Economic transformation is a key priority for the Government. The Ministry of Economic Development leads the public sector-wide effort to implement the economic transformation agenda. We also deliver specific items of work within that agenda.

The Government's economic transformation programme is focused on five key areas:

growing globally competitive firms
world class infrastructure
innovative and productive workplaces, underpinned by high standards in education, skills and research
environmental sustainability
an internationally competitive city - Auckland

The identification of these key areas has helped the Ministry to sharpen and refine its own set of strategic priorities. Those priorities represent areas agreed with Ministers to be critical for economic growth. This overview describes some of the key initiatives we have taken during the year in pursuit of the Ministry's five strategic priorities:

leadership
international linkages
innovation
regulatory environment
infrastructure

This overview also describes what we have done to advance the Ministry's organisational development strategy. That strategy is designed to ensure we have the capability now and in the future to achieve the Ministry's vision, strategic priorities and business environment outcomes.

I would like to thank all staff whose professionalism and commitment throughout the year is reflected in this report.

Leadership

Leading a whole-of-government approach to economic development

The Government's economic objectives transcend departmental boundaries. Different agencies are responsible for key policy areas which influence productivity, such as access arrangements for international trade, the business regulatory environment, the development of skills and talent, infrastructure services and policy on macro-economic stability.

Departmental structures sometimes get in the way of good economic outcomes. A singular focus on departmental output delivery can blind us to the wider achievement of whole-of-government outcomes.

The Ministry, therefore, has an important leadership role across the public sector to ensure that economic development remains a key area of focus. Our aim is to work with other agencies to increase the combined effectiveness of the public sector in improving New Zealand's economic growth rate.

Two particular achievements over the past year illustrate the Ministry's role.

Working with Key Stakeholders to Develop, Staff and Execute an Effective Work Programme for the Ministry's Auckland Policy Office

As New Zealand's largest city, Auckland's economic performance is critical to national innovation and growth. The Government Urban and Economic Development Office opened in Auckland in July 2005, comprised of staff drawn from this Ministry plus the Ministries of Transport, Environment and the Department of Labour.

Over the course of the year we initiated a range of work to deepen the Ministry's understanding of the role of Auckland in New Zealand's economic development. Specific initiatives included a comprehensive study into Auckland's economic performance and key economic characteristics. This collaborative report helped to provide a solid base for a better understanding of the many dimensions of the Auckland economy.

Economic Transformation Agenda

The Ministry has led the development and implementation of the Government's Growth and Innovation Framework (GIF). This framework (and associated processes) has been a key tool for integrating economic development activity across departments and agencies. During the year the Ministry advised Ministers on the further development of GIF and supported discussions between Ministers and public sector Chief Executives about broad economic priorities.

Subsequently, Cabinet agreed on a focused economic transformation agenda for the next decade, and the Ministry has since led the economic transformation strategy process across the public sector.

The Growth and Innovation Advisory Board (GIAB) has been increasingly integrated into the strategy development process. Six Board meetings were held during the year, and GIAB jointly hosted a symposium focusing on Auckland's performance as a city.

International Linkages

Improving the international linkages that allow firms to benefit from trade, knowledge transfer and investment

As a small, geographically isolated economy, New Zealand faces considerable barriers when endeavouring to form and maintain the international linkages that support business activity and improve our competitiveness. Distance impacts on person-to-person contact and business relationships, and on the transfer of tacit knowledge, such as subtle differences in consumer preferences. Institutional, legal and regulatory differences also create costs for firms. Finding a niche in large international markets can be daunting, difficult and risky.

These barriers are an impediment to improving New Zealand's growth rate.

During the year, the Ministry aimed to advance this strategic priority by:

helping to reduce the impact of borders on firms by seeking to reduce barriers to market access and compliance costs associated with technical regulations;
promoting connections that allow knowledge transfer to occur, and by promoting high-value international trade; and
assisting New Zealand firms and other institutions in their efforts to connect with the rest of the world.

Developing a Single Economic Market with Australia

Australia is our most important economic partner and the largest market for New Zealand goods and services. New Zealand already enjoys uniquely close social, institutional and business linkages with Australia, and this work programme is designed to further strengthen them.

