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No power talks breakdown – smelter, Meridian

BUSINESSDESK: Both parties to negotiations over electricity prices for the Rio Tinto-owned aluminium smelter near Bluff say there is no truth to reports that state-owned electricity producer Meridian Energy has abandoned the talks.

"We haven't walked away from anything," Meridian spokeswoman Claire Shaw says in response to media reports and statements from trade unions urging government intervention to save the smelter and bring down the high value of the New Zealand dollar, which is hurting exporters.

The local Rio unit, New Zealand Aluminium Smelters, also confirmed negotiations are continuing.

The call for government intervention from the Engineering, Printing and Manufacturing Union coincides with a push by opposition parties – Labour, the Greens, and New Zealand First – for changes to the way monetary policy is managed by the Reserve Bank in a bid to lower the dollar.

Ms Shaw says the reports on the contract negotiations failing are wrong, including the claim that an alleged walkout had occurred on Thursday.

"There were no negotiations on Thursday," she told BusinessDesk.

The Bluff smelter is one of a portfolio of older, Australasian plants Rio is attempting to sell and has packaged as a new entity, Pacific Aluminium.

The Australian and London-based multinational said earlier this year it hoped to renegotiate the 27-year electricity contracts concluded with Meridian in 2007 and taking effect from next year as the high kiwi dollar and plummeting aluminium prices saw the smelter lose money for the second year in a row.

Prime Minister John Key has indicated Rio is on the hook at existing terms in the first three years of the new contract, but that changes reflecting metal prices and exchange rate movements could be renegotiated after that.

As the consumer of around one-seventh of all electricity produced in New Zealand, the smelter's electricity supply contracts have been shrouded in secrecy since the plant began operating in 1971.

Comments and questions
5

There is significantly more at play than just the price of electricity in these negotiations!

The world currently has a 10m ton supply of aluminium sitting in warehouses, the Chinese are investing heavily into production, including new plant in Xinjiang province with a possible capacity of 10m tons. This is more than current production of western Europe and Nth America combined.

Add to that the report that BHP announced this year that it would not invest more money into its aluminium business. Furthermore, Mr Kloppers (CEO of BHP Billiton) reported comment (Financial Times), “I don’t like aluminium” and you can see why the negotiations may take some time.

I believe you are right. Worse the deep south needs more job losses like a hole in the head and politics makes it all pretty risky. There is talk though that if the place gets shut NZ will have an electricity glut that logic says should lower prices to the consumer. I dont trust the monopolies to not milk that situation to their advantage though by artificially throttling supply.

Meridon has a rock solid three year power contract with Tiwai and as Key says it will cost them a fortune to walk away, also they are intending to sell Tiwai and who wants to buy a mothballed plant..

Its one of the few things I agree on with Jonkey.

Rio Tinto have too much skin in the game to walk away. The ill informed should stay quiet, as they obviously have no understanding of the bigger picture.

Renegotiating large contracts is nothing new, however in this case, the reasons are to increase the business profit on sale. We didnt hear Rio Tinto in the good time the taxpayer can increase the price of power because we afford to pay more.

Whats good for the geese is good for the gander.

This is why the government (ultimately the taxpayer) shouldn't be in the electricity generating business.