The Government has opened discussions with Tiwai Point aluminium smelter's ultimate owners Rio Tinto in a bid to broker a deal after talks between the smelter and Meridian Energy reportedly broke down.

State Owned Enterprises Minster Tony Ryall who is spearheading the Government's partial asset sales policy which is now underway with the sale of Mighty River Power announced the move this morning.

Should the smelter - which uses one seventh of New Zealand's electricity output - close wholesale power prices are likely to fall, affecting the earnings potential of all power companies including Mighty River.

Ryall noted this morning comments by Meridian Energy's chief executive Mark Binns that after nine months of negotiations with Pacific Aluminium "there remains a major gap between us on number of issues, such that we believe that it is unlikely a new agreement can be reached".


Ryall said the two companies' positions "are reasonably close in terms of the short to medium term electricity price, but they remain well apart in the longer term.

"With this in mind, the Government has been in contact with Pacific Aluminium's international parent company Rio Tinto this week to discuss helping to bridge the gap in their positions over the short to medium term, if this could be of assistance in concluding an agreement.

"In the meantime, we understand Meridian's existing contract with Pacific Aluminium remains in place at least until 1 January 2016 with significant financial and other obligations beyond that."

Ryall added that "all relevant information - including about the smelter electricity contract - will be reflected in the Mighty River Power offer document which is currently being finalised".

Labour Leader David Shearer said this morning's developments meant the National Government "must pull the plug on the Mighty River Power sale with massive uncertainty now surrounding Meridian's supply deal with Rio Tinto".

"The electricity market has been thrown into upheaval by Meridian's statement today" he said.

"If Mighty River Power is sold in May it risks turning into a fire sale with investors likely to demand a risk premium."

"There is simply no way that the Government should sell a major electricity supplier like Mighty River Power in the midst of such turmoil. The Government has been gung- ho in pushing the sales but has refused to acknowledge the risks with Tiwai Point. National must tell the public what's going on before asking them to buy shares in the electricity market."

Labour's SOE spokesman Clayton Cosgrove said Prime Minister John Key "must put aside his pride and vanity and cancel the sale. There's too much at risk".