Friday 8th November 2019
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South Port New Zealand is the latest Southland firm throwing its support behind the Rio Tinto-controlled smelter across the harbour at Tiwai Point, saying the government should take the closure threat seriously.
New Zealand Aluminium Smelters accounts for 33 percent of the cargo volume through the country's southern-most port, although South Port is paid a fixed licence fee rather than wharfage revenue based on tonnage. That arrangement - fixed until 2043 - mitigated the impact of a potential closure, which chair Rex Chapman said would be less than $2 million on the firm's bottom line.
"It still is a very important and valued customer for the port. I would hope the government takes the current threat seriously and, at the very least, an early and fair solution found for transmission pricing."
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.
The plant, which employs about 990 staff and contractors, makes more than 340,000 tonnes of aluminium annually and is the country’s biggest electricity user. It restarted its fourth pot line a year ago as part of a bid to improve its viability but has since suffered from a combination of low aluminium prices and high alumina prices.
A key point of contention for the smelter's owners is the transmission pricing framework, which doesn't offer South Island energy users any reward for being close to the source of electricity production.
Chapman, speaking at the company's annual meeting at the port, said the smelter was justified in arguing that $65-70 million paid annually in transmission fees was far too much. He pointed out that the smelter's fees had increased by a cumulative $200 million over the past decade to help fund upgrades in the North Island of the national grid.
"These overpayments by the smelter will never be recouped, even if there's a change in the future transmission pricing methodology. And this seems fundamentally wrong when it's remembered the smelter was built in conjunction with the Manapouri power scheme. The smelter has used largely the same dedicated grid infrastructure since its operation began in 1971."
The future of the smelter hangs not just over the people directly employed there. The Southland Chamber of Commerce estimated a further 2,300 jobs would also be affected by the closure either directly or indirectly.
While the smelter's future was uncertain, Chapman said Open Country Dairy was expected to boost its use of the port once it opens a third milk dryer at its nearby Awarua facility. Other customers are also expanding and the port was on track to meet a five-year target to handle the equivalent of 50,000 20-foot containers.
The prospect that explorer OMV could make an oil or gas discovery in the Great South Basin, which could help provide much-needed security of energy supply, was among other potential opportunities for the company, Chapman said.
Despite that, the decline in log prices had weighed on export volumes and wet weather had stymied imports of bulk fertiliser. As a result, the company downgraded annual earnings guidance to a 10 percent reduction for the current year from last year's record $9.79 million profit. It had earlier forecast a 5 percent decline.
The port operator had also updated its 10-year asset management plan to include below-ground infrastructure such as water and waste-water systems, which meant maintenance and repair work would be more expensive and take longer than previously thought.
The shares, which are 66 percent-owned by Environment Council, were unchanged at $7.10.
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