Ministerial Statements — Solid Energy—Voluntary Administration

I wish to make a ministerial statement under Standing Order 356 in relation to Solid Energy going into voluntary administration. Today the board of Solid Energy has placed the company into voluntary administration. This follows months of negotiation with key stakeholders, who have agreed to put a proposal to creditors that provides for an orderly sell down of assets over the next 2½ years.

This decision to place the company into voluntary administration was made after it became clear that, even with significant operational improvements, the falling international coal price means there is no prospect of Solid Energy being in a position to repay or refinance its bank debt. Solid Energy owes $320 million in bank debt, some falling due in September of 2016, and overall has exposure of close to half a billion dollars. As a result of the considerable efforts of its board and management, officials, and lenders, Solid Energy is certainly a much more efficient and effective business today than it was 2 years ago. But the reality is that there is still no prospect of the company being in a position to repay or refinance its debt or access the capital that it would require to invest for the future.

An orderly sales process of Solid Energy gives the best chance that parts of the business can continue to operate under different ownership in the future. If the creditors agree to the proposal, the company will remain solvent during the process and can continue to carry on its normal business under its existing board of directors. Payment of employees and trade creditors will continue on a business-as-usual basis, and customers will continue to have access to coal. Under the terms of the restructure, existing Crown indemnities for site rehabilitation costs are being restructured to assist the sales process and to provide certainty for affected local authorities. Solid Energy is currently exiting and rehabilitating the Pike River mine site. Once it completes this process, the land will be returned to the Department of Conservation. Through the voluntary administration process, Solid Energy remains committed to this work.

The Government has provided intensive support to the company, in an attempt to make it viable in a highly challenging international coal market. Over the past 2 years directors, management, banks, and the Government have restructured the company’s finances and its operations. This has included commitments of taxpayer support totalling more than $250 million. In 2013 the Government negotiated a financial restructure package that saw Solid Energy’s banks contribute $75 million in equity to the company. The bank also contributed $25 million in equity and offered $130 million in low-risk secure loans for the company to use. In 2014 remediation liabilities totalling $103 million were transferred from the company to the Crown, which strengthened the company’s balance sheet so it could continue trading.

However, the international coal price has fallen from over US$320 per tonne in 2011 to around US$85 a tonne this week. Forecast recoveries of the coal price have repeatedly failed to eventuate. This low price coupled with the significant levels of debt means that the company is no longer sustainable. The Government was prepared to provide further support for the company if there was a reasonable chance it could be made viable. We have worked intensively with the company and its bankers on a number of options for the company to continue operating, but, unfortunately, none of these proved feasible. The Government’s focus will continue to be to invest in our core business of public services, which we believe is the best way for us to achieve our goal of higher living standards for New Zealanders. The Government has been in talks with affected councils over the past month, and I have this morning spoken to the mayors of these districts to thank them for the constructive way that they have worked through and supported this proposal. This voluntary administration offers the best chance for trade creditors to be paid and for employees of Solid Energy to continue employment in these regions.

I raise a point of order, Mr Speaker. I would like to draw your attention to Standing Order 356(2), which states pretty clearly that if a Minister is going to make a statement, the copy of the statement should, if possible, be delivered to the leader of each party before it is made. To my knowledge, that did not happened, and I would like to seek some assurance, first of all from the Government, that that will happen in the future when these statements are going to be made, as has always been the practice of the House, and secondly, from you, that for any consideration that you may be giving after question time to other debate on this matter, you will take that into consideration and will not be affected by the fact that the Government has made this statement without giving any notice of it to the Opposition.

My office did deliver copies of the statement that I have read in the House, to the best of my knowledge, just after 1.30 p.m. today.

💬 Hon Member: Point of order.

Is it in relation to this matter? Let me just rule on this matter. I would certainly anticipate that the Government would have sent such copies of this statement. That is not a requirement of the Standing Orders but it certainly says that it is possible to do so. I can assure the member that decisions that I make subsequent to question time are made quite independently of what happens with regard to ministerial statements.

💬 Hon Gerry Brownlee: Mr Speaker—

Is it in relation to this matter?

