April 2015

Kiwi mining conundrum

photo of open pit gold mine, New Zealand
  • By Jason Krupp, Research Fellow, The New Zealand Initiative

Why New Zealand mineral regulation needs an overhaul

For mining companies sitting on the Australian side of the Tasman Sea, New Zealand must appear to be a dazzling opportunity, just waiting to be plucked. Just over 2000 km away is a country with one of the biggest exclusive economic zones in the world, endowing it significant natural resources. By the World Bank’s estimates the country ranks eighth out of 120 countries in natural capital per capita, a position that is only bettered by the major petroleum exporting countries. A significant portion of this wealth is captured in the mineral estate. Offshore, oil and gas are harvested from the Taranaki Basin, with the high grade crude exported to make aviation fuel, while the gas is used in the domestic economy.

Onshore, gold, silver and coal account for the bulk of production, but other metallic and non-metallic resources are also mined. Collectively, production accounts for close to ten per cent of New Zealand’s total exports and is equivalent to five per cent of gross domestic product in any given year. And yet much of the mineral estate remains under-explored and untapped, despite an extensive history of mining dating back to the gold rush of the 1860s. Offshore, only one of New Zealand’s 17 frontier and deep water basins is currently in production, coal reserves are estimated at 15 billion tonnes (half of which is recoverable), and the country’s faulted and volcanic geology suggests prospectivity for precious, industrial and non-metallic minerals is high. This endowment is matched by a centre-right government in Wellington that want to encourage activity in the sector to meet its stated goal of lifting the ratio of exports to gross domestic product from 30 per cent to 40 per cent by 2025. Minerals have a substantial role to play in this initiative. The sector is highly productive: at NZ$105 645, the average wage in extractive industries is double the New Zealand average, and just over half of all workers in the sector have at least a post-school qualification. To achieve this goal the government has revised the permitting regime, introduced new legislation to govern offshore mineral extraction, and set up the Environment Protection Authority (EPA) to assess projects of national significance.

geographical map representing new zealand GDP and job creation data by region.
New Zealand GDP and job creation data by region. (Credit: The New Zealand Initiative).

Reversing rural decline

Encouraging mining also has the appeal of being able to throw rural New Zealand a much needed economic lifeline. The country’s rural areas have steadily seen a growing number of economically active people move to the cities in search of higher wages, much like many other developed countries. However, competition from global competitors has sped this process up as many of the heartland industries such as agriculture, forestry and meat processing, have been forced to automate, consolidate or shut down. Only four of the country’s 16 regions saw job numbers increase between 2008 and 2013. Economic growth is also concentrated in those regions that have strong urban cores, like Auckland, Wellington and Hamilton, whose populations have swelled due to international migration and repatriation from the countryside. This exodus concentrates aging in the rural regions, which have a median age range of 40-50 years, while urban populations are notably younger, with a range of 38-43 years. The effect is to shrink the ratepayer base in rural areas and limit the ability of local government to pass on tax hikes, while increasing the number people who draw these services. Encouraging responsible mining is one possible means of reversing this economic decline. Mineral extraction is capital intensive and pays off over the long-term, and in some cases represents decades of continuous production. It is also an industry that by definition requires firms to come to the resources, and so is resistant to the pressures of globalisation and urbanisation.

Utopia denied

If the recent track record of two Australian mining companies is taken into account, it would appear as if the New Zealand minerals opportunity will remain tantalisingly out of reach. Bathurst Resources, a start-up mining company, spent two-years in a protracted legal battle with environmental groups in the Environment Court, High Court, Court of Appeal and Supreme Court to begin mining high grade coking coal on the West Coast, a region on the South Island. The project proposed moving vegetation and topsoil from the project site on the Denniston Plateau to an offsite location, mining the coal reserves, and then returning the soil and plants, with the site rehabilitated over a seven year period. In the end, the firm was given permission to proceed, but only after agreeing to exclude significant portions of the area from future development, and raising questions over the future viability of the firm. It must be noted that the Denniston Plateau is no pristine wilderness – it has been extensively mined in the past, and indeed its coal mining heritage is celebrated as a tourist attraction. Furthermore, despite every decision going in Bathurst’s favour and 90 per cent of the shareholder value being destroyed in the legal process as measured by its share price, the courts refused to award costs against the appellant.

Much of the mineral estate remains under-explored and untapped, despite an extensive history of mining dating back to the gold rush of the 1860s.

More recently, Trans-Tasman Resources looks to have lost a big portion of the NZ$65 million it invested in developing a project to harvest iron ore from a 65 km2 area of seabed off the Taranaki coast, a region on the North Island. The application was made under the Exclusive Economic Zone and Continental Shelf Act of 2012, which was passed to speed up assessment processes on marine resource development projects. The decision making committee, however, appointed by the EPA to assess the project found that the uncertainties in the proposal did not pass the cautionary requirements of the Act. Ironically, the committee found that the firm’s adaptive management proposal to resolve these uncertainties – an iterative approach to development allowed under the Act – could not provide sufficient certainty about potential adverse effects. Trans-Tasman Resources has since abandoned the project, and is focussing on developing other suitable sites.