Business Law Coordination Programme

Business law coordination with Australia, within the framework of the Memorandum of Understanding (MOU) on Business Law Coordination, has deepened in the areas of competition, intellectual property, accounting standards and securities markets regulation.

A review of the MOU was completed and signed off at the Finance Ministers' meeting in February 2006. This reaffirms both countries' commitment to work under the trans-Tasman business law programme and to pursue further business integration.

The Trans-Tasman Accounting Standards Advisory Group's (TTASAG) work to align New Zealand and Australia's standards with international accounting standards continued, and efforts to collaborate with Australia to influence those standards deepened. New Zealand and Australia co-hosted an Asia-Oceania regional forum on international financial reporting standards. TTASAG facilitated the completion of a cooperation and coordination agreement between Australian and New Zealand standards bodies.

The Australia-New Zealand Mutual Recognition Treaty relating to securities offerings was signed by Ministers in February 2006.

Work under the MOU on competition and consumer protection policy also advanced. Good progress has been made on achieving improved information sharing between competition and consumer law enforcement agencies. Progress has also been made on strengthening the relationship between the Australian Competition and Consumer Commission and the New Zealand Commerce Commission through establishment of annual joint Commission meetings.

The Ministry is exploring further options for intellectual property coordination in the administration of patents (including the patent attorney profession), trade marks and plant variety rights. A range of options has been identified along with a set of criteria for assessing them.

The Ministry continued its involvement in two projects under the Australian Ministerial Council of Consumer Affairs aimed at developing fully harmonised approaches across Australia to product safety and trade measurement respectively. The harmonisation of these Australian domestic regulatory regimes will facilitate trans-Tasman coordination.

Institutional Design

An interdepartmental working group led by the Ministry continued working to develop a general framework of options for regulatory coordination with Australia, including a focus on trans-Tasman institutions. The State Services Commission is leading the process on how to operationalise a framework for choosing and designing vehicles for cooperation.

The Ministry provided ongoing liaison with the Australian Productivity Commission's Office of Regulation Review (ORR), especially over particular COAG Regulatory Impact Statements with trans-Tasman implications, which are reviewed by the Ministry's Regulatory Impact Analysis Unit (RIAU). This ensures that trans-Tasman implications are factored early in the policy development process in both jurisdictions.

TTMRA and Broader Regulatory Coordination

The Trans-Tasman Mutual Recognition Arrangement, which came into effect in 1998, has significantly removed regulatory barriers to trade in goods and the movement of registered people. Recommendations from the first five-year review of the Arrangement were endorsed by the Council of Australian Governments' Committee on Regulatory Review and agreed by the New Zealand Cabinet in June 2005. The work programme to implement the TTMRA review recommendations was approved.

Cooperation on Economic Development Issues

Breaking down the impediments to doing business, making investments and sharing ideas is one part of the task in creating a more integrated economic market with Australia. We have been exploring whether there are opportunities for New Zealand business that may arise from any comparative advantage that New Zealand and Australia (and jurisdictions within it) have developed as a result of the free trade environment that ANZCERTA and TTMRA have created. The challenge is to develop a coherent cooperation agenda that allows us to take advantage of these opportunities.

Taking New Zealand to the World and Bringing the World to New Zealand

The year saw a continued expansion in New Zealand's bilateral free trade negotiation programme. The Ministry has responsibility for providing policy and negotiating advice in the areas of trade rules, including rules of origin and trade remedies, technical barriers to trade, competition, intellectual property and government procurement. We also play a central role in the market access tariff negotiations.

The Ministry supported New Zealand Trade and Enterprise's implementation of the strategy resulting from the organisation's global services review.

A baseline review of Tourism New Zealand's (TNZ) off-shore marketing function was completed in December 2005. This review:

was conducted within a context of net benefits of tourism to the economy rather than simply volume of economic activity that the sector generates;
developed research methodologies to establish which gains in tourism are attributable to Tourism New Zealand performance; and
established the degree to which Tourism New Zealand is operationally fulfilling the goals of the New Zealand Tourism Strategy 2010.

