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Solid Energy on the block?

Written By: - Date published: 12:48 am, June 18th, 2010 - 34 comments
Categories: privatisation - Tags: , ,

Solid Energy chairman John Palmer has suggested that a partial sale of the SOE could be on the cards.

It’s clearly pissed off National, who desperately don’t want to talk about their privatisation agenda, with Gerry Brownlee “I think he has just stepped well over the mark this morning and I’m sure no one is particularly happy with him. Mr Palmer is, of course, not an elected official, he is an appointed chairman.”

But Brownlee hasn’t ruled out a sale. That means he wants to sell, he just doesn’t want to talk about.

The government wants to expand New Zealand’s energy production. Right now, Solid Energy is one of the biggest players, meaning the profits stay in this country. A sale would be nuts. Why would we want foreigners to make money off digging up our natural resources?

Palmer says that Air New Zealand is an example that Solid Energy could follow.

It’s weird how the Right is trying to portray Air New Zealand as a model for successful partial privatisation. They clearly don’t remember, or hope we won’t remember, how it came to be that the government has a majority holding in AirNZ. It was another example of failed privatisation. The government sold all of AirNZ in 1988. The privatised company was a disaster and was at the edge of collapse after its failed investment in Ansett. The Right said let it fail or let Singapore Air buy it up. That would have been the death of regional air routes in New Zealand. So, Labour stepped in, in the teeth of opposition from the Right, and bought back most of AirNZ, saving it.

AirNZ is the same old story of sale, asset strip, and government bail out. It is no model for private privatisation.

So far, John Key has backed down on every time when he has been challenged on whether he would ever sell a specific asset. We now have permanent promises that Kiwibank and NZPost will never be sold, in full or in part. Someone should ask him if he’s ever going to sell Solid Energy.

34 comments on “Solid Energy on the block?”

  1. Croc 1

    It looks to me like the whole thing was contrived from the start.

    The old bait and switch. Get an ‘extremist’ to voice ‘his views’ and then old Gerry can come in and shoot him down, making him look like he’s the man in charge as well as another chance to get his ‘moderate’ soundbite out there “the Government has made it very clear it does not intend to sell any assets this term.”

    Would John Palmer really be stupid enough to comment on this without prior approval from the government on a subject that is widely acknowledged as being very touchy with the public? This could be an over-cynical analysis but I wouldn’t put it past National.

    • Palmer is a professional. There is no way he would have floated this without a mandate.

      His Board will have a “no surprises” agreement with the Minister and I presume that his tenure is at the Minister’s pleasure. It is beyond belief that he would continue to make statements without a nod nod wink wink from the Minister

      • Croc 1.1.1

        Exactly

      • Jim Nald 1.1.2

        Some of us have observed this kind of double act many times before.
        People should just see it as it really is:
        the staging of a ‘good cop, bad cop’ show by the rogue right.

        They think you’re that stupid.

  2. BLiP 2

    I am as opposed to the sale of national assets as much as anyone who lived through the privations of the last significant round of privatisations. However, if a public servant genuinely feels that there is a good case to be made in the public interest for a sale, I would expect them to be open and up front about it and put that view with all relevant information out to the public for examination. Thank you Mr Palmer.

    Now, we all know National Ltdâ„¢ is skirting the asset sales issue, not because they care particularly about the long term impact on average New Zealanders, but because they are getting a bit skittish about the polls. So, when Mr Palmer puts forward his view on the matter, what is the Minister’s response:

    “I think he has just stepped well over the mark this morning and I’m sure no one is particularly happy with him. Mr Palmer is, of course, not an elected official, he is an appointed chairman.’

    In other words: “Wanna keep your job? Then STFU. The rest of you, take note.”

    Chilling.

  3. jbc 3

    Interesting post. I have always thought that the government’s asset sales (way back from Telecom NZ) were rather short sighted. On the other hand, I don’t particularly like SOEs (but I like them more than completely sold assets).

    Telecom, for example, has extracted tens of billions from the NZ economy over the past 20 years. I don’t care so much that it operates as a business but I lament that the govt did not keep a stake in that business. Ditto for all the other privatisations.

    Getting back to the topic above: Solid Energy is COAL. Coal is a relatively nasty energy source in this century. If the govt turned Solid Energy into a public company, sold half of the shares and bought into something with a bit more promise then I wouldn’t be too concerned.

