to deal with, and National ministers could breath a sigh of relief. They were “off the hook”.
Let us recall that Treasury’s scoping report, released on 4 November 2011, confirmed everyone’s suspicions that National had cash-stripped Solid Energy;
”…dividend payments to the government have been funded by increasing debt“.
Source: Treasury Report T2011/2373: Solid Energy New Zealand Scoping Study Report
The ‘up-shot’ of all this?
- A billion dollar state own enterprise had been milked as a “cash cow” and left to collapse.
- English, Ryall, Key, et al – off the hook.
- There would be no ministerial accountability; no resignations; no one held to account.
And for good measure,
- Blame Labour for everything.
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8 May 2013
Bill English preps public for Solid Energy’s write-off?
In a Radio NZ story (see: English questions viability of Solid Energy), Bill English contradicted his earlier assertion that Solid Energy would not be allowed into receivership,
“We’re not going to keep propping up businesses where we don’t think there’s a long term future. Where we think there there is, we put strong support in. So Kiwirail would be a good example.Where the government’s already invested around a billion in them in the last 3 or 4 years and they will… all of their,um, surpluses will be reinvested in the business, probably for the next decade. So the taxpayer won’t take anything out of them. But there may be… it’s possible that there’s other businesses, as has been revealed say in the Solid Energy case where their particular mix may not be viable so we have to look at whether they can be restructured or whether in the long run there’s a viable proposition there. But at the moment Solid Energy is the only business where that’s in question.”
Listen RNZ interview: Bill English on Morning Report
By questioning the viability of Solid Energy, English is preparing the public for the day when National announces the demise of the company.
Having gutted it of cash and forced it to borrow millions for unsustainable dividends, National is now ready to administer the coup de grâce to finish it off. (If the Nats could eliminate all witnesses to their bare-faced thieving, I bet you they’d be considering it…)
Meanwhile, a week later…
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14 May 2013
$1 billion for KiwiRail
Radio NZ revealed that KiwiRail was receiving government funding to keep operating,
Overall the Government has committed about $1 billion to the effort, and Finance Minister Bill English has said the Government is unlikely to take a dividend for the next decade so KiwiRail can reinvest any profits in the rail service.
Source: Solid Energy problems pose risk for KiwiRail
See also: Beehive.govt.nz: Next steps in KiwiRail’s Turnaround Plan
How is it that Solid Energy, a once viable company – earning millions in revenue from overseas exports of coal (admittedly not a very environmentally-friendly product) – may be allowed to go into receivership?
Meanwhile, National is quite happy to keep investing in KiwiRail, which has never generated a profit in modern times. (Though admittedly, KiwiRail is an environmentally-friendly transport enterprise with a positive future, as we pass the oil peak.)
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A message to businesspeople:
National Ministers are attempting to sheet blame for Solid Energy’s financial crisis to it’s former Chairperson, John Palmer, and CEO, Don Elder.
Key, English, and Ryall have resorted to mis-presentation of facts; omission of facts; exageration; and in some instances, outright lies.
This should serve as a clear warning to businesspeople. Think carefully before accepting managerial or Board positions during a National-led government.
Because if things go wrong – even if caused by political interference – then they will have no hesitation to smear your reputation. They will hang you out to dry, whether you are at fault or not.
A message to Voters:
National has a reputation as “prudent fiscal managers”.
For the life of me, I cannot understand how they have earned that reputation.
To allow a billion dollar SOE to crash and burn; run into the ground; and now facing bankruptcy suggests to me that Key, English, Ryall, Brownlee, Joyce, Collins could not run a corner Dairy without getting into financial trouble.
I don’t think these clowns could run a sausage sizzle without losing money by the end of the day.
Perhaps, as a test, those voters who are disbelieving should keep voting National? Let’s see what other SOE will collapse on their watch, eh?
What the hell. After all, it’s only our property. And tax dollars.
This blogpost was first published on The Daily Blog on 17 May 2013.
