The only reason the government offered $30 million to Rio Tinto to keep the Bluff aluminium smelter open was because it is such a large part of the economy, Prime Minister John Key says.
Asked at his weekly press
conference why the government hadn’t supported other industries threatening to close, such as KiwiRail’s Hillside workshops, Key said: “It simply comes down to scale.”
“We believe Rio Tinto want to remain a long term participant at Tiwai Point,” he said. “They were the ones who wanted to remain engaged with Meridian”, the state-owned electricity company that supplies power to the smelter, equivalent to around one-seventh of all the power produced in New Zealand.
“This is different from Hillside,” he said. The government had tried without success to find a buyer for the railway workshops.
Asked whether the deal was motivated
by the desire to partially privatise Meridian next month, Key said: “Not really.”
“The fact is we were forced to the point where they needed to make a decision.”
Rio had been trying to sell its 79.4 percent share of the smelter prior to the new contract being announced, but withdrew it a day after the newcontract was announced, along with several Australian aluminium assets that had also proven unsaleable in current market conditions.
Key said Rio’s new contract was “slightly worse” than the contract that expired at the end of last year and was briefly replaced by a contract that raised power prices, but was renegotiated at Rio’s insistence. The new contract was concluded in 2007 before the global financial crisis and a collapse in
the global price of aluminium.
The new contract with Meridian includes price uplifts if metal prices improve and appears to incentivise the smelter to release some capacity to Meridian after 2015.
Meridian announced a 53 percent increase in underlying profit to $162.7 million today, although revenues rose only 5.5 percent over the year. Meridian wrote down $476 million of the value of its assets because of the new, less generous smelter contract.
Key confirmed a Meridian listing on the New Zealand and Australian stock exchanges is planned for October.
(BusinessDesk)