Why should taxpayers face the risk?

Solid Energy’s shareholding ministers, Finance Minister Bill English and Minister for State Owned Enterprises Tony Ryall confirm the Government has been advised that Solid Energy is in discussions with its banks.

“The Solid Energy board is working with Treasury, advisors and the banks with respect to further restructuring options, with the aim of returning the company to a sustainable financial position,” Mr English says.

“World coal prices have dropped significantly which has contributed to the deteriorating financial position that Solid Energy is in now.

“These discussions are required because the position of the state-owned enterprise has continued to deteriorate despite the restructuring that has already taken place,” Mr English says.

State-owned Enterprises Minister Tony Ryall says a number of factors have weighed against the company, in particular world coal prices dropping by 40%.

 “It is facing very serious financial challenges,” Mr Ryall says. Solid Energy’s debt stands at $389 million and its interim result, which is due shortly, will show additional losses.

“The new chair and board are focusing on a return to a core coal business which is viable at current world prices. The public is aware that there had already been restructuring at the company, but more may be required,” says Mr Ryall.  

“The Government appreciates this is a very unsettling time for employees and suppliers and the company’s wider stakeholders but it is a process which must be worked through carefully and properly,” the ministers say.

Opponents of government plans to sell  a minority shareholding in a few state assets talk about what will be lost.

They don’t talk about what will be gained nor do they talk about the risk that comes with running a business which includes loss of capital.

Why should taxpayers face this risk for something that isn’t core government business?

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24 Responses to Why should taxpayers face the risk?

  1. Horace the Grump says:

    No surprise that SE is talking to the banks… new CEO (on the way), new board, business strategy in tatters… I expect that the Gvot will have to drop some cash on the table here…

    Once again tax payers cop it on the chook…. wonderful.

  2. Roger says:

    Yep, where’s David Shearer when you want him to front. You still think we should keep commercial operations in public ownership Davo? Government ownership is a guarantee of dividends forever? This saga is a great example of why the Government should not risk taxpayers capital.

  3. pdogge says:

    Ah hum…this gov’t has been in charge for a few years. …not managing this too well we note

  4. homepaddock says:

    Governments don’t run SOEs, their boards do.

  5. Gravedodger says:

    The only prop that remained for SE was the purchasing of coal, much destined for stockpiling, by Japan and China as a method of “banking” that shuddered to a halt with the rising NZ$ and the GFC causing a slump in world coal prices.

    A private company would have probably failed to get funding to buy the Pike River ruins with apparent govt backing, however the banks went along but now are seeing the reality may be a massive potential loss.

  6. TraceyS says:

    What business could sustain prices dropping by 40%? Most would go under in a matter of months without a dramatic and fast rethink of their strategy.

  7. robertguyton says:

    Solid Energy was the Great Black Hope for the National Government. Bill English and Don Elder were practically hand-in-hand at the opening of the lignite briquette plant in Southland. Both Solid Energy and National have failed dismally with their over-hyped plans to turn coal into gold.

  8. Viv says:

    It will be interesting to see how much of that debt is due to the briquette plant (is that even going?) and to find out how much they spent buying prime southland farmland for their misguided lignite plans, bet all those farms didn’t come cheap.

  9. robertguyton says:

    The briquette plant is not operating (is there even a market for briquettes? Fonterra, the biggest burner of lignite, don’t want them.) SE spent huge amounts of money buying up the farms, caused massive trauma to the farming ‘operation’ of the whole valley and are now selling 1/4 of what they bought.

  10. TraceyS says:

    Yes, a Green Government could do much better for they have a crystal ball and can use it to predict all things ahead.

    Just a pity that, in reality, big businesses can’t turn on the head of a pin.

  11. TraceyS says:

    Hi Viv, in case you didn’t see my reply on an earlier comment, here is further link for your interest:

    http://www.cosmosmagazine.com/news/waters-ultimate-freezing-point-discovered/ “This is important for predictions of global climate.”

  12. JC says:

    Chalk this one up to the Govt gutting the company of profits that should have been retained against a rainy day.. SOP for resource based companies.

    Add in Elder’s over exuberance to get into the alternative energy business at the expense of basic business and you lose flexibility.

