31 May 2017

Rising electricity prices hit bottom line at Tiwai Point

1:23 pm on 31 May 2017

Despite record production, the Tiwai Point aluminium smelter paid as much for electricity as it made in gross profits this year because of rising electricity prices, its majority shareholder says.

Tiwai Point aluminium smelter.

Tiwai Point aluminium smelter. Photo: Wikicommons

Pacific Aluminium, which owns 80 percent of the smelter, announced a $67 million after-tax profit in its 2016 calendar year figures released yesterday.

After allowing for one-off payments and asset value changes, the company made $25m, less than half the level of the previous year.

Pacific Aluminium blamed the cost of electricity transmission for many of its problems, saying it paid $67m in transmission costs last year, the same sum as its gross profits and a big share of Transpower's total revenue.

Chief executive Gretta Stephens said the cost of transmission would soon rise to three times its underlying profit and this was unfair when much of the money had gone to pay for expensive North Island upgrades that the company never used.

"We run a world-class operation, but despite breaking a production record in 2016 costs have eroded profits," Gretta Stephens said.

"When it comes to transmission charges, we believe you should pay for what you use.

"This isn't what is happening now, so we are committed to working with the Electricity Authority and Transpower to achieve a more sustainable method of pricing transmission services."

The smelter's hopes of reduced transmission prices have dimmed after the Electricity Authority decided to go back to the drawing board in its review of charging for the national power grid.

Tiwai Point had been hoping for savings of at least $20 million a year under the proposed changes.

Offsetting its electricity costs, the company benefited from a slight fall in the value of the New Zealand dollar, which made exporting easier.

Although global aluminium prices have inched up this year, they were still below the level of two years ago however.

The company said it had been pushing for efficiencies in the way it did business to deal with that.

The smelter has an agreement to buy electricity until 2030 but could bail out from next year if it gives one year notice, though it has given no sign that it will do this.

The smelter uses about a seventh of New Zealand's electricity, so any decision to stay or go would have a significant effect on future infrastructure requirements.