Minister defends growth strategy

Press, 18 June 1982, Page 2

Minister defends growth strategy

PA Dunedin Government growth strategy decisions were defended by the Associate Minister of Finance (Mr Falloon) when he replaced the ousted Cabinet Minister. Mr Derek Quigley, as a conference guest speaker in Dunedin yesterday. ' Mr Quigley was originally scheduled to address the Counties’ Association, but Mr Falloon took the stage instead. He spoke to delegates on the Government’s “comprehensive” evaluation- of growth projects — a significant move after Mr Quigley’s forced resignation for raising questions about “think big.” Mr Falloon used- the Motunui synthetic gasoline project as an example of the “amount of work and evaluation” that' went into “some major projects.” He also announced that the Government would soon publish a White Paper detailing the economic and commercial aspects of the Mbtunui plant. Mr Falloon said that when the Government did an economic . evaluation of ■ a project it” .was concerned about the total return “in national economic terms, not a commercial or financial

analysis. . “This may give different numbers from a purely financial or commercial analysis which is sensitive to the timing of debt, interest, tax payments, and the gearing of the project.” The “economic returns” on synthetic gasoline “hinged upon the value of gas in alternative uses, future increases in world oil prices, the costs of. building and running the plant, and . the efficiency of the process.” Inevitably in any project a number of assumptions needed to be made, Mr Falloon said. “If assumptions are wrong then the economics of the project will (eventually) be different. The project could be better or it could be worse.” He said that the Goverri.ment considered “the synthetic gasoline project was a robust one. “On the basis of the information available, it was economically attractive, so it was-' an’. economic decision, not a philosophic commitment to oil substitution for its own sake.” Mr Falloon said critics of the' decision now pointed to ’depressed oil prices. ’ But indications were that : the prices would again rise, 'p'nd there Were some signs already that they were starting to firm. “It is the long term view that is important and it was the long term view that lay behind the Government’s decision.” ' • Mr Falloon said oil prices were difficult fo forecast when the Motunui project was being considered, but there was a "very large consensus” that they would continue to rise an average 3 per cent a year between 1981 and 2000. “On this assumption the average oil price over the life of the project (in mid--1980 dollars) was. SUSSO a barrel. That projection still looks sound oh latest information.” Government analysis had looked at alternative uses for the Maui gas, including an expanded compressed natural gas programme, methanol production, gas-td-electricity, and liquefied natural gas: Eventually a composite alternative package including C.N.G., methanol and electricity was. compared with synthetic gasoline. it was concluded that if oil. prices rose by 3 per cent per annum or more, then synthetic gasoline was ‘ clearly the better use, “If real oil prices grew by less than 3 per cent then the alternative package indicated a higher return.” .