Smelter talks 'not broken'

Meridian Energy chief executive Mark Binns. Photo / Supplied

Meridian boss won't be drawn on theory that rumours of collapse a tactical political ploy

Reports that Meridian Energy walked away from talks with the owners of the Tiwai Pt aluminum smelter last week are simply false, says its chief executive Mark Binns.

"They [Rio Tinto] weren't even in town. The last time we saw them was three weeks ago. The talks have not broken down," Binns said.

He would not be drawn on speculation that rumours they had collapsed, spreading alarm among the smelter's workforce and the wider Southland community, were a tactical political ploy to put a crowbar into the gap between Meridian's interests and those of its owner, the Government.

The Government also owns Genesis Energy, whose largest plant at Huntly might become redundant if the smelter were to disappear from the demand side of the electricity market, and Solid Energy which supplies it with coal.

The Government also owns Mighty River Power, and its plans to partially sell it in the June quarter next year are not helped by ongoing uncertainty over the future of the electricity sector.

Binns said Meridian's preference was for the smelter to remain in operation. But the contract with the smelter's owners had been negotiated in good faith, he said, and if there was any disparity in market power between the parties it was Meridian which was the minnow compared with one of the world's largest mining groups.

The deal, under which Meridian bears some of the metal price risk, was struck in 2007 at the height of the aluminium price cycle and coincided with Rio's disastrous acquisition of Alcan.

Aluminium prices jumped 11 per cent on the London Metals Exchange last month. Whether that might be a straw in the wind or a mere blip, triggered perhaps by quantitative easing, is not a question on which Binns has a view.

Meridian is continuing to model alternative scenarios about what the electricity market would look like without the smelter, which accounts for 14 per cent of consumption.

Manapouri's electricity is the cheapest in the country to produce, Binns said.

And upgrades to the national grid, including the Pole 3 interisland link due to be completed next year, meant it would not be a stranded asset.

He said the grid upgrades, coupled with changes to transmission pricing rules the Electricity Authority is proposing, were bringing the country closer to a single national market for electricity.