Tiwai Smelter termination deadline pushed out for another month

Meridian Energy and Rio Tinto-controlled New Zealand Aluminium Smelters have extended their electricity agreement for another month, giving the Tiwai Point smelter owner a little more time to sort out its electricity needs.

Wellington-based Meridian agreed with NZAS last night to extend the date the smelter owner can terminate their agreement until Aug. 3, while keeping all other terms unchanged, the company said in a statement. The smelter negotiated cuts to its electricity tariffs from its current main supplier, Meridian, ahead of Meridian’s partial privatisation in 2013, and had until today to decide in the next two months whether to roll over those contracts, reduce consumption, or signal a decision to progressively close the smelter. The government paid a controversial $30 million sweetener as part of the 2013 renegotiation after Meridian refused to meet NZAS’s price demands – half the amount sought by the smelter’s owners.

“NZAS has been in discussions with a number of parties, including Meridian, with respect to its electricity requirements at its Tiwai Point smelter,” Meridian chief executive Mark Binns said. “We think it is in all parties’ interests that a decision is based on the most complete information.”

The smelter owner has struggled to remain competitive internationally because of falling aluminium prices and a strong kiwi dollar, although it is now profitable and Rio Tinto is again seeking to sell it as part of a suite of ageing Australasian assets, packaged as Pacific Aluminium.

The Tiwai Point smelter consumes about a seventh of the nation’s electricity, meaning its closure would flood the market with supply and potentially put thermal generation, which has higher marginal costs, under pressure.

Under the current agreement, NZAS can reduce the contract quantity from Meridian to 400 megawatts from the current 572 MW giving 12 months’ notice before Dec. 31, 2015, and has the right to end the agreement by giving 12 months’ notice from Jan. 1, 2017.

Complicating matters is a proposal by the Electricity Authority to change the national grid costs, reducing the burden for South Island users at the expense of Auckland, Northland and West Coast consumers. If the proposal proceeds, it would cut the smelter’s power bill by about $50 million a year.

Meridian shares last traded at $2.16, and have gained 24 percent this year. The stock is rated an average ‘buy’ based on seven analyst recommendations compiled by Reuters, with a median price target of $2.45.


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