Solid Energy

It's An SOE But Would Foreign Control Matter?

- Jeanette Fitzsimons

Jeanette Fitzsimons is a former Co-Leader and MP of the Green Party. In her retirement she is an activist and grandmother working on preventing new coal mines because of their contribution to climate change.

In the last days of the age of oil we are seeing some bizarre and highly damaging behaviour from the fossil fuel companies, as documented in detail by Dennis Small in his article elsewhere in this issue. Rather than cut the massive inefficiencies in our fuel use and develop and commercialise the renewable alternatives that are well known, they are hunting for oil under the deep ocean, in filthy tar sands, under the Arctic. There is a black irony in that past use of fossil fuels has warmed the climate to the point where the summer melt of the Arctic sea ice now exposes huge areas of open ocean which were once frozen. As we learned with the brilliant Greenpeace occupation of the Noble Discoverer (!) when it was about to leave port in Taranaki, Shell proposes to use this opportunity to drill for more oil, accelerating climate change, melting more ice and wrecking the fragile Arctic environment in the likely event of a spill or a well blowout.

NZ Has Huge Amounts Of Lowest Quality, Dirtiest Coal

In NZ as well as hocking off oil drilling licences all around the coast we are looking for oil in coal. To be precise, in lignite, the lowest quality, dirtiest coal there is; which lies under some of the best farmland in the country. I say “we” because you and I own NZ’s largest coal company, Solid Energy, although we don’t get a say in how it is run. I’ll come back to that. New Zealanders might be surprised to know they have the second largest coal resource per capita in the world, after Australia. Of course, that’s mainly because we don’t have a lot of capitas by world standards, but it is still a substantial resource. 80% of it is lignite, one step removed from peat, more than half water. The Ministry for Economic Development estimates there is 6.8 billion tonnes of economically recoverable lignite in Southland and Otago. That’s enough, if it is all used, to make a measurable difference to world climate, equal to about one year’s emissions growth globally.

We’ve known about it for a long time. Investigations by the Liquid Fuels Trust Board following the 1979* oil shock looked at making fuel from it but the economics didn’t stack up. Whether they do now is uncertain – Solid Energy has never provided a business case for what it wants to do. There are rumours that Treasury is sceptical. However it is being strongly encouraged by the Government as fossil fuel mining is a central plank in its morally bankrupt economic development strategy.*Transnational corporate interest in Southland lignite featured in CAFCINZ’s 1979 booklet “Bloodless Blitzkrieg”, about the upsurge of actual or potential West German investment at that time. That booklet is long since out of print and is not online. Ed.

Solid Energy saw the writing on the wall some time ago as regards coal for electricity generation. We simply have too much good renewable energy for them to get a look in, except in generating for their own use in coal processing plants. There just isn’t any way we could use the output of a lignite fired power plant on the Southland plains and the stuff is too wet and heavy and low value to transport anywhere else. But that doesn’t mean they accept the coal should stay in the ground. They have been on a mission around the world to find ways of making something with it so they can dig it up. After all, that’s what they do; and the shareholder, on behalf of you and me, is more than wiling to moderate its dividend expectations to give them the money to do it.

Three Dirty Projects Would Raise NZ’s Carbon Emissions By 20%

They now have plans for three technologies to make, if not exactly a silk purse, at least something marketable from this sow’s ear. Their small New Vale mine at Waimumu produces about a quarter of a million tonnes a year of lignite to fuel the nearby Fonterra dairy factory at Edendale near Mataura. It’s the cheapest fuel available to Fonterra and so far their overseas markets haven’t caught up with the fact that their clean, green dairy products from cows grazing blissfully in green pastures (shitting in streams is not mentioned) is processed using the dirtiest, most climate changing fuel.

Solid Energy would like Fonterra’s other plants to use lignite too but it is uneconomic to transport it any distance. So they have partnered with the US firm GTL Energy who have developed a technology to squeeze the water out of lignite, making briquettes that are much lighter and burn more efficiently. This they count as a climate change plus, except that when you count the total coal mined to process the briquettes the overall carbon emissions are greater.

A “pilot” briquetting plant which will use 140,000 tonnes per year (tpy) to make 90,000 tpy of briquettes, is under construction at Mataura. The application for consent was regarded by the Gore District and Southland Regional Councils as not significant enough to be notified for public submissions under the Resource Management Act. If this meets expectations Solid Energy plan one ten times larger in a year or two. That would require a new mine and new consents which this time can hardly be non-notified.