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*
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References
Solid Energy: Annual Reports Index
Crown Ownership Monitoring Unit – SOE Disclosures
Treasury: SOE/Solid Energy Disclosures
Previous related blogposts
That was Then, This is Now #18 (24 Feb 2013)
National caught out over Solid Energy – changes story on coal prices, debt, and other matters (13 March 2013)
Additional links (to replace dead links)
Click to access solid-energy-annual-report-2008.pdf
Click to access solid-energy-annual-report-2009.pdf
Click to access solid-energy-annual-report-2010.pdf
Click to access solid-energy-annual-report-2011.pdf
Click to access solid-energy-annual-report-2012.pdf
Click to access solid-energy-annual-report-2013.pdf
Acknowledgement and appreciation to “BLiP”
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= fs =
“There’s always an issue of money but we can find money for the right projects” – John Key
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There are two issues involved with the above story.
Firstly…
The Government spends $26 million on climate research every year. The Prime Minister says that will increase.
“There’s always an issue of money but we can find money for the right projects.”
Climate research is a fine endeavour, and this blogger has no problem with that.
What this blogger has a real problem with is when National’s quango’s come up with nasty suggestions like this,
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Or, National point-blank refuses to fund life-saving medication in instances like this,
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There seems to be a multitude of “worthy causes” for National in invest our tax dollars in; subsidies for film makers such as Warner Bros; subsidies for the rugby world cup; loans for media companies (which they initially lied about); grants to businesses; advisors; consultants; staff bonuses; MPs travel expenses, and of course, salary rises for members of Parliament.
But when it comes to grommet operations for our children and medication for sick New Zealanders, the response is not quite as generous, as Tony Ryall ‘explained’ to me on 22 November last year,
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And then explained on 5 December, explained how he had pulled a neat little trick to fund National’s promised extension for Herception treatment, outside of PHARMAC rules,
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(Note: in all fairness, Tony Ryall is perhaps the only Minister who has the balls to actually respond to my queries. The rest are either evasive, or like Bill English do not reply at all.)
Secondly…
In the above article at the top, TV3 reporter, Samantha Hayes, wrote,
It’s that variability New Zealand scientists want to investigate, using funds from a joint public and private venture – the newly formed Antarctic Research Institute.
See: Key faces questions over extra Antarctica funding
Pardon?
Why is the Antarctic Research Institute a “joint public and private venture”?
What does the private sector hope to gain from research by the Antarctic Research Institute?
On 21 August 2012, the NZ Herald reported,
The New Zealand Antarctic Research Institute was launched by Prime Minister John Key last night at Premier House.
It will operate as a public-private partnership.
The institute will be closely aligned to the crown entity Antarctic New Zealand and its chairman, Rob Fenwick, will chair the institute as well.
See: $5.3m gift sets up Antarctic research unit
About Mr Fenwick,
Rob Fenwick is an experienced businessman and company director with interests closely aligned to promoting sustainable development. He has had a long association with Antarctica: for nine years until 2007 he was a director and later chairman of Landcare Research, one of several CRIs involved in Antarctic research, and is a former chairman of the Antarctic Heritage Trust. In 2005 the New Zealand Geographic Society named the Fenwick Ice Piedmont in the Ross Sea for his work in Antarctica.
He is a co-founder and director of Living Earth Ltd, New Zealand’s principal organic waste management business and is active in policy development around waste minimisation and climate change, and has been a member of several Government working groups in these areas. He is a special advisor to the Department of Conservation and was conferred with the degree of Doctor of Natural Resources, honoris causa, by Lincoln University this year.
See: antarcticanz.govt.nz/rob-fenwick
The Herald article goes on,
The institute’s director will be Professor Gary Wilson of Otago University, who said the goal was to strengthen Antarctic research capacity in New Zealand through international collaboration on research projects.
“Antarctica and the Southern Ocean hold the solutions to many of the key questions scientists and policymakers need to answer in order to manage the threats of climate change and global resource depletion.”
“Global resource depletion”…
One has to wonder what was so important that our Dear Leader, John Key, had to make the eight hour long flight – after collapsing at a Christchurch restaurant?! Surely not to return three bottles of whiskey to Shackleton’s hut??
Why is the private sector involved in a joint public and private venture with the newly formed Antarctic Research Institute? PPPs are usually formed where there is the potential for profit by the private investor.
Or is it that Gareth Morgan has a point when he sez on his blog,
Taking care of Antarctica requires a constant diplomatic effort. John Key’s visit may look like the usual smile and wave routine, but the symbolism is much stronger. His presence is simultaneously reasserting our claim, bolstering our position at the negotiation table, and recognising the wonderful contribution the Scott Base installation has made for so long. Declaring to the world that Antarctica is important to us and we want it managed well is central to Mr Key’s visit. New Zealand has a long history of leadership in Antarctica.
