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The owners of the Tiwai Point aluminium smelter thanked the Government for its offer but refused it, State Owned Enterprises Minister Tony Ryall says.
Prime Minister John Key said today Rio Tinto had gone back to dealing directly with Meridian Energy after negotiations with the Government fell over at the weekend.
Ryall said Meridian and Rio remained "reasonably close" on agreeing a short term electricity price but were well apart in the longer term.
The Government had offered a subsidy to bridge the short term gap but Rio said it was not enough.
"Over the weekend the multi-national mining corporation Rio Tinto said it appreciated the Government's intentions but was unable to accept the offer."
But it did indicate a willingness to continue discussions, he said.
"The Government put its best offer of assistance forward because New Zealanders would expect us to do that. But we are not interested in providing a long term subsidy."
Labour has accused the Government of total mismanagement over Tiwai Point negotiations, amid news Rio Tinto has walked away from talks.
It was revealed last week the Government had been negotiating with Rio Tinto over the smelter after contract negotiations between subsidiary Pacific Aluminium and Meridian effectively stalled.
The Government had made it clear there would be no long-term support, but agreed to look at short term bridging assistance because of the thousands of jobs at stake, and to facilitate a smoother transition should Tiwai Point close, Key told TV3's Firstline.
"We made the call that we would look to help bridge a small amount of that gap for a short period of time.
"They came back over the weekend and said 'no, we are rejecting the Government's intervention; we will go back and talk to Meridian'. So that's what they are doing now."
He acknowledged ultimately that might mean Tiwai Point closed.
The smelter supports around 3000 jobs in Southland.
Labour's Clayton Cosgrove said the Government had been repeatedly warned about risk of going ahead with the partial asset sales before finalising a deal with Rio Tinto.
"Rio Tinto's bosses are licking their lips and look forward to laughing all the way to the bank," he said.
Labour said the sale of Mighty River must be stopped because there was too much uncertainty.
NO LONG-TERM DEAL
Key said negotiations with Rio Tinto were against the backdrop of collapsing aluminium prices and losses totalling tens of billions of dollars following some bad acquisitions by the mining giant.
During that period the New Zealand dollar had also risen "so the smelter has gone from being quite a profitable entity for Rio, to be a losing entity for Rio."
Across the Tasman, the Australian government had sunk "billions" of taxpayer dollars into subsidies to keep smelters there open and agreed to 18-year power contracts, which New Zealand had rejected.
Rio Tinto had first approached the New Zealand Government nine months ago, but at that stage was told that it was a matter between them and Meridian.
Meridian and Rio Tinto had come close to reaching agreement for a four-year period of power supply but "in terms of the magnitude of the deal there is a small gap left", Key said.
While he could give no assurances, he did not believe Rio Tinto would immediately walk away, Key said.
They were locked into a three-year contract, with a further two-and-a-half year winding down provision, that would cost them a sizeable amount to break.
"They could do things faster, that means people would lose their jobs quicker, but it will cost them an awful lot of money."
Rio Tinto apparently decided to walk away after the Government made it clear it would not subsidise the deal long-term.
Key confirmed this morning the Government had no interest in that.
"If it can't stand on its own two feet then long term it shouldn't be there. We do think it made a bit of sense on balance to try and support the process and that's where we've been simply because of the number of jobs involved and power usage."
There was now nothing more the Government could do.
"We put our best foot forward and our only card on the table."
Rio had made "lots of money" out of the smelter over the years.
ASSET SALES GOING AHEAD
Key rejected suggestions, meanwhile, that the uncertainty was a fresh reason to delay the Government's sale of shares in the state-owned power companies.
Shares in Contact, another former Government owned power company, sank by just over 3 per cent last week when it was revealed Tiwai Point might close, but rallied to finish above their opening price, Key said.
Meanwhile, Key said he was not losing hope completely.
"I'm not nearly as convinced as others might be that they will walk away but they certainly could walk away."
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