By Bernard Hickey
Meridian Chief Executive Mark Binns has said a deal done to keep the Tiwai Pt smelter open until 2017 gave the company more certainty about future power prices and would be welcomed by potential investors.
Binns said he could not comment on the exact timing of the govenrment's planned partial float or how it would affect the company's financial forecasts, but that investors would be pleased. The deal means 40% of Meridian's power output, which is equivalent to 14% of New Zealand's power supply, will not have to be dumped onto the market until at least 2017. Binns said if Tiwai Pt had closed Meridian had expected this extra supply being put into the open market would have driven down both wholesale and retail power prices.
"The overall impact, given the laws of supply and demand, is that prices would have gone down," Binns told a news conference in Wellington when asked what Meridian's modeling showed would have happened to wholesale and retail power prices.
He pointed to the stock market reaction towards other generators as a sign of how positively this would be viewed by investors. Contact's shares were up 1.5% by late morning and Truspower's shares were up 1%, outperforming a slightly weaker broader stock market. Mighty River Power shares were flat.
"The certainty that this provides will be viewed by investors as a positive," Binns said.
Earlier Meridian announced it had signed a deal with New Zealand Aluminium Smelters that guaranteed the Tiwai Point Smelter would stay open until at least January 2017 and that Meridian's power charges for the smelter could rise if the New Zealand dollar value of aluminium rose over that period. See David Hargreaves' original article here and his opinion piece here.
The deal was agreed only after the government agreed to pay a NZ$30 million sweetener to the Rio Tinto-controlled NZAS. The deal effectively buys some time for Tiwai Pt workers to plan and retrain ahead of a 2017, or to buy time for any rebound in the New Zealand dollar value of aluminium prices. The new power price supply deal agreed by Meridian sees a signficantly reduced power price for Tiwai Pt from July 1 this year. NZAS had threatened to close the smelter if it could not negotiate a better power price, given a slump in aluminium prices in recent years and the strength of the New Zealand dollar.
"It's a meaningful reduction which addresses the smelter in terms of international competitiveness," Binns said of the price agreed in the new contract. He declined to disclose the details, saying Meridian had agreed not to in its deal with NZAS.
Binns said his role in the negotiations was to act in the interests of shareholders, not for that of the country overall.
"I'm here to make a commercial decision. I'm not here to make social decisions," he said, adding the government had put no political pressure whatsover on Meridian to change its terms.
Binns said Meridian's final position was presented to NZAS three weeks ago and was little different in pricing terms from the one presented in March. He said NZAS had then gone to the government to negotiate its own side deal with Finance Minister Bill English.
The deal specified that NZAS would have to give 15 months notice of closure before January 2017, and thereafter 12 months notice.
Binns said the deal was good for Meridian, good for NZAS, good for Tiwai Pt workers and by extension, good for New Zealand.
"There are winners all around," he said.
Meridian is due to issue its financial results on Monday and Binns said it was likely to include a revaluation of the deal, agreeing it was likely to be upwards.