Comments on Tiwai Point

Some interesting comments were made yesterday on the Tiwai Point thread, with people disagreeing with me that the Government should not be involved:

Jack5 said:

In a detailed post by “Tempest” in Kiwiblog yesterday, is was spelled out that the new infrastructure required to put Manpouri’s electricity on the NZ market would cost $2 billion and would take eight to ten years to complete.

DPF thinks the SOE board should negotiate this contract. This is about more than some electricity price subsidy. How would Meridian raise $2 billion to bring Manapouri electricity north with a wait of six to eight years before it received any revenue from this spending?

There’s a better case for the Government negotiating here than there was for its role in helping the film industry. And there were film-industry tax subsidies (yes, special industry tax breaks are subsidies), as well as labour rules involved.

The aluminium industry is in upheaval round the world thanks to a dive in demand and prices, and rising competition from China. Australia and New Zealand have a special difficulty because of the two countries well overvalued currencies.

In France the French Government is working with and local community representatives and unions to try to find a buyer for Rio Tinto’s aluminium smelter at Saint-Jean-de-Maurienne.

Finding a buyer for Bluff, might be harder, however. In Australia, Norsk Hydro announced 12 months ago it was closing its aluminium smelter at Kurri Kurri. Alcoa’s smelter in Victoria is staying open for two years, thanks to a state-federal subsidy.

If Australia is bailing out its smelters, NZ will have to follow or lose a billion a year in foreign currency earnings. It would also have to raise $2 billion for new infrastructure, and spend heaps on social support in Southland (just as it props up farmers in droughts and kiwifruit farmers in disease outbreaks).

Too much is at stake with the smelter to leave it to a State-appointed board.

However, that is where it is. Stuff reports:

Mining giant Rio Tinto has walked away from talks with the Government over the future of aluminium smelter, Prime Minister John Key has confirmed this morning.

Key said Rio had withdrawn after nine months of negotiations over possible taxpayer subsidies and had now resumed discussions with state-owned power company Meridian.

It was revealed last week the Government had been negotiating with Rio Tinto over the smelter after contract negotiations between subsidiary Pacific Aluminium and Meridian effectively stalled.

The Government had made it clear there would be no long-term support, but agreed to look at short term bridging assistance because of the thousands of jobs at stake, and to facilitate a smoother transition should Tiwai Point close, Key told TV3’s Firstline.

“We made the call that we would look to help bridge a small amount of that gap for a short period of time.

“They came back over the weekend and said ‘no, we are rejecting the Government’s intervention; we will go back and talk to Meridian’. So that’s what they are doing now.”

He acknowledged ultimately that might mean Tiwai Point closed.

Just as Solid Energy suffered due to low global coal prices, Tiwai Point suffers from low global aluminum prices. There is a limited amount one can do locally in the face of global price changes.

This reinforces to me why the state shouldn’t be in commercially risky enterprises. Why should I as a taxpayer be carrying some of the risk around global aluminium prices? If Tiwai Point closes, it will reduce the value of the energy SOEs.

Rio Tinto apparently decided to walk away after the Government made it clear it would not subsidise the deal long-term.

Key confirmed this morning the Government had no interest in that.

Good.

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