Smelter closure 'won't end power shortages'

Smelter closure 'won't end power shortages'

By Marat Steeman, Dominion Post (New Zealand)

19 February 2004

A view that New Zealand would have no power shortages if the Tiwai Point aluminium smelter was not using 15 per cent of all electricity has been rejected by its owner Comalco as "short-sighted".

New Zealand's biggest energy user, the New Zealand Aluminium Smelter, 79 per cent owned by Comalco, will be fighting next year to rein in a substantial increase in its power bill when its negotiates a new power supply contract with Meridian Energy for the 10 years from 2012.

A media report this week suggesting a government agency's cost- benefit analysis on the smelter showed a negative contribution to the economy indicates the rhetoric before the negotiations has already started.

A spokesman for Energy Minister Pete Hodgson said the minister had been told no one in the Economic Development Ministry or the Treasury was aware of any cost-benefit study.

Brisbane-based Comalco chief financial officer John Strachan said yesterday that a suggestion New Zealand electricity shortages would disappear if the smelter was not operating was "a short-term solution".

"Any economy needs business to provide income and export revenue for balancing the books, so we argue that would be a short-sighted approach to the power situation in your country.

"And you'd find many people in Southland would be out of work," Mr Strachan said.

The smelter employs 960 full-time equivalent staff. Its exports of aluminium were $1 billion last year.

The amount of electricity it uses each day would provide power for about 700,000 homes.

"We still remain very committed to the investment in New Zealand," Mr Strachan said.

"But we are hurting through power prices and exchange rates."

However, he was hopeful of being able to influence policy to create a more transparent and better functioning market place with price determination.

Stronger regulation through the new Electricity Commission was a good step.

Last year Comalco NZ director Barbara Elliston said a move to generating power using liquefied natural gas could see Comalco quit New Zealand because the cost of electricity would be too high.

The smelter buys about 10 per cent of its power on the wholesale spot market and 90 per cent under long-term take or pay contracts with Meridian Energy.

The price for the 90 per cent was recalculated yearly and was linked to the movement in the spot price.

Mr Strachan said that in the past three years its power price had increased 50 per cent.

"So we are exposed to the spot price quite significantly in all of our power pricing."

Comalco would contribute $3.65 billion to the New Zealand economy from its start in 1971 to the end of its present power contract in 2012, he said. That included salaries, taxes and buying goods and services.