New power deal lifts the threat of closure from Tiwai, but Government talks continue

The future of the Tiwai Point aluminium smelter, Southland's largest employer, has been guaranteed until at least the end of 2024. Photo / Mike Scott

Rio Tinto and the Government will continue to negotiate terms which could trade transmission relief for a plan to remediate the site of the Tiwai Point aluminium smelter, even after the mining giant extracted enough from its electricity provider to promise to stay open until at least the end of 2024.

For more than a year Rio Tinto has been using a strategic review and threat of closure to demand concessions both on electricity and transmission prices for the smelter.

But the future of Southland's largest employer - and New Zealand's largest electricity user - was secured after it announced a new power contract with Meridian Energy, which powers the smelter from the nearby Manapouri Power Station.

The deal was assisted by Contact Energy offering to provide more power to Meridian than the existing deal.

Both Meridian and Contact were exposed to significant revenue losses if Tiwai was to close abruptly, which could leave generation from the Manapouri station as well as Contact's generation on the Clutha River stranded in the South Island.

While Rio Tinto has already been offered enough of a concession to stay open - analysts speculated the savings could exceed $70 million a year - the Government said it would continue to negotiate over possible transmission relief in return for a plan over site remediation.

Finance Minister Grant Robertson said the Government did not have as much information about the site or what state it would be left in as it hoped.

"The level of information ... we have about the state of the site, the impact of the operations on the environment, we just don't have all the information that we want on that," Robertson said.

"We don't just want to rely on legal minimum" required for the clean-up, he said. "We may want to be significantly ahead of that."

Robertson said he expected negotiations between the Government and the mining company would be completed "in a small number of months".

Stew Hamilton, chief executive of New Zealand Aluminium Smelters, warned in 2019 that the smelter needed "tens of millions" of annual relief from the cost of both electricity and transmission to extend the life of the smelter.

While he acknowledged that the savings in the latest electricity agreement provided enough for the smelter to commit to staying open, the agreement left Rio Tinto with the option to reduce its operation from three to two potlines. Negotiations over transmission could potentially see production from three potlines guaranteed until 2024, Hamilton said.

In mid-2020 Rio Tinto announced plans to close Tiwai Point in August. While Rio Tinto is now undertaking a three-year study on how to close the smelter, Hamilton said the new deal was only about operation, not signalling a closure date.

"Today is about providing certainty for the operation. It's not what happens with closure, or extending that closure," Hamilton said on Thursday.

"For now all we know for certain is we're operating until the end of 2024," and beyond that there were a number of scenarios "that could include closure, that could include continuing beyond that also".

Meridian did not comment beyond announcing a deal, but Contact Energy chief executive Mike Fuge said the deal provided certainty for Southland, would allow the potential replacement industries which could follow the smelter to mature, and gave investors certainty of demand.

"This is great news for Southland and New Zealand, global carbon emissions, and Contact's shareholders."

While Contact's shares fell as much as 4 per cent on the announcement, Fuge said the news boosted the odds of the company pushing ahead with Tauhara, a possible geothermal plant near Taupo.

"I have my own passion around developing renewable energy. Investors are always a bit more gunshy … The more stable the investing environment, the more investors are willing to invest and the more they're willing to do it at lower rates of return."