Before the Environmental Protection Authority Application ...€¦ · 3 2007 Relationship Management, Deutsche Bank AG - Corporate and Investment Bank (Frankfurt, Germany) Selected

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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.