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The Standard

The opportunity cost

Written By: - Date published: 4:33 pm, August 14th, 2013 - 32 comments
Categories: assets, energy, jobs - Tags:

National spent $30m of our money to save (some of) the 800 jobs at Tiwai Point (for an extra year). People have reasonably pointed out that’s the a lot of money for not much – especially when government agencies are routinely destroying jobs by sending work overseas over contract prices that save far less. But what about the broader picture: did the Nats consider the opportunity cost?

Let’s say Rio Tinto didn’t get its paper bag full of our money. Let’s say it then decided to close Tiwai Point as soon as possible (about 2 years under the old contract). That would obviously mean large job losses in Bluff and Invercargill. It would also mean that the transmission lines would be installed so that all Manapouri’s power could flow into the national grid.

Once Tiwai closes, the cheapest power in the country would flood the market (Tiwai currently demands about 14% of our total electricity but at the lowest demand periods, it’s closer to a third). The expensive fossil fuel baseload plants like Huntly would close. Because the current market power price is set by the price of the most expensive unit and because most of our power is quite cheap apart from that fossil fuel shit, it would mean a dramatic reduction in wholesale electricity prices. By the time that flows into retail and commercial prices, you would expect it to be on the order of a 10-20% reduction.

Consider that the country currently spends nearly $6 billion a year on electricity (and Tiwai only $250m of that despite consuming 1/6th of the power). Knock 10% off the price of power, effectively what NZ Power aims to do, and you save power consumers about $600m a year. That’s $600m that businesses can spend on plant and employing people rather than on electricity, and that households can spend on other things or invest in businesses.

And, as a nice bonus, you’ve turned off the most greenhouse polluting power stations and the smelter, which is also a major greenhouse polluter.

So, what does that all add up to? How many jobs get created in the wider economy if Tiwai closes? How much does households’ health benefit from cheaper power? These are all beyond my ability to calculate but they’re the kind of considerations you damn well hope the Government took into account before it cut a cheque for $30m.

Unfortunately, I suspect they didn’t work up the opportunity cost to the country of not caving to Tiwai’s blackmail. Why? Because the country’s interests don’t enter into it. For National, this was all about putting a band-aid in place so the Meridian sale could go ahead – ‘stabilising the electricity market’ Bill English called it without mentioning he was stabilising electricity prices higher than they would otherwise be.

32 comments on “The opportunity cost”

  1. fender 1

    That’s it in a nutshell really. National have nothing but contempt for “mum and dad”.

    • fender 1.1

      It’s a wonder there aren’t rules around artificially influencing the share price just before floating them.

      • The problem is that rules would have to be set by a prior government and thus unless they were entrenched they wouldn’t have any real effect to bind future governments. The best way to bind a government on this would actually be to put it in a trade deal, ironically, but those can still be broken or amended. Even a broad agreement in the UN around these things doesn’t really bind governments from this sort of conflict of interest or corruption, to be honest.

  2. Tamati 2

    Common sense would have been to pay $37,500 (30m/800,000) out to each of the redundant employees. (Could exclude some of the higher paid senior management.)

    • Jenny 2.1

      That $30million of our money has been given to this $billion multinational company, with no sign it will ever be returned to this country. Money that rightly belongs to us. And the smelter will close anyway in 2017. Making 800 workers redundant.

      There is one way that money could come back to New Zealanders.

      An immediate union drive should be launched on the what I understand to be a mostly non-union site.

      The selling point will be that on getting a majority of the 800 workers into the union. That the union promises to start an industrial campaign for a redundancy package no less than the $30million gifted by us to their boss be used to go on top of whatever redundancy package, (if any) they may have already.

      Fair, sensible, achievable.

  3. Jared 3

    I somewhat think you are underestimating the complexity and length of time it would take to upgrade the Cook Strait DC link, they are in the process of upgrading it at the moment and it still only provides power for the Wellington region largely. It would require upgrading most of the North Islands grid (and a number of new inter island cables), but I guess that doesnt make for a good story right?

    [actually, power usually flows North to South these days and the inter-island flows are much smaller than they used to be because of the big factory closures in the Nth Island, new Nth Island generation, and increased demand from dairy and irrigation in the Sth Island. Closing Tiwai would turn that around to the traditional South to North flow, but the Meridian and Transpower bosses have said it’s nothing the system can’t handle – the only major new investment would be connecting Manapouri to Benmore. JH]

    • Molly 3.1

      It makes a good place to start. Especially given the lack of movement on climate change and resilience planning for NZ.

      Limited thinking and no investigation along these lines when making these one-off spending decisions is going to cost NZ more in the long-term. James is right.