I raise a point of order, Mr Speaker. Well, yes it is, because the shadow Leader of the House did say that he was seeking some assurance. I think the comment that has been made by the Minister concerned is reassuring. It is always our practice to comply as much as possible, as the Standing Orders require of us. I hope that he accepts also that I have tried very much in the time that I have been in my current role as Leader of the House to ensure that parliamentary procedure is as inclusive as is possible of all those who are a part of it. So this is a bit disappointing. It now appears that perhaps some other communication might not have occurred that should have. In any event, I hope that the House accepts that we are not trying to be in any way obfuscating our responsibilities. Indeed, that is why we are having a ministerial statement.

This is indeed a very, very sad day, and I start by saying this: I hope Tony Ryall, the former Minister for State Owned Enterprises, wherever he may be, is listening very, very—

💬 Hon Gerry Brownlee: Mr Nasty.

—carefully to this. No, no, Mr Brownlee says “Mr Nasty”. The Mr Nasty in this piece is a Government that rammed this company into the ground—rammed this company into the ground.

Between 1999 and 2008 Solid Energy was an award-winning export company delivering hundreds of millions of dollars to the taxpayer. In 2009 the Government’s first act by the then Minister for State Owned Enterprises was to write to that company and demand more dividends. As a result of that, it took $164 million worth of dividends from that company. The Government expected the company, in that letter, which will be tabled later today, to ratchet up its debt level, which it did to around, I think, $313 million. And then when the coal price moved and its own scoping consultants, who were in there to scope Solid Energy for sale, reported back in 2009-10 that the ship was heading for the rocks, the Government did nothing. It did absolutely nothing. The alibi to the New Zealand people for hundreds of millions of dollars of waste, and for probably further hundreds of workers losing their jobs, is: “Oh! The coal price devalued.”

Well, that is true. The coal price devalued, the markets dried up. Any village idiot on that side of the House could have read that in the paper. The question before the New Zealand people that the Government has never answered is a simple one: why, when it saw that happen, did it not react? Why did it do absolutely nothing—absolutely nothing? There was the photo, of course, of Mr English allowing outlandish expenditure, opening the lignite path; sexy coal from Mr Brownlee—that is an oxymoron—allowing outlandish expenditure, where management spent until it dropped, where management and executives, particularly the then chief executive officer, was allowed to get a massive golden handshake for sitting at home. Why did the company not react? Other coal companies around the world reacted.

I have worked in the minerals industry. I have worked there. I know what happens. I know what happens when the commodity price moves and companies react within days. Coal companies around the world reacted at the same time within days, and they are surviving and they are profitable today. These people were derelict in their duty.

On 5 June 2012 Minister English and then Minister Ryall put the company under month-to-month close watch, and still they did nothing. There is a pile of papers metres high that the Government itself released from Treasury and other agencies, warning, since 2010, that this company was heading for the rocks. It has never ever told the New Zealand people why, unlike its international counterparts, it did not react. It blocked every parliamentary inquiry. The only person who has been able to have a quick look at this was the Auditor-General. Yet Mr Brownlee, interjecting, and Mr English, and then Mr Ryall, and today Mr McClay have never given an explanation as to why they did nothing. No Minister has been accountable. No one resigned. No one was sacked. No one on the board was sacked. No one in management was disciplined.

💬 Hon Gerry Brownlee: That’s not true.

That is absolutely true. They resigned and they ran as the ship sank. No one was required to go. But the people who paid the price and who are paying today are the hundreds of staff on the coalface, literally, who keep the show on the road—West Coast miners. The company could have reacted.

What could the Government have done? It could have called in the management and the board and said “Where’s your B plan?”, like every other coal company around the world did, and survived. If the board had said no, the Government could have sacked the board. No, it did nothing. Or it could have changed the statement of corporate intent and then put some direction in. These were the tools that this Government could have used.

As Mr Brownlee grins away, and as people worry about their jobs, and other people on the West Coast are looking for jobs as a result of his Government’s inaction, they will note that down. I say to the Government: come clean. I say to the Government: for once, since taking office in 2008, explain to the New Zealand people why you took no action—why you refused to intervene on the board, why you allowed the outlandish expenditure, and why no one from the Government, the board, or management has ever been held accountable for this. The Government members sit there, as they wasted $389 million of taxpayers’ money, and point the finger at everybody else. Well, the buck stops with them. They should get up, and the Minister of Finance should make a ministerial explanation today and explain why he sat there with Tony Ryall, the Government, and the Prime Minister, and let Solid Energy be run into the ground.

