Pacific Hydro’s Ponzi Scheme Implodes: Wind Power Outfit Loses $700 Million of Mum & Dad Retirement Savings

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Pacific Hydro is a name synonymous with wind industry skulduggery in Australia: the merciless treatment of its victims at Cape Bridgewater has been added to the annals of Australian corporate infamy, right up there with Aussie asbestos pedlar, James Hardie (see our post here).

Now, its slap-dash approach to management, and all-round corporate malfeasance, has caught up with it, with an almighty vengeance.

Pac Hydro is the bastard child of IFM Investors – born of the $billions that are collected from workers and thrown into what are called “Union Super Funds” – ie “superannuation”: compulsory retirement savings schemes – owned and controlled by union heavies, like Garry Weaven and/or Labor Party front men; like former Environment Minister, Greg Combet.

Combet, Weaven & Co are the driving force behind the great wind power fraud in Australia. It was Combet who lobbied for, and obtained, the massive increase in Australia’s Renewable Energy Target to 45,000 GWh (4,000 as “small-scale” solar; and 41,000 as “large-scale”, ie wind power).

But these boys set up the “rules” with only one real “target” in mind; and that was making fat piles of cash themselves, using bucket loads of other peoples’ money: being able to make massive profits without any personal risk is a rare and beautiful thing.

But the risk has just been realised; and it’s mums and dads who are paying, and will continue to pay, the ultimate price.

Pac Hydro has just clocked up one of the largest corporate losses ever seen in Australian corporate history: you need to think back to Alan Bond, Chris Skase and the massive corporate implosions that took place at the end of the crazy 80s, to find anything of the same scale.

Pac Hydro’s books apparently record a loss of $685 million – the Australian Financial Review says “$700 million” – but with losses of that magnitude a lazy $15 million is probably just a rounding error.

From what STT can glean, around half of that figure is attributable to losses incurred by Pac Hydro’s wind farm operations in Australia (it’s pretty hard to get a bead on the numbers when, as the AFR explains, the company is going to “extraordinary lengths to keep [its review into the losses] under wraps”.

Just how a wind power outfit enjoying the most ludicrously massive industry subsidies provided in the history of the Australian Commonwealth can “lose” $700 million of workers’ superannuation money is a riddle wrapped in an enigma, to which we shall return in a moment. Now, here’s a couple of wrap-ups on Pac Hydro’s Ponzi scheme implosion.

Governance scandal claims Garry Weaven and Brett Himbury
The Australian Financial Review
Tony Boyd
5 March 2015

Industry superannuation fund heavyweights Garry Weaven and Brett Himbury are under pressure to resign from the board of global fund manager IFM Investors after a secret report into $700 million in losses at Pacific Hydro was blamed on lapses in corporate governance.

Weaven and Himbury resigned from the board of Pacific Hydro on January 1 this year after a review of its corporate governance by an executive director of IFM Investors, Danny Elia made adverse findings in relation to corporate governance.

The pressure for Weaven and Himbury to also resign from the board of IFM Investors is coming from investors in the IFM Australia Infrastructure Fund, which owns 100 per cent of Pacific Hydro. The IFM Australia Infrastructure Fund is managed by IFM Investors.

Chanticleer understands several investors in the trust are angry about the lack of transparency about Elia’s review of governance at Pacific Hydro.

The losses incurred by Pacific Hydro have meant that its value in the IFM Australian Infrastructure Fund have shrunk from 40per cent of total assets to about 8 per cent.

IFM Investors said in October last year that it had taken a near $700 million write-down on Pacific Hydro due to the adverse impact of the Abbott government’s review into renewable energy, weaker electricity demand in Australia, and tax changes in Chile.

The Chilean investment, the $US450 million ($575 million) Chacayes run-of-river power plant halved in value as a result of the regulatory and tax changes.

However, IFM has said nothing about Elia’s review of the governance of Pacific Hydro.

His review, code named Project Primavera, has not only been kept secret, IFM Investors has gone to extraordinary lengths to keep it under wraps.