See: Key Antarctica trip more than waving at penguins
Methinks there is more to this story than we’ve been told.
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Other blogs
Gareth Morgan: Key Antarctica trip more than waving at penguins
References
Previous related blogposts
Children’s Health: not a high priority for Health Minister Tony Ryall
Health Minister circumvents law to fulfill 2008 election bribe?
Terminal disease sufferer appeals to John Key – Update & more questions
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History Lesson – Toru – Jobs
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Another look back into our recent history. Just to remind ourselves, that what is past, is prologue…
Firstly, too many of our simple-minded fellow New Zealanders still cling to the bigotted fantasy that those on welfare benefits are there “by choice”. Currently, our unemployment stands at 150,000 – or 6.3% of the workforce.
But was it always so…?
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6 June 2002
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14 September 2002
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New Zealand’s growth rate in the early to mid 2000s was between 4% and 6%, and the skilled labour shortage reflected an economy that was doing well,
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Tony Alexander, the BNZ’s chief economist, was reported to have said that “businesses are also going to have to consider helping with basic education. They are going to have to take on less skilled people and train them up in reading, writing, and arithmetic“,
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24 October 2002
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Unemployment dropped to a record low of 3.8% by December 2007. Interestingly, as the recession impacted on our economy, unemployment soared. It is no secret that unemployment and recessionary periods are closely intertwined,
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28 October 2002
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Our GDP (per capita, adjusted by purchasing power parity) rose steadily in the 2000s, levelling of post-2008, as the global banking crisis hit New Zealand, creating into a full-blown recession,
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The result of leaving everything up to the free market – a skills shortage. It became readily apparent that businesses demanded well-educated, trained, experienced workers – but were not prepared to pay for that upskilling. That was the role of the State. So much for the State staying out of the Market – when the Market could not/would not, invest in skills training as required,
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20 November 2002
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As the economy boomed, the government post surplus after surplus. (So much for the mischief-making from certain National/ACT agitprops who scurrilously spread the lie that the previous Labour Government mis-managed the economy.) The actual data is on record for all to see,
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Which, in turn, allowed Labour’s finance minister, Michael Cullen to pay down our sovereign debt,
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As always, the building industry was affected. Which is in marked contrast to builders who, in the last couple of years were finding work hard to come by. But in 2002, it was a completely different world,
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25 November 2002
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Even though the economy was growing and unemployment was dropping, it was evident that people’s skills (or lack of) did not match the demands of employers for their businesses. This failure of the Market to upskill workers, to meet the needs of business, is yet more clear evidence that without State assistance and intervention, economic growth is stifled.
If the self-regulating “Invisible Hand” of the Marketplace acted as per theory, then unskilled unemployed should be upskilled by businesses as required. This did not happen,
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2 December 2002
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The point of this history lesson is that a poorly performing economy will not maximise the use of available human labour. Or to put it more plainly, if the economy is in recession – expect high unemployment.
That is fairly simple to understand.
Those politicians, and their groupies, who talk about a “welfare lifestyle” or “welfare dependancy” are being deliberately disingenuous. These politicians are well-educated, sophisticated men and women who have a clear understanding of economic forces and their consequences.
Politicians understand that very few people are on welfare as a “lifestyle”. And “dependancy” should actually mean being dependant on state assistance – or the alternative being to starve. Those who are unemployed are as “welfare dependent” as an astronaut in space is “spacesuit dependent”.
In truth, when the likes of John Key, Paula Bennett, et al, talk of “welfare lifestyle” and/or “welfare dependancy” – they are using ‘code’ to paint welfare recipients as being the architects of their misfortune.
Because, dear fellow New Zealanders, as we all know, the unemployed here in New Zealand were sitting in the Boardrooms of Goldman Sachs, AIG, Bank of Scotland, General Motors, Lehmann Bros, etc, etc, etc, and were responsible for the chaos and misery of the 2008 Recession.
When a politician attempts to paint a welfare beneficiary as “welfare lifestyle” and/or “welfare dependancy” – they are shifting responsibility from themselves – the people with power – onto welfare reciepients – the most powerless in society- for the pitiful state of the economy here in New Zealand, and throughout the world.
