Treasury: Tiwai Point payment 'should be rejected'

The Tiwai smelter. Photo / Grant Bradley

Treasury advised the Government not to pay the owners of the Tiwai Point aluminium smelter to keep the business running during negotiations over power prices with Meridian Energy, documents released this afternoon show.

Early last month the Government made a one-off payment of $30 million to New Zealand Aluminium Smelters' owners to help secure a revised contract with Meridian "because of the importance of the smelter to the stability of the New Zealand electricity market" and "because it offers investors more certainty" ahead of the Government's sale of Meridian, Finance Minister Bill English said at the time.

But a year earlier Treasury advised ministers that any request for "Government assistance" from the smelters' owners "should be rejected, because it would result in a significant transfer of value from New Zealanders to Pacific Aluminium and Rio Tinto shareholders".

Details of the level of assistance suggested and the "value transfer from New Zealanders" per smelter employee were redacted from the document.

Despite Treasury's advice, the documents show Prime Minister John Key phoned the smelters' owners in March this year with offer of payments over six years as talks with Meridian stalled.

Treasury again advised in early July, "there is no economic rationale for a long term government subsidy for the Tiwai point smelter".

The Opposition seized on Treasury's comments with Labour's state owned enterprises spokesman Clayton Cosgrove saying the fact the Government ignored Treasury's advice showed it was "desperate to stitch up a deal with Rio Tinto over the Tiwai Point smelter before it sold Meridian".

Green Party energy spokesman Gareth Hughes said National's "asset sales obsession" gave Rio Tinto enormous bargaining power, "and ultimately resulted in phones calls from the Prime Minister and Finance Minister offering Rio Tinto $30 million of public money to play nice".

However, in the same document in which it warned against long terms subsidies, Treasury noted that given the "significant transition costs in the event of a shutdown scenario, especially to the Southland economy and the wider electricity market... a short term subsidy might be justified if this provided certainty".

Mr English today said the Government agreed with Treasury's advice not to get into a long term subsidy arrangement and he referred to its comments on a short term subsidy having some justification.

"In the end we made the judgement that relative to supporting the jobs in Southland, certainty for the electricity market, and the upcoming Meridian float we made the judgement that a one off payment was worthwhile.

The smelter uses 12 per cent of New Zealand's electricity production, and accounts for 40 per cent of Meridian's annual revenue. With 800 direct employees and about a further 2000 owing their jobs to the smelter indirectly, it is the largest employer in Southland.

Mr English said the payment of $30 million was a little less than what Mr Key had offered over six years and the deal was struck even after the smelters' owners sought twice as much.

Mr English also confirmed that during early stages of negotiations with Pacific Aluminium and Rio Tinto one of the options canvassed was for Meridian to buy the smelter, a possibility dismissed in the Treasury documents as "not feasible".

"Even if Meridian could buy the smelter for $1, it would not be sustainable as a stand-alone business, particularly when Pacific Aluminium owns the mines that supply the smelter", Treasury said.