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TRANSCRIPT
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Before the Environmental Protection Authority
Application for Marine Consent by Trans-Tasman Resources Ltd Ironsands
IN THE MATTER OF
the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act
2012
AND
IN THE MATTER OF
An application by Trans-Tasman Resources Ltd for a marine consent application
made to excavate iron sand from the seabed of the exclusive economic zone in the
South Taranaki Bight, process that sand to remove iron particles and return the
remaining sand to the seabed.
Evidence of Sebastian Walter and Grigorij Ljubownikow
on behalf of Kiwis Against Seabed Mining Incorporated
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STATEMENT OF EVIDENCE OF Sebastian Walter and Grigorij Ljubownikow
Sebastian Walter
My name is Sebastian Walter, I’m currently a self-employed business consultant working with major
New Zealand-based businesses such as Orcon and the Warehouse. Please find a brief summary of
my qualifications, relevant experience, research interests and selected publications and awards
below.
Qualifications:
2009 – 2011 Master of International Business (First Class
Honours), University of Auckland Business School (Auckland, New Zealand)
2004 – 2008 B.Sc. in International Finance, Nuertingen University
(Nuertingen, Germany
Relevant Experience:
2011 – 2012 Portfolio Strategy Analyst, Telecom New Zealand Ltd
(Auckland, New Zealand)
2010 Freelance Contributor to Strategic Management Textbook,
John Wiley and Sons (Melbourne, Australia)
● Grant et al. (2011), “Contemporary Strategic Management”
2009 - 2010 Research Assistant, University of Auckland (Auckland, New Zealand)
● Profitability, Ownership Structure, and Competitive Advantage
2008 - 2009 Financial Controller, Adidas Group (Herzogenaurach, Germany &
Amsterdam, Netherlands)
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2007 Relationship Management, Deutsche Bank AG - Corporate and Investment
Bank (Frankfurt, Germany)
Selected Publications:
Walter, S. (2006) Working Capital Management, GRIN Publishing, Berlin, Germany, 18 May 2006
Walter, S. (2009) The Sino-Iranian Relations and Geopolitical Implications, GRIN Publishing, Berlin,
Germany, 09 October 2009
Walter, S. (2009) The Doha Round, GRIN Publishing, Berlin, Germany, 23 September 2009
Declaration
I confirm that I have read the 'Code of Conduct for Expert Witnesses' as contained in Schedule 4 of
the Judicature Act 1908 and the Environment Court Consolidated Practice Note 2011. I agree to
comply with these Codes of Conduct. Except where I state otherwise, this evidence is within my
sphere of expertise and I have not omitted to consider material facts known to me that might alter
or detract from the opinions I express.
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Grigorij Ljubownikow
My name is Grigorij Ljubownikow I am currently studying toward obtaining a Ph.D in International
Business at the University of Auckland Business School. Please find a brief summary of my
qualifications, relevant experience, research interests, research techniques, selected
presentations/publications, selected scholarly activity and publications below.
Qualifications:
2009 – 2010 Master of Commerce in International Business (First
Class Honours) University of Auckland Business School (Auckland, New
Zealand)
2008 – 2009 Postgraduate Diploma of Commerce in International
Business (Distinction) University of Auckland Business School (Auckland, New
Zealand)
2003 – 2007 Bachelor of Business Administration, Major in
International Management
University of Flensburg (Flensburg, Germany)
Relevant experience:
2011 – 2013 Graduate Teaching Assistant University of Auckland Business
School (Auckland, New Zealand)
● Business and Enterprise Fundamentals 1 and 2
● Foundations of International Business
2011 – 2013 Research Assistant University of Auckland Business
School (Auckland, New Zealand)
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● New Zealand competitiveness
● Emerging market firm acquisitions and alliance behaviour
2010 Teaching Assistant Macquarie University (Sydney, Australia)
● Marketing Fundamental
● Principles of Management
2008 – 2010 Tutor University of Auckland Business School
(Auckland, New Zealand)
● Foundations of Management
2008 – 2010 Research Assistant University of Auckland Business
School (Auckland, New Zealand)
● FDI flows to China
2007 Market analyst Surfeando Boardriding Magazine
(Santiago de Chile, Chile)
Research interests
My research centres on competition between organisations and the impact of organisational as well
as environmental factors in shaping competition between organisations. It is located at the
intersection of Strategic Management, Organisation Theory and International Business and relies on
a range of theoretical perspectives, including: Competitive intensity, competitive dynamics,
awareness, motivation, capabilities perspective, factor market competition, multimarket
contact/competition, diversification, organisational ecology, behavioural theories of the firm,
behavioural economics, austrian/evolutionary economics, and institutional theory.
