If National wins ...

[elZorro]

Solid Energy in trouble, looks like more jobs will be lost here, more infrastructure laid to waste. It doesn't mean we're using less coal - for years now, Huntly power station has been partly fed with coal brought all the way from Indonesia. Because it's a bit cheaper on paper. The power station was built at Huntly because there was a lot of suitable coal for it in the ground nearby. There will be other reasons for the slump in profits too, but again, some big picture thinking would help the situation, we could keep more people employed and the economy stronger, keep using local inputs if they are plentiful.

Solid Energy in urgent talks with Government and bankers on debt level

Simon Hartley — 22 February 2013
The beleaguered State-owned enterprise Solid Energy – one of the West Coast's largest employers - has disclosed it is in talks with its banks and Treasury, over its “substantial” debt and the support required to turnaround the flagging operations.
During the past year, Solid Energy's total liabilities have been driven up by increased borrowings, from $614 million to more than $743.5 M, according to its annual report to June, released last November.
The $743.5 M includes cash provisions held, term interest borrowings and accounts payable.
More restructuring appears likely for its remaining 1,500 staff, when Finance Minister Bill English and State Owned Enterprises (SOE) Minister Tony Ryall responded to the shock announcement by Solid Energy chairman Mark Ford yesterday.
English said at a briefing the Government would not let the company go into receivership. He would not directly answer questions about a taxpayer-funded bailout, but would not rule it out.
No mention was made on the question of whether Solid Energy was close to breaching banking covenants.
Ryall said Solid Energy was facing “very serious financial challenges” - its debt stood at $389 M and its interim result “will show additional losses.”
“The Government appreciates this is a very unsettling time for employees and suppliers and the company's wider stakeholders but it is a process which must be worked through carefully and properly,”' the ministers said in a joint statement.
A year ago Solid Energy was on the Government list for SOE floats, but this announcement will kill any chance of that happening in the near future.
English said: “World coal prices have dropped significantly [40%] which has contributed to the deteriorating financial position that Solid Energy is in now.”
Beginning in August last year, Solid Energy flagged the likelihood of a $200 M slump in revenue, followed shortly after by announcing almost 500 redundancies around the country.
Next, in November, its annual profit plunged 146% and it booked a $40 M loss; because of the slumped global coal prices. There was no repeat of the previous year's $30 M dividend.
Barely 20 minutes after Solid Energy's statement yesterday, English and Ryall gave short notice of the 4.30pm media briefing.
Following a global coal price high of $US350/tonne ($NZ419) in January 2011, the price slumped to$US140 by last September, but had since retraced some losses to trade around $US224 in June.
Three weeks ago chief executive of 12 years, Dr Don Elder, resigned, effective immediately, amid criticism of having too many developmental projects underway in recent years.
The lion's share of its more than 4 million tonnes of annual production is from the West Coast, and a relatively new $25 M lignite-to-briquette plant near Mataura, has been unscathed by restructuring, so far.
In an unusual move, Solid Energy chairman Mark Ford yesterday released a statement outlining the company's trading position was continuing to deteriorate, in spite of initiatives to reduce costs, preserve cash and restructure, in the face of low global coal prices.
“We are in discussions with our banks and Treasury on the debt and equity support required for future operations of the business.
“A restructuring and turnaround plan for the company is being prepared by the newly appointed board in support of these discussions,” Ford said.
He warned that Solid Energy was “carrying substantial debt” and the half-year result to be released shortly “will record a significant loss.”
*Simon Hartley is senior business reporter for the Otago Daily Times.

Here's more detail about where the Huntly coal comes from, how it is blended.
http://www.contrafedpublishing.co.nz...mal+beast.html

It would appear that part of the debt at Solid Energy is due to massive bonus payouts in the millions to top management. Wait a minute, it's an SOE. Surely part of the prescription is to not allow it to go bankrupt, to run it carefully, preserving jobs if possible. Don Elder left a few weeks ago, probably just as well.

[iceman]

It would appear that part of the debt at Solid Energy is due to massive bonus payouts in the millions to top management. Wait a minute, it's an SOE. Surely part of the prescription is to not allow it to go bankrupt, to run it carefully, preserving jobs if possible. Don Elder left a few weeks ago, probably just as well.

It was "only "just over $ 20 million in bonuses over last 2 years EZ !!!! Yes it is indeed a SOE, the best form of business operation and ownership according to you and Shearer, so why is the Government now going to have to jump in and save it with tax payer dollars. What happened ? Oh that's right, all National's fault !

[Fred114]

It was "only "just over $ 20 million in bonuses over last 2 years EZ !!!! Yes it is indeed a SOE, the best form of business operation and ownership according to you and Shearer, so why is the Government now going to have to jump in and save it with tax payer dollars. What happened ? Oh that's right, all National's fault !

