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National commits to 'facilitating negotiations' to keep aluminium smelter at Tiwai Point open, as Rio Tinto says it could stage a longer exit if it gets a 'fixed and fair' electricity transmission price

National commits to 'facilitating negotiations' to keep aluminium smelter at Tiwai Point open, as Rio Tinto says it could stage a longer exit if it gets a 'fixed and fair' electricity transmission price
Tiwai Point

National wants to push Transpower to lower New Zealand Aluminium Smelters’ electricity transmission costs to prevent the majority owner, Rio Tinto, from shutting the operation.

Rio Tinto in July announced its intentions to close the smelter by August 2021. Its electricity provider, Meridian Energy, as recently as Wednesday said it was still working towards an August closure.

However, Rio Tinto on Friday said it was open to a “longer staged exit”.

It’s managing director of Pacific Operations, Kellie Parker, (in a second statement released on Friday) said: “The Government and Southland have made it clear it is their preference for the smelter to exit more slowly over a four to five year period, rather than in 12 months, however in order to achieve that Rio Tinto needs a fair and fixed cost for transmission…

“Rio Tinto welcomes support from all political parties to achieve a fairer transmission cost which better reflects the service we receive at Tiwai.”

Transmission pricing in focus

Earlier in the day, National said that if elected to government, it would “facilitate negotiations between Rio Tinto, power companies and Transpower to achieve a more cost competitive environment to keep the Tiwai Point aluminium smelter open”.

National’s energy spokesperson Jonathan Young told interest.co.nz he maintained work could be done to reduce transmission pricing.

He believed there was a way for what’s known as a “prudent discount” under the Transmission Pricing Methodology to be given to New Zealand Aluminium Smelters.

Transpower is of the view that the Electricity Authority would have to change the Electricity Industry Participation Code to enable Rio Tinto to apply to it for a “prudent discount”.

'Commercial solutions' not subsidies

Asked whether National would rule out taxpayers subsidising costs in any way, shape or form, Young said: “We are convinced commercial solutions are possible.”

The National Government in 2013 contributed $30 million towards the smelter to keep it operating. Finance Minister at the time, Bill English, ruled out further subsidies.

Energy and Resource Minister Megan Woods on Friday reaffirmed the Government has ruled out a “direct subsidy” to Rio Tinto.

Govt in talks with Rio Tinto

However, Woods said the Government was in talks with Rio Tinto, as a closure could see 1000 direct, and 1600 indirect, jobs go.

“There are a range of discussions taking place, but they are all commercial in nature so I won’t be going into any detail about them,” Woods said.

National leader Judith Collins said National would aim to keep the smelter open for at least the next five years.

What’s more, she said: “It is our understanding that the owners of the Manapouri Power Station - Meridian Energy - have offered a positive electricity price to Rio Tinto, based on Meridian’s potential losses of tens of millions of dollars a year if there is a drop-dead date for closure of the smelter. Based on this, we understand that a commercial deal could be reached.”

Asked whether having National pledge to step in to try to help ahead of an election gives Rio Tinto even more bargaining power, Young said: “They’ve got a reputation for being pretty smart players in the international market for electricity. They built refineries where they can get the cheapest electricity. There’s no doubt about that.”

'National will accelerate Transpower’s investment into transmission lines'

Looking further ahead, Collins said: “While creating certainty in the medium term for Southland, National would have an eye to the future.

“Technology upgrades to the smelter could see up to 200MW of electricity available to the grid as dry-year cover. We will look to partner with Rio Tinto on the installation of those upgrades.

“National will accelerate Transpower’s investment into transmission lines upgrades to ensure Manapouri power station is not left stranded in the future, allowing the electricity to be available to the wider economy.

“This is a better deal than Labour’s $4 billion pumped hydro proposal, which is many years away, and there is no surety that the $30 million investigation will support the project.

“National will also invest in improving Southland’s internet connectivity, to allow new industries to locate closer to the renewable energy that Manapouri provides, to ensure the development of other industries and future jobs.”

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57 Comments

23
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More crony capitalism from National.

Hang on too. Firstly plant is dependent on acquiring raw material it doesn’t own and shipping it in. Secondly China dominates and has control of the market for the end product. Two major uncontrollables then, right at each end of the process. Not viable in the middle then, hence Rio Tinto, enough is enough.

Foxglove, the raw material is owned by it's parent company and majority shareholder Rio. The profitability or otherwise is being controlled by Rio as NZAS is in effect a toll processor for both its major shareholders - Rio and Sumitomo

I do apologise. My comment erred, it was on the premise of a new owner/operator of the plant with government subsidies which had been mooted. Yes certainly, if Rio Tinto should continue on, then that takes care of the raw material supply.