Research techniques
I mostly adopt quantitative research methodologies to analyse dataset compiled from various
secondary data sources. For data storage, manipulation and analysis, I work extensively with MS
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Excel (Formulas, Pivot tables, Macros), MS Access (SQL programming), MySQL (SQL programming),
STATA, R (package development), and SPSS.
Selected presentations/publications
Ljubownikow, G. (2012) The competitive imperatives governing mutual forbearance: some
theoretical considerations. University of Auckland Business School PhD Student Conference.
Auckland, New Zealand, 24th October 2012
Ljubownikow, G. (2012) Competitive intensity and diversification. 16th Waikato Management School
Student Research Conference, Hamilton, New Zealand, 23th October 2012
Ang, S.H., Smith, L., & Ljubownikow, G. (2012) The Eco-System of Competitiveness: A case for
Auckland, Auckland Policy Office, Auckland, New Zealand, 10th of May 2012
Ang, S.H., Hutchinson, K., Smith, L., Shao, B., Seaman, J., Ljubownikow, G. & Benischke, M. (2011)
The Eco-System of Competitiveness: A holistic view of competitiveness, 14th TCI Annual Global
Conference, Auckland, New Zealand, 1st of December 2011
Ljubownikow, G. (2011) Diversification: Theory and Practice, Strategic Management Theory Module
(INTBUS 703), Auckland, New Zealand, 8th of April 2011.
Selected scholarly activity and awards
2012/13/14 Academy of Management Annual Meeting Reviewer
2012 Academy of Management Business Policy and Strategy Division Outstanding Reviewers Award
2012 Waikato Management School Student Research Conference Best Presentation Award
2011 – Present University of Auckland Doctoral Scholarship
2010 Graduation Top of the Class
2010 Thesis and Research Publication Scholarship
2008 Summer Research Scholarship
Declaration
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I confirm that I have read the 'Code of Conduct for Expert Witnesses' as contained in Schedule 4 of
the Judicature Act 1908 and the Environment Court Consolidated Practice Note 2011. I agree to
comply with these Codes of Conduct. Except where I state otherwise, this evidence is within my
sphere of expertise and I have not omitted to consider material facts known to me that might alter
or detract from the opinions I express.
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Executive Summary - key points in this evidence:
1. The first main point we would like to raise is that the economic impact assessment does not
consider potential negative effects on affected industries such as tourism and fisheries. We
argue to assess the true economic impact of the project potential negative effects as well as
a broader range when analysing input assumptions such as iron ore prices need to be
included into the specifications of the model. Since this has not been done the real effect on
GDP might be overestimated.
2. A second important point is that the model as presented in the application does not provide
scenario or sensitivity analysis of the critical input parameters. Such analysis is required to
understand the impact and associated risk of changing input parameters. This is particularly
relevant as the key input assumptions that drive the economic benefit of the proposed
activities for New Zealand, underlie a high degree of uncertainty.
3. A third main point is that the model as presented in the analysis needs to undergo a rigorous
peer-review process. This includes reviewing all input assumptions and projections on their
viability and validity as well as reviewing modelling parameters and files used for
calculations of the output of the model (including command files for computerized
calculations).
4. A fourth point is that different dynamic models should be presented for sensitivity analysis
of the results presented in the static model. In addition, different input parameters should
be used and sensitivity test to these input parameters should be presented. This should be
complemented by robust scenario analysis that reflect the uncertainty of the various input
parameters in the model
5. A fifth point is that New Zealander need to decide if this project is in its best interest and the
best use of its rare and valuable resources.
