Tiwai Point smelter to stay open

The decision on Tiwai Point is expected today. Photo supplied.
The decision on Tiwai Point is expected today. Photo supplied.
The short term future of the Tiwai Point aluminium smelter looks safe, with news of a power deal between its owners and Meridian Energy.

New Zealand Aluminium Smelters Limited (NZAS) has issued a statement saying the deal - for 572MW of electricity until 2030, will allow the smelter's three potlines to remain fully operational.

NZAS chief executive Gretta Stephens said this was good news for the NZAS workforce, Southland and New Zealand.

"We have crossed a hurdle today and now have more certainty about our immediate future," she said.

"It has been a complex and demanding negotiation, but this is a good outcome for Meridian," Meridian chief executive Mark Binns said in a statement.

The variation commits Meridian to cover the full 572 megawatts currently used at the smelter from January 1, 2017 at "more competitive rates" for the smelter than would have applied if NZAS chose to rely on the previous arrangement for the full 572 MW.

The deal will give NZAS the flexibility to operate at current production levels for the full contract period should it want to and provide Meridian with an improved overall price for its electricity.

Meridian said it was committed to cover Tiwai Point's electricity usage at current production levels through to 2030, but NZAS retains all its termination rights from the 2013 round of negotiations, which includes a 12 month notice of termination that can be given any time from 1 January 2017.

Contact Energy has also put out a statement saying it has signed a deal with Meridian Energy to supply 80 MW of energy to the smelter.

Earlier story: Crunch time for smelter

The New Zealand business community's focus will return to the future of the Tiwai Point aluminium smelter at Bluff today, be it concerns for the security of 3500 regional jobs or the implications for the national electricity sector.

While one option is for Rio Tinto owned New Zealand Aluminium Smelter (NZAS) to signal an almost two year closure programme, analysts are picking it will remain open and negotiate replacement of a reduced power take.

NZAS was to have made that decision on July 1 but, in agreement with its supplier, Meridian Energy, postponed it by a month to today.

Not only could about 3500 Southland jobs be affected, directly or indirectly, but Tiwai uses about 13% of the country's energy supply and uncertainty about what that implies for other producers has seen deferment or cancellation of some power generation projects.

Craigs Investment Partners broker Chris Timms said he expected NZAS to remain open and reduce its Meridian take from the present 572MW to 400MW, but have capacity to replace the shortfall from other companies.

''We reiterate that we believe Tiwai will remain open, but will contract just enough to leave itself with enough options to stay around if there is a positive outcome from the renegotiation of the north south [electricity to/from] transmission charges,'' he said.

He expected the financial benefits for NZAS to range between $52million and $56million.

''It Tiwai wants to continue, and continue using [all] three pot lines, the 172MW reduction needs to be contracted [from] elsewhere,'' Mr Timms said.

The two most ''obvious candidates'' for supply were Contact Energy, Genesis and, potentially, Mighty River Power, or even gas supplier Todd Energy, Mr Timms said.

Forsyth Barr broker Andrew Rooney said NZAS had been ''dangled a carrot'' in the form of lower transmission charges that would save it about $55million a year.

During the last round of negotiating two years ago, NZAS got a $30million sweetener from the Government to remain open, which the Government has said recently it will not repeat.

Mr Rooney said while aluminium prices were still low and not assisting NZAS' predicament, he believed they were ''unsustainably low''.

''Throw in substantial closure costs [about $300 million] and there are several strong reasons to remain open,'' he said.

While the ageing 44 year old Tiwai smelter is for sale, it also produces some of the highest grade aluminium in the world. However, global prices have been depressed for some time.

-simon.hartley@odt.co.nz


Options
NZ Aluminium Smelter's options today

Do nothing: Revisit similar options January 2017.
Take same amount of electricity: 527MW.
Take less electricity: 400MW.
Terminate contract: Tiwai closes January 1, 2017.
Terminate contract: But negotiate with new ''consortium'' of two or more electricity generators for new deal.

Source: Forsyth Barr


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