Editorial: End game must be smelter's survival

Let's not get in too much of a tizz about the news from New Zealand Smelters (NZAS) this week. Sure, the announcement that the plan to axe 100 jobs has been brought forward is not the good type of news we like to report - it would be far better to hear 100 jobs were being created - but this possibly isn't the doom and gloom news that it's been portrayed as.

Doomsayers are suggesting this is the start of the end for the smelter, which began operating at Tiwai Point in 1971 and has been an essential part of Southland's economy for more than 40 years. But you need to remember that a closed smelter versus a productive one - or a sold one - is of little financial benefit to majority owner Rio Tinto.

It's in the company's best interests to keep the plant going, even if it's just to sell to someone else. It would make no money from closing it.

This is simply a case of the world's global economic woes and general slowdown affecting Southland in its backyard and a company looking to reduce costs.

Demand for aluminium is down, thus simple economics dictate the price paid for the commodity must drop. The high New Zealand dollar has been a thorn in the side of exporters for some time, and with 90 per cent of NZAS's output heading overseas there must be little surprise at the impact it's having.

So what does a business do when its revenues are taking a hit? If it can't make more money from what it produces it must cut costs. And when you're a big company - NZAS contributes more than $500 million to the Southland economy annually - big cuts are required.

The site has already lost 35 jobs through attrition and had planned to lose a further 65 over five years. That timescale has changed so those jobs will go by November. The company wants to move staff into vacant roles or take voluntary redundancy, a move that could be popular with some senior members of staff. If you're a long-time employee, the attraction of a year's salary as redundancy (two weeks pay for every year of employment up to 26 years) might be a nice way to shift into retirement.

To the company's credit, it has made no secret of the trouble it is in and the efforts being made to ensure its survival.

Another big cost is the company's electricity bill - more than $320 million annually. It uses about 15 per cent of New Zealand's generated power. So, understandably, Rio Tinto is keen to renegotiate the terms of its electricity contract with Meridian Energy. Well, more than keen - Labour's David Shearer and the Greens' Russel Norman say Rio's announcement is a warning to Meridian and the Government that it's serious about wanting a new deal.

No-one expects anyone to roll over and take one for the team. But in good times, when demand is high, prices tend to go up. In bad times, perhaps prices need to come down.

It's an interesting issue. One side holds some fairly strong cards in its favour - 800 direct and several hundred indirect jobs plus the economic lifeline of thousands of Southlanders. The other side produces electricity it wants to sell for a profit - electricity let's not forget, that could be injected into the national grid, albeit at a significant capital cost.

Throw into the mix complex issues around governance - remember the Government wants to sell Meridian as part of its asset sales programme - and you've got a problem that isn't going to be resolved over a cup of tea.

What's needed is some bold leadership to ensure a satisfactory outcome for everyone that ensures the survival of the smelter and those jobs. And when we say everyone, we don't just mean the companies - we mean every Southlander.

The Southland Times