MPs pore over hole in foreign exchange

By Brian Fallow

Between the lines

Was it bad luck or bad management that got Solid Energy into a hole in its forward foreign exchange cover so deep that the company became, in effect, unsaleable?

One of the MPs on the commerce select committee considering the matter yesterday, John Banks, is in no doubt.

He professed incredulity that Solid Energy's new chairman, Tim Saunders, had negotiated a golden handshake with former chief executive Ian Collinson who was, in Mr Banks's view, "clearly grossly incompetent". The size of the payout was undisclosed but "well below" his annual salary of $250,000.

Mr Banks was equally uncomplimentary about the former board, all of whom have been replaced.

His verdict is premature.

The commerce select committee has yet to call Mr Collinson and his former chairman David Stock to account - though it will.

Nor has it yet seen what instructions the Treasury gave them, or the advice their external currency advisers furnished.

MP Paul Swain, Labour's commerce spokesman, defined the committee's concern: "The question is whether the advice which came from outside advisers and internal management was insufficient for the board to make appropriate decisions, or whether the board had sufficient information but did not act accordingly - either because they were told not to (lest the sale process be disturbed) or because they made poor decisions."

In normal circumstances responsibility in such matters would rest with the board of directors.

In this case, however, they may have been scapegoats if their hands were tied by directions from the owners, the Government, to do nothing about the forex position during a protracted sales process.

Did the Treasury look on, arms folded, while value evaporated from the business, for the sake of pushing through the sale?

Certainly there were attempts to pass the buck in that direction during yesterday's select committee hearing.

Solid Energy was not the only company to find itself caught short (or, rather, long) by the New Zealand dollar's dramatic decline last year.

Nor would it be the only company to have to wrestle with the dilemma of whether to close out or reduce its position - at considerable cost - and risk seeing the exchange rate then recover.

But other aspects raised by the Audit Office are troubling.

Cover was taken out not only for contracted sales but for forecast sales, up to five years out. The Audit Office said taking out cover for such a long term, particularly when sales were uncertain, was unusual and not without costs or risk. Solid Energy's new board has reduced the maximum period to two years.

The select committee clearly has more digging to do before the issue of accountability in this sorry affair can be laid to rest.