    I don’t have a problem with privatisation so much, as long as the govt is not simply cashing up assets but is keeping a stake in things that are important and will generate income for NZ.

    If the govt made Solid Energy into a public company, then sold shares in that company in order to buy shares in solar generation in the USA then I’d be happy. That would help negate the effects of the Telecom screw-up.

  4. Bored 4

    For my sins I have been in the private sector for eons and have run fairly substantial P@Ls, owned and sold companies. The primary goal of any business is to make money, a business is not a charity. Which is why privatisation of any staate asset or service concerns me: if it is not making money you might want to sell a business to cut your losses. If it is making money you might want to make more so you hang on to it.

    I dont buy the crap argument that the private sector does this better, and if a public asset needs money you can raise capital in any number of ways that enable you to retain 100% ownership. The real problem we have when we hear about privatising state assets is capital and its allies looking for a safe home for their cash. It is an indictment on private capital that they only want to invest in “safe” areas, to become rentiers as opposed risk takers who perform a useful function. If we have to have rentiers better they are us, the public represented by the state. capital needs to be forced to be creative.

    • Bored 4.1

      Just to expand on this a little further, a really key issue that the left, in particular mainstream Labour have struggled with over the years since the Douglas coup has been the correct place for capital and government in our economy. Where you would expect a very thin grey area there is a broad swathe of activities that straddle the divide. For my part the whole thing comes down to a number of key questions:

      * understanding the dividing line between a public necessity and something we buy from choice.
      * understanding the difference between a broad market (that has supply and demand coupled with competition) and monopolies / oligarchies that control the price to the consumer.
      * understanding the difference between capital invested for risk and reward, and the seizure of a rentier position by investors.
      * understanding the relevance to economic sovereignty of capital markets and international investment.
      * understanding the need for creative risk investment and reward for those involved and the need for a stable infrastructure to support these efforts.

      My contention is that the National Party understands these things very much better. Capital will go first to where there is a safe reward, and a chance at ongoing ownership in a non competitive environment. In the absence of some clearly understood opposing policies and the backing of these by the populace capital (and by extension National) will push to fill the vacuum. I am not hearing opposing policies from the left as explicitly and uniformly as they need to be stated to resist our descent into capitalist-feudalism.

  5. tc 5

    Croc’s on the money, Palmers comments are deliberate and part of the strategy as outlined so clearly.

    The Nat’s seem to rely on nobody remembering their true MO, Sell anything you can privatise the rest, slash health/education/R&D/bash those bene’s/hound the unemployed etc etc lets not go near the environment as the nat’s are authoring some new unpleasant outcomes on that front as we can observe.

    Sideshow’s shown beyond any measure that he’s not to be trusted and is true to his trader background of whatever makes me a buck gets the nod…..screw the rest which is you and me folks.

    • Isn’t the interweb thingy a wonderful thing. This passage is from Solid Energy’s last Annual report:

      We maintain our “no surprises’ relationship with our shareholding ministers, the Ministers of Finance and State Owned Enterprises, and with the Crown Company Monitoring Advisory Unit which monitors our activities on their behalf.

      The source is here, page 35.

      Palmer also spoke to Morning Report in the morning and to Mary Wilson on Checkpoint in the evening.

      I guess if Palmer is sacked in the next week he may have overstepped the mark but otherwise this is a ruse.

      • BLiP 5.1.1

        I am as opposed to the sale of national assets as much as anyone who lived through the privations of the last significant round of privatisations. However, if a public servant genuinely feels that there is a good case to be made in the public interest for a sale, I would expect them to be open and up front about it and put that view with all relevant information out to the public for examination. Thank you Mr Palmer.

        Now, we all know National Ltdâ„¢ is skirting the asset sales issue, not because they care particularly about the long term impact on average New Zealanders, but because they are getting a bit skittish about the polls. So, when Mr Palmer puts forward his view on the matter, what is the Minister’s response:

        “I think he has just stepped well over the mark this morning and I’m sure no one is particularly happy with him. Mr Palmer is, of course, not an elected official, he is an appointed chairman.’

        In other words: “Wanna keep your job? Then STFU. The rest of you, take note.’

        Chilling.

        Silly me.

