NZ South Island 2008

Cabral Douglas finds out why South Island law firms are infused with electoral enthusiasm

After nine years of Labour rule in New Zealand, John Key and the National Party have swept into power, and there is a new wave of optimism from north to south. After four consecutive quarters of negative GDP growth, the new administration, which has been dubbed 'pro-business', will seek to boost the country's economic fortunes.

So what does this mean for the South Island? With a population of over one million, this is a constituency to which the new government, if it is to be successful, must deliver results. One policy challenge for the agriculture-dependent island is to balance sustainability and economic growth.

If South Island's west coast is any indicator, it appears that the balance may have tipped in favour of the latter. The electorate in this traditional Labour stronghold, dependent mostly on dairy farming, forestry and seafood, has overwhelmingly switched its allegiance to the National Party, in the process sending a clear message to Wellington.

Voting for development

How has this message been interpreted by the South Island's lawyers? According to some, including Buddle Findlay company and commercial partner Jeremy Blake, this electoral swing has been viewed as 'a vote against the greens'. He has concluded that the tension existing between green concerns and the economic growth agenda under Labour may have had the long-term effect of impeding economic development. "I think the sentiment is we swung too far to the side of sustainable issues, making development, particularly in the context of big projects, almost impossible," he said.

Although it is still early days, South Island lawyers and their clients are preparing for an influx of work as Prime Minister Key gets set to roll out an array of pro-development policy objectives.

According to Buddle Findlay public and commercial law partner Alistair Hercus: "It's going to be a pro-business government. They intend to streamline and improve our regulatory framework. The classic example is our environmental law, which takes a long time to get consent... One of their priorities is to amend our laws so they are more straightforward."

One piece of legislation that South Island lawyers are paying particular attention to is the Resource Management Act. Although the Act has served a useful purpose in helping protect the country's natural resources, under Labour rule it was frequently criticised for obstructing important infrastructure development projects. South Island lawyers are expecting National's policy agenda to benefit development by amending the Act to reduce obstacles and speed up the approval process for major projects.

"It's been mooted that, instead of taking five years, approval for a large public interest type project might be reduced to two years. Clients under the Labour regime had been growing increasingly frustrated by the level of bureaucracy, and red tape was becoming annoying," says Blake.

Early signals being sent by the new administration - such as the allocation of NZ$60bn to a national infrastructure plan, the establishment of a new national infrastructure agency and the appointment of deputy leader Bill English as the new infrastructure minister - have added substance to pre-election election promises and demonstrated that the government views the development of the country's infrastructure as urgent.

Cautious optimism

Simpson Grierson local government and environment partner Philip Milne has expressed cautious optimism. Milne, who is involved in the Christchurch southern motorway project and is chair of the panel of commissioners for the Central Plains Irrigation Scheme, warns that as the government's plans unfold day to day, there is a level of uncertainty, and corporate entities and government agencies will need to brace themselves for the transition period between old and new policies.

"As far as capital intensive infrastructure projects go, the proposed changes to the Resource Management Act will probably have no impact on the projects already in the pipeline, and will only speed up the process for newly initiated projects, which have yet to come on stream."

Although the change of government has brought a level of uncertainty, Buddle Findlay public law partner Nick Crang says the direction of the new government is becoming clearer on a daily basis. "The situation is far less uncertain than it was before the election. Prior to the election we didn't know what we would have. We had the coalition agreement signed on Friday, and the policy position has become clearer. Some of the detail has to be sorted out, and we are helping our clients through that process," he said.

Milne expects public sector spending to increase, and privately funded projects to be driven by developments in the world economy. "Government had signalled its intention to spend on infrastructure. This is good for the economy. So those projects in the pipeline will continue and may even increase... the privately funded projects may slow down, depending on the global economic situation," he says.

The transition of power

The period of transition from the old legislation to the new promises to create plenty of opportunities for law firms as advisors to private and public sector groups.

Firms are preparing for the work that will be generated from the government policy objective of private/public partnership in the planning and implementation of large-scale infrastructure projects. This PPP work is also being characterised as a departure from the old Labour policy, and firms in the business of advising these public sector entities expect to see an increased workflow.

"The more work for lawyers in these areas is good news for the economy because we are service providers...and if we are busy it means our clients are busy," says Simpson Grierson chairman,
Rob Fisher.

