The Government kept insisting that coal mining company Solid Energy would be part of its asset sales plan long after it had been informed of its declining health and unacceptable debt, official documents show.
The release of 52 papers related to the company showed that ministers had received damning reports on the company's high debt and over-optimistic, unwavering business strategy as early as 2011.
Opposition parties accused the National-led Government yesterday of failing to intervene and continuing to insist on dividends from the state-owned asset despite clear evidence it was struggling.
Solid Energy has an uncertain future with further projected losses and $389 million of debt, and Labour MP Clayton Cosgrove is writing to the Auditor-General to ask for an investigation of its collapse.
A scoping study by investment bankers at UBS in October 2011 advised the Government that the bank had "no confidence" in Solid Energy's business strategy.
The document was not released due to commercial sensitivity, but a Treasury paper summarising the UBS report said: "The implicit conclusion is that third parties would not be willing to invest in Solid Energy as it is now."
It said significant changes would be required to the company's business strategy before a partial float went ahead.
UBS also said that the company should reduce or eliminate its debt because listed coal companies generally did not carry debt when floated.
Despite this warning, State Owned Enterprises Minister Tony Ryall told the company in a December 2011 letter to prepare for partial float as part of the Government's Mixed Ownership Model programme.
Finance Minister Bill English, speaking through a spokesman, said that if the issues identified in the report could have been resolved, and the coal price had not fallen sharply, the company would have continued to be prepared for sale.
In June 2012, the Treasury told ministers that Solid Energy should be moved into "intensive monitoring" because of its financial woes related to falling coal prices. Officials said they were especially concerned that the company's management were not considering a change in strategy despite the fact its ambitious growth regime had contributed to its downfall.
The Treasury warned: "Solid Energy has struggled to demonstrate cost control in the past ... there may not be any appetite domestically for increased coal supply and asset sales will be difficult in the current market."
Later in June, Mr Ryall continued to publicly discuss the partial float of the company when farewelling chairman John Palmer.
Mr Cosgrove said: "At the same time that Treasury said they're going to go insolvent Mr Ryall is running around saying they're going to get $5 billion to $7 billion in asset sales and pushing legislation through."
The papers revealed that Government had been expecting $600 to $800 million from the partial sale of Solid Energy.
Mr English's spokesman said the Government still expected to make $5 billion to $7 billion from the partial floats of its energy companies.
Treasury papers showed that Solid Energy continually overvalued itself because of overly optimistic projections of future coal prices. Green Party co-leader Russel Norman noted that the company believed it was worth $3.3 billion in 2011 while independent analysis said it was worth half that.By Isaac Davison @Isaac_Davison Email Isaac