Failure more than a ‘perfect storm’
FINALLY, after more than two years of increasingly flimsy denials, the Government is starting to accept responsibility for the Solid Energy debacle. As late as Thursday, Finance Minister Bill English was denying that the Government should have seen warning signs and stepped in earlier.
He even sarcastically pointed the finger at Labour, saying in 2008 National inherited a company which had been allowed to engage in alternative energy projects which ‘‘at the time was all regarded as feasible and fashionable’’.
But by yesterday, after a fresh wave of dismissive headlines and criticism on both major television news networks, English took to Radio New Zealand to admit the Government shared responsibility as shareholder.
More tellingly, he acknowledged that the Beehive had at least partly bought into Solid Energy’s ambitious view of the world, and that commodity prices would stay high forever.
In effect, English seems to be admitting that ministers at least tacitly approved the company’s strategy, albeit one which was more conservative than the company really wanted.
Solid Energy’s problems have basically been twofold. The market in which they operated moved sharply against them in 2011, meaning whatever else happened, times were going to be tough and jobs would inevitably be lost. But in a company solely focused on commodities, it was hopelessly unprepared for a downturn, adopting a strategy which assumed a boom in demand for its products. It is this strategy which turned tough times into a financial disaster. Not that the Government has been willing to accept this. Since a hastily-arranged press conference in the Beehive in February 2013, English and his colleagues have been pointing solely at a plunge in the global coal price and a high New Zealand dollar.
Even when the company’s megalomaniacal plans to become a natural resources monopoly emerged in Treasury documents, no-one was to blame other than a ‘‘perfect storm’’ which had hit the coal sector. When it became clear that investment experts had challenged management to justify their extremely optimistic view about future coal prices (and were given no satisfactory answer), English maintained Government and Treasury had acted as quickly as they could. Letters urging the company to pay dividends and take on debt contradicted English’s claims that the Government had ‘‘not specifically’’ encouraged the company to borrow.
Repeated calls for inquiries have been blocked, even when it became clear that Solid Energy as a state-owned company was doomed. English is late to the party in his partial acceptance.
Treasury has already started to reform the way it monitors the companies it oversees in light of its inability to pull Solid Energy into line. Even the banks appear to have quietly acknowledged some culpability. Although Bank of Tokyo-Mitsubishi UFJ challenged in court a debt restructure, which saw lenders write off $75 million they were owed in 2013, the four major Australian banks and New Plymouth-based TSB Bank sat quietly. While the investment of more than $50 million by TSB appears unusual, the Australian banks were well equipped to assess the risks of lending to coal companies, given the scale of the sector across the Tasman.
At least one of those banks has privately admitted that they shared some of the blame that the situation had spun out of control.
There is ample political risk to English accepting any sense of blame for Solid Energy’s woes. On Thursday he confirmed that the $128 million in support the Crown has extended the mining company is gone, and however orderly the sale process is, none of it will be recovered. By yesterday he was defending his decision to pressure the company to pay dividends and take on debt, saying that in his experience of dealing with state-owned enterprises, if they were left with money they tended to waste it, pointing to Solid Energy’s impressive Christchurch headquarters.
There are plenty of other examples English could have used, such as the conspicuous increase in dividends from the electricity companies which have been partially sold. In some circumstances it turns out 51 per cent might be worth more than 100 per cent.
It is true that Solid Energy’s ambition appears to have been launched under Labour, as it expanded into new fields beyond its expertise, and in a fashion which should have caused concern. Back in 2006 Treasury had warned that the company appeared to be playing games to avoid needing permission to buy up large parcels of farmlands it wanted to use to mine the lignite – very low-quality coal – underneath.
If that was not a warning (Treasury branded the lack of consultation around the $50 million purchase as ‘‘unacceptable’’), there were plenty more to come. In 2011 investment bankers at UBS hired to see how ready Solid Energy was for a possible partial sale expressed ‘‘no confidence’’ in the company’s business strategy, noting risky renewable energy projects and a bloated cost structure.
Did that set off alarm bells? About the same time English appeared in a photo opportunity when Solid Energy broke ground for its proposed lignite facility in eastern Southland. Like several other alternative energy plans it came to nothing. One must assume that at the time of the photo the finance minister had no idea what was to come. We have no idea precisely when English realised the company was doomed because the Government has blocked select committee inquiries and the auditor-general has declined to conduct an inquiry.
But now, well beyond the 11th hour, and with well over $100 million of taxpayer funds lost, English is at least acknowledging that the problem was more than just bad luck. Finance Minister Bill English who had to announce the collapse of Solid Energy and a $128 million loss to taxpayers.
WALLY
John Key has been doodling in aid of a good cause again, scribbling a picture of the Beehive in support of Daffodil Day, to raise money for the Cancer Society. If we didn’t know better, however, we would assume it was recycled from the last charity auction, given its striking similarity to doodles previously penned by Key. There was the doodle penned for Henderson Rotary Club which sold for $3100 last week, and featured the Beehive, a smiley face and a flag featuring the silver fern flying from the roof. Then there was the doodle done for Stars4Kids which featured a signed drawing of the Beehive with an arrow pointing to the location of his office. Another John Key doodle featuring – you guessed it, the Beehive – failed to sell on Trade Me this month after bids reached only $181. The most famous Beehive doodle of course was done by Helen Clark, who used a professional artist rather than scribble it herself in a scandal that became known as ‘‘Paintergate’’.