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No govt cash for Tiwai Point - Woods

Wednesday 23rd October 2019

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The government has signalled it won’t be providing additional financial support to the Tiwai Point smelter.

Global mining giant Rio Tinto is reviewing the plant’s future and said it intended to talk directly with the government as part of its efforts to find a profitable track for it.

The plant, which employs about 990 staff and contractors, is struggling with global aluminium prices near a three-year low, high alumina prices and sustained high wholesale power prices.

It received $30 million from the former Key government in 2013, when it also secured a new long-term power supply agreement with Meridian Energy.

Today, Energy and Resources Minister Megan Woods said the issue is a commercial matter between Meridian and smelter operator New Zealand Aluminium Smelters.

“The New Zealand Government has had a clear position since 2013 under the Key/English Government that there will be no more financial assistance from taxpayers for Rio Tinto, which is already supported by Meridian for the power it uses. This hasn’t changed,” she said in a statement.

“We hope that these discussions and work by NZAS and Rio Tinto result in the smelter remaining open and continuing to back the Southland economy by trading on its position as producing the world’s greenest, low-carbon aluminium.”

Rio Tinto aims to complete its review in the first quarter of 2020.

The potential closure of the plant, which uses about 13 percent of the country’s power, saw shares in all the country’s generators fall.

Meridian shares fell 7.8 percent to $4.995. About 4.7 million shares had changed hands at midday - three-times the daily average the past three months. Genesis Energy fell 3.4 percent to $3.15, Contact Energy fell 7.3 percent to $7.90 and Mercury NZ fell 5.7 percent to $5.14.

The review comes less than a year since the smelter, the country’s biggest power consumer, restarted its fourth potline after a six-year break in the belief it had a long-term future.

In May 2018 it signed an additional four-year power supply deal with Meridian – supported by Contact and Genesis - for a further 50 megawatts.

That would potentially lift the plant’s annual output to 368,000 tonnes, compared with its previous record of 354,030 tonnes in 2011.

But when that deal was announced, aluminium was selling for about US$2,300 a tonne on the London Metal Exchange. Earlier this month it was below US$1,700.

In August, energy research house Enerlytica estimated that the smelter had utilised only about half that extra production capability since February.

The 48-year-old smelter is 79.4 percent-owned by Rio Tinto, which has been selling or shutting smaller, older plants worldwide to focus on its most profitable operations.

It sold its Lochaber smelter and hydro power stations in Scotland in 2016 and last year sold its Dunkerque smelter, the largest in western Europe.

Tiwai had previously been packaged for sale with five other Australian plants in 2011, but no sale eventuated.

Alf Barrios, head of Rio’s global aluminium business, today said the global market remains over-supplied and many producers are reviewing their positions.

“Rio Tinto intends to hold discussions with the Government of New Zealand and energy providers to explore options and identify economically viable solutions to find a pathway to profitability for the asset.”

Under the smelter’s 2013 agreement with Meridian, it can cut its demand to 400 MW – or the full 572 MW covered by that agreement – on 12 months’ notice.

Meridian chief executive Neal Barclay said the company has been working with New Zealand Aluminium Smelters on the issues it faces, which include an upcoming refurbishment bill on one of its potlines.

“NZAS has advised Meridian that the changes we had offered to date on our contract fall short of the pricing for delivered energy that NZAS needs to re-establish its position as an internationally competitive aluminium smelter,” he said.

“We remain open to negotiating with NZAS and its shareholders on the long-term requirements for the smelter.”

Since achieving the new supply agreement with Meridian, New Zealand Aluminium Smelters has been lobbying hard to also get a change in transmission pricing.

As the country’s biggest power user, its transmission bill has been rising steadily even though it gets little benefit from more than $2 billion of new lines built on the North Island in the past decade. Last year its transmission bill was $66 million when its underlying earnings were only $22 million.

The smelter had been counting on about a $20 million annual benefit from a new transmission pricing model the Electricity Authority has been working on for the past four years. A revised proposal published in July would reduce that to about $11 million and would not be effective before 2024.

In a submission earlier this month, Rio Tinto said power costs are the biggest determinant of the competitiveness of a smelter.

It noted that its transmission costs are about 10-times those of other smelters, despite most of its power being delivered from Meridian’s nearby Manapouri power station.

Rio estimated that the transmission used to deliver that energy accounts for about 1.4 percent of the national grid.

Not only has it contributed to the cost of those lines for the past 48 years, but its transmission bills in recent years matched or exceeded the entire book value of those assets every year.


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