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BusinessDesk: Solid Energy could float subsidiaries to skirt Crown shareholding cap

Posted in Bonds

By Pattrick Smellie

State-owned coal miner Solid Energy chair John Palmer gave the strongest hint yet that the government will either float less than 49 percent of the company or allow it to fully privatise major new projects, such as lignite coal developments, by selling them as subsidiaries.

Appearing before the commerce select committee for Solid Energy’s annual review, Palmer said Solid Energy’s capital needs and risk profile were quite different from state-owned electricity companies, which are also to be partially privatised, with the government retaining at least majority control.

Solid Energy’s capital expenditure requirements could mean a “sell down to less than 49 percent, which would allow access to capital, might be part of the solution.”

Equally, Solid Energy could choose to create a subsidiary company and sell 100 percent of that, without breaching the legislated requirement passing through Parliament at present to maintain majority Crown ownership.

Both Prime Minister John Key and Finance Minister Bill English have intimated in recent weeks that Solid Energy’s part-sale is presenting different headaches for the team considering how best to organise an Initial Public Offering in the coalminer.

In part, that’s because Solid Energy has multi-billion dollar investment plans at an early stage of development to mine low-grade lignite coal deposits in Southland which could be converted to fertiliser, diesel and briquettes to produce revenues in the trillions of dollars, according to the company’s chief executive, Don Elder.

“There’s probably nothing to prevent projects themselves being IPO-ed where the Crown as the core asset holder can maintain its position, and that allows the developments to take place,” said Palmer. “A project could potentially be funded in its entirety by that method.”

Palmer said if such a subsidiary were consolidated onto the Solid Energy balance sheet, “it would fall into the equity line in some form, but if the shareholding is unchanged (in the parent company), it improves the value of the Crown’s 51 percent shareholding.”

(BusinessDesk)

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21 Comments

By the time they get the

By the time they get the lignite going, the global fiscl system has staggered, and fallen.
 
Why?
 
Because Business as Usual requires an EROEI of better than 8. That's just tick-over, not the exponential doubling bit. Shale doesn't do it, lignite is a joke.
 
So the questions are two:
 
1. What is anything 'worth' at that point?
 
2. We are staring down the barrel of 6deg increase by 2010, and the critics have gone strangely silent (given what is happening in the northern hemisphere, I'm not surprised).  The youngsters, though, will rightly feel somewhat aggrieved. With nothing to lose, and nothing to look forward to, One suspects they might tend to trash the offending infrastructure. Would you want your eggs in that wee easter basket?

I think you mean 6 Deg by

I think you mean 6 Deg by 2100?.....and if the bozos dont understand what that means it means probable extinction of Humans as a species via a super warm period....forget any meaningfull agriculture at 4Deg btw....
regards

Complete bollocks.

Complete bollocks.

I see the watermelon echo

I see the watermelon echo chamber is hard at work.
Why don't you come on up to the Northern Hemisphere and see for yourself, or are you too busy planting mangoes?
http://nsidc.org/data/seaice_index/images/daily_images/N_timeseries.png
http://ocean.dmi.dk/arctic/plots/icecover/icecover_current.png
 
 

The real story on Artic ice

The real story on Artic ice (in contrast to cherry picked data)
http://earthobservatory.nasa.gov/IOTD/view.php?id=77270
I hope you dont have offspring OMG.

OK, now produce data

OK, now produce data comparing the present Artic ice cover with the ice cover in the 1920's to the 1940's, when CO2 was not ever considered an issue and the cover is estimated to be less than today. Game to do it? I suggest before you do this you look at this site and work out when the first icebreaker was used.
http://www.nauticapedia.ca/Articles/NWP_Fulltransits.php
I have already produced a fine family, BTW
May Gaia bless you with sets of triplets, it will be a good experience for you. (I'm, perhaps rashly, assuming you have what it takes.)
OMG ( O My Gaia )
 

Pah, so

Pah, so easy:
http://www.nature.com/nature/journal/v479/n7374/full/nature10581.html
You denialists are so easy to deal with; I noticed you didnt even try and defend the first lousey graph you posted where 2007 (as the lowest recent data) was used as a reference point to try and make the latest data seem 'normal'. Tell me when 2013, 2014 or whichever year it is sets a new record low will you just reset the graph with that new data to try and make it look as though the next year (which isnt so low) is anomolous (and then repeat ad infinitum). Dont you guys have any shame?
What does it feel like to be the dupe of organizations like the Heartland Institute, parroting their propaganda for them? The same Heartland Institute that took cash from Phillip Morris to mount a defence of smoking?

"extensive uncertainties"

"extensive uncertainties" "seem''  "seems" "may" result
Pathetic, is that the best you can do. No point in wasting another pixel on you.

Thanks Iain. I'd been trying

Thanks Iain. I'd been trying to find this article just recently. Going through it swapping 'Australia' for New Zealand is just as true for us.
 
Also found an interesting film, linked from here:
 
http://www.interest.co.nz/opinion/58754/neville-bennett-distainful-way-john-key-administration-governing-he-right#comment-678589
 
Keep up the great work and have a good break, cheers, Les.

