Hon Nick Smith MP
National Party Energy Spokesman
National Party Building and Construction Spokesman

Fixing New Zealand’s Infrastructure
Speech to National Party 2006 Annual Conference

Fixing New Zealand’s creaking infrastructure will be one of the next National Government’s big challenges.

President Judy Kirk,

Delegates.

Don Brash has each of us in the caucus team focussed on how in tax reform, welfare reform, education reform – right across all the portfolios on how we can contribute to higher living standards and closing the gap with Australia.

This afternoon I want to focus on some of the fresh thinking we need to do in the area of infrastructure.

Labour has made a complete hash of meeting New Zealand infrastructure needs.

Take energy for starters.

The blackout in Auckland on June 12th showed just how fragile the electricity grid has become.

Only a week later on June 19th, thousands of consumers were deliberately disconnected because power demand exceeded the system’s capacity.

These serious failures this year come on top of the severe shortages in 2001 and 2003.

These quotes from industry leaders show just how much trouble the energy sector is in:

Dr Keith Turner, the Chief Executive of New Zealand’s largest power company, told the Government over 18 months ago that the transmission system was so fragile that key lines like those in to Auckland could not be taken out for servicing and that this was unheard of in the western world.

On Monday in Wellington, Industry veteran and respected consultant Govind Saha said the energy sector had no leadership and that the Government’s electricity reforms of 2002 had failed.

On Tuesday, Peter Townsend from the Canterbury Chamber of Commerce noted that he couldn’t see this Government having the will or thinking to fix the problem without a total collapse.

This problem of security of supply goes beyond electricity.

Let me read this direct quote from the International Energy Agency’s report on New Zealand released in May:

“New Zealand has not been in compliance with its IEA stockholding requirements for several years. It’s stocks fell to 61 days of net imports as of 1 January 2006, well below the 90-day obligation. This is the lowest reported level of stocks by an IEA member country in over a decade.”

Figure this. We have a long running war in Iraq.

We have another conflict exploding in Lebanon.

We have oil prices topping record levels of US$75 a barrel.

And the Government has allowed our storage to be at the lowest level of any developed country in over a decade. It amounts to wilful negligence.

Security of supply is only one test of the success of energy policy. Price and environment matter too.

Power prices in the last five years have soared by 33%. That compares to an inflation rate over the same period of 12% or for political comparative purposes, with an increase of 14% under the last five years of National.

The power price increases mean our elderly struggle to keep themselves warm in winter. It also undermines our international competitiveness to process raw materials like logs and milk – the adding of value and jobs for New Zealand.

The environment record of Labour is equally poor.

The big change in New Zealand’s electricity generation profile is the growth of coal. In just six years the amount of electricity produced from coal, the least environmentally friendly, has trebled and the proportion of our power produced by hydro has fallen below 60%.

Government Ministers have rejected renewable energy projects like Project Aqua and Dobson, and the taxpayer has sunk $150 million into the new oil fired Whirinaki Power Station in the Hawkes Bay.

Isn’t there a sick irony in our environmental laws that the taxpayer can build a new oil fired power station, but the private sector can’t build a hydro scheme on the wet West Coast so it might be energy self-sufficient?

Not only is Whirinaki the wrong fuel but it is in the wrong place.

Only two years after it was commissioned consideration is being given to shifting it to Auckland or Christchurch.

This Whirinaki fiasco is a compelling argument alone for reforming the RMA. It was only built near Napier because they could not get a consent anywhere else in time.

The further irony is that despite all the rhetoric from Helen Clark, Pete Hodgson and David Parker on climate change, these sorts of dopey policies have meant New Zealand greenhouse gas emissions have grown at three times the rate of Australia and four times that of the United States.

This takes us to the issue of our transport infrastructure. Not only is the huge congestion problem in cities like Auckland and Wellington costing our economy billions, but congested traffic is bad for air pollution and bad for Kyoto emissions.

Labour has made much of it’s spending on roading, but they continue to pilfer the road user by taking over $600 million a year for the consolidated fund. Labour has put petrol taxes up three times but still the money is not flowing through to significant roading improvements.

Land Transport New Zealand finished last year by underspending $150 million.

Nor should dollars spent alone be the measure. Labour’s employment, holidays, ACC, tax, building, RMA and transport law changes are causing record increases in road construction costs. The whole business of road-buildings has become so PC that you need for social engineers than roading engineers to do the biz today.

Traffic congestion has got worse in each and every year Labour has been in office. The mean travel speed in Auckland is now down to just 36 km/hr, less than every major city in Australia. The figures for Wellington are only a little better. In growth areas like Tauranga, Hamilton and Nelson all the data points to an escalating problem.

If you believe the infrastructure crisis facing New Zealand is limited to roading and electricity, it is not.

On May 6th last year the Nuhaka Bridge collapsed from rotten beams. It was only good luck that no one was killed. There is a bill of hundreds of millions of dollars to get our rail infrastructure back into shape.

There are equally challenging issues around the infrastructure for water supply, sewage and flood control.

The Institution of Engineers Australia has just produced a scorecard of the state of that countries infrastructure. Apply it to New Zealand and this is the sort of picture you get (see attachment).

We have no hope of matching Australia’s living standards if we do not also match up in our infrastructure provision.

Since 1990 we have 700,000 more people, 1.5 million more cars, 500,000 more jobs, $45 billion more in GDP and we are using 30% more power.

