Closure could ruin region's economy
The Tiwai Pt aluminium smelter is undeniably one of Southland's largest employers. Collette Devlin discusses the recent uncertainty surrounding its future, which has left the Southland community concerned about the region's economy.
With no contingency plan in place and few alternatives to prop up the Southland economy, the closure of the Tiwai Pt aluminium smelter could devastate the region.
New Zealand Aluminium Smelters contributes $525 million to the Southland economy annually (10.5 per cent of Southland's GDP) and employs more than 700 staff but its loss would impact on more than 3200 jobs in Southland.
In 2012, NZ Aluminium Smelters made $356m in payments to New Zealand suppliers, including $43m to suppliers in Southland.
Last year, Rio Tinto said the smelter could close if it did not get cheaper power from Meridian Energy.
At Easter, the Government stepped in, offering a short-term subsidy after talks over electricity supply reached a deadlock after nine months of discussions.
The Government offer was rejected by smelter owners.
A common misconception is Rio Tinto, the majority shareholder of NZ Aluminium Smelters, is in discussions with Meridian - it is not.
Pacific Aluminium, a business unit of Rio Tinto, is at the table, and sources on both sides confirmed Rio Tinto has never been part of negotiations.
It has been frustrating for Meridian, with sources saying the stated-owned generator is expecting Rio Tinto to bail out its "bastard child" Pacific Aluminium.
In October 2011, Rio Tinto announced it would restructure its worldwide aluminium business, with interests in six of its Australian and New Zealand assets, including the Tiwai smelter, transferred into a new business unit called Pacific Aluminium, and sold.
Pacific Aluminium sources say it has virtually separated from Rio Tinto as a business and expects to be divested as a trade sale or listed separately on the Australian stock exchange.
It was hard for people to understand that Pacific Aluminium did not have the deep pockets of Rio Tinto, the source said.
"Pacific Aluminium doesn't have the security of Rio Tinto's iron ore, it's purely an aluminium business, so we need to be sure it can stand on its own two feet . . . the reality is no potential owner is going to be interested in Pacific Aluminium given the current electricity contact at NZAS."
The future of the plant hangs in the balance as electricity contract talks continue this week.
Despite the uncertainty of the smelter's future, some Southlanders are still optimistic.
Otago Southland Employers' Association chief executive John Scandrett said most business owners he had spoken with were "holding their breath", waiting to see what transpired with the talks before panicking.
"There is a strong element of concern but there is hope talks will yield an agreement of sorts that will protect the future of the smelter operation . . . if it closed there is little doubt about the huge negative impact on the Southland and New Zealand economy.
Southland chamber of commerce chief executive Richard Hay said no strategy had been put in place by community leaders on how to deal with thousands of job losses if the smelter closed.
There were no other projects in the pipeline that would come close to soaking up the loss, and it would be nearly impossible to create a strategy that would prop up the Southland economy, he said.
Closure would mean a substantial population loss as the unemployed moved elsewhere for work. Employment could not be invented overnight and closure would have serious repercussions throughout industry, he said.
Whatever happened with talks, Southland would have to adjust to a new economy, he said.
"If it stayed open, it will not be the smelter as we knew it in the past".
While reports have circulated of smelter workers putting their homes on the market, Invercargill real estate agents remain positive and said the market was steady.
Real Estate Institute figures for March, released yesterday, show Invercargill house prices have remained steady since February, but sales volumes fell 29 per cent.
Agents believed homeowners were waiting for results of the electricity talks.
Venture Southland enterprise and strategic projects group manager Steve Canny said Southlanders were concerned but also hopeful.
If the smelter closed, it could take several years to phase out completely.
To keep international businesses interested in New Zealand, it had to be globally competitive in its electricity costs, he said.
A report commissioned by Venture Southland investigated the contribution the smelter made to Southland and highlights the impact closure would have on the region's economy.
The report says that without the smelter, 2 to 3 per cent of Southland's population could move from the region, Southland GDP would drop 7 to 8 per cent, and cargo through South Port would drop 45 per cent.
About 1600 children with parents employed at the smelter lived in the region.
If the population decreased 2.2 per cent, health and education funding would drop $8.1m, the report says.
About 15 key suppliers to NZ Aluminium Smelters employ 393 fulltime staff because of its contracts. Of those, 25 to 30 per cent would be at risk of redundancy if the smelter closed.
NZ Aluminium Smelters also made hundreds of thousands of dollars of environmental and community contributions that included donations, scholarships and sponsorship.
At the start of 2012, the annual NZ Aluminium Smelters business plan was reviewed to refocus improvement activities on cash generation.
In August, NZ Aluminium Smelters management admitted the smelter was in a "really difficult financial situation".
In September, the cash-strapped smelter announced it would lay off about 65 staff and in October 2012 it halted spending on $70m of planned projects.
The Southland Times