Successive post war governments in New Zealand have emphasised industrial development as the basis of economic growth.	During this period national-level planning has become institutionalised. Central to the choice of planning policy for industrial development is the balance of payments problem. This has tended to mask other considerations which can be identified as pertinent to national
and regional level decision making by private and public organisations . A major difficulty for the researcher is establishing which questions are relevant in	a New Zealand context. This research exercise
pursues the perspectives and questions which might be brought to bear on specific national development projects.	The research focuses on the Kapuni Amronia/urea plant and analyses the regional impact of that project

Lusk, Simon Stewart

English

Massey Research Online

Copyright is owned by the Author of the thesis.  Permission is given for a copy to be downloaded by an individual for the purpose of research and private study only.  The thesis may not be reproduced elsewhere without the permission of the Author.  UY~P UBRAKY DEPARTM::t·H OF GEOGRAPHY MAS'.3t:Y Ut,ffv'ERS!TY, PALMERSTON i,1GRTH, .N.Z. AN ANALYSIS OF THE REGIONAL IMPACT OF 'IHE KAPUNI AMMONIA/UREA PLANT A research rep:::,rt constituting two 14.499 Research Rep:::,rts, in p:rrtial fulfilment of the reguirerrents for the degree of Master of Agricultural Business and .Administration, Massey University. Sim::m Stewart Lusk 1982 (ii) PREFACE. Successive post war goverrrnents in New Zealand have emphasised ir:rlustrial developnent as the basis of econanic grCMth. During this period national-level planning has becane institutionalised. Central to the choice of planning policy for industrial developnent is the balance of payments problem. 'Ihis has tended to ma:sk other considerations.which can be identified as pertinent to national and regiori.al level decision waking by private arrl public organisations~. Arrajor difficulty for the researcher is establishing which questions are relevant in a New Zealarrl context. 'Ihis research exercise prrsues the perspectives and questions -which might be brought to bear on specific national developnent projects. The research focuses on the Kapuni Amronia/urea plant arrl analyses the regional impact of that project. (iii) Without the enthusiatic guidance and encouragement of Dr. R.B. LeHeron throughout this exercise the task ~uld have been far harder and less enjoyable. I .....-ould like to thank also Mr. D.B. Williams for acting as Advisor and Dr. J. Spicer for acting as rronitor for the Faculty of Business Studies. > Preface Acknowledgements Table of Contents List of Figures List of Tables Chapter 1 2 3 4 5 6 7 8 9 Bibliography Appendices A-1 A-2 A-3 B C-1 C-2 C-3 D-1 D-2 D-3 TABLE OF CONIBN.rS Introduction Theoretical Frame\,,i()rk Industrial Develop:nent to 1975 The Covernment's Growth Strategy Nitrogen Fertiliser Production and New Zealand Agriculture Area of Social Influence Incane and Employment Multiplier · Estiroation Non-Survey Multipliers: Input-output Tables Conclusions Arrmonia/urea plant expen:liture Prcxluction Income and Expenditure Notes of Expen::liture Regional Underemployment as a Percentage of the National Average output per Employee in the Service Sector Calculation of the Employment Multiplier (~) Plant Multj.plier (Ki) and Aggregate Incane .Multiplier (K2) Wage based Multiplier (K3) Construction Phase Expenditure Questionaire Production Phase Questionaire Arrrronia/urea Plant Expenditure Questionaire Page ii iii iv vi vii 1 6 15 21 30 36 48 61 69 72 79 80 81 82 83 85 88 89 91 92 94 (iv) <v)'' D-4 Corres]?Ondence 96 E Arrm:mia/urea Plant. Survey (Employees) 97 F-1 Phasing of Major Projects 99 F-2 Pro]?Osed Developnent Projects 100 G-1 Sectoral Multipliers : National Table 101 G-2 Sectoral Multipliers: Taranaki Region 102 G-3 Input/output Table : Taranaki Region 103 G-4 Industry Aggregation 25 Sector GRIT Table 105 G-5 Industry Name and Sector National Table 106 Figure 2-1 4-1 6-1 LIST OF FIGURES u:x::a:tion of Major Ene:r:gy-based Projects arrl Gas Distribution Fluctuations in Economic GrCMth Areas of Influence : Distribution of the Plant Workforce (vi) Page 6 28 38 Table 4-1 5-1 5-2 6-1 6-2 6-3 6-4 6-5 6-6 6-7 6-8 7-1 7-2 7-3 7-4 7-5 8-1 8-2 8-3 8-4 (vii) LIST OF TABLES Page Estimated Fossil Fuel Resource of New Zealand 24 Nitrogen Use by Categories 1978 31 Sector Demand Potential 34 Population Distribution of the Huntly Power Project Workers 37 Distribution of J>.rarronia/urea Plant ~..:rorkers 