Waka Kotahi NZ Transport Agency is taking over the country’s bitumen supply because it thinks it is being ripped off

Documents released under the Official Information Act showed that the NZTA board reviewed the bitumen supply solution implementation plan last November.

Read the NZTA documents:

The very first thing a board document said, describing the situation, was that the bitumen supply chain had met the agency’s needs “in the past, but it is believed to have now leads to a high cost of bitumen on the road with large profits made by suppliers”.

Bitumen prices for road contracts are based on a list price “which Z Energy determines”, which is used to adjust the NZTA bitumen index, according to the documents.

“Waka Kotahi relies on the bidding process to obtain the best price for bitumen and has no visibility into the actual price paid by industry for bitumen,” an April 2021 document states. .

“However, it is understood that there are discounts for off-list prices and volume-based discounts.”

Z Energy bitumen manager Paul Prendergast said customers could import their own if the price list Z gave Waka Kotahi each month was not considered fair.

“Z refutes any assertion that we unreasonably took advantage of the market,” he said.

Bitumen is considered a “strategic commodity” because the NZTA and the municipalities have no alternative for road construction.

It has been entirely imported since early last year, after the Marsden Point oil refinery stopped producing 100,000 to 120,000 tonnes a year within a month of an NZTA committee receiving a “sudden” warning in December 2020 that it would stop, a document showed the agency’s board. .

The agency gave an oral update to the Minister for Transport last December on the recommendations approved by its board, but did not provide any information to RNZ about it, saying: “There is no no copy of the contents of this oral update”.

RNZ appealed to the Ombudsman.

This manufacturing shutdown has increased the risk that the bitumen supply chain will “move against” the agency’s strategic interests, the November board document warned.

The April newspaper said, “Waka Kotahi has a unique window of opportunity to take a strategic view of the entire bitumen supply chain and potentially secure lower prices.”

At this point, a year ago, he was looking for one or more supply chain partners to “improve our cost position in the supply chain.”

Despite the acknowledged impact of bitumen prices on “NZ Inc”, NZTA refused to answer most of the dozens of questions from RNZ about its changes in bitumen supply and deleted 50 of the 55 pages of reports it published, primarily for reasons of commercial sensitivity. .

One of the few unmasked parts said:

“Do Nothing Risk: If Waka Kotahi does not take this opportunity to influence the market, the following risks have been identified which will impact NZ Inc:

  • Price increase for all government bitumen

  • Lack of transparency in bitumen pricing and price trends

  • Two-tier surfacing market – those that import and store bitumen, and a second tier that will be serviced by the upper tier

  • Increased variability in quality, and therefore risk in pavement structures

  • Smaller port terminals are susceptible to stock-outs due to inefficient shipping

  • Increased trucking and carbon footprint (as has already happened in Northland)”

The country has already paid several million dollars to fix highway pavement problems, like in Kapitialthough the cause of these may not be the bitumen.

When RNZ asked to see the bitumen supply plan, NZTA said no plan existed. However, elsewhere in the same response from the OIA, he said the council had been briefed on the implementation plan and had met with bitumen importers about his plan.

When asked if it had spoken to importers about access to the 10 bitumen storage tanks they own at various ports, the NZTA said it was “commercially sensitive information which has been discussed under non-disclosure agreements”. Tanks are very expensive.

He also declined to provide information on:

The domestic bitumen market – about 190,000 tons per year – is worth more than $100 million a year at recent world market prices of about $600 a ton. These prices are bouncing back a lot, but have recently risen above pre-Covid-19 levels, after strong increases recently.

Z said it had been importing bitumen regularly for many years to meet demand, bringing in 120 million liters last year. He said the price was tied to crude oil, so it was volatile given the war in Ukraine.

The contractors buy from Z and pay the tank owners a throughput fee for access to the tanks which are mainly owned by three large road contractors; Downer, Fulton Hogan and Higgins.

Previously, the NZTA and the Ministry of Business, Innovation and Employment said the shift from domestic manufacturing to importing all of the country’s bitumen “has worked well so far to ensure sufficient supply of bitumen in the country.”

Yet without the supply chain solution to protect “equitable access to bitumen, sustainable and healthy markets, and long-term value for money for end customers”, the NZTA warned of implications “as an end customer and as a funder of the majority of bitumen”.

He has search for alternatives to bitumen for road surfacing, but has so far only offered concrete – a costly short-term only alternative – or in the long term a material called lignin.

RNZ

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