Rio Tinto rejects govt subsidy offer

In talks over Easter, Rio Tinto rejected the government's offer to temporarily subsidise the electricity used by the Tiwai Point aluminium smelter, Prime Minister John Key said this morning.

Mr Key told TV3's Firstline his government's short term offer was "in the millions, not hundreds of millions."

"We thought well look, we'll get criticised if we do something, we'll get criticised if we don't, but in the end we made the call that we would look to help bridge a small amount of that gap for a short period of time, so we put that on the table," the Prime Minister said.

"They came back over the weekend and said, 'No, we're rejecting the government's intervention, we'll go back to continuing to talk to Meridian,' so that's what they are doing."

If no deal is reached, Mr Key told the programme, the current contract would see the smelter continue to operate for another three years, then wind down over a two-and-a-half-year period.

Labour SOE spokesman Clayton Cosgrove told RNZ Rio Tinto's "rejection" was merely a negotiating tactic.

Mr Cosgrove would not say if his party supported a bail out.

Mr Key told Firstline he was not convinced Rio Tinto would walk away, but admitted it was a possibility.

"Sure it might be losing a bit of money at the moment, but actually it's made a hell of a lot of money in the past, so I'm not as nearly as convinced as others might be that they necessarily will walk away, but they certainly could walk away," the Prime Minister said.

"What makes it challenging is neither us nor Meridian want to do a long-term deal."

Mr Cosgrove - and Green leader Russel Norman - allege Rio Tinto has the government "over a barrel."

The Australian conglomerate waited until the Meridian partial privatisation had been green lit "then sprung it's trap," Mr Cosgrove claimed this morning. The government was loathe for talks to collapse, given the closure of Tiwai Point - which accounts for around 15% of New Zealand's electricity usage - would depress power prices ahead of the four power company IPOs, the Labour MP says.

This morning, Mr Key said there were a number of factors involved, including the cost of unemployment benefits if Tiwai Point closed.

The smelter employs around 750 Southlanders directly, and around 3000 indirectly rely on it for their livelihood.