Rio Tinto plays tough

16:00, Mar 29 2013
The Tiwai Point aluminium smelter operator is seeking lower power prices from Meridian.

Opposition parties have accused Rio Tinto of using stalled contract talks and the asset sales programme to push the Government into a subsidy for the Tiwai Pt aluminium smelter.

Contract talks between Meridian Energy and Pacific Aluminium, a business unit of global mining giant Rio Tinto, the majority shareholder of New Zealand Aluminium Smelters, broke down this week and Meridian chief executive Mark Binns said it was unlikely a new agreement on electricity prices would be reached.

"Despite significant effort by both parties, there remains a major gap between us on a number of issues."

If no agreement can be reached, Meridian will seek to engage with Rio Tinto and Sumitomo Chemical Company Ltd, the shareholders of NZ Aluminium Smelters, which will ultimately decide on the future of the smelter, he said.

The snag in negotiations between the state-owned generator and smelter bosses may have implications for asset sales, with the Government lining Meridian up for a float after Mighty River Power.

Last year, Rio Tinto said the smelter could close if it did not get cheaper power prices from Meridian.


Mr Binns told a select committee this week there was still a long way to go and Meridian was looking for ways to "jump the gap".

Meridian would now ask the Government "how do you want us to play this with Pacific Aluminium", he said.

NZ Aluminium Smelters general manager Ryan Cavanagh, who will leave the smelter in April, was not available for comment.

However, Pacific Aluminium chief executive Sandeep Biswas said a commercial agreement in the best interests of NZ Aluminium Smelters, Meridian, the Government and Southlanders could still be reached.

"Our negotiations with Meridian have progressed more in the past two weeks than in the previous nine months . . . We look forward to continuing productive negotiations," he said.

A Rio Tinto spokesman did not return calls or emails asking for comment yesterday.

State-Owned Enterprises Minister Tony Ryall said the Government had contacted Rio Tinto to help bridge the gap in the negotiations. He said Meridian and Pacific Aluminium were "reasonably close in terms of the short to medium term electricity price", but were still "well apart in the longer term".

Meridian's existing contract with Pacific Aluminium remains in place at least until January 1, 2016, with significant financial and other obligations beyond that, he said.

Invercargill MP Eric Roy said he believed the Government would not take a completely hands-on approach.

When asked whether the Government was getting on board to protect the Mighty River Power partial asset sales policy that was under way, he said: "Very perceptive . . . assume all interested players interested in the government events calendar are in one way or another related".

Labour leader David Shearer said National needed to stop the Mighty River Power sale amid the Tiwai turmoil.

"If the deal falls over, that surplus electricity will flood the market, driving down electricity prices and the profitability of energy companies," he said.

Labour economic spokesman David Parker said subsidising the smelter could result in other power companies being sold at an "inflated price".

Green Party co-leader Dr Russel Norman said Rio Tinto was using the asset sale programme to manouevre a better deal.

"Rio Tinto are using the Government's asset sale programme to screw Meridian Energy for a better deal [on power prices], that is as plain as day."

If the smelter closed, the Government would get a much lower price for state-owned power companies, weakening its negotiating position, he said.

Invercargill Mayor Tim Shadbolt said it was good the Government had stepped in and it would, hopefully, carry weight with the talks.

Engineering, Printing and Manufacturing Union Southland organiser Trevor Hobbs said it was encouraging to see the Government getting involved.

"The uncertainty around the smelter's future has already cost 100 jobs, caused the smelter to cut $70 million of capital expenditure and forced thousands of families to put their lives on hold while they wait for an outcome."

Meanwhile, a Fairfax source said the timing was seen as "perfect" for Rio Tinto to seek a subsidy.

"Threatening to shut down [the smelter] is a pretty powerful lever," the source said.

Rio Tinto already wanted to sell the smelter so a government subsidy would be "enormously valuable" in striking a sale price, the source said. The smelter would probably be sold to a second-tier aluminium company but be kept running for many years yet, before slowly winding down.

"They [Rio] don't need to wait for the next 15 years to make that [subsidy] . . . they get all of that benefit right up front. It is a huge benefit for them," the source said.

- with Fairfax

The Southland Times