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6. After having assessed the economic modelling presented in support of the marine consent
application and after considering the expert witness statement made by Dr Kaye-Blake and
Dennis Karp on behalf of Trans-Tasman Resources Ltd on 15/14 February 2014 as well as the
independent reviews commissioned by the EPA, we are still not convinced that sufficient
evidence has been provided to justify that the economic impact claimed in the application
will accrue to New Zealand. Below are some of the main points we would like to raise about
the economic impact assessment.
Modelling assumptions
7. Freight pricing: The main argument for justifying that the assumption underlying freight
costs are correct presented by Mr Karp rely on the assertion that forward freight prices will
decrease over the next five years. This assertion, even if convincingly presented, is of little
benefit if we consider that there is a 20 year timespan for the project.
8. The questions that needs to be assessed are: How will a decrease or an increase over this
time period affect the costs/feasibility of the project? At which price point will the project no
longer be feasible? What is the likelihood of this price point occurring in the 20 timespan for
a prolonged period?
9. Mr Karp further suggests that oil prices will have a considerable impact of the future freight
prices and that the forward markets for oil are lower than spot prices in the years ahead.
Here again the same question remains. What will happen in 10, 15, 20 years?
10. Given that oil prices seem to have such a large effect on future freight prices, a more
thorough and independent analysis of the price projections is necessary.
11. Why would oil prices decrease in the long run? According to the U.S. Energy Information
Administration oil prices could be anywhere between 73.10 and 185.09 USD per barrel (2012
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dollars).1 Similarly, the International Energy Agency suggest an oil price that rises steadily to
$128 per barrel (in year-2012 dollars) in 2035.2
12. Mr Karp states: “The combination of the above will allow TTR to fix long term C5 freight
price equivalent to around $7/wet metric tonne which is consistent with current C5 freight
prices.”
13. Given the arguments he presents about the dependence of freight prices on the price of oil,
and a general tendency of an increasing oil price over the next 20 years it appears odd that
no increases in freight prices are expected. This needs to be justified further.
14. Hence, we argue that in order to assess if the assumption of freight prices is tenable a more
detailed longer term (10-15 years) assessment of the relevant costs are still missing.
15. Iron Ore pricing: While the iron ore price TTR uses for its assumptions is reasonable (as
outlined in Mr Karp’s evidence), it should not be forgotten that "The future iron ore price is
open to vigorous debate" (quote Mr Karp p.4).
16. This means that even if it is reasonable to use these prices for calculations, there is still
considerable uncertainty and thus considerable risk from a New Zealand perspective when
assessing calculations based on these price assumptions.
17. Furthermore, it does not mean that one could not reasonably expect that TTR uses different
price ranges rather than price points in their modelling as the independent review by Covec
suggests.
18. Mr Karp also addresses some issues in that have been highlighted by other submitters, yet
his response does not resolve the issues raised. Simply pointing out that there is significant
uncertainty in all commodity and financial markets does not change the validity of the point
made by these submitters. Namely, that this uncertainty casts doubt on whether TTR can in
1 http://www.eia.gov/forecasts/aeo/er/early_prices.cfm 2 International Energy Agency (2014). World energy outlook 2013 factsheet. How will global energy markets
evolve to 2035? http://www.iea.org/media/files/WEO2013_factsheets.pdf
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fact deliver on economic benefits it promises to New Zealand given the potential volatility of
commodity prices. Pointing out that for the next 3-4 years the price assumptions seem to
hold (as indicated by the forward price being below the spot price), reduces this uncertainty
somewhat for that time period but not for the 20 years over which this project is planned.
19. Existence value calculation: The existence value calculation is still not sufficient to convince
that the true value of existence value has been assessed in the economic modelling that
underlies the application.
20. First, the site of the proposed project does not just provide cultural ecosystem services such
as tourism and recreation, sense of place, and aesthetic values (which are commonly
referred to as non-use value) but also real commercial use-value for fisheries.
