Ex-chairman John Palmer will join former CEO Don Elder today to answer MPs' questions on near-collapse

Former Solid Energy chairman John Palmer will be grilled today by Opposition MPs on whether pressure from the Government for the company to borrow more contributed to its near-collapse last month.

Mr Palmer, who stepped down as Solid Energy chairman last August, 18 months before his term was scheduled to end, will appear alongside former chief executive Don Elder before Parliament's commerce committee to answer questions about the company's problems.

Dr Elder stepped down in early February, just a few days before Finance Minister Bill English revealed the company was tottering under $389 million in debt and was in talks with its bankers.

Since then, 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.


Yesterday, however, Labour Party leader David Shearer produced a May 2009 letter sent by then State Owned Enterprises Minister Simon Power to Mr Palmer, telling him the Government wanted the company to increase its gearing or debt levels.

Mr Power also indicated he wanted Solid Energy to pay higher dividends to the Government.

That was in spite of noting in the same letter that the company was forecasting a decline in its financial performance - including profit and dividends - for the next four years because of falling coal prices.

Responding to questions from Mr Shearer in Parliament yesterday, Mr English confirmed his Government "did make the decision to allow Solid Energy to take on more debt" during its first term but "decisions about how much debt to incur were made by the board".

In retrospect it was easy to see that Solid Energy would have been better with no debt, but "at the time it wasn't", Mr English said.

Asked by Mr Shearer why Solid Energy was told to increase debt and dividends "at a time when he knew that coal prices were declining", Mr English said that "at the time it wasn't clear that coal prices were declining".

"In fact the best advice from the company with which the Government ended up disagreeing, was that coal prices would continue to rise."

Mr Shearer later said Solid Energy had responded to the Government's call and had paid it $130 million in dividends since 2009, including $30 million in late 2011, "by which time coal prices had further declined and the company was in financial distress".


He also pointed to the company's increase in borrowing over that period, rising from $13 million in 2009 to $191 million the following year and $313 million by last year.

"John Key and his ministers are desperately dumping the blame on the Solid Energy board. But the real blame rests with them," Mr Shearer said. "They were urging the company to borrow more despite knowing stormy financial times were ahead.

"They knew the company was in trouble but continued to treat it like a cash cow."

Meanwhile Labour's SOE spokesman, Clayton Cosgrove, who battled to get Dr Elder in front of the committee despite the company's apparent reluctance to have him front, will lead the Opposition attack today.

He yesterday laid a complaint with Parliament's Speaker that Solid Energy had misled Parliament and treated it with contempt.

Mr Cosgrove said that was because Solid Energy had misled the committee about Dr Elder's availability to appear.

The contempt complaint related to the company's strategy manager, Bill Luff, providing media with details about Solid Energy's problems that Mr Cosgrove says were denied to MPs during last week's financial review of the company.