Asset sales not impacting on Rio Tinto negotiations - PM

Rio Tinto's Tiwai Point uses one seventh of New Zealand's electricity output. Photo / Supplied

Prime Minister John Key has dismissed suggestions his Government's asset sales programme means it is hostage to Rio Tinto, as the international mining giant seeks a better deal on power prices for its Tiwai Point aluminium smelter.

Mr Key this morning revealed the Anglo Australian mining giant, which owns the smelter through its Pacific Aluminium subsidiary, had rejected his Government's offer of a short-term subsidy on power prices it pays to Meridian Energy, the owner of the Manapouri hydro system.

That sparked criticism from Labour Leader David Shearer who said the Government was warned months ago about the looming problems with Rio Tinto and Tiwai Point.

"They were told to sort the issue out before putting Mighty River Power on the market. They ignored those warnings and charged ahead to sell the assets.

"Rio Tinto simply waited and now holds all the cards in its negotiation. The National Government is desperate to sort out the mess and is all over the place.''

Mr Shearer said the Government "can't just walk away'' from the affair now.

But Mr Key told reporters this afternoon that Labour was saying his Government "should be held hostage to Rio so that they can force the best deal out of us because we're somehow worried about the mixed ownership model programme''. (MOM)

"Well that's not true. This has got nothing to do with the MOM programme. In Australia they don't have a MOM programme going and yet they've been negotiating successfully, I might add, with five different smelters.''

Mr Key said the offer of a short-term subsidy was driven by his Government's belief there was some benefit in an "orderly transfer'' if the smelter was closed down ``but we're not interested in a long-term subsidy like the Australian Government''.

He said the possibility of the smelter closing down needed to be, and would be, disclosed in offer documents issued for the asset sales programme. That would allow analysts and investors to factor that into their investment decisions.

Even if Meridian and Rio Tinto could not reach an agreement over power prices there was effectively a five year wind-down period before the smelter could be closed completely, and so there would be little effect on Mighty River's share price, he said.

Mr Key felt the closure of the smelter, which uses 15 per cent of New Zealand's power, was not necessarily a bad thing for the economy.

"Over the long run it's quite possible that that power could be used by new ventures'', he said.

It would also allow for the closure of less productive and more expensive power stations, "or it would allow New Zealand not to build as much new generation as might be required''.