21. Even though TTR submits that the impact on fisheries will be minimal others such as the
Southern Inshore Fisheries Management Co Ltd (the representative organisation for a
number of quota owners in the project area) and the Wellington Recreational Marine
Fishers’ Association Inc. disagree and suggest that there will be a considerable impact.
22. In addition, a report commissioned by TTR and carried out by Fathom Consulting pointed out
that the proposed mining activities are likely to impede commercial fishing activities in
several ways (see affected industries section of this submission for further details). These
impacts have in no way been considered in the calculation of existence values.
23. Furthermore, the independent review of the impact on commercial fisheries by Aecom
comes to the conclusion that the assessment of the potential impact of the proposed project
lack analytical rigour. For example the Aecom report states: “the information gleaned from
fishers does not appear to be formally used in the analysis of the value of the habitat
impacted to any degree.” (p.3). This further reduces the credibility of the claims that there
will be absolutely no impacts given that such impacts have not been considered in the
analysis.
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24. It seems reasonable to expect that, given that the possibility of negative impacts exists, that
such impacts would be assessed using such tools as scenario analysis when modelling the
economic impact of the project.
25. Additionally, the approximations used to arrive at the estimates for existence value use in
the calculations seem inadequate. As Dr Kyle-Blake suggests himself, value ascribed to a
specific environment can vary greatly. For example the existence value of a 20% reduction in
Waimea Plains groundwater extraction has been valued at $203 per household per year to
Waimea Plain households while the loss of one native fish species has been estimated at $11
for North Shore households. National level studies indicate that the value of preventing
Kawarau River hydro-electricity development would be $197 per person per year for all New
Zealand households this implies a net present value of $1967 million.3 In spite of this, he
presents some calculations based on an existence value of $53 per regional household.
While this figure has been used previously, this figure was calculated for freshwater in
Southland. It remains unclear how transferable these figures are to the present project.
26. The second figure ($200 dollars for the environment per person per year) is taken from a
report by Clough (2010)4. This particular report calculates this figure by, among other
variables, analysing spending by the central and local government on environment related
issues such as biodiversity. Basing such a subjective valuation on government agency
spending has the drawback that government spending might be driven by political directives
rather than by the value being placed onto a particular environment. For example
government spending on biodiversity might be very different under a Green government
than under a National government because political parties might follow differing political
agendas. Hence using government expenditures might not be a true representation of the
3 Sharp, B. & Kerr, G. (2005). Option and Existence Values for the Waitaki Catchment. Report to the Ministry
for the Environment, Wellington, January. http://www.mfe.govt.nz/publications/water/waitaki-option-existence-values-jan05/waitaki-option-existence-values-jan05.pdf 4 Clough, P. (2010). Realistic valuation of our clean green assets. Insight 19/2010. Wellington: NZIER.
http://nzier.org.nz/publications/realistic-valuations-of-our-clean-green-assets.
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value residents of an affected area might place on an environmental asset.
27. Therefore, we argue that in order to get a true representation of the existence value of the
project area an independent study conducted by a subject expert on existence value pricing
needs to be conducted. This study needs to be independently reviewed and verified and the
outcomes need to be taken into account in any economic modelling trying to assess the
economic impact of the proposed project.
28. Ecosystem services: Even though Dr Kaye-Blake assumes that only cultural ecosystem
services exist in the project area, he concedes that he is not qualified to make such
assumptions and that the opinion of an ecologist is necessary in order to assess which
ecological services are provided in the area of interest. It therefore remains unclear why he
discounts the existence of such services.
29. Given that in economics it has been established that ecosystem services need to be factored
in to policy decisions since human survival and well-being depends on these services 5 it
does not seem acceptable that they are not assessed in the economic impact study if the
true long term economic costs of the project are to be assessed.
30. Besides, the ecosystem services of marine ecosystems worldwide and in New Zealand has
been well established in literature6.
