No more govt sweeteners to keep Tiwai Point open, Key says

Monday 20th July 2015

The foreign owners of the Tiwai Point aluminium smelter have had discussions with Finance Minister Bill English about further sweeteners to keep the New Zealand's most energy intensive industrial plant open and been told there is no scope for further assistance, says Prime Minister John Key.

The smelter's majority owner, Anglo-Australian metals giant Rio Tinto, wrung $30 million in cash out of the government in 2013 when it forced its electricity supplier, Meridian Energy, to cut the price of electricity to the smelter following a collapse in global metal prices after the global financial crisis, using the government's desire to partially privatise Meridian as a bargaining chip to gain both the lower power price and the additional taxpayer funded sweetener.

It pushed for a $60 million payment, which the government refused, and announced a new contract with Meridian with a trigger date of July 1, 2015 for a decision on whether to keep the plant, which uses one seventh of the country's total electricity production, open or to close it in 2017.

That deadline was extended late last month to Aug. 3. Energy industry analysts spoken to today by BusinessDesk believe Rio Tinto and its minority shareholder in the smelter, Sumitomo of Japan, will keep the plant open but may opt to drop 172 Megawatts of the 572 MW available to it under the contracts renegotiated in 2013.

Meridian is seeking to stitch together a deal that could see Contact Energy, Genesis Energy and possibly Todd Energy in a supporting role, stumping up the 172MW that, if Meridian is to supply it, will be more expensive than the deal struck two years ago.

The smelter is a major employer in Southland and has invested heavily in more efficient technology and processes, but still struggles for profitability amid low metal prices and over supply from newer, lower cost Chinese smelters. The lower New Zealand dollar exchange rate is expected to improve its prospects and the current owners are looking for a buyer.

Whoever owns the smelter would be liable for perhaps $400 million in site remediation costs if they closed the smelter, meaning Rio Tinto may prefer to run it at a loss than to face the up-front costs of the clean-up required if the smelter closes.

"I know that there have been discussions between the Minister of Finance's office and the company indicating that the government wasn't prepared to put any more resources in," Key told his weekly press conference.

He stood by the decision to make a direct cash grant to the smelter at "a very vulnerable time...but the government isn't interested in putting another cash injection in."

There had been no discussion about other kinds of inducements to convince the smelter owners to keep the plant open, said Key.

BusinessDesk.co.nz

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