Haha no need to apologise at all. Personally I think NZ should wave byebye to Rio but just not yet. Buying the smelter, even for $1 would be a big mistake IMO which is what I guess the gist of your post was about

the raw material price is decided by the international market of which china is a huge purchaser, Rio tinto can not sell for below otherwise they will fall foul of anti dumping laws in NZ.
the simple fact is china is producing huge amounts of steel and aluminum at a far cheaper cost than many other nations and producers all over the world are in trouble

RIO can sell raw materials to a subsidiary at whatever price it cares to,and it's not governed by the anti dumping laws because NZAS doesn't purchase alumina from any other supplier so there is no competition.

What bit do you imagine a crony.

16
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Just give them the power for free National, plus $30 million - and let Gerry sign it off - genius!

23
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So National hate free market capitalism? Perhaps the continuous subsidy of the smelter should be removed rather than just trying to add to the over supply of aluminium.

Stop the hand outs to corporate bludgers.

Also, NZ National not only intends to defy the advice from health experts on Covid response but has also chosen to ignore the advice from industry experts on this particular issue.

Researchers from think-tanks and universities around NZ have rushed to show their support to the smelter's potential closure. Most of them have also spoken in support of inviting a more futuristic enterprise (battery manufacturing, hydrogen electrolysis, PV cell manufacturing) to set up shop in the region and against building the infrastructure to put power back into the national grid.

Advisor, you can invite as hard as you like but unless there is a significant value proposition offered (and I'm talking almost free power and Tax incentives) they won't come. Look what Ireland had to do re:tax breaks, and it's a lot closer to the end markets than Invercargill. The longer Tiwai stays the better for NZ in general and Southland in particular.

I know what you're saying, Hook.

Moving away from aluminium smelting to something more hi-tech manufacturing or perhaps a network of data centres, even if that involves providing tax breaks, opens up a window of opportunity for more vertical and horizontal players to enter the landscape in the future and complement this venture. With the right policy settings, the positive effects of such industrial presence could reach other parts of our economy.

We don't have to follow the Irish and turn the entire country into a tax haven but setting up an SEZ in the region won't be the worst thing to do. Better than the subsidising tourism and hospitality profits made from employing an army of low-wage migrants and leaving behind the tab for plugging the infrastructure gap on the taxpayers.

I certainly agree Advisor. I'm not saying NZ should keep the smelter going for the foreseeable future, but I'm saying NZ Govt should do whatever it can (realistically) to prolong it's departure - hopefully 4-5 years. Moving away from Aluminium smelting is a given but NZ can't really afford to have the smelter go cold turkey on us in August next year. NZ needs the jobs and the tax take, and the time to find alternatives. An SEZ is an interesting idea certainly worth exploring but I think you'd best buy some noise cancelling headphones to drown out the uproar that would cause.

NZ needs the jobs and the tax take, and the time to find alternative

That could be a possibility if we don't see enough movement to address this economic void the smelter will potentially leave behind.

"The longer Tiwai stays the better for NZ in general and Southland in particular".- Why and and what cost to the "taxpayer". Please list these benefits for NZ in general.

Especially when aluminium can only be sold at fluctuating global commodity prices, when we could spend those subsidies to produce something attracting more premium pricing.

The reason Rio Tinto has brought up this issue now and wants to lock in higher subsidies is because of the imminent collapse in metal prices due to long-term oversupply.

OK frazz:
1: tax take from the approx 1000 jobs reliant on it, plus more jobs and businesses indirectly reliant on those jobs 2: tax take and divy yield from MELs profits ( the Govt is majority shareholder and received ~221 mill in Divys this year) 3: current Transmission costs paid by the smelter 4:deferral of close to 600 mill in investment by Transpower which allows them to spend that money elsewhere 5: continuation of several 100s of mill in renewable energy projects currently shelved by the gentailers 6: further job losses in the Electricity sector signalled if Tiwai goes in August - Huntly and Hawera are 2 such stations which will close Get the picture now?

1. Save 1000 jobs at say last bail out $30 million...thats $300 k per job
2. So no more dividend from MEL...do they not have any other customers?
3. Current transmission costs...next to nothing ..
4. deferaal of close to 600 million in investment...allowing money to be spent else were? What like on the National grid upgrade which benefits all of us?
5. These are going ahead anyway..nice try though
6. More renewables..closeing down of older coal generation...alwats going to happen as these plants getting too inefficient.