    That 40% drop in coal price is nothing, its simply the way of commodity markets that you accept and plan for so you can survive.

    JC

  13. TraceyS says:

    So JC – when Horrace the Grump says:

    “I expect that the Govt will have to drop some cash on the table here… Once again tax payers cop it on the chook…. wonderful”

    The shareholder (on behalf of the taxpayer) would only be putting back some of the excess earnings that they took out in the firstplace and should have retained originally in your opinion?

  14. Viv says:

    Sorry Tracey, hadn’t seen your other reply, busy week, but having long weekend now :-). Interesting stuff on supercooled water, but would need more information to see how this would have relevance to fossil fuel use, global warming and ocean acidification. No time to do this myself. I did note that you are happy to put forward this link which is about work using computer models, yet you dismiss climate science modelling.

  15. Viv says:

    No evidence for Don Elder’s over exuberance for alternative energy. The writing is on the wall for fossil fuels in the 21st century, funny how the knockers get stuck into renewables when the coal company goes down. Let’s see the actual figures on lignite, briquette plants, farm aquisitions, biofuels, wood pellets and Mr Elder’s helicopter trips. Hopefully the coking coal business is still viable.

  16. Viv says:

    Perhaps an argument for nationalisation of essential industries then, since the hands off method of governance has been shown to be unsuccesful here.

  17. TraceyS says:

    Research into the link with climate change is awaited. I believe it will yield very interesting results and shall be watching that space closely.

    Now that we know water does not always freeze at 0 degrees C, it is important to understand whether water in modern times freezes at lower, higher or the same temperatures than it did in ancient times when a lot of ice was formed. Yes there may presently be a net loss of ice, but will it be replaced at warmer temperatures than it was in the past? This is very relevant to climate change and global warming.

    Liquid water has been recorded in clouds at -40 degrees C. Ice always requires a minute foreign particle to act as nucleus in order to form at this temperature or higher. We know there is significant air pollution from the burning of fossil fuels. Therefore, will the particles from air pollution provide more potential ice-nuclei and subsequently increase the formation of ice in clouds which will fall on the earth?

    Yes the report does mention modelling and computer simulation. Entirely appropriate in the circumstances given that at the lowest temperatures freezing takes place too fast to observe. But it’s modelling just a single phenomenon, not a whole collection of phenomena as climate scientist are attempting. I think the leaked information from the draft IPCC is good evidence that the climate-change models as recent as 2007 are not reliable and I expect we will see more in this vein. Humans are not good at predictions!

  18. TraceyS says:

    Viv, no matter how “hands on” a government says they will be, there will always be factors, especially international ones, beyond the control of these “hands”.

    For anyone to suggest otherwise is very misleading. David Shearer is not God. I think that’s abundantly clear.

    PS.

    Let me get this straight, are you calling the coal industry an “essential industry” ??

  19. robertguyton says:

    ‘The coal industry’ just fizzled out.

  20. Roger Barton says:

    Tracy it is quite clear that Viv has a good point about essential industries. We all eat 3 meals a day (apparently) so we really should put food production into the “Essential industry” category and put the Gummint in charge. Just look at the efficiencies we would get and food would be a lot cheaper. Logical really isn’t it?
    (don’t worry Tracy the cynic is oozing out of me!!)

  21. JC says:

    Basically yes. Its a commodities trader where prices fluctuate and profits need to be salted away or to cut the need for borrowing rather than (eg 2009) making healthy dividends of $50 million to Govt the same year it lost over $100 million on foreign exchange hedging.

    JC

  22. TraceyS says:

    Goodness, sounds a little like the Dunedin City Council!

  23. Viv says:

    No Tracey, apart from coking coal ,the coal industry is not a 21st century industry. Energy, transport, communication are essential in modern society and should not be in the control of overpaid people, like Don Elder who make bad decisions and walk away, while the taxpayer is left with the loss. Ele excuses it saying the government had no influence, well that’s just not good enough and the Solid Energy mess shows that clearly.

  24. TraceyS says:

    So they should be in the hands of politicians instead? LOL :) How much real business experience is there in the Green Party? The Labour Party? You must be planning on supporting National in 2014 Viv! Keep up with your line and you’ll ensure National’s success.

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