Errors alleged, in smelting report

Press, 11 August 1980, Page 24

Errors alleged, in smelting report

PA' Wellington In a highly critical study, the New Zealand Institute of Economic Research has described Professor Paul van Moeseke’s recent paper on aluminium smelting as “generally inaccurate” and with some costing errors averaging more tnan 50 per cent.

Professor van Moeseke, who wrote his study as a University of Otago economics department discussion paper, argued against more smelters.

The institute’s comment came from Mr T. K. McDonald, who said that although the institute was a consultant for Comalco, Ltd, his comments were based on an independent and objective assessment, “and do not reflect the views of any pressure group or party concerned.” Mr McDonald said that Professor van Moeseke’s aluminium selling price

“significantly understates the return on sales from Tiwai Point, in December, 1979, prices, while a num-. ber of major cost items ... are markedly different from recent projects N.Z.I.E.R. has assessed.”

The professor’s “general argument about the scale of the investment is not well formed,” said Mr McDonald. “The statement that a smelter 'requires power at a small fraction of our marginal cost’ is,, at least, generally misleading and, in most situations, wrong.” Mr McDonald said the measure of trade efficiency was calculated wrongly, and the result was too low.

He also said the professor’s . cost comparisons with such projects as the proposed tunnel under the English Channel were “logically irrelevant.” Mr McDonald said a second aluminium smelter would not be riskless for New Zealand. “It is likely

to put pressure on the electricity supply industry. But, given a satisfactory development agreement — and the signs to date are good —• the benefits to the community from increased smelting capacity should outweigh those available from a general increase in domestic electricity use, or from deferring j electricity developments.” , Mr McDonald said Professor van Moeseke’s assessment of a 300,000 tonnes per year smelter focused on a “net loss” of the order of “one billion 1979 dollars.”

“He is not explicit about his cost-benefit , assessment framework, but indications elsewhere in the paper suggest that he has not understood the typical cash-flow structure associated with this type of project ... Over the items, alumina, petroleum, coke, and wages, the error per item averages more than 50 per cent.”