Outcome unclear in Meridian's Rio Tinto talks

Last updated 05:00 26/02/2013

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State-owned Meridian Energy says it is making some "slow progress" in its talks with New Zealand's biggest single electricity user, the Tiwai Point aluminium smelter, but the outcome is still unclear.

"We are currently still in negotiations with Tiwai, with Rio Tinto, and they are being conducted in good faith, and it is just too difficult to predict any outcome," said Meridian Energy chief executive Mark Binns.

Last year Rio Tinto said its Tiwai Point smelter could close if it could not get even cheaper power prices from Meridian, even though a long-term electricity contract came into force this year. The smelter uses about 15 per cent of New Zealand's electricity.

State-owned Meridian Energy yesterday announced operating profit was down 6 per cent to $277.1 million for the December half year, and the underlying bottom line profit fell 11 per cent, excluding one-offs, to $88m.

Despite the lower underlying profit, Meridian declared a dividend of $99.8m to the Government, essentially all of its profits.

But after a record dry winter in 2012, and high wholesale power prices, hydro-power lake level inflows bounced back dramatically.

"What a difference a few weeks makes," Binns said, with heavy rains in September and early November. The company was now in a "good position" having recovered from a dry period early last year, and it had a strong lake storage position, compared with rivals.

At the end of December lake storage was 113 per cent of the mean and 23 per cent better than last year.

Meridian was confident of a "reasonably strong" finish to the financial year.

Binns said he would be disappointed if the company did not beat last year's operating profit, by "a significant margin".

But the fate of its biggest customer and supply contract remains up in the air.

"I would say they [talks with Rio Tinto] are moving forward. It is slow, but it is fair to say they have moved forward," Binns said yesterday. "We are not dotting i's and crossing t's at this point".

Talks began in the middle of last year. "Clearly it is taking a lot of time and focus of senior management," Binns said.

"It is a complex issue . . . and difficult to predict the outcome."

The smelter had backed off power use last year, but was now using 570 megawatts, taking the full extent of the contract, and paid up for the first period under the new 18-year contract on February 19.

Aluminium prices had been "very volatile" and Binns said they recognised the aluminium sector was having difficulties on a global scale.

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- Wellington


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