Debate on Crown Entities, Public Organisations, and State Enterprises — Solid Energy New Zealand Ltd

It is a pleasure to take a call, in this Crown entities debate, on the very serious situation in Solid Energy Ltd. Firstly, may I compliment the members of the Commerce Committee, in particular my colleague the Hon Clayton Cosgrove, who cannot be in Parliament today, on the quality and thoroughness of the report that we have before us. It makes for very sobering reading because it is an absolutely textbook case of how not to govern and manage a State-owned enterprise.

If this National Government does not believe in the State-owned enterprises model—quite obviously, because it is trying to privatise many of them—it is because it considers itself incapable of exercising the proper governance over it. The Government has been asleep at the wheel of Solid Energy. It has built up $400 million in debt, it has cost to date over 400 lost jobs, and it has seen a once-proud and innovative company brought to its knees.

Let us consider how this occurred, but, firstly, can I just comment on behalf of my colleagues on the difficulties that the Commerce Committee had in bringing Solid Energy to account. Indeed, my colleagues believe that Solid Energy misled and obstructed the committee in regard to the availability of Dr Don Elder, the former chief executive of the company, to be able to testify to the committee. As I understand it from the committee report, it was only when Dr Elder’s lawyers wrote to Solid Energy instructing it that if he was not able to appear, the company must declare that he was available to appear. Only then did the company relent and allow him to perform his constitutional duty and testify to the committee. By all reports he did so with a straight back, as did the outgoing chairman, John Palmer.

That leaves us with a riddle to solve—a riddle that is very important to New Zealanders because they want to know how come this Government oversaw the loss of half a billion dollars of their taxpayers’ money. Half a billion dollars is a lot of money in real New Zealanders’ terms, but this Government—[Interruption] There goes the chairman. There goes the chairman of the Commerce Committee. He is a decent bloke, but he was encouraged to stand aside from this hearing because of a potential perceived conflict of interest. His sister had been appointed to the board by the previous Labour Government—a very bipartisan manoeuvre. He was invited to consider and he took advice on whether he should stand aside. He chose not to. That does not mean he is in a position to shout down the Opposition on this matter.

Here is the riddle: a company that had a billion dollars’ worth of projects in the pipeline and was carrying less than 35 percent debt suddenly found itself in the situation where the Government was encouraging it to up its debt levels at the very same time that the coal price was plummeting to historic lows. How was that possible? Well, it so happens that Treasury was, in fact, intensively monitoring Solid Energy at the time, but Ministers did nothing. Indeed, Ministers insisted that the gearing be increased so that the dividend could, naturally, be increased. And that is like a sailboat sailing into a storm, not sheeting its sail but putting up more sails, more debt, even though it was getting rougher and rougher.

It was not bad enough to load up the company with debt at the Government’s behest, but the company completely lost control of costs. Do not take our word for it. Here are the facts: $1.8 million was spent on overseas travel—$1.8 million, which is more than the Cabinet—in 2011-12, and there was $336,000 spent on advertising, over a million dollars on communications, nearly $200,000 on spin doctors and public relations, and one that really gets me, $200,000 on private investigators to run investigations on ecological campaigners. That is a travesty, and all at the time—[Interruption] Yes, and it reflects this Government’s view of civil rights: “Got a problem with spying? Change the law. Got a problem with sleazy deals? Bind future Parliaments.” Members may smirk. It is not going to take long before the public has a gutsful of that carry-on.

Following that speaker, the Hon David Cunliffe, it is very important to understand that through this process there have been a lot of numbers bandied about. We know that Solid Energy ended up in February in a situation where $390 million of debt was carried on its balance sheet, yet we hear from the previous speaker that, no, it is $400 million, and then, within seconds, it is half a billion dollars. How can we trust anything that comes out of those members’ mouths when such exaggeration takes place in debates like this?

Page 5 of the report of the Commerce Committee says: “We asked Dr Palmer whether during his time as chair of Solid Energy the Crown had requested that Solid Energy increase its gearing. He confirmed that it had, and that the aim of doing so would have been to ‘ensure that there was more cash available … which would ultimately increase the dividend yield.’ ”—through a process. “We asked Mr Palmer ‘Has ever a shareholder asked you to borrow to pay the dividend?’ He replied, ‘No. There was no request for that.’ ” The next sentence says: “Labour members do not accept Mr Palmer’s explanation.” So even when it came out of the horse’s mouth, these guys would not accept it.

We know, from further on, that they ignore the international economic context. They want to lay all the blame at the Government’s feet. They want to do all of that. They said in their minority view report: “The brief amount of time given to the appearance of the current management of Solid Energy as well as that given to Dr Elder and former chair John Palmer meant that many questions about Solid Energy were unable to be asked by the committee.” They went on to say: “The hearing of just two hours of evidence meant that many questions from committee members were not able to be addressed”. We have the recorded transcripts, which show that we had 3 hours of hearings, yet Labour members put in their minority view that there were only 2 hours. Answer that.

There were “many questions from committee members [that] were not able to be addressed in full.” Listen to this. How many questions do you think the Labour members submitted to the Commerce Committee to be sent to Solid Energy in that review? Two hundred and eighty-five.

