Micky savage of Waitakere News looks at John Key’s involvement in the Solid Energy fiasco. National’s undeserved reputation as sound economic managers takes another hit…
Happy Days was a highly successful American sit com that screened for a decade. Its popularity was legendary. The primary reason was one character Fonzie who was so cool that nothing seemed to be beyond his ability. But the show declined dramatically after in one episode Fonzie jumped a shark while water skiing. For a decade he was the epitome of cool. But jumping a shark while on water skis caused too many people to think he had pushed things too far. “Jumping the Shark” has since become part of our lexicon.
In my humble opinion recent events surrounding Solid Energy may be John Key’s jump the shark moment.
I have spent a bit of time on boards. Directors tend to be business orientated and relatively right wing but my experience is that they are dedicated and intelligent and they enjoy a competition of ideas.
Professional directors are usually from one of four groups, ex politicians, engineers who are usually process and result driven, accountants who focus on the finances, and lawyers who present a mixed bag. The difference between board meetings and political meetings are that the board discussions are mostly far more civlilsed and people are interested in addressing the merits of the argument rather than score points. There may be an ideological bias, but it is an ideological bias that usually pays attention to reality. Directors have to be realistic. When they serve under a Labour administration they have to make sure that the Government’s ideals do not take them too far, when they serve under a National administration they have to make sure that the desire to maximize profit and minimize cost does not destroy the entity.
National has a natural advantage with Directors who could be described as generally being part of National’s core constituency. They enjoy the privilege and the pay and are willing to fulfill the wishes of their master, whether it be to maximize profit or maximize overall benefit, depending on the preference of the ruling administration.
There is a pecking order in terms of board appointments. Solid Energy have been one of the most prestigious boards to be appointed to. Being a director for an entity that was worth $2 billion in happier times has a whole lot of mana attached.
And so recent events have been startling and directors throughout the country must be thinking twice about accepting appointments to the boards of any crown entity.
National has this habit of blaming individuals for any adverse outcome. Whether it is lawyers about legal aid, Christchurch Council for the rebuild, Auckland Council for housing not being more affordable or the Solid Energy Board for Solid Energy’s woes National does not hold back.
The trouble is that this has the definite appearance of being a pattern of behaviour. And journalists are startling to check the claims that National makes, rather than accepting these at face value.
Key has made various recent claims about Solid Energy. He claimed that Solid Energy wanted a billion dollar cash injection to fund business expansion, that the Government was in a pitched battle with Solid Energy over the sale of part of the business and that the company’s woes were because of investments in risky areas. But there are problems with each of these claims and they all reek of hyperbole.
Former Chair John Palmer, a respected Company Director, said that the request for the billion dollar cash injection did not occur. Key replied by releasing a Treasury briefing to the Government which he alleged recorded the request for a billion dollars of funding. The only problem is that the paper actually backs Palmer’s statement. It recorded the company’s current business plans for the Lignite deposits in Southland and some general proposals for expansion into other areas of activity but the paper states that this would be funded through retained earnings. Solid Energy was not looking for direct funding but was outlining its plan to Government for it to expand into different markets. Given that the Government had put a great deal of emphasis on the exploitation of the country’s natural resources the fact that Solid Energy saw itself as a possible leader in the area was not unusual. Such arrangements have worked well in other countries, for instance Petrobas in Brasil is responsible for the return of considerable wealth, and Norway’s and Venezuela’s healthy economies can be directly attributed to their decisions to keep as much of their wealth local as possible.
The paper also does not support Key’s claim of a pitched battle over 18 months over sale of parts of the business. The only project with any sort of development was the Urea extraction project in Southland and the proposals to increase Solid Energy’s area of activity would require specific Government support. Besides it was a battle that Solid Energy would always lose. Ministers as shareholders control who sits on the board.
The final claim about the company’s woes being related to risky investments directly contradicts a letter that Labour unearthed whereby in 2009 Solid Energy was instructed by then Minister Simon Power to increase debt and the payment of dividends. Key has claimed that Solid Energy’s view of the future price of coal was bullish and out of kilter with the Government’s view but if this is so then you really have to wonder about why the Government still insisted on increased debt and dividends. Interestingly the letter reinforces this and in the letter Power says the following:
I am disappointed with the forecast decline in Solid Energy’s financial performance over the next three years, in particular the dramatic decline in profitability and dividends. While this is understandable, given the significant decline in forecast coal prices, it is far from clear why Solid Energy forecasts [redacted].”
So the Government knew that Solid Energy was predicting worsening performance and the significant decline in forecast coal prices but still required Solid Energy to increase debt. The company’s current predicament has a certain amount of looking in the rear vision mirror inevitability about it.
There is a further development which may haunt the Government. Acting chief executive Gary Diack and Board Chair Mark Ford were both questioned by Clayton Cosgrove at the Commerce Select Committee on Don Elder’s then apparent unavailability to give evidence. Ford said that Elder had not approached him and Diack said that he was not aware of Elder approaching anyone on that basis.
Elder subsequently confirmed to the committee that his lawyer had written to Solid Energy’s lawyer and copied the letter to Diack and offered to appear but was told that he was not required to attend. Although Diack has written and corrected his answer this needs to be investigated further.
The Solid Energy fiasco has the potential to hurt the Government in a number of areas, in its reputation for being sound economic managers, in removal of a significant company from the privatisation process and attendant reduction in the sale proceeds and through National’s relationship with an important part of its constituency. And most importantly through the dawning realization that John Key is not the multi talented businessman his PR says he is.
Has John Key jumped the shark?