Let Solid Energy fail
"As the Economist pointed out a while ago, state-owned companies with some private shareholding always do better than exclusively state-owned companies."
Featured commentWhen private enterprises fail their shareholders, bondholders and associates bear the consequences.
Why should Solid Energy be any different, argues Philip Barry, a principal of economics and corporate finance advisory firm Taylor Duignan Barry.
In today's In Depth section of the National Business Review print edition, Mr Barry outlines what a government bailout would mean for state-owned assets' incentives to perform like a private company and the signal it sends to international markets.
Meanwhile, economics editor Rob Hosking details what's bubbling behind the Solid Energy debacle: a seismic shift in how the government manages its businesses.
In this week's Asia Watch, columnist Nathan Smith says it is doubtful New Zealand fully grasps the implications of its "antiquated, ideological" anti-nuclear stance and the "reality of an offensive China".
Business editor Duncan Bridgeman has more on the Mainzeal collapse, revealing Mainzeal Property & Construction had been funding its parent company's China-based businesses for years.
Elsewhere, columnist Matthew Hooton says the government's economic team is guilty of a communications failure, highlighted by the growing gap between the government's economic record and its political prospects.
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Comments and questions11
I so agree. The same about the bailout of the financial companies. People went for higher returns and they should expect higher risks.
Totally agree. Only reason is they don't want the political damage to hurt their reelection chances.
Simple!
Telecom has already been partially sold off, so they don't care - the money is in the bank.
Mainzeal is not govt owned, so who cares!
Solid Energy is state owned, so it must be preserved and rebuilt for a future possible sale. Gee, it's not rocket science, plus it doesn't cost the "Gummint" anything to fix it it up, just us dumb stupid taxpayers. Why pay these self-opinionated ex-failed car dealer/insurance agent "Gummint" MPs who couldn't run a decent running race, let alone a country.
So the first 2 comments come from people who would have the government sell our coal assets and wind up Solid Energy.
What a waste of an asset which will be valuable when managed properly and the world coal price returns!
Governments have bigger stakes to consider than just their shareholding. The only reason they would prop them up is if they had confidence that they could return to profitability and the cost of unemployment and economic loss would be greater than a new operator picking them up out of receivership/liquidation.
I am sure the part of the reason that Solid Energy got into trouble was that the directors thought they should go along with the previous government's delusions on the benefits of biofuels and the like and its obsession with dangerous man made global warming – that, sadly, this government seems to share.
I am sure the same thing has driven the state-owned electricity generators into investing in windfarms that, in New Zealand, are not economic by quite a large margin. Overseas, they are heavily subsidised and this causes a transfer of wealth from the poor to the rich.
As the Economist pointed out a while ago, state-owned companies with some private shareholding always do better than exclusively state-owned companies. Solid Energy, I suspect, tells us why.
If the govt bails out Solid Energy re the banks implies that any future SOEs that are being sold and are in danger of failing, even though the taxpayer owns only 51%, will have implied liability of 100%.
Another privatise the profits and the taxpayer in for 100% of the losses.
Typical.
What most of you don't seem to realise is that the SOE model is broken (it always has been)... A lot of the so-called expert managers are greedy, at best average in their skill level and know the government will always be there is you f*@k the whole thing up.
Just accept there is a class of publicly owned strategic assets that need to by run with the lowest possible overheads for the biggest possible return or economic enablement and that may not just mean cash. You've all been totally suckered by the high priests of greed and think the answers are black and white when they are most certainly not. These companies don't need to be run as companies at all. Who said that was set in stone? you're just parroting a line and that's all it is ... a line.
The Ministry of Economic Development should recall all SE's Mining, Exploration and Prospecting Permits and let the banks fight over the rest.
Without being privy to all the facts, especially the longer term outlook, I don't know if letting it fail is a good/bad idea - but it should be seriously considered. The coal and other resources remain and can be accessed by another corporate (part or fully privately owned) in the future. From what we can see, it won't be some time soon, so letting it fail is a real option.
"These companies don't need to be run as companies at all." We went through all that in the 1950s and 60s. By the 1970s NZ was a basket case, with govt depts just acting as unemployment depts for those who didn't want to work. I was there - I worked for the govt.
There are no incentives to perform when employed by govt, which is why no-one in there does, from our MPs down to the people interacting with the public. If you want anything apart from an organisation crippled by non-performing parasites you will have to privatise these govt "assets".