It is clear that the main thing they need a “pilot” for is whether anyone will buy the stuff (although there are also technical questions about whether the briquettes will actually hold together in transport, or collapse into a pile of dust). Fonterra has said it does not wish to use briquettes in any of its plants. This must have been a huge blow, and efforts are going into finding international markets but it is not clear why anyone would bother with lignite briquettes when the world is awash with sub-bituminous coal which does not need this additional processing. Coal is not a scarce resource – if we burn all there is, we will at least quadruple the carbon dioxide concentration in the atmosphere and long before we get to this point climate change will have become unstoppable and the planet unliveable. In fact, world-leading climate scientist James Hansen, of the US National Aeronautics and Space Administration (NASA), has calculated that the only way we have any chance of stabilising the climate is to return atmospheric concentration of carbon dioxide to 350 parts per million (ppm) or less – and that requires, among other things, the complete phase out of coal worldwide by 2030.

The second project is to make 1.2 million tonnes (mt/y) per year of urea from two mt/y of lignite in a joint venture with the Ravensdown fertiliser company. Many people concerned with the health of our waterways and the long term sustainability of our soil believe NZ already uses too much urea. While this plant seems to be primarily for export, it will also undoubtedly lead to a marketing push to use more here. Then the daddy of them all – a plant using ten mt/y lignite to make two billion litres of diesel. Here, the concern about peak oil has played right into Solid Energy’s hands. I’ve personally heard one Southland farming leader say “if it gives me something affordable to put in the tank of my tractor that’s all I care about”.

Looking at the whole life cycle of the project, a litre of diesel made from lignite in your tank will create twice the greenhouse gas emissions of a litre from petroleum. And it isn’t either or – the petroleum will still be burned anyway – no-one is suggesting leaving that in the ground. Solid Energy has given the impression, without actually telling outright falsehoods; that the diesel will be cheaper because it is made in NZ. Just like Fonterra cheese. When pushed, they acknowledge that there is an international market for oil products.

The total greenhouse gas emissions from these projects, 17mt/y, are only the start - there is enough lignite to do far more than this. Just those three projects would raise NZ’s annual greenhouse gas emissions by around 20%, at a time when all countries desperately need to reduce them drastically if our grandchildren are to have the necessities for a reasonable way of life. The Parliamentary Commissioner for the Environment, Dr Jan Wright, a physicist and an economist in previous lives, has studied the proposals and advised very strongly that they cannot be justified. She says the lignite should stay in the ground.

Keep The Coal In The Hole

Solid Energy has bought up 4,000 ha of farmland in Southland for its proposed mines and processing. That land is now tenanted, with all the social impacts on the community of impermanence and lack of long term care of the land and buildings. Very few farmers have resisted the inducement of “cash and quit”, but one such is the redoubtable Mike Dumbar whose lovely sheep farm is just one km from the briquetting plant. He says if they offered him $3 million he still wouldn’t sell because it is his home and he is living the life he loves. Some people still don’t see money as everything.

In January 2012 Mike welcomed 140 campers to his home paddock for a “Keep the Coal in the Hole” summer festival organised by Coal Action Network Aotearoa (CANA). People came from as far as Northland and even a few overseas folk who were visiting. There were families, students, scientists, professors, civil servants, unemployed, ranging in age over eight decades but all committed to stopping these crazy lignite projects. Despite summer temperatures down to six degrees under canvass, and a fair amount of rain and wind everyone left inspired with new strategies and several new regional groups formed. We had an afternoon of training on the theory and practice of non-violent direct action. It seems we are not going to be able to rely on elected leaders or the legal system to stop this damage. However there was wide agreement that if non-violent direct action is necessary, it comes later. At the moment we are building a movement and providing information to people who are still not aware of the scale of the projects or of their implications.

A community open day at the Mataura Hall on the Sunday attracted around 300 people, some coming from as far as Dunedin for the day to join the campers and locals. Australian cattleman Sid Plant spoke about the experience of living next door to a huge open cast coal mine in Queensland and a few Southland faces were a bit more sober as they left. A productive meeting was held with Federated Farmers and a number of community leaders attended the day, though not, we are disappointed to say, from the District Council.

We were very conscious of not coming in as outsiders and appearing to tell local people what to do. We wanted to engage with Southlanders and hear their concerns. There are many who are concerned about what these projects would do to their community but in some circles people daren’t speak out as the majority view is that it will be good for jobs and the economy. So I did a quick analysis of existing coal mining communities and how their unemployment rates and median per capita incomes compared with their district or regional averages. I found that in general settlements closest to coal mines are less employed and less wealthy than elsewhere. Huntly; Granity/Hector/Ngakawau (the closest to the huge Stockton mine); Kaitangata; Ohai/Nightcaps – all are more unemployed and poorer than the district of which they are part. There are only a couple of exceptions.

Southland region has low unemployment overall, though there are pockets where it is higher. Southland district has unemployment of only 1.9%. Gore district, where most of these projects are planned, has 3.2%. It’s hard to see how coal mining will improve this. Clearly mining makes someone rich, but it isn’t the local community. Even if it was, it is a poor bargain for the current generation, which is richer than any previous one or any later one is likely to be, to profit further at the expense of future generations. They are already committed to carrying the burden of accelerating climate change, will struggle to produce enough food and access enough water and will have health problems and extreme weather events with which to contend (the World Health organisation has stated that climate change presents a bigger threat to the health of humanity than epidemics or Aids).

