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→Solid Energy’s road to disaster: CANA update
In 2012 the Government confirmed that it would extend support to Solid Energy to keep the company operating. This support, extended in September 2014, included $103 million in environmental remediation costs. .<ref> Business Day, 13 August 2015, [http://www.stuff.co.nz/business/industries/71101446/bill-english-admits-government-will-recover-nothing-from-solid-energy-sale “Bill English admits government will recover nothing from Solid Energy sale”], accessed September 2015</ref>
==Solid Energy’s The road to disaster==
===1999–2005===
When Don Elder became Chief Executive (CE) of Solid Energy in May 2000 he put into motion events that would in the short term lead to greatly increased coal production and cash flow, but would, in the long term bring the company to its knees.<ref>Milford Asset Management, 2 February 2013, [http://www.milfordasset.com/buck-stops-with-the-solid-energy-board “Buck stops with the Solid Energy Board”], accessed July 2013</ref>
Back in 1999 Solid Energy was facing significant issues resulting from the Asian crisis. Poor performing foreign currency deals had resulted in the Board being replaced, banking facilities being renegotiated and the Crown offering support. The new Board chair initiated a strategic review and restructuring, and in 2000 Don Elder was appointed as CE.<ref>The Treasury, [http://www.treasury.govt.nz/publications/informationreleases/solidenergy/index.htm#trancheA “Solid Energy information release”], accessed July 2013</ref> Confounding expectations, he turned the company around and coal sales steadily increased from 2.81 Mt in 2000 to 4.46 Mt in 2005.<ref>Parliamentary Commissioner for the Environment, [http://www.pce.parliament.nz/assets/Uploads/Reports/pdf/solid_energy.pdf “Solid Energy’s environmental management systems and performance”], November 2006, accessed July 2013</ref>
===2005–20082006–2008===
Sales and profits continued to increase, but in this period dividends (of $20 M) were paid only in 2006.<ref>Business Day, 20 March 2013, [http://www.stuff.co.nz/business/opinion-analysis/8446593/Solid-Energy-Elder-thrown-overboard “Solid Energy Elder thrown overboard”], accessed July 2013</ref> From 2005 Solid Energy had a healthy cash flow every year but this was regularly exceeded by the amounts invested in mining assets, production, new developments and staff costs. The company envisaged that demand and prices would continue to increase, with coking coal perhaps reaching US$400 a tonne by 2020. At the same time, the company obtained petroleum exploration permits, believing that this would be profitable as oil markets became ever tighter. Debt levels started increasing dramatically, from $15 M in 2007 to $295 M in 2012 and then almost $400 M in 2013. Most of the growth in revenue was financed by retained earnings and borrowings as no new shares were issued to the Crown during a 12-year period.
Treasury advised a movement towards a greater private sector involvement in SOEs, while observing that partial listing would not be consistent with, “the Government’s policy to retain 100% ownership of SOEs.” This report also recommended putting pressure on SOEs to increase their gearing (ie, the ratio of debt to equity or capital) by borrowing more from the private sector and paying special dividends to the Crown. These higher debt levels would, “put increased pressure on SOEs to perform, by committing a fixed part of their future cash flow to debt servicing, meaning they must focus more on core business profitability, and on selecting new investment projects carefully.” At the same time, disquiet was expressed about the limited public monitoring of SOEs and the lack of transparency about the process.<ref>The Treasury, [http://www.treasury.govt.nz/publications/informationreleases/solidenergy/pdfs/se-1207621.pdf “Information release”], accessed July 2013</ref>
===2009-2010===
Solid Energy had a disappointing result in 2008/09, largely due to a collapse in the
international market for coking coal in November 2008, with prices declining from around $US300/tonne to $US100/tonne. Steel mill customers in India and China were delaying or cancelling coal shipments as a result of the global recession. (Later, this fall partially reversed resulting in only a temporary fall in profitability, which was also assisted by the weaker NZ$.) There was concern that reduction in operations were likely to lead to job losses at the Rotowaro mine near Huntly and also at Stockton.<ref> The Treasury, [http://www.treasury.govt.nz/publications/informationreleases/solidenergy/pdfs/se-1718961.pdf/at_download/file “Information release”], accessed July 2013</ref>
During 2009 Solid Energy started a borrowing programme to finance its growth objectives. This course of action was encouraged by the government. On 26 May Simon Power, Minister for State Owned Enterprises, told Solid Energy, “I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio. I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. I note that Solid Energy currently has a gearing target of 35%, including the company’s rehabilitation liability as if it were debt. Given that the nature of the rehabilitation liability is significantly different from debt, I am sceptical that this is an appropriate treatment . . . I would also like to . . . ensure that a larger and more consistent share of profits is returned to the Crown as shareholder. In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows.” Solid Energy was also brought to task about its failure to provide comprehensive and timely information about planned capital expenditure, performance targets and a commercial valuation of the company.<ref>The Treasury, [http://www.treasury.govt.nz/publications/informationreleases/solidenergy/pdfs/se-1875419.pdf “Information release”], accessed July 2013</ref>
An October Treasury briefing informed the shareholding Ministers that Solid Energy had made a net profit of $67.8 M for the 2009/10 year but the renewable companies were performing below revenue targets. The Ministers were asked to require Solid Energy to provide greater clarity and disclosure (the company didn’t, for example, provide financial details of the performance attribution of its differing areas of operation.) Ministers should expect to be consulted on significant developments, and receive robust business cases for consideration/approval.<ref>The Treasury, [http://www.treasury.govt.nz/publications/informationreleases/solidenergy/pdfs/se-1934268.pdf/at_download/file “Information release”], accessed July 2013</ref>
===2011-2012===
By July 2011 it appeared that previous issues still hadn’t been effectively addressed.
A Treasury briefing for a meeting with Solid Energy voiced concerns that Solid Energy had an unduly optimistic approach to forecasting future returns; had not yet provided a Draft Business Plan and Statement of Corporate Intent (SCI); and had not consulted with shareholding Ministers before lodging a bid for the Pike River assets.<ref> The Treasury, [http://www.treasury.govt.nz/publications/informationreleases/solidenergy/pdfs/se-2109328.pdf/at_download/file “Information release”], accessed July 2013</ref>
Merchant bank UBS, while assessing the company for partial privatisation, stated that it had been "unable to obtain evidence of internal or external documentation, analysis or review appropriate to support Solid Energy management and board views on commodity price paths." In December, however, Solid Energy was confirmed by Cabinet as being part of the mixed ownership model.<ref>National Business Review, 21 May 2013, [http://www.nbr.co.nz/article/solid-energy-based-failed-strategy-non-existent-analysis-bd-140430 “Solid Energy based failed strategy on non-existent analysis”], accessed July 2013</ref>
''Warning signs reach the public domain''<br>
At the beginning of 2012 very little of this information was in the public domain when Coal Action Network Aotearoa (CANA) supporters gathered for a chilly Summer Festival on the Mataura property of Mike Dumbar, one of the few Southland farmers to withstand Solid Energy’s offers to buy up their land for lignite mining. Protest was focused on the briquetting plant, planned by Solid Energy as just the forerunner of its massive lignite projects. The situation appeared to be very much one of David versus Goliath – a small group of activists attempting to oppose a huge Crown-owned Enterprise.