17 Aug 2012

Review of operations by Solid Energy

7:09 am on 17 August 2012

Solid Energy is reviewing its operations because of tough market conditions.

The State energy company says falling international commodity prices and ongoing strength in the New Zealand dollar has forced the review.

Chief executive Don Elder says the company needs to plan to withstand these market conditions for up to two years.

Dr Elder says coal production may have to be reduced and job cuts among its 1600 empoyees can't be ruled out.

"You make your decisions on the basis of how much you want to produce in what way and what you can do to change the cashflow at the margin,'' he said.

''You don't make the decision on the basis of we'll cut labour and that will solve things for us, because it doesn't".

Dr Elder says labour is a consequence of the decisions that are made, not a driver.

He says this downturn is unlike others, because the New Zealand dollar normally falls, softening the impact on returns, which has not happened this time.

Dr Elder says Solid Energy has a balance sheet of $1 - $1.2 billion of assets with equity of about $500 million.

He says the company is likely to have to take impairments in the tens of millions of dollars,

Dr Elder says with a $1 billion balance sheet the company can sustain that, although it would never want to do it.

The company says it expects revenues to fall about $200 million in the current financial year because of falling demand and prices for coal.

The Government plans to sell minority stakes in five publicly owned firms, including Solid Energy.