Last week's frenzied finger-pointing has probably left most taxpayers none the wiser as to why they are down a $369 million hole with Solid Energy. But it seems the SOE model itself may be a big part of the problem.
Their shareholder ministers seem to have a double standard points
out Tim Watkin: 'Of course this story is rich in political hypocrisy. Through the prism of Solid Energy, you can see National encouraging SOEs to take on more debt, while being incredibly conservative towards and protective of its own balance sheet. Debt? Bill English and others in government have warned repeatedly of its dangers and spoken in almost religious tones of the importance of returning to surplus, all the while nudging SOEs in the opposite direction' - see: Solid Energy and the battle for economic cred.
It's Capitalism 101: higher returns come with higher risks. While most of our SOEs have very broad and stable customer bases, some are inevitably going to run into trouble - particularly if they are being pushed (internally and/or externally) to constantly grow the dividends.
The lesson from Solid Energy for many is simple according to Martin Van Beynen: 'Isn't the debacle of Solid Energy a salutary lesson about the taxpayer owning commercial companies? If you want to own state assets, you have to accept the risks as well as the benefits' - see: Paid in solid gold brickbats. The problem is that even getting shot of them doesn't always get the taxpayers off the hook. The painful lessons from both Air New Zealand and KiwiRail suggest that 'too big to fail' doesn't just apply to multi-national banks.
The SOE model was supposed to get the politicians out of commercial decisions and some have argued that political influence was still a problem with Solid Energy, particularly investments in ill-fated renewable projects. But most analysis actually seems to identify a lack of political oversight as a major factor, including The Press: 'The ministers' fault was one of insufficient oversight and intervention; the company's fault was one of exuberance and imprudence. The latter is at least as bad as the former' - see: Emerging narrative of Solid Energy's collapse shows all players at fault.
If the answer is more 'commercial discipline' - which the Government promises the Mixed Ownership Model will deliver - then are we are putting more faith and trust in the likes of Mr Elder and Mr Palmer to make the right decisions? While their ambitions were supersized (see Hamish Rutherford's Solid Energy 'wanted to be resource giant') their ability just to manage what they had was clearly smaller.
The massive expenditure required seems to have assumed some sort of private capital injection via partial or full privatisation. Would that have stopped the 'financial mismanagement by the company' which Tracy Watkins
says is 'the real story of Solid Energy's failure'? - see: Solid questions still remain unanswered. Would it have re-instated better internal oversight, particularly the relationship between Elder and Palmer which some have identified as far too close? As Jane Clifton has written, 'While the passion with which Palmer defended Elder against the often vituperative criticism he has come in for is laudible, it's fair to ask whether there was a prudently impartial relationship between the chairman and CEO in this case' - see: Hot air and Solid Energy: Don Elder and co at the select committee.
Wherever the blame is finally apportioned it is clear the Government has taken some hits. It has certainly distracted from what should have been a triumphant period following the Supreme Court's green light and Key's own quickness to blame Solid Energy for being over geared with debt came back to bite him. John Armstrong says 'Unfortunately for Key, Labour found some quotes from him last month pointing his finger at high gearing as one of the factors responsible for Solid Energy's financial predicament' - see: Labour must think laterally to win war. Armstrong thinks Clayton Cosgrove has done well so far but that Labour will need to be clever to shift the focus to the privatisation policy itself.
The Government will be on the lookout for another 'perfect storm', which is how both Ministers and managers have described the circumstances that led to Solid Energy's collapse. The Hollywood movie of the same name may be a better metaphor than they realised says blogger Andrew McMillan: 'It was a story of desperation, greed, and recklessness' - see: Solid Energy's Perfect Storm.
Two other humourous blogposts also shine a light on the matter - see: Solid Energy blames financial trouble on David the intern (from the excellent new satirical news site, The Civillian, and my own blogpost: Images of Solid Energy.
Other recent important or interesting items include the following:
• The body count in the Minister of Education's office continues to grow - see: Tracy Watkins' Parata's high staff turnover queried.
• Ski-field and white water rafting businesses are completely reliant on the weather as well - where are their hand-outs? asks Cathy Odgers - see: Hooton On WFF - Welfare For Farmers. See also, Matthew Hooton's English leading debate on climate change.
• Rodney Hide has ten reasons why The underclass have no hope, while barrister Catriona MacLennan thinks the Government is looking in the wrong places - see: Stop dodging tax and we can end child poverty. Hide also has some interesting arguments to make in his column, Problems solved.
