Meridian and Tiwai Point

Stuff reports:

Southland Chamber of Commerce chief executive Richard Hay urged people to consider what was really going on.

Pacific Aluminium, a business unit of Rio Tinto and the majority shareholder of New Zealand Aluminium Smelters, had been perceived as playing hard ball, he said.

“If anybody was getting the short end of the stick, it would appear to be the smelter.”

Rio Tinto was shown as begging from the Government and using the Mighty River Power partial asset sales policy as leverage to get what it wanted, he said.

“However, has any consideration been given by the public that it’s Meridian playing hard ball.

“After all, it has been making a yearly profit of $200 million off the Manapouri power generator, while NZAS is losing $50m and is in the shadow of closing,” Mr Hay said. …

“Rio Tinto wants Meridian to reduce the power price in tough times but be prepared to pay more for it again when the market improves.”

I understand that essentially Rio Tinto want the price they pay for electricity to be linked to the price they get for aluminum. This is very understandable from their point of view. Electricity makes up over 30% of their operating costs.

What they are effectively asking Meridian to be more a partner than a supplier. To share both the risks and rewards of the aluminum market.

While Meridian is 100% Government owned, I’d be very reluctant to have a Government owned business getting involved in a risky commercial enterprise such as aluminum – beyond their current role as a supplier. Why should taxpayers be forced to invest in the aluminum market?

But if Meridian was fully or partially privately owned, then Meridian shareholders could well want their Board of Directors to accept a deal where the price they charge is linked to the aluminum price.

So my hope is that Meridian and Rio Tinto can reach an agreement for now. Once Meridian is no longer an SOE, then it should have greater flexibility to consider variable price agreements.