Any investors in the IFM Australia Infrastructure Fund or asset consultants wanted to look at the 200-page Project Primavera report must sign a confidentiality agreement.

No copies of the report are allowed to leave the IFM premises, no photocopies of the report are allowed and anyone reading the report must surrender their smartphones before entering a room where the report is available.

The findings of the report and the resignations of Weaven and Himbury from Pacific Hydro have not been reported either on the websites of IFM Investors or Pacific Hydro. Also, the story has not been reported by The New Daily, an online news site owned by industry super funds.

Pacific Hydro’s website does show that the company appointed three new directors this year.

John Harvey replaced Weaven as chairman of Pacific Hydro on February 15. He is a director of Australia Pacific Airports Corporation.

Peter Berry was appointed a director of Pacific Hydro on January 16. He is chairman of the state owned venture capital business, Victorian Clean Technology Fund.

Michael Hanna was appointed a director of Pacific Hydro on February 10. He is responsible for managing the IFM Australian Infrastructure Fund.

Those appointments are significant because it means that there are now more people on the board of Pacific Hydro with operational experience. There was clearly a lack of hands on infrastructure management experience before.

Apart from Weaven and Himbury, two other directors have resigned in the past few months. Anita Roper resigned on January 1 this year and Geoffrey Coffey resigned on December 31, 2014, according to records with the Australian Securities and Investments Commission.

The angst among investors about the governance failings at Pacific Hydro have prompted IFM Investors to launch its own internal review of governance, according to industry sources.

It is not known who is conducting this review or whether it will have the power to recommend changes in governance at IFM.

The departure of Weaven from the board of Pacific Hydro would have been deeply felt as he was one of the driving forces behind the industry super fund sector’s push into renewable energy.

The Pacific Hydro write-downs and subsequent board resignations draw attention to the conflicts of interest which can occur when shareholders of a funds management company are also investors in its various products.

The fact that an employee of IFM, Elia, was called on to conduct a review of an IFM managed entity suggests it was not a completely independent arm’s length project.

The $700 million in losses at Pacific Hydro raises questions about the quality of advice received by IFM Investors from its extensive team of global infrastructure advisers which includes former chief executives at global companies.

Weaven and Himbury did not respond to email requests for comment and a spokesperson for Pacific Hydro said all comment about corporate governance at the company should come from IFM Investors. The spokesperson failed to call back.
The Australian Financial Review

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Pair step down after Hydro’s $685m loss
The Australian
Andrew White
6 March 2015

INDUSTRY superannuation fund godfather Garry Weaven and the chief executive of IFM Investors, Brett Himbury, resigned from the board of renewable energy investor Pacific Hydro last October following a $685 million loss.

Mr Weaven said he and Mr Himbury had resigned as directors to take responsibility for heavy writedowns on investments in Chilean and Australian energy assets that should have been anticipated.

“It was done on the basis that when you have a writedown like that there should be consequences. We should show that we take this very, very seriously.”

But he denied a report that there had been any pressure on him or Mr Himbury to resign from the IFM Investors board.

Mr Weaven said there had been no votes against him when he stood for re-election at the IFM Investors annual meeting in November. “There was absolutely no pressure on me or Brett Himbury to resign, none, zero.”

Pacific Hydro announced the $685m loss in October after the government abandoned its support for the Renewable Energy Target, which supported the value of wind and solar energy projects owned by the company, and changes to tax laws in Chile that halved the value of its investment in a hydro-electricity project. Mr Weaven said the Australian investments had also been cut in value following changes to the pricing rules from the Australian Energy Regulator at the end of June.

Mr Weaven “completely rejects” a report in a newspaper yesterday that there were any corporate governance issues that resulted in the losses.
The Australian

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Hmmm. Losing $685 million of mums’ and dads’ superannuation money would, in most peoples’ eyes, involve some deliberate effort, beyond being simply “asleep at the corporate wheel”.

While Weaven protests his corporate “innocence”, just imagine the size of Pac Hydro’s losses if there had been “any corporate governance issues”!!