Well said. As I understand

Well said. As I understand it, the main justification for the proposed asset sales is because the companies involved need more capital to invest in productive new opportunities. This capital can be produced while we have a too high exchange rate; by printing the money. Ideally we would pay off the foreign debts we currently have booked against those companies with the same process. 
If in fact the reason is an ideological view that private enterprise is more efficient than state based capitalism, the evidence for that is not strong at all. Even if historically there is any evidence that that efficiency outstrips the profit margin the new owners will reasonably want- unlikely- an easier step is to identify savings and implement them while under state control. It is not that hard.
In case anyone thinks this is either wacky economics, or somehow unfair to other countries, Australia and New Zealand are virtually the only countries left in the OECD that are not either printing vast quantities of cash, or controlling their capital and exchange rates.

A lignite mine combined with

A lignite mine combined with a CTL (coal to liquid) plant has the potential to make NZ independent of imported fuel for over a hundred years. And NZ has several  reserves which can do that.
As well as giving us a large degree of fuel independence, it would transform our Balance of Payments and spin off many thousands of jobs and satellite businesses.
But hey, NZ is the place where you can fill a town hall to stop something but can't fill a phone box to start something.
 
 

......... so true , we could

......... so true , we could easily be fossil fuel independent , ....but it'll never happen , thanks to the Greens and the assorted bleeding hearts  .......
 
Instead , we'll use up screeds of energy to ship the lignite to China , so they can use it to produce energy and jobs ........
 
It's kind of like saying that we don't approve of drugs , but we'll gladly profit by supplying them to someone else for their hits .....

There is a good reason

There is a good reason lignite is what is left, its crap stuff....As far as I know we ship the highest quality only for cooking fuel to places like India. China already has a huge coal sector and pays peanuts to get tehir own good coal...
regards
 

HaHa, utopia could be ours,

HaHa, utopia could be ours, if it wasn't for those dammned enviromentalists, when will people learn that fiat dollars are the only thing with value.  Lets just play 'blame the minority special interest group' that way we can avoid responsibility, and never have to do anything.

There are huge questions

There are huge questions around a CTL plant...here are some of them,
Do you know the defination of arbitrage?  Its where you rob peter to pay paul.
Do you know the defination of EROEI?
"EROI stuff comes out of my spending most of my life measuring and attempting to understand energy flows in natural ecosystems. There is no money in these systems, but there are perfectly good economies. If e.g. a trout does not maintain appositive EROI he does not survive, and if he or she does not make a substantial energy profit that trout or system does not go into the future. Likewise societies (Tainter)."
These might help you understand EROEI,
http://www.theoildrum.com/story/2006/8/2/114144/2387
The estimates vary on what the minimum EROEI is to maintain our present economy/lifestyle/society.....The number I have seen is 10 :1 but others suggest 8 : 1
So some running thoughts on CTL that mean we sould look at the process very carefully as its of dubious merit.
CTL has about 6 to 1 EROEI so even on the best (lowest estimate) of eroei it means that we have to rob 2 units of energy from somewhere else....BUT
CTL process itself greatly depends on the quality of the input...which funny thing does not get mentioned too much...
"The lowest ranking coal is brown coal or lignite, and this may only have a carbon content of around 60% and contain a high percentage of water." 
So to do anything (like CTL) with it it has to be pre-processed. Net good can be typically 50% or less of good coal....or you could burn it in a coal fired power plant....way more efficient...ditto transporting it to point of use.
SO a CTL using lignite could have a EROEI of as bad as 3 to 1.....and thats at the gate, you then have to transport the energy to point of use.
Then you have to consider the international price of lignite, ie the input feedstock cost.....at present its pretty low which is good...but 2 big impacts, cost of the lignite on internatioanl markets and ocst of teh synth fuel on international markets...both mean that NZers and NZ businesses being relatively poor cant match foreigners in their buying ability....
Have a look at the so called CTL "studies" they pretty much all quote competitive with oil at $100 using good quality coal....  That suggests lignite at half the energy plus all the other issues could easily be $150+ which we cant afford....
BTW, the impact on AGW is huge....really bad and carbon capture technology simply doesnt exist.
and,
What do you do in 100 years?
and,
That wont be straight production, ie 100 units on day 1 and that for 100 years...it will follow a hubbard curve....
Have you considered the costs?  at 30,000 bpd its Multi-billions.....
As far as I am aware there are no modern CTL plants of that size? 
btw "independent of imported fuel for over a hundred years."  URL please?
 
regards
 
 
 

Steven I presume you have a

Steven
I presume you have a car...?
 
 
 

Andrewo - irrelevant.   We

Andrewo - irrelevant.
 
We tend to try and stick to facts here. Have a wee read-up about EROEI.
 
This is a good backgrounder  -
 
http://physics.ucsd.edu/do-the-math/2012/02/fossil-fuels-im-not-dead-yet/
 
The whole blog is worth reading - if you're serious about becoming informed (there are a few here who studiously avoid study, mostly vested-interest spin-doctors).
 
Whether you have a 'car' is irrelevant, if there's no access to the remaining fuel.

Its highly relevant...if you

Its highly relevant...if you wish to avoid being called a hypocrite
As regards definitions, I'm WAY ahead of you on the technical issues whereas you have yet to learn how to spell 'definition'  ;-)
 
 
 
 

There are a few 'issues'

There are a few 'issues' around lignite and CTL.
http://oilshockhorrorprobe.blogspot.co.nz/2010/12/10-reasons-why-convert...
Note that existing CTL plants (ie in S.Africa) tend to use coal of a higher quality than lignite.