Energy minister Trevor Mallard announced the decision today, saying it followed New Zealand’s ongoing decline in oil stocks as a result of rising domestic oil consumption and declining indigenous production.

"It is very important that we meet our obligations to the IEA which is charged with reducing countries' vulnerability to oil shocks and with helping stabilise world oil markets.

"We have carefully considered the submissions on a consultant’s report released late last year on options and costs and believe tendering best meets the government’s objectives of minimising costs, while avoiding any adverse effects on competition between the oil companies and ongoing investment in the sector."

The government forecasts that New Zealand will be about 28 days under the 90-day obligation in this year and next, increasing to about a 34-day shortfall by 2009.

The cost of the tenders will be met by an increase in the petroleum fuels monitoring levy, expected to be about 0.7c to 1.0c per litre spread over all oil products. The levy is currently 0.025c/l and pays for monitoring fuel security and quality.

But Mallard said the increase in the levy was not expected to take effect until around mid-2006 as legislation would be required to amend the rate and purpose of the levy.

“The Minister of Foreign Affairs and I also want to explore whether we should hold some of our stocks in other IEA countries. This will require discussions with IEA countries in our region to determine whether this is viable.”

Consultants had calculated the capital costs for 500,000 tonnes of additional storage (about 30 days of net oil imports) to be about NZ$500 million, which would be NZ$50-75 million a year on an annualised basis that included on-going operational and management costs, he added.

Over 150,000 tonnes of spare capacity was available or could be made available within six months, though any large-scale new capacity could take 3-5 years to complete.

Earlier this month BP New Zealand said it would review its planned investment program for this country if the government forced the industry to pay the millions of dollars needed to shore up oil reserves.

Today Shell New Zealand cautiously welcomed the government’s final determination on how to resolve the IEA non-compliance issue.

“We believe the government has indicated their willingness to target a solution that will ensure IEA compliance without the need for massive new investment in storage capacity - the cost of which would have ultimately been borne by the business operator and private motorist,” Shell NZ general manager Jim Collings said.

“The government must be congratulated for listening to the concerns not just of the oil industry, but also of the wider commercial and private sectors, and the public.

“It is also encouraging to see as a core part of the solution, the government’s willingness to work with the IEA and the Foreign Ministry to assess the ability to hold some reserve stocks out of New Zealand.”