Solid Energy opposed Government's debt plan

By Kate Shuttleworth, Adam Bennett

Former Solid Energy chairman John Palmer has told MPs he opposed the Government's 2009 direction that the state owned coal miner take on more debt and has challenged Prime Minister John Key's comments that the company sought $1 billion from the Government to fund ambitious investment plans.

Mr Palmer and former Solid Energy chief executive Don Elder made their highly anticipated appearance before Parliament's commerce committee this afternoon to answer questions about what led to the company's near collapse under $389 million in debt.

The pair appeared the day after Labour produced documents showing the Government in 2009 told the company to increase its gearing or debt levels in order make the company more efficient and allow it to pay higher dividends.

Asked by Labour MP Clayton Cosgrove how the company responded to that request, Mr Palmer said: "We opposed that".

While the Government was following up on officials' recommendations that state owned enterprises adopt a standard gearing, or debt to value ratio of 40 per cent, "the 35 per cent we had decided on we thought was an appropriate level of gearing given the nature of the industry we were involved in", Mr Palmer told MPs, media, officials and others gathered in the crowded committee room.

The higher ratio requested by the Government "increased the level of gearing beyond what the board was naturally inclined to think was appropriate".

While the company did go on to increase its gearing or debt levels in response, the bigger increases in debt levels occurred more recently due to $275 million in investment in the Stockton mine and due to the $8 million a month costs of care and maintenance of the ill-starred Spring Creek mine, Mr Palmer said.

Meanwhile Mr Palmer was also quizzed by Mr Cosgrove on Mr Key's comments last month shortly after the company's problems were revealed.

Mr Key said that his Government was uncomfortable about Solid Energy's investment plans as far back as 2009 and that the company approached his Government seeking a capital injection "in the order of about a billion dollars to turn this company into the [Brazilian state-owned energy company] Petrobras equivalent in New Zealand".

"Were we talking to the Government about the possibility of capital and receiving that from the Crown? The answer is no," Mr Palmer said.

"A specific $1 billion capital injection, I'm reasonably sure we did not ask for it in exactly those terms."

However he said the company did have discussions with the Crown about potential large investment in lignite processing but it was also talking to potential overseas partners, "because it made no sense to us to think that Crown as the sole shareholder should finance that".

He also said the company discussed with the Crown a national resource strategy that would have required large investment.

"My recollection is there was no dollars attached to that proposal."

The Government declined to support that and "we accepted that and did not pursue it any further".

Earlier, Dr Elder told the packed committee room that the company's recent problems were down to a "perfect storm" of unprecedented coal price falls last year and the strong Kiwi dollar.

He said it wasn't just New Zealand coal companies that were feeling the brunt of a drop in the price of coal, but US companies were also in serious trouble.

He said the situation with Solid Energy needed to be looked at within an international context.

Dr Elder offered an apology to workers on the West Coast who lost their jobs.

"I accept there are decisions we would have made differently.

"I am very sorry for things people at Solid Energy are going through.

"Every single one of them [minster and workers] has been passionate about our business."

Dr Elder defended his tenure with Solid Energy, saying the company had been brought back from the brink of closure in 1999.

He said the company had withstood a 60 per cent crash in coal prices and had generated $1 billion direct revenue.

Dr Elder stepped down in early February, days before Finance Minister Bill English revealed the company was tottering under $389m in debt and was in talk with bankers.

Mr Palmer stepped down as chairman last June, 18 months before his term was scheduled to end.

The Opposition has blamed the Government for failing to monitor the company adequately, while the Government says the problems are down to the previous Labour Government urging the company to adopt a high-risk diversification strategy.

- NZ Herald

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