31. As Dr Kaye-Blake points out that such assessments are complex and only provide
approximations, nevertheless, NIWA cites a study which estimates that the New Zealand’s
marine ecosystems annually renders $184 billion in services7. This is of course only a very
rough approximation and most likely an underestimation given that recent academic work
5 Costanza, R., d’Arge, R., de Groot, R., Farber, S., Grasso, M., Hannon, B., Limburg, K.; Naeem, S., O’Neill, R.V.,
Paruelo, J. (1999). The value of the world’s ecosystem services and natural capital. Ecological Economics 25: 3–15 6 McAlpine, K. G., Wotton, D. M. (2009) Conservation and the delivery of ecosystem services: A literature
review. Science for Conservation 295, New Zealand Department of Conservation) 7 http://www.niwa.co.nz/publications/wa/water-atmosphere-7-june-2013/a-deeper-understanding
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points out how little we know about the actual ecological services marine ecosystems
provide.8
32. Hence, we argue that in order to assess the true economic impact of the proposed project
an independent study conducted by a team of subject experts on ecosystem services
valuations working together with a team of expert ecologists needs to be conducted. This
study needs to be independently reviewed and verified and the outcomes need to be taken
into account in any economic modelling trying to assess the economic impact of the
proposed project.
33. Tourism and recreation: The assessment of the impact on tourism and recreation in the
marine consent application is assessed by the Greenaway and Associates report, by the
Corydon Consultants Ltd report and by the Boffa Miskell Ltd report (October, 2013). In
addition the expert witness statement of Dr Kaye-Blake provides some indication as to the
potentially negative effects of the project.
34. However, in line with the ME.Environment review of the assessment of effects on recreation
and tourism from the Trans-Tasman resource marine consent application by Dr Murray and
Dr Fairgray, we argue that this evidence is not sufficient to assess the true impact on tourism
and recreation activities. The review raises the following concerns:
35. “Clear evidence would be required to substantiate the conclusion that the TTR proposal
would have no effect on the brand or on “internationally and nationally important tourism
settings”.” (p. 19)
36. “The risk of accidents with ships and subsequent marine pollution was on considered.”
(p.19)
37. No monitoring mechanisms exist to monitor any potential effects of the project.
38. The Greenaway Report suggests that at the level of recreational activity is relatively low in
8 http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0022588
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the affected area, however, “no supporting baseline data [is] offered to substantiate this
claim.”(p. 21)
39. An assessment of “economic benefit should include any economic loss, or economic
displacement between economic sectors, brought about by the proposed activity”. (p.21)
40. “No existing controls or environmental management measures of relevance to recreational
users were identified”. (p 22)
41. No residual effects were identified or assessed even though unplanned events, for
example, might have residual effects.
42. Complementing these points, we would like to highlight that the expert witness statements
by Dr Kaye-Blake about the potential impacts on recreational marine fishing are extremely
vague. It is very unclear how much “a minor fraction of the Taranaki portion of the
nationwide value of hundreds of millions of dollars” is. Is a minor fraction 1%, 5% or 10% of
the total? What is it the total $500 million or $900 million? If it was 1% of $500 million then
the impact would be $5 million but if it was 10% of $900 million the impact would be $90
million. In order to build a credible economic model there needs to be clarity.
43. Hence, we argue that in order to assess the true economic impact of the proposed project
an independent study conducted by a team of subject experts on tourism and recreational
activities needs to be conducted. This study needs to be independently reviewed and
verified and the outcomes of this report need to be taken into account in any economic
modelling trying to assess the economic impact of the proposed project.
Modelling
44. Static model: The model presented is static in nature. On the other hand, the economy and
TTR are not static but dynamic. For example fluctuations in profits or revenues of TTR are to
be expected. This would also mean variations in the annual economic benefits the project
provides. Dr Kaye-Blake suggest that most of the economic benefits occur due to the
expenses on the project, however if revenues or profits plummet the amount of investments
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is likely to follow suite.
45. For example the Statistics New Zealand Business Operations Survey (2011) shows that of the
96 mining companies in 2011 (down from 99 in 2010, this means 3 went out of business)
about 27% reported a decrease in profitability (38% in 2010, number of decreases in sales is
similar)9.
46. Since such fluctuations in revenues and profitability can be substantial and will impact on
the investment decisions TTR, it does not seem adequate to ignore the possibility of such
fluctuations especially because the bulk of the economic benefits seems to derive from
continuous investments in the project.
