Editorial: Putting it right

The chief executive and the chairman and board of Solid Energy are gone but the search for someone more to blame for the apparent insolvency of the company is likely to run and run.

Since the company is a state-owned enterprise and therefore ultimately controlled by the Government, that search has inevitably led to political point-scoring.

The Government has already said that Treasury scrutiny of Solid Energy's books last year as it prepared for partial sale had revealed a company with over-ambitious expansion plans, hefty overheads, runaway capital expenditure and pumped-up salaries and bonuses for senior managers.

When coal prices fell catastrophically over just a few months last year the $389 million debt the company had built up left it overextended. It was presumably for those misjudgments that its top officers have paid, although Prime Minister John Key has also said that more would be told about the reasons for the company's near collapse in time.

Without waiting for that, opposition parties have sought to suggest that the Government itself was at fault for failing to provide firmer oversight of the company's activities. The criticism smacks very much of the kind of 20-20 hindsight that often emerges after company collapses.

As Key pointed out on Monday, the Government in 2009 clearly signalled its doubts about Solid Energy's expansion plans when it declined a request for a capital injection of about $1 billion to finance them. Beyond that, it is difficult to see what the Government could do.

The Treasury has a unit to monitor the governance of Crown entities but it cannot be expected to be equipped to second-guess the commercial decisions of a well-qualified and informed board of directors and the company's management.

Only the most starry-eyed of admirers of "hands-on government" could believe that bureaucrats or politicians can consistently make better decisions about the running of large and complex enterprises than those properly appointed to do so.

Key hit back at the criticism by linking Solid Energy's over-ambitious plans for expansion to a speech by the then Labour minister for SOEs, Trevor Mallard, advocating generally for such expansion. That is far-fetched.

The State-Owned Enterprises Act says the principal objective of every state enterprise shall be to operate as a successful business and, to this end, to be as profitable and efficient as comparable businesses that are not owned by the Crown, while also being a good employer and socially responsible. Nothing Mallard said should have induced the directors to depart from normal business prudence.

It is clear now that Solid Energy should have adjusted its strategy more swiftly to the fall in coal prices. But given the fuss created when the company finally did react and the to-do being raised now about lay-offs made by other, still profitable, SOEs as they meet changing business conditions, one can see why it might have been hesitant to act precipitately.

All the political toing and froing is largely beside the point, though. While it may be useful to find out what went wrong, the more important task now is working out how to put the company back on a sound footing.

That is something of great interest not just to Solid Energy people on the West Coast and elsewhere but also to others who depend on it for business, not least KiwiRail and the Lyttelton Port Company, who handle most of the company's export coal.

The Press