Govt pays $30 million to Tiwai Pt

12:45, Aug 08 2013
TIWAI PT: The Government will pay $30 million to foreign giant Rio Tinto to keep the smelter open.

Finance Minister Bill English has told Tiwai Point aluminium smelter not to come back for any more government help.

"They certainly wouldn't get a second bite of the cherry from this Government," he said following this morning's news of a $30 million Government payment to secure the smelter's immediate future.

It had sought several million dollars worth of assistance, and the Government had said no, English said. The $30m was a one-off payment and there was no subsidy of electricity prices or transmission charges.

English said the broader picture was the 800 well-paid jobs and the uncertainty for the electricity market if this deal was not done.

"Anyone who can take a business away has its community over a barrel and has its workforce over a barrel," he said.

The public now expected the smelter get on and make the business work and today's deal make its ongoing viability much more likely.

Without it, and with power prices rising rapidly, higher transmission costs and falling aluminium prices, the smelter was almost certainly not viable, English said.

He admitted the deal would help with the partial sale of Meridian Energy later this year, because it would give investors greater certainty.

He would not name the date of the partial float but said the Government was looking at what incentives it would employ to encourage retail investors.

English and State Owned Enterprises Minister Tony Ryall this morning announced a deal in which the Government would pay $30m to a subsidiary of corporate giant Rio Tinto to persuade it not to close the smelter. A long-running negotiation with Meridian Energy on power prices for the smelter was also agreed.

The deal is aimed at saving 800 jobs after New Zealand Aluminium Smelters threatened to move offshore. But the Government only has a commitment from the company to stay until January 2017.


Staff at the smelter erupted into applause after hearing the deal had been struck over the power price.

"The clouds have lifted over Invercargill today, both literally and metaphorically,"  NZ Aluminium Smelters chairman Brian Cooper said.

The deal meant the power price was back to 2012 levels and while it was not a silver bullet, it gave the company a great platform to get back to profitability, he said.

"The power costs is 40 per cent of the site's cost and making inroads into that bill was important.''

''The deal has not brought the company back into profitability and it's difficult to tell when that might happen,'' Cooper said, adding that the aim was to keep the smelter open.

The smelter's new general manager Gretta Stephens was also on site today.

Stephens, originally from Melbourne, has worked for the company for the past three years in Brisbane as general manager for business improvement and technology.

"I'm enthusiastic because today marks a new beginning, a new chapter for NZAS," she said, adding the challenge was to return the smelter to profitability.

The smelter made $40m in savings last year and hopes to do the same again this year.

Asked how they would achieve that, she said by listening to its workforce.


Labour's SOE spokesman Clayton Cosgrove said National had cut a short term deal that gifted the multinational taxpayers' money to oil the wheels of its asset sales programme.

Meridian is next to go on the block - following the May partial sale of Mighty River Power - as the Government looks to reduce its holdings in three state owned power companies to raise money to pay off debt.

"This is a short term deal that is huge win for Rio Tinto," Cosgrove said.

"National is so desperate to get Meridian sold off that it has given Rio Tinto a $30m bonus to sweeten the deal and all the company has to do is keep the smelter open for three and a half years.

"Rio Tinto has also managed to halve its notice period. It will now be able to walk away with 15 months' notice, instead of three years currently."

Green Party co-leader Russel Norman said Rio Tinto had the Government over a barrel in the negotiations because of the asset sales timetable.

It wasn't the first time the Government's political agenda had been exploited for commercial gain.

"Warner Bros managed to wring an extra $30m out of Key. Treasury told National it had put itself in a very weak position in bargaining over the pokies deal, which resulted in a sweetheart deal for the [SkyCity] casino.

"Now, John Key and National have proven once again what terrible negotiators they are," Norman said.


The news was better received by workers at the smelter and their union.

Contractor Jeremy Borland said it was great news personally and for Southland.

''I can definitely think about building a future and a house in the region with some of the uncertainty gone,'' he said.

Alistair Turnbull, an IT contractor at the smelter, said the power price renegotiation needed to happen.

''The power station (Manapouri) was built for NZAS and people have lost site of that. They pay a considerable amount for their power, lines and transmission and if it had closed that cost would have been passed back to the New Zealand taxpayer.''

Southland businessman Phil Nilson was also pleased as up to 30 per cent of his water treatment chemical firm's business is done with the smelter.

''It gives us certainty that we will still be providing the service to the smelter,'' Nalco NZ representative Nilson said.

The union representing Tiwai Pt workers, the EPMU, backed the deal saying it protects jobs and offered some stability for Southland.

There was concern that the agreement only guaranteed the smelter would stay open for a few more years but it gave union members and their families some breathing room, organiser Trevor Hobbs said.

The smelter was worth 3200 jobs and $1.6 billion a year to Southland's economy.


Earlier today, Finance Minster Bill English and Tony Ryall said the deal on the smelter's future followed agreement on a new electricity contract.

"While the contract remains until 2030 the revised agreement between [state-owned] Meridian and NZAS's shareholders demonstrates a commitment by NZAS to continue operating the smelter until at least January 2017,'' they said.

The $30m was a "one off incentive payment" to help secure agreement on the revised contract because of the importance of the smelter to the stability of the New Zealand electricity market," English said.

The aluminium company - which used about 13 per cent of New Zealand's total power supply - has also negotiated a new rate for its electricity but the Government has not spelt out what that is, citing commercial confidentiality.
Ryall said it included "returning the price of power paid by NZAS to around pre-2013 levels, in exchange for guarantees on the contract from or on behalf of NZAS's parent companies."

He confirmed that NZAS shareholders approached the Government for further assistance to return the smelter to viability in current market conditions.

NZAS will get a cheaper power price from July 1 this year, but the price will rise if the New Zealand price for aluminium rises above agreed levels.

The smelter can terminate the deal from January 2017, providing 15 months' notice is given.

The deal for cheaper power has taken a year to negotiate.


Tiwai Pt
DEAL DONE: NZ Aluminium Smelter's chairman Brain Cooper and new general manager are pleased with the Government's $30 million payment.

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