Pretty much National's fault. The company has deviated too far from its core business. Politicians have wanted to fatten the cow for sale and the business leaders, whilst taking massive bonuses to give maintain the illusion of certainty, have ventured into risky projects that have failed taking the company with it. According to Geoff Bertram, buring coal requires the capturing of carbon to avoid greenhouse gases. Don Elder initiated so-called "lignite projects" but technology not there. He took on massive expansion plans in the face of considered advice not to. Racing in to highly speculative ventures that are sold to us as significant, but turn out to be crap. Boom and bust. Same with Mighty River power write-down of $90M, another example of highly speculative deals that are made to appear a great investment, but actually profit arrived from highly risky ventures in geothermal in California, set up as a tax avoidance scheme to 'divert' investment. The Chile venture bombed. Such activity sucks attention of the board away from their core business, which in Solid Energy's case was to adapt to the collapsing coal price. The whole sector of SOE's have taken on gilt edged expansionist mode, that the National party are only too happy to fuel. The core business is simply a cash cow to fund risky ventures needlessly. Such a direction has lead us to the reckless exposure of market forces that will again strangle the cost of energy to consumers.

[elZorro]

It was "only "just over $ 20 million in bonuses over last 2 years EZ !!!! Yes it is indeed a SOE, the best form of business operation and ownership according to you and Shearer, so why is the Government now going to have to jump in and save it with tax payer dollars. What happened ? Oh that's right, all National's fault !

It's not National's fault, it's a result of their policy. If the volume purchased from a coal mine drops, of course the price per tonne delivered has to go up. Then it becomes steadily less cost-competitive in the interim. The value of coal dropping worldwide will only be a temporary thing. Once the USA uses up the new shale oil/gas, it'll be all go again. As the price of coal is currently cheaper from overseas, why has the domestic power price not dropped? Huntly sets the benchmark for expensive power, and all the other generators tag along. So the govt has made extra profits on power, and with the GST on power. When the older parts of Huntly run, it's on a powdered coal brew, most of it imported from Indonesia.

National's new plan is to run down Solid Energy so it's a mere shadow of its former self, but that then exposes NZ to a bigger dependence on overseas energy sources in the short to medium term. And it will also make a lot of people and equipment redundant.

Finally, National has allowed those $20mill of Solid Energy bonuses to be paid out, but they now intend to get that all back from de facto benefit fraudsters. A very few people got the bonuses, and hundreds of people who are probably on low incomes, are going to have to pay it back to the govt (minus the legal costs no doubt). That's 'fair', in National Party terms.

I see Fred114's points too, it's quite likely the Solid Energy business was being pumped up in these oddball areas, and it's backfired.

[Major von Tempsky]

"Once the US uses up all the shale oil/gas".

You should do a bit of reading, Internet is ok for it, start with a Google search.

You'll find the US has so much recoverable shale oil/gas it will last for over a hundred years.

That invalidates your argument. Also, most countries incl even China, are making a conscious effort to move away from coal as an energy source.
Solid Energy is not the easy fix for Labour that you think it is and its present predicament has nothing to do with National, twist, squirm, writhe as you will to try to portray this. Anyone with any business nous at all knows this.

[elZorro]

"Once the US uses up all the shale oil/gas".

You should do a bit of reading, Internet is ok for it, start with a Google search.

You'll find the US has so much recoverable shale oil/gas it will last for over a hundred years.

That invalidates your argument. Also, most countries incl even China, are making a conscious effort to move away from coal as an energy source.
Solid Energy is not the easy fix for Labour that you think it is and its present predicament has nothing to do with National, twist, squirm, writhe as you will to try to portray this. Anyone with any business nous at all knows this.

Touche, MVT.

Wikipedia states that there has been speculation that there might be up to 100 years of natural gas production available. That probably depends on whether coal fired power stations are converted to gas, as we did with Maui. We used up an internationally major gas field in a fairly short time. Also:

A June 2011 New York Times investigation of industrial emails and internal documents found that the financial benefits of unconventional shale gas extraction may be less than previously thought, due to companies intentionally overstating the productivity of their wells and the size of their reserves.^[46]

But I have to agree, it would be better for all of us if the coal (and gas) stays in the ground. We should be looking much harder at techniques for extracting biofuels from bacteria or algae, as that pulls the carbon back out of the atmosphere, instead of releasing more from ancient storage.

However, in the meantime we have the ridiculous situation of NZers paying more and more for their energy, the price of coal dropping, and the govt (through SOEs) sacking NZ coalmine workers while they import cheap coal via ports and rail systems. We should be using the ports and rail systems to export more added value items. Heavy machinery, tech gear.

[iceman]

Touche, MVT.


However, in the meantime we have the ridiculous situation of NZers paying more and more for their energy, the price of coal dropping, and the govt (through SOEs) sacking NZ coalmine workers while they import cheap coal via ports and rail systems. We should be using the ports and rail systems to export more added value items. Heavy machinery, tech gear.

