Tiwai close will cost port

Listed South Port at Bluff, in Southland, faces losing millions of dollars in revenue from cargo and lease arrangements if Rio Tinto begins closing its Tiwai Point aluminium smelter.

Last financial year to June, total tonnage across South Port's wharves from the Tiwai smelter fell by 15%, or about 150,000 tonnes, to about 1 million tonnes.

In mid-March, Tiwai cut production by a further 5%, reducing its capacity by about 400 tonnes per week, in the face of low hydro lake levels.

Any loss of smelter-related shipping also means less choice for Southland businesses to back-load their exports on to departing ships.

Rio Tinto, as Tiwai's 79% majority owner, has already bundled the smelter into a group with five other smelter-related Australian assets for sale, but its immediate future is in jeopardy. Rio has been unable to negotiate a long-term contract with state-owned enterprise generator Meridian Energy.

When contacted, South Port chief executive Mark O'Connor said it was ''key'' to the smelter issue that Rio and Meridian came to an agreement ''where both players got value out of a [new] arrangement''.

''Yes, it is a substantial contributor to our revenue. It would not be beneficial to lose, but it would not be a terminal blow,'' Mr O'Connor said.

The loss-making 42-year-old smelter, which manufactures some of the world's highest grade aluminium, has for decades operated on cut-price power from the Manapouri power station, using about 14% of New Zealand's annual electricity output.

Unsuccessful negotiations between Rio and Meridian have been widely reported in the media. Mr O'Connor said South Port had been involved only in some initial talks with mining giant Rio, when it outlined its costs and activities ''with a number of businesses at the time''.

When asked, Mr O'Connor agreed the loss of such significant tonnage would mean millions of dollars in lost revenue to South Port, whose 66% shareholder is Environment Southland.

Another smelter-related source of income is the Tiwai wharf and infrastructure, leased to Rio on a contract understood to be terminating in 2043.

While Meridian has a power supply contract with Rio for 18 years, it has an expensive opt-out clause should Rio decide to scale down production towards closure in five years.

Mr O'Connor declined to reveal whether the Tiwai wharf contract had a similar opt-out clause.

''I can't comment specifically on the contract. Needless to say, it's positive for us to have some certainty on the [wharf] income stream,'' he said.

Last year, South Port handled more than 2.6 million tonnes of a variety of cargoes, of which about 38%, or 1 million tonnes, was smelter materials, including about 660,000 tonnes of raw material imports and 330,000 tonnes of finished aluminium products.

In the full-year report, South Port chairman Rex Chapman noted the more than 2.6 million tonnes of cargo handled was at a record level for the second consecutive year.

Although there was a 90,000 tonne decline in log exports and about a 150,000 tonne decline in smelter-related materials, South Port revenues were up 4% to $26 million for the year, with after-tax profit down only slightly from $6.26 million the previous year to $5.99 million.

Offsetting the logs and smelter declines were substantial cargo volume gains in petroleum, stock food, sawn timber and woodchip exports.

''A number of South Port's customers encountered challenging operating conditions in the past season and this created either slow-moving inventory or reduced margins for these businesses,'' Mr Chapman said.

Mr O'Connor said while smelter materials were a ''meaningful volume'' to South Port, the company maintained a ''reasonable spread'' of other cargoes.

-simon.hartley@odt.co.nz

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