Solid Energy tip of the iceberg? | The Jackal

2 Apr 2013

Solid Energy tip of the iceberg?

As I'm sure you'll agree, the financial meltdown at Solid Energy makes it no longer worth trying to partially privatise... High levels of debt will ensure that returns are considerably reduced, meaning that "mum and dad investors" are unlikely to buy shares and any price achieved will be low.

Today, NewsTalk ZB reported:

So that mountain of money the Beehive was counting on to pay for things like hospitals and schools is shrinking about as fast as the prospect of the promised surplus by 2015. At least they won't have to confront that until after the election, providing they're still around by then of course!

Solid Energy and the government are currently in crisis talks with banks about its $389 million debt, a debt that looks set to hit us taxpayers in the pocket. The main problem is that Solid Energy's liabilities ballooned by more than 133% from $320 in 2008 to $748 in 2012, while the price of coal fell sharply.

But what about our other state owned enterprises... How well is National managing them? The following figures show net debt, total liabilities or total borrowings from 2008 to 2012 for our major public companies:

Meridian Energy: 940 million - 1.6 billion (Net Debt) +70%
Mighty River Power: $625 million - 1.1 billion (Net Debt) +76%
Genesis Energy: $550 million - $1 billion (Borrowings) +82%
NZ Post: $295 million - $608 million (Borrowings) +106%
Transpower: $1.1 billion - $2.3 billion (Net Debt) +109%
Kiwirail: $256 million - $576 million (Liabilities) +125%
Solid Energy: $320 million - $748 million (Liabilities) +133%.

Although not to the same extent as Solid Energy, it's pretty clear that many SOE's are now overexposed and therefore at considerable risk of fluctuations in exchange rates. That overexposure has increased markedly since National came to power, and is a direct result of them instructing SOE's to borrow more while ignoring official advice.

There's no doubt that National has mismanaged Solid Energy by instructing them to increase their debt levels at a time when coal prices were in sharp decline... The red flags were clearly visible and any competent government should have acted more decisively to ensure the company remained financially viable without the need for an extensive publicly funded bailout.

What exactly National has used all those billions of dollars in additional borrowing for isn't clear, because as far as I can tell there's been no major increase in infrastructure investment that such huge amounts of borrowing should enable. In fact there's been a marked reduction in funding for many sectors of society.

Surely they haven't spent it all on golden handshakes?