Prime Minister John Key backed at least some of Solid Energy's ambitious investment plans in mid 2011 just before his Government was told the company had big problems, Greens Co-Leader Russel Norman says.
Mr Key again defended his Government's oversight of the troubled state owned coal company this morning, continuing to link is current problems to expansion plans hatched under the previous Labour Government.
But Dr Norman this morning highlighted what he said was poor oversight of the company by Mr Key's Government saying it encouraged Solid Energy's expansion plans but never required it to submit a business case for its "ambitious but ultimately futile $2 billion lignite developments".
"But more than that, John Key was actively encouraging the expansion of Solid Energy's lgnite plans."
In comments reported by local media, Mr Key told a meeting in Invercargill in June 2011 that, "At the moment companies like Solid Energy are growth companies and we want them to expand in areas like lignite conversion".
Mr Key yesterday said his Government became aware of Solid Energy's growing debt problems following a scoping study in mid 2011 initiated as part of preparations to sell up to 49 per cent of the company under his Government's "mixed ownership model".
Dr Norman also questioned the Government's attempt to attribute much of Solid Energy's problems to its alternative energy investments.
"The majority of Solid Energy's asset write-downs or impairments were dominated by its investments in underground mines, as reported by Solid Energy's chief executive when presenting the 2012 Annual Report," said Dr Norman.
Mr Key this morning told reporters he "absolutely" supported Solid Energy's lignite plans.
"I think lignite has got some potential but if you go all the way back to 2003 you can trace across 2003 to 2006 plans under a Labour Government for all of the initiatives which fundamentally have not added to the bottom line of Solid Energy.
Mr Key said the Labour Government's encouragement to diversify wasn't just limited to former State Owned Enterprises (SOE) Minister Trevor Mallard's 2007 speech urging them do so, "they actually passed a cabinet paper that encouraged those businesses to expand".
"Yes we didn't stop them and we saw some potential in lignite... but I think the argument that somehow we would have gone in 2009 when the company was performing well, its results were good the valuation of the company was going up and just go in and sack the board on day one is a bit fanciful."
Mr Mallard said it was "clear" that Finance Minister Bill English, SOE Minister Tony Ryall and his predecessor Simon Power had not read Solid Energy's quarterly reports.
"Anyone who read the reports could see Solid Energy was having problems and for them to try and blame things that happened five, six, seven or eight years ago is just nonsense."
He said it was clear when he was SOE Minister that Solid Energy needed to have a diversification strategy "or a decision could have been made to wind the company up, but that was a decision for National Party ministers to take".
"If they'd read the information carefully then they would have seen that there were problems."
Mr Key yesterday said his Government was worried about Solid Energy's ambitious investment plans and rosy view of coal prices as far back as 2009 but was unable to order the company to steer a safer course.
Cabinet yesterday discussed the problems at Solid Energy which last week revealed it was close to collapse under the burden of $389 million in debt, with hundreds of jobs are at risk. The company blamed low international coal prices and demand and also said a series of investments in alternative energy projects were failing to pay their way.
Investment bank Macquarie is now conducting a "forensic" analysis of the company which is in talks with its banks and Treasury over a restructuring plan which is likely to see the company's workforce of 1200 trimmed further following 450 job cuts last year.
Mr Key said his Government in early 2009 rejected the company's plan for $1 billion investment to transform it into a "Petrobras equivalent in New Zealand" but the company went ahead with more modest expansion plans that didn't require additional Government capital or approval.
"If you're looking at the way you would run a prudent long-term coal business then the industry experts would tell you to do it in a different way to the way the board executed that plan", he said.
Neither former chief executive Don Elder or former chairman John Palmer, who oversaw the company's move into alternative energy investments, were available for comment yesterday.