Solid Energy debt expansion was all its own work, say its former leaders

Thursday 14th March 2013

Solid Energy opposed the government's pressure to load more debt on its balance sheet in 2009, but the biggest driver of the $389 million debt that has driven the company into crisis were decisions of its own to invest in the open-cast Stockton and underground Spring Creek mines.

The financially distressed state coal miner's former chairman and chief executive, John Palmer and Don Elder, spent nearly two hours being grilled by Parliament's commerce select committee on where blame lies for the fact the company is now in discussions with its bankers for a bail-out.

However, attempts by Labour politicians to pin blame for the issue on ministers' actions fell largely flat.

Both Palmer and Elder conceded errors in decision-making which saw the company invest in new areas of potential, including bio-fuels and conversion of lignite to fuel and urea.

After the hearing, Palmer also admitted there had been a prolonged difference of agreement with the government on Solid Energy's strategy last year as the international coal price crashed.

Labour MP Clayton Cosgrove led the charge to try to pin blame for the failure on the government, concentrating on demands in 2009 by then State-Owned Enterprises Minister Simon Power to increase the debt on Solid Energy's balance sheet.

However, while the company's former leaders disagreed with that approach, Palmer told the committee the "biggest single contributor" to the company's $389 million was investment at Stockton, which remains open, and Spring Creek, which Solid has mothballed. That was despite spending some $30 million to buy 50 percent of Spring Creek earlier in the year.

In heated tones before a packed public gallery in the select committee hearing room, Palmer defended those decisions, saying Spring Creek had been closed several times to retrain the workforce and improve the mine's poor safety record.

The alternative was "a situation like Pike River."

In closing remarks, Palmer - who also chairs Air New Zealand - called for understanding of the need for businesses to be able to take risks.

"I'm willing to acknowledge that we made some mistakes," he said. "But it's very important for New Zealand that we have a risk culture that says taking risk in business is crucially important.

"For someone who's been in business, and volatile businesses, for a lifetime, you take risks and they don't always work. But I have no regrets with the path and the strategy we set out and some regrets that we didn't perform as well as we could have."

Elder expressed regret for the 440-odd jobs lost as a result of Solid Energy's restructuring, announced after a $40.2 million loss in the half year to June 30. Further losses and capital writedowns are expected in the full year financial result, which is now due.

Cosgrove did score some significant points, particularly establishing that Elder had made himself available to appear at a hearing last week, and that the acting chief executive Garry Dyack had been aware of that.

Dyack gave the committee to understand that there had been no such offer, leading Cosgrove to assert the committee had been misled, which is a serious protocol issue and a breach of parliamentary privilege.

Under questioning from Cosgrove, Palmer also conceded it was "unusual" that he had reapproved Elder's employment contract on his last day as chairman, but that he'd "perhaps been remiss" in not reviewing his contract regularly during his six year tenure as chair, which ended last June.

Elder resigned in February ahead of the announcement of emergency talks between Solid's bankers and the Treasury.

He told Green MP Gareth Hughes the company had spent around $50 million on developing its lignite proposals, including an unopened demonstration plant, and a further $80 million for land, which is now for sale.

BusinessDesk.co.nz

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