It's hard not to feel some cynicism about the more alarmist reports suggesting one of New Zealand's biggest manufacturing plants might be nearing its end. This would not be the first time the owner of the Tiwai Point aluminium smelter, multinational Rio Tinto, has talked doom and gloom in an effort to force down the price it pays for electricity.

Union leaders are also expressing concern at the situation facing the company. Presumably they see that anything which reduces costs other than wages or job-cuts is in the interests of their members, and are in effect tag-teaming with the company in order to try to bring pressure to bear on the Government to intervene.

That is not to say that the pressures facing Rio Tinto are not real. Global prices are down, the high New Zealand dollar against the US continues to bite exporters where it hurts most and Tiwai Point is expensive to operate compared with other smelters. It is sited a long way both from ore supplies and markets, and the technology used in the 41-year-old plant is less efficient than more modern rivals. The older-style smelting "pots" are capable of producing aluminum of unmatched purity, but keeping them operating at an optimum level is particularly difficult and costly.

The company last week announced that it would fast-track plans to trim 100 workers from its 750-strong workforce. Attrition has already taken 35 of these positions, and workers were told last month that the balance would go over several years. This has been replaced with a target of just two months.

The loss of 100 jobs will have obvious implications for the Southland economy which has grown to rely on the smelter over the past four decades. But the impact would spread well beyond the lower South Island if the worst happened and the smelter closed. The company says it supports more than 3200 jobs directly and indirectly in Southland and contributes $525 million annually to the local economy. Though dairy farming has become an additional huge earner in the deep south, the smelter gives an important industrial edge to the province's rural base.

Tiwai sucks up 15 per cent of the electricity produced in this country. Most comes from the Manapouri hydro station - completed in 1971 primarily to supply cheap power to the smelter. It is now run by state-owned Meridian Energy - one of the assets the Government is keen to partially sell. Closure of the smelter would be another black mark for the Key administration's already shaky asset sales programme. It would also free up a huge amount of electricity production capacity. If there really is true competition in the energy sector, this surely would help drive prices back down, or at least reduce pressure to boost generation capacity.

Prime Minister John Key says it is no secret that Rio Tinto has the smelter on the market. Perhaps it sees the growing need for the Government to get its asset sales programme back on track as an opportunity to pressure Meridian into accepting a more favourable contract. A cost-cutting exercise would also make the plant more attractive to potential buyers. But at the end of the day, it is in Rio Tinto's interests to keep the smelter going. Mothballed, it would be worth next to nothing.

- © Fairfax NZ News

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