1 Jul 2015

Tiwai Point smelter decision delayed

12:49 pm on 1 July 2015

A decision on the future of the Tiwai Point Aluminium Smelter has been delayed by a month.

New Zealand Aluminium Smelters had the option to end its power contract with Meridian Energy from today, but both sides have now agreed to delay any decision until 3 August.

Tiwai Point smelter

Tiwai Point smelter Photo: Wiki Commons

As part of the $30 million government grant it received to stay open two years ago, New Zealand Aluminium Smelters was given until today to decide on its future - and that of the 800 people it employs.

Meridian's chief executive Mark Binns said the smelter's owner had been in talks with electricity companies, including Meridian, about its power needs, and wanted more time to consider its options.

"Although we are some way away from any sort of deal we think there are elements that are worthy of further discussion and we'd like to think it was possible that a deal could be put together inside that time frame if it was worthy of our investing more time in the whole matter."

The editor of Energy News magazine Gavin Evans said the company was in a better financial position than when it threatened to close its doors two years ago.

He predicted it would stay open.

"It's a big asset and it's still a good asset.''

He said the company had shown the efficiency savings they could make in the past couple of years.

"With a more realistic New Zealand dollar, which we've got now, aluminium prices have come off - but it's still a good operation."

Business journalist Rod Oram said the majority owner of the plant, Australian mining giant Rio Tinto, was selling off its aluminium smelters in the face of the low price the metal fetched and tough global competition.

He said he was unsure who would want to buy the ageing plant, which required significant investment to make it as efficient as more modern aluminium producers around the world.

But he also believed it still had a future.

"I think it can afford to hang on for a while and therefore it's better to play the slightly long game and therefore stick with the plant, even if it's only marginally profitable."

Meridian Energy Wellington.

Meridian Energy Wellington. Photo: RNZ / Alexander Robertson

Meridian was keen to reduce its exposure to the plant when it struck the deal in 2013. It included a condition that its owners looked elsewhere for 172 of the 572 megawatts of electricity it used, or face higher prices.

Gavin Evans said Tiwai Point's owners would most likely accept Meridian's offer, but it might be difficult for them to find another supplier.

"The likes of Genesis and Contact, they want some certainty about how long the smelter will be around.

"And at the same time the smelter needs to know what sort of price they can get to figure out how long they can keep operating."

Mr Evans said if the "unthinkable" happened and Tiwai shut down from 2017, the extra supply that would suddenly be released onto the market could bring power prices down by 10 percent.

Energy analyst Bryan Leyland said because Tiwai took up 12 percent of the country's total electricity supply, that was not all that would happen.

"It would probably hugely effect Meridian's profit but it would drop power prices all around New Zealand until the generators readjusted by shutting down other generating plants."

Prime Minister John Key said after granting New Zealand Aluminium $30m to stay open, the Government was not in a position to offer any more help.

"My strong preference is that it survives. It's a big exporter for New Zealand. It obviously uses a far bit of electricity which would take a while to be redirected. It's a large employer - both directly and indirectly - in Southland."

Any change would kick in from the beginning of 2017.

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