    • Satty 3.2

      The new link HVDC pole 3 is already commissioned:
      New HVDC pole 3 commissioned

      I don’t think there are any major further enhancement planed, apart from new cable for pole 2 to add a couple of hundred MW to the existing 1,000 MW capacity.

  4. tricledrown 4

    Tamati what about the $476 million that meridian are handing over to Rio Tinto robbing NZ taxpayers of dividends and lowering the value of meridian !

  5. Plan B 5

    or we could cut the cable and all that power could stay in the south.
    in the south we need cheap electricity , insulated homes because it is simply much colder
    also cheap power will bring jobs
    so please do not improve the cook straight cable on our account

  6. tricledrown 6

    Transpower is already upgrading the national grid to cope with increased demand

  7. tracey 7

    Did I hear a report recently about moves to tax or charge for sunlight to get something from those going solar. Might not have been nz… might have dreamt it

    • Lan 7.1

      “Sunlight captured is Natural capital”! Consumers can value that, but this government does not believe in the idea of Natural Capital so don’t fret over taxes. But one can put a proper taxable economic value on discounted power donated to Tiwai from hydro-over the years. What tax has been paid? Just today similar economic sums include opportunity costs of coal in ground in Huntly (90+more layoffs) apparently now to be replaced with “cheaper” coal from Indonesia; or that to be obtained from the free-for-all big hole (just like in Australia) dug in the Denniston Plateau by a WEST AUSTRALIAN COMPANY – also claimed more “cost effective” and without tunnels and associated risks of explosions etc. Such smart “economics” skills in this resource allocation? Or not. Kiwi electrician killed in what sounds like poor isolated work conditions in a WEST AUSTRALIAN MINE today – went for the big pay too from a good job in Auckland. Hope work conditions are better in the Denniston mucking up our 100% pure Kiwi conservation land.

  8. Ad 8

    – Destroy Bluff and much of Invercargill
    – Snuff out what remains of Huntly
    – For the chance that jobs might be increased elsewhere on something else.
    And this in the month that the National government is sucking hundreds of jobs out of Dunedin (Hillside, NZPost, AgResearch, Health etc), killed the Solid Energy plant for lignite, and is in fact having trouble with the only industry in Southland that will get them into sustained economic recovery in any reasonable horizon: dairy.

    Surely only Aucklanders and Treasury wonks talk out loud like this?

    Why not actually discuss an economic recovery plan for Otago-Southland, not sounding off like some seriously cynical shit?

    • Molly 8.1

      Detroit had the same attitude about maintaining their car industry jobs at all costs. Failure to look ahead meant more pain for all involved in the end.

      Looking ahead, and talking about resiliency includes discussing how the impact can be minimised, and how jobs and communities can transition.

      • Ad 8.1.1

        Just spell that out then. As if Huntly or Bluff or Invercargill or Westport aren’t a whisker away from Detroit already. Unbelievable.
        Spell out where all these replacement jobs come from. Preach it loud to the unemployment lines that result.

        I don’t care what term you have for it.

        Seriously the people who would put Southland’s jobs and many more on a pyre of vanity that thinks electricity prices will ever ever go down rather than actually make happen a real plan – are the worst and most cowardly armchair doodlers.

        • Jenny 8.1.1.1

          As if Huntly or Bluff or Invercargill or Westport aren’t a whisker away from Detroit already.

          ad

          Indeed. The extractive industries have done little or nothing for these places. Huntly particularly. Despite hosting three large coal mines and a coal fired power station Huntly has been deemed a WINZ black spot riddled with unemployment poverty and crime and underdevelopment. Apart from wages. None of the coal industry’s money has gone to this community.

        • IrishBill 8.1.1.2

          Last year WWF commissioned BERL to look at shifting Southland to a low carbon economy: http://www.wwf.org.nz/?9301/New-economic-report

          It’s not comprehensive but it shows there’s already a good foundation for a good regional economy without the smelter. The key will be transitioning it properly rather than just waiting for the smelter to leave and then having to drag the economy out of a hole over a period of years.

          • Ad 8.1.1.2.1

            Helpful link thank you.

            It’s a report that recommends growing nuts, organic farm produce, and pine trees for a lower carbon future. Which is admirable as a narrow goal.

            Manages to avoid discussing the only industry likely to get the south out of trouble, and its the only major industry with real value added potential: dairy.

            • Draco T Bastard 8.1.1.2.1.1

              Dairy, as it’s presently configured, is unsustainable. You don’t get yourself out of a hole by digging deeper.

              • Ad

                Agreed if dairy remains in its predominantly commodity trade mode and rivers remain under-regulated or policed. It won’t.

