WELLINGTON, Apr 2: Rio Tinto has rejected a New Zealand government offer of a short-term subsidy to prop up a loss-making aluminium smelter and will try to reach an agreement on cheaper power prices directly with the electricity firm, the Prime Minister said on Tuesday.
Last week, the government said it had offered a small subsidy to bridge a gap between the price state-owned Meridian Ltd was asking for power and what Rio’s NZ Aluminium Smelters Ltd (NZAS) was willing to pay.
John Key said Rio, which owns nearly 80 percent of NZAS, has knocked back the offer because it wanted a longer term solution and would now try to reach a deal with Meridian.
‘We have no interest in a long-term subsidy. If it can’t stand on its own two feet, it shouldn’t be there,’ Key told TV3.
The 41-year-old smelter at the bottom of the South Island is the country’s biggest power consumer, using around 15 percent of national output, and exports around NZ$1 billion ($837 million) worth of aluminium a year.
A 17-year contract was signed in 2007 and came into force in January, but a slump in aluminium prices prompted NZAS to ask for lower prices last year, although it is locked into the current contract for at least three years.
Meridian said last week there was a major gap between the two sides, and it doubted a new agreement could be reached.
Rio countered that they believed a deal was still possible. The company has previously raised the prospect the plant could be closed.
Rio Tinto has ring fenced its Australia and New Zealand Pacific Aluminium division into a separate entity with an eye towards selling or closing facilities.
‘I’m not as convinced as others may be that they will walk away,’ said Prime Minister Key.
Power suppliers fear if the smelter closes it would create such an over-supply of electricity and cause power prices to plummet.
It could also threaten plans to sell off Meridian and two other state-owned power companies: Mighty River Power Ltd and Genesis Energy, which are slated for partial privatisation over the next three years.
The first sale, of up to 49 percent in Mighty River Power, is set to be done by mid-May. The government has said Meridian’s problems will not delay the sale. ($1 = 1.1945 New Zealand dollars)
(agencies)
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