An independent review of events leading to Solid Energy's near collapse has raised questions over whether Treasury's response to early warning signs of trouble was forceful or fast enough.
Treasury today released a review by accounting firm Deloitte of its monitoring of the company which appears likely to be broken up and sold off after almost failing under the weight of $390 million in debt and low coal prices.
Deloitte said it did not believe "that the failure of Solid Energy has highlighted a material failure in Treasury's monitoring processes".
However, the report goes on to say: "We do believe that the failure does raise questions about how these processes are applied and whether Treasury's response was forceful enough or occurred soon enough given that the company provided cause for concern over an extended period."
Deloitte said there were "influential countervailing factors" that Treasury needed to consider when determining its response to issues identified.
The report notes Treasury early on identified "a fundamental divergence of views" between itself and Solid Energy with respect to future energy prices and a link between that view, its investment strategies and its own internal views on valuation.
"These concerns were advised to Ministers and played back to the company."
That divergence was highlighted in a report by the Herald in late 2010.
"With hindsight it is clear that the company's view on price path led to strategies for the business that materially increased risk. The strategies resulted in material value at risk in relation to core mining and development activities, high debt and an overhead structure - all of which meant the company was poorly placed to cope with the massive price shock that it faced in 2012."
For Treasury to have fully identified the extent of this risk, Deloitte said it would have to have undertaken much more analysis of the company and its plans which would almost certainly have had it to commission outside industry expertise to address some of the more complex technical matters such as mine plans and forward views on energy prices.
Had Treasury more fully appreciated the implications of the company's view on prices it could have initiated a more substantive investigation into the company's affairs earlier, "probably as an outcome of the 2008 statement of corporate intent (business plan) process".
If that investigation been conducted at that point, it likely would have resulted in Treasury ringing the alarm bells with ministers and the rejection of the company's business plan.
"A consequence of this would most likely have been a change to the leadership of the company and possibly a change to the composition of the board. We note, however that at that point many of the investment activities were in progress and any new management team or board would have needed to develop and implement new strategies for the business which would have had their own risks given the nature of Solid Energy's business."
Deloitte said the removal of the company's board by a minister would have been a "crude lever" with a high threshold for use.
"Notwithstanding this, with the benefit of hindsight, it is evident such a move may have been warranted."
However it noted that for Treasury to initiate such action "would have required it to effectively form the view that it lacked confidence in a board and executive with a sound track record in a technically complex industry".
Treasury Secretary Gabriel Makhlouf said Treasury identified "a number of concerns with Solid Energy early on, and subsequently took a number of steps, including seeking an external review of the company's business strategy, rejecting its Statement of Corporate Intent, moving the company to intensive monitoring, and seeking the appointment of an Investigating Accountant".
Treasury only moved the company to intensive monitoring in June last year.
However Makhlouf underlined the report's conclusion that it did not highlight "a material failure in the monitoring process".
" We welcome the report's conclusion that we acted appropriately, but we are committed to continually improving our processes where we can", he said.