Solid questions still remain unanswered

TRACY WATKINS
Last updated 05:00 16/03/2013
Don Elder
MARCUS WILD/Fairfax NZ

HOT SEAT: Former Solid Energy boss Don Elder is grilled by MPs at a Parliamentary select committee.

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OPINION: Finance Minister Bill English found himself wishing out loud this week that if only Solid Energy had been flogged off a few years ago we would all be better off.

Certainly it would have saved some Beehive staffers from having to burn the midnight oil as ministers tried to counter the widening fallout over decisions leading to the collapse of the State Owned Enterprise (SOE).

It is probably a moot point, however, whether the Crown would have got the $3.5 billion Solid Energy claimed to be worth back then if National had pursued its asset sales agenda more aggressively.

If it was the basket case ministers claim, any buyer doing due diligence probably would have spotted what the only shareholder – the Government– apparently failed to notice till it was too late.

There is no shortage of finger pointing over the collapse of the company.

Most of those fingers have so far pointed in the direction of former Solid Energy boss Don Elder and former chairman John Palmer.  

Between them, the two men have a business pedigree that reads longer than the life cycle of most governments. Mr Palmer has a blue chip reputation from his time chairing Air New Zealand.  Dr Elder was for years the doyen of the South Island business community.

The pair are clearly also close. Mr Palmer this week revealed he joined the board of Solid Energy in large part because of Dr Elder’s reputation. He was also vociferous in his defence of Dr Elder, telling media he was “appalled” at the way his former associate had been vilified over Solid Energy’s collapse.

That obvious chumminess has raised eyebrows in some quarters. As one former chief executive noted, it’s not usual or desirable for a CEO and their chairman to be so friendly. It is healthy for there to be some distance and creative tension between them.

Certainly, government ministers have wasted no sentiment on sparing the reputations of either man as they combat Opposition accusations they were asleep at the wheel while a former jewel in the SOE Crown hurtled toward collapse.

Ministers from Prime Minister John Key down have unceremoniously pulled apart Solid Energy’s financial management under the former board and CEO.

No one in the Beehive bothered too hard, meanwhile, to defend Dr Elder once it emerged he had been at home on full pay since resigning just days before the Government revealed the company was in crisis talks.

So it’s no wonder the appearance of Dr Elder and Mr Palmer before Parliament’s commerce committee was such an eagerly awaited event.

Packed to the rafters with lawyers, media, officials, party functionaries and lobbyists – some onlookers had to resort to sitting cross legged on the floor – the committee room was the venue of an extraordinary two hour grilling.

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.

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Understandably, Mr Palmer and Dr Elder were keen to avoid looking like they had turned up with the sole purpose of dumping on the Government.

But the Opposition did not have to work hugely hard to get an admission out of them that the board had vociferously opposed the Government’s 2009 request for bigger dividends and increased gearing.

Since Solid’s debt levels were cited by Mr Key as one of the indicators of reckless management, the Opposition did not have to draw too long a bow to link that back to the Government.

Mr Palmer also directly contradicted Mr Key over his claim that Solid Energy went cap in hand to the government wanting $1 billion plus for an ambitious expansion plan.

That of course is the ammunition the Opposition needed to turn the story of Solid Energy’s collapse from one about management failure, into a story about Government economic mismanagement.

No wonder the Government went on a war footing the following day.

Mr Key’s office dumped documents revealing the extent of Solid’s ambitions under the former management.

Those plans included turning the State coal miner into an uber mining company with preferential rights of access to New Zealand’s hydrocarbon and mineral resources spanning coal mining, lignite conversion, conventional oil and gas exploration and production, iron sands mining and steel production and methane hydrates exploration and production.

So it wasn’t just a $1 billion-plus  plan – it was a $27 billion plan. That didn’t get a mention during the select committee hearing.

It doesn’t take much reading between the lines to figure out that officials were sceptical – and in some cases downright disbelieving – of the company’s plans when they were put to the Government before the last election in 2010.

They got the official kiss off pretty quickly and not just because it seemed pie in the sky; officials were extremely dubious of the costings and returns provided by Solid Energy to back its case.

Mr Palmer argues that Solid never asked the government for money; its plan was to find private sector capital by flogging off a stake in the company overseas. They had, it turned out, already started talking to a number of international players.

Mr Key’s position is that since the Government had firmly ruled out asset sales in its first term, Solid Energy can have been left in no doubt that the Crown was the only possible source of funding.

Certainly, the notion that the government might let an SOE start touting for overseas investors on the quiet, while publicly maintaining a position against selling assets offshore, suggests a level of naivety on the part of the former board and CEO.

On its demand for higher dividends and increased gearing, the Government is more vulnerable.

But the real story of Solid Energy’ failure is one of financial mismanagement by the company.

If there are questions about government culpability, it is only over the extent to which officials and shareholding ministers should have exercised greater oversight.

A scoping study commissioned by the Government back in 2011 when it was sizing up SOE’s for partial privatisation laid bare problems with the company. In Mr Key’s words those problems included “a different price for coal than what we thought and they were going down a different direction than what we’d agreed with the board”.

Add to that some of the dubious costings used to bolster Solid’s 2010 bid to reinvent itself as the Petrobas of the South Pacific and the alarm bells should have been ringing.

Mr Key suggests they were, and they had been in long running talks with the company.

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.


- Fairfax Media

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