The Government's $30 million subsidy to keep the Tiwai Pt aluminium smelter open removes a major perceived impediment to the successful part-sale of Meridian Energy. On no other ground, however, does it come close to passing muster. A short-term political focus has trumped clear-eyed analysis and produced a largely worthless reprieve for the struggling operation. The taxpayer-funded windfall for the Rio Tinto subsidiary that runs the smelter is money which need not and should not have been spent.
For decades, this country has given successive smelter operators extremely good deals. There is now, however, no need to bow to their every demand. Meridian, which supplies Manapouri power to the smelter, could sell its electricity into the wholesale market for as much, if not more, than it can get under any conceivable deal with New Zealand Aluminium Smelters. In purely commercial terms, it would not concern the power company unduly if the smelter were shut down. It, therefore, approached the renegotiation of the electricity supply contract from a position of some strength.
Government intervention effectively undermined that. Meridian will now charge a lower price for electricity supplied to the smelter. Additionally, there is the Government's $30 million, which it says is the price that had to be paid to provide "greater certainty" for the smelter workers, the Southland region and the electricity industry. In each case, it does nothing of the sort. New Zealand Aluminium Smelters will be able to terminate the contract from January 2017 provided it gives 15 months' notice. In effect, the earliest closure date for the smelter has been moved back just one year. It would have taken a longer-term deal to offer anything approaching greater job security for its workers.
Similarly, the deal does little for Southland. It should already be thinking beyond the smelter. It should also recognise that, the employment of 800 workers notwithstanding, Tiwai Pt has provided only limited economic benefit. The region's recent wellbeing has rested far more on an upswing in dairying. This deal offers only a little more time for Southland to set the foundations for a probable post-smelter economy.
The new contract led, predictably, to a jump in the share price of listed power companies Contact Energy and Mighty River Power. The threat to their profitability posed by the arrival of low-cost Manapouri power formerly used at Tiwai Pt has been temporarily removed. But, again, the 2017 termination clause simply postpones that probable reality and decisions that will have to be taken, not least over the future of some of the country's more inefficient power stations, such as that at Huntly.
The only certainty is that the part-sale of Meridian, scheduled for later this year, will not have the immediate future of Tiwai Pt hanging over it. This factor undoubtedly led some experienced investors to steer clear of the Mighty River float in May. Others may have been deterred by the plan of Labour and the Greens to set up a single buyer for all electricity generation. Nonetheless, Mighty River shares were finally issued to 113,000 applicants at a mid-range figure of $2.50. That suggests the Government's part-sale of power company assets would not have been fatally compromised if a deal with New Zealand Aluminium Smelters had not been struck.
It may well recoup the $30 million and more through a more successful part-sale of Meridian shares. But that hardly excuses an abject piece of shortsighted thinking. In this day and age, the subsidising of failing industries can only be seen as antediluvian. When times are tight and millions of dollars are essentially squandered, the offence is all the greater.