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Short term subsidies only for smelter, Ryall says

Thursday 28th March 2013

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The government is "not interested in subsidising a foreign multinational in the long term," State-Owned Enterprises Minister Tony Ryall told Parliament in response to opposition taunts about his intervention in electricity price negotiations for supply to the Bluff aluminium smelter.

Ryall also indicated Meridian Energy is no longer leading negotiations with Rio Tinto-owned Pacific Aluminium, majority owner of New Zealand Aluminium Smelters, which runs the Tiwai Point smelter, which directly employs some 750 people in Southland.

In an answer at question time, he characterised Meridian has having "been run till recent times by Meridian."

Because of the significance of the smelter to the national economy, the government had initiated contact with Rio Tinto earlier this week, but only to explore what the government could do to close the short-term gap in value between Meridian and Rio Tinto.

That would cover only the early part of the 18-year contract which came into force at the beginning of this year, which Rio Tinto sought to renegotiate in mid-2012, having signed the contract in 2007, before the global financial crisis knocked the global aluminium industry.

"This is a very, very serious issue for New Zealand," Ryall said. "We will do what we can to assist those parties as they come to a mutually agreeable conclusion."

However, the "longer term is a more significant area", said Ryall before ruling out a long-term subsidy to keep the 41-year-old smelter open.

Ryall brushed off Greens leader Russel Norman's question charging that Rio has the government "over a barrel" because it's committed to the partial float of MightyRiverPower in mid-May and doesn't want to see chaos in the electricity sector.

"The electricity market is capable of dealing with all the issues relating to the smelter," said Ryall.

Industry analysts believe older, thermal power plants would close if the smelter closed, so while a smelter closure would harm the Southland economy and national export receipts, it would not significantly affect electricity prices as long as an orderly transition to closure occurred.

Asked by Labour leader David Shearer whether the government would press on with the MRP float, Ryall replied: "Absolutely yes."

The smelter uses around one-seventh of all electricity consumed in New Zealand and has a long history under different Australian corporate owners, since it opened in 1972, of arm-wrestling over subsidised power prices.

BusinessDesk.co.nz



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