5 September 2016 FINAL

Transcription

1 Trans-Tasman Resources Ltd marine consent application Post-Lodgement Report Review of economic effects Date: 5 September 2016 Review of TTRL s Impact Assessment Report (Lodged, August 2016) Economic Effects of the South Taranaki Bight Offshore Iron Sand Extraction and Processing Project Client: Reviewer: NZ Environmental Protection Authority GHD 1

2 Qualifications and experience Wenceslaus Joseph van Lint Executive Consultant, Advisory at GHD Pty Ltd Qualifications Bachelor of Economics (1969) Monash University Master of Business Administration (1977) Melbourne University FCPA (1979) Melbourne Experience Over 40 years of experience in academia and consulting. Key consulting emphasis has been in project assessment (water, transport, mining, ports, energy) and evaluation, project and operational reviews, strategic advice and due diligence. Client coverage has ranged across Federal, State and Local Government Agencies and Departments, established and developing commercial operations. Projects have been undertaken throughout Australia and New Zealand, Middle East, Vietnam, Thailand and Papua New Guinea. 2

3 Executive summary The economic impact of the TTRL s proposed Offshore Iron Sand Extraction and Processing Project (the Project) on the New Zealand economy is likely to be positive based on the effects information for the Project presented in TTRL s lodged Impact Assessment August 2016 (the Report). The forecasted national (New Zealand) result suggesting a total of 1,666 FTE positions created and a GDP increase of $159 million each year for the duration of the Project may be overstated, but the economic benefits are likely to be positive at the local and regional levels based on the information presented in the Report. The economic information provided in the Report (including Appendices), the MartinJenkins Economic Impact Analysis Report, and further data provided in confidence to GHD by TTRL via the EPA in response to the Initial EPA Review Enquiry (re. section of the Report), are all presented at a relatively high level, making it difficult to verify the precise forecast of economic impacts, but sufficiently detailed to accept the overall conclusions of the analysis. Given some inherent weakness in the used Economic Impact Input-Output methodology when applied at the national level, it is likely that the economic impacts suggested in the Report may be slightly overstated. But the use of an Input-Output modelling methodology is considered to be best available practice given the intent and scope of the Report without incurring additional expense for likely marginal gains. The difficulty in accepting the precise forecast of economic impacts suggested in the Report is that it is based on two key variables which are either not transparent, or not crossreferenced to other relevant analyses these being TTRL s underlying labour costs for the Project (not presented in the Report), and the use of specific regional economic multipliers: Annual Expenditure No details have been provided as to the build-up of the total labour cost in the Report; Specific Economic Multipliers a rapid research of public-domain information shows that there currently appears to be no economic multipliers existing specifically for the Project region with reliance on commissioned data. Furthermore, there is no discussion in the Report of the economic multipliers being cross- referenced to similar analyses carried out for other projects or the wider New Zealand economy. Further economic beneficial claims are made for the Project (i.e. increased economic diversity and business resilience) with little or no supporting analysis in the Report. Business resilience is assumed to increase by the introduction of the Project, as the two key sectors in the region (oil and dairy) are stated as suffering from international pricing and economic cycles. Recent trends in the iron ore industry suggest that it too may suffer from similar issues, and as such may do little to counter-act any negative trends. Based on the information in the Report, it should be noted that although the Project suggests positive economic impacts, its impact on the overall New Zealand economy is likely to be minimal (suggested in the Report as a 0.07% 3

4 uplift to national GDP, and 0.7% of the total value of national merchandise exports based on US$ 40/tonne for iron ore). The Report states that there is likely to be limited impact on tourism from the Project, and, in the event that there was an adverse impact to the commercial fishing industry, it would result in relatively low losses in activity (re. section ). The Report further states that the effects on tourism and commercial fishing are extremely difficult to quantity and place monetary values upon them. Without any visibility on the monetisation (valuation) of any potential economic dis-benefits from any negative impacts, the suggested economic benefits of the Project to New Zealand can only be viewed as gross estimates with the net economic impact of the Project to New Zealand likely to be less than the gross values suggested in the Report. Based on the information in the Report, the quantum of the difference between gross and net economic impact is still likely to result in a positive net economic impact for the New Zealand economy, but with a low degree of risk present as to this not occurring provided the Project is able to operate at or above commercial break-even levels. 4

5 1. Introduction 1. The Review: This Review, by GHD, is of the economic effects component of TTRL s lodged Impact Assessment August 2016 (the Report) which included the impact of various effects on the local (South Taranaki/ Whanganui), regional (Taranaki/Whanganui) and the New Zealand economy of the proposed Trans-Tasman Resources Ltd (TTRL) Offshore Iron Sands Extraction and Processing Project (the Project), and an assessment of the adequacy of the economic modelling contained in the Report for the purposes of decision-making under the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act Economic impact The Report includes examination of the impact on the New Zealand economy at three geographic levels (local, regional and national), and further considers: Export volumes, pricing of the extracted and processed iron sands, and export value to New Zealand; Full-time equivalent (FTE) employment; Gross Domestic Product (GDP); Taxes and royalties associated with the Project; Operational expenditure; Wider economic benefits (including potential industry diversification); and Other potential costs (dis-benefits). These items are presented in the Report at sections 4.2, 7.5.7, and in the Appendices to the Report. 2. Assessment of economic effects 2.1. Information reviewed 3. Information This Review is based on the following information and analysis: EEZ000011_005_TTR_ Impact_Assessment 23_August_2016 and EEZ000011_006_TTR_Appendices_to_the_Impact_Assessment 22_August _2016); EEZ000011_051_Report_40_Martin_Jenkins_Economic_Impact_Analysis_Report Oct._2015; Further data provided in confidence to GHD by TTRL (s158 Report 3(e) - Additional Economic information provided on 28 Jan 2016 Butcher and Partners) via the EPA in response to the Initial EPA Review Enquiry (re. section of the Report), which 5

6 provided extracted data from TTRL s commissioned analysis by MartinJenkins (2015) Economic Impact Analysis of the Iron Sands Project, South Taranaki/Whanganui; Taranaki/Whanganui; New Zealand including: o The industry employment multipliers applied in the Input-Output analysis; o Sensitivity tables relating to iron ore spot price, US$/NZ$ exchange rate, and Heavy Fuel Oil prices;. o Operational labour profile; o Detailed direct expenditure forecast by expenditure category and location; o Capital expenditure forecast by location. Data sourced from the New Zealand Economic and Financial Overview Key economic effects 4. Economic benefits The economic impact of the Project on the New Zealand economy is likely to be positive based on the information presented in the Report. The forecasted national (New Zealand) result of a total of 1,666 FTE employment positions and a GDP increase of a total of $159 million each year for the duration of the Project may be slightly overstated, but are likely to be positive at the local and regional levels based on the information presented in the Report. The Report identified an annual operational expenditure of $254 million. Of the $254 million, it is anticipated in the Report that 52.2% will be spent in New Zealand, leading, through multiplier effects, to an increase in national expenditure of $349.1 million 2 adding total $159 million in GDP annually and a total employment impact of 1,666 Full Time Equivalent employment positions (FTEs) annually with local and regional impacts stated as follows: o Local Total expenditure of $45.1 million leading to a GDP impact of total $18.6 million and supporting a total of 299 jobs (FTEs); o Regional Total expenditure of $115.7 million leading to a GDP impact of total $50.6 million and supporting a total of 705 jobs (FTEs). The overall impact of the Project on the New Zealand economy is relatively small, increasing national GDP by 0.07% and employment by 0.08%, whereas the impacts at the regional level are around 1.0% for employment, and 0.5% for GDP. The value of total national merchandise exports would be increased by 0.7%. 1 New Zealand Economic and Financial Overview ISSN x. New Zealand Government. 2 The assumed overall economic multiplier is 2.6 calculated by dividing the Total Output impact by the Direct Output impact as stated in Table 4.2 of the Report. 6

7 5. Further benefits The Report (TTRL s lodged Impact Assessment) claims that the project will generate wider economic benefits especially at the regional level through the diversification of economic activity, which currently is dominated by the gas and dairy sectors. The economic diversification resulting from the Project is assumed to add to the resiliance of businesses in the region as they are prone to global commodity prices and cycles. It is possible that the addition of iron sands into the industrial mix may not increase business resilence, as TTRL is entering into a global market dominated by major multi-national mining companies, such that TTRL is likely to be a price-taker Uncertainty The Report provides little insight into the impact that future uncertainty could have on the forecasted economic outcomes. The modelling approach presented in the Report ignores that many of the key commercial variables (suitable labour availability, wage levels, fuel costs, shipping costs, throughput levels, etc.) included in the analysis are likely to be subject to uncertainty. A better understanding of the potential longer term benefits to the New Zealand economy may have been possible if the Report had included sensitivity analysis for key commercial variables, resulting in the forecasting of an upper/lower limit of the potential economic benefits.this would be particularly useful in the area of taxation and Royalties, as they depend on revenue and profit calculations, noting that the potential benefits of taxation and Royalties from the Project are presented in the Report as additional to the suggested employment and GDP impacts at the national level. 7. Taxes & royalties As TTRL is a (mining) permit holder, it is required to pay Crown royalties (at two levels) and is liable for company tax. Increased Government revenue as a result of the TTRL operations is likely to strengthen the Government s budgeting position. The potential revenue gain to the Government has not been able to be quantified in the Review as projected financial statements are not available as part of the Report. 3 As described in the Report, TTRL is likely to be a relatively small player in the international iron ore market, and the price it has to accept for output is likely to be governed by international supply and demand, over which TTRL is likely to have little or no control or influence. 7

8 3. Information principles 8. Input-Output analysis The underpinning modelling methodology for the economic impact analysis presented in the Report, as conducted by MartinJenkins for TTRL, is Input-Output Analysis, which estimates the economy-wide effects that the initial change (increased direct expenditure by TTRL) in activity is likely to have on the local, regional and national economies. The methodology adopted is one that is commonly applied in economic impact analysis, but has been found to be less accurate in forecasting the net results at the national level than through the application of the Computable General Equilbruim (CGE) modelling methodology 4. However, CGE modelling is relatively expensive for the gain in accuracy at the national level for a project of this size and scope.consequently, the use of Input-Output analysis is still considered the best available approach given the scope and scale of the Project. 9. Transparency Limited detail has been provided as to the composition of the data in the Report, which means that the suggested precise economic impact results are lacking transparency and are unable to be easily compared to other similar projects or subjected to sensitivity analyses of key commercial variables as discussed in item 6 above, resulting in a degree of uncertainty as to the robustness of the precise economic impacts. 10. Methodology limitations There are a number of limitations to the methodology used in the Report which may present some risk to the accuracy of the level of future economic impacts suggested in the Report: Production forecast production tonnes is a critical element in the estimation of the variable component of operational expenditure. No analysis is offered in the Report to evaluate the impact that variable throughput may have on the suggested economic benefits; Shipping/Freight Costs these could be a significant cost in terms of the commercial viability of the Project - no analysis on this has been provided in the Report. Workforce the Project states a need to employ a number of highly skilled (international) operators. There is no discussion in the Report as to the availability of this skilled workforce, nor to the ability of the local market to provide the balance of the workforce. The analysis in the Report assumes that the local labour market has 4 Australian Bureau of Statistics (ABS), The ABS no longer produces multipliers as an extension of the Input-Output table, and recommends that economic input analysis should be generated through the application of the CGE Model which attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets. 8

9 the capacity to meet the demand (or can be developed with training) with no significant impact on labour rates this may not be a particularly robust assumption, but conforms to the Input-Output approach adopted for the economic impact analysis. Furthermore, the calculated overall national employment multiplier presented in the Report is 3.6 (derived as total 1,666 FTEs divided by 463 direct FTEs, re. Table 4.2 in the Report ), which means that any variation in the original TTRL personnel forecast numbers, or wagerates may potentially have a significant impact on the forecasted economic benefits (i.e. any variation is directly multiplied by 3.6). 11. Regional economic multipliers Due to a lack of officially published (public domain) economic multipliers specific to the region (as indicated by a rapid research of likely data sources), the Input-Output analysis has relied on commissioned data as supplied to TTRL / MartinJenkins by Butcher and Partners. This provides a level of uncertainty as to the precise level of the suggested economic impacts as presented in the Report, but even with reduced regional multipliers, the economic effects are likely to remain positive. 12. Other costs The Report states that there is likely to be limited impact on tourism from the Project, and, in the event that there was an adverse impact to the commercial fishing industry, it would result in relatively low losses in activity (re. section ). The Report further states that the effects on tourism and commercial fishing are extremely difficult to quantity and place monetary values upon them. Without any visibility on the monetisation (valuation) of any potential economic dis-benefits from any negative impacts, the suggested economic benefits of the Project to New Zealand can only be viewed as gross estimates with the net economic impact of the Project to New Zealand likely to be less than the gross values suggested in the Report. Based on the information in the Report, the quantum of the difference between gross and net economic impact is still likely to result in a positive net economic impact for the New Zealand economy, but with a degree of risk present.. 9

10 4. Conclusions 13. Analysis Based on the information presented in the Report, the Project is likely to generate positive economics benefits for the New Zealand economy, as well as at the local and regional levels. The overall high-level analysis and the methodology used in the Report creates some issues in the verification and certainty of the level of the precise economic benefits. 14. Net economic benefits Based on the information in the Report, the likely level of any unquantified other costs (disbenefits) implies that the quantum of the difference between gross and net economic impact is still likely to result in a positive net economic impact for the New Zealand economy and local/regional economies, but with a low degree of risk present as to this not occurring provided the Project is able to operate at or above commercial break-even levels.. 10

11 5. References Tantuirigama, T & Taniguchi-Singh, M (2009) Economic Impacts on Transport & Tourism in New Zealand - An Input-Output Multiplier Approach. Australian Bureau of Statistics Information Paper Australian National Account Introduction to Input-Output Multipliers. 11