New understandings generated from the baseline review are being used in the development of new performance measures for TNZ and will be developed further in the 2006/07 work programme of the Ministry of Tourism and TNZ. The baseline review will be utilised as a contribution in the forward planning of the TNZ budget for the next three years.

China

New Zealand firms are keen to seize opportunities arising from access to China's large and rapidly expanding markets. Primary products, education and tourism are key areas for New Zealand.

The Ministry provided policy and technical advice and negotiating expertise on tariffs, trade remedies, rules of origin, intellectual property, competition and government procurement for the Free Trade Agreement (FTA) negotiations with China. Seven rounds of negotiations have been completed.

The Ministry continued to build effective relationships with representatives of the Chinese regulatory system, particularly the General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ), with a view to exploring the possibility of a Mutual Recognition Arrangement on electrical safety and electro-magnetic compatibility.

The Ministry of Tourism, in partnership with Tourism New Zealand, has developed a comprehensive Action Plan to address quality issues for New Zealand's inbound tourism market from China. This work has seen significant multi-agency collaboration, including a summit convened in August 2005 in Shanghai between New Zealand agencies in China and the Chinese travel trade. Agencies have agreed to a suite of measures that will enhance the quality of this market. Actions implemented to date include:

enhancement of the Approved Destination Status visa processing system by the New Zealand Immigration Service;
increased focus on enforcement of existing regulation in New Zealand by the New Zealand Police and other agencies;
establishment of stronger inter-government engagement on tourism; and
implementation of consumer research by TNZ.

WTO Doha Round

The Ministry provided support for the WTO Doha negotiation and, in particular, direct support to the Chair of the WTO Rules Committee. New Zealand has continued to seek a constructive, bridge-building role in rules negotiations and to try to influence outcomes which are in New Zealand's interests.

Other Free Trade Agreements

The Ministry provided policy and technical advice and negotiating expertise on tariffs, trade remedies, rules of origin, standards and conformance, government procurement, competition and intellectual property for FTA negotiations, including with Malaysia and ASEAN.

The Trans-Pacific Strategic Economic Partnership (TPSEP) Agreement with Chile, Singapore and Brunei is now in effect. Negotiations with Malaysia are largely complete. The negotiations between Australia, New Zealand and ASEAN are on track, with Australia and New Zealand seeking to agree on joint elements papers in many areas.

Innovation

Fostering entrepreneurship and innovation in New Zealand firms

New Zealand's economic success depends on the performance of its businesses and entrepreneurs. Innovation is vital to international business success as it enables firms to extract more value from inputs. Through innovation, firms can be at the forefront of their game, can command a price premium on world markets and can break into new markets and successfully develop them. Innovation involves a combination of:

creating and marketing new or improved products and services that consumers both here and abroad value highly; and
creating and adapting to new forms of organisation and new technologies and processes.

In order for New Zealand firms and industries to move up the global value-chain, an increasing number of New Zealand firms need to specialise in activities with high new-knowledge content of a scientific, technological, creative or commercially innovative nature. It is no longer enough for our businesses to focus solely on improving efficiency. To stay ahead, New Zealand firms and industries need to continuously change what they produce, how they produce it and how they market it. They also need to be quick adopters of new technologies from offshore.

Initiatives undertaken during the year included the following.

Improving the Performance of the National Innovation System

New Zealand's national innovation system is vital to improving the innovative performance of our firms. New Zealand's tertiary education organisations and Crown Research Institutes are particularly important to research. Other government institutions such as the key regulating authorities are important in providing an environment conducive to innovation.

Competition policy and intellectual policy are particularly important foundation policies for an effective innovation system. Ensuring that all individual parts of the system work effectively and complement one another is critical to enhancing innovation in New Zealand. Effective coordination and linkages between the different players are also crucial to good innovation outcomes.

The Ministry plays a key role in looking across the national innovation system to identify strengths and weaknesses. We led the Growth and Innovation Framework, which placed innovation at its core, and are leading the Economic Transformation Agenda. We worked across government to promote coordination of policies that impact on innovation, and we built an evidence base to support development of future innovation policy. This included assessing our policy settings against international benchmarks and the identification of priority areas for action.

