Pulp mill and 200 jobs lost over power price hike

Plans to build a $300 million pulp mill near Kaikohe - bringing hundreds of millions of dollars and an estimated 200 jobs - have been shelved due mainly to an Electricity Authority proposal to hike the price of power in Northland.

The mechanical pulp mill was to have been the centrepiece of an industrial park at Ngawha making use of electricity and surplus heat from Top Energy's new geothermal power plant, and had been touted as Kaikohe's economic saviour.

The plant would have cost up to $300m, employed 200 people and created many more jobs in the community.

The mill was one of the key projects in the Government's Tai Tokerau Northland Economic Action Plan. Released with great fanfare in February by Economic Development Minister Steven Joyce, the plan listed 58 initiatives to transform the region's economy.

While the mill would have been built with private money the Government pledged to find suitable investors through NZ Trade and Enterprise. The Advocate understands two overseas firms were interested.

A feasibility study by independent consultants Indufor, released this week, found there was sufficient timber in Northland to supply the mill and sufficient global demand for the pulp. The study also found the mill would complement existing wood processing plants in Northland and reduce the number of log trucks on the roads.

Despite that the project has been shelved by Northland Inc, NZ Trade and Enterprise and the Ministry of Primary Industries, which jointly funded the pre-feasibility report.

The key reason for mothballing the mill is uncertainty around future power prices caused by a Government review of the way power is priced around the country.

If the Electricity Authority's proposal goes ahead power prices will increase sharply in places like Northland, which is far from the main generation areas, and drop in the deep south. Another proposal would remove subsidies for local generation like that at Ngawha.

Northland Inc chief executive David Wilson said the study identified potential for the timber processing industry in the Mid North but the decision not to keep investigating at this time was the right one.

To attract new industry regions had to be able to provide competitively priced energy but the Electricity Authority's review had created uncertainty about whether the new geothermal power plant could supply energy directly to the mill, avoiding high transmission costs. The future supply of timber was another factor in the decision.

The pulp mill was not completely off the table and could be revisited if some of the issues, particularly energy pricing, were addressed, Mr Wilson said.

The original plan called for a $750 million combined sawmill and pulp mill with 600 employees. That was scaled down to a standalone pulp mill because of the effect on existing saw mills in Northland.

Top Energy chief executive Russell Shaw, whose company is driving the Ngawha industrial park development, hoped the mothballing of the mill was a "speed bump" that could be fixed in future. The company had had great support from Northland Inc, NZTE and MPI, he said.

The Electricity Authority had been due to release its Transmission Pricing Methodology Review on Monday but it has been delayed until next week.