N.Z. Steel project a ‘hell of a mistake’

Press, 27 December 1985, Page 1

N.Z. Steel project a ‘hell of a mistake’

PA Wellington The New Zealand Steel project had been a “hell of a mistake” said the Secretary to the Treasury, Mr Bernie Galvin, last evening.

He wrote a report published this week by the Minister of Finance, Mr Douglas, on the viability of all "think big” projects, in particular the steel mill expansion. The report, dated November, 1984, was signed by Mr Douglas in the wake of further taxpayer support being given to the project. Mr Galvin’s report said that the steel mill project had been expected to produce a 10 per cent return on the investment, minus about $l2 million. Instead, he said, it would lose $590 million. Between them, the “think big” projects would lose $l3lO million, rather than the predicted $955 million net gain. The Treasury figures were derived from an economic assessment of cost and benefit, not a commer-

cial analysis that would have included debt equity and interest on borrowing. Using the Treasury system, there had been more question marks banging over the steel project than any others, Mr Galvin said. “At the time our best overseas figures were for a 3 per cent increase in oil costs in real terms per year.” Instead, oil prices had fallen, he said. Publication of the report has been condemned by the former Prime Minister, Sir Robert Muldoon, and his old Cabinet team-mate, the former Minister of Energy, Mr Bill Birch.

produced any return. But last evening Mr Galvin said in an interview that although he was unhappy with “hindsight reports,” the expansion of the steel mill by the National Government had been a mistake and should have been left to private enterprise. He defended the advice given by the Treasury, the Trade and Industry Department, the Prime Minister’s Department, the Electricity Division, and the Ministry of Works and Development that supported all but the steel mill expansion. “A lot of events turned out differently from what was anticipated. That includes over-runs on construction that could not be forecast.”

Both rejected the Treasury findings because they failed to take into account the use of indi■genous raw materials that otherwise would not have

Mr Galvin, a member of Sir Robert’s “think tank,” Mr Galvin said that many of the think big projects were conceived against a background of unwillingness by the National Government to see the New Zealand dollar’s exchange rate moved. “It was giving out signals that were not correct ones. The dollar was over-valued and giving back a false

impression of how much things were worth,” he said. “That goes through the whole thing ...” The Treasury figures had included an allowance to compensate for the dollar’s fixed value, he said. Mr Galvin said the fact that the present Government took its action last week clearly indicated the project was “not terribly desirable.” “Essentially, the Government has just written down the project’s value. They

are admitting a mistake has been made and so many resources spent already that we should complete it. “In the end, it may be that we can sell the shares at a price where it is commercially viable. “In the meantime, it (the expansion project) was a hell of a mistake.” In his 1984 report, Mr Galvin had been critical of the Government’s “picking winners” and then becoming politically committed to the projects.