What does Waka Kotahi know about the bitumen market? We should be worried

Projects such as Transmission Gully mean that central and local government accounts for more than 90 per cent of New Zealand's bitumen supply, so Waka Kotahi can argue that it needs continuity of supply.

NZTA Waka Kotahi/Supplied

Projects such as Transmission Gully mean that central and local government accounts for more than 90 per cent of New Zealand’s bitumen supply, so Waka Kotahi can argue that it needs continuity of supply.

Janet Wilson is a freelance journalist until recently working in PR, including a stint with the National Party.

OPINION: Hidden among this week’s headlines of cyclone rain warnings and traffic light changes there was one that struck fear in anyone who believes in free enterprise and competition: “NZTA taking control of NZ’s supply of bitumen for building roads,” it proclaimed.

Crown-owned Waka Kotahi was apparently taking over the country’s bitumen supply; “apparently”, because it denied any plans to do so. The news was confirmed only when the current main supplier, Z Energy, announced it was pulled out of the market by July 2023 because Waka Kotahi had verbally said it was taking over the market.

Waka Kotahi has every right to be sheepish about destroying commercial interests for its own gain. It would argue that government demands, both centrally and locally, account for more than 90 per cent of the bitumen market and it needs continuity of supply. But that’s a specific argument that doesn’t justify decimating an industry.

It also means Waka Kotahi might not have the qualifications to carry out its ambitions. The infrastructure industry is understandably nervous about what is essentially a government department taking over bitumen, especially when it doesn’t have any experience in buying, storing and distributing it.

Technix Industries in New Plymouth plans to make its own bitumen, stepping into the void left by the Marsden Pt oil refinery shutdown.

ANDY JACKSON/Stuff

Technix Industries in New Plymouth plans to make its own bitumen, stepping into the void left by the Marsden Pt oil refinery shutdown.

READMORE:
* NZTA taking control of New Zealand’s supply of bitumen for building roads
* Bitumen production: Technix Industries eyes role as Z Energy plans exit
* Marsden Point occupiers scale down protest to appease locals, but demands remain

And Waka Kotahi’s obfuscation on taking control doesn’t inspire hope that one of its supposed reasons for the move – a lack of transparency in bitumen pricing and price movement – ​​is going to change. This week the agency was happy to demonise Z Energy, alleging that suppliers were ripping them off.

Z Energy does determine the list price but, as the company said, customers could import their own if the list price wasn’t fair. Given Waka Kotahi’s lack of transparency on the issue, if its plans come to fruition, what’s to stop an ambitious procurement manager keeping prices high to ensure a vital income stream – a stream that’s worth more than $100 million at current market prices?

The agency has been quietly planning this dramatic move since December 2020, when the Marsden oil refinery announced it would stop producing bitumen the following month. Waka Kotahi, sensing an opportunity, produced a strategic review paper, Kaupapa Pango, which talked about increased prices, the perils of a two-tier market and supply chain issues, all of which were self-serving stalking horses; the price had only risen because of the Russia-Ukraine war.

Marsden Pt refinery, near Whangārei, no long makes bitumen.

Refining NZ/Supplied

Marsden Pt refinery, near Whangārei, no long makes bitumen.

The two-tier market is how markets operate around the world, and supply chain issues? Well, right now there aren’t any. Civil Contractors New Zealand (CCNZ) confirmed that the 10 storage tanks housing the country’s bitumen, owned by three roading contractors, were in fact “chocker”.

CCNZ concerns with the Transport Agency’s involvement in the bitumen market focus on competition – or the lack of it. Its technical manager, Stacy Goldsworthy, said recently: “We would want to see a competitive market price; that generally provides the best outcome for New Zealanders. Having Waka Kotahi involved in areas of the supply chain that aren’t connected also makes risk allocation very messy.” Exactly.

Another headline this week went some way to explain the Transport Agency’s rationale for this empire-building. Treasury estimates that there’ll be a $350m hole for the next three years in the National Land Transport Fund (NLTF), which builds and maintains roads. It’s a consequence of the pandemic, which has meant we drive less, work from home more and don’t go out.

Janet Wilson: “This also begs the question, what's next?  The Ministry of Health deciding it will produce its own rapid antigen tests?  Or Pharmac deciding it will start producing its own generic drugs?”

John Cowpland/Stuff

Janet Wilson: “This also begs the question, what’s next? The Ministry of Health deciding it will produce its own rapid antigen tests? Or Pharmac deciding it will start producing its own generic drugs?”

This fiscal hole has come on top of a $2 billion loan which the Government extended to Waka Kotahi last September to plug previous funding gaps. There’s already a widely held view that the NLTF’s user-pays model isn’t enough to cover the cost of getting the country’s roads up to scratch, so other forms of funding must be found. What better than to be supplier and client in an industry worth millions of dollars, where price fluctuation is rampant and recently subject to steep rises?

This hostile takeover might provide a lifeline for a Crown entity, but the implications are shocking for New Zealand business. It would also signal to the rest of the world that, when it comes to free enterprise, we’re pretty “yeah, nah”, happy to have Big Government take over and not let markets do what they do best – act competitively and efficiently .

It would also reward and enable previous bad decisions that Waka Kotahi’s masters had approved; decisions like the $51m in fees for the Auckland Harbor Cycle Bridge before it was cancelled, or the $35m paid to consultants for Let’s Get Wellington Moving (which didn’t), or Auckland light rail, which so far has cost $50m.

This also begs the question, what’s next? The Ministry of Health deciding it will produce its own rapid antigen tests? Or Pharmac deciding it will start producing its own generic drugs? As soon as any government decrees that it can simply take over an industry – despite previous mismanagement – ​​you’re no longer living in a democratic country that values ​​the power of the market, but rather the power of Government.

Leave a Reply

Your email address will not be published. Required fields are marked *