No Ministerial Oversight; Only Token Accountability

How is it then, that a publicly owned NZ company in a supposed democracy can plan such devastation? What is the shareholder doing about this? Does it mean they might as well be privatised and sold overseas for all the difference it will make? After I first visited the Stockton Mine and was horrified at the environmental mess, particularly the pollution of the Ngakawau River, I asked the shareholding Ministers in Parliament what directions they had given to Solid Energy to improve their environmental performance. This is exactly the sort of intervention the State-Owned Enterprises (SOEs) Act provides for. I learned that no such direction had ever been given, by any Minister of any political stripe. So the first point is that if we want our State-owned companies to behave better we need to put pressure on those who hold the shares in our name and who appoint the Boards of those companies. There are routes, albeit very indirect and not certain of success, for us to exert our ownership rights but no-one is using them.

As long as the Government of the day sees fossil fuel exploitation as its top priority for the economy, we are unlikely to persuade them to hassle Solid Energy, and certainly not to prevent them from progressing these huge projects. However even a company as insulated from public opinion as this SOE does feel the need to market itself to us and to account annually for its work. They are obliged to present an Annual Report to Parliament and this is scrutinised by a Select Committee. That meeting is open to the public. The public has rarely taken much interest but it doesn’t have to be like that.

Solid Energy in recent years has taken to holding an annual public meeting rather like a shareholders’ meeting if it were a private firm. Here they present their Annual Report and lots of spin to the public. That tends to happen in the third quarter of the year. Their Annual Report is available on their Website after it is tabled in Parliament – some time after the end of June each year. They are worth reading to understand the mindset and the plans of the company.

So, at present, do the behaviour of the company and the lack of interest by the public suggest they might as well be privatised? After all, their profit is sufficiently small that it would hardly be a huge increase in NZ’s balance of payments deficit if it all went overseas. However there are three very powerful reasons why we should oppose the planned sale of 49% of the company. First, only an overseas investor can provide the billions (not just millions) of dollars of capital needed to build these crazy projects. Solid Energy doesn’t have it, despite the owner’s soft policy on dividends. The Government doesn’t have it either. If there is no 49% privatisation they will need to raise it on the capital markets and this is much harder than getting an equity investor, given the financial risks.

Second, the present system of accountability doesn’t work because we don’t use it. It would be a bad bargain to give this away when a future Government could give directions to the Board to leave the lignite alone (in fact both the Greens and more recently Labour have said they would do just that). It is very unclear how such a direction might be possible under the Government’s mixed ownership model. We could, as citizens, also choose to start using the limited powers available to us to make our voices heard by a company we theoretically own.

Implications Of Free Trade Deals On Privatised Solid Energy

The third reason is a really scary one and would close off policy options forever. The most likely source of capital for the plants appears to be China. They are cash-rich and energy-hungry. If a Chinese investor buys the 49% (either from the Government or from the “Kiwi mums and dads”) the China New Zealand Free Trade Agreement (FTA) would allow them to sue NZ if our climate change policy ever changes in a way that reduces their profits. They are entitled under that Agreement to expect that the law as it applies to them now will apply forever. Readers of Watchdog will be well aware that the case goes to an unelected overseas tribunal and there is no appeal. The judgement can be enforced by trade sanctions.

NZ’s climate change policy is currently very weak – like that of most countries. The Emissions Trading Scheme (ETS) is virtually worthless in terms of reducing emissions and we have slack standards and little investment in alternatives to coal, despite having a great wood resource which could substitute for many of the uses of coal. If we are to meet even the Government’s quite inadequate target of a 50% reduction in emissions by 2050 we will need tough new climate laws which put a substantial price on carbon emissions and share the proceeds equally with all New Zealanders.

The scenario where a future Government enacts such policy and the Chinese investor sues will of course never happen. No Government will ever expose us to that. Instead, we will just never get good climate policy. That would be a tragedy for future generations. Under the Chinese FTA there is still a glimmer of hope that we might be able to argue the need for policy change for environmental reasons. While this is not certain it is better than nothing. However if the Trans Pacific Partnership Agreement (TPPA) is signed another eight countries will be given this right to sue, and the loopholes are likely to disappear under the stricter terms for which the US is arguing (see Jane Kelsey’s article about the TPPA elsewhere in this issue. Ed.). Democratic control of State-Owned Enterprises for the good of the public has not worked. But we have to keep hoping and working for the day when it could be made to work. If Solid Energy is part privatised we also hand over control of climate and environmental policy to transnational corporations. That’s not what I want for my grandchildren.

For more information on CANA and the festival, and the speaker presentations, see You can find us on Facebook at


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