2 Jul 2021

Documents reveal government's multi-million offer to Rio Tinto despite ruling out a subsidy

1:15 pm on 2 July 2021

The government offered to pay millions of dollars to Rio Tinto just months after promising in the election campaign it would not give a direct subsidy.

Rio Tinto's Tiwai Point aluminium smelter. Photo:

The offer is revealed in 25 pages of letters released to RNZ under the OIA, between the mining multinational and ministers over a deal to keep the Tiwai Point smelter from closing early.

Rio Tinto was urgently seeking a deal to deliver a big cut in its $60 million-a-year power lines - or transmission - charges.

While campaigning in Southland ahead of the 2020 election Prime Minister Jacinda Ardern said: "We have said we do not believe we should be giving a direct government subsidy to Rio Tinto, so that's not what we will be doing."

Three months later, the government wrote to Rio Tinto, which owns 80 percent of New Zealand Aluminium Smelters (NZAS), with an offer of a payment to begin the very next month, in January this year.

"To achieve a managed exit for the smelter and in consideration of our respective interests, the New Zealand government will provide a Transmission Transition payment to NZAS of [blanked out]," it said.

"This payment would start from January 2021 until December 2024."

Labour and National have repeatedly said they would never repeat a $30m direct subsidy paid in 2013 by the National government to keep the smelter open.

RNZ asked Finance Minister Grant Robertson how the December 2020 payment offer was different and how it was not also a direct subsidy.

In a statement, he said the government had not gone back on what Ardern promised in the campaign.

"Negotiations with the smelter's owners were around exploring ways to lower electricity costs to the smelter in return for a firm commitment to maintain current employment at the site, agreeing to work on remediation plans as well as working with the government to transition the region's economy."

Robertson's spokesperson said the government "was seeking certain commitments from Rio Tinto in return for a proposed payment".

"It didn't go anywhere."

The payment offer set a deadline to hear back from Rio Tinto of just three days later, 18 December.

The offer reflected how a change in transmission pricing in future would have benefited the smelter, Robertson said. He has previously put that benefit at $10m a year.

The payment offer "did not progress into how it would work in detail. No final payment or structure was ever agreed with the smelter's owner".

Government ministers declined RNZ's request for an interview.

Robertson had laid out five conditions for Rio Tinto to get the payment, mostly around site remediation; the key one was that the company had to commit to excavating the huge smelter landfill.

That would be very expensive.

Rio Tinto has not committed to that.

"We have not yet determined the appropriate action to take with respect to the landfill," the smelter told RNZ on Thursday.

Robertson would not say what the Transmission Transition payment was worth.

"That information remains confidential."

It has previously been reported Rio Tinto wanted a deal to cut its transmission charges by about $30m.

Robertson's spokesperson said the transmission deal is now "off the table".

'Offer of a subsidy'

The newly released letters show that Robertson's offer, made on 15 December last year, followed months of increasingly urgent pleas from Rio Tinto's global head of aluminium, Alf Barrios, for a deal for "fair fixed" transmission charges, or it would shut Tiwai Pt in August 2021.

Eleven days earlier, Rio Tinto wrote to Robertson saying that "unfortunately, a fair transmission price has apparently been replaced with an offer of a subsidy payment from the government".

Rio Tinto had repeatedly said it did not want a direct government subsidy.

Labour's election policy was that State-owned lines operator Transpower would negotiate a transmission charges deal to get the smelter to stay for three to five years.

Rio Tinto responded enthusiastically when the minister laid out the transition payment.

It was "grateful for the government's most recent offer" and asked how it would be delivered.

That was never worked out.

Ultimately, Rio Tinto did not take up the offer but it was not clear why not.

In April, the New Zealand Herald reported that OIA documents showed officials told the government it would have to use taxpayer money directly to cement a transmission deal quickly enough.

Officials had warned such a move could encourage other big industrial users to ask for similar favours.

In January, despite not getting the transmission deal, Rio Tinto nevertheless agreed to keep the smelter open until late 2024.

The basis for this was a sweetheart deal in January with State-owned Meridian for lower power bills, saving Rio Tinto more than $200m over four years.

But the negotiations over a transmission deal carried on anyway, despite the Meridian deal.

They had become particularly tense earlier, last November, when Barrios warned Robertson about "an urgent stability issue" the previous week that posed an "unacceptable risk to safe operation".

He blamed that on an exodus of expert staff because the plant's future was so uncertain.

NZAS now says that was a power stability issue that had "no potential or possible impact for the local community or environment" and that there was no current problem.

In March, the government pulled the plug on the talks, protesting that Rio Tinto was not being forthcoming over how big a clean-up might be needed.

The letters showed Robertson had pushed strongly for environmental commitments.

The final letter released under the OIA, of 31 March this year, is a conciliatory one.

In it, Rio Tinto's new global head of aluminium, Ivan Vella, who had just visited New Zealand and met iwi in Southland, told Robertson:

"I understand one of the first areas to improve is the provision of information and commitment on the management of spent cell lining, the nature and condition of the soil and groundwater on the site, and the related treatment of the landfill."

Vella stopped short of saying Rio Tinto would excavate the landfill.

It has toxic waste in it and is threatened by coastal erosion and sea level rise.

The company committed to monitoring, maintenance and management of any waste or contamination left behind.

It promised to remove more than 200,000 tonnes of toxic spent cell liner waste, stored separately from the landfill - though in December it told Robertson it needed government help in finding to find somewhere in New Zealand to remove and process the waste.

Robertson had previously said the smelter enjoyed "a fairly generous package" of cheap power from Meridian and $48m a year in subsidies from the emissions trading scheme - and had been in line to save $10m on lines charges under a review of the country's electricity transmission pricing methodology.

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