Solid Energy 'wanted to be resource giant'

00:48, Mar 15 2013

Solid Energy approached the Government with a $27 billion plan to turn itself into a New Zealand resource giant.

Documents released by the Beehive minutes before John Key was due to face the media today, show that in 2010 the state owned mining company wanted to take over Crown-owned oil  and gas permits as well as move into iron sands.

This was part of a plan to become a national resources company (NRC).

As well as coal mining, the company wanted to move into lignite conversion, unconventional gas.

Treasury documents show officials believed it would require $2-$3 billion in investment, with total investment of $27 billion.

Simon Power, State Owned Enterprises Minister at the time, wrote to Solid Energy chairman John Palmer that ''Ministers are encouraged by the vision of Solid Energy'' in developing the plan, acknowledging the work that had gone into the proposals.

''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's mineral resources''.

Ministers did however support the current activities, as well as moves into lignite and unconventional gas.

Key told the media the questions backed up his claims that the company had approached him seeking $1 billion in investment, and in fact it had sought more.

According to Key the plan ''absolutely required, as Treasury pointed out, somewhere between two and three billion dollars of comittment'' to transform into an NRC.

''The expectation was the Government would make that [plan] work and the only options were the Government put in the money or the Government sell.

''We already made it publicly clear and he was well and truly aware of it. We were never going to sell offshore, and so by definition as I said, they needed lots and lots of money to make it work.''

Yesterday Palmer had said he had no recollection of asking the Government to inject cash.

The Government had not released the proposals which Solid Energy put to it, but Key was adamant the documents backed his claims.

''In the end the paperwork speaks for itself, they want to have a national resources company, there was actually some logic in what they were saying, it was a big and audacious plan,'' he said.

''It's a question of how you can fund such a proposal.''

The Treasury report on the proposal recommended against it because it used an ''aggressive'' set of assumptions about the future oil price, claimed there was a narrow window of opportunity, that ''supernormal'' - extremely high - profits would come from the plan which could not be captured through other means.

''We consider that [Solid Energy] should focus on areas where it has specific capability and resources (coal, lignite, non-conventional gas), and that Government's role would therefore be limited to supporting [Solid Energy]'s investment decisions based on major business cases.''

According to Treasury the plan would have required Solid Energy to suspend dividend payments, be given "indicative" approval for capital investment of $2-$3 billion, take ownership of Kupe and other Crown oil and gas permits and be given first right of refusal on all future permits, or those which had been cancelled or released to the Crown.

Neither Palmer nor former Solid Energy chief executive Don Elder mentioned the plan during a two hour select committee hearing grilling in Parliament yesterday.

Labour leader David Shearer said Key had ''scored an own goal''.

"John Key claimed he rejected a bid from Solid Energy for a billion dollars. Former chairman John Palmer says he never asked for a billion dollars.

"These documents don't show Solid Energy asking for a billion dollars and the letter from Simon Power doesn't show him rejecting a request for a billion dollars. So who is telling the truth?'' Shearer said in a statement.

"What the documents do show is that Solid Energy wanted to create a massive new company by raising capital through 'external' sources rather than the Crown. The only financial request they made to the Government was to retain their dividends.''