Meridian unlikely to reach agreement with smelter

Meridian has announced it’s unlikely to reach an agreement with Pacific Aluminium over supply of electricity to its Bluff smelter.

. . . Chief Executive of Meridian Energy, Mark Binns, says that Meridian has advised Pacific Aluminium of its ‘bottom line’ position.

“Despite significant effort by both parties there remains a major gap between us on a number of issues, such that we believe that it is unlikely a new agreement can be reached with Pacific Aluminium,” says Mr Binns.

In the event no agreement can be reached, Meridian will seek to engage with Rio Tinto and Sumitomo Chemical Company Ltd, the shareholders of NZAS, who will ultimately decide on the future of the smelter. . . 

The smelter is a big employer in Southland but falling global prices for aluminium have put pressure on its operation.

This announcement also has implications for power prices. Without the smelter supply could well be greater than demand.

. . . news that there may be no new electricity price agreement with New Zealand Aluminium Smelters carries huge implications for the electricity sector, which has struggled to grow in the last five years and would face a massive supply over-hang which could last years, were the smelter to close.

However, that outcome is not yet certain.

The smelter’s majority owners, Anglo-Australian minerals giant Rio Tinto, are locked into the first three years of an new 18 year contract, which took effect from Jan 1, took three years to negotiate, and had been agreed in 2007.

While the New Zealand smelter makes internationally recognised high grade metal, which sells at a premium, Rio has been hit hard by its exposure to the aluminium sector, where world prices have been hit hard since the global financial crisis.

Rio Tinto is seeking to sell the smelter, along with a clutch of other, older smelters in Australasia, which it has packaged as a new subsidiary, Pacific Aluminium. . . .

If my recollection is correct the smelter was wooed to New Zealand by the price of cheap electricity.

This is an example of the dangers of such policy. It was designed with the good intentions of job creation but has skewed the electricity market.

State Services Minister Tony Ryall says all relevant information – including about the smelter electricity contract – will be reflected in the Mighty River Power offer document which is currently being finalised.

2 Responses to Meridian unlikely to reach agreement with smelter

  1. Andrei says:

    If my recollection is correct the smelter was wooed to New Zealand by the price of cheap electricity.

    This is an example of the dangers of such policy. It was designed with the good intentions of job creation but has skewed the electricity market.

    No, no no – electricity is a product that we could sell. We could sell it to those who produce aluminium, a useful product to produce and in the process provide livlihoods to thousands of New Zealanders.

    For forty years now the production of Aluminium has provided the sustenence for hundreds of thousands of Kiwis, if not more, either directly or indirectly – this is GOOD!

    The overseas income this generated paid for the parasite classes BMWs, iPhones, along with their Moet and Chandon to toast their successes in their new developments in parasitism.

    The smelter is old now and aluminium prices world wide are depressed meaning that we may loose this source of national income in which case many will suffer but not the parasite class who will presumably get cheaper power to recharge their gizmos with as they bash the unemployed as wastrels over their lattes.

  2. JC says:

    “This is an example of the dangers of such policy. It was designed with the good intentions of job creation but has skewed the electricity market.”

    I think you have to see it in the context of the times.

    In 1903 the massive potential of a Manapouri power station was recognised and that coupled with the finding of the largest bauxite deposits in the world at the time in Australia meant both NZ and Aussie saw an opportunity to marry the two schemes together in the 1950s.. thats the genesis of bauxite, Manapouri and Ti Wai and all that followed.

    The same thing was occurring up North as the Govt married up Kaingaroa Forest (largest manmade forest in the world) with steam at Kawerau to produce Tasman Pulp and Paper Ltd through a 75 year contract starting in the 1950s.

    We forget that after WW2 we had nothing but subsidised farming and manufacturing and that we needed to encourage some big industry to make use of natural and manmade resources. But when you’re 8-12,000 miles away from markets you can’t do such big startups without subsidies and long term contracts.. so thats what we did and employed tens of thousands permanently as a result, plus created overseas funds in a significant diversification from farming.

    In hindsight I suspect we couldn’t have done much better and in reality we only have Ti Wai as a sort of subsidised industry now.. thats not too bad a record for a dot just one step removed from Antarctica.

    JC

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