The Government blames Labour for Solid Energy's woes, saying the previous Government encouraged the coal company to diversify – and that led it to make bad investments.
But Labour is hitting back, saying Solid Energy was in fine shape when National took over as Government after the 2008 election, and the current ministers failed to read the advice they were given.
The Government revealed on Thursday the state-owned coal mining company, which employs 1200 people, was facing financial ruin with $389 million in debt
Prime Minister John Key says the company's directors grossly over-estimated coal prices and made investments which proved to be worthless.
He's blaming the previous Labour Government, including former state owned enterprises minister Trevor Mallard who encouraged the company to expand in 2007, and citing a Cabinet paper supporting that stance.
"They can't wash their hands of the fact that from 2003 on, they were intimately involved with the plans that that company had," Mr Key said.
"The argument that somehow we would have gone in, in 2009 when the company was performing well, its results were good, the valuation of the company was going up, and just gone and sacked the board on day one is a bit fanciful."
Mr Key says his Government was cautious about Solid Energy's expansion and said it could "take some baby steps".
"Maybe we should have re-tested those [Labour-approved] initiatives but actually we gave [Labour] the benefit of the doubt that they might get one thing right."
Labour leader David Shearer hit back at Mr Key's claims, saying he needs to "man up" and take responsibility for a company he should have been more hands-on with.
Mr Mallard says the Government's ministers clearly did not read reports highlighting Solid Energy's problems.
"For them to try and blame things that happened five, six, seven or eight years ago is just nonsense."
Mr Shearer says he doubts the Government will be able to get its estimated $5-7 billion profit from partial sales of Solid Energy, three other energy companies and Air New Zealand, given the coal company's woes.
Mr Key is refusing to budge on the estimate, saying it's not yet clear what price each company will sell at.