47. Even if Dr. Kyle-Blake suggests that most of the economic benefits are due to the investment
that the project brings (the expenses of the project), what would be impact on GDP be if TTR
would not break-even or go out of business after 5, 10, 15 years of operations? Such a
possibility cannot be excluded and scenarios for such a possibility need to be presented and
weight against the potential economic loss the project might incur up to that point.
48. Similarly, the model assumes a steady tax rate of 28 dollars over the next 20 years.
Corporate tax rates have been steadily decreasing down from 33% in 2006. Further
decreases (which cannot be excluded as NZ has a comparatively high corporate tax rate in
comparison with other OECD countries) 10 would reduce tax revenues. How much would a
reduction of the tax rate by 1%, 2% or 5% progressively over the next 20 years affect the
economic impact calculations?
49. These are all questions that cannot be accounted for or even considered with the static
modelling approach used in the economic assessment modelling.
50. Dr Kyle-Blake suggests that dynamic CGE, Dynamic Stochastic General Equilibrium modelling
9http://www.stats.govt.nz/browse_for_stats/businesses/business_growth_and_innovation/business-op-
survey-2011-tables.aspx 10 Report of the Victoria University of Wellington Tax Working Group (2010). A Tax System for New Zealand’s
Future, Centre for Accounting, Governance and Taxation Research, Victoria University of Wellington, Wellington, New Zealand
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or agent based simulation modelling could be used to account for a dynamic system. Why
have such methods not been used? Even if these models rely on a different set of
assumptions and simplifications, it would be beneficial to compare the outcomes of
alternative modelling approaches in order to verify that the outcomes are not driven by the
modelling methodology used.
51. Government expenditures: The model assumes that government revenues equal
government expenditures. However, it is not unreasonable to think that the Government
will NOT channel all revenues directly into expenditures especially if it tries to reduce net
public debt which is projected to rise to around 28% by 2015 after which it is projected to
fall back to 10% by 2025 (this means the government will have to spend less or have higher
revenues after 2015).11
52. Given that the model estimates $68 million in additional government expenditure due to the
project, how would the economic impact calculation change if none of this additional
government expenditure is to eventuate as a result of the project? In case the government
chooses to use the proceeds of the project to service its debts rather than to re-injecting
them into the economy.
53. Modelling parameters: There are still a number of questions that remain about the model
used in the analysis. While it might be true that the underlying model might be robust and
while Dr Kaye-Blake presents a number of arguments to support the robustness of the
model. The only way to truly assess the robustness of the model is to scrutinize the
computer files used (as indicated by Covec).
54. In academic peer reviewing it is becoming an increasingly common practice to include the
11 http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup/finalreport/21.htm)
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computer files used in, for example, the statistical analysis section of a paper or to include
them as an addendum with the submission.
55. Even though Dr Kaye-Blake suggest that the validity of the model is warranted by being
published in the New Zealand Economic Papers journal, this journal is not listed on the
Thomson Reuters Journal Citation Report (2012). Since journal citations impact factors are
often used as an approximation for the credibility and quality of a journal and its
publications it remains difficult to assess the quality and validity of the model.
56. In addition, it is still not clear how the selection of modelling strategy and parameters drives
the results. In the modelling approach 106 industries and 205 commodities were used and
an additional industry was added to model the project. Why was this approach chosen?
Have alternative approaches been used for sensitivity testing?
57. For example, how did the results of the model change when instead of adding an additional
industry the input parameters were added to the existing mining industry and the iron ore
commodity in the model? Why was this approach not taken?
58. Have the negative impacts on the tourism industry (as outlined in the expert witness
statement) been included in the modelling? What about other potential negative effects?
59. The model relies on the input-output tables provided by Statistics New Zealand. These tables
make certain assumptions about how different industries are related to each other and how
certain industries are constructed in terms of primary input coefficient, for example.
Because an additional industry was added the question is how this industry was linked into
the system. What were the cumulated primary input coefficients of this industry? What
were the cumulated primary input coefficients of categories of final demand? The coefficient
for compensation of employees? Operating surplus? Consumption of fixed capital? Taxes on
products? Subsidies (note TTR has just received a 25 million research grant, was this
considered a subsidy in the calculations?)?