Get it now?

Are you actually serious or just ttp?? No one said anything about a 30 mill bailout this time around. That earlier 30mill has been easily repaid in the tax take over the last 7 years from those jobs saved. MEL has already posted it may have to write down the value of it's generation assets by up to 1.3 billion so no more divys to anyone for a while. Current transmission costs - 68mill/annum, hardly next to nothing. The grid doesn't need upgrading to the tune of 600mill if Tiwai stays so that's an immediate benefit to all users. No one is talking about shutting down older coal generation. Huntly burns natural gas mostly and Hawera is all natural gas. I was talking about new renewable generation that won't be built because there is no foreseeable need for it if Tiwai shuts down.

And as for #5 (these are going ahead anyway) - No they aren't.
I'd honestly suggest you do some background research into the industry. Might save the egg mask

And yet you fail to mention corporate responsibility as well - NZ is best to get rid off them as they just dont care about the environment of the average kiwi. Are you sure you are no a lobbyist as well - need some eggs for tomorrows breakfast?
Of course older coal generation is shutting down - you are now telling porkies?
New Zealand Will Shut Down Its Last Large Coal-Fired Power Generators in 2018. New Zealand electricity company Genesis Energy has announced that it will shut down its last two coal-fired power generators by December 2018 - a bold step towards the country's goal of being powered by 90 percent renewable energy by 2025

"The closure of Tiwai Point aluminium smelter has raised concerns over what it will mean for the thousands of tonnes of potentially toxic waste stored in the small Southland town of Mataura. "
https://www.rnz.co.nz/news/national/420964/rio-tinto-s-smelter-closure-u...

This discussion isn't about corporate responsibility or lack of, it's about preservation of income until it can be replaced. NZ doesn't have " Large Coal-Fired Power Generators". We have coal fired capable generators but they are not primarily powered by coal.. they are Natural gas fired. The Rankine units at Huntly are a case in point and are about the only large generation units configured to burn coal, although they invariably use gas.
As for being a lobbyist? .. haha that yellow mask of yours is getting more and more embedded.
You'd do well to actually research the issue rather than relying on headline grabbing excerpts from the media who are almost as ill informed as you are.
The ouvea premix issue is a separate problem that could be rolled into the smelter closure issue but it's a distraction from main situation atm.

18
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A commercial solution would be to allow others to bid for the cheap power as well. There would be far more viable industries producing more jobs with 5 cents / kwh power tyhan the smelter.

Dinosaurs

Is that not already a safe blue seat?

11
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Corporate welfare. Looking at the National Party website, they STILL don't have any real policies. If I were to vote "right" I'd be voting ACT.

Not only Rio Tinto but Transpower too.

“National will accelerate Transpower’s investment into transmission lines upgrades to ensure Manapouri power station is not left stranded in the future, allowing the electricity to be available to the wider economy.

Ahh Kate.. Transpower is the SOE that owns the grid, hardly corporate welfare

oops, my bad. I was thinking Trustpower :-).

“In exchange for this deal, we would require a plan from Rio Tinto for the clean-up of the site and dealing with the waste when it closes.”

A plan? A bond would be far, far better.

I thought that they had already acknowledged that they will have to do the site remediation.

Acknowledged - even possibly contracted - but neither are money in the bank, which requiring a bond is.

That's why tenancy laws required a bond to be held.

I thought the approach was to stand up a temporary company to sell that obligation to, then have that company fall over and say "Nothing I can do, sorry, council should clean it up".

These firms never remediate. They just let whatever subsidiary owning the mine at end to go bankrupt. And then walk away. And they have good lawyers.

Yes that is often the case. The economical parallels to the ex ILVA Steel Works in Taranto Italy are uncanny i.e. too big to fail, and failing too much to keep running (without tax payer subsidy of one form or another), time to move on

That pumped hydro will never happen if the Greens have any say in the matter: they hate lakes.
Personally, I think the original lower Clutha hydro station or the Luggate one would be a much better use of money, that way, there is additional generation. Pumped hydro is not additional generation. Just a timing change (minus the losses in power transmission from wherever the energy comes from to pump the pumps and in the pumping/ second generation phase).

The Greens are not against lakes per se, they would be against damming a wild river to make a lake .
The rest of your post I largely agree with, though pumped storage would be worthwhile where there are wind farms , or to provide storage for the run of river hydro on the Waikato river.
Personally I think Wetlands would be the way to go, to kill 2 birds with one stone so to speak .

