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Viability of Coal Company in Doubt After $258 Million Govt Bailout

New Zealand Finance Minister Bill English has said this week that he doesn’t know if New Zealand coal company Solid Energy is now viable, which has raised the real prospect of the company collapsing, Fairfax Media in New Zealand has reported.

The National Party-led government has previously bailed out Solid Energy twice with taxpayer money, to the tune of NZ$258 million. The government contributed NZ$155 million in October 2013, and it agreed to cover the company’s “obligations to remediate old mines” to the value of $NZ103 million.

On March 2, New Zealand Prime Minister John Key said it is now not the government’s preferred option to put more taxpayer money into Solid Energy. Bill English has subsequently ruled out any cash, loans, or guarantees.

Solid Energy embarked on ambitious projects that seemed to count on world coal prices rising, but coal prices have continued to fall. Bill English stated, “Solid Energy has done a lot of work to right-size itself, but the coal price has kept falling away in front of them and that’s made it a continuing challenge.” He added, “The Crown has been pretty keen to make sure that it’s not in the position of offsetting the risk that the banks took. The banks took a risk lending the company money and they’ve got to deal with the consequences of those decisions.” English told Radio New Zealand on March 10, “We’ve done two rounds of support for the company and, you know, in the end…you have to work out whether there’s a viable company there or not, and we’re in that process.”

The company is reportedly negotiating with a group of banks in an attempt to reduce its almost $400 million debt. Ominously, the company has delayed the release of its financial results, which were due in late February, until they can “reflect a true and fair picture of the company’s position.”

In addition to the government subsidising this ailing fossil fuel company with a massive bailout, in February TSB Bank wrote off its entire NZ$53.9 million loan to solid energy. Solid energy also owes a combined NZ$250 million to Commonweath Bank, BNZ, ANZ, Westpac, and Back of Tokyo Mitsubishi, Interest.co.nz has reported.

In a “grilling” at Parliament on March 7, executives of Solid Energy faced questions about the massive debt the company has racked up. Don Elder, who resigned as CEO in early February after more than a decade running the company, did not front up. As I write, company executives are facing a further grilling.

Opposition New Zealand Labour party state-owned enterprises spokesperson Clayton Cosgrove criticised the company delegation stating, “The problem we have here is that $390 million is down the toilet and the people who made those decisions aren’t here to answer for it and I think that is unacceptable… that is a disservice to the taxpayers of New Zealand.”

The company has over 680 staff in New Zealand’s Waikato, West Coast, and at the Christchurch head office. Labour Party leader Andrew Little said he was worried about the workers at the coal company. Green Party Co-leader Russel Norman urged the Government to provide proper support for workers if the company collapses.

Dr Norman said National thought it had picked a winner in Solid Energy, but that the coal company was operating in a dying industry: “The National Party picked a winner – thought it picked a winner on fossil fuels and coal – turned out that fossil fuels and coal aren’t such a winner after all.”

Indeed, you do have to question the economic, not to mention environmental, wisdom of giving massive taxpayer-funded bailouts to an ailing fossil fuel company when the indicators are not looking good for the future of the coal industry globally. Even the Bank of England has recently warned of huge financial risk from fossil fuel investments, given the inevitable large-scale international effort to curb climate change.

Internationally, a fossil fuel divestment movement has been gaining pace in recent years, with large investment funds divesting from fossil fuel companies and putting funds into clean technology and more sustainable sectors. The United Nations has been warning that much or the world’s known coal reserves must be left in the ground if the world is to avoid dangerous climate change. Even the traditionally conservative International Energy Agency has acknowledged this early 21st century reality. There has been a lot of discussion of a rising “carbon bubble” in world markets, due to all the known fossil fuel reserves already on company books that can never be burned. This could leave a lot of stranded assets.

Given all this, is it economically, environmentally, and socially responsible for a government to be bailing out a financially troubled coal company to the tune of $258 million? Notably, this is also a government who balks at any subsidies for the emerging solar sector. As regular readers will know, solar is an exponentially growing industry globally and is already starting to provide a lot of jobs, while coal is undoubtedly on the decline.

Comments on this entry are closed.

  • Tim

    Hmmm sounds like there is a bit of history being re-written here by politicians. It was the current National government who demanded all profits go to them, and force Solid into taking loans to do its normal care and maintenance. That is what any normal commercial company would do. National caused the problem, and now is turning the situation around. Sure there is a downturn in coal price; these things go in cycles. Read your history. The journalism expressed in this note is appallingly biased and misinformed.

  • http://www.the9billion.com/ John Johnston

    Things do go in cycles in mining, sure, but the climate change situation is changing the coal industry for the long term – apart from the relative slowdown in the Chinese economy. Look at what many countries are now doing in relation to emissions reductions, including the US and Europe. Coal is a sunset industry, and it’s crazy for governments to be acting as though it’s not.

  • Tim

    Hi John

    Agree with your comment. My main point was that the reasons for Solid’s current situation is not what politicians are saying. I guess there is a reason why politicians are regarded as a slightly lower life form! :)

    But another point, briefly, is that Solid was actually trying to move away from coal in a number of their projects, it was the vision of the CEO to be out of mining coal as soon as possible whilst living in the reality that you don’t’ just stop using fossil fuel and then milk factors and hospitals close. He said publicly and within the industry many times that if Solid was still mining coal in 20 yrs it wouldn’t be there.

    But the point being in specific to this not so well written or researched article above is that Solid’s demise was caused or at least hastened by the current National government but they are essentially spinning the facts to make it look like they did not. If John Key and Bill English had Pinocchio noses, they’d be very long and woody at the moment!

  • http://www.climateoutcome.kiwi.nz/ Bob Bingham

    Coal is a dirty polluting fuel and there are cheaper and cleaner forms of energy. It may be necessary for iron production but that is about all. Thinking we can achieve our CO2 emission obligations and keep producing coal for export is delusional. http://www.climateoutcome.kiwi.nz/