60. Peer-review: Dr Kaye-Blake suggest that there has been a peer-review process for the
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model. However, what he describes as a peer-review would rather considered a discussion
in academia. A peer-review should be anonymous. This is a very important part of the
review process that ensures the quality of the review. Some academic journals even
explicitly request that reviewers to return and not review manuscripts it they think that they
might know who the author is. Given that Dr Kaye-Blake knows the name of the reviewer Dr
Ganesh Nana, this hardly qualifies as a peer-review.
Additional notes on the economic impacts assessment
61. Affected industries are not considered in the modelling e.g. Fisheries: The following is a
short example of an industry that might be affected by the proposed project but which is not
even considered in the assessment of the economic impacts of the project. Please note that
his is not the only industry that might be affected and that a thorough independent study
will be necessary to assess the full impact as outlined above.
62. New Zealand’s commercial fisheries industry produces the sixths largest export commodity
accounting for $1.57bn of exports in 2012. 25,000 jobs are either directly or indirectly
related to the fishing industry.
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Source: Overseas merchandise trade, June 2013, StatNZ
63. In their impact assessment on Commercial Fisheries commissioned by TTR, Fathom
Consulting have presented an estimate of the fishing volumes and values in the area of
interest using three common valuation methods (Landed value, Quota Value, Asset Value).
64. According to this report around 14.5k tonnes, or 3.2% of total landed fish valued $20.2m at
land value, is caught in the South Taranaki Bight on average per year.12
65. Fathom, along with the Southern Inshore Fisheries, have also pointed out that the proposed
mining activities are likely to impede commercial fishing activities in several ways:
66. Impacts arising from spatial exclusion of commercial fishing activity;
67. Effects of the mining activity on fish species that are caught by commercial fishers in the
immediate area of the mining operation;
12 South Taranaki Bight Iron sand mining proposal: Assessment on potential impacts on commercial fishing,
Fathom Consulting Ltd.
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68. Effects of the mining activity on fish species that are caught by commercial fishers in offsite
areas (e.g., coastal reefs);
69. Broader impacts, including impacts on quota value and downstream businesses
70. In their request for further information the EPA have specifically asked for further impact
assessment of proposed mining activities on commercial fisheries. TTR appears to have not
addressed these issues.
71. Another issues is the potential for foregone royalties on metals other than iron: The current
royalty calculation considers the value of the extracted iron as base, neglecting any other
precious metals contained in the sand. It is not clear why other more precious metals
contained in the sand have not been included in the royalty calculation.
72. New Zealands titanomagnetite sands provide a relatively low grade raw material for iron
production, containing only 58-60% iron after it has been separated out from other
elements.13
13 Fleur Templeton. 'Iron and steel - The steel industry', Te Ara - the Encyclopedia of New Zealand, updated 9-
Jul-13 13URL: http://www.TeAra.govt.nz/en/graph/5892/chemical-composition-of-ironsands
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73. These other elements include precious metal compounds such as Titanium Oxide,
Aluminium Oxide, Silicium Oxide and Vanadium Oxide. However, the royalties paid by TTR
are solely based on the amounts of Iron extracted and do not compensate New Zealand for
the extraction of these valuable compounds.
74. Titanium Oxide: The rare compound has exceptional light reflection properties which make it
suitable to a wide amount of industrial uses including the production of high quality paint
and plastics.
75. As of Dec 2012, the Titanium Oxide price has been averaging at US$4,288 per tonne for the
year 2012. Prices have strongly increased since 2010 and are expected to increase further till
2015. One of the largest producers globally Argex Titanium Inc as well as research
consultancy Ti Insights LLC project Titanium prices above US$6,000 by the end of 2015.14
76. Commodity management and trading firm CHF Capital Markets, forecasts a titanium oxide
price of US$5,500 by the end of 2015. Of course, any long-term price projections are for
vigorous debate and have a high degree of uncertainty. In any case, a titanium price
between US$2,500 (historic levels) and US$5,500 (current and projected levels) per metric
tonne provide a rough price corridor for estimating the value of Titanium contained in New
Zealands sand.
