Synfuel viability erupts into political row

Press, 13 March 1986, Page 1

Synfuel viability erupts into political row

Wellington reporter The viability of the synthetic petrol plant at Motunui erupted as a political row yesterday when the Minister of Finance, Mr Douglas, alleged the $2 billion project was worth nothing.

Mr Douglas asserted that taxpayers would pay for losses on the plant mounting to hundreds of millions of dollars annually because of the level of the gas processing fee charged and the present low world price for oil as an alternative source of petrol.

The Minister used Parliament’s Address-in-Reply debate to attack the project, built as a central element in the National Government’s “think big” strategy and opened last month.

Mr Douglas’s charges and the figures he based them on were hotly disputed by the Opposition and Mobil Oil New Zealand, the Government’s partner in the project.

The Minister disclosed an assessment of the

plant's viability which resulted in an effective loss of $350 million a year.

Petrol produced from gas at Motunui could realistically now be valued at only about 18c a litre on the basis of the price of petrol from oil landed at the Marsden Point Refinery, Mr Douglas said. That assumed a world price for oil of SUSI 3 a barrel.

Mr Douglas put the charge for processing gas at the plant at 75.7 c a litre, and the difference between that and the effective worth of the petrol meant a loss of about 58c.

He put forward an alternative estimate assuming a 1986 oil price of SUS 26 a barrel and returning a loss of 37c a litre on the project.

The Minister said the total fee for producing 581 million litres of petrol this year at the plant would be $440 million.

The 1986 fee of 75.7 c a litre was comprised of 21.4 c a litre interest on loans, 14.9 c for loan repayments, I.lc provision for tax and any dividend, 13.5 c for running expenses, and 19.8 c for profit after tax.

Mr Douglas described the last component as the “really shocking part” and said it resulted from a guaranteed rate of return of 16 per cent to the plant’s owners. Mobil, which has 25 per cent ownership of the corporation, would make about 5c a litre after tax guaranteed profit on the project in 1986, he said. Mr Douglas said the

project’s cost at $2 billion amounted to about 5 per cent of the nation’s gross national product this year.

“We would have been better off if we had dumped this money in cash on the farms in Taranaki. At least it would have made good fertiliser,” Mr Douglas said.

The address was heated and Mr Douglas strongly questioned why the previous Government had agreed to go ahead with the plant on these financial terms. He said the total cost of “think big” projects, which include the Marsden Point Refinery and the steel mill expansion as well as the Synfuel plant, would put a debt burden on New Zealand that would cost the taxpayer an extra $25 a week for the next 20 years.