Govt went against advice on Tiwai Point

  • 12/09/2013

The Finance Minister has defended the $30 million the Government paid to Rio Tinto to keep the Tiwai Point smelter open.

Bill English says it was "worthwhile" to achieve certainty in the electricity market, support jobs in Southland and make the Meridian float "more viable".

The comments follow official Treasury documents which reveal the Government went against Treasury's advice to not subsidise the company to keep the smelter open.

Last month the Government announced it struck a deal with New Zealand Aluminium Smelter (NZAS), a subsidiary of Rio Tinto, paying $30 million to keep the Invercargill plant open until at least 2017.

A document dump, released today, shows Treasury advised against making the payment because it would "result in a significant transfer of value from New Zealanders to Pacific Aluminium and Rio Tinto shareholders".

It initially advised the Government to stay out of negotiations to allow Meridian to make a commercial decision, and explained what Rio Tinto's bargaining approach would be.

Guaranteeing jobs at the smelter was not tied to the payment because the Government "didn't want to run the company," Mr English says.

"The smelter needs the flexibility to change the way it works so that it can ensure its longer term survival. We felt it was better to do that than the Government to tie them up in requirements about jobs."

Govt 'desperate' to get Meridian sold - Opposition

Opposition parties say the deal shows how "desperate" the Government was to sort out the issue before selling Meridian Energy later this year.

Labour's state-owned enterprises spokesperson Clayton Cosgrove says the subsidy was "short-term thinking and rushed job".

"This is corporate welfare pure and simple and desperation to get their assets sold, no matter what the cost."

Treasury documents also say the potential impacts on the Government's asset sales, which include Meridian Energy, were "clearly significant".

"The sale proceeds for the Crown would be lower than previously estimated, but this would genuinely reflect the fact that the companies were worth less due to significant change in market conditions."

If the offer had been rejected, the sale of Meridian could still go ahead, but proceeds will be "significantly reduced", Treasury says.

The documents also outline a phone conversation Mr English had with Pacific Aluminium chief financial officer Phil Baker in which a take-it-or-leave-it offer was made.

Mr English proposed the one-off lump sum of $30m to be paid by the Crown which was on the table until July 19, 2013.

The money would be paid to NZAS if they signed off on Meridian Energy's proposal around electricity pricing and transmission charges.

Green Party energy spokesman Gareth Hughes says the Government's obsession with selling assets gave Rio Tinto a huge amount of bargaining power.

"[It] ultimately resulted in phones calls from the Prime Minister and Finance Minister offering Rio Tinto $30 million of public money to play nice.

"This is no way for a responsible government to administer the public’s money. There should have been a robust and transparent process, not a political deal done over the phone."

An independent assessment is needed of the value of the smelter against the value of lower electricity prices to the country, he says.

Treasury says there would be both negative and positive economic effects if the smelter closed.

An additional 12 percent of electricity would be released to the national market, resulting in lower prices, but around $200m would be needed to upgrade the national transmission grid to move it around the country.

The short-term negative effects on the Southland economy could be significant, as the smelter's roughly 1000 employees account for 1.5 percent of the regional labour force and spend about $60m with local suppliers.

3 News/ NZN

source: newshub archive