Key was wrong – they wanted $27b not $1b

The Herald reports:

Prime Minister John Key this morning released documents detailing Solid Energy’s ambitious expansion plans which would have required capital investment of $2-3 billion a year until 2021 or a total of up to $27 billion.

Key released the papers in response to Labour’s claims he misled the public about Solid Energy approaching his Government about a $1 billion investment to become the “Petrobras” of New Zealand, a request he says his Government turned down.

However, in his appearance before a parliamentary committee yesterday, John Palmer who was Solid Energy’s chair at the time, said while the company made the approach, there was never any expectation the Crown would bear the cost of the required investment and a figure of $1 billion was never mentioned.

I admire the ambition of the Solid Energy directors and staff, but this just shows again how unsuited it is to be owned by the Government.

When you are 100% Government owned, there are only two sources of funds for capital – the Government’s or borrowing. The Government’s contributions can be either direct capital investment or reduced (or no) dividends.

It is simply not possible that the desired expansion could be done purely through borrowing. A Government contribution was absolutely necessary and implicit.

Of course if private shareholdings were allowed, then Solid Energy may have been able to access capital without it coming from the Government. This entire episodes reinforces dramatically for me the undesirability of having these commercial companies state owned.