15 Mar 2013

Details of Solid Energy's expansion bid released

7:19 pm on 15 March 2013

The Government released official documents on Friday to back up the Prime Minister's claims that Solid Energy asked for a massive cash injection to expand its business.

The papers detail why the request from the state-owned coal company to proceed with the major expansion was turned down.

Solid Energy made a pitch for what it described as an audacious plan to create a National Energy Resource company, covering all forms of mineral resources, in 2010, which would have required an investment of $15.3 billion by 2021.

The financial woes of the state owned coal company, which is $389 million in debt, have turned into a political debate over who should take the blame.

The appearance of both the former chairman and chief executive at a parliamentary select committee has added further fuel to the fire.

John Key says it is clear from the documents Solid Energy wanted substantial investment from the Crown in the order of $2 to $3 billion a year.

"I think it is pretty self explanatory that when you come to the Government with such a very large proposal, we're the 100% owner, that's what's required."

The papers show Solid Energy presented a range of proposals, including the suspension of dividend payments for up to a decade, and indicative approval for a capital investment of up to $3 billion a year.

The Government believed the proposal was based on over-inflated predictions for the price of coal and, that if the company wanted to expand, it had the flexibility to expand its debt.

Solid Energy was encouraged to proceed with one project at a time, after the broad proposal was rejected.

But the Labour leader, David Shearer, says the company's proposal was to raise the money from private investors.

"They were wanting to privatise the company and go outside for the money. They did not ask the taxpayer to stump up with a billion dollars."

Solid Energy's former chair, John Palmer, says the company never expected the Government to contribute all of the capital and made it clear the company would explore other ways to raise the necessary funds.

"Our view was that almost certainly that could not and should not be funded by the Crown as the sole shareholder and we would need to find mechanisms, whether it was project finance or whatever, to fund that."

Mr Palmer told Radio New Zealand National's Checkpoint programme Solid Energy abandoned its proposal for a National Energy Resource company as soon as the Government rejected the idea.

Health and safety spending

Earlier Mr Palmer said the majority of the company's debt was due to health and safety upgrades of the Stockton mine.

Mr Palmer says a sudden and significant drop in the price of coal, coupled with a high Australian and New Zealand dollar accounted for some of the debt, but most it is was due to health and safety upgrades at the Stockton mine.

He says a total of $275 million was spent on the mine including $150 million on new equipment and $125 million to build a new coal processing plant.

He says that was aimed at increasing the life and value of the mine, as well as its safety record, and he doesn't regret the expense for one minute.