The Government has been forced to defend its handling of coal producer Solid Energy, as the company teeters on the brink of collapse.
Last week, the Government confirmed that the state-owned coal company has been racking up debts of around $10 million a month since last June, with total debt now equalling near $389 million.
It is one of five state owned enterprises earmarked for partial sale by the Government, but its problems could postpone the move.
The company's difficulties stem from a failure to appreciate how vulnerable it was to a drop in the international price of coal, last year's $40.2 million loss, the mothballing of the Spring Creek underground mine on the West Coast and a halt to expansion of the Huntly East coal mine in Waikato.
In Parliament today, Prime Minister John Key was forced to explain why he supported the company borrowing millions of dollars for high stakes projects like lignite mining in Southland.
"I genuinely believe that there is potential for a business opportunity for lignite conversion," he said in response to questions from Green Party co-leader Russel Norman.
He said his support for the project in 2011 came four months before a scoping study revealed the true state of Solid Energy's financial woes, and the former Labour government needed to take some responsibility for the situation.
"They can't wash their hands that from 2003 on they were intimately involved when they purchased the land for lignite," Key said.
However, Labour's former SOE Minister, Trevor Mallard, said the National ministers should have been more aware of the economic environment.
"I can't take the responsibility for the international price of coal or the National party members in charge of the area not to read their papers," he said.
'We've got to test the market'
Solid Energy's troubles mean its partial sale looks impossible in the near future, denying the Government of proceeds worth as much as $850 million.
As a result the Government could now struggle to meet its target of $5 - $7 billion from the whole asset sales programme.
"It may make a difference but we've got to test the market, the $5 - $7 billion was the best estimate two or three years ago," Finance Minister Bill English said.
"I hope those numbers hold up because we have big commitments in Christchurch, to upgrading schools across the country."
Labour leader David Shearer said the problems have thrown the Government's proposals into disarray.
"Their whole credibility was based on this, their whole plan has fallen to pieces," he said.
Solid Energy's problems have increased pressure on the Government to get a strong price for shares in energy SOE Mighty River Power.
A Supreme Court ruling on whether the Mighty River Power sale can proceed is due in a matter of days.