Really? Can't generate much power out of a swamp Bud, unless you want to cap it and reclaim the methane emissions

Maybe the "swamp"is in a higher altitude area , ( you know , if you pump water uphill ), and you get power from the basic P = m x g x Hnet x η calculation , which we normally simplify to P(watts)= Flow( m/sec)* Head (metres) *3 . I've been doing small scale hydro for 20 years , and a swampy elevated area makes one of the best sources you can have. Reason been they don't dry out quickly , whereas a bush lined or grassland stream will rise and fall very quickly . Basically a sponge effect .

That's very nice solar, trouble is the plan isn't for small scale trickle type hydro.. it's for large scale augmentation.. big difference

principles are the same.

Seems sensible to me. Whatever happens we are years away from being able use the power from Manapouri elsewhere. So buying time is a good option. Seems likely that the current govt will do the same thing.

There are some very shortsighted and myopic comments here. If Tiwai remains open, even the 28mill in transmission costs they want is better than losing the ~200mill they wouldn't be paying if they're gone. it still amazes me people keep banging on about cheap power being available when it has been repeated ad infinitum it can't be shifted north unless Transpower fronts with 200mill to get the power out of Southland (CUWP) and a further 600mill to shift it across the strait and up the North Island. There IS NOT an oversupply of hi purity ali in the world so Tiwai's product is very much a saleable commodity which has risen in price by ~50% in the last few months. There's also the 1000 jobs, much needed at the moment

Actually it's only $110M to get the power to other users in the South Island, and the work has already begun: https://www.stuff.co.nz/business/117888748/surplus-power-from-smelter-co...

And a further $450M to full 'rebalance' the grid.

The 110 mill is to rework the CUWP, there is still further work required to get further north. The 450mill is for the Cook Strait crossing plus another ~150mill for redistribution costs up the Island
"Transpower will also work with the electricity industry on other improvements needed to realise the full economic benefits to New Zealand from the surplus electricity. This work would cost another somewhere between $500-600m."

To get the power north, they need a whole new double circuit line and DC link from Southland to Whakamaru. That will cost billions and take a decade. The uprating of existing lines will give maybe an extra 100-150MW capacity, not the up to 800MW Manapouri can provide. There are massive constraints all the way up the system. It is all in the Transpower Transmission report, if people can be bothered reading it.

Seems a reasonable idea !

So Rio Tinto say they're closing. But then.... they're not really.... kinda open to a deal still...

They're bargaining. They want to stay open, they're just trying to get the best deal possible. And with National saying things like this, they know they will win.

It's not really about National or Labour. It's about the most pragmatic solution for the near term. Bluff's local economy definitely needs them to stay until an alternative can be found and built, which won't happen quickly. Politicising the discussion is disingenuous and imv distasteful, especially Peters attempt last month - that was disgraceful

PGF can't even compensate the region for their loss of high-paying smelting jobs with tourism funding this time around. The lovely people of Taranaki got millions of dollars from PGF in new parks and cycleways as a sweetener after the gov put a ban on new offshore exploration permits.

Yeah, I'm sure the guys in the industry (and I know a quite few) are loving trading their 6 figure salaries to go pushbike riding on the lovely new cycleways in Taranaki. There's been quite a few job losses in NP plus the loss of periodic maintenance work down there

Rio Tinto has a valid complaint of gouging by Transpower given the tiny ppn of the national grid it uses - 40K/M between Invercargill and Bluff. Meridian owns the purpose built line from Manapouri to Invers. Collins though is in a bind given she as energy minister heavied the electricity pricing authority to continue the longstanding subsidising of NI users transmission costs by SI consumers. The solution is obvious - TP needs to give RT a fairer lines deal which means other users will pay more but crusher has painted herself into a corner, hence the lame proposal to 'broker' a deal. Whatever that might entail. Woods will roll over though by finding some ledger shuffling exercise to pretend its not a subsidy.

Agreed on all counts. Trouble is what you say is logical, but as long as there are political agendas and ideology in play, it will be a long drawn out talkfest that encourages "brinkmanship" from all parties to the negotiations and eventually RIO might just say "@#ck it" and walk away.

I'd suggest that, prior to blithering on about power transmission when sourced from Stuff articles - which are not exactly written by Actual Engineers - commenters take the time to read Transpower's Transmission Planning Report. It details pinch points, scenarios, costs and planned work. Essential background.

Well said. It's easily accessible and factual

Days to the General Election: 21
See Party Policies here. Party Lists here.