The Press FRIDAY, NOVEMBER 26, 1971. Manapouri: costs and benefits

Press, Volume CXI, Issue 32774, 26 November 1971, Page 8

The Press FRIDAY, NOVEMBER 26, 1971. Manapouri: costs and benefits

The full report of the New Zealand Institute of Economic Research on the Manapouri power scheme and the associated aluminium smelter at Bluff deserves close attention. It certainly cannot be dismissed as Mr R. J. McLean, leader of the “Save “Manapouri” campaign, attempted to dismiss it “ a calculated advertising statement The report was commissioned by Comalco and was undertaken by the institute’s contract research unit. “The essential “objective of both Comalco and the institute has “been to ensure disinterested research”, say the authors in their preface. Two of the three authors have since left the employment of the institute, one to take a university chair; to suggest that three salaried professional men would be a party to a “calculated advertising statement” is to misjudge the nature and rewards of academic research.

Any lingering doubts about the economic benefits to New Zealand of the Manapouri-Bluff project should be dispelled by the report On the most conservative estimates, the scheme would “ break even ” even if the New Zealand money required to finance it had all been borrowed at 10 per cent New Zealand’s major investment in the project building the Manapouri dam and powerhouse has already been financed by the Government at less than 6 per cent The major unknown variable affecting the rate of return is the cost of works associated with the smelter, such as harbour improvements; inflation and loan servicing charges might add to these costs and reduce the benefits.

The institute’s report summarises the costs and benefits under various assumptions about the rate of inflation and the rate of interest. From the range of 24 combinations of these two rates 12 of them are printed on this page today any reader of the institute’s report may make his own choice.' An “ optimistic ” assumption of 3 per cent inflation and 6 per cent interest produces an estimate of $330 million as the present worth of the project; a “ pessimistic ” assumption of 5 per cent inflation and 10 per cent interest produces an estimate of $l3B millinn

It should be appreciated that these financial factors, rather than any commercial considerations, are the important variables in such an exercise; unlike the Concorde aircraft or the Sydney Opera House or even the production of steel by the Stelco-Lurgi pre-reduction process the extraction of aluminium from bauxite requires no new technology. The costs of production at various levels of output can be forecast with reasonable accuracy. The marketing of aluminium is another matter but that is Comalco’s responsibility, not the New Zealand Government’s. Comalco has already agreed on the price to be paid for the Manapouri power and on the quantities of power it is obliged to purchase. The only major variables left are the rate of inflation and the rate of interest during the term of the agreement

The institute’s study was confined, as one of the authors explains in an article on this page today, to the implications of the agreement between Comalco and the Government—notably, raising the lake level to 620 ft Those interested in the conservation argument might wish that the institute’s terms of reference had been widened to include an estimate of the present worth of the project on the assumption that the lake level would not be raised; by subtracting that figure from the present worth of the project assuming the lake level is raised in terms of the agreement, an estimate could have been made of the cost of not raising the lake.

But one figure in Mr Poole’s statement this morning should concern conservationists as much as economists: the Te Anau control “on our valuation “of the costs of ‘alternative’ electricity . . . would “ have yielded $0.5 million per annum, starting in 10 “years". The lower site for Te Anau control, the preferable engineering alternative, would have provided an extra $500,000 worth of electricity per annum, according to Mr Poole. In other words, the engineers have been forced by the conservationists to forgo $500,000 worth of electricity sales a year to conserve the trout and salmon; and $500,000 a year would have financed several fish hatcheries and release programmes—in more accessible fishing water than West Otago’s.

In short, the admittedly strong conservationist argument must be considered in relation to the cost of alternatives. It is not sufficient for the conservationists to argue that the scenic value of Manapouri is “ priceless "; its preservation is no longer costless. Nor should engineers and economists be chided for seeking the best engineering solution or the most efficient use of resources; it is their function and their duty to do so. The larger community, represented by Parliament, is surely entitled to know what costs the conservationists are seeking to impose on the community. As Mr Poole says, “ We need to be “ very sure that the sacrifices will get real advan- “ tages, and to check that there is no way of getting “those advantages by merely appropriating some of “ the new wealth towards them, instead of giving up “the wealth itself”