The government blocked proposals in 2009 from its coal mining company Solid Energy for a billion-dollar capital injection to allow it to become "the Petrobras of this country", Prime Minister John Key says.
The Solid Energy plan grew from encouragement by the last Labour-led government for state-owned enterprises to expand their activities and would have arrived at the cabinet table at a time when then Energy Minister Gerry Brownlee was entertaining advice from other quarters to establish a national oil company.
NOCs, such as Brazil's Petrobras or Norway's Statol, are government-owned oil and gas companies whose profits are invested for national benefit.
While the New Zealand government was unwilling to back Solid Energy in that role, it appears to have been powerless to prevent the company from taking what Mr Key described as "baby steps" towards such a future.
"The company did have the right to draw down debt and make investments without shareholder authority" up to a certain level, Mr Key says.
That included investigation of coal seam gas plays, which former chief executive Don Elder was still touting last year when he announced Solid Energy's $40 million loss for the last full financial year, and investment in farmland in Southland to allow exploitation of low-grade lignite coal for conversion to diesel, urea and burnable briquettes for industrial heat.
Concentration on these new areas of business were part of the reason the company's head office staff grew substantially and Mr Key says the company defended an identified lack of proven coal reserves to support its future business on the grounds it was pursuing a wider brief than just coal mining.
They were, however, "worthless investments", Mr Key says. Other initiatives included bio-fuels and pellets for wood pellet burner investments.
The company has a $29 million demonstration briquette plant awaiting commissioning in Mataura, which Solid Energy's new chairman, Mark Ford, said last week was for sale along with all other lignite development assets.
The company began talks with its bankers, Treasury and the government as shareholder, last week over its future after concerns that it was adding around $10 million a month to its balance sheet debt, now sitting at around $389 million.
The government has said it will not let the company go into receivership, but is looking for it to be reconstituted on a much more conservative basis, as a company focused solely on mining coal.
Asked yesterday whether Solid Energy was worth anything at present once its debts were repaid, Mr Key said: "I would be surprised if it's worth more than it owes."
However, that was "a snapshot based on current coal prices", which have plunged in the last 18 months but are showing some signs of recovery and could allow the business to become viable again.
The problems at Solid Energy first came to light when the government started scoping the business for partial privatisation, at which time it became clear the Solid Energy board's valuation of around $2.8 billion was wildly at odds with an independent valuation of $1.5 billion.
The board, chaired by Air New Zealand chairman John Palmer at the time, had projected the path of world coal prices "completely and utterly wrong", said Mr Key, and insisted until the middle of last year that officials' criticism was unfounded.