Thousands of South Island jobs hang in the balance after the Government ruled out stepping in to save the Tiwai Pt aluminium smelter.
The smelter’s owner walked away from talks with the Government during the weekend and shunned the “reasonable” offer of a short-term taxpayer-funded subsidy.
The Southland smelter employs more than 700 staff but its loss would impact on more than 3000 jobs in the region.
Mining giant Rio Tinto rejected the Government’s intervention to resolve electricity negotiations at the smelter and will resume discussions with Meridian Energy.
However, Meridian chief executive Mark Binns says he still could not see how the significant gap in negotiations can be bridged.
I have a genuine, Great Gatsby style, life-lesson-my-Father-taught-me anecdote I can deploy here. My dad taught me to play chess (I don’t remember how old I was) and in an early game he got me into a position where I was going to lose either a bishop or a rook. I asked him ‘How do I get out of this?’ and he replied, ‘You can’t. The trick is to see it coming and not to blunder into it.’ Then he took my rook.
The Mixed Ownership Model is the Key government’s signature policy achievement. It’s Key’s big legacy. So it’s weird how little thought has gone into the process. National didn’t seem to see the Maori Council court challenge coming, and it delayed the sale of Mighty River, so they’re now off-loading four power companies onto the market within about eighteen months. They pre-budgeted the sale of Solid Energy even though Treasury was warning them the company was heading for trouble. And they didn’t seem to anticipate the Rio Tinto ultimatum, a completely predictable move by a company consuming 1/7th of the nation’s electricity. So now they either swallow the loss of several thousand jobs in the Deputy PMs electorate and another setback to the cascade of IPOs, or they subsidise a profitable multi-national corporation with taxpayers money to help keep power-prices high.
You’d think that with all Key’s visionary CEO-style leadership qualities we keep hearing about from the Herald et al we’d get a bit more ‘seeing it coming’ and a lot less ‘blundering into it.’
UPDATE: Also, interesting analysis from Tim Hunter:
Rio is a past master at pressuring governments. There were reports last year its Bell Bay aluminium plant in Tasmania was under threat of closure while it was negotiating a new supply contract with Hydro Tasmania. Last June a new 13-year contract was agreed, prompting a local headline “New power deal saves 500 jobs at smelter”.
Last month there was a similar response to a deal agreed with the government of Northern Territory which kept open Rio’s smelter at Gove, employer of 1500 people in a remote corner of Australia east of Darwin.
It appears the price of continued production was the government allowing Rio to access its contracted gas supplies and underwriting the construction of a 600km, A$500m pipeline from Katherine to Nhulunbuy. The overall investment required to convert Gove to gas is about A$1.2b.
Gove, incidentally, mines and processes bauxite into alumina, which in turn is shipped to the likes of Tiwai and Bell Bay for conversion into aluminium. All three sites are part of Rio’s integrated Pacific Aluminium unit, which has been earmarked for sale.
Closure of Tiwai would meanwhile not be quick or cheap. Chalkie hears contractual obligations require a wind-down period of three years and there are substantial remediation costs involved in cleaning up the site.
Financial statements for NZAS include a provision of $228m for rehabilitation and closure – and that’s discounted from 2030. By some estimates NZAS is looking at $400m if it had to close imminently.