I wonder if welfare beneficiaries know that they crippled the revered demi-god of Western Capitalism, and brought Wall St and City of London, to it’s knees?
Damn crafty, these benes, eh?
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Not all con-artists are in prison.
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As far back (or even further, if one looks harder) as 2006, National (and it’s little “buddy”, ACT) was advocating privately-run prisons as a means of saving taxpayers money. They were supposedly more cost-effective, and would save the country considerable sums of money.
In June 2006, the then-National Party Law & Order Spokesman, Simon Power, said in a press release,
“Overseas experience indicates that contracting out prison operations reduces costs, both in the design and construction and in the management of prisons.”
Power was effusive in his enthusiasm for privately-managed prisons, going so far as to quote Treasury documents which also promoted the concept.
– Labour ignores Treasury on private prisons
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National and ACT both promoted privately-managed prisons as a money-saving concept,
ACT’s Law & Order Policy:
“Action: Bring back private prisons – now best practice overseas. Let private firms free up cops for ‘Zero Tolerance’ policing. Speed up courts (eg. night courts) to reduce unfair delays.
Benefit: More secure, more humane, cheaper prisons. Young taggers don’t progress to worse crimes. People feel safer. More decisions sooner.”
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National’s 2008 policy document, “Law and Order Policy: Prisons“, under the heading “The Management of Prisons” states (in part),
“The average per-prisoner cost over the five years of private management of ACRP from 2000-2005 was $42,720 per prisoner per annum, compared to the average cost for Corrections to keep a remand prisoner of $52,925in 2001/02. Of the original short list of four tenderers for ACRP, the Public Prisons Service was listed as fourth. Aside from cost advantages, Treasury has argued that contestability of prison management also encourages innovation in reducing recidivism…
…The British National Audit Office review of the private prison system in the UK concludes that “competition has helped drive up standards and improve efficiency across the prison system as a whole.”
– National Law and Order Policy: Prisons
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Throughout the press releases, and policy documents, both National and ACT complain that “Labour’s objection to private prisons has been ideological”.
It is also interesting to note that National compares the figure of $42,720 per prisoner per annum, over a five year period with that of $52,925 over a two year period. Neither of National’s references provided on their policy paper can be verified on-line. So it seems that National may be comparing an average figure over five years with an average figure over two years, which results in privately-run prisons appearing to be a cheaper option.
National’s dubious figures are then parroted by others, such as right-wing bloggers,
“Delighted to see the new Wiri prison will be openly tendered. Not only may it cost less, but more importantly it provides opportunities to have a lower escape rate, and a higher rehabilitation rate.”
– Kiwiblog
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As someone infamous once said, if you tell a lie big enough and keep repeating it, people will eventually come to believe it.
In November 2009, the year-old National Government passed legislation – under Urgency – permitting prisons to be handed over to private companies for management. Quite why this piece of legislation was considered “urgent” has never been made clear.
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Corrections Minister Judith Collins claimed that National’s previous experiment in privately-run prisons, in the late 1990s had been “generally positive”. ACT’s Law & Order spokesperson, David Garrett, stated that ” international data showed privately run prisons were cheaper and delivered better outcomes“.
Labour’s Lianne Dalziel pointed out that ten out of eleven British prisons were in the bottom 25% of all the prisons on performance measures.
In May 2010, the Green Party released a media statement that said,
“Private Prisons cost more
Privatising Auckland prison is a dangerous precedent that will increase costs and compromise New Zealand’s justice system, said the Green Party today.
John Key’s Government announced yesterday the joint Mt Eden-Auckland Central Remand Prison (ACRP) will be run privately. The corporation to run the prison will be announced by the end of the year.
“The last privatisation experiment with the ACRP increased costs by $7000 per prisoner,” said Green Party Corrections Spokesperson David Clendon…
… Evidence from the US and Australia shows that private prisons do not reduce costs for the Government. Research from New South Wales suggests prisoner safety is compromised because of the focus on profit…
… “If John Key’s Government really wants to reduce prison costs, they need to get serious about addressing the causes of crime – especially inequality which they seem to be hell bent on making worse,” said Mr Clendon.”
