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Boom Town Rates

Local authorities are pushing to receive part of the royalties gained from the oil, gas and mining activities in their areas. They need the money to help pay for upgrading infrastructure and smooth out boom-bust economic cycles.

Waihi resident Anne Marie Spicer says it’s easy to forget that for your average person, councils and mining corporations can be “very scary”. So suggest developing a mine beneath local houses and tempers are likely to flare: even in tiny Waihi whose history and economic viability track the rise and fall of mining activity in the region.

Waihi residents’ exposure to the boom and bust of mining spans three centuries. Hauraki District Council mayor John Tregidga says the most recent three decades of downtime starting in the 1950s left the Waihi community struggling for economic survival. Infrastructure investment was pared to the bone as people thought the town wouldn’t exist without the mine, he says. Then in 1985 when mining kicked back into life, councils had to put in a “huge” amount of infrastructure – and even then some was just a temporary fix.

“We’re only just now doing a $1.8 million upgrade for their water supply,” he says. “We acknowledge now Waihi is there for good. It isn’t going to go away even if mining finishes.”

In Spicer’s case, concerns about councils and mining corporations are being addressed through the Waihi Community Forum: a nine-person body comprising community, council and Newmont Waihi Gold representatives.

Waihi’s situation is being played out across the country on an ever-increasing scale. At a recent presentation in Wellington, Tregidga points to a map showing current extractive activity in New Zealand. Its grey shaded areas are totally dwarfed by the yellow highlights showing where potential future activity could take place.

“When we look at places like Northland – which has a huge potential for mineral resources – or Gisborne,” he says, “significant infrastructure needs to be put in place to handle the increase in activity. And we don’t think that cost should be met by existing ratepayers.”

If TAG Oil gets to extract its projected 14 billion barrels of oil from the East Coast Basin, for example, that could result in around $1400 billion in gross revenue and hundreds of millions in royalties. But as Gisborne mayor Meng Foon says, “for the mining industry to be successful, Gisborne’s roads and bridges need to be updated and water tables improved. And who will pay for that?”

In the deep south, too, the huge Canterbury Basin gas prospect could transform the South Island economy: a fact that hasn’t gone un-noticed at both Dunedin and Invercargill councils.

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The New Zealand government currently receives hundreds of millions of dollars in royalty payments for oil, gas, coal and mineral extraction. In the five years to 2012, $1.69 billion was paid to the Crown in royalties from petroleum production and $49.85 million in royalties from mineral production including coal.

Yet the regions where extraction occurs do not receive a direct share of these funds. Instead local authorities are required to pay for the local roads, bridge strengthening, wastewater, water treatment and other services and amenities that enable extraction and support these industries.

While extractive industries do contribute some funds to local authorities through a variety of other mechanisms, councils say this does not fully cover the costs associated with the additional pressure placed on community infrastructure.

LGNZ president Lawrence Yule says local authorities also face environmental management costs for consenting, compliance, state of the environment monitoring and plan making.

Importantly, they’re also expected to be able to build a future for their regions beyond the end of mining. In Waihi, for example, Newmont’s activities currently contribute about 26 percent to the town’s GDP: which is all well and good until resources inevitably run dry and the town must once again look for alternative income streams in order to survive.

LGNZ is now pushing for a policy change for the distribution of a share of royalties from mineral, oil and gas extraction to the communities where the activity takes place. It is not asking for extractive industries to pay more money: simply that some of the existing amount flows back to the regions directly affected. LGNZ is open to exactly what percentage of the total take that may be but points out that New Zealand is an outlier in the western world in not passing back at least some proportion.

In Western Australia, for example, extraction royalties now make up a quarter of the state’s annual budget. Newmont’s Asia-Pacific external relations manager Kelvyn Eglinton says the scheme, administered by the Government’s Department of Regional Development, has been running since 2008. By next year it is estimated there will be 2500 royalties for regions funded projects across the state.

BUST

Buller District Council chief executive Paul Wylie says his community is now taking a battering as mining activity shrinks, taking the region’s economic prospects down with it. That’s a far cry from as recently as November 2011 when Wylie first arrived in Westport to find a booming Buller district economy.

According to Wylie, from the council’s perspective, the biggest future risk at that time was speed wobbles. “We wondered how we would cope when Bathurst opened their planned mines and up to another 400 jobs would come into being. Things were looking good.

“Then, a few months later, Solid Energy hit the wall, while Forest and Bird continued to bleed Bathurst dry, successfully preventing any new mines coming into operation,” he says.

For Buller district, the boom started to became a bust… again.

Wylie says his council accepts that one day coal mining will come to an end. “We argue that we need to start on the solutions now if there is to be something left when we come to that point”, he says.

“It’s time for central government to commit to a serious discussion about the possibility of a royalties for the regions scheme for New Zealand. The West Coast has previously offered itself as a pilot region to test such a scheme,” he says. “And that offer remains open.”

BOOM

LG_Boom_Town_Rates_1Even in the wider Taranaki region – which many see as the poster child for optimising the benefits of oil and gas production through downstream value-added industries – there are inequities.

According to South Taranaki District Council chief executive Craig Stevenson, extraction activity is spread across the wider Taranaki region but the benefits are not equally shared.

Every day 700 to 1000 workers commute into the South Taranaki council’s area to work on oil and gas activities, he says. “Then they take their wages home and spend them somewhere else. They have little social investment in the area.”

And the boom / bust pattern of development causes uneven spikes in rental prices with a simple four-bedroom house in Hawera recently commanding $700 a week.

“We know we’re blessed with the resources sitting in our backyard,” says Stevenson. “Taranaki is not saying we want it all to ourselves. We understand NZ Inc owns that and has a right to the benefits from it. All we want is a little bit of consideration of the impacts it has on our communities in extracting them.”

Meanwhile, LGNZ chief executive Malcolm Alexander is making no bones that this is just the start of a much larger conversation. “We’re not going away,” he says. “We’re going to engage with this. The need to develop the regions of New Zealand is a growing issue. Some [political] parties don’t seem to have their head around it yet but they need to and we will continue to press until our communities share in the benefits.”


This article was first published in the October 2014 issue of NZ Local Government Magazine.

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