Christopher Adams

The Business Herald’s markets and banking reporter.

Maui gas leak: Firms affected look at compo

The Chelsea Sugar refinery is just one of the firmsaffected by the Maui gas leak. Photo / NZ Herald
The Chelsea Sugar refinery is just one of the firmsaffected by the Maui gas leak. Photo / NZ Herald

The disruption caused by the Maui pipeline leak looks set to cost businesses millions and throw affected companies headlong into time-consuming insurance negotiations.

And some firms are already saying they may seek compensation for their losses from whoever is responsible for the situation.

Bruce Loader, a Christchurch-based partner with business advisory firm Ernst & Young, said a key issue for many companies would be whether their business interruption insurance covered them or not.

Many policies have what is called a loss of public utility (such as gas) extension. "That extension will cover the company for lost revenue and extra costs, but often to very low limits," Loader said.

He said that if a company had a policy which gave them $1 million in business interruption cover, the limit for the loss of public utilities extension might only be 5 or 10 per cent of the total cover.

Pipeline manager Vector was last night working to fix the gas leak, located in the remote Whitecliffs area north of New Plymouth.

Around 2500 businesses, including most major gas users in the upper North Island, are expected to be affected until the pipeline is fixed.

The facilities of many major food manufacturers - including Birkenhead's Chelsea sugar refinery, Mt Wellington's Tip Top icecream factory and Goodman Fielder bakeries - were out of action yesterday as a result of the leak.

"It is a significant outage because the bulk of New Zealand's food production is in the Auckland area," Food & Grocery council chief executive Katherine Rich said.

Some operations at the Glenbrook steel mill south of Auckland were also being "safely idled" yesterday.

Dairy farmer Lachlan McKenzie said he had been forced to dump 14,000 litres of milk collected off his Rotorua farm on Tuesday night, as a result of dairy co-op Fonterra's gas-powered processing facilities being shut down.

Fonterra was yesterday afternoon working to get some sites back up and running after Vector began providing limited gas flows, although its processing plants north of Auckland (Maungaturoto and Kauri) remained closed.

The dumping process was soul destroying, costly and time consuming, McKenzie said. He said Fonterra would spread the cost of the lost milk across all its farmers, not just those affected by the outage.

"It'll affect payout to some extent for every farmer," he said.

McKenzie said he expected Fonterra would seek compensation for farmers from whoever was responsible for the outage.

Sanitarium general manager Pierre van Heerden said the company was forced to shut down its plant in Royal Oak on Tuesday afternoon.

Only eight months ago the cereal maker was forced to close its factory in the Christchurch suburb of Papanui for more than a week following the February quake.

Van Heerden said the Royal Oak manufacturing site was the company's biggest, which manufactured that all important Kiwi staple - Weet-Bix.

Sanitarium had not received any clear indication about how long the plant would be shut down.

"It could be from two days to 14 days, according to information from our gas supplier," he said.

Van Heerden said there was normally around a week's worth of stock in the firm's warehouses and with retailers.

If the closure dragged on for much longer Sanitarium would resort to "backup solutions", such as moving manufacturing that normally took place in Auckland to Christchurch, he said, adding that it was too early to quantify the cost of the closure.

Van Heerden said: "Naturally we will be pursuing compensation, whether that be through our insurers or from the suppliers of our gas."

Brewing firm Lion, which had its Christchurch plant permanently knocked out of action by the February quake, was also forced to shut down its 60,000sq m Auckland brewery on Tuesday. The factory was still closed yesterday afternoon.

"Obviously we'd like [the problem] fixed sooner rather than later so that we can get back to full production, but if gas is not restored by Monday we'll move to diesel fuel if we need to," said external relations director Liz Read.

"In the meantime people can rest assured that we won't run out of beer - there's plenty of stock."

Genesis Energy had switched from gas-fired turbines to burning coal at its Huntly power station and at Marsden Point NZ Refining Co was using gas from liquid fuel instead of natural gas to power its refinery.

- NZ Herald

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