EXCLUSIVE: Meridian in the dark on govt smelter intervention - what's at stake

Meridian Energy chief executive Mark Binns says he has not been involved in discussions between the Bluff smelter owner Rio Tinto and the government over plans to keep the smelter open at least in the short term.

"I don't know what has actually been stated by the government in any discussions they have had with Pacific Aluminium (the Rio subsidiary that controls the smelter) because I haven't been involved," Mr Binns says in an NBR ONLINE interview.

"But I have been told they are occurring."

"They have gone to the government and explained their position and asked if they can do anything. I have not been party to those discussions.

"If it means the government is prepared to assist them with short term pricing, that's nice for Pacific Aluminium, but there's still a significant value gap in terms of the longer term," Mr Binns says.

The impasse threatens either to derail or devalue the government's plan to partially privatise Mighty River Power next month, since the smelter contracts account for around one-seventh of national electricity consumption. 

Without an orderly closure that gave the rest of the electricity industry time to adjust, there could be a huge overhang of surplus power in the system, which could in turn collapse electricity prices, making the outlook for MRP's near term earnings much weaker than at present.

Meridian signed a new contract with New Zealand Aluminium Smelters for up to 18 years' supply in 2007, effective from January 1 this year.

However, Rio sought a renegotiation last year at roughly the same time as it bundled several older Australasian smelters into a new subsidiary, called Pacific Aluminium, which it has packaged for sale to trade buyers or possibly a public share float.

It has engaged in similar negotiation tactics with Australian state governments, which have generally agreed to assist in keeping smelters open, but the New Zealand government had insisted the issue was for commercial negotiation with Meridian until this week.

State-Owned Enterprises Minister Tony Ryall changed all that this morning, saying the government had been in touch with Rio earlier this week to see how it could help to "bridge the gap" between the two parties.

Mr Ryall says Rio and Meridian were reasonably close to agreement on short to medium term pricing but were some distance apart on the longer term.

Mr Binns also took issue with Pacific Aluminium's claim this morning that, unlike Meridian, it still regarded a new long-term power contract as possible.

"Despite the rhetoric, we haven't seen anything of substance come across from Pacific Aluminium," Mr Binns says.

"The gap between us is very, very significant and we've said 'look, this is our bottom line and we can't go any further'. It is very, very significant money and we can only go so far."

At the time the negotiations were first mooted, Mr Binns said Meridian would not "take one for the team" by re-signing on uncommercial terms just to keep the smelter open.

However, the current impasse did not mean negotiations were necessarily at an end, he says.

"We're prepared to talk any time they want. It just looks bloody hard.  The company and the directors felt we had to make a statement."