Mood of the Boardroom: Shall we at least talk about the national interest?

John Palmer. Photo / Martin Sykes

JOHN PALMER
SOLID ENERGY

John Palmer makes clear he regards it as his duty as Solid Energy's chairman to raise strategic issues affecting the company such as where it feeds its appetite for long-term capital.

"We've got to think over a reasonable timeframe, and we've got to think about what's very much in the national interest as well as in the company's interest," says Palmer.

His confidence that the Government would be able to obtain external equity to fund some big projects that Solid Energy has in its pipeline caused political consternation in some quarters when a speech he gave was read as advocating outright privatisation.

Energy Minister Gerry Brownlee responded to the SOE chairman's NZX address by slapping Palmer down. "He's an appointed chairman and if he wants to go making those sort of announcements on behalf of the Government he should stand and get himself elected to Parliament."

Palmer will not comment on Brownlee's response. "I have an expectation that other business leaders will stand up and do that as well because it is part of your role.

"It's not a question of saying, 'Well this is going to be easy', or that you aren't going to upset some people. It's a question of saying what's important and that it just goes with the territory and we need more of that sort of discussion."

Palmer's rationale is compelling. He points to the success of the Air New Zealand model where the Government, which owns the majority stake, acts as a solid cornerstone shareholder which can provide stability for strategy in "what is a really tough business.

"The board and management are not distracted by thinking about the state of the share register. They can just concentrate on the strategy of making the business more successful. I know that has some downsides but I think in this country for that sort of business - that's been a real plus.

"It hasn't been interfered with politically - I'd like to think that we've taken a pretty responsible attitude about thinking in the wider 'NZ Inc' sense and understanding what is the whole rationale and raison-d'etre for the Crown having a shareholding longer-term. We've shown the model works and can work pretty well."

In Solid Energy's case the board has wider responsibilities. Not just because it's an SOE, but because of its custodianship of a sizeable chunk of Crown estate. "In order to develop that we know that there are several billion dollars of capital expenditure needed," says Palmer. "So the logical thing is when you look at all the issues around a company like that, if you take the state of the Crown accounts both at a fiscal and a balance sheet sense, they are two quite separate issues.

"For the Crown to fund all of that development you wouldn't have thought that it makes sense to do so off its own balance sheet if there are other alternatives."

The good news in Solid Energy's case is that the Crown could get external equity to fund those projects without selling anything. "So it doesn't have to go through, in this case, any bogey of assets sales."

"Our recommendation - if we ever got to that stage - would be to say we don't think the Crown should sell anything. And we do think - and this is a personal view and it's certainly the view of the board - that the Crown should continue to be the majority owner for all of the foreseeable future."

By the beginning of 2011, Solid Energy plans to build and commission a $22 million Underground Coal Gasification pilot plant in the Waikato. If the project is approved, it will need a massive injection of capital or a project partner to develop a full-scale industry.

"We are a couple of years away from needing that capital, "says Palmer. "But what I was setting out to do was - in a period when there isn't the absolute political pressure of an election or any of those sorts of things - show that the business community should be leading a discussion about why these issues make sense and why they would be good for New Zealand and they can do that hopefully in an apolitical way."

Palmer says the introduction of external equity for project financing might provide opportunities for New Zealand savers and investors in an opportunity-starved market, "whether it's KiwiSaver funds, NZ Super Funds or private individual investors.

"You can do this in almost an apolitical way. You take a lot of the heat out of the discussion if the Crown doesn't sell anything but just says we want to grow faster and this is a good way of us growing faster."

Palmer says there needs to be an understanding of what the costs and trade-offs the community has or is giving up by either refusing to have a discussion or by closing its mind to discussion on issues like mining on the conservation estate. "I guess the sad thing is that some people have been so brain-washed about the conservation ethic they see anything that involves a digger as bad."