                But sustainability is not the only measure of success. There are others such as:
                – Are there any retail shops left?
                – Will my kids stay or even return here?
                – How many years will it take me to get a house deposit together?
                – Is the regional tax base getting better, or worse?
                – How many salaries over $100,000 are there per capita in the region?

                Again, I don’t have to like it, but the dairy industry is the only industry with chance of getting affirmative answers to any of those, and is the only likely saviour of Southland.

                What does one do with a smelter and plant nearly 1km long? What would Jim Anderton do?

                • Colonial Viper

                  Welcome to capitalism. As a political economy it has few peers.

                  Where our natural world is turned into a resource and commodity to be transformed into cowshit

                  In exchange for little electronic increments to little electronic bank accounts.

  9. fambo 9

    “Opportunity cost” is a far too challenging economic concept for this government. Its basic economic model is 1980s style asset stripping.

  10. Slowly 10

    Has anyone thought of the exported manufacturing jobs that might return , if the excess Electricity was supplied to them at a competitive rate while recreating work for NZers.

  11. vto 11

    Essentially, it costs the country to have the aluminium smelter here.

  12. Bearded Git 12

    They didn’t give Rio Tinto a cheque for $30 million. Between them, the government and Meridian gave RT a cheque for at least $100 million when the renegotiated power price (back to the price of the previous contract) is taken into account.

    We will never know how much the reduced electricity price cost us because Meridian refuse to reveal this. I don’t think state owned companies should be allowed to hide behind “commercial sensitivity” in cases like this where they are effectively doling out vast amounts of the New Zealand public’s cash to multinationals.

    • Bearded Git 12.1

      This link from the Dom Post today helps to explain my post above and explains National’s agenda, as if the entire nation hadn’t already worked this out!

      http://www.stuff.co.nz/dominion-post/business/9039551/Government-agenda-drove-Tiwai-payout

    • Draco T Bastard 12.2

      I don’t think state owned companies should be allowed to hide behind “commercial sensitivity” in cases like this where they are effectively doling out vast amounts of the New Zealand public’s cash to multinationals.

      Commercial Sensitivity should not exist when the contract is effectively between the people of NZ and a business because the people of NZ need to know the details to make an informed decision.

  13. Tracey 13

    Thanks for the link bearded one.

  14. tricledrown 14

    Ad hoc policies why can’t every region get the same treatment.
    Another broken promise Shonkey promised Hey wouldn’t
    be picking winners Hey would leave it to the markets.
    Well he’s keept his promise he’s only been backing loosers.
    SCF Tiwae Sky city

    • Ad 14.1

      If different regions did not have different needs there would be no need for regional economic development at all.

      Did you know that only Auckland, Bay of Plenty, Canterbury and Waikato are the main local authority areas with population growth? The rest are static or shrinking and will be foreseeably?

