Former Solid Energy bosses John Palmer and Don Elder have nothing to lose when they front a parliamentary select committee to give their view of the key factors leading up to the pending capital restructuring of the state-owned enterprise.

The reputations of both Palmer and Elder have been so comprehensively trashed by Government politicians from the Prime Minister down that they deserve a chance to account for the commercial decisions the company made to diversify its long-term business and whether they could have taken measures to hedge against the impact of a savage international coal price drop on revenues.

Elder has been under an obligation of confidence which has stopped him from commenting since he resigned in February, as negotiations intensified with Solid Energy's banks and the Treasury towards a capital restructuring. He wants this formally lifted before tomorrow's hearing in front of the commerce committee.

Solid Energy chairman Mark Ford should do the decent thing and oblige, in writing, so that natural justice can be observed.


During his Latin American swing, John Key has become increasingly emboldened in his public criticism and forensic analysis of the former Solid Energy board and management.

Key reckons it's this simple: the company made investments that didn't work, it significantly increased its overheads, made investments outside its core activity (such as lignite), suffered a big reduction in coal prices and is now a company with too much debt and assets that don't work.

In San Paulo yesterday, Key finally came clean on the 18-month-long standoff between the Government and the former SOE chairman and chief executive.

I asked Key point-blank at a media stand-up whether the Government "levered John Palmer out" - in reference to Palmer's decision to stand down as chairman last year well ahead of the expiry of his appointed term.

Key said he wouldn't describe it in those terms. But he admitted it was true there was a difference of opinion between the board and the Government over the long-term direction of the company.

"They had very strong aspirations to be a Petrobras - a diversified natural resources company," he said.

"There may even be some logic behind that because of the volatility you get with one particular commodity.

"So it's not that it's such a crazy idea. It's just that it would have required the Government to have significant investment at a time when we didn't have the resources to do that, or the belief they could actually pull that off."


There was plenty more besides.

Key went on to say Palmer's private view was that the Government should sell Solid Energy or allow substantial individual companies to take stakes.

"The problem with that, as I explained to him on numerous occasions, is that we campaigned on not selling SOEs unless we had a mandate.

"As explained in 2011, we weren't going to have trade sales and foreign partners and, as I explained to him on numerous occasions, when we decided to do any capital injection it will be through the mixed ownership model in which we will be putting New Zealanders first.

"He had a view they would partner up with individual companies. And in a purely commercial world that may be a logical thing to do. But we don't live in that world, we live in a world where we make political guarantees to the New Zealand public and we honour them."

Key's frank admission that the Government put a political promise ahead of exploring the commercial upside in taking on foreign partners to provide much-needed capital and expertise to Solid Energy to develop its business needs further examination.

Did the Government's rigid adherence to the planned mixed ownership model (MOM) programme blind Cabinet ministers to examining in a timely fashion whether Solid Energy had the right capital structure in place to fund the bold expansion plans (which Key himself was still championing in late 2011), or to weather the volatile coal market?

Neither Palmer nor Elder has gone public on these issues since the company began negotiations with the Treasury and the banks.

But as far back as 2011 and through into 2012, the company was talking with potential Chinese partners over joint ventures to develop the Southland lignite fields and other projects.

The reality is that the long-term projects that Solid Energy was exploring to diversify its business would have required massive licks of capital. Key has mentioned the company wanted the Government to pony up $1 billion towards this.

When the Government said no, the company's response was to seek funding elsewhere.

The committee will be doing New Zealanders a disservice if it does not allow Palmer and Elder to expand on their discussions with Chinese SOEs and other potential foreign partners.

The fundamental conflict between the Government's political imperatives and Solid Energy's commercial imperatives also needs to be probed further by the committee.

Despite Labour's claims to the contrary, committee chairman Jonathan Young would not have been in the position to politically stymie Opposition attempts to haul the former bosses in front of the committee.

Young's sister, Adrienne Young-Cooper, was herself a director of Solid Energy during the company's expansionist years.

For Young, even if he had been inclined to do so (which I suspect would not have been the case), opposing Elder's appearance before the committee would have been a conflict of interest.

Where Key is on solid ground is saying the MOM model will at least provide an element of transparency.

None of this gets Solid Energy out of its hole.

Its total revenue is forecast to fall from $978 million in 2012 to $645 million in the current financial year, a drop of $333 million (or 34 per cent) on only marginally smaller coal volumes.

Ford says with the level of debt and the need to fund a potential $100 million cash deficit for this year, it was clear the company could not carry on as it had in the past.

Key reckons the bankers should honour "their fair share of the pain" in the restructuring.

"They have lent the company $389 million where there is no direct government guarantee."

The banks will have a different view.

They will want to know why they did not learn until very late in the piece that the board and the shareholder were not on the same page.