Treasury quick to deny veto on coal miner

By Brian Fallow

WELLINGTON - The Treasury denies that any instructions from it prevented Solid Energy from addressing its foreign exchange problems last year while the state-owned coal miner was on the market.

Treasury deputy secretary Geoff Dangerfield told Parliament's commerce select committee yesterday: "We were surprised to read [in reports of the committee's previous hearing on the matter] that the Treasury was to blame for Solid Energy losses and that it was under Treasury orders not to address its foreign exchange exposure while buyers were interested.

"Treasury did not issue instructions to prevent Solid Energy from addressing its foreign exchange contracts, nor did our advisers Credit Suisse First Boston. And even if the board had believed it had received such instruction from the Treasury or CSFB, if that was contrary to their best judgment or conflicted with their directors' duties, we would have expected to hear pretty sharply about it. We did not."

Solid Energy's foreign exchange cover ballooned during the year to June 1998 from $165 million to $468 million, or in US dollar terms from $US113 million to $US242 million, as it extended the cover period out from three to five years and factored in forecast increases in export volumes. The bulk of the extra cover was taken out in the last quarter of 1997 at around 63USc, before the gravity of the Asian crisis was apparent.

The foreign exchange position turned sour, especially in the second quarter of 1998, as coal prices fell, export orders were cancelled and the exchange rate continued to decline.

Former chairman David Stock, dumped along with the rest of his board after the Government aborted the sale of the company, told the committee that the directors had considered closing out the position but decided not to.

"The cost would have been significant. Management were telling us the volumes could be achieved and the currency cover could still be utilised, and the indications were that this was a temporary phenomenon and sales would pick up in six to 18 months," Mr Stock said.

Asked about the effects the Treasury's business-as-usual directive during the sales process had on decisions about the foreign exchange position, former chief executive Ian Collinson said: "The situation would not have been any different if the company had not been in a sale process."

At the committee's April hearing on the matter, chief financial officer Geoff Bell said: "It was discussed at several [board] meetings but the board's view was just to let it continue, particularly once the sales process was under way, because we were under clear instructions that we were to keep the business running at the status quo."