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Speech to the Solid Energy Board Function

Speech to the Solid Energy Board Function

I would like to congratulate the Board, management and staff of Solid Energy for the record of achievement that is illustrated in this year’s annual report. These results demonstrate that the company’s assets are not limited to reserves of carbon below ground, but also include energy, talent and good business sense above ground.

It is especially pleasing to see Solid Energy moving towards implementing a long-term plan, which envisages a doubling of production and of exports during the next 5-10 years. We all remember the time, only a few years ago, when the company’s troubled financial situation made planning beyond the immediate short-term horizon seem like a luxury.

Clearly, as a company returning a profit of $38 million on sales of $264.5 million, and with good prospects for ongoing growth, Solid Energy is one of the better performers in the Crown’s SOE portfolio. And I think it is appropriate that I say a few words placing this performance in the context of the Government’s long-term “hold” policy for State-Owned Enterprises.

One of the underlying principles of the State Owned Enterprises model as it was conceived in the 1980s was that Government-owned trading entities would operate according to normal commercial disciplines. These would include capital market disciplines in the form of an option to privatise, and an understanding that the Government would exercise this option wherever the public interest was adequately protected through regulatory or other mechanisms. During the following decade all of the obvious candidates for privatisation were sold.

While there is always room for debate, it is this Government’s judgement that the logic of privatisation has run its course. In considering the current portfolio of SOEs and the important non-commercial objectives that are advanced by Crown ownership, it is clear to us that further privatisation of SOEs is effectively off the agenda. This is what we wish to signal in our long-term “hold” policy.

While some might argue that this undermines the incentives for SOE performance, it is important to remember that there are many commercial and reputational incentives which continue to operate. The basic model remains fit for the purpose, and I have asked the Treasury to undertake some work on recalibration around four key issues that arise once long-term Crown ownership is assumed. These are:

A need to ensure that performance indicators are appropriate to each SOE, and are tailored to meet the market conditions within which they operate. This will require some careful thinking around benchmarking issues and setting of appropriate financial objectives;

A need to clearly articulate the non-commercial ownership objectives (which are the primary rationale for Crown ownership) and to reflect these in Statements of Corporate Intent and related documents;

Clarification of each SOE’s core business, and protocols for expanding beyond that core, where a sound business case exists, and for entering into Joint Ventures or similar alliances;

Resolving the question of meeting the capital needs of SOEs.

There are some thorny issues here; but there is every reason to be confident that they can be worked through successfully.

Our aim is to facilitate multi-year planning and create a positive environment in which SOE businesses can thrive and the various interests of the public – as owners, consumers and citizens – can be served.

In the meantime, can I congratulate you once more on a very encouraging set of results.

Thank you.

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