The Ministry used data from the Business Practices Survey (2001) and the Business Operations Survey (2005) to better understand the issues facing firms in New Zealand as they seek to innovate and grow. This improved understanding has helped inform advice on appropriate policy interventions at the firm and sectoral level.

Promoting ICT as an Enabler of Innovation and Productivity

New Zealand is falling behind in the use of information and communication technologies (ICT). ICT has great potential to enhance innovation and productivity across the economy, and to realise this potential requires improvements in digital content, confidence and connection by users - individuals, businesses and government. ICT has a particularly important role in the New Zealand economy by facilitating knowledge transfer and effectively reducing New Zealand's distance with the major markets around the world.

The Ministry is coordinating implementation of the Digital Strategy - the Government's ongoing programme to improve ICT infrastructure and lift the use of ICT across the economy. Governance structures have been put in place to oversee developments, and two funding sources have been established - the Community Partnership Fund and the Broadband Challenge Fund.

Building Business Capability

The Business Capability Partnership Programme is a collaborative partnership between business and government, focused on raising business, management and leadership capability in New Zealand. Six working groups were established and four work plans agreed. Under the Business Capability Partnership Programme, a range of projects were funded, including the World Congress for Total Quality Management, research into learning networks, a stocktake of New Zealand business capability research and QNZ Ltd's evaluation of software for business benchmarking tools.

Work was carried out with the Foundation for Research, Science and Technology and the Ministry of Research, Science and Technology to pilot the Technology Partnership Programme in New Zealand. Cabinet approval was obtained to fully implement the programme.

Capital Deepening and Access to Finance

Innovative firms require finance to fund new products and business expansion. The venture capital market in New Zealand is still developing and not yet sustainable without government assistance. Deeper capital markets are required to lift capital investment in New Zealand, which is currently lower than the OECD median. Low capital per worker often makes workers less productive by limiting access to machinery and technology.

During the year, the Ministry was assigned policy responsibility for early and mid-stage finance for innovative firms. Additional funding was obtained for the New Zealand Venture Investment Fund and for the operation of the Seed Co-Investment Fund.

A series of papers were prepared addressing some of the concerns around retaining the benefits of high growth and globally competitive firms in New Zealand. A particular project focused on the high-tech firm Right Hemisphere as a case study. This led to negotiations on a mechanism to provide government support for the firm in exchange for the company's commitment to retain its R&D activities within New Zealand, support the development of a virtual cluster supported by research institutions and ensure that the US investors will engage with the New Zealand investment community and firms with high growth potential.

Aligning Consumer and Competition Policy

The Ministry progressed work looking at the linkages between consumers, competition and innovation to better understand what drives innovation in firms. Competition and consumer demand underpin innovation by providing incentives to firms to innovate. A draft position paper was prepared considering the role that consumers have in driving innovation in a competitive domestic market.

Sector Development

The Ministry actively supported the Food and Beverage Taskforce as it considered the challenges and opportunities in the global environment and developed a forward agenda for the growth of sector. In particular, we worked with the Taskforce project manager in developing the final report and recommendations. The report focused on three overarching objectives:

protecting and increasing the productivity of the sector's existing base;
developing new products, particularly to capture a share of the growing functional foods market; and
expanding into new markets, particularly the high-growth Asian markets.

The Taskforce recommendations cover five areas: improving productivity, skills, innovation, market development and industry coordination. The Ministry will lead the next stage of the process in developing the government's response to the Taskforce report and recommendations.

The Ministry also participated in a NZTE-led process to develop a strategy for the manufacturing sector. The key vehicle for engagement was through a vision group made up of representatives of manufacturing companies, Business New Zealand, unions and the public sector. A key milestone was a manufacturing workshop held in Auckland in November 2005. This was followed by a series of regional workshops. A vision for the future of the manufacturing sector in New Zealand is in its final stages of preparation, with a planned launch in November 2006.

Evaluation

During the year, the Ministry completed the evaluations listed below and prepared a Cabinet paper, which led to decisions on their future development:

Cluster Development Programme
Growth Services Range
Enterprise Development Grants Scheme
Major Events
Enterprise Training
Brand NZ

We reviewed selected Major Regional Initiatives (MRIs), including how they had been developed, how they contributed to regional development objectives and the key lessons.

