Playing with other people's money

22:01, Feb 28 2013

You had to feel for Genesis Energy's chief executive Albert Brantley at the electricity company's earnings announcement on Tuesday.

Here was Genesis providing the tidiest half-year result and the cleanest balance sheet of the three state-owned power companies, it was returning to paying dividends, and looking every bit a credible candidate for partial privatisation.

Compared to emerging basket case Solid Energy, the ongoing uncertainty at Meridian Energy about the future of its contracts supplying the Bluff aluminium smelter, or MightyRiverPower's less than glittering disclosures about its offshore geothermal investment fund, Genesis looks in good shape.

Moreover, it's taken a couple of focused years to get the country's largest electricity retailer to that point, and Brantley has achieved it all with a minimum of fuss.

He might legitimately have hoped to be recognised as turning in a "best in class" result in the current round of SOE half year earnings.

Instead, he found himself hosting Dame Jenny Shipley's first public appearance since the Waitangi Day announcement of the Mainzeal Property and Construction receivership. As chair of Mainzeal until shortly before the receivership and chair of Genesis Energy today, Dame Jenny was an unhappy and unmissable target for media at the Genesis briefing.

In best Shipley soft-spoken, confident style, she flannelled it. But amongst the pleas for Genesis to be judged on its record, she was unwilling to answer the one question she could have in the context of her Genesis role: has she considered whether she should step aside?

It's hard to imagine it hasn't crossed her mind. Respect for the quality of New Zealand's corporate governance, thanks especially to the woes of Mainzeal and Solid Energy and the amateurish shenanigans over the Sky City convention centre deal, is badly eroding trust in business and political leadership.

While Shipley's involvement with Genesis appears blameless, it is terrible timing for her involvement with Mainzeal to be linked in the public mind with the governance failures that clearly occurred at Solid Energy.

No matter what way you look at Solid Energy, its board and its shareholder - the two supposed counter-weights to former chief executive Don Elder's hypnotically persuasive strategy to make Solid Energy far more than a coal company - were asleep at the wheel while Elder built his empire.

Perhaps that's because the Cabinet had turned down Elder's request in 2009 for a multi-billion dollar capital injection to allow Solid to become a major player in the oil and gas sector, as well as pursuing coal, lignite and renewable energy opportunities.

Did that mean officials at the Crown Company Advisory and Monitoring Unit decided Elder could come to no harm pursuing what Prime Minister John Key said should only have been "baby steps" to the much larger vision?

Perhaps. It's worth remembering CCMAU was folded back into the Treasury not long after that because its monitoring wasn't seen as rigorous enough. Months later, the newly constituted Crown Ownership Monitoring Unit began seeking independent valuations that showed a yawning gap of more than a billion dollars between Solid Energy's and external analysts' view of the company's value.

However, even with these warning bells ringing, Elder continued to pursue the environmentally dubious lignite project, pumping $29 million into a lignite briquette demonstration plant in Mataura which is completed, but may now never open.

Likewise, even as he presided over $151m of asset writedowns and a $40.2m loss for the last financial year, Elder was still talking up what he said were Solid's world-leading potential to develop coal seam gas deposits in Taranaki.

Of course, there were reasons to have some confidence in Elder. Over 10 years, he'd taken the moribund remains of Coal Corp and turned them into a profitable company that also strove to reposition coal mining as a business capable of being run with environmental sensitivity.

The controversial relocation of native snails from one place to another occurred under his watch. He claimed the company could offset all its environmental impacts.

In pursuing such worthy causes, Elder was hardly alone in taking his company into commercially entrepreneurial areas that suited Prime Minister Helen Clark's green ambitions.

The two Meridian Energy ceo's since Keith Turner have had to close down various sub-scale, non-commercial adventures in the likes of energy efficiency consulting, electric vehicles, and home-sized personal gas-fired power plants, among others.

Mighty River Power's recent abandonment, after five years, of a 10 year global geothermal private equity partnership is further evidence of an SOE discovering a good idea on paper can often involve costly learnings.

Senior managers at privately owned Contact Energy and TrustPower have enjoyed sneering over the fence while their SOE competitors have sluiced out the feel-good stuff that didn't make money, and in a sense, Solid Energy's clean-out is simply a much more serious version of the same trend.