Meridian waits on next move

Future of Tiwai Pt smelter on the line as power generator chief sees no signs that talks can result in a deal.

Prospects of keeping the Tiwai Pt aluminium smelter open in the long-term are grim, with Meridian Energy saying it is still in the dark over what is needed to break the deadlock with resource giant Rio Tinto.

Rio subsidiary Pacific Aluminium and Meridian are back talking about power prices after the Government's direct offer of a short-term bridging deal was spurned over Easter.

Labour says the sale of fellow state-owned enterprise Mighty River Power should be stopped as there was now too much uncertainty about the electricity market given the outlook for the smelter - New Zealand's biggest single user.

Prime Minister John Key indicated yesterday the smelter could wind down over five years and Meridian's chief executive Mark Binns said that although he hoped it would stay open, if it didn't, he wanted Rio Tinto to honour "ramp down" commitments which kick in around 2016.

A spokesman for Pacific Aluminium yesterday said its position remained as it was last week.

"We are of the view that a commercial agreement can be reached. Our electricity contract negotiations with Meridian have progressed more in the past two weeks than in the previous nine months."

But Binns said he saw no signs