The bias against development is not solely reserved for Australia firms – local miners find it as difficult to bring a project to fruition. New Talisman Gold, a start-up miner, was last year granted permission to begin bulk sampling under strict environmental controls at the Karangahake Gorge, a site that had previously been heavily mined in the 1800s. Those permissions are now being challenged in the High Court by anti-mining group Protect Karangahake, and is likely to result in a drawn out legal fight similar to the Bathurst case.

These are not isolated cases. Almost every minerals extraction project in New Zealand, from large mines to small quarries, is a high risk undertaking. Just why is it that a country endowed with significant mineral resources and business-friendly government is still unable to encourage development in the minerals sector?

Resource (Management Act) Curse

The answer lies in the Resource Management Act (RMA) of 1991. When it was introduced, the Act was intended to simplify and streamline the 20 major statutes and 50 other laws related to the environment and planning. Section 5 lays of the Act lays out its aims, namely to promote the sustainable management of the country’s resources:

‘…in a way or rate, which enables people and communities to provide for their social, economic, and cultural well-being and for the health and safety while: a) Sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future generations; and b) Safeguarding the life-supporting capacity of air, water, soil and ecosystems; and c) Avoiding, remedying, or mitigating any adverse effects of activities on the environment.’

To resolve any conflict between human well-being and the environment, matters of national significance were given special consideration in Section 6, such as preserving fresh and marine waterways; outstanding national features and landscapes; indigenous vegetation; and Māori culture, heritage and customary rights. Section 7 contains other important matters that officials deemed important when assessing competing resources uses, but these are considered subordinate to those in Section 6. These matters include guardianship and conservation of the land, ethnic stewardship, efficient development and use of natural and physical resources, energy use, amenity values, the intrinsic value of ecosystems, maintenance and enhancement of the environment, finite natural and physical resources, protection of trout and salmon, climate change, and benefits of renewable energy. All other considerations are subordinate to Sections 6 and 7.

The purpose of the RMA is implemented through a hierarchical planning system. Central government develops National Environmental Standards (NES) and National Policy Statements (NPS) to lead matters of importance of the whole country. Each of the 16 regions use these documents to prepare Regional Policy Statements, which in turn are used by the 62 district, city and unitary councils to develop district plans. These plans then guide what kinds of development will be permitted in the ten-year planning cycle, with councils acting as consenting agents. Where an activity is not in a plan, an explicit application must be made to include the activity in the plan for it to be allowed to proceed. The Environmental Protection Authority (EPA) assesses nationally significant proposals on behalf of councils, while the Ministry for the Environment develops national guidance, processes for the RMA, and provides ministerial advice. The Environment Court safeguards the quality of process and decisions. Further appeals on points of law can be made to the High Court, the Court of Appeal and the Supreme Court. In effect the RMA is intended to function like a grand tent. Central government guidance in the form of NPS and NES documents act as the main tent pole on which everything hangs. Regional Policy Statements are the cross beams and internal poles, the district plans are the guy ropes and pegs anchoring the canopy to the ground, and the courts, EPA and Ministry for the Environment are the workers who ensure that canvas remains taut.

Practical nightmare

Although the RMA may appear straightforward and robust, in practice it is anything but. A report published in 2013 by the Ministry for the Environment found that despite 17 attempts to amend the RMA over 22 years (soon to be 18), this has failed to deliver a workable resource framework. The report found that the process of seeking a resource consent was highly complex, the outcomes unpredictable and costly as each of the 78 council bodies interpreted the legislation independently, with little interchangeability between jurisdictions. The report also found the values enshrined in Sections 5, 6 and 7 of the RMA are out-of-date, and councils failed to proactively include economic development into their district and regional plans, instead leaving it to consents, plan changes and courts to resolve tensions over land use.

The report also noted that councils were overly focussed on managing the negative effects of resource use without giving consideration to the positive effects, such as economic growth. Overall, the RMA planning system lacked a service culture. Summing it up, the authors of the report concluded: ‘While the RMA often gets to the right outcome in terms of environmental protection, its processes can be long, cumbersome and inefficient … It is of particular concern that the RMA has failed to provide the kind of clarity or predictability that is necessary to foster investment certainty, and appears to be discouraging both strategic planning
and innovation.’

Although the unintended spill-over effects of the RMA listed above affect all businesses, the legislation has a particular impact on the mining industry. Prospecting and exploration have little impact on the environment, yet inconsistent and over-cautionary application of the RMA means  many districts and regions require firms to obtain a consent to perform parts of this work, which can take anywhere from six months to two years to acquire. The development phase, where significant investment is required, is also affected by the RMA due to weakness of the consenting process and an open-ended appeals process, as in the Bathurst example. This onerous regulatory framework has the potential to impose significant costs on mining companies when developing a mine; destroy shareholder capital; and damage New Zealand’s reputation as a destination for foreign investment.

