Corporate

Meridian says Rio Tinto’s antics are getting old

Meridian Energy chief executive Neal Barclay says Rio Tinto's repeated threats to close down its aluminium smelter are getting old, Marc Daalder reports

If Rio Tinto concludes its ongoing strategic review of the viability of its Tiwai Point aluminium smelter with a decision to keep the operation going, it will have to agree to new terms with its primary electricity supplier to keep it in the country longer term.

Any new contract with the smelter will extend the notice period for closing the smelter to "four years at least," Meridian Energy chief executive Neal Barclay told Newsroom. Barclay said the multinational's repeated threats of Smexit - this is the second time Rio Tinto has threatened to close the facility in a decade - "is very old already"

"Any sort of contractual arrangement that we have going forward is going to have a much longer extended exit clause, so you're talking through to four years at least. When you're talking over that sort of time frame, it removes this ability for them to come knocking on our door [regularly]," he said.

The existing contract gives Meridian only twelve months' notice if the smelter shuts up shop.

Meridian, which supplies the vast majority of the smelter's electricity, announced its half-year results on Wednesday, posting a net profit of $191 million, a 26 percent increase on the same period in the previous fiscal year. The announcement came just two days after the smelter announced its own results for 2019, in which it lost $46 million.

Despite his weariness of the Rio Tinto song and dance, Barclay agrees the smelter is getting a bad deal on transmission pricing. "There are very few people - if any - who argue that NZAS are not paying too much for transmission. In reality, NZAS have been subsidising New Zealand homes and businesses for years," he said.

He also endorsed the idea of applying the prudent discount measure, in which national lines company Transpower can give a discount to a business if the business can prove it would be cheaper to build its own power lines than pay existing transmission prices.

"The prudent discount mechanism does not need to wait till 2024 when Transpower can deliver a billing solution for the rest of the reform. It could be done immediately," Barclay said.

Although observers have said Smexit is unlikely to occur, Barclay cautioned against saying it was a sure bet. "NZAS makes some of the purest aluminium in the world and because it's based in New Zealand, it's basically operating off of renewable electricity, so it's some of the more renewable aluminium in the world. When we look at their actual operations - and this is just our view, they know their business better than ours - we think that they're breaking even, maybe slightly cash positive."

"So, it looks like it's profitable, they're making a unique product, why wouldn't they continue to operate? What we don't know is how that particular smelter fits within the overall Rio Tinto portfolio. They're dealing with the global situation in terms of the demand for aluminium and so they may make decisions to close down some of their smelters in the interests of the overall portfolio."

Rio Tinto is expected to announce the results of its strategic review on or before March 31.

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