The New Zealand government has paid $30 million in subsidy to sustain Rio Tinto’s Tiwai Point aluminium smelter in Southland.
The payout comes in a bid to protect 800 jobs after Rio’s subsidiary New Zealand Aluminium Smelters (NZAS) warned it would have to shift offshore.
The subsidy gives the smelter breathing room until January 2017.
The subsidy has come under fire from opposition MPs with Labour’s SOE spokesman Clayton Cosgrove saying the funding from the National party is a short term move that used taxpayers’ money for the survival of the asset sales program.
“This is a short term deal that is huge win for Rio Tinto,” Cosgrove said.
Next on the agenda is Meridian, according to stuff.co.nz, after part of Mighty River Power was sold in May in a bid for the Government to decrease its ownership of three state-owned power companies so it can pay off its debt.
“National is so desperate to get Meridian sold off that it has given Rio Tinto a $30m bonus to sweeten the deal and all the company has to do is keep the smelter open for three and a half years.
“Rio Tinto has also managed to halve its notice period. It will now be able to walk away with 15 months’ notice, instead of three years currently.”
"By 1 January 2017 we will be back where we started. Rio Tinto will yet again have the right to walk away and will be in a position to hold the Government, taxpayers and the people of Southland to ransom once more."
But workers and the union welcomed the news of the subsidy.
Contractor Jeremy Borland welcomed the news on a personal and community level for Southland.
“I can definitely think about building a future and a house in the region with some of the uncertainty gone,” he said.
The smelter has 3200 workers and injects $1.6 billion a year to Southland’s economy.
The smelter’s IT contractor Alistair Turnbull said renegotiation on price was needed.
“The power station (Manapouri) was built for NZAS and people have lost sight of that. They pay a considerable amount for their power, lines and transmission and if it had closed that cost would have been passed back to the New Zealand taxpayer.”
The Engineering, Printing and Manufacturing Union, which represents Tiwai Point workers, is happy with the deal as they believe it will save jobs and gives Southland some security.
“The job security, which the smelter provides for the people of Invercargill [capital of the Southland region], is hugely important,” organiser Trevor Hobbs said.
Earlier this year, Rio did a write down of the value of the Tiwai Point smelter to just $14.8 million from $806.9 million.
Rio's chief Sam Walsh said in May the company would make two thirds of its asset cuts to its aluminium and energy businesses.
NZAS also settled a deal on a new electricity contract with state-owned Meridian earlier in the day.
With the deal comes a newly negotiated cheaper electricity rate but it is not yet clear what this will be.
Minister for State Services Tony Ryall said it would revert to the “price of power paid by NZAS to around pre-2013 levels, in exchange for guarantees on the contract from or on behalf of NZAS’s parent companies”.
It took a year to finalise this deal.
“While the contract remains until 2030 the revised agreement between Meridian and NZAS’s shareholders demonstrates a commitment by NZAS to continue operating the smelter until at least January 2017,” Finance Minister Bill English said.
The $30 million was a “one-off incentive payment” to assist with sealing the deal on the revised contract, which was vital due to the role of the smelter in the New Zealand electricity market, English said.
“It provides medium term certainty for Southland and New Zealand.”
Meridian chief Mark Binns said the deal brought more security to Meridians and found it “commercial acceptable”.
Tiwai Point uses 40 per cent of the power Meridian creates.
“If the smelter had closed there would have been a significant disruption to the whole electricity markets,” Binns said.
He added the government subsidy got the deal across the finish line.
“We hope that by reducing the power price, and the other work they (smelter) are doing in reducing costs they will be internationally competitive in the future and hopefully stay for the full length of the contract to 2030.”
Rio's Gove aluminium refinery in Arnhem Land, Northern Territory was at risk of being shut earlier this year.
It produced over 8.2 million tonnes of bauxite and 2.65 million tonnes of alumina per year. Former Rio CEO Tom Albanese called Gove a loss making operation.