Locals in the wilderness

Those looking to remedy the situation are likely to focus on the district and regional councils as agents of the RMA, and indeed the 2008 changes to the legislation imposed tighter turnaround timelines on councils. However, a 2013 survey of local government conducted by New Zealand’s Productivity Commission suggested that the problem lies not with the agents of the RMA, but the legislation itself. The commission’s poll showed 68 per cent of councils in New Zealand struggled with unclear regulatory provisions required in the 800-page document, and 70 per cent said a lack of direction from central government was a barrier to performance. One means of overcoming this barrier was to hire specialists and consultants, but just over half of all councils found it difficult to attract skilled staff, and 62 per cent said the costs of recruitment were a barrier. With no funding from central government, consenting costs are supposed to be recovered through user-fees, but 80 per cent of councils said this was a difficulty. It is hardly surprising then that 86 per cent of local government bodies in New Zealand said they had difficulty meeting central government standards. Yet for all this cost borne by local councils, the direct benefits of mining still accrue to central government in the form of royalties as well as salary and profit taxes.

Leadership void

The problem with the RMA lies instead with central government. The legislation was supposed to allow for local specialisation under the aegis of central government guidance, but in all but a few areas this is notably absent. Since the RMA was introduced, only four NPS have been developed, covering:

  • electricity transmission
  • renewable electricity generation
  • New Zealand coastal policy statement
  • freshwater management.

There are also five NES in place, providing guidance on:

  • air quality
  • sources of human drinking water
  • telecommunication facilities
  • electricity transmission
  • assessing and managing contaminants in soil to protect human health.

These policy documents cover a significant amount of ground, but it is equally clear how limited the scope is. Agriculture, particularly dairy, is one of the single biggest contributors to New Zealand’s economy, and yet there is not a dedicated NPS or NES for the industry. It is the same with mining. Councils are left to interpret the RMA for themselves without any specific guidance on how to assess applications for resource use in these highly technical and specialised areas.

Indeed, central government’s leadership role is missing from across a range of resource use areas, such as a toolset to determine landscapes of national significance, frameworks for ecological offsets, national infrastructure and urban planning to name but a few. Extending the previous metaphor, central government has failed to provide the main tent pole to the grand RMA marquee. Worse still, officials in Wellington appear mystified as to why the canopy has failed to rise regardless of how tight they insist the ropes must be, or how deep the tent poles should be driven.

Reform now, with more later

Reform of the RMA is desperately needed if New Zealand wants to reap the economic benefits offered by the mineral estate. In the short-term this can be done by limiting the ability of groups to launch vexatious appeals to developments they ideologically oppose, as in the Bathurst case. This can be simply and efficiently done by requiring appellants to lodge a bond with the courts to ensure that there is a constraint as well as a price for vexatiously stalling developments in court simply to tax the applicant. In addition, central government should provide a funding stream for local councils to recognise the costs they incur as consenting agents. This could be done by sharing the royalties from mining developments with local government proportional to the costs of consenting. This would act as a significant incentive for local government, as major consent applications would not represent a significant threat to their balance sheets.

This onerous regulatory framework has the potential to impose significant costs on mining companies

Over the medium-term, central government needs to develop national policy statements and national environment standards specific to the mining industry if it wants to lift output from the sector. Clearer central government guidance on landscapes of national significance and an ecological compensation frameworks would also go a long way to resolving disputes over land use, focusing development on where it is appropriate as well as ensuring the conservation estate suffer does not suffer any net losses from mining. Too often councils, firms, and communities are left to interpret the complexity of the RMA for themselves amid a notable lack of guidance from Wellington. This delays decisions, needlessly adds to cost, and creates uncertainty in a sector that is already highly speculative and riddled with risk.

Lastly, there needs to be a long-term commitment from government to modernise the RMA. At the time the RMA was drafted, a hazards-based framework was seen as the best means to promote sustainable management of natural and physical resources. However, international best practice has shifted to a risk-based approach, which delivers better outcomes for the economy and the environment. In addition, the approvals process must be made more efficient if we want to attract mining investments to New Zealand. A two-year period to decide if a project can proceed is too long when other jurisdictions, like certain states in Australia, aim to assess the same application – and with the same rigor – in six months or less. Evidence from Australia suggests the efficiency of the one-stop-shop approach does not come at the expense of environmental protection. South Australia, for example, is rated as the best performing regulatory regime in Australasia, according to an independent study commissioned by the Minerals Council of Australia. By contrast, the same report found that in practice, New Zealand’s regulations consistently lagged South Australia on measures of environmental assessment processes, native vegetation management, biodiversity offsets, noise pollution and fauna management.

These changes adopted as a package of reforms or piecemeal, have the potential to transform the nature of the dialogue that New Zealanders have over mineral extraction. If the rules are clear and efficient, environmental protections high and the activity respectful, what rational basis is there to object to efforts to increase mining activity in the rural regions? These changes also offer benefits that extend beyond the mining sector. If successfully implemented, the reforms will show that development and environmental protection need not be competing outcomes, a lesson that can be extrapolated to many other areas of the economy where there are tensions over how the country’s natural resources are used. 

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