The use and effectiveness of the Regional Initiatives Fund (RIF) and Sector Initiatives Fund (SIF) was evaluated. These funds have been merged to create a new Regional and Industry Development Fund (RIDF).

The Large Budget Screen Production Grant was reviewed, resulting in a Cabinet decision in February to continue the grant in its current form. A subsequent report on other factors that contribute to New Zealand's ability to attract such productions was presented to the Minister in June.

At year's end, a number of other evaluations of NZTE programmes were progressing well and due to be reported to the Minister in the near future.

Procurement

The Ministry is responsible for developing and advising on government procurement policy. The New Zealand procurement model supports globally-open and competitive public sector procurement markets. The Ministry commenced a review of the implementation of government procurement policy in 2005. This considered the barriers to small business participation in government procurement. As a result of the review, certain sections of the procurement policy were revised to introduce some mandatory provisions for departments resulting from the recently concluded Trans-Pacific Strategic Economic Partnership Agreement.

The second part of the government procurement review is entitled Realising the Potential for Innovation. Demand conditions can play a role in stimulating innovation, and this is particularly true for government purchasing due to its large size and influence in many markets. We reviewed the implementation of government procurement policy to ensure that New Zealand businesses in the procurement market are exposed to stronger international competition, as this remains one of the most important ways to encourage innovation.

As a result, in March 2006, Ministers agreed to the creation of a government procurement "centre of excellence" within the Ministry, incorporating both the Government Electronic Tenders Service (GETS) and Syndicated Procurement Unit (SPU) activities. The new team commenced work on 3 July 2006.

We worked with the Government Spokesperson on Buy Kiwi Made to develop the policy and context for the Buy Kiwi Made Programme. A report was presented to the Minister and Government Spokesperson in May 2006.

Regulatory Environment

Strengthening the growth focus in the regulatory environment for business

Regulation plays a critical role in shaping the business environment in which economic activity takes place. The goal of this strategic priority is to ensure that regulation is well designed and implemented to foster achievement of economic objectives, while also ensuring that social and environmental objectives are met.

The Ministry's primary aim is to ensure the regulatory environment supports sustainable economic growth.

A key initiative that aims to progress this objective is the Quality Regulation Review, which was announced by the Minister of Commerce in May 2006. This review is seeking to ensure that the regulatory environment promotes economic growth, business confidence, globally competitive firms and social wellbeing. The review is focusing on how regulation is implemented, as well as the interface between different regulatory frameworks. A Quality Regulation Taskforce, chaired by Peter Mumford, a Director within the Ministry, has been convened to progress the work programme under the review. The Ministry is leading a number of these projects and is also administering the www.businessconsultation.govt.nz website as the key means for businesses to provide details of regulatory issues and potential solutions for consideration by the Taskforce.

The review, to be completed in July 2007, is adopting a collaborative approach with business to identify both big and small issues that are constraining business development. A number of studies into the regulatory and compliance issues facing particular sectors have been launched. These studies on the retailing, hospitality, wine and horticulture sectors involve a number of face-to-face interviews with businesses to uncover both problems arising from the implementation of, or interface between, regulations, and potential solutions to address these problems.

The Ministry is also looking at tools to ensure that regulation is well designed in the first place. These tools seek to improve the quality of the policy development process leading up to the implementation of regulation and also involve monitoring and evaluating the impacts of regulations. These include the following:

Proposals to strengthen the Government's requirements for the use of Regulatory Impact Analysis.
An evaluation of the fit and effectiveness of the Dutch Standard Costing Model and the Australian Business Cost Calculator, which are tools for measuring how much it costs business to comply with regulation. The feasibility study was completed by the due date of June 2006. The Business Cost Calculator will be implemented on a trial basis over a two-year period.
The Ministry has progressed work on the implications of behavioural economics for regulatory design. Guidelines are being developed to assist policy analysts to consider the influence of behaviour on decision-making in designing policy.
Guidelines for industry-led regulatory schemes. This included case studies where the draft guidelines were applied to existing schemes to test their effectiveness. This work will be completed shortly. Complementing this work, the Ministry has provided assistance and input to industries involved in establishing and operating consumer complaints and consumer ombudsman schemes.

