30 June 2015

Tiwai Point Aluminium Smelter electricity contract deadline expires on Wednesday

Wednesday is D-day for New Zealand Aluminium Smelters (NZAS), when bosses must make a decision about the Southland plant’s electricity contact.

Under a contract with Meridian Energy, NZAS has the option to terminate its power deal on Wednesday with effect from January 1, 2017, or to reduce the contract volume to 400MW by January 1, 2017.

Aluminium prices have fallen from more than US$2000 (NZ$2926) a tonne late last year to about US$1700 last month, around one- year lows.

NZAS are remaining tight-lipped about any decision about the power supply contract that could see it close.

Industry analysts are unsure as to what the outcome could be.

A closure scenario looked unlikely because it would mean site remediation costs of about $500 million.

Analysts believed it was probable that the smelter would cut its Meridian contract and try to get a deal on the extra 172MW from another company.

Possible changes to electricity transmission pricing could see transmission costs fall by $50m a year for the Tiwai Pt smelter, which analysts said would mean the smelter was more likely to stay open.

NZAS chief executive Gretta Stephens said NZAS would issue a statement when the decision was made.

Last month she said NZAS was committed to working as hard as it could to ensure it continued to operate at 572 MW and remained a key sustaining element in the New Zealand economy.

Meridian chief executive Mark Binns said he was not in a position to comment until late Wednesday afternoon when the deadline expired.

A negative outcome could have repercussions for the energy market and the economy.

NZAS contributes $525m to the Southland economy - over a tenth of Southland’s GDP - and employs the equivalent of 3200 full-time workers at its facility near Invercargill, the company says on its website.