Wednesday, August 7, 2013

Tiwai Point deal sealed with $30 million Govt contribution - TVNZ

Published: 9:39AM Thursday August 08, 2013 Source: ONE News

Tiwai Point workers (Source: ONE News)

Tiwai Point workers - Source: ONE News

With the help of a one-off $30 million Government contribution, Meridian Energy has agreed on a new electricity deal with the owners of the Tiwai Point smelter.

In a statement to the NZX, Meridian Chief Executive Mark Binns said that after a year of "robust negotiations" a deal has finally been made with New Zealand Aluminium Smelters Ltd (NZAS).

"We have reached an agreement that is commercially acceptable to both parties and provides a greater level of certainty for Meridian," Mr Binns said.

In the re-negotiated contract, Meridian will reduce the price of power paid by NZAS to pre-July 2013 levels, in exchange for guarantees on contracts from NZAS's parent Pacific Aluminium, a subsidary of global metals giant Rio Tinto.

"The new agreement is inflation indexed and includes guarantees from or on behalf of the NZAS parent companies Rio Tinto and Sumitomo Chemical Company. These guarantees demonstrate a commitment to the Tiwai Point smelter to January 2017," he said.

However, Mr Binns said that the deal still allows for price increases should the New Zealand dollar value of aluminium rise above agreed levels.

The new contract still runs to 2030, as did the contract it replaces, but includes a faster exit clause for the smelter. The new deal allows NZAS to terminate the contract after January 2017, with 15 months' notice.

Mr Binns also said that the deal provides the smelter with more flexibility in its operations, whereby it can reduce its contracted volume from 572 MW to 400 MW from 2015.

The contract renewal looks likely to see a writedown in the value of Meridian ahead of Government plans to sell up to 49% of the shares in the electricity company by September 30.

'Greater certainty'

Finance Minister Bill English said that the Government agreed to contribute $30 million in order to secure the medium-term future of NZAS.

"This is a one-off incentive payment to help secure agreement on the revised contract because of the importance of the smelter to the stability of the New Zealand electricity market," Mr English said.

"It provides medium term certainty for Southland and New Zealand," he said.

The smelter accounts for around 10% of the economic activity in Southland and produces over $600 million in export receipts annually, but has struggled with profitability.

Accordingly, Mr Binns said that it is now "back to business as usual" for both parties.

"Meridian is delighted that the parties could find a mutually acceptable position - and trusts that the new pricing framework and associated arrangements assist NZAS in establishing a competitive cost position for the future," he said.

Government 'not directly' involved in talks

Minister for State Owned Enterprises Tony Ryall said that the Government was not directly involved in the negotiations between Meridian and NZAS.
 
"Meridian negotiated a commercial agreement that included returning the price of power paid by NZAS to around pre-2013 levels, in exchange for guarantees on the contract from or on behalf of NZAS's parent companies.
 
"NZAS shareholders approached the Government for further assistance to return the smelter to viability in current market conditions," Mr Ryall said.

The Government funding will come from operating contingences for 2013/14.

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