The Regulatory Impact Analysis Unit (RIAU) is responsible for reviewing the adequacy of Regulatory Impact Statements (RISs) that have Business Compliance Cost Statements (BCCSs). The Unit continues to provide ongoing review and support and training to departments in writing RISs and BCCSs. From 1 July 2005 to 30 June 2006, 118 RIS or RIS/BCCS were reviewed by the RIAU.

The report of the Small Business Advisory Group (SBAG) was signed off by SBAG in February 2006 and published in March. In response to a SBAG recommendation that agencies focus more on small business issues, the Ministry appointed the Director of the Small Business Unit as small business advocate to support facilitation and implementation of the SBAG's regulatory recommendations.

Other initiatives undertaken during the year focused on the following two key areas:

Improving the Design and Implementation of Key Ministry-Led Business and Consumer Regulation

The Ministry's work in relation to regulation in the telecommunications and energy sectors is discussed under the Infrastructure Strategic Priority below.

The Ministry continued its work on the Review of Financial Products and Providers (RFPP), a comprehensive reform programme that addresses the regulation of insurance markets, managed funds and superannuation schemes, issuers of securities, non-bank financial institutions and consumer redress in the financial sector. Advisory groups were established to assist with problem identification and the identification and evaluation of options to achieve the goal of an efficient and effective framework for the regulation of financial products and providers.

In partnership with Treasury, the Securities Commission, the Ministry of Consumer Affairs and the Reserve Bank, discussion papers containing detailed reform processes were due to be provided to Ministers in July 2006 and considered by Cabinet for release in August 2006. The discussion documents have subsequently been released. The Ministry also progressed a review of financial intermediaries, building on the recommendations of an independent taskforce of market participants. A discussion paper on the detail of the proposed co-regulatory regime for financial intermediaries was released in July 2006. Policy proposals on both of these reviews are due in April/May 2007.

This work has links to the work under the Innovation Strategic Priority on access to capital, and also to the work under the Economic Transformation Agenda on globally competitive firms.

The Ministry continued its work on the development of legislation for KiwiSaver, a government initiative that aims to encourage a long-term savings habit and asset accumulation. The KiwiSaver legislation was developed through 2005 and early 2006. The Bill was subsequently enacted on 6 September 2006. The Ministry has also been involved with the selection of default KiwiSaver providers. The Ministry issued requests for proposals from potential default providers in May 2006. The final appointment of default providers is expected to be complete by the end of 2006.

The Ministry also advanced work on;

limited Partnerships Legislation;
the Insolvency Bill, an extensive overhaul of insolvency legislation, which is currently before Parliament; and
enforcement and redress under consumer protection law, with a discussion paper comparing New Zealand law with international practice released in May 2006.

Focusing on Key Regulatory Regimes Led by Other Departments

The Ministry, in conjunction with the Ministry for the Environment, completed a case-study research project on the impacts of the Resource Management Act on the business environment. The Ministry also continued its research on measures to improve the operation of the Hazardous Substances and New Organisms Act including scoping of its business impacts.

Infrastructure

Improving the quality and reliability of key infrastructure services

Sound energy, communications, transport and water services are essential to New Zealand's growth prospects and our general quality of life. Efficient and reliable infrastructure services reduce the costs of production, increase the attractiveness of New Zealand as a location for investment, and facilitate the flow of ideas, goods and services, and people. Infrastructure bottlenecks jeopardise the productivity, profitability and even viability of firms. Even a small risk of supply disruption can add substantially to the uncertainty that firms face and can be an impediment to growth.

It is therefore important that firms and households have confidence that infrastructure services will be available when needed. Resolving issues such as short- and long-term energy security, increasing traffic congestion in and around Auckland, and access to new telecommunications technologies, is therefore a priority. The Ministry works with other government agencies and infrastructure providers to address these issues.

Energy

Energy Outcomes and the Drivers of Change in the Energy System

The key challenge is to meet New Zealand's energy needs in a way that promotes growth while protecting our way of life and the environment.

