Smelter defenders blame Meridian

As Pacific Aluminium and Meridian Energy prepare to engage in another round of Tiwai Point aluminium smelter electricity negotiations next week, the question yesterday arose – which party was really playing hard ball?

Yesterday both parties confirmed they would meet next week to continue talks.

Southland Chamber of Commerce chief executive Richard Hay urged people to consider what was really going on.

Pacific Aluminium, a business unit of Rio Tinto and the majority shareholder of New Zealand Aluminium Smelters, had been perceived as playing hard ball, he said.

‘‘If anybody was getting the short end of the stick, it would appear to be the smelter,’’ he said.

Rio Tinto was shown as begging from the Government and using the Mighty River Power partial asset sales policy as leverage to get what it wanted, he said.

‘‘However, has any consideration been given by the public that it’s Meridian playing hard ball.

‘‘After all, it has been making a yearly profit of $200 million off the Manapouri power generator, while NZAS is losing $50m and is in the shadow of closing,’’ Mr Hay said.

When considering the gap in negotiations, Meridian had to look seriously at the profit they were making compared to its business partners, he said. The various electricity price increases NZAS had already paid during the years had paid for the construction of Manapouri two or three times over.

‘‘Yet Meridian are basing its costings on capital value, which the smelter has already paid’’.

If Meridian became the largest supplier of electricity in the grid it would be able to call the shots on electricity prices for households already overpaying, he said.

Mr Hay said the Government treated Southland as collateral damage.

A source told The Southland Times there was a real imbalance in terms of how much financial stress Pacific Aluminium was under versus the cash profits Meridian were making.

‘‘Meridian have a very low cost generating asset in Manapouri, while Pacific Aluminium pay some of the highest electric prices in the world,’’ the source said.

‘‘The view is the smelter has a 20-or-30-year life span and has made significant capital refurbishment in the past couple of years. The infrastructure is in good shape, it is a low-cost smelter in all areas except the electricity contract’’.

Rio Tinto wants Meridian to reduce the power price in tough times but was be prepared to pay more for it again when the market improves,’’ the source said.

The source said during the first bout of talks Meridian refused to move at all, but when its chief executive, Mark Binns, went to Australia for talks and saw the NZAS financially for himself, it eased his stance.

Pacific Aluminium still believed an agreement could be made and has offered to meet Mr Binns in New Zealand next week, the source said.

‘‘We were getting pretty close to an agreement; there are only a handful of issues to work though’’.

The mining giant was approached by the New Zealand Government, which put forward a subsidy offer and gave Rio Tinto eight hours to consider it and make a decision.

‘‘We went back to say ‘Thanks for offer, but it’s not something we can accept in this time frame but we are happy to keep talking’,’’ the source said.

If an agreement could not be reached then Pacific Aluminium would have to look at options for NZAS, including closure.

Meridian’s corporate communications manager, Claire Shaw, said Meridian had been open with Pacific Aluminium throughout the process and provided them with plenty of notice that it would be making its disclosure ahead of its release last week.

‘‘It is important to understand that NZAS signed a long-term contract with Meridian in 2007. This came into effect in January this year. This contract provides NZAS and Meridian a clear basis for both parties to continue to operate under until, or if, an agreement to change the contract is reached,’’ she said.

‘‘The fact that we had reached an impasse was a material issue that required us to disclose to the market that Meridian considered it was unlikely that an agreement with Pacific Aluminium could be reached.

‘‘We continue to deal with the business unit of the parent company Rio Tinto, that is based in Australia, not Southland. Meridian has been open to talks and has already offered significant concessions on the agreed contract to Pacific Aluminium.

‘‘Meridian has expressed an openness to continue to hear from Pacific Aluminium about what options they see are available to bridge the gap between the parties,’’ she said.

Venture Southland and Southland Chamber of Commerce met representatives of the Tiwai smelter yesterday, ahead of an Invercargill City Council extraordinary meeting today.