The Government is offering to subsidise electricity used by the aluminium smelter at Tiwai Point as state-owned electricity company Meridian Energy and the smelter have failed to reach agreement on electricity prices.
State-Owned Enterprises Minister Tony Ryall says the Government has been in touch with the smelter's owner, New Zealand Aluminium Smelters (NZAS), about the matter and is offering a modest amount to bridge the gap.
"We're prepared to help in the short to medium term to bridge a very small gap but I want to give you an absolute assurance this Government is not interested in subsidising a multi-national in the long term."
Mr Ryall would not give a dollar figure, saying it would be inappropriate to do so.
He says the smelter company is a very tough negotiator but it does not have an advantage in negotiations.
The smelter at Tiwai Point, in Southland, is New Zealand's sole aluminium smelter. It consumes about 15% of electricity generated in New Zealand and exports more than $1 billion of aluminium each year.
NZAS has been in talks with Meridian since August last year about renegotiating cheaper power prices to cope with a downturn in the aluminium market.
Meridian told the stock market on Thursday there remained a major gap between it and NZAS on a number of issues which it believed were unlikely to be resolved.
"We've gone to our bottom line," said Meridian chief executive Mark Binns, "and we haven't seen sufficient movement to give me confidence that we are going to reach an agreement. As I say, I hope I'm proved wrong."
Pacific Aluminium, the majority shareholder in NZAS, quickly responded by saying it believes a deal can be done and said more progress had been made in the past two weeks than in nine months.
Mr Ryall said earlier the sticking point was longer-term prices.
Political reaction
Labour Party leader David Shearer says it's a desperate move, designed to prop up the Government's partial asset sales programme.
The Green Party says the Government's partial asset sales programme has substantially weakened its hand in negotiations about the smelter.
Green Party co-leader Russel Norman says it's very clear the smelter company is using asset sales as a bargaining chip.
Some analysts say a power price deal is crucial to the success of the Government's partial privatisation plans, because the electricity freed up from the potential closure of the smelter could flood an already flat market.
NZAS is 80% owned by Pacific Aluminium, which is owned by Rio Tinto. The other 20% of NZAS is owned by Sumitomo Chemical Company.