I would like to start by saying that the Greens’ sentiments and our thoughts are with the workers, their families, and the communities on the West Coast and in Huntly. They are facing a time of unease and of great uncertainty, and our thoughts are with them. I would also like to start by acknowledging the local communities—the councils, the mayors, the Amalgamated Engineering, Printing and Manufacturing Union, and hard-working local MPs like Kevin Hague and Damien O’Connor. What we have seen is—

💬 Hon Members: Ha, ha!

It is not really a time for laughing, guys. What we have seen already is that 500 workers in the Buller region are to lose their jobs, and what has the National Government done? It has not lifted a finger for the 500 workers who have already lost their jobs. Yet, today, what we see under this decision is a short-term band-aid with no long-term solutions for the region.

What the people of the West Coast, of the Waikato, and of all of New Zealand want to see us do is work together for solutions. They want to know what the future is for those communities post coal. I remember growing up in Gisborne and seeing the hundreds of men laid off at the freezing works where my father worked. I know a little bit about the pain, the suffering, and the uncertainty it brings to small provincial communities, and this is what the West Coast is going through today.

Obviously, the problem is the price of coal. Having sat on the Commerce Committee and having followed this issue for many years, it has been like viewing a slow-moving train wreck. What we have seen is Ministers who have been overconfident about Solid Energy, who have overvalued it, overgeared the debt ratio, and taken out too many dividends. What we saw, unfortunately, was a State-owned enterprise taken to the brink. It was part of coal. We have seen consumption decline in the US, in China, and across the world. Coal and the price was always the problem, yet it always seems to have been the Government’s only answer to that same problem. To paraphrase the old saying: if you find yourself in a hole, it is time to stop digging—yet the only answer has been more digging. Last year, once again, more was invested internationally in renewables and clean energy—$150 billion invested last year alone—yet the answer has always been more coal.

Obviously, the Government needs to take responsibility. We saw the debt-gearing issue, which was outside the bounds of typical coalmining companies internationally. We saw the dividends taken out to generate cash. We still never got an answer as to why the Ministers did not require a halt to the culture of excess at Solid Energy. We saw a headquarters known as “the Palace”. We saw $23 million in bonuses paid out while the company was going belly up. We saw this company spend $64 million on a coalmine that it closed only a month after it purchased it. The Government waited until the absolute last moment to lay off and replace the board of directors, and then we saw the grandiose house of sand plans of the former Dr Don Elder.

The sum of $230 million dollars was borrowed and spent on fossil fuel non-coal alternatives. We saw the lignite mining, for which we saw the finance Minister turn the first sod, and which the Prime Minister supported in this House. This Government is complicit in the absolute waste of taxpayers’ money with some of the most polluting fossil fuel types of coal, and the support for lignite and for underground coal gasification. After all of this, the Government still refused an independent inquiry.

So today we see the deal, which, hopefully, will act as a short-term reprieve. I understand that redundancies have been guaranteed for at least 5 weeks for those 540 staff and 200 contractors. It is good to hear that those workers are protected and provided with some certainty. It is a short-term solution, though, with no long-term certainties.

This is where the Government needs to look. We have reached out to the Government to work together. Together we can develop solutions for the West Coast economy and greater job security for the locals. It starts with making sure there is a proper economic development agency on the coast. The Government can speed up the roll-out of ultra-fast broadband on the coast. We can be investing more in skills and trades training on the West Coast and in Huntly. The Government can look to the future and to what the economic trends are. It is areas like clean energy. It is areas like home insulation. It is areas like greater science, innovation, and research and development spending.

We want to see people in work on the West Coast, and, today, even though the Government has not taken the opportunity, with all the financial mess we have seen in that State-owned enterprise over the preceding years, to start a just transition and to prepare those communities for the future jobs in the modern economy, now is the time we can start. Let us work together and support the West Coast.

Just last week we were told a man in Dubai prevented lifeguards from going to the assistance of his daughter, who was drowning. He did say it was because of his ideological beliefs. To us that seems incomprehensible: that a parent would let their own child die rather than break the protocols of a belief system that they have chosen to adhere to, based on nothing more than their unproven faith in a particular ideology. It is incomprehensible.

