Politics versus economic sense: an example

In a previous post, I noted that following the Labour party election victory, a hidden ultra-right wing faction within it took economic control and introduced the economic policy of the party that won 2% of the votes. How did they get away with this? First, New Zealand has no upper house, so there was no procedural method available to stop them. Second, only too many of the regular Labour MPs had little or no interest in economics; they merely wanted to do good things, which is one of the problems with many Socialist governments. The third reason is more difficult to explain, but they also gave their supporters something that made such supporters accept their economic fate, and it was cash-free: they declared New Zealand “nuclear-free”. This created a serious problem with the United States, because their naval ships were forbidden entry unless they declared themselves “nuclear-free”, which, of course, went against (the perfectly reasonable) US policy of not declaring what their armaments were. Of course they never mentioned that New Zealand had a nuclear sciences institute, or that locally made short-lived isotopes had important medical uses. It was also notable that this policy had no purpose other than to shore up votes and keep the left wing part of the party shut up about economic matters. I suppose the policy also forked any discussion on nuclear power. While the policy was presented as the highly emotive “no nuclear bombs here”, it also forbade nuclear powered ships. All of this, in my opinion, shows one of the many failings of democracy, or at least what we call democracy. In my opinion, it is more a periodically elected autocracy. That, of course, does not mean we should go back to what we have previously had, but it does suggest we should not be complacent and simply accept our fates. One of the themes of my novels is this issue of governance. I freely admit I do not ahve the answers, but that should not prevent me from illustrating some of the problems.

However, the sell-off took considerable time, and the synthetic fuels plant was far down the queue. The reason for this, in my opinion, showed another ugly side of politics. The new government had more interest in shouting about the disaster that the previous government had imposed on them than on helping the country, and accordingly, they were running down the synfuels plant, making it seem the worst investment under the sun. This was helped by the so-called “huge cost over initial prediction”. This huge cost over-run, of course, arose because the initial cost was not for what had to be built. The real villains were the incompetent civil servants, but the previous governing politicians had to take the blame, because that is where the votes lay. All of this blame-throwing could only depress the value of the plant, so sale had to be deferred. Worse, anything that improved the value of the plant, such as this durene venture we were advocating, also had to be put off as long as possible.  Votes appear to be all a politician thinks of at times.

The questions were, what did  they have, and what could they have? What they had were two of the largest methanol making plants in the world, and being new, they would have been the most efficient then. Tacked to that was a plant that passed the methanol through zeolite, and if 32 units of methanol went through, no more than 14 units of hydrocarbon could come out, the other 18 being water. The methanol was wet, containing about 10% water. So, what could they do? First, look at what was made. A relatively high per centage of the hydrocarbons were in the lpg range, with a surprisingly high percentage of this could be converted to isobutylene. There were also a number of aromatic hydrocarbons that were worth considerably more as chemical feedstock, such as durene and 2,5-dimethylnaphthalene. Drying the methanol and selling it was obvious since they had twice as much of it, and the unit price was higher, but there were further things. At the time there was a great market for methyl tertiary butyl ether (MTBE), which was an octane enhancer. This market eventually collapsed, because retail petrol tanks in the US were constructed in a way where MTBE could leach out, but reacting methanol with isobutylene would have given a good return for several years, and there are other uses for isobutylene. My financiers asked me what could be done, and I presented them with a report that essentially said, leaving aside the durene, if a further hundred million dollars were invested, there would be an additional return of five hundred million per annum. I was told this was to be presented to the politicians, but I do not know whether it was. In this particular case, the financiers were also making a lot of money by being part of the asset-selling process, and taking fat fees from doing it. In any case, nothing was done to improve the economics of the plant. That my report was ignored is not important, but surely someone else could have done the same thing. It was almost as if the government preferred the synfuels plant to lose money! It was then that ICINZ did some charitable work: they offered to build a small plant to extract and sell durene for the government. The idea was to ensure that their design worked, and of course they would get further engineering data should they get the right to purchase, an they would get costing data to improve our bid.

Meanwhile, time passed and the government still refused to make up its mind whether it would sell the durene rich hydrocarbon stream. It was not until the next election was on the horizon that they finally decided that something had to be done. They had milked the “cost overrun” for every vote it was worth, while there was the possible risk that being unable to make a decision in a whole election cycle might play into the opposition’s hands.


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