Japanese ambassador and timber firms urge Government to ‘listen’ over energy prices

Tuesday, 27 August 2024

The move is one of several steps the Government is taking to address the energy crunch.

Japan’s ambassador to New Zealand and six major Japanese-owned forestry companies have pressed Cabinet ministers over the energy crisis, which the firms say threatens thousands of jobs and the viability of foreign investment.

At the meeting -- days before the Government announced its response to the energy crisis this week -- the ministers were urged to provide direct relief to forestry firms which face “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,” said Tony Clifford, Pan Pac managing director.

“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.”

The Oji Fibre pulp mill in Penrose, which the company is considering shutting as it is losing money for reasons including “dramatically rising energy costs”. Some 75 jobs are on the line.

Clifford, who spoke on behalf of the six Japanese firms at the meeting, was joined by Japanese ambassador Osawa Makoto and a representative from Sumitomo Forestry. In total, the firms employ 3000 people and earn revenue of $2.7 billion a year, across regions including Northland, Waikato, Hawke’s Bay, Nelson, and Southland.

The delegation met with Trade Minister Todd McClay, Regional Development Minister Shane Jones, and Ministry of Business, Innovation, and Employment chief executive Carolyn Tremain on Thursday last week.

Osawa Makoto, in an interview with The Post, stressed he was not to offer a view on New Zealand domestic policy, but said he 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 of the core for Japanese investment,” he said.

Osawa Makoto, Ambassador of Japan, left, and Governor General Dame Cindy Kiro, when the ambassador handed the Governor General his creditentials as Japan's representative to New Zealand, in April 2024.

“I hope that the discussion will continue to find good solutions.”

Manufacturers have been dialling down or outright stopping production, and consulting on possible closures, as energy prices spiked in recent weeks - caused in part by low capacity in hydro-lakes and a gas shortage.

A graph shown by Panpac managing director Tony Clifford to Ministers Todd McClay and Shane Jones showing, according to Clifford, electricity prices in New Zealand compared with Canada and Australia -- demonstrating the difficulty faced by manufacturers and other major electricity users.

Responding to the crisis, the Government on Monday announced it would urgently reverse a ban on offshore oil and gas exploration, consent by legislation an import terminal for liquefied natural gas (LNG), possibly allow greater draw-down of hydro-lakes, and investigate changes to market regulation.

Clifford, whose company Pan Pac has put on hold its energy-intensive mechanical pulp mill due to rising costs, said the Government’s policy changes were of “a supportive nature”, but he was sceptical about whether it would succeed.

He questioned how investment in an LNG import facility could be attracted without a Government underwrite and bipartisan agreement to ensure its long-term viability. Also, he said market regulation encouraged the energy generators to pursue profits, not make energy affordable.

He said the Government needed to provide financial relief to the pulp mills, like the Karioi mill in Ruapehu set to close, as they were most affected by the rising energy costs which could not effectively be hedged against on the market.

While Pan Pac could take the profit loss due to rising energy prices for its large Hawke’s Bay sawmill, for its pulp mill some 25% of the cost of the product was energy.

When energy cost doubled it was “terminal” to business, because this cost could not be passed onto the consumer in a competitive international market. Halting production meant the chip product from sawmills could not be processed -- creating a ripple effect through the industry.

“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.

“We're export-based, we're price-takers in an international environment, and our competitors are not facing these same energy costs.”

He said if the Government wasn’t willing to assist these businesses, “then they have to be pretty honest about it”.

“Please don't be going and telling the rest of the world we're open for business and we want a foreign direct investment. Just, be honest.”