Tiwai smelter closure back in Government's court as Rio Tinto pleads for power price drop

Friday, 29 November 2019

Tiwai Point's New Zealand Aluminium Smelter [NZAS] is under threat of closure. NZAS chief executive Stew Hamilton explains why.

The Government is considering an appeal from Rio Tinto for a price cut in the electricity transmission costs paid by the Tiwai aluminium smelter near Bluff.

Rio Tinto announced in October that it was considering closing all or part of the aluminium smelter, which employs 793 people, arguing it needed cheaper electricity.

A spokesman for Energy Minister Megan Woods said she had received an approach from Rio Tinto last week and had asked the company to put its request in writing so she could seek advice from officials.

He would not provide details of Rio Tinto's request.

Tiwai consumes about 13 per cent of the country's power and gets cheap electricity, but the smelter believes it should pay less for transmission.

* Why it may not be 'all or nothing' for the Tiwai aluminium smelter

* The smelter company is bluffing about, Tiwai isn't it?**

But it is understood Rio Tinto believes the smelter should only pay a small contribution to nationwide transmission charges because most of its power comes from the nearby Manapouri hydro scheme.

The Government would not intervene in the regulatory process for setting electricity transmission prices, Woods' spokesman said.

But it is not clear that would necessarily rule out some sort of positive response to Rio Tinto's request.

Any perceived bail-out for the smelter could kick up a storm, with social media responses suggesting some people believe Rio Tinto has cried wolf too often.

Any move by the Government to assist Rio Tinto looks likely to be unpopular, with a non-scientific Stuff poll suggesting strong opposition to a government-backed bail-out.

Rio Tinto spokeswoman Jennifer Nolan confirmed the company had met with Woods and that discussions were 'ongoing'.

'We don't want a subsidy, we just want a fair price for transmission pricing going forward,' she said.

Vector chief executive Simon Mackenzie said earlier this month that it was obvious the threat to shut the smelter was tied to the smelter's complaints about transmission charges, but Vector believed it must have 'amnesia'.

Prime Minister Jacinda Ardern at the official re-opening of Potline 4 at Tiwai Point Aluminium smelter, Southland.

The smelter would pay more than $550 million more for electricity itself if it had to pay the same price for power as consumers, he said.

'What we do find disappointing, to be blunt, is Tiwai going on about 'we have to pay all these charges for transmission and it's all because of Auckland'.

'Tiwai uses the equivalent amount of energy as 776,000 residential customers, but residential customers pay slightly north of 15 cents a unit and we know Tiwai is somewhere around 5 cents,' he said.

Mackenzie said he was not calling for the smelter to be shut, but if Rio Tinto wanted the smelter to pay less for transmission, the question of how much it was paying for electricity should also be considered.

'You can argue transmission, but let's not have amnesia about the energy cost.

'If they have the argument on transmission fairness, why shouldn't they be paying 15 cents a unit for electricity like residential customers?'

Mackenzie added on Friday that it was 'critical' Woods heard directly from a broad set of stakeholders on the issue.

Nolan said last month that 90 per cent of aluminium smelters around the world, outside China, paid less for electricity than the Tiwai smelter.

However, data supplied by Rio Tinto on Friday indicated the 90 per cent figure only applied to power supplied from hydro power stations, which only power 27 per cent of total aluminium primary production globally, and not all power.

Woods' spokesman expected the Government would respond to Rio Tinto's approach either late this year or early in the new year.

Rio Tinto is expected to reach a decision on the future of the smelter, which it 80 per cent owns, in February or March.