Rio Tinto wants to vary Meridian contract for Bluff smelter

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BUSINESSDESK: Meridian Energy, one of the state-owned power companies earmarked for partial sale, says Rio Tinto’s Pacific Aluminium unit wants to vary the terms of its electricity supply contract for the smelter at Bluff.

“Discussions are ongoing and remain confidential,” Meridian said in a statement to the NZX.

The Bluff smelter was built partly to create a market for the huge hydroelectric output of the Manapouri scheme, now owned and operated by Meridian.

The terms of the power supply contract were renegotiated in 2007 with the new supply agreement set to begin in January next year.

The smelter, operated by New Zealand Aluminium Smelters, is Meridian’s biggest single customer and the contract due to kick in from January 1 is for 18 years.

The smelter consumes about one-seventh of New Zealand’s electricity and the price has never been disclosed.

In its first-half accounts, Meridian described the contract as a “pricing agreement rather than a supply agreement”.

“NZAS will be responsible for purchasing electricity from the national market itself, and Meridian will provide NZAS with price certainty for that electricity,” Meridian said in February.

“The agreed base price under the new agreement is significantly higher than under the current electricity supply contract,” it said.

The negotiations come as Rio Tinto looks to sell the Tiwai Point smelter along with 12 other aluminium producing assets in Australia.

Japan's Sumitomo owns about 21% of the Bluff smelter.

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3 Comments & Questions

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Is it too much to hope that Meridian concedes nothing?
That would hold down the price Rio Tinto can expect if it flogs off the smelter.
And possibly allow a NZ consortium, including Meridian, to buy at a fair price.
Michael Fay and his Maori mates could be good to bung in $150 million plus, having missed on the Crafar farms. And Sam Morgan and his cronies are unexpectedly flush with the readies, now that their cable dreams are back in their pipes.

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Imagine if they closed the Smelter - NZ would have some of the lowest electricity in the OECD. No wonder Contact abandoned the new clyde river dams.

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Sounds like a good plan to me. Free up some household spending money for the masses.

Government & its advisors have got it wrong again. They should have split the smelters account up between the four goverment SOEs; and they stil can. It would provide alot more leverage to negotiate a fair price, instead of the smelter being price setters.

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