So proves the point EZ that Government should stay out of running businesses so shareholders (not tax payers) taking the risk will be rewarded or punished based on the business performance. Simple really.
But Labour, which appointed all the Solid Energy people involved in this fiasco, has the gut to criticise the Government making it sound like John Key did all of this. A bit like the school closures they so much criticise now, forgetting that in 4 years National has closed around 40 schools but Trevor Mallard closed 281 schools in his 9 years at the helm. They must think voters are all stupid and/or have alzheimers.

[elZorro]

So proves the point EZ that Government should stay out of running businesses so shareholders (not tax payers) taking the risk will be rewarded or punished based on the business performance. Simple really.
But Labour, which appointed all the Solid Energy people involved in this fiasco, has the gut to criticise the Government making it sound like John Key did all of this. A bit like the school closures they so much criticise now, forgetting that in 4 years National has closed around 40 schools but Trevor Mallard closed 281 schools in his 9 years at the helm. They must think voters are all stupid and/or have alzheimers.

281 schools? I thought it was 115 at most , from 2002 to 2008, with another 90 voluntary closures. How many new ones were built? Happy to debate real figures.

The idea of the state owning a large portion of the coal production over here would be smart in terms of using assets consistently, providing mining training and employment, rotating cashflow around provincial areas. If we simply buy in coal from overseas, it's of no help in the local economy, and especially bad if the per tonne saving was only minor. The govt can easily recoup the balance from improved taxes from local production, and lower unemployment. They have already been mean in not passing on energy input savings to consumers. They've put themselves in the position of needing every bit of income from a run-down economy.

http://www.nzherald.co.nz/business/n...ectid=10867108

John Key must think I have alzheimers. His govt removed the R&D tax credits because they said small businesses will only be rorting the system. He has no faith in small and startup businesses at all. That's one of the reasons why we're in a mess now.

[Fred114]

"Once the US uses up all the shale oil/gas".

You should do a bit of reading, Internet is ok for it, start with a Google search.

You'll find the US has so much recoverable shale oil/gas it will last for over a hundred years.

That invalidates your argument. Also, most countries incl even China, are making a conscious effort to move away from coal as an energy source.
Solid Energy is not the easy fix for Labour that you think it is and its present predicament has nothing to do with National, twist, squirm, writhe as you will to try to portray this. Anyone with any business nous at all knows this.

I think we're getting a bit distracted by "business nous". Being a "state owned enterprise" is a reckless and loathsome means to providing basic necessities, such as power and water. "Business nous" has only blinded leaders into conferring on themselves an appetite for free enterprise, rather than stewardship. Their actions have only confirmed how inefficient this model is for delivering basic services.

[elZorro]

I think we're getting a bit distracted by "business nous". Being a "state owned enterprise" is a reckless and loathsome means to providing basic necessities, such as power and water. "Business nous" has only blinded leaders into conferring on themselves an appetite for free enterprise, rather than stewardship. Their actions have only confirmed how inefficient this model is for delivering basic services.

Hi Fred, I agree with that. Do you mean like the crazy idea of splitting up NZED into smaller competing state-owned enterprises so not one of them builds any more major power stations, because the effect on their individual books would be too horrendous? As it turned out, power demand has flat-lined, just as well. NZED did a good job of looking after our power needs, building installations when and where appropriate, for the good of the country. It acted as a steward, not a profit-making venture. As we are seeing, power prices haven't dropped, even though coal has, and as far as I'm aware, our hydro stations haven't cost a lot to maintain lately. Endusers still pay 25c a kWhr for power from them, even though we have a fair idea the actual running cost of hydro generation is under a cent per kWhr.

In the SST today, Rob O'Neill pointed to all the big failures in NZ lately, leading to more unemployment. In most cases they had "structural or cyclical issues that are industry specific".Telecom was different. This is a big business model that is certainly innovating too. They are buying equipment to make people redundant, and if they can't do that, they outwork helpdesks to overseas, or screw down fault services with contractors.

Rob then said that "We need a lot more F&P Healthcares, Orions, Datacoms, high-value manufacturers and software developers".

Amen to that.

Maria Slade and Rod Oram both had articles dealing with the casino deal in depth. As I had suspected, SkyCity is looking to add 500 gaming machines and another 20 tables, and this will generate an additional revenue of $41mill a year, according to Morningstar analyst Nachi Moghe. By comparison, the convention centre might find it hard to break even with all the competition out there, and if it did OK, the extra EBIT might be $10mill p.a. It's not about the centre at all, it's the gaming machines. Labour's policy of dropping gaming machines back over time, is going to be knocked back in favour of a greedy corporate.

This unfair advantage was picked up by an equally outraged Rod Oram:

"This very sweet deal sends a very clear message: If you want to build a convention centre, school, road, hospital, prison or any other form of infrastructure (in NZ), don't bother with the appropriate processes. Do an end-run around the competition - deal directly with the prime minister.

This is no way to run any country".