By Alan Pollard, CEO, CCNZ.
For our industry, the timing couldn’t be worse. We were just starting to see signs of recovery after 18 months to two years of low project activity. For CCNZ, we were starting to pivot from pipeline to workforce – ensuring industry has the workforce capacity and skills to deliver the projects as the work programmes ramp up.
Now, our advocacy focus is keeping members well informed on fuel issues and working to protect and promote civil sector interests in the event of a market deterioration – fuel supply pressures and even higher price pressures.
Industry associations need to be nimble and agile, capable of pivoting at short notice when faced with adversity. Our association stood up to support members when Covid hit, and we are standing up as this situation unfolds, listening to member concerns and acting accordingly.
In any ‘crisis’ situation the key is to establish a ‘single source of truth’. There has been a lot of misinformation floated as this situation has unfolded, including fuel stocks, forward fuel orders, the effectiveness of the Government response, etc. However, the result of misinformation can lead to unnecessary panic and poor decision-making.
We aim to get factual and relevant information to members from reliable and credible sources to provide confidence that member interests are being looked after and that members can make informed decisions to support their businesses. In this response, we are well connected with ministers and officials, ensuring our voice is heard. I trust members are finding our regular updates helpful and informative.
I have been impressed by the Government’s response to date. It has genuinely been working hard to have access to the most up-to-date fuel supply data, and to identify alternative sources of supply to supplement our traditional sources. They have been very willing to engage with affected industry sectors and have taken on board any concerns and suggestions we have highlighted. This is a great example of how government and industry can work together to achieve the best outcomes possible.
Your association is also closely monitoring the response from our clients to the rapidly escalating fuel and input product price escalation. Early indications are mixed. Some clients are committed to actively engaging with contractors to address this issue together – and we welcome that approach – while others have indicated contractors should shoulder the burden of cost escalation. Yet others have taken what I consider a knee-jerk response and looked to defer or cancel projects without recognising the costs of delay, deferment and cancellation.
I have indicated our expectation to the ministers involved that Government (central and local) clients will act in good faith, and act reasonably, responsibly, and proportionately.
Early engagement with contractors is critical but any suggestion contractors will shoulder this burden alone is unacceptable. I raised this matter with the Minister of Finance last week, and she is keen to be updated on how clients are responding to this. The Minister is also clear that deferring or cancelling projects is undesirable due to the economic consequences that this would create.
To support our advocacy for the work programme to continue uninterrupted, we, in partnership with Infrastructure NZ, have commissioned Shamubeel Eaqub to do some economic modelling of the impact of deferring or cancelling projects. Without pre-empting the outcome, we anticipate this will be significant.
Crudely, if fuel makes up (say) 5% of a project’s cost, and assuming a profit margin of (say) 8% that accounts for a small amount of risk, this means that 87% of the project value is returned to the economy or community by way of wages, the purchase of goods and services, and the like. The consequences of projects not proceeding could be catastrophic at a time when the economy needs this stimulation.
The reality is, we don’t know how long this fuel disruption will last. The idea that common sense will prevail and diplomacy will carry the day seems like a dream at the moment. Even if the war does end soon, it will take some time for things to return to normal (or to a new normal).
Given significant damage to refining infrastructure in the Middle East, this will take time to rebuild and repair. It will take time for insurers to have confidence in the risk posed by ships passing through the Strait of Hormuz.
To all of our members who have been in touch to share the issues they are facing, and how their businesses and clients are responding, thank you for placing your trust in us. Our work to support and protect our members will of course continue for as long it takes.
We will do all we can to mitigate the impact that continued disruption will have on our members. We encourage members to share their experiences and market intelligence with us, the good and the bad. Having good quality information goes both ways. The more we can inform the government the better and more targeted their response and support.
It’s during times like this that having a clear voice and a strong relationship with government pays off. This is based on credibility and trust, and a single source of truth, based on the shared experience of our members. At times like this, it matters.
While the situation could always be better, I am pleased our investment in these relationships (and the faith members place in us as their association) is now returning dividends for members.