Hollow Out The Public Entity And Fatten The Private one. No Privatisation Nessesary!

Some excellent sleuthing going on over at Frank Macskasy’s site!

Last year, on 19 May,  Solid Energy was one of five SOEs that National announced would be partially privatised (see: Budget 2011: Govt seeks $7 billion in asset sales). Bill English announced, with a naivetee usually reserved for wildly idealistic, wide-eyed  youth,

Well targeted investment in infrastructure helps lift productivity, which over time will mean better wages and higher living standards for New Zealand families.”

To which, as the youth of today might reply,

Yeah, whatever.”

By 29 August, this year,  as   demand from China lessened, and the price of coal dropped, Solid Energy announced plans to make 363 workers redundant.

CEO, Don Elder, said,

I am very aware of the impact these decisions will have on affected staff members and our communities, but we’ve had to make these difficult decisions to cushion the impact of the market and protect as much as we can of the long-term value of the business.”

Source

On 25 September, Key stated,

Now that the coal price is collapsing, essentially Spring Creek is not viable.

It’s never been in the position where it was going to come on to the market today.  It’s been a five-year programme, and if you ask me in three, four, five years’ time, the anwer might be different.” .

Source

Along with Maori Treaty claims over water rights, and papers being filed in the High Court on 23 October (see: Mighty River sale paused during court action) which will see a delay in removing Mighty River Power from the SOE Act, the realisation that Solid Energy was also unsaleable under current economic conditions was another unwanted ‘hiccup’ for National.

On the same day, Solid Energy anounced that redundancies would increase from 363 to 460 and staffing levels would reduce from 1,800 at the beginning of the year, to 1,360.

Christchurch was to lose half of the 313 jobs at Solid Energy’s head office – another ‘hit’ against this quake ravaged city, along with planned school closures; problems with insurance companies; and Cantabrians leaving the area.

Remember that, ostensibly, redundancies were related to international coal prices and profit losses – not the deferred partial-privatisation of the SOE.

Yet, according to Solid Energy’s own Results Announcements 2012 report,  the company’s income was actually better than the preceding year,

Good operating performance overtaken by asset write downs

• Trading performance was good in a deteriorating market with strong NZD. Underlying earnings were $99.7 million (2011: $86.2 million).
• Asset write downs of $110.6 million net of tax and other adjustments have resulted in a $40.2 million loss after tax (2011: $87.2 million).

See: Solid Energy New Zealand Ltd Results Announcement 2012

In plain english (not the mumbled  Prime Ministerial  version), Solid Energy made an after-tax profit of $99.7 million – an increase from $86.2 million in 2011.

Employing a  book-keeping, accountancy “trick”, Solid Energy  reduced their own asset values by $110.6  million. (That’s like saying your house was worth  $300,000 in 2011, but only $250,000 this year. You still have your house and you’re living in it – nothing else has changed. Only the theoretical valuation has ‘reduced’. Next year that valuation could rise back to $300,000 or even more or maybe less. That’s creative accountancy for you.)

The point is that Solid Energy’s profit rose from $86.2 million to $99.7 million.

In fact, Solid Energy’s revenue in 2012 was $978.4 million – almost a billion dollars – an 18% increase from the previous year.

The proposition that Solid Energy is more profitable than either Don Elder or National make out is born out by this interesting article,  in Taranaki’s ‘Daily News‘, on 12 October this year. It appears that Australian coal mining giant, Bathurst, is experiencing a growth in share value as it discovers greater coal reserves at its Buller project on the West Coast,

.

Source

.

Bathurst is proceeding with “an extensive drilling programme” – indicating that the company appears unphased by current coal prices and is investing long-term in recovering this resource.

So what to make of the planned 460 redundancies?

What to make of Bathurst’s share price rising and continuing to invest in a comprehensive drilling programme?

The only conclusion that one can arrive at is that planned redundancies are a covert operation to “maximise” Solid Energy’s value and “efficiency”. The cost of redundancies – estimated at around $10 million – will be paid by the taxpayer and not the shareholders of any future part-privatised company (see:  Foreign workers lured by ‘work for life’ among sacked miners).

Reducing staff numbers – commonly referred to as “re-structuring” – is a common technique for  companies to cut costs in an attempt to return to profitability, or to make it more attractive to potential investors or buyers.

It is interesting to note that National’s secret agenda  of “re-structuring” Solid Energy, to make the SOE viable for privatisation, is a technique quite familiar to our Prime Minister, John Key,

During Key’s brief spell for Merrill Lynch in Sydney in 2001, he helped fire 500 staff as part of savage worldwide retrenchment by the bank. In the past, Key has appeared proud of his ability to sack without feelings. He told Metro magazine: “They always called me the smiling assassin.”

These days he insists these were not cheerful sackings.

“In the end I had to carry out wider responsibilities, but I think I’m fundamentally a nice guy, but have to follow instructions,” he says. “

Source

As  Don Elder said,

I am very aware of the impact these decisions will have on affected staff members and our communities, but we’ve had to make these difficult decisions to cushion the impact of the market and protect as much as we can of the long-term value of the business.”

460 workers face the sack.

No doubt John Key is simply  “having to follow instructions“?

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One thought on “Hollow Out The Public Entity And Fatten The Private one. No Privatisation Nessesary!

  1. You know Key is lying when you see his lips move.
    Like most of Key’s proposals they fail under there own weight. This Government is dogged by failure .Every plan that has been announced with fanfare always seems to collapse under it’s own lack of foresight .
    We need leadership in Government not just a smiling face with nothing behind it !

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