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    National’s token measures to fight fires they have left burning for seven long years can’t hide a Budget that is long on broken promises, short on vision and fails to reach surplus, says Labour’s Finance spokesperson Grant Robertson. “After being… ...
    2 days ago
  • Auckland land measure seven years too late
    National are so desperate to look like they are doing something about the Auckland housing crisis they have dusted off Labour’s 2008 inventory of government land available for housing and re-announced it, says Labour’s housing spokesperson Phil Twyford. “Despite National… ...
    2 days ago
  • Access to gender reassignment surgery essential
    I was frankly disgusted to hear the Minister for Health say that funding gender reassignment surgeries is a “nutty idea”. A recent study found that in New Zealand 1% of young people identified themselves as transgender, and 3% were unsure… ...
    GreensBy Jan Logie MP
    3 days ago
  • Global milk prices now lowest in 6 years
    The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices… ...
    3 days ago
  • Big risks as CYF checks stopped
    Revelations that Child, Youth and Family is no longer assisting home-based early childhood educators by vetting potential employees should set alarm bells ringing, Labour Children’s spokesperson Jacinda Ardern says. “Doing away with an extra mechanism for checking potential new employees… ...
    3 days ago
  • Housing crisis about real people not numbers
    The Government’s continued failure to tackle the housing crisis is seeing thousands of vulnerable Kiwis being kept off social housing waiting lists, while others, who are on the list, are being forced to live in cars and garages, says Labour’s… ...
    3 days ago
  • Housing crisis about real people not numbers
    The Government’s continued failure to tackle the housing crisis is seeing thousands of vulnerable Kiwis being kept off social housing waiting lists, while others, who are on the list, are being forced to live in cars and garages, says Labour’s… ...
    3 days ago
  • State of origin
    Kiwis are increasingly concerned about the food they give their families. New Zealand consumers have the right to know where their food has come from, particularly when it involves animals, and should be able to expect our Government to label… ...
    GreensBy Steffan Browning MP
    3 days ago
  • Relationships Aotearoa
    It is disturbing that Relationships Aotearoa, a voluntary organisation set up in 1949 to help couples struggling with their relationships following the upheavals of World War II, may be forced to close, says Acting Spokesperson for the Voluntary and Community… ...
    4 days ago
  • An economy that is just working for some is an economy that is not working
    The National Party presents itself as a great manager of the economy, but if the economy is only working for some we really need to question that assertion. Alongside the perpetually elusive surplus, the levels of risk in our economy are… ...
    GreensBy Jan Logie MP
    4 days ago
  • An economy that is just working for some is an economy that is not working
    The National Party presents itself as a great manager of the economy, but if the economy is only working for some we really need to question that assertion. Alongside the perpetually elusive surplus, the levels of risk in our economy are… ...
    GreensBy Jan Logie MP
    4 days ago
  • House prices to a crack $1 million in 17 months
    The average Auckland home is on track to cost $1 million in 17 months’ time if nothing substantial is done to rein in soaring price rises, Labour’s Housing spokesperson Phil Twyford says. “Auckland’s house prices have skyrocketed 63 per cent… ...
    4 days ago
  • Vital support services can’t be left in lurch
    The National Government has big questions to answer about how a provider of services to thousands of vulnerable New Zealanders is set to fold, Labour’s Finance spokesperson Grant Robertson says. Relationships Aotearoa which provides support and counselling to families, individuals… ...
    4 days ago
  • Treasury and IRD on a capital gains tax
    Both the Treasury and IRD have been advising the National Government on the benefits of a capital gains tax. Documents released to the Green Party under an Official Information Act request show that John Key has been selective with the… ...
    GreensBy Russel Norman MP
    5 days ago
  • Charity legislation needs review
    It is unacceptable that the big corporate based charities claim  millions in annual income tax exemptions, while small community based and operated non-profit organisations  struggle to gain official charity status, Labour’s acting spokesperson for the Voluntary and Community Sector Louisa… ...
    5 days ago
  • John’s panic-Key response to housing crisis
    John Key needs to tell New Zealanders what caused his sudden change of heart that led to the Government’s scrambled and last-minute housing measures, Opposition Leader Andrew Little says. “The Prime Minister’s sudden rush of blood to his head followed… ...
    5 days ago
  • Keep our Assets Christchurch Campaign: An update
    I recently presented my submission to keep Christchurch Council assets at the Christchurch City Council’s public hearings on its 10 year plan on 13 May. The hearings are live-streamed and recorded so you can watch them on www.ccc.govt.nz. The Council’s… ...
    GreensBy Eugenie Sage MP
    5 days ago
  • John Key finally admits there’s a housing crisis
    John Key’s weak measures to rein in the astronomical profits property speculators are making are an admission – finally – that there is a housing crisis, Labour Leader Andrew Little says. “But yet again National is tinkering with the housing… ...
    6 days ago
  • Government stifles voices in CYFs review
    The Government’s exclusion of the Māori Women’s Welfare League in a panel on the future of CYFs is a cynical ploy to stifle views, says Labour’s Māori Development Spokesperson Nanaia Mahuta. “It's unbelievable that a significant review on the future… ...
    1 week ago
  • Speech to the Otago Chamber of Commerce
