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Solid Energy and a public-private muddle
We have an extractive economy which depends on commodity exports. That makes the drought a big deal. It makes Solid Energy a big deal -- made bigger by a public-private muddle.
The drought is big for farmers. It is big for the rest of us because most exports are of what is extracted from grass grown with rain, from forests, from the sea, from underground and from the landscape, exported as pleasure for tourists.
More advanced economies mainly export what they do with what countries like ours extract. The value they add each hour of work is higher than ours so their people are better-off.
John Key and Co want us to extract more, particularly milk and petroleum. One of Amy Adams' departures from the Land and Water Forum consensus is an enthusiasm to dam nice rivers (with public funds) for water for farms.
But in an extractive economy a commodity price fall cuts our material standard of living.
When the coal price plunged last year Australia's media numerously reported coal mines closing and firms in trouble in Queensland. Solid Energy had lots of company.
But because Solid Energy is a public entity, its trouble is political. Government politicians blame Don Elder for runaway ambition. Opposition politicians blame ministers for being poor overseers.
Elder thinks big and wide. He is solid energy, megajoules of it. His ambition to build a mineral resources conglomerate, which ministers batted away, made waves behind the scenes at the time and attested to his restless lateral thinking and entrepreneurial instincts. He is an effervescent, stimulating fellow.
Elder was the man to deliver what state-owned enterprises (SOEs) were told to do when they were corporatised: act commercially, that is, as private-sector firms do. But, unlike a private firm, Solid Energy can raise capital only from the government (that is, taxpayers). When it wanted capital to spread its risk from reliance on a single commodity ministers said no.
Bill English wanted to strip taxpayer capital out of Solid Energy, not put more in -- just as he will strip 49 per cent of taxpayer capital out of Mighty River Power next month. (A referendum will likely later tell him he didn't have a mandate to do that.)
Without more capital, Solid Energy could expand only out of retained earnings (great while the price was high but only while it was high) or joint ventures or with more debt. Even without expansion, ministers drove the board to raise the debt ratio beyond its comfort level so Simon Power could extract higher dividends. That, ministers thought, would drive commercial efficiency and add to revenue to help English's fiscal consolidation.
So, when prudent private-sector firms around the world were deleveraging during and after the global financial crisis (GFC) and now have cash in the bank, Solid Energy had to lift its leverage and so its, and our, risk.