Mineral wealth could be used to invest and help provide for future generations
In 15 years, New Zealanders could be the oil sheikhs of the Pacific if Government projections over the potential of our petroleum sector bear fruit.
Ministry of Economic Development estimates suggest the petroleum sector alone could generate over $30 billion per annum in export revenues by 2025.
A figure which is unlikely to be surpassed by our top-dollar dairy industry unless it sharpens up its act by moving further up the value chain, or, there is another "white gold" rush.
Working out what to do with NZ's "petro-dollars" - and with the royalty payments the NZ Government can expect to receive if it does push the button and allow targeted mining on prospectively rich parts of the conservation estate - would be a good problem to have.
But instead of looking for the upside, far too many Kiwis are concentrated on the negatives.
Partly, this is because the Government has yet to make clear whether it would tuck-up the revenues from petroleum and minerals into a ring-fenced fund to invest and help provide for future NZ generations or simply take the cash straight into the consolidated fund and use for day-to-day Government purposes.
There's plenty of models to choose from.
An Aupec report released late last year examined a number of models ranging from the Norwegian Oil Fund through to the Alaskan Permanent Fund.
All these funds have one thing in common.
They recognise that the oil will one day run out or drilling available reserves will simply get too expensive.
By creating sovereign wealth funds, such countries are acting in their long-term interests.
They have also avoided the terrible budget hole that the British Chancellor of the Exchequer now faces as the North Sea oil field dividends dry up.
As the Daily Telegraph noted, in 1979, when Margaret Thatcher came to power, the amount Britain owed, as a nation, was £88.6 billion.
In the subsequent six years, taxes from the North Sea (which had been pretty much non-existent previously) generated an incredible £52.4 billion.
If New Zealand follows the Norwegian model and sets up a state-owned petroleum company to co-invest in oil exploration we could win both ways. Unfortunately, the Government sold the last such SOE to the former Fletcher Challenge.
It's important to put this potential future in perspective.
Right now Fonterra is New Zealand's largest exporter and the driving force of a dairy industry which accounted for 21 per cent of merchandise exports in the June 2009 year, bringing in some $9.1 billion in export receipts.
Tourism is another major driver boosting foreign exchange by attracting tourists here.
But the petroleum sector could well overtake dairy by 2025 as the major contributor to NZ's export receipts.
The minerals sector could also prove to be a big money-spinner for the economy as the Government stock-take of various minerals contained on the conservation estate - such as gold, silver, and rare earth minerals - showed.
But much of the reaction to the Government's "Maximising our mineral potential" discussion paper has focused on the negatives.
Responses to nzherald.co.nz's Our Views are telling:
"This land is worth too much to let big business ruin, but with National in govt no doubt greed will prevail."
"This highly destructive form of mining with very little regards for future generations is dispicable [sic] Is this Brownlee insane? The socio-pathological plundering of protected nature reserves will make a monument out of wasteful energy policy."
Others were more sanguine: "Fiordland is dotted with old coal mine and gold mines and old logging areas. Some of the small islands were stripped bare. Find those spots now! The only scars left in Fiordland are left over from earthquakes. It all regrows back."
Few focused on the metrics, in 2008, oil was already New Zealand's third largest export earner, bringing in $2.8 billion, a 100 per cent increase on the previous year's figures.
The foreign dominated oil industry obviously gets a large percentage of the takings. But MED figures provided for the Business Herald reveal that petroleum was a nice little earner for the Government in the 2008/2009 financial year.
The Crown received approximately $965 million from the petroleum sector that year: $543 million in royalty payments; the balance in taxes.
MED suggests that should the estimated resources in NZ's unexplored basins be successfully developed, Crown receipts alone could increase to more than $10 billion per annum over the next 40 years, adding $400 billion to Government revenues.
The mining sector projections are not quite as rosy.
Mining in New Zealand uses just 40sq km of land, less than 0.015 per cent of our total land area.
The export value of that land is $175,000 per hectare. Dairy farming by comparison uses 20,000sq km of land with an export value of only $3500 per hectare.
But in 2008, coal, metal and industrial mineral production was over $2 billion in value for the first time. Officials are now scoping a review of regulatory, royalty and taxation arrangements to ensure they provide the Government with a "fair and equitable" share of the value of NZ's petroleum resources as well as mineral resources.
Unfortunately, there has not been enough debate on what to do with the proceeds of this prospective petroleum and minerals bonanza.
Economic Development Minister Gerry Brownlee has mentioned the parlous state of the NZ economy which will face fiscal deficits for another six years.
Brownlee has suggested extra income from mining in particular will help the Government meet its revenue objectives.
But he would be better advised to focus on the potential to accumulate investment funds from future petro dollars and minerals royalties.
If the MED projections are correct, the Government could make $10 billion a year from petroleum alone to tuck into a fund which could produce investment income for this country.
By comparison it has taken the NZ Super Fund nearly seven years to accumulate $15.9 billion.
But to make the most of our resources we may have to act like sheikhs.
Leave the oil and minerals in the ground when prices are low and ramp up production when they hit peaks.
This will not be an easy task.
But again, it's a great problem to have.