💬 Hon Member: What?

Two hundred and eighty-five. This was the thickest, biggest, longest select committee report of a financial review probably ever in the history of this Parliament, and we had tremendous answers. Yes, a straight bat, yet the members of that committee from the other side of the Chamber distort the truth. They distort the facts. They come up with all sorts of things that make it unclear for New Zealanders to know exactly what happened.

After Mr Palmer and Dr Elder talked about the international global situation regarding coal prices, the lead member of the committee from the Labour side said: “Now I want to ask you some substantive questions.”—after we had understood all about shale gas from the United States of America and how that had caused coal companies to collapse, after we had heard everything about how in China a 33 percent reduction in steel milling had taken place, and after we had heard all about how coal companies in Australia had lost 50 percent of their value when the stock market had increased and how in the United States 42 percent of the value of coal companies had dropped when the Dow increased at the same time. We understood that there are significant global pressures around the price of coal, how this had affected the market, and how everybody around the globe was taken by surprise at what happened, yet all of this is completely ignored—all of this is completely ignored—and we have a tremendous lot of information put in that report from those members’ point of view that is incorrect. I would say that we have seen a very biased attitude and that we have not seen an attitude from some members of this committee who have wanted to look at the facts and report justly so.

I think that we need to understand that Solid Energy has been and is going through some very difficult times. I believe that the Commerce Committee has sought to serve this Parliament well in presenting a very thorough report, with the exception of those instances that I have raised of blatant inaccuracies and blatant refusals to believe what the former chair brought to the committee. Why? Because it did not suit those members’ agenda. Their agenda was to try to lay—

If you ever want a perfect case study of incompetent National Government oversight, then this is it. In 1998, when the last National Government was in power, it was determined to start selling off State-owned assets. It indicated to Solid Energy that it wanted it sold, and this company was brought to its knees. It was bailed out by the Government in 1998. Labour came in in 1999, the Labour Government said “Get on with the job of mining.”, and this company became an export leader, with prizes and recognition for its export growth. And 5 years into the next Tory Government, this company is on its knees because the Tory Government, the National Government, refused to provide proper oversight.

Yes, there are challenges in the coal industry. There are a number of coalmines operating profitably, surviving on the West Coast, but not Solid Energy. The problem with it is that the miners are the ones who have paid the dear price for the incompetent oversight by the National Government. We had a company running around like a bunch of drunken sailors spending money all over the place—bonuses, for example—when there were clear indicators of challenging times in the international coal market. This is a classic case of Tory oversight.

Bonuses were offered to employees—a fact that was told at the Commerce Committee. Where did that money go? Well, $1.3 million went to employees on collective agreements. Who are they? They are the miners, risking their lives day in and day out. What about the $9.7 million that went to employees on individual contracts? The managers, the people sitting on their chuffs in the palace in Christchurch, got the $9.7 million, and that Minister and the National Government approved that and signed it off. No wonder the company is almost $400 million down the gurgler, because the Ministers were asleep at the wheel.

We had the chairman of the Commerce Committee quoting Mr Palmer and Mr Elder on what they told us at the select committee. The only reason they were there is that the Labour members on the committee insisted that they turn up. It was Mr Ford and Mr Diack who came along to the committee first up and said that Mr Elder did not want to come along. That was a lie. That was a lie, and the Labour members do not accept the explanations given. Mr Palmer also said that they were not setting up Solid Energy for any sale process. Well, clearly in the documents that was one of the objectives of the shareholding Government and Ministers, and Mr Palmer has been a long-time champion of part-privatisation. I like John Palmer and I respect him, and he has been out on the front foot, in the media, championing part-privatisation. I do not believe for a moment that that objective was not part of the problem that Solid Energy got itself into.

It was trying to do two things. Firstly, the Ministers insisted on gearing the company up so they could get a greater dividend, which put pressure on a mining company. That is not traditionally the way you run a mining company. The board objected, the Ministers insisted, and so the gearing went up. At the same time it was trying to—had been told to—set the company up for part-privatisation. That formula was disastrous. The chief executive and the company were trying to diversify at a time when, again, the National Government stepped in and took off the mandatory obligation of biofuels and undermined what could have been a good initiative. It was admitted by the chairman, the former chairman, and the chief executive that biodiesel might have worked if the mandatory obligation had not been taken away by the National Government.

There was $400 million down the gurgler. Almost 500 miners have lost their jobs on the West Coast, and a few managers have lost their jobs. In fact, the last announcement was 109 people. Half those people lost their jobs in the regions of New Zealand where they mine. Only half of those, about 59, lost jobs in Christchurch. I feel sorry for those people, but the reality is that the West Coast and the miners, the people who risk their lives in Spring Creek Mine and all the other mines, were the people who were not getting the bonuses. They were the people who got kicked out of work—[Bell rung]—and the chief executive and—

The CHAIRPERSON (Lindsay Tisch): Order! [Interruption] Order! Otherwise the member will take another call.

Report noted.

Learning Media Ltd

💬 Catherine Delahunty: Mr Chair—