The Ministry is leading development of the New Zealand Energy Strategy (NZES), aimed at establishing long-term direction and leadership for our energy system. A commitment to promoting energy efficiency and renewable sources of energy is central to the strategy, and alignment with the National Energy Efficiency and Conservation Strategy is a feature of the work being done.

The Ministry continued to actively participate in the interdepartmental process addressing climate change policy. Our Energy Sector Greenhouse Gas Inventory report provides detailed information on energy-sourced emissions. The NZES will address the energy component of development of New Zealand's climate change policy.

Terms of reference for the NZES were released on 4 July 2006. The terms of reference set out the purpose and rationale of the strategy and the expectations that the Government has in relation to its development. It also outlines the proposed approach, the whole-of-government process, stakeholder engagement and integration with concurrent work programmes.

The Ministry put renewed effort into understanding future energy requirements and trends during the year, including development of an update of its publication New Zealand Energy Outlook, together with a range of supporting documents.

Ensuring our Short-, Medium- and Longer-Term Energy Needs are Met, at Reasonable Prices

The Ministry continues to work with the Electricity Commission on security of supply issues, and on the effective operation of the electricity market in accordance with the Electricity Governance Rules and Regulations. We also worked closely with the Commission and Transpower on a number of significant transmission issues, including the proposed upgrade of the transmission line between South Waikato and Auckland and the transmission failure at the Otahuhu substation in June 2006.

The Ministry works with the Gas Industry Company (GIC) to ensure the delivery of the Government's gas objectives as set out in the Government Policy Statement on Gas, which are to improve the functioning of the market and to ensure a smooth transition to the post-Maui environment. Arrangements for open access to the Maui pipeline are now in place and appear to be working well.

New Zealand's petroleum reserves need to be increased to meet our needs and international treaty obligations. The Ministry has developed arrangements for tendering for proposals aimed primarily at increasing reserves both in New Zealand and overseas for use in a major international oil market disruption.

Active promotion of New Zealand as a location for oil and gas exploration continued throughout the year, with the East Coast Blocks Offer launched and free data released following the completion of the East Coast data acquisition programme. The East Coast Blocks Offer closed resulting in one petroleum exploration permit being awarded.

The Ministry carried out visits to Australian, Asian and North American exploration companies during the year to promote the Crown Mineral Estate.

Information and Communication Technologies (ICT)

ICT Outcomes and the Drivers of Change in the ICT System

Improvements in ICT are required to enhance productivity, and the Ministry is coordinating implementation of the Digital Strategy to promote improvements in these areas. This involves initiatives to promote digital content, confidence and connection.

The Ministry undertook a review of the Telecommunications Act 2001 during the year.

Following the general election, an expanded stocktake of the telecommunications regulatory regime was undertaken by the Ministry, with a focus on broadband deployment. A Bill incorporating government decisions on both the review and the stocktake, including local loop unbundling, was introduced in June 2006 and is now being considered by Select Committee. Further regulatory interventions addressing market structure are also under consideration.

Other communication policy developments during the year included:

ongoing advice to Government on Commerce Commission recommendations, including mobile termination;
publication of a benchmarking report comparing New Zealand's ICT performance with other countries; and
development of a Bill promoting measures to combat SPAM - this is currently before Select Committee, and the Ministry is working with industry participants on the issues involved.

The Ministry also provided advice on new broadband applications, spectrum allocation arrangements for new broadband wireless access technologies and services, and radio-related competition issues in 2005/06. A Communications Bill, at Select Committee, addresses issues relating to the renewal of spectrum rights, and work is underway on arrangements for renewal of cellular rights. Planning was also advanced for the introduction of digital television.

Transport and Water

The Ministry supported work programmes of other Ministries leading work on particular transport and water issues significant to economic development. For example, the Ministry contributed to the Ministry of Transport's work on road pricing in Auckland.

Our involvement in key water issues included participation in the Water Programme of Action led by the Ministry for the Environment (MfE), with a particular focus on water allocation and the importance of water bodies for energy and economic development uses. The first funding allocations under new arrangements to support tourism-related sewerage (the Tourism Demand Subsidy Scheme) were announced in the year.

