UPDATE: Auditor-General responds to request for inquiry into LNG import facility
We welcomed last week's decision that Cabinet would delay approval to sign a contract with an LNG import facility provider until after the election. In our view, significant and fundamental concerns remained about whether the LNG import facility would be value for money, including the risk it posed of raising electricity prices, whether alternative ways of addressing energy security and dry-year risk had been adequately considered; the transparency of decision-making; and how procurement and implementation risks - including serious safety risks - are being, or will be, managed.
Back in August, these very concerns prompted Lawyers for Climate Action, alongside many other concerned organisations, to write to the Auditor-General to raise these issues and ask that an inquiry be opened. We have now received the Auditor-General's response (read the full letter here).
response from the auditor-general
After receiving our letter, the Office of the Auditor-General made enquiries of MBIE about the stage the procurement had reached and what further work was under way. The Auditor-General explained in the letter that:
“From those discussions, we understand that work is still under way to update and review the financial, economic, and strategic case for an LNG fuel solution and to identify a preferred model or provider. This work includes further consideration of the costs, benefits, risks, and wider effects of the possible approaches, including:
understanding who would bear the costs and how any cost-recovery arrangements would work;
the implications for electricity prices, security of supply, investment incentives, and other sources of energy; and
the risks associated with selecting a model and provider before enabling legislation has been passed and shortly before an election, which could result in a change of approach.”
This letter makes clear that basic and fundamental questions remain unanswered about the LNG import facility, including who will pay for it and how it could affect domestic electricity prices.
“With these fundamental issues still to be determined regarding the LNG import facility, we are astounded that until just two weeks ago, Minister Brown was adamant that the Government would sign a contract before the election. It appears that Minister Brown was determined to lock New Zealand into an extraordinarily expensive project despite critical questions such as ‘who will pay for it’, and ‘will it increase electricity prices’ still to be answered.”
The letter explains that, given the current state of the procurement process, the Auditor-General does not propose to open an inquiry at this stage, but indicated his Office will follow developments closely, particularly given the high public interest. In particular, the Auditor-General will be monitoring whether the Government properly considers:
the problem to be addressed, and the objectives of any intervention, were clearly defined;
a reasonable range of alternatives was identified and assessed on a sufficiently comparable basis, using consistent assumptions;
the preferred approach was supported by robust financial, economic, operational, environmental, and risk analysis;
the expected costs, benefits, risks, and beneficiaries were clearly understood, including who would bear the costs and how any cost-recovery arrangements were justified;
the scale and duration of any Crown support, contractual commitment, levy, or other use of public resources was proportionate to the problem being addressed;
the implications for electricity prices, security of supply, investment incentives, and New Zealand's wider energy transition were properly considered.
We are pleased that the Auditor-General has indicated they will continue to closely monitor developments regarding the LNG import facility. This is particularly so given the notable and ongoing lack of transparency around this project to date from the Government.