9 Sep 2012

Agreement expected to keep aluminium smelter open

8:43 pm on 9 September 2012

A man who held repeated negotiations with the owners of Southland's aluminium smelter thinks an agreement to keep it open is likely.

But Sir William Birch says any significant cut in the price it pays for its electricity will be short term.

Sir William held multiple roles in government and negotiated repeatedly with the plant's previous owner, Comalco.

Rio Tinto has said it might have to close the smelter unless it gets cheaper electricity.

Low global prices for aluminium have produced a $20 million loss at the plant and brought forward plans to cut scores of jobs.

Sir William helped steer a contentious law through Parliament, forcing up the price of electricity to the plant.

He says the Government will have to approve any deal between the smelter and its power supplier, Meridian Energy, because of its impact on the rest of the economy.

He says there will be pressure to lower the price to keep the smelter going, because demand for energy is flat, meaning Meridian would find it hard to sell the plant's electricity to anyone else if it shuts down.

But Sir William says long term, the Government regards New Zealand's hydro electricity as very valuable and will not want to sign up for a price cut long term, especially as aluminium prices are cyclical, and Rio Tinto's earnings will bounce back eventually.

Sir William adds staff at Rio Tinto are very tough negotiators who conduct talks with governments somewhere in the world all the time.