The best deal is no deal

The Herald editorial:

Rio Tinto is doubtless more than happy that the Government has stepped in to try to broker a deal over the electricity supply contract for the Tiwai Pt aluminium smelter. The global company’s bargaining position has always been strong. Now, the concerns that have brought the Government to the negotiating table make it even stronger. Nonetheless, there remains no reason to bow to the mining giant’s every demand.

I am unconvinced they should be given any special treatment, beyond a commercial volume based discount for electricity which is up to Meridian to negotiate.

As much was confirmed by Contact Energy’s share price dropping 3 per cent in early trading after Meridian announced the negotiation deadlock.

A 3% drop is not the end of the world.

There are other factors for the Government to consider, not least the threat to 750 jobs at the smelter and a further 3000 indirectly in the Southland region.

But will those jobs endure just because the Government comes to the party? I am doubtful. If the smelter is not a going concern, then its closure is inevitable. If the smelter is a going concern, I’m not too keen to subsidise it.

Some people will make comparisons to Sky City and The Hobbit. But I view those two as quite different. Sky City is not threatening anyone. It is not saying that it will pack up shop, if it does not get its way. That negotiation is about Auckland needing a world class convention centre and negotiating some regulatory changes that would allow Sky City to  build it.

And The Hobbit stuff happened because of the malign interference of the Australian union. They instigated a global boycott that led to a possible shift overseas. Their influence had to be negated.

Rio Tinto are just trying to use the asset sales to renegotiate a contract they had already agreed to. Now that is fine for them to try – but the negotiation should be with Meridian.

Rio Tinto’s position is the stronger in that it has made it clear that it wants to sell the smelter. If that is not possible, closure is an alternative response to the sagging world price for aluminium. Even so, there is no reason for the Government to start genuflecting. This country has already given successive Tiwai Pt operators very good deals since it built the Manapouri hydro station to power the smelter more than 40 years ago. The Government’s approach to these negotiations should, therefore, not be markedly different from that of Meridian. If a deal that makes commercial sense cannot be struck, it will not be fatal to the asset-sales programme, the country’s electricity framework, or, in the long term, the Southland economy. On no account should the Government throw in the towel.

I agree. Any concessions should be minor, if at all.