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The Green Party blogsite links to two interesting reports on privatised prisons in Australia and US. The reports make for interesting reading and seem to undermine claims by National and ACT that privately-managed prisons are cheaper options. For example, the US Justice Office of Justice Reforms report stated, in part,
“The study resulted in some interesting conclusions. For example, it was discovered that, rather than the projected 20-percent savings, the average saving from privatization was only about 1 percent, and most of that was achieved through lower labor costs.” Source
The Australian report “Privatisation and New South Wales Prisons: Value for Money and Neo Liberal Regulation”, makes similar points,
“For example, Cooper and Taylor (2005), in a study of prison privatisation in Scotland, identify reducing labour costs and increasing labour flexibilities as a key reason for privatisations. We contend that, in the specific case of the New South Wales ‘Value for Money Report’, the government’s support for the maintenance of ‘at least one private prison’, in the absence of meaningful cost data, was on the basis of the continuing disciplinary effects it would have upon the union, and therefore the leverage it would grant the government in extending its workplace reform agenda.” Source
– Privatisation and New South Wales Prisons
– Emerging Issues on Privatised Prisons, US Department of Justice
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It seems that warnings regarding the ideology that private-is-cheaper come home to roost, though somewhat earlier than many had anticipated,
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As for Corrections deputy chief executive Christine Stevenson claiming that “costs were high because it was New Zealand’s first PPP prison” – one wonders where she’s been for the last ten years?!
Has Ms Stevenson no knowledge of National’s previous experiment with privately-managed prisons? The Auckland Central Remand Prison (ARCP) was under private management from 1999 to 2005, after which the former Labour Government did not renew the contract.
If six years of private prison management has not privided the necessary experience to prevent spending $21 million on “consultants” and “internal costs”, then what confidence is there that this exercise will not end up costing the tax-payer vast sums of money?
The NZ Herald article quotes Conservative MP Richard Bacon,
“It is clear that [PPP] has spawned an entire industry of advisers who have done extremely well out of it.”
The whole point of this exercise is that private enterprise has the necessary expertise and experience to put this project together. Thus far there appears precious little indication that private management is most cost effective or efficient than State management.
However, as Damien Cahill and Jane Andrew write (“Privatisation and New South Wales Prisons: Value for Money and Neo-liberal Regulation”), the privatisation of prison management is not simply about cost-effectiveness per se. Instead, it is more about driving down employees wages.
Remember what Bill English let slip on 10 April of this year, on TVNZ’s Q+A, when English said the 30% difference in incomes between New Zealand and Australia is a way of competing,
“If we want to grow this economy we need capital and we’re competing for people too… and we need to get on with competing for Australia. So if you take an area like tourism, we are competing with Australia. We’re trying to get Australians here instead of spending their tourist dollar in Australia.” – Bill English
It seems that not all con-artists are in prison.
Some are busily trying to sell us a “lemon”. A bloody expensive one at that.
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***Additional Info***
1. One of the references in the National Party 2008 policy document – Dom Karauria, General Manager of Auckland Central Remand Prison (ACRP) – was an employee of GEO Group Australia Pty Ltd – the private contractor that managed the ACRP from 2000-2005.
2. Catholic organisation Caritas … noted that in the US the same people running private prisons were also involved in lobbying government for longer sentences. Source
3. In a June 2009 submission to the Law and Order Select Committee , GEO Group Australia Pty Ltd admitted that privately-managed prisons do not always deliver cheaper services;
“However, comparing the quality and cost of private and publicly−managed
correctional centres is fraught with difficulties. Simple questions about which
approach delivers the best outcome cannot always be answered definitively. Such
comparisons must be based on a strict like−for−like basis and this rarely is possible,
and the performance of any correctional centre varies over time through factors both
within and outside its control.
There are correctional facilities under public−management that perform exceptionally
well, whilst others perform poorly. Whilst privately−managed correctional centres
cannot reliably be stated as always being superior or inferior to publicly−managed
correctional centres, on a number of occasions privately−managed correctional
centres have been singled out for the highest praise…” Source
Furthermore, GEO Group Australia managing director Pieter Bezuidenhout said,
“Privatisation is not about cost savings. If that’s all you want to achieve I am saying that you are knocking at the wrong door.
“Privatisation will bring an enhanced public service…” Source
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With acknowledgement to Tumeke Blog, for highlighting this issue,
Private prison costs more than public prison
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