Solid Energy chairman John Palmer wants the state-owned coal miner to have a similar type of ownership to that of partially-listed Air New Zealand, of which he is also chairman.Air New Zealand was 75 percent owned by crown, but was also listed and operate
Solid Energy chairman John Palmer wants the state-owned coal miner to have a similar type of ownership to that of partially-listed Air New Zealand, of which he is also chairman.
Air New Zealand was 75 percent owned by crown, but was also listed and operated by listed company disciplines.
"What I would like to think is that we have proved that a model of a listed company with a majority crown ownership can work," Mr Palmer said in a presentation before the start of the NZX annual meeting in Wellington today.
Air New Zealand had performed at least as well as the market, and in many respects had done better, even though its record for value creation and performance was somewhere between average and poor.
For a company such as Air New Zealand, which was pursuing a strategy in a difficult sector and was viewed as an important part of this country's infrastructure, majority crown ownership had been a bonus, Mr Palmer said.
"It allows us to take a medium-term view of strategy in terms of performance, without having to be absolutely focused on the share price day-to-day, and the question of whether we should be looking over our shoulder at who was coming on to our register and what their motives might be."
Solid Energy was expanding on several fronts -- renewable energy, lignite, underground coal gasification, coal seam gas, and biofuels -- and was looking at investment of between $5 billion and $10b in the next decade.
For the crown, it did not make sense for it to provide that sort that sort of equity, and it did not make much sense for Solid Energy either, Mr Palmer said.
But if capital came from the markets, which could be done in a number of different forms, the advantage for the crown was that the company could be grown with no fiscal drain. It would also provide a considerable opportunity for savers.
"So I guess my prescription is to say that a partially listed model where you have access to the capital that you need, similar to the Air New Zealand model which I think is a good model, is a really important path for a company like Solid Energy."
Mr Palmer thought there would be little political risk for the Government in its second term, were it to win one, in going down that track with a company such as Solid Energy.
"This can be, with the right sort of management and the right sort of capital, one of New Zealand's most important companies. It should be," he said.
"In its current form I don't think it can be. I don't think it can attract in the political environment the sort of capital and the sort of risk profile that it needs, and I doubt whether it can over time attract the management quality to deliver that."
Mr Palmer emphasised to the meeting that the comments were his own opinion, and that nothing he or the Solid Energy board were doing were contrary to the Government's asset sales policy.
He classed Solid Energy as the type of state-owned enterprise (SOE) that was operating businesses with important resource or infrastructure implications. The generators were in the same category.
If the operating businesses were any good they needed capital to grow, as well as greater scrutiny of their operational and financial performance, and a proper environment to grow talent.
Almost certainly the ability to attract the right people was restricted by the (SOE) structure, by the need to explain politically why salaries were at the level they were, Mr Palmer said.
He suspected that he would be coming in for criticism about how much Solid Energy's management was paid.
It was "just stupid" for him to be restricted by a political environment that saw anyone earning more than $1 million as a target.
"And that is a very important reason why the (SOE) structure will limit the talent available. You can not have successful companies unless you have an aspiration to have the very best management that you can find."
Aspirations were limited for fully crown-owned companies, which had a political rather than a commercial scrutiny.
A limiting factor was the state of the crown accounts, although it was understandable for the Government to want all the revenue it could get because of the state of those accounts.
"The real question is, is that the highest value alternative for these assets in driving value for New Zealand and New Zealanders. In my view it's not," Mr Palmer said.
"The second is this question of the cost and focus on trivia, rather than performance. And while you have a political environment almost certainly the media are going to focus on aspects of trivia that have very little to do with the day to day operation of the business."
As long as politicians were essentially responsible for the guiding hand behind ultimate decisions, the fear of failure would be much higher than for those who operated in the normal commercial environment.