37 Numbers carrnuting frcm New Plyrrouth during the Construction Phase 39 Population Change in Area of Influence 41 Employment by Major Industry Divisions in the Area of Influence 42 Increases in Employment since 1976 by Sectors 43 Numbers of Males and Females by Incane and Residence 45 Estimation of Incorre for the Area of Influence 46 Non-Wage Multiplier (K1) 54 Aggregate Income Multiplier (K2) 56 Incremental Change between non-wage (K1) and Aggregate (K2) Multipliers 56 Wage·-base::l Incane Multiplier 58 Direct Income and Employment Impact Surrmary 59 Incorre Paid per dollar of output 65 Employment Multipliers (xl0-3) 65 Incane Multipliers - subregional 67 Employment Multipliers - subregional 67 > 1 CJIAPTER 1 INI'RODUCTION The New Zealand Government, in 1973, reached agreement with the oil in::lustry to buy Maui Gas. This resource was regarded as ideal for electricity generation and decisions were rrade for its use as a fuel for the New Plyrrouth p:)~ station. Soon after it was found that the Kapuni resource was substantially larger than previously estirrate:l. This and the fact that .Ma.ui Gas would not be on-shore by 1975, the year for the New Plyrrouth power station to cane on-line, le:l instead to untreated Kapuni Gas being eannarke:l for use at New Plymouth. The G::>vernment believed at that time that .Ma.ui Gas could form the basis of a petrochemical industry. In 197 4 it set up an Interdepartmental Comnittee on Petrochemicals to review the situation and to lCX)k into the various petrochemical products which could be pro:luce:l using Maui Gas. The objectives of their stlrly w-ere to determine the :potential for petrochemical rranufacture in New Zealand with reference to : i) the types and sizes of developnent best suited to meeting domestic demand for key petrochemical pro:lu::::ts; ii) · the need for exports to support a petrochemical in::lustry and the identification of :potential export markets; iii) the potential economic benefit to New Zealand of alternative petrochemical developnent13; iv) the broader social, economic and environmental implications of petrochemical manufacture. Secondly, to provide sufficient infonnation to enable petrochemicals manufacture to be compare:!. with other uses for .Ma.ui natural gas (N.Z. Interdepartmental Com:nittee, 1976). The New Zea.lard. Interdepartmental Com:nittee sul:mitted its report to the G::>vernment in June 1976. It had considered five options. These were the pro:luction of Amronia/urea, chemical methanol, fuel methanol, olefins base:!. plastics and synthetic gasoline. Amm::mia/urea prcx:luction was seen as being marginally rrore attractive than chemical methanol, these beirg the best options. Fuel methanol was favoured but technical difficulties with the methanol/gasoline blerd meant that rrore research was needed before this option could be considered further. Olefins based plastics would not be suitable until de:na.rrl and markets within New Zealand had grown. Fina.11 y, synthetic gasoline was seen by the Carmittee as beirg the least attractive option of all. This the Com:nittee saw as being justified only on non-econanic grounds such as a need to reduce oil imports. 2 In the case of the Arrmonia/urea plant two options were considerEil econanical by the Interdepartment Canmittee : The first was a large plant prirrarily based on prcx:lucing prcducts for expJrt and the second was for a srrall plant prcducingmainly for the domestic market, but with some product expJrted. Their conclusion favoured the srrall plant for New Zealand. At this p::>int the Government invited the Petroleum Corp::>ration of New Zealand Limited to undertake its develop:nent. In 1978 the planned schedule of developnent was revised by the unexpected availability of a partially completed Amronia plant. The Government was approached by capital Plant International Limited (CPI), with information that a United States client, Fish Engineering Constructions Corrpany Inc. of Houston, had partly completed the manufacture of a mediun-sized arrmonia plant for a client who was unable to complete the purchase. This option appeared attractive because proposals subnitted up to this point failed to meet the Government's criteria. Fish Engineerirg were offerirg the Arnrronia unit along with the yet to be constructed Urea plant and ancillary off-sites.