‘Smelter will not be economic disaster’

Press, 23 April 1980, Page 16

‘Smelter will not be economic disaster’

PA Wellington New Zealanders can be assured that any aluminium smelter built in this country will, not fre an economic disaster in terms of the national interest, says the Minister of Trade and Industry (Mr AdamsSchneider).

He was commenting on the economic appraisal of aluminium smelting in New Zealand by Professor Paul van Moeseke, of the University of Otago.

“The Government welcomes critical examination of national projects by such esteemed academics as Professor van Moeseke,” Mr Adams-Schneider said. “But my officials have carried out comprehensive cost benefit analyses. We will accept only projects which provide a good economic Tate of return to New Zealand.” The officials had access to detailed information on proposals, and access to international consultants on prices.

“Unfortunately it appears that Professor van Moeseke did not have access to as much information,” he said. “For exampe, he quotes the September, 1979, aluminium f.o.b. price as $llll a tonne. The world list price is quoted in the September 28, 1979, metal bulletin as $1525 a tonne.

“This price, less $6O for freight, is the price that should have, been used in his analysis.

“There are errors in capital costs, raw material, and manufacturing costs and the electricity consumption cited is higher per tonne of metal than that of smelters using the latest technology.” The Minister agreed that the investment per job was higher than average, as Professor van Moeseke had said.

“However, a figure of $600,000 per direct job created is more realistic than the $2.66 million he suggests,” he said.

“A smelter will also stimulate many jobs in the engineering and servicing sector of the region it is sited in. In addition, the total return they earn on resources employed should increase the real income per head of New Zealanders'. This in itself will enable the creation of more employment opportunities elsewhere in the economy.” Mr Adams-Schneider said it was more important to consider the foreign exchange benefits. “Because of the costing errors I mentioned, Professor van Moeseke has grossly underestimated the net foreign exchange earnings and export efficiency of the smelter,” he said.

“By having efficient industries such as aluminium smelting and fabrications, New Zealand can ease its balance of payments problems — our greatest constraint - to economic

“Lt is important to remember that most of the finance .for constructing the smelter comes from overseas sources. This, the capital expense, is not a large cost for New Zealand resources. However, New Zealand will receive a fair price for its electricity, labour and local services, as well as tax.”

New Zealand had a surplus of electricity which it wished to put to the best use for its industrial development, Mr AdamsSchneider said.

“Ministry of Energy officials have calculated the economic cost of power both in the surplus period 'and in the long term. If we were not selling this surplus electricity, water would be spilled over our dams for no return to the country. “With power prices round the world increasing rapidly we are very competitive. Lt is because of this that the. factors! Of proximity to world markets and bauxite became less relevant.”

Smelters were closing in Japan because of the cost of oil-fired generation, Mr Admas-Schnei-der said. The companies concerned would not be considering large capital investment if New Zealand were not attractive.

“We also have the advantage of political stability which some coiintries offering very cheap electricity cannot list as ah advantage,” he said._