New Zealand’s energy prices are now among the highest in the Western World, with Prime Minister Christopher Luxon warning that the country is facing “an energy security crisis.”
It comes as one of NZ’s top manufacturing businesses, Winstone Pulp International, is responsible for spending NZ $30 million on wages, $50 million on logs, and turning 500,000 tonnes of logs into export pulp, closing its Karioi Pulpmill and Tangiwai Sawmill.
According to Mike Ryan, Winstone Pulp International CEO, rapidly increasing energy prices were unsustainable: “We have pulled out all the stops over a sustained period to keep this business up and running in the face of rampantly increasing energy prices.”
Electricity was a major proportion of the company’s costs, rising from 15% to more than 40%. “The main issue for WPI is the timeline for a potential solution and whether that solution will bring energy costs in New Zealand down to a level where we can be internationally competitive.”
But Winstone Pulp International is not the only one feeling the pinch – with Osawa Makoto – Japan’s ambassador to New Zealand, joining six major Japanese-owned forestry companies (which collectively employ 3,000 New Zealanders and generate NZ $2.7 billion in revenue every year) in pressing the Luxon Cabinet to provide instant relief over “terminal” rises to electricity prices.
“It was only six weeks ago that I was on a trade mission with the prime minister to Japan, talking about both growing wood processing capability, but more broadly, seeking to enhance foreign direct investment in New Zealand from Japanese companies,” Tony Clifford, Pan Pac managing director told New Zealand-based The Post.
The delegation, which included representatives from Sumitomo Forestry, met with Todd McClay, New Zealand’s Trade Minister, Regional Development Minister Shane Jones, and Ministry of Business, Innovation, and Employment CEO Carolyn Tremain.
“You can’t be destroying the foundation of manufacturing and then jumping on a plane and going all around the world and asking investors to come to New Zealand and invest … We’ll have the world’s worst reputation for destroying foreign capital.”
Speaking to The Post, Osawa Makoto said his role was not to offer a view on New Zealand’s domestic policy but urged the Government to “listen carefully” to the Japanese forestry companies.
I simply stressed the importance of the predictability [of energy prices] for the investment in general, and also the forest industry is core for Japanese investment, I hope that the discussion will continue to find good solutions.
Osawa Makoto, Japan’s Ambassador to New Zealand. Japan is one of the largest investors into the New Zealand forest products industry.
In response to the Energy Crisis, Prime Minister Luxon has announced that New Zealand will reverse a ban on offshore oil and gas exploration and has introduced legislation that will see an import terminal for liquefied natural gas (LNG), allowing for draw-down of hydro-lakes, and investigate changes to market regulation.
Mr Clifford, whose company Pan Pac has put its energy-intensive mechanical pulp mill on hold, said the policy changes were of “a supportive nature” but was still sceptical, adding that the Government needed to provide financial relief to smaller mills that could not hedge against the market.
“We really need some oxygen. The problems we’re facing for the next couple of years are pretty severe. We really need some kind of direct relief,” Mr Clifford said. “We’re export-based, we’re price-takers in an international environment, and our competitors are not facing these same energy costs.”
“Please don’t be going and telling the rest of the world we’re open for business and we want foreign direct investment. Just be honest.”
Why NZ forest products are critical for foreign direct investment
According to the New Zealand Ministry of Primary Industries, forest products are the country’s largest export earner. “The export value of forest products to June 2022 was $6.58 billion—$3.63 billion from logs and $2.95 billion from other forest products.”
“Forestry features prominently as one of the few agribusiness sectors receiving major investment,” according to management consulting firm KPMG, “reflecting policy settings put in place by the prior Government when it introduced the ‘special forestry test’.”
In 2019, Radio New Zealand reported that the four largest private landowners were all foreign-owned forestry companies, dominating acquisitions: “Overseas forestry companies dominate the top of the freehold landowners list, taking the first four places, and account for six of the top 10 land-holders overall,” it said.
Last year, Wood Central reported that Juken—owned by Japanese company Wood One—closed its Gisborne mill after 30 years of operation.
