Solid Energy to face further scrutiny
The auditor-general is to conduct further inquiries into the virtual collapse of state-owned mining group Solid Energy, including why it was far more confident about energy prices than experts were.
Solid Energy recently agreed a debt-for-equity swap with its lenders to reduce a debt pile of close to $400 million, with the Government warning the alternative was liquidation.
The Government, and Solid Energy's former management repeatedly blamed "a perfect storm" of too much debt and plunging coal prices.
Labour today released a letter from Auditor-General Lyn Provost confirming that her office was to do "additional work" on the financial problems at Solid Energy, acknowledging that there were unanswered questions.
Issues which will be addressed include:
● what risks the board considered in relation to significant investment in the Stockton mine on the West Coast, which accounted for the majority of its debt
● what risks did it consider in relation to its foray into non-coal ventures
● what did the company do consider the risk of falling coal prices
● how did the management respond to falling prices
● what was the rationale for management and the board adopting a higher price path for coal prices than others in the industry
The Government in 2011 appointed UBS to test how ready Solid Energy was to life on the public markets, in the hope of selling up to 49 per cent of the company.
Investment bankers discovered Solid Energy's views on coal prices were much more bullish than those of the wider mining sector.
When Solid Energy was asked to explain why, management refused to do so.
The review, which will look into activities for the five years up to June 30 will not look into the monitoring of Solid Energy by the Treasury or shareholding ministers, as this was covered by an earlier Deloitte report.
While it would be on the lookout for extravagant spending, as Labour has alleged, it would not be a specific focus as the company had imposed "significant" cost-control measures under its news management.
Provost said she aimed to have the work completed by the time Parliament's commerce committee conducts its financial review of Solid Energy in February.
Labour state-owned enterprise spokesman Clayton Cosgrove said the auditor-general was taking an "extraordinary" step. It was "great news for the more than 700 people who have lost their jobs due to the near collapse of the SOE".