  6. American Gardener 6

    “Coal is a relatively nasty energy source in this century. If the govt turned Solid Energy into a public company, sold half of the shares and bought into something with a bit more promise then I wouldn’t be too concerned.” – jbc

    That makes a lot of sense jbc. Sell Solid Energy or part of Solid Energy and then use the capital to invest in research and development into renewable energy sources.

    • Marty G 6.1

      I’m no great fan of Solid Energy’s corporate style but it is actually at the forefront of underground coal gasification, potentially a much cleaner way to get the energy from coal without so much mining and without producing so much carbon dioxide. It’s also investing in improving wood pellet burners.

      Coal is with us for some time to come. Better to keep hold of a company that is learning to use it smarter. Rather than sell that company to people who will just want to maximise profit.

      • Lanthanide 6.1.1

        Yes, and with a ramping up of the ETS, Solid Energy will have an interest in curbing CO2, both for itself, its customers, and ultimately the NZ government.

  7. Doug 7

    My concern about the sale is that the regulatory regime that Solid Energy operates under is a hang over from its old pre SOE days and reflects the attitudes of that time. In short it is very favourable to the company.

    Before any sale is contemplated I would want the whole legislative framework it operates under reviewed, reformed, and effectively enforced to ensure best practice in fact rather than just in greenwash.

  8. Name 8

    I believe Palmer was saying that Solid Energy needs another $10billion to expand its operations.

    There’s no way the New Zealand Government can come up with that kind of money for investment in one industry, so the options are:

    1. Do nothing. Solid Energy can’t expand to generate more jobs and income. Not a bad option if you’re against mining in general and coal as a carbon-producing product in particular, and at least it keeps the coal in the ground for future generations to decide what to do with. But is it worth forgoing the present jobs and income for?

    2. A partial float to raise the money on the stock exchange. Government will still hold the stake it held before and gain the same income for the tax-payer, will be paying out fewer benefits for jobless and gaining from tax take on the additional income generated by the expansion. Financially the taxpayer wins, but there is the extra damage to the environment and more coal in circulation which many would think was a bad thing.

    Palmer is merely doing his job in pointing this out.

    • Fisiani 8.1

      Of course there is another $10 billion dollars of government money available to get the investment that Solid Energy requires to reach potential for jobs and economic growth. Socialists know that you can get money from lots of lovely bright coloured hole in the wall machines that print out oodles of $20 notes any time you ask them. You can also apparently get money from kindly Japanese dentists and housewives.
      Repayments? What repayments? Visanomics will triumph. Yeah righ! Socialists are chronically and unremdiably economically illiterate and should never be allowed back into position of authority

  9. Lanthanide 9

    Someone should ask National whether they plan on privitising TVNZ.

    I think the public mood and opinion would allow a TVNZ sale more than any other, and it is quite possible it’ll happen in the next term or two, even if Labour get into power.

    • Croc 9.1

      TVNZ is one thing I don’t care about privatising. We lost anything good about 15 years ago. Wonder why most programming is from the US? Free trade baby! Thanks National/WTO for gutting our national broadcaster.

      • toad 9.1.1

        Agreed (although that will probably get me offside with some of my fellow Greens).

        But flicking off TV2 and using the proceeds to turn TV1 into a quality public broadcasting service doesn’t seem a bad idea to me.

  10. tc 10

    I think Doug’s hit on the reason for them going on the auction block….favourable regulatory framework for shareholders/board to take full advantage of….kaching!

    As for TVNZ……it’s actually a dog of a business not worth much thanks to Rick Ellis and the cult of personality approach rather than quality content direction.

  11. Bored 11

    Name, you say “Solid Energy needs another $10billion to expand its operations…..There’s no way the New Zealand Government can come up with that kind of money for investment in one industry”.

    I think that if you examine the history of major investment in large capital intensive projects in NZ you will find that the government is the only party fully able or willing to invest (by borrowing or otherwise) such large sums. Private enterprise could not have come up with the railways, the hydro dams etc. The whole concept and mantra of the sole ability for finance to come from private enterprise is an ill informed smokescreen that encourages us to accept capitals grasp for what we have already built.

    You also suggest “A partial float to raise the money on the stock exchange”. There is nothing to be gained here as the invested capital will expect a return, this merely allows a piggy back on ownership at low risk. There are other ways to raise capital, for example fixed term fixed rate bonds with a fixed return (and no ongoing ownership). Or perhaps more pertinently some capital raised by fractional banking by a state owned bank.

    • insider 11.1

      of course the govt can come up with the money – it has access to huge amounts of money. Isn’t it more, ‘should it’? ie isn’t there a better use of tax money that benefits the community?

      I thought many of the railways were originally privately owned and were nationalised later…could be wrong

      The point you miss is that the potential investment may not be low risk – look at Pike River as a recent example – so you are trading the potential (only potential) future earnings for a reduction in risk to the Crown. Surely if these things were low risk then everyone would be investing in them all the time? SE is not the only player in the NZ coal market. And of course if they are low risk then that implies low return so why should the Crown get involved?

      • Bored 11.1.1

        Insider,

        Some points…”better use of tax money to benefit the community”. What tax money? You dont raise capital with tax unless you are desparate. More importantly profits from money invested by government in this case off sets expenditure that relies on tax.

        Railways…the first were a mixture of Provincial government spending and private. PM Vogel raised the cash for NZ Rail as we know it.

        You mention Pike River as a higher risk investment: thats is just my point, whoever invested there is doing precisely what a capitalist should, taking a reasoned punt on return. It is risky and for that reason government should stay out. By comparison investing in local water reticulation or electricity supply etc that has a captive market and no substantive risk that cant be pushed onto the consumer should be kept away from private capital.

        You also say “low risk implies low return”. Examine Telecoms annual reports and you find quite the contrary, again captive markets are subject to “rent” at whatever rate the oligarchy / monopoly decides is sustainable.

  12. This is the guy who has apparently of his own volition went out on a limb and did something that should be a career ending move.

    A full time company director, John is also Chairman of Air New Zealand Ltd and a director of AMP Life Ltd, Rabobank Australia Ltd, and Saxton Fruit Ltd. In 1998, John received the Bledisloe Cup for his outstanding contribution to the New Zealand fruit industry and in 1999 received an ONZM for service to the New Zealand kiwifruit industry. He became Chairman of Solid Energy in January 2007.

    The information is at http://www.coalnz.com/index.cfm/1,139,0,0,html/Board-of-Directors

  13. insider 13

    “A sale would be nuts. Why would we want foreigners to make money off digging up our natural resources?”

    WHy would we want them owning anything? Our farms, our shops, our hotels, our office blocks. The Govt should own everything – guaranteed returns are obvious and the profits get recycled to the people. Why has no-one thought of this before?

    PS exactly what assets were stripped from Air NZ that make it a bad model? My memory is of a company that has invested heavily in aeroplanes and expansion, and overreached itself. The main asset stripped was its ability to fly in Australia, and that was a political decision.

    Under govt ownership ANZ has been reducing jobs and offshoring maintenance. Isn’t that a form of asset stripping?

  14. rich 14

    The Solid Energy management carry on as if they owned the firm anyway. It was the same under Labour. The government would be well advised to boot them and find a safer pair of hands.

  15. Solid Energy already owns renewable energy companies, and Meridian has clean energy projects overses (A US solar company and wind in Australia).

    Why not issue a directive to Solid Energy from the SOE minister and Finance minister to invest more of Solid Energy’s profits into renewable energy).

    Also Solid Energy could send coal to be used to make carbon fibre etc in NZ, to make windmill parts here. Why doesn’t Solid Energy look at being part of a clean energy future in NZ, rather than being so focused on exporting coal to India, China and Australia.

    The ETS will only have a minor effect on Solid Energy, they are determined to dig up New Zealand’s lowest grade coal (Brown coal – Lignite) on a large scale.

    New Zealand can do better than that.

    ————-

    “Coal is a relatively nasty energy source in this century. If the govt turned Solid Energy into a public company, sold half of the shares and bought into something with a bit more promise then I wouldn’t be too concerned.’ jbc

    That makes a lot of sense jbc. Sell Solid Energy or part of Solid Energy and then use the capital to invest in research and development into renewable energy sources.

    —————

  16. Party Co-Leader Jeanette Fitzsimons said that Solid Energy has to be told to stop wasting taxpayers’ money on pie-in-the sky lignite to liquid fuel schemes that will only skyrocket New Zealand’s greenhouse gas emissions.

    Solid Energy CEO Don Elder told the National Power Conference that Solid Energy was progressing its Southland coal to liquid fuels project and had developed strong relationships with key potential international partners.

    They cannot be captured and stored from the tail pipes of the vehicles that burn the fuel, nor can they be captured during the mining process if the lignite is being taken from underground.

    “The Green Party is opposed to any expansion of coal mining in New Zealand and particularly the use of lignite for liquid fuels.

    “The way to a reducing greenhouse gas emissions in New Zealand�s transport system is through much more efficient vehicles, better public transport, more car pooling, more walking and cycling and the from the use of some biofuels and electrically powered vehicles.

    “The owner of Solid Energy, which is the Government on behalf of the people of New Zealand, must tell the company to get its head out of the clouds.

  17. ‘Mr Palmer is reported to have told Finance Minister Bill English of his intention to raise the issue at a presentation ahead of the NZX annual meeting in Wellington today.’

    It looks to me like the whole thing was contrived from the start.

    The old . Get an ‘extremist’ to voice ‘his views’ and then old Gerry can come in and shoot him down, making him look like he’s the man in charge as well as another chance to get his ‘moderate’ soundbite out there “the Government has made it very clear it does not intend to sell any assets this term.’

    Would John Palmer really be stupid enough to comment on this without prior approval from the government on a subject that is widely acknowledged as being very touchy with the public? This could be an over-cynical analysis but I wouldn’t put it past National.
    Reply

    *
    mickysavage 1.1
    18 June 2010 at 8:32 am

    Palmer is a professional. There is no way he would have floated this without a mandate.

    His Board will have a “no surprises’ agreement with the Minister and I presume that his tenure is at the Minister’s pleasure. It is beyond belief that he would continue to make statements without a nod nod wink wink from the Minister

  18. ‘Mr Key says Mr Palmer informed both himself and his deputy Bill English that he intended to make the comments.’

    Both John Key and Bill English were informed in advance with what the SOE chairman was going to say. You Would think the SOE minister, would of also been informed.

    So Brownlee acting surprised is just that, acting.

    ‘Mr Brownlee did not like it. He reprimanded him through the media, reminding Mr Palmer that he was a government-appointed official, and questions of ownership were not for the likes of him. If he wanted to have a say in such issues, he would be best to stand for Parliament, Mr Brownlee said.’

    Sounds all pretty staged.

    Why Gerry Brownlee is commenting is also odd, he thinks he is SOE minister as well as Conservation minister now? Shouldn’t it of been SOE minister Simon Power that comments on Solid Energy?

    ‘Grant Williamson, a director of brokerage Hamilton Hindin Greene, said if Solid Energy were partially privatised and the Government then chose not to take part in further capital raisings an initial majority stake could be diluted.

    “As time goes on maybe the capital raisings do not involve the Government, but it would mean the Crown would slowly see their percentage shareholding decrease.

    “If they were looking to raise that sort of money [$5b-$10b] and the Government was not prepared to participate then yes you’re going to get [higher] outside shareholding.” Mr Lister said while Mr Palmer had signalled the Government would likely retain a majority stake in Solid Energy, that would not necessarily put a cap on the amount of money raised from fresh investors.

    Some of the billions needed for individual projects based around lignite and coal could be raised through joint venture partners.

    It was also sensible that the Government retained at least a cornerstone stake to address public concern about the sale of state assets.

    Mr Williamson said the partial float, however, was very good both in terms of the New Zealand sharemarket and Solid Energy being able to progress its lignite mining and other infrastructure plans.’

  19. “A spokesman for Finance Minister Bill English said the minister had only received a text from Mr Palmer advising him he was giving a speech that would refer “in a general way” to state-owned enterprises growing with external capital.

    “He did not mention Solid Energy by name and Mr English assumed he was talking about Air New Zealand of which Mr Palmer is chair.”

    However, Mr Palmer said Mr English and SOE Minister Simon Power were “well aware of the sorts of aspirations we have and the possibilities for growing wealth in New Zealand that we have in our existing resources so none of that will be a surprise”.

    Opposition energy spokeswoman Nanaia Mahuta said she was unsurprised by Mr Palmer’s comments which she believed reflected the Government’s intentions.

    “We do know privatisation is part of their agenda, it’s just a question of when.”

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  • Boost in Whānau Ora funding to keep changing lives
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  • Wairoa gets up to $6.1m to rebuild heart of CBD
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  • Minister of Defence to visit counterparts in US and Canada
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  • NZDF sends more support to Australia
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  • Staying connected to Australian agriculture
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