John Roughan 's Opinion

John Roughan is an editorial writer and columnist for the New Zealand Herald.

John Roughan: Perfect chance to can Tiwai

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If smelter can't pay fair price for its power, Govt should let it die

Tiwai Smelter may have slowed Invercargill's decline but there are few signs it has otherwise enriched it.
Tiwai Smelter may have slowed Invercargill's decline but there are few signs it has otherwise enriched it.

My heart sank at the news the Government is taking over negotiations on the price of power supplied to Southland's aluminium smelter and will subsidise that relic of "regional development".

No region is closer to my heart. Born in Bluff, nurtured in country school houses, I was uprooted at age 10 and those roots have never gripped any soil as firmly again. But the smelter has not done much for its development.

Southland today is visibly prospering on green grass, dairy farming and other primary industries. A vast shining Fonterra plant stands at Edendale where we kids used to wonder whether our 1955 Ford Consul would make it to the top of the hill.

The Tuturau farm where I nearly came to grief on a horse now has its own little cheese factory and showroom in the front paddock. The primary school has outgrown the site where Dad had a roll of 36.

But Invercargill looks less prosperous than it did when we left the province in 1962. If the jobs at nearby Tiwai Pt have slowed the town's decline, they have not visibly enriched it.

When Mayor Tim Shadbolt was promoting the region on National Radio some time ago he mentioned an impressive menu of products, starting with the oysters, and forgot the smelter. "Oh yes," he said when the host reminded him, "and the smelter".

It has given one or two of my relatives a lifetime of employment so I should be grateful to the National Government of the 1960s that decided it was a good idea to turn hydro electricity into aluminium ingots. It might have been a good idea if the price of electricity had been right - the price we have never been allowed to know.

The price of most things at that time was controlled or subsidised and nobody knew or cared that prices didn't align the item's cost of production to its value in a competitive market. The economy was a job-creation scheme that ended with double-digit unemployment in the 1970s.

It was then that governments everywhere learned elementary economics. They realised an economy was not a steam engine that you stoked with as much money, labour, land and fuel that you could lay your hands on. It was more like an automobile that operated best for those inside it when the engine was tuned with precision.

The best method of tuning it, economists said, was a market price. A price set by competition and consumer choice would give each cog in the engine as much fuel, capital, labour and other resources it could efficiently use, and tell you which industries would boost the country's wealth. Electricity was put in the hands of competing companies. The Manapouri hydro station, that sends all its power to the smelter, was given to Meridian Energy, which appears to have made an attempt to charge an economic price for it.

Pacific Aluminium, a subsidiary of Rio Tinto, has said the price is "linked" to the wholesale market, and we also know the price now fluctuates with the international price of aluminium. But recent events speak for themselves.

Pacific Aluminium asked Meridian to renegotiate a price that was set just before the world economy went sour in 2007 and demand for aluminium dropped. Meridian agreed to a lower price until 2016 but would not commit to a lower price beyond that.

Last week the Government intervened. Some of your taxes and mine are going to be promised to a global mining conglomerate that wants to sell its New Zealand smelter but cannot find a buyer.

The Government could not have better demonstrated the pitfalls of public ownership if it had tried. The national interest was much better served by Meridian's commercial judgment than it will be by the Government's political concerns.

One of those concerns is the imminent float of Mighty River Power if Rio Tinto decides to close the smelter in 2016, leaving 14 per cent of the country's electricity output looking for another use.

Power prices would drop, as they should, as would power company share prices, and they should too. That would be a loss to the taxpayer but a gain for the national economy, not for Rio Tinto. If the smelter cannot pay a competitive rate for all that power, the economy needs to release the resource for industries that can.

The Government's other concern will be jobs, though that did not save uneconomic jobs at Dunedin's railway workshops or Solid Energy's West Coast mine. Southland is National country, Dunedin and Westland are not.

Consistency is essential to political credibility. The Government might one day look back on this decision as the beginning of its end.

The smelter, even with its help, might not last much longer. Tiwai is a monument to another time. Let it go.

- NZ Herald

John Roughan

John Roughan is an editorial writer and columnist for the New Zealand Herald.

John Roughan is an editorial writer and columnist for the New Zealand Herald. A graduate of Canterbury University with a degree in history and a diploma in journalism, he started his career on the Auckland Star, travelled and worked on newspapers in Japan and Britain before returning to New Zealand where he joined the Herald in 1981. He was posted to the Parliamentary Press Gallery in 1983, took a keen interest in the economic reform programme and has been a full time commentator for the Herald since 1986. He became the paper's senior editorial writer in 1988 and has been writing a weekly column under his own name since 1996. His interests range from the economy, public policy and politics to the more serious issues of life.

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