Meridian 'has offered concessions' to Rio Tinto

Analysts say the owners of the Tiwai Point aluminium smelter are seeking around $50 million in annual relief from electricity and transmission prices. Photo / Supplied

Meridian had already offered an improved contract to the Tiwai Point aluminium smelter by the time Rio Tinto warned it was conducting a strategic review of its New Zealand business.

Documents released under the Official Information Act show Treasury told Energy and Resources Minister Megan Woods on October 11 that New Zealand Aluminium Smelters (NZAS) had already "received an offer" from Meridian and was now seeking to discuss "the Government's position" as it sought to negotiate lower electricity and transmission prices.

On October 23 Rio Tinto, which owns almost 80 per cent of NZAS (the company which owns the smelter) announced it was conducting a strategic review of its New Zealand operations, which could see the smelter closed.

The smelter receives its power from the nearby Manapōuri Power Station, which is owned by Meridian.

While parts of the Treasury briefing have not been released, officials hinted that Meridian offered improved terms to Rio Tinto, but that it was not enough for the Australian mining giant.

"NZAS has indicated that the deal offered to them by Meridian Energy at a meeting on Monday 7 October, would still require NZAS to pay more than they would like."

In a statement, a spokeswoman for Meridian confirmed the company had made an improved offer to Rio Tinto.

"We have already offered some concessions to the existing contract. Any more detail than this information is commercially sensitive."

On the day Rio Tinto announced the review, Meridian chief executive Neal Barclay told investors that the smelter already received "the lowest electricity price in the country, but they've been very clear that they're looking for a price that's significantly lower again".

NZAS general manager Stew Hamilton told the Herald that the company was seeking "tens of millions" of dollars a year in annual savings on both electricity costs and transmission charges.

News of the strategic review sent shares in New Zealand's listed electricity companies sharply lower.

Although Meridian is the largest electricity generator in New Zealand, the bulk of its assets are in the lower South Island.

Treasury's advice to Woods warned that as well as causing sharply lower wholesale electricity prices in the lower South Island, transmission constraints meant that some South Island generation could be spilled for several years if Tiwai closed.

On Friday John Kidd, an energy analyst at Enerlytica, told clients that NZAS was "said to be pitching for" relief worth around $50m a year. Kidd speculated that NZAS was "likely to get" a "material reduction" in the price it was paying for electricity, because of the pressure on Meridian and Contact Energy, which both have significant generation in the lower South Island.