Overarching infrastructure issues

During 2005/06, the Ministry:

supported development of a reference group report on a National Policy Statement (NPS) for electricity transmission, and Cabinet agreed to proceed with preparation of an NPS and National Environment Statement (NES) for transmission (this work is being led by MfE);
reported to Cabinet on developing NPSs and NESs for electricity generation (this work has been put on hold pending development of the New Zealand Energy Strategy);
participated on the industry-led reference group on the development of a NPS and NES for telecommunications (led by MfE); and
made significant progress on working with Auckland stakeholders on infrastructure and other growth-related issues.

Organisational Development Strategy

The Ministry has adopted an Organisational Development Strategy to build its capability so that it can realise its vision. The strategy has three key aims: strengthening the Ministry's leadership role, building an integrated organisation, and developing the skills and expertise of our staff.

Leadership: Strengthening our Leadership Role

The Ministry continued to build and undertake a dialogue with a range of key stakeholders to identify and inform our mutual understanding of the things that matter to growth. These engagements have taken a number of forms - briefings, speaking engagements and forums with commentators and business people.

We have worked to enhance and improve the channels for delivery of information including redevelopment of the website, launch of an online business update newsletter and publication of a report to stakeholders, which supplemented our Annual Report.

We continued with our programme of activity to build our understanding of the needs of others working in economic development with our Industry Insite programme and a number of secondments during the year.

A major undertaking this year has been the establishment and development of the joint policy presence in Auckland - the Government Urban and Economic Development Office. This cross-government effort has four government agencies co-located together and working on a programme of policy initiatives designed to reflect the economic development needs of business, local government and other Auckland stakeholders. There has been significant effort from within the Ministry to ensure the capability needs of this undertaking are met.

Working Together: Building an Integrated Organisation

The Ministry has continued to further refine its strategy systems to ensure that we have a shared understanding of the things that matter to growth. We have worked both internally and externally to build our understanding of the things that matter to economic development, particularly through our work on our strategic priorities. For instance, we assigned senior management resource to oversee the development and execution of Strategic Priority work programmes for 2005/06 and beyond, and where appropriate, we used external advisory groups to test the development of those strategic priorities.

Our internal planning systems were refined to allow more effective review of the execution of our work programmes. We undertook a series of operating reviews during the year to test how effectively we executed our programme of work and learned from our experience. To support our accountability and reporting processes, we have developed and implemented an online tool to track the execution of our work programme.

During 2005/06, we further developed our approach to knowledge sharing. This has been undertaken at a number of levels and through a cross-Ministry group focused on taking learning from across the Ministry's various work units and looking for ways to enhance our ability to learn from each other, so we can deliver better quality outcomes. In addition, we have worked on a number of our knowledge management systems to ensure that staff could access the information they need in a timely and cost-effective manner.

Employer of Choice: Developing our Skills and Expertise

During 2005/06, we continued to build the skills of our managers and senior staff to ensure that they had the practical management skills to lead and influence others. We ran a number of targeted leadership development initiatives focused on building the capability of our managers as coaches and leaders. Underpinning this continued focus on leadership development is a framework that assists setting expectations, assessment and developing the people we have in our leadership pool. This work will also set a foundation for our talent identification and development.

As well as building our leadership skills, we undertook a number of initiatives focused on ensuring that staff have the necessary skills to deliver effectively in their roles. For instance, we refined the approach we took to our Ministry-wide development awards to ensure that we gained value from staff taking up explicit learning opportunities, and we focused on enhancing our approach to on-the-job development.

During 2005/06, we continued to look for and implement innovative ways of recruiting staff with the necessary policy and specialist skills. This included revamping our graduate recruitment and increasing our recruitment of appropriately skilled staff from the international and part-time workforce.

During the course of the year, we enhanced a number of our internal systems to ensure that managers have better access to the information and tools necessary for them to manage effectively. Specifically, we introduced a new management information system, invested in our IT infrastructure and completed work on fit-for-purpose accommodation, particularly in Wellington.

Geoff Dangerfield
Chief Executive

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Printed: 26/11/2009