14 Argex Titanium Inc, Argex Titanium Presentation January 2013, URL:
http://www.slideshare.net/daveburwell/argex-mining-presentation-february-2012; Ti Insights LLC, December 2012 14
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77. TTR projects to extract 4.4 million tonnes iron sand each year which amounts to 0.352
million tonnes titanium oxide valued between US$880 - 1936 million using the above
mentioned price range.
78. Under the current royalty calculation, New Zealand is not compensated for any substances
contained in the sand other than iron. If the 2% ad valorem royalty received on the value of
extracted iron is applied to Titanium Oxide, depending on the market price of Titanium at
the time of valuation, additional annual royalties between US$17.6m and US$38.72m would
be received.
79. To put this into perspective, current annual royalty payments based on the value of
extracted iron have been estimated between $8m - $11m per year by the NZIER economic
assessment.
80. Hence, we are not convinced that a royalty agreement that only accounts for the value of
extracted iron ore and not of the value of the other precious metals contained in the
extracted sand, is in the best interest of New Zealand.
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Conclusion
81. To sum up, the first major drawback of the economic impact assessment is that potential
negative effects have not been considered and build into the model. It appears from the
information provided that the potential negative effects on the total economic impact of the
project as outlined above (irrespective of their actual values) as well as a broader range
when analysing input assumptions such as iron ore prices have not been included in the
economic modelling specifications.
82. In order to gage the true effect of all factors outlined above they need to be included in the
specifications of the model. It is not enough to just present the dollar values and subtract
them from the supposed positive economic impact of the model because the flow on effects
of these factors need to be assessed. When there is a reduction in i.e. tourism numbers or in
the ecosystem services this trickles down into the economy. While the economic benefits
assessment of the project accounts for these flow on effects in the modelling, the model
does not account for any potential negative effects. Thus the real effect on GDP might be
overestimated.
83. A second drawback of the model as presented in the application is that the model does not
provide scenario or sensitivity analysis of the critical input parameters. Such analysis is
required to understand the impact and associated risks of changing input parameters. This is
particularly relevant as the key input assumptions that drive the economic benefit underlie a
high degree of uncertainty. As an example, one shall consider the discrepancies in expected
annual royalties between the NZIER’s initial economic assessment and their subsequent
analysis based on an “updated project plan”.15 The initial assessment states annual average
royalties of $8mn for the first 5 years while the subsequent analysis states $11mn for the
first 13 years. It is not transparent what has caused this change in royalties and to what
extent changes in input assumptions will affect the proposed economic benefit of the model
15 See Statement of Evidence in Chief of Dr Henry Kaye-Blake on behalf of Trans-Tasman Resources Ltd, p.7f
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in the future.
84. We therefore argue that a new model of the economic impacts of the proposed projects
needs to be build and analysed. This model should include in its modelling specifications any
potential negative effects as well as a range of scenarios using different input parameters as
well as sensitivity test to these input parameters.
85. Apart from the questions about the economic modelling presented above, we would like to
point out that irrespective of the actual economic impact, New Zealand needs to decide if
this project is in its best interest and the best use of its rare and valuable resources.
86. Certainly, economic benefits can be achieved in a variety of ways including investments and
support for other, less environmentally risky and costly, projects.
87. In addition a number of different configurations for extracting this resources might bring
larger economic benefits to New Zealand than project in its current form. For example,
having parts of the processing take place in New Zealand and creating national capabilities
and an industry around such processing might allow New Zealand to realize more value
added activities and derive larger economic benefits from the use of the resource. Such
alternative projects are not being discussed here and have not yet been proposed,
nonetheless, for New Zealanders they represent a future option and New Zealanders need
to decide if they want to keep this option open or not.
88. One key point that needs to be kept in mind is that the resource in question is valuable and
rare irrespective of what will be done with it and that currently the resource is 100% owned
by New Zealanders. This means that New Zealanders can decide how to best use it. If the
project goes ahead, however, New Zealanders will no longer have the option to decide and
will no longer own the resource.