And it’s not just mum and dads with their hard-earned retirement savings being thrown to the wind by Weaven & Co. Oh no, all Australian taxpayers are going to take a whopping financial hit on this one. Pac Hydro pocketed over $70 million in taxpayer underwritten “loans” from the Clean Energy Finance Corporation (a $10 billion “renewable” scam slush fund set up by the Green/Labor Alliance) for its non-compliant Cape Bridgewater operation. Now that pile of taxpayers’ cash is at risk, along with hundreds of $millions more (see our post here).

The standard response from these corporate cowboys – that it was “uncertainty surrounding the Renewable Energy Target” that drove one of the largest losses in Australian corporate history – falls a little flat when it is understood that there has been NO change at all to the legislation underpinning the Large-Scale Renewable Energy Target (LRET), despite wind industry whingeing and wailing, as if it had been torched altogether.

The derisory list of “excuses” used by wind power outfits to explain their mounting losses grows by the day: near-bankrupt wind power outfit, Infigen (aka Babcock & Brown) continues to blame the vagaries of the weather on its abysmally poor financial performance – an $8.9 million loss for 2013/14, which follows a $55 million loss in 2011/12 and an $80 million loss for 2012/13 (see our posts here and here). After another laughable performance in the last half of 2014, it took to pointing the finger at – wait for it – “THE WIND” – for yet another failure to get anywhere near its “projected” revenues (see this lament from the eco-facists over at ruin-economy). Oh dear, how sad, never mind.

And it’s a theme used around the globe in a “hey, quick look over there” approach to avoid any scrutiny of the real hard numbers (or, rather, the lack of them) that continue to show the woeful reality of wind power outfits’ overblown revenue projections – and the mounting losses being suffered by duped investors when those breezy projections fail to materialize (see our post here).

STT always likes to plunge its cynical spade just a little deeper into the mire than most; and, in relation to the great wind power fraud, always relishes the opportunity to do so. Even a cursory dig reveals the parallels with some of the greatest scams in history.

In recent times, Australia has seen gullible (and, perhaps, “greedy”) mum and dad investors fleeced to the tune of $billions in Managed Investment Schemes.  Back in the late 1980s, the Commonwealth government amended tax legislation to provide huge tax benefits for investments in “Managed Investment Schemes”. During the late 1990s and 2000s, the tax change saw a flood of money pour into industrial scale vineyards; timber, olive and almond plantations. The MIS tax breaks were rightly considered a monstrous tax rort that allowed companies running Managed Investment Schemes to make obscene profits upfront at investors’ ultimate expense. In 2007, the government scrapped the tax breaks – a decision which led to enormous corporate collapses of MIS outfits – like Timbercorp and Great Southern Plantations – with MIS investors collectively losing 100s of $millions.

Then there are the earlier “corporate investment classics”, like the South-Sea Bubble and Dutch tulip mania.

The common theme in all of these rorts, is that those filching the money always tend to blame somebody else as the scam turns sour; and the investors’ money goes “missing”: albeit that in the case of the great wind power fraud, mum and dads’ “missing” $millions can be readily located in the form of Sydney Harbour-side mansions and fleets of Aston Martins, Beamers and Mercs – snapped up by the managers of super funds and wind power outfits, as fitting symbols of their financial “finesse”.

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So, how do wind power outfits routinely end up with results that show their revenue projections to be little more than financial fantasy?

Wind power outfits routinely base their expected returns on pumped up wind forecasts – thereby way overstating their anticipated gross returns (see our posts here and here and here and here).

While, at the same time, lying about their true operating costs (see our post here), which start to tack up pretty quickly when it’s revealed that turbines last less than half the time claimed: with an ‘economic’ lifespan of 10-12 years, as opposed to the 25 years wildly claimed by fan makers and wind power outfits (see our posts here and here).

