Rio Tinto profits

February 15th, 2014 at 10:00 am by David Farrar

Stuff reports:

will not reimburse the $30 million Government subsidy it received to keep open, in spite of posting a $3.7 billion 2013 profit.

Opposition parties have slammed the payment as “corporate welfare at its worst” in light of the profit announced today.

However, Prime Minister John Key said the payment had been necessary to save hundreds of jobs.

The Government announced in August last year it would pay $30m to the New Zealand subsidiary of corporate giant Rio Tinto to persuade it not to close the Tiwai Pt Aluminium smelter. In return, the company gave the Government a commitment to keep the smelter until January 2017.

Rio Tinto yesterday surprised investors with a better-than-expected profit and dividend in its full-year results presentation.

The diversified miner announced a dividend of US$1.92 (NZ$2.30) after reporting underlying earnings of US$10.2b for 2013.

First of all let me say I opposed the subsidy to Rio Tinto to keep Tiwai Point open. I don’t think the Government should have paid it. I think Rio Tinto bluffed them. So I am not in any way defending the Government’s decision.

But the suggestion that because Rio Tinto globally made a huge profit, means that the subsidy was not needed is erroneous and a red herring. What matters is whether Tiwai Point is profitable, not the rest of the company. If you own ten stores and nine of them are highly profitable and one makes a big loss, then you will close the loss making store unless you can make it profitable.

Now as I said I disagreed with the decision to pay the subsidy, but I understand the reason the Government did it. They did not want to risk that Tiwai point would close, and 800 jobs or so would be lost. Ironically Labour keeps insisting that National is a hands off Government that doesn’t intervene to protect jobs. Yet when they do, they complain.

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16 Responses to “Rio Tinto profits”

  1. Sean (299 comments) says:

    Good grief. The opposition doesn’t even understand the concept of cost centres in business?

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  2. OneTrack (2,818 comments) says:

    These business concepts are just too hard and complicated for the BAs and PHDs in Political Studies that inhabit the Labour and Green parties. Just totally out of touch with how the real world works.

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  3. calendar girl (1,203 comments) says:

    You’re on form this morning, DPF. “I think Rio Tinto bluffed them.”

    “Bluffed” indeed.

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  4. Fletch (6,148 comments) says:

    Does anyone else think that Rio Tinto should be the name of a John Wayne movie? :P

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  5. Anthony (785 comments) says:

    Now if Rio Tinto created so called ‘green jobs’ then it would be fine to give them endless amounts of taxpayer money! Well it might be dressed up as tax credits or something else but the end result would be the same.

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  6. Ed Snack (1,798 comments) says:

    It’s quite possibly even economic to provide a relatively small subsidy to RTZ to keep the smelter open (and I doubt we’ll ever know how close they were to closing it) in order to use the Manapouri power whilst building the necessary transmission links to move the power to the main grid effectively. Right now, if the smelter stopped most of the generating capacity at Manapouri would go to waste as it simply cannot be transmitted to places that could use it.

    I agree with not subsidizing businesses, but sometimes pragmatic decisions are justifiable on reasonable economic grounds.

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  7. igm (1,413 comments) says:

    This further elucidates the fact that Labour have absolutely no commercial acumen, being evidenced by their personal successes . . . nil. Any party that wants to introduce turnover tax has be assessed as useless.

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  8. MikeG (416 comments) says:

    “Ironically Labour keeps insisting that National is a hands off Government that doesn’t intervene to protect jobs. Yet when they do, they complain.”
    The problem is that the Govt just picks overseas companies to subsidise, not NZ owned ones.

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  9. calendar girl (1,203 comments) says:

    Ed: “It’s quite possibly even economic to provide a relatively small subsidy to RTZ to keep the smelter open ……… in order to use the Manapouri power whilst building the necessary transmission links to move the power to the main grid effectively.”

    Agreed, and the decision that was made to pay the subsidy (over about 3 years as I recall correctly) is now spilt milk.

    The real issue, then, is whether the Government / Transpower has made the (prudent / crucial) business decision to commit necessary capital expenditure to build those very necessary transmission links over a short time-frame. That’s the only way to ensure that Rio Tinto does not have artificial negotiating power next time round. If the projected cost does not stack up on sound investment criteria, it’s time for the Government to acknowledge that it is holding an economic lemon.

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  10. Ed Snack (1,798 comments) says:

    Calendar Girl, Agreed. If the decision is defended on certain grounds then those grounds must be real. Transpower is a separate State zoned Enterprise, but subject to government direction I would suspect at the strategic level. I understood that the work was in train, but I haven’t followed that up of late. It is a fairly substantial project as I understand it.

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  11. mick buckley (9 comments) says:

    “I think Rio Tinto bluffed them”

    If Rio Tinto had pulled out it would have screwed up the power company sell-off. That’s how they got the $30 million.

    It’s arguably better for NZ in the long long-term to say thanks and goodbye to Rio Tinto and build infrastructure to ship the Manapouri power north.

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  12. CharlieBrown (925 comments) says:

    You know what pisses me off most about this… If labour was in power they would have done what national did and national would be saying what labour is saying now. National are prone to opposing something in opposition and doing nothing about it when they get into power.

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  13. burt (8,028 comments) says:

    CharlieBrown

    You are bang on there. We saw exactly that with tax breaks for LOTR under Labour then the same again for The Hobbit under National. The muppet partisans are to stupid to notice – they just read from the list of talking points and repeat the same old BS.

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  14. CharlieBrown (925 comments) says:

    Yip – National is a party without a soul, its sole objective is to get in power to give their politicians a job. They have no policy or philosophy to speak of. The fact that a leader can come in and change the direction of the party so dramatically shows there is no substance to it.

    Labour isn’t quite so bad but are still terrible, Peter Dunne is the figurative political slut of parliament that is as bad as National, and you can say that all the other parties have a somewhat consistent philosophy and policies over the years, no matter how misguided (or tyrinical in the greens case) they are.

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  15. Sam Buchanan (502 comments) says:

    Ironically National keeps insisting that they are a hands off Government that doesn’t practice Keynesian economics.

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  16. Francis_X (149 comments) says:

    DPF – “Now as I said I disagreed with the decision to pay the subsidy, but I understand the reason the Government did it. They did not want to risk that Tiwai point would close, and 800 jobs or so would be lost. ”

    Nah, crap.

    National hasn’t shown the least bit of interest in other job losses – tens of thousands since 2008 – so why should the Tiwai Pt smelter concern them?

    Because if Tiwai had closed that would have sent power prices plumetting and derailed the entire asset partial float program. Result would have been National’s major policy-plank collapsing and the end of Key’s administration.

    There , fixed it for you.

    Sounds more believable now, eh?

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