By the same token, it is incomprehensible that a Government could stand by and watch while a business entity owned by the State is allowed to, effectively, drown in a sea of debt because its own adherence, made by choice, to an ideology based on faith in a failed system of non-intervention prevents it from doing so. It is madness. It is economic madness to allow a business to fail, a business that is based around the extraction of a valuable resource—a resource that belongs to the nation and its people, a resource that costs us nothing, a resource for which we are not required to pay anybody else a royalty, and a resource that is valuable and for which there is a ready world market. It is economic madness for the Government to allow any such business to fail simply because stepping in to shore it up flies in the face of its own chosen ideology.

People’s lives are dependent on the viability of Solid Energy—the workers, the contractors, the suppliers, the communities based around the mines, and the regions where those mines and communities are located. I think National simply does not care. Government members might make all the right noises. They will stand in this House and spout platitudes. They will make unending references to their fine economic management and their skills in business and how the Opposition does not understand these things, and so on. We have heard it all before and I am hearing it all again today, but the truth is the Government has an agenda as far as Solid Energy is concerned. It had one right from the start and now it has found a way of bringing it to fruition.

Solid Energy’s own statement of corporate intent from July 2013 states: “In February 2013 Solid Energy entered a support agreement with its major lenders following a sustained downturn in international coal markets with the resultant impact on profitability, cashflow and balance sheet which threatened the company’s banking covenants.” So as far back as 2½ years ago it was obvious that Solid Energy was not going to be in any fit state to be flogged off with the rest of the assets this Government was putting up for sale. The Government had always intended that it be put on the block along with the power companies and anything else that was worth a buck and was not nailed down, but the downturn in world coal prices put the kibosh on that.

So instead of planning to ensure Solid Energy’s future, this Government decided it could wait for the next opportunity to come along, and it seems it has found that opportunity. Solid Energy’s press release from this morning, in point 1 of the bullet-pointed list, proclaims as the first of its key terms of its proposal: “Solid Energy will engage an investment bank and undertake an orderly, managed sale of its assets over the next two-and-a-half years.” So the Government gets its sale through a fail. This Government never had any intention of saving Solid Energy. It never wanted to. It always planned to sell it off and now that is what is going to happen.

It does not need to, of course, as was pointed out by New Zealand First only a few days ago. Air New Zealand proves that Solid Energy can be saved. Solid Energy is teetering on the brink of becoming the largest-ever State-owned enterprise to fail. Air New Zealand’s recovery proves that the business can be turned round. It is only in the mess that it is in because of incompetence by Treasury’s commercial operations group and National’s hands-off approach. We are very lucky that National was not in Government when Air New Zealand nearly went to the wall, because now it is one of the most profitable in the world. It took a Government prepared to invest in new management to effect a turn-round.

Coal is central to steel production and we have not yet touched the potential of underground coal gasification. Clean coal technologies, with hundreds of years of proven lignite reserves in Southland, will make us independent in terms of urea—or to be turned into diesel. The lack of Government oversight allowed a pile of debts to be built up. If the Government was serious about the regions, it would get off its backside and lift that debt burden so that Solid Energy under sane management could prosper just the same way that Air New Zealand has. But the Government is pressing on regardless, hell-bent on flicking off this gem of an asset to its mates overseas, which highlights the absolute farce of this Government’s ideological positioning.

If we break it down, it works like this. Solid Energy engages an investment bank and undertakes an orderly managed sale of its assets over the next 2½ years. So that means someone will buy them. Who? People with money, and that means foreigners, of course. Why will they buy those assets? Because they can make money out of them because they are profitable. No one buys a coalmine with the intention of closing it down. They buy a coalmine because there is a market for coal and that coal can be mined and sold at a profit. And if the foreign buyer can mine the coal and sell it and make a profit, why can the State as owner not do the same thing?

I thank my colleagues for their comments, and I have welcomed this debate.

The Government has intensively been involved with the Solid Energy board over an extended period of time, but the reality is that a previous board made investment decisions at a time when the coal price was very high—indeed, when that price was at the top of the market. That price has gone from $220 a tonne down to $85 a tonne this week.

With the debts and the price forecast, this is no longer sustainable, but, indeed, this is a worldwide problem. There is coal on the seas on ships at the moment that people do not want to buy. A year or so ago, a coalmine in Australia was bought by an American company for $1 billion. Last week that company was sold for $1.

These districts are resilient. The proposed agreement means that the businesses will be paid, and they continue to trade. It also means that employees will be able to go to work tomorrow. But I would caution the House that over the next 5-week period, if the creditors do not agree to the proposal, then there are very few options left available to the Solid Energy board.