Or, in the case of top-flight German manufacturer, Siemens – less than 2 years – one of it’s latest batches required wholesale blade and bearing replacement, starting almost as soon as they cranked them into gear (see our post here) – Siemens blaming “harsh weather conditions both onshore and offshore” – as if its fans had been designed to run inside aircraft hangars ….

In the Californian desert – where salty-sea-air is unlikely to be the “problem” often complained about for rusty off-shore turbines, as they grind to early “retirement” – an entire fleet of 2 year old Siemens fans are throwing their blades to the four-winds, spewing out oil like Saudi Arabia and spontaneously combusting – making a mockery of wind industry claims that turbines run on the smell of an oily rag for 25 years or more (see our post here).

The other key factor in the fraud, is the overly optimistic expectation that the value and longevity of government mandated subsidy schemes – like the LRET and the REC Tax/Subsidy drawn from retail power consumers’ bills and directed to wind power outfits – hold the same degree of permanence as the Egyptian Pyramids.

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However, while they’re no guide to the permanence of taxpayer’ and power consumers’ (forced) largesse, the shape of the Pharaohs’ tombs informs another aspect of the great wind power fraud: the fact that, when it all boils down, this is a monumental pyramid scheme, that would have made Charles Ponzi green with envy.

Some might call it “high hopes”, others, “hubris”, but either way, when the corporate puff evaporates, it’s the investors that take the beating.

The dreadful “uncertainty” about the willingness of governments to continue fleecing power consumers and taxpayers – in order to keep throwing massive subsidies at the greatest rort of all time (which, on the wind industry’s pitch will be needed until kingdom come) – has resulted in the collapse of more than 120 wind industry suppliers in the past two years, “including 88 from Asia, 23 from Europe and 18 from North America” (see our post here).

In Germany – despite the fact the the wind industry there has pocketed the lion’s share of at “least half a trillion € in subsidies” – German investors are taking a flogging: “37 percent of wind farms are losing investors’ money” and “two thirds are in deficit or just about cover their running costs” (see our post here).

And American “farmer investors” have been fleeced for $millions, as breezy optimism hits revenue reality (see our post here).

Around the world, wind farm investors are being fleeced by the same types of hucksters and weasels that run outfits like Infigen and Pac Hydro; and the smarmy gits that set up so-called “community wind farms” – praying on greed and gullibility in their efforts to pocket $billions in REC Tax/Subsidies.

The scam is the same the world over: pitch numbers that show returns that are too good to be true (they are) and watch the suckers beat a path to your door: greed trumps common sense often enough.

As PT Barnum said: “every crowd has a silver lining” – an adage put to great effect by wholesale fraudsters like Bernie Madoff in scams often tagged “Ponzi” schemes; named after Charles Ponzi – who would have taken to the wind industry like a duck to water.

Madoff – who ended up with a 150 year stretch in stir for his share-market shenanigans – would, no doubt, be pleased to know that the wind industry has followed his “model” and is keeping the Ponzi “dream” alive.

For one of Australia’s biggest wind power outfits to lose $700 million in a single financial year is no small thing – it takes real effort. To rack up that kind of loss when the subsidy rules haven’t changed, simply begs the question: “what happens when those rules inevitably get changed, and result in the (currently) massive subsidies paid to wind power outfits being cut or scrapped?”

As STT has pointed out, just once or twice, the LRET is both politically and economically  unsustainable (see our posts here and here and here). The LRET will implode: it’s a matter of when, not if.

And the wind industry will collapse along with it; scorching $billions of gullible investors’ money as it does: Pac Hydro’s $700 million loss is just the beginning; and that occurred when the subsidy rules were all in its favour.

If you think you’ve got any of your hard-earned anywhere near wind power outfits, like Pac Hydro and Infigen – in the form of superannuation or shares – then grab it, and get out now.

Of course, if you’re a union member – and one of those whose super contributions get automatically channelled into a super fund “chosen” by your union leaders – it might be time to quiz them on just how safe your retirement nest egg is. With their trotters firmly in the great wind power fraud trough, we doubt you’ll get any straight answers; in which event, you might like to start howling for a Royal Commission.