“Solid Energy goes into temporary voluntary administration.”

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As the son of a coal miner, I have seen the boom and bust cycle of the coal industry and its effects on local communities. I can remember just 4 years ago meeting many young guys who had come from all over the country to work in the mines in Huntly. They brought their families, purchased homes and settled into their new community with new found optimism about their future.

 

The State-Owned-Enterprise (SOE), Solid Energy, led new recruits at Huntly East Mine to believe their careers were secure by expanding the mine and investing in a $30 million ventilation shaft.[1] The mine had another 15 years of production ahead which would require another 70 workers.[2] It is hard to believe that just two months ago the SOE had abandoned all of its grand schemes and has now filed for temporary voluntary administration while it sells its assets and lays off staff.

 

Solid Energy has been around for some time. State Coal Mines, a government department, was restructured and rebranded as Coal Corp in 1987 during the Fourth Labour Government. It was renamed Solid Energy in 1997 and supplied coal for steel production and electricity generation in New Zealand and in overseas markets.

 

Solid Energy’s board estimated the SOE’s value at $2.8 billion in 2011. The actual sale price was investigated and found to be more than $1 billion less than that. The international coal price plummeted in 2012 leading to more than 200 job losses at Spring Creek Mine on the West Coast. Soon after this, 60 miners at Huntly East Mine and over 150 office staff at the Head Office in Christchurch were made redundant. This is not to mention the many contractors who were also laid off.

 

Just a few months later, in 2013, it was revealed that Solid Energy’s debt was at a whopping $369 million.[3] Not only had the coal price nose-dived but it was discovered that the SOE had ‘invested’ like a drunken sailor. This included heavy investment in renewable energy, biofuels and lignite conversion.

 

Despite this, the National Government continued to pump more and more taxpayer dollars into their white elephant. $25 million was gifted in 2013 and a further $100 million was given last year. However, this could not prevent Solid Energy from going under due to years of overcapitalisation and the mountain of debt they had accumulated.

 

The failure of Solid Energy was inevitable from the beginning. SOEs do not exhibit the same ethos of efficiency and fiscal prudence that private businesses do. The government safety net that allowed Solid Energy to make bad business decisions propped up the market in a disastrous way. Unlike a private corporation which must look after their shareholders and consumers in order to survive, Solid Energy had the confidence that the endless supply of money that came from taxpayers would always bail them out if the worst happened.

 

Whilst it is a good thing that Solid Energy is winding up, it could have avoided the tremendous loss to taxpayers and the social cost to its staff if it had not provided everyone with a false sense of future success. Taxpayer contributions to the failed company have only made the pain worse for those miners who must once again lift up their whole lives and family and move to another community in search of work.

 

SOEs are unsustainable white elephants which are continually propped up by the taxpayer. The government distorts the market and leads people to do things that they normally would not do in a free market. Kiwirail and New Zealand Post will be next. It is worrying to think that in the 21st Century our government still owns a coal business, a bunch of trains and a snail-mail delivery service. The longer we continue to ‘invest’ in these dying industries the worse the train wreck will be.

 

Those who cry out for more taxpayer contributions and government control of SOEs need to stop thinking of the short term gains and start looking towards the future. The government should not be involved in business whatsoever. Gains and losses should be borne by private individuals. But for the market distortion by the State, those miners and their families would be living much different lives now, perhaps with more job security in a community that has not been turned upside down.

 

It is time for us to seriously think about letting go of these state-owned assets liabilities.

 

By Mike Burrow

Vice-President of Young ACT.

 

*UPDATE*: Solid Energy to close Huntly East Mine: http://www.stuff.co.nz/business/industries/72812848/solid-energy-proposes-the-closure-of-huntly-east-mine

 

[1] http://www.stuff.co.nz/waikato-times/news/7773451/Recruits-told-they-had-many-years-of-work

[2] http://www.stuff.co.nz/business/4879673/Air-shaft-planned-for-mine-at-Huntly

[3] http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10866942

Cartoon: http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11496862