· This plant was considerably larger than those being considered prior to 1978. The Government carried out a prelimirary economic analysis the details of which are not available, which showed this plant to be economically viable especially if the plant was located next to the Kapuni treatment plant owned by the Natural Gas Coq:oration. The latter \\Duld be able to supply direct the feedstock necessary for the manufacture of Amrronia/Urea fertilizers. At this ]?,'.)int the Government decided to proceed with negotiations for the establishment of a medium-scale, ex:.i;::ort , rriarket oriented, Amronia/urea complex. 3 Negotiations for the purchase of the amronia and urea plants were comnenced in Houston in J:\Tovember 1978, and a contract signed in March 1979 • 'Ibis contract was for the completion of the project within~ years from the date of site acquisition. 'lhe completion date is now set for Cecanber 1982. 'lhe initial estimates of the capital cost of the plant, including spares, interest during construction and other costs associated with the oo~letion of the project, were estimated at $70 million (Petrocorp Review, 1980) • The plant was purchased on a U.S. dollar fixed price basis. 'lhe capital cost of the project has increased since March 1979 to $98.3m. This is mainly due to a 5 percent devaluation of the New Zealand dollar in June, 1979, and a continuing floating devaluation since that date (Appen:lix A-1). 'lhe decision to build a large plant instead of the srra.11 plant recamnended by the Interdepartmental Corrmittee is accanpanied by a higher degree of risk. 'lhe extent to which this aspect has been considered by Petrochem, the subsidiary caupany of Petrocorp, is not irnrnediatel y obvious. 'lhe acceptability of this increased risk depends on the existence of overseas markets. Any forecast must be based on facts fran. which one could conclude that it was highly probable that the forecast W'.)uld be realised, an:1 any assumptions underlying the projection must be disclosed. The change from an emphasis on the danestic market to one on an export market brings with it the risk . of export instability and uncertainly. Loc:ally induced or TIR1ltiplier effects are frequently not set into notion by the actually executed export activity, but by expectations and forecasts (Krurrme, 1977). The expectation of derrand and its realisation does not necessarily follow one after the other. It is against this background that this study has been undertaken. In part it is an historical account of what has happened durin;; the planning and construction phase, an:1 in part it estimates the final :impact of the Arrmonia/urea plant when it reaches full,production by 1984. The primary objective of this study is to relate theoretical and planning considerations to the actual considerations of the Goverrrnent in this part of its Growth Strategy. An attempt is made to identify an:1 list the priorities given to the national economy, and the regional and sub-regional economies. In brief the purpose of this study is to find out -i) how the Arrmonia/urea plant might be placed into the national economic environment; ii} how the Arrmonia/urea plant fits into the industrial structure of the region; iii) the place of the Arrmonia/urea plant in any industrial complex which might emerge in Tara.ri::i<li based upon !£ui Gas. iv) what kinds of sub-regional impacts might arise from the establishment of the plant. Chapter 2 outlines the dominant theoretical considerations as these relate to the Arrmonia/urea plant. Chapters 3 and 4 are concenm with the Cbvernrnents role, the growth strategy and irrlustrial develop:nent in New Zealarrl focusing past and present thinking to future develop:nents. Chapter 5 outlines 4 the ing;:e.ct of the plant in agriculture an::l. relates nitrogen fertilizer production in Nev Zealand to danestic and world demand. Chapter 6 defines the area of social influence at the subregional level, while Chapter 7 estimates the incane and employment multiplier effects using the Keynesian rrodel. Chapter 8 applies the input-output non-survey methaj to the Taranaki region. The oonclusions are presented in Chapter 9. 5 

An analysis of the regional impact of the Kapuni ammonia / urea plant : a research report constituting two 14.499 Research Reports, in partial fulfilment of the requirements for the degree of Master of Agricultural Business and Administration, Massey University

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An analysis of the regional impact of the Kapuni ammonia / urea plant : a research report constituting two 14.499 Research Reports, in partial fulfilment of the requirements for the degree of Master of Agricultural Business and Administration, Massey University

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