We simply have not built the motorways and transmission wires to keep up with that growth. (see attachment)

It is an easy pot shot to look at the pathetic record since 2000 and blame Labour, but the investment in the 1990s was not flash either.

It is my contention that the reforms of the late 1980s and early 90s have not worked in respect of infrastructure.

The abolition of the Ministry of Works, the Ministry of Energy, the Department of Electricity, and the creation of the Department of Conservation and the Ministry for the Environment, the State Owned Enterprise Act and the Resource Management Act has created an imbalance in Government that makes the construction of new infrastructure too difficult.

New Zealand has overshot with our financial and environmental disciplines to the point where it is too hard to build the infrastructure that is needed.

Add to this culture, Labour’s incestuous PC and you get some really silly policies. Pete Hodgson told the nation in 2001 that it was better to spend money on reducing demand for energy than on building new transmission wires and power stations. The irony is that after 5 years, and spending $100 million, energy efficiency has got worse. It reminds me of the Corrections Department rehabilitation programme exposed by Simon Power where participants on it were found to have higher reoffending rates than those that didn’t do the course.

National is the Party of realists who understand that this country needs more roads and more power to support our growing economy.

So there’s my prognosis of the problem – what about some solutions.

The first proposition I want to put to this conference is that National needs to develop an integrated approach to infrastructure policy.

There is a huge commonality in the issues for electricity, roading, water, gas, railways and telecommunications.

We are dealing with monopoly networks. We need a set of rules that will attract the much needed investment but not one that leaves consumers at the mercy of price gouging monopolies.

I welcome the commitment of the party board yesterday to establish an Infrastructure Policy Advisory Group that will take the big picture view.

My second proposition is that New Zealand needs a Minister and Ministry of Infrastructure.

We need to get some balance into the policy process and the Cabinet room.

We’ve got the Treasury not wanting to spend money, and the Department of Conservation and Ministry for the Environment advocating for the environment, but no one planning and advocating for infrastructure.

Much of this expertise rests with State Owned Enterprises, but this is at such arms length from Government that the key advice does not get through to the Cabinet Room.

My third proposition is reform of the Resource Management Act. I have given speeches ad nausea on this subject.

We cannot have it taking as long as a decade to get consents for key roading and electricity infrastructure.

These reforms are not about eroding environmental standards but about reducing the delays, costs and uncertainty of the resource consent process.

We are going to give the RMA a dose of Don’s one standard of citizenship so we don’t have roads halted while the courts argue over the home of the Taniwha.

We are going to provide for direct referral to the Environment Court so we don’t have the same arguments trawled over again and again with only the lawyers profiting.

We are going to stop the frivolous and vexatious objections by restoring security for costs and enabling the court to ping people for the costs they cause others with endless delays.

We are going to introduce a policy of a late consent being a free consent so councils understand the importance of meeting the statutory timeframes of the Act.

And we will have these reforms introduced into Parliament within three months of an election of a National Government and passed into law within 9 months.

My fourth proposition is that we need to revisit the Public Works Act.

This is the Millau Bridge in Southern France. It stands taller than the Eiffel Tower. It took just 9 weeks to resolve the landowner issues because of the generous compensation regime.

Many of the most hard fought Resource Management disputes over infrastructure are not environment issues, but concerns over property rights. The old Public Works Act gives bare minimum compensation. We are a party that respects property rights. We need to boost the compensation mechanisms in that Act so people are treated generously where their property is required for essential infrastructure.

The quid pro quo though is fewer delays. I am convinced we can provide a fairer regime that is less costly and which will cause less social heartache for the families concerned.

My fifth proposition is that we need to review the State Owned Enterprises Act.

The Act was designed as a halfway house to privatisation. It is 20 years old, was an international leader of its time, but is now behind the best international thinking and practise.

Along with my colleagues Katherine Rich and John Key, we are exploring other possible structures. We need to develop a revised model that provides the right sort of incentives for them to be managed as efficient businesses without the sole directive to maximise profit.

A good example is Transpower. It is a farce that it spends more than $1 million on marketing and sponsorships. We tell Transpower to maximise profit and then have had to create other Govt agencies like the CC and EC to ensure it doesn’t overcharge and over invest. It is time to look for a better, simpler model.

The sort of model National is exploring is the concept of a public infrastructure company where the underlying requirement is the efficient provision of reliable infrastructure with a fair return on the capital invested. National has commissioned work from independent consultants to help develop our thinking in this important area.

The sixth area of work is to settle policy work on climate change.

The Government has completely lost its way. It is still threatening a carbon tax on electricity generators but won’t conclude the debate for another year. There will be no new investment while this policy vacuum continues.

The problem of climate change won’t go away. There remains uncertainty about the science but that is no excuse for a do-nothing policy. National favours a tradable emissions permit system.

We will be announcing policy proposals in this area with our environmental paper later this year.

I must conclude by acknowledging the important work by Maurice Williamson on transport. The commitment of putting every dollar of petrol tax back on roads is crucial, as is his work on the reform of the Land Transport Act and simplifying the multiple of different transport entities.

Phil Heatley is doing great work in the petroleum area on how we get the exploration and development of new gas resources for New Zealand.

Chris Auchinvole, as mining spokesperson, is putting together common sense ideas around supporting our coal and aggregate industries.

Bob Clarkson, who has actually built a thing or two, is keeping our feet connected to planet earth in his work in work as Associate Spokesperson on Building and Construction.

National has the leader in Don, the team, the fresh thinking, and the commitment to fix New Zealand’s infrastructure.

Ends

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