Carbon trading suspended

Another early indication of National's agenda can be seen in the suspension of the recently passed Climate Change Response (Emissions Trading) Amendment Act 2008.

The decision to put the brakes on the implementation of a scheme that would have placed New Zealand at the forefront on carbon reduction in the region has bolstered the new government's pro-business credentials, while emissions commitments under the Kyoto Protocol are maintained. However, the new government has announced that it agrees in principle with having a scheme, pending a comprehensive review by no later than 2010.

Critics of the Labour scheme say that the legislation had been rushed through parliament, and as a result the details as to how it would impact industry, particularly forestry and agriculture in the South Island, had not been thought through carefully. "Although the government announced today that we are going to have a trading scheme, they are going to reassess the design of the scheme, how much assistance are provided to business in implementation, so we are still going to have one - it's a matter of timing and detail," Hercus says.

The new government plans to unveil a committee of experts who will report on how best to implement the scheme without damaging commercial interests. Hercus says that the new government might want to delay the implementation of the scheme to be more in line with the scheme currently under review by the Rudd government in Australia for competitive reasons.

"The faster and the earlier you internalise carbon, the less competitive you become relative to your trading partners that don't. Why should we introduce a scheme that our regional competitors are not subject to? This would put our industry under a competitive disadvantage," he says.

The original Labour plan also called for the banning of new baseload fossil-fuelled thermal electricity generation, as a means of encouraging more renewable energy projects. However, some climate change legal practices are concerned that the new government's move to postpone and review the Climate Change Response (Emissions Trading) Amendment Act 2008 could hit workflows. Kensington Swan partner Bryan Gundersen says the review will be a setback for environment and commercial lawyers if clients delay external legal expenditure. "While it's a setback, it's not a disaster. I remain very positive about workflow in the area as there are risks to be managed and opportunities to pursue. We'll still end up with an emissions trading scheme, perhaps modified with agriculture carved out and a carbon tax," Gundersen says.

He believes firms could play a more active role in encouraging clients to give more careful consideration to the scheme: "We tell clients not to use this as an excuse to slack off but instead to be even better informed about how it's going to impact their business. It's still possible to do transactions, because there are always means of allocating risk to protect both parties, given the current regulatory uncertainty."

He says that lawyers can also provide broader legal advice, including both technical and strategic expertise for submissions, legal technical changes required for the scheme, opportunities for brand enhancement and work on procurement or supply contracts, to ensure carbon costs are recovered and passed through.

Water policy

Another issue that is extremely important for the South Island is water. As in rural Australia, water policy in the South Island is always an extremely emotive election issue. Although the west coast has sufficient rain fall for the long-term sustainability of crops, the same cannot be said for the east coast. "The rain falls in the mountains and, from the farmers' perspective, it goes down the river to the sea ... and isn't utilised ... there is pressure to utilise the rivers more by tunnelling through the alps which could bring water from west to east," says Milne.

He expects to see significant changes in water policy, and notes that it is currently a major practice area for South Island lawyers and that this is likely to continue. South Island's three water-related infrastructure projects currently in the pipeline are the Mokihinui River hydro dam project, the Waitaka hydro project and the central plains irrigation scheme, having a combined value of NZ$2bn. All three are still awaiting final approval.

"The new government has signalled that they will be doing some work but not necessarily in the first 100 days. They have indicated an intention to stage the water law allocation process at first instance served but there will be some significant changes, maybe not in this coming year but late next year," says Milne. "There is a gold rush for water at the moment. There are more trading regimes and water needs to be dealt with more efficiently."

He explains that lowland farmers are saying they are running out of water in the uplands. He continues that nitrate flooding of the lakes and streams is an environmental risk, and nitrate pollution and nitrification of lakes and streams brings risk. He adds that the problem is currently outpacing the solution.

This may be one reason New Zealanders have turned to Key's National Party to lead the country forward in these trying times. However, as the new government navigates the tricky issue of balancing sustainability and economic growth, South Island lawyers have expressed overwhelming optimism.

Many are preparing for more work in infrastructure development, public advisory work and in assisting clients to comply with the new legislation when it is passed into law.

Will the new government's pro-growth agenda come at the expense of long-term sustainability? This remains to be seen. However, one thing is certain. Given the complexity of the issues currently being faced by the region, South Island lawyers, specifically those involved in infrastructure work, will remain very busy over the next four years. ALB