    Thank you very much for the opportunity to be here today. It’s a pleasure as always to be back in the town that raised me. Growing up in St Kilda meant that there was one thing that was a big… ...
    1 week ago
  • Key can’t just be Prime Minister for Parnell
    John Key must show New Zealanders in next week’s Budget that he is more than the Prime Minister for Parnell, and is also the Prime Minister for Pine Hill, Putararu and Palmerston North, Labour’s Finance spokesperson Grant Robertson says. In… ...
    1 week ago
  • Stop the conversions
    This week, some Waikato locals took me and intrepid photographer Amanda Rogers on a tour of some  lakes and waterways in their region, and up to the massive dairy conversions in the upper catchment of the Waikato River. It… ...
    GreensBy Catherine Delahunty MP
    1 week ago
  • More regional jobs go in Corrections reshape
    News that 194 Corrections staff are to lose their jobs will have ramifications not only for them and their families but for the wider community, Labour’s Corrections spokesperson Kelvin Davis says. Prison units at Waikeria, Tongariro and Rimutaka face closure… ...
    1 week ago
  • Government’s climate meetings off to a bumpy start
    On Wednesday, I attended a hui and an evening meeting that the Government had organised in Nelson as part of its climate change consultation tour, to support the Nelson community telling the Government to take meaningful action on climate change.… ...
    GreensBy Steffan Browning MP
    1 week ago
  • Taxpayers the only ones left feeling blue
    Ministry of Social Development bosses could have saved themselves thousands of dollars in consultants’ fees by providing staff with rose-tinted spectacles, Labour’s State Services spokesperson Kris Faafoi says. A report out today reveals the Ministry is spending over half a… ...
    1 week ago
  • Why are the regions still facing restrictions?
    Labour's Housing spokesperson Phil Twyford is questioning why the regions should continue to be saddled with LVR lending restrictions announced by the Reserve Bank today. “Labour has been calling for the regions to be exempted from LVRs for the best… ...
    1 week ago
  • The high costs of weak environmental regulation
    Te Waihora/Lake Ellesmere is described on the Department of Conservation website as “Canterbury’s largest and New Zealand’s fifth largest [lake], and an internationally important wildlife area.” But the lake is also polluted by nutrients leaching from farms in the catchment.… ...
    GreensBy Eugenie Sage MP
    1 week ago
  • Submissions to Wellington City Council on their Gambling Venues Policy
    Every three years Councils across the country are required to check that their gambling venue policies are still fit for purpose and they can choose to consult on their policy if they are thinking of making changes. Councils don’t have… ...
    GreensBy Denise Roche MP
    1 week ago
  • Reserve Bank action shows Govt out of touch and out of ideas
    The Reserve Bank’s unprecedented measures today show it understands the serious risks of the overheating housing market – in complete contrast to John Key’s refusal to acknowledge the crisis, Labour’s Finance spokesperson Grant Robertson says. “The Bank is right to… ...
    1 week ago
  • Send us your snaps: 25 Years of the Green Party
    This year we've hit a milestone. We're turning 25.To help celebrate a quarter of a century, please send us your photos from the last 25 years of the Green Party Aotearoa New Zealand! Note: Photos must be jpg, gif or… ...
    1 week ago
  • 25 Years of the Green Party
    This year the Green Party sends 25. To help us celebrate a quarter of a century please send us you photos of 25 years of the Green Party!Photos must be jpg,gif or png and smaller than 2MB. If you are… ...
    1 week ago
  • Bay growth plan too little too late
    Today’s Bay of Plenty growth study from MBIE is another example of Government spin - lots of talk but little action, says Labour’s Regional Development spokesperson David Cunliffe.  “This is a region that desperately needs to develop the downstream processing… ...
    2 weeks ago
  • Government bows to ACC pressure
     The Government has finally buckled to pressure from Labour and the New Zealand public in making a half billion dollar cut to ACC levies, but the full benefits are two years away,” says Opposition Leader Andrew Little.  “$500 million over… ...
    2 weeks ago
  • False figures cloud Auckland transport facts
    The Prime Minister should apologise and issue a correction after both he and Transport Minister Simon Bridges have been caught out misrepresenting facts on Auckland’s transport spending, Labour’s Housing spokesperson Phil Twyford says. "Both John Key and Simon Bridges have… ...
    2 weeks ago
  • Govt books confirm National can’t post surplus
    The last publication of the Government’s books before the budget shows National will break its promise of seven years and two election campaigns and fail to get the books in order, says Labour’s Finance Spokesperson Grant Robertson. “The Government is… ...
    2 weeks ago
  • US state joins NZ with GE food labelling
    New Zealand has a similar law making the labelling of many GE foods compulsory, but the Government seems to let it slide.  Because the government has not monitored or enforced our GE food labelling laws since 2003, it seems the… ...
    GreensBy Steffan Browning MP
    2 weeks ago
  • Labour Pays Tribute to Erima Henare
    “E ua e te ua tata rahi ana, Ko te hua i te kamo taheke i runga raa. No reira e te rangatira Erima takoto mai I roto I te ringa o Ihowa o nga Mano e moe e.” ...
    2 weeks ago
  • Labour Pays Tribute to Erima Henare
    “E ua e te ua tata rahi ana, Ko te hua i te kamo taheke i runga raa. No reira e te rangatira Erima takoto mai I roto I te ringa o Ihowa o nga Mano e moe e.” ...
    2 weeks ago
  • Labour Pays Tribute to Erima Henare
    “E ua e te ua tata rahi ana, Ko te hua i te kamo taheke i runga raa. No reira e te rangatira Erima takoto mai I roto I te ringa o Ihowa o nga Mano e moe e.” ...
    2 weeks ago

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