Parker David: Questions for Oral Answer — Questions to Ministers 
Text is incorporated into the Bound Volume 
Parker David: Questions for Oral Answer — Questions to Ministers 
[Sitting date: 14 March 2013. Volume:688;Page:8547. Text is incorporated into the Bound Volume.] 
1. 
Hon DAVID PARKER (Labour) 
 to the  
Minister of Finance 
: Does he agree with the Prime Minister that one of the three main reasons for Solid Energy’s precarious financial position was that “they added gearing to a company that historically had not had gearing”; if so why? 
Hon TONY RYALL (Minister of Health) 
 on behalf of the Minister of Finance: Yes I do. The fundamental cause of Solid Energy’s problems is that the investments that the board made did not generate the returns that the board expected and the situation became a perfect storm when coupled with the collapse of world coal prices in 2012. 
Hon David Parker 
: Does the Minister of Finance stand by his own acknowledgment yesterday that in the case of Solid Energy it “would have been better with no debt. In retrospect that is easy to see; at the time it was not.”; if so can he understand why New Zealanders are so disappointed to have a Government that can be wise only with hindsight? 
Hon TONY RYALL 
: Yes and of course that is the benefit of hindsight. At the time that the former Minister for State Owned Enterprises wrote to that company it was clear that as we were expressing to all State-owned enterprises there was a need to lift improvement. 
Hon David Parker 
: Why does his Government continue to deny responsibility for foolishly pressuring Solid Energy to hugely increase its debt and dividends at a time when coal prices were dropping? 
Hon TONY RYALL 
: The Government did not hugely pressure Solid Energy to increase its dividends and its borrowing. The Government is absolutely clear: it is the responsibility of boards to balance dividends debt and capital and that is exactly why in 2008 Mr Mallard wrote to the board of Solid Energy and said that a long-run ratio of dividends to net profit after tax—65 percent—was something that Ministers were not uncomfortable with. 
Hon David Parker 
: Is the Minister aware that Mr Palmer at the Commerce Committee this morning said that he had said to the Government that this call for higher gearing for a company that was exposed to a volatile price for commodities and a volatile exchange rate was wrong and that his Government had said to do it anyway? 
Hon TONY RYALL 
: As the member heard this morning from Mr Palmer dividend decisions are made by the board and the board takes responsibility for those dividend decisions. If asking boards to consider debt and dividend policies is not right why did Mr Mallard do it in 2006 and 2008? 
Hon David Parker 
: Did the Crown Company Monitoring Advisory Unit as it was then and the Minister of Finance’s own Treasury—of which the unit is a subset—say in advice dated 26 May 2009 to the Minister of Finance to Mr Joyce and to the Minister for State Owned Enterprises that setting a blanket 40 percent debt target risked being seen as simplistic and unrealistic? 
Hon TONY RYALL 
: Probably they may have said exactly the same about the Labour Government’s 35 percent debt target which Mr Mallard told them about in 2008. But look let us be absolutely clear here. The board’s responsibility is to manage debt dividends and investment. Clearly wrong decisions were made in terms of some investments that have not generated the return that that company wanted. What the member fails to tell the people of New Zealand is that in the second half of 2009 coal prices strongly rebounded reaching substantial price levels that continued right through until 2011. 
Hon David Parker 
: Does he agree with Mr Palmer that after the then Minister of Energy and Resources Mr Brownlee had put out his “Sexy Coal Brownlee” video after the Minister of Finance turned the first sod for lignite developments and the Prime Minister also expressed support and after the Government said it wanted Solid Energy to expand solid coal production and borrow more money to do it the Government knew it was asking Solid Energy to both increase debt and increase risk after Mr Palmer said that it was wrong to undermine its balance sheet? 
Hon TONY RYALL 
: That member is trying to rewrite history for his silly political purposes. The fact of the matter here is that after 2009 international coal prices rocketed. They went up significantly. In fact under that party opposite the value of Solid Energy went from about $500 million to $2 billion. The fact is that it is not the debt that has caused the problems at Solid Energy; it is the fact that a number of investments have been made that have not generated the return that the board expected and coupled with a major collapse in coal prices in 2012 we have what has been described a “perfect storm”. 
Hon David Parker 
: In respect of one of those failed investments is he aware that Don Elder and Mr Palmer both said that the reason the biofuels investment did not make any money was that Mr Brownlee and his Government removed the biofuels sales obligation that was previously legislated? 
Hon TONY RYALL 
: Mr Speaker—[ 
Interruption 
] 
Mr SPEAKER 
: Order! [ 
Interruption 
] Order! A question has been asked. It requires and deserves an answer. 
Hon TONY RYALL 
: The member seems to be suggesting that this would have been a profitable investment only if it was subsidised by the New Zealand taxpayers. The company must have known about that decision when it was made and it can make investment decisions in response to Government policy change. The fact is that those investment decisions dividend decisions and debt decisions are the responsibility of the board as set out in the State-Owned Enterprises Act 1986—passed by a Labour Government. 
Hon David Parker 
: Did the letter from the Minister of State Owned Enterprises on behalf of himself and the Minister of Finance as shareholding Minister in 2009 ask Solid Energy to increase its debt levels? 
Hon TONY RYALL 
: Together with every other State-owned enterprise Ministers did write and ask the board to consider increasing the debt levels. Mr Palmer recognising that this is the prerogative of boards wrote back to the Minister and said that the board is best placed to understand the earnings volatility and balance sheet risks of the company and I am sure that that is the view that the board had when Mr Mallard was writing to it about dividends and debt in 2006 and 2008. Goodness me have they not forgotten a lot? 
Hon David Parker 
: Would the Minister be surprised that given this company had one shareholder—the Crown—Mr Palmer found very influential the request from the Government its only shareholder to increase production increase dividends and increase debt? 
Hon TONY RYALL 
: Now Mr Parker is saying that the board should not increase coal production when we had record coal prices from the end of 2009— 
Hon David Parker 
: I raise a point of order Mr Speaker. That was not my question at all. My question if I would be able to re-put it— 
Mr SPEAKER 
: Well I think that is the quickest way forward but it would be helpful if I could actually hear the question as well. If we could have a bit of silence from both sides of the House. 
Hon David Parker 
: If I can recall—I will not be able to recall the exact wording— 
Mr SPEAKER 
: Order! The member has—[ 
Interruption 
] Order! 
Hon David Parker 
: Is the Minister surprised that former chair of Solid Energy Mr Palmer said that given that the company had only one shareholder the Crown the request from the Crown to increase production increase dividends and increase debt was very persuasive? 
Hon TONY RYALL 
: It is the responsibility of boards to make these decisions. If they cannot make those decisions why bother having them? Labour passed the Act in 1986 and the fact here is that we are now hearing from Labour that when the coal prices were at astronomical levels in 2009 2010 and 2011 the company should not have increased coal production. That is bad economics. 
Rt Hon Winston Peters 
: Is it not the case that forcing greater debt and extracting excessive dividends from Solid Energy was fraudulent in that there was no real revenue stream behind them— 
Hon Steven Joyce 
: What a load of rubbish. 
Rt Hon Winston Peters 
: I know you are— 
Mr SPEAKER 
: Order! [ 
Interruption 
] Order! That is a good demonstration of what happens when there is an unhelpful interjection across the House. Would the Rt Hon Winston Peters please ask his supplementary question. 
Rt Hon Winston Peters 
: Is it not the case that forcing greater debt and extracting excessive dividends from Solid Energy was fraudulent in that there was no real revenue stream behind them over those years and that the dividends in fact came from increased borrowing because otherwise would Solid Energy be bankrupt today; and why should not we believe an experienced business operator and Government appointee like Palmer rather than a bank teller like you? 
Hon TONY RYALL 
: What I can tell the member is that this is a situation where the board made investment decisions that simply did not generate the rate of return that was expected of them and coupled with a significant collapse in world coal prices the company found itself in the position that it did. There is nothing fraudulent about the behaviour of the board and I think the member should reflect upon that accusation. 
Rt Hon Winston Peters 
: Why should we not believe Mr Palmer who was a serious Government appointee in the past and has a serious business record when he points to the Government using the device of forcing greater debt and extracting excessive dividends from Solid Energy as a deceptive way of massaging and flattering the Government’s true fiscal position; why should we not believe Mr Palmer and not a former bank teller like you? 
Mr SPEAKER 
: Order! Would the Minister answer just the first part of that question. 
Hon TONY RYALL 
: On behalf of the Minister of Finance who I think was actually a Treasury official and did not work at the bank I am sure that Mr Palmer did not say some of the things that Mr Peters has alleged that he said. But I agree with Mr Palmer when he told the committee this morning that dividend decisions are made by the board and he takes responsibility as I am sure Mr Palmer said that the board takes responsibility for its investment decisions. Coupled with the significant collapse in world coal prices that is why the company finds itself in the position that it is in.