Govt pays $30 million to Tiwai Pt

Labour says the Government's deal to keep the Tiwai Point aluminium smelter going is using taxpayers' money to oil the wheels of its asset-sales programme, while the Greens say the smelter owners have the Government over a barrel.

The Government announced today that it would shell out $30 million to a subsidiary of the giant Rio Tinto to persuade it not to close the smelter.

The deal is aimed at saving 800 jobs after New Zealand Aluminium Smelters threatened to move its operation overseas, but the Government has a commitment from the company to stay only until January 2017.

Meridian Energy, which supplies electricity to the smelter, is next to go on the block as the Government looks to sell a partial stake in state-owned assets, including power companies, to raise money to pay off debt.

"This is a short-term deal that is a huge win for Rio Tinto," Labour state-owned enterprises spokesman Clayton Cosgrove said today.

"National is so desperate to get Meridian sold off that it has given Rio Tinto a $30m bonus to sweeten the deal, and all the company has to do is keep the smelter open for three and a half years.

"Rio Tinto has also managed to halve its notice period. It will now be able to walk away with 15 months' notice, instead of three years currently."

That meant it had effectively got $30m without having to provide Southland workers with any greater certainty than they had now, he said.

"By  January 1, 2017, we will be back where we started," Cosgrove said.

"Rio Tinto will yet again have the right to walk away and will be in a position to hold the Government, taxpayers and the people of Southland to ransom once more."

Green Party co-leader Russel Norman said Rio Tinto had the Government over a barrel in the negotiations because of the Government's asset-sales timetable, and it was not the first time the Government's political agenda had been exploited for commercial gain.

"Warner Bros managed to wring an extra $30m out of [Prime Minister John Key]," he said.

"Treasury told National it had put itself in a very weak position in bargaining over the pokies deal, which resulted in a sweetheart deal for the [Auckland] casino.

"Now John Key and National have proven once again what terrible negotiators they are.

"The public is $30m poorer so that National's asset sales can go ahead, and all the smelter workers get is a temporary reprieve with no long-term job security."

In a statement today, Finance Minster Bill English and State-owned Enterprises Minister Tony Ryall said the deal followed agreement on a new electricity contract for the smelter.

"While the contract remains until 2030, the revised agreement between Meridian and NZAS's shareholders demonstrates a commitment by NZAS to continue operating the smelter until at least January 2017," English said.

"The $30m was a 'one-off incentive payment' to help secure agreement on the revised contract because of the importance of the smelter to the stability of the New Zealand electricity market.

"It provides medium-term certainty for Southland and New Zealand."

The aluminium company has also negotiated a new rate for its electricity, but the Government has not spelt out what that is.

Ryall said it included "returning the price of power paid by NZAS to around pre-2013 levels, in exchange for guarantees on the contract from or on behalf of NZAS's parent companies".

He confirmed that NZAS shareholders approached the Government for further assistance to return the smelter to viability in current market conditions.

NZAS will get a cheaper power price from July 1 this year, but the price will rise if the New Zealand price for aluminium rises above agreed levels.

The deal for cheaper power has taken a year to negotiate.

Meridian chief executive Mark Binns said today's deal was "commercially acceptable" to both parties and provided more certainty for Meridian.

The smelter can terminate the deal from January 2017, provided 15 month's notice is given.

Invercargill Mayor Tim Shadbolt said he was ecstatic at the news.

"It's great news it will absolutely rejuvenate the city," he said.

It' was a short-term solution but it would get Southland through the world economic crisis and the best news the city could possibly have, he said.

"I think it will give huge confidence to a lot of people."

Venture Southland worked out more than 3000 people would be impacted in terms of jobs if the smelter had closed, Shadbolt said.

"There will be a huge sigh of relief and a lot more confidence in the city in general," he said.