Comalco could quit over Kyoto

Comalco says the Government's Kyoto protocol carbon tax could add about $60 million a year to its costs, possibly forcing it out of New Zealand.

Comalco, which controls New Zealand Aluminium Smelters' Tiwai Point smelter near Bluff, uses about 15 per cent of New Zealand's electricity production and earns about $900 million a year in export receipts.

But Comalco NZ managing director Tom Campbell said Comalco would be directly exposed to the carbon tax through its smelter emissions and indirectly through electricity prices. It could cost Comalco tens of millions of dollars.

"That would be more than we could afford."

Indications are the carbon tax, due to come into effect in 2007, will be levied at about $25 a tonne.

"If we are paying at that level, direct emissions could cost us about $20 million a year," Campbell said.

The effects of the tax on New Zealand's already relatively high electricity prices was "unknowable".

"If you had a reasonable stab, it would be probably twice as much again."

The smelter was built in 1971 and is considered middle-aged in the industry. Since 1990, NZAS has increased aluminium production by 26 per cent to 334,400 tonnes a year.

It is 17th-largest smelter in the world.

At 99.8 percent pure, NZAS produces the highest purity aluminium in the world, much of it destined for electronic components and capacitors.

Comalco is in the process of negotiating a negotiated greenhouse agreement with the Government which would give it some exemption from direct carbon taxes in return for adopting environmental best international practice.

However, the greenhouse agreements the Government is negotiating, or has put in place, with companies such as New Zealand Refining, are only valid until 2012.

Campbell said for the capital intensive aluminium smelting industry the uncertainty over what would happen over carbon taxes limited its ability to continue investment.

Comalco was re-negotiating its electricity supply contract with Meridian.

Last year, because of supply problems in the wholesale electricity market, NZAS decided it would shift from a strategy of increasing production to one of increasing energy efficiency.

Meridian's generation was from renewable sources so the carbon tax "ought not to have any bearing on that", Campbell said.

Comalco was now paying more for power in New Zealand than in Australia or Britain.

About 90 per cent of its annual consumption was under a long-term "take or pay" agreement which has escalation clauses, and the other 10 per cent is bought on the spot market.

- NZPA