PM Press Conference Dominated by Solid Energy Debacle

Monday, 25 February 2013, 6:54 pm
Article: Mark P. Williams

Today the Prime Minister began his regular post-cabinet press conference in ebullient spirits, speaking confidently about his forthcoming trip to Latin America to meet leaders from Mexico, Colombia, Chile and Brazil to discuss shared trade interests and economic opportunities, including those arising from Mexico's inclusion in the Trans-Pacific Partnership Agreement. He spoke of New Zealand's shared interests in 'agribusiness', such as dairy and beef production, and referred to the long standing relationship between Chile and New Zealand.

However, the press conference concluded in a distinctly changed mood as the questions were increasingly dominated by the interrogation of his government's response to the Solid Energy debacle dating back to 2009 and 2011.

Questions to the Prime Minister

The PM was asked what he made of today's Labour reshuffle. He described it as a sign of a divided caucus that did not have faith in David Shearer's leadership.

Asked if he was concerned about the performance of his own MPs now that Annette King was back on Labour front benches he responded that he was confident in their abilities.

The PM was asked if he would agree that Tony Ryall had created a 'climate of fear' in the health sector, where staff were afraid to report problems with policy or practice for fear of reprisals. He disputed this. Mr Key suggested that the reason why fewer health professionals had spoken publically about issues with Mr Ryall's handling of the sector was because he was achieving more, and more efficiently, than the previous government.

The PM was asked if he was comfortable with the heads of District Health Boards speaking out. He replied that he felt that Mr Ryall was very much in control of his portfolio and had regular meetings with the Chiefs of District Health Boards about their possible issues. He said that he felt that people only spoke out when they had something to speak out about.

It was pointed out to the PM that David Shearer's new line-up places considerable emphasis on Art and Culture; he was asked how he responded to that. He replied that his government has Chris Finlayson and went on to assert that National has done a lot of work to promote and produce Art and Cultural events.

The PM was asked about David Clark's comments on getting to grips with Steven Joyce, and the suggestion that he has a 'soft underbelly'. He replied that he was someone who liked to work with evidence and indicated that he would wait and see what came from David Parker setting his sights on Steven Joyce.

The PM was then asked whether Steven Joyce's performance had really delivered evidence if the measure was economic growth above 3%. He responded that Mr Joyce was "not a magician" and was working with very difficult circumstances, handling the twin economic challenges of the Christchurch rebuild and the global economic downturn.

The PM was then asked if Solid Energy had been discussed in cabinet today. He confirmed that it had and said that Macquarie Investment Bank was undertaking what he called a "forensic analysis" of Solid Energy.

The PM was then asked what this might mean for Pike River. He replied that it made no change in the short term, saying that there would be further meetings with experts to discuss the feasibility of safe re-entry into the mine.

The PM was asked if he had been briefed on the expert opinion. He confirmed that he had attended meetings which discussed scenarios for accessing the drift but said that it was still "basically impossible" to safely re-enter the main mine itself due to the fundamental structural damage caused by the multiple explosions, fire and flooding.

The PM was asked when the government first became aware Solid Energy was accruing big debts, given that such businesses were not normally expected to take on large amounts of debt.
He replied that the government had undertaken a "scoping study" when they were preparing the formulation of the Mixed Ownership Model and that their examination of Solid Energy's accounts at that time indicated a degree of poor investment, over-valuation of the expected price of coal–which neither the industry nor government agreed with—and related financial problems stemming from this.

In response, the press asked what Solid Energy had been telling the government prior to this 'scoping survey', particularly in the years 2008 to 2011. The PM responded that Solid Energy had approached the government in early 2009 to request an injection of $1bn to diversify into a 'Natural Resources Company' rather than simply a coal company but the government had refused.

The PM was asked why, if the government was not prepared to inject the money, the company, as a State Owned Enterprise, was still permitted to go ahead and accrue large debts to undertake its plan. The PM responded by saying that it was not something that the government could compel the company not to do under the SOE Act.

The PM was then asked if it could be described as a string of bad management decisions for which the board ought to have been held responsible.

The PM was pressed further to explain why, if the government disapproved of what the SOE was doing, they could not then prevent them from doing it. He responded that it might have been possible to sack the board but that a government would have to have cause to do so. He was asked if he had considered sacking the board of Solid Energy. He replied that he had not.

The PM was asked whether there need to be changes to the SOE Act to prevent such mismanagement from happening again. He responded by saying that he believes these events are a stronger argument for a Mixed Ownership Model because he claimed that form had a more 'robust' means for checking bad investments.

The PM was asked if the government had such grave doubts about the board's proposal in 2009 they hadn't removed the board then. He responded by saying that 2009 had marked the beginning of what he referred to as "a series of very robust discussions" between the Minister of SOEs and the company. He said that "late last year" the company, through the chairman, came to the government that they now agreed that the price of coal was going to stay very low and they would need to close Spring Creek.

The PM was then asked why the government did not intervene immediately in 2009 if the company was "spiralling out of control". He responded that it was not apparent that it was doing so at that time and the investment in Spring Creek, Lignite and Wood Pellet technologies had already been taken and made.

The PM was asked if his government ought to have done the 'scoping study' earlier. He sighed and said that there were always "a lot of 'ifs', 'buts' and 'maybes'". He said that it had to be seen in a context of 2009 when the company's balance sheet was very high and coal prices were also still very high and they were executing their plan to diversify.

It was put to the PM that it seemed he was trying to wash his hands of the whole matter; he was asked what responsibility the government took for the debacle. He replied that it was not a matter of the National government washing their hands but rather concerned 'the reality of the situation' that in 2007 the Labour government had encouraged SOEs to diversify and Solid Energy's board had started to instigate a plan. He reiterated that in 2009 the board came to the government for a $1bn injection and was refused, and then in 2011 his government began its 'forensic analysis'.

The press responded that the government's responsibility must surely begin in 2009 when the company's plan was refused. The PM disputed this by saying that the plan they laid out and what they actually did were different.

The PM was asked how long it might have taken the government to discover Solid Energy's financial problems without the scoping study. He responded that he did not know but it would have been longer.

The PM was asked his opinion of the performance of the previous Chief Executive of Solid Energy, Dr Don Abbott. He said that "in the end people will have to judge this for themselves".

The PM was asked if, having saved the government $1bn in 2009, he knew how much Solid Energy was now likely to cost the taxpayer. He responded bluntly that he had no idea.

He was then asked whether he felt the company had any value at the moment and if it was worth more that it owes. He responded that he "would be surprised".

It was put to the PM that, given that his government had actively encouraged oil and gas exploration, that the Solid Energy board's diversification might be construed as "reading the signals" put forward by Mr Key's government. He responded that he did not think that was right; saying, "their view was that there were a lot of alternative investments" which they had worked on long before National became the government.

The PM was then asked where this left the figure of $5-7bn that he had predicted from the partial privatisation of State Owned energy companies. He said that he recalled saying at the time he proposed it that one of the companies was not in the best financial shape and that the government had given themselves a "window of five years".

Pressed further as to whether the $5-7bn had been "reviewed down to $4-6", he responded that the prudent thing to do would be to wait for the Supreme Court decision. The PM was asked how much of the $5-7bn had been Solid Energy. He responded that he couldn't say.

He was asked to confirm whether the figure initially mentioned had been $1.7bn for Solid Energy. He said that it "depends" because the board and the government had very different valuations.

The PM was asked if he felt he could still work with Nick Smith on the Fiordland Tunnel and monorail. He responded that Nick Smith had given himself primary responsibility. The PM said that it was the kind of decision which a government would always face criticism or critique for taking a position on.

The PM was asked whether he had overruled Hekia Parata on the matter of the Wanganui collegiate. He responded by saying that it had been a long and complex process and that the decision with "a range of views" and did not amount to overruling Hekia Parata.

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