Tiwai Point attracted controversy from the start
Thursday, 9 July 2020
A thousand jobs, another 1600 jobs indirectly affected and 13 per cent of the nation's electricity demand.
The costs are high if New Zealand's Aluminium Smelter (NZAS) base at Tiwai Point closes, as its owners appears to have done by giving 14 months’ notice on its electricity contract.
Majority owned by mining giant Rio Tinto, the smelter is one of Southland’s biggest earners, accounting for about 6.5 per cent of the local economy.
When it opened in the early 1970s, it was widely regarded as the biggest thing to hit the area, a Southland-bred historian, Aaron Fox recalls.
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“It was a fascinating time … my dad was involved with the construction and it was one of my earliest memories,” he told RNZ’s The Detail last year.
At Tiwai Point, the smelter was well positioned – close to the Manapōuri Power Station, the deep sea port of Bluff and the well-resourced city of Invercargill.
And as a major energy user, it was always able to argue for a heavy discount on its power bill.
Over the years, Tīwai Point was unable to escape association with a degree of controversy. During construction of the Manapōuri power station, plans to raise the level of the lake were thwarted by a huge '”Save Manapōuri” campaign to keep the environment pristine.
The outcry “became a benchmark against which public involvement in environmental issues in New Zealand would be measured”, Te Ara, the Encyclopedia of New Zealand, notes.
Other critics of the smelter included campaigners for open government and against foreign control of New Zealand resources.
In 1980, the Government announced plans to build a second smelter at Aramoana, but changes in the market and public opposition put an end to the scheme.
Most of Tiwai's alumina comes from Rio Tinto's Australian refineries and almost all the resulting aluminium is exported – largely to Japan, where the smelter's other owner, the Sumitomo Chemical Company, is based.
According to its website, the smelter’s exports earn about $1 billion a year. But aluminium prices have been fluctuating for more than a decade and the smelter has frequently called for lower electricity costs to keep the smelter open.
Fox said aluminium was a cyclical industry, and while only a small number of companies owned the raw materials to produce it, matters generally averaged out.
“Undersupply, oversupply – it averages out quite nicely, which is why the aluminium companies are still going.”
In 2013, the Key Government gave Rio Tinto a one-off $30m payment in return for a commitment to stay until 2017. The then-Finance Minister Bill English warned it not to come back for any more government help.
But aluminium prices have continued to decline, slumping 25 per cent over the past 18 months, and last October the company announced it would conduct a strategic review of the smelter’s ongoing viability.
Rio Tinto's Pacific Aluminium (NZ) subsidiary later announced an underlying loss last year of $46.2m compared to an underlying profit of $21.5m the year before.
As the coronavirus pandemic widened in March, the smelter closed one of its four potlines to cope with the restrictions at the plant that were needed.
In the past critics have accused the smelter of bluffing its way to cheaper power.
But on Thursday, Rio Tinto confirmed it had been unable to strike a solution on the smelter and it was ending its current power contract.
Contact Energy, which supplies power to the smelter along with Meridian Energy, rushed to say that NZAS had been given a good deal.
“We’ve all had a strong desire to help secure the financial sustainability of the unique low-carbon smelter at Tiwai, and retain the 1000 high-paying jobs in Southland, plus the 1600 contractor and supplier roles,’’ Contact's chief executive Mike Fuge said on Thursday.
The other great shame was that smelting would be done in other locations with fossil fuels rather than using green hydro power, as NZAS had in New Zealand, Fuge added.
For Southland, the ramifications are likely to be extensive.
Customers face higher power bills because NZAS had been paying a proportion of the transmission costs to Southland.
And Fuge said there would need to be significant investment from Transpower to shift the extra energy north where it was needed, leaving most of the surplus water meanwhile to run down the Clutha.
But closing the smelter would also not be without significant cost. In addition to the $100m Transpower estimates it will cost to spread the surplus power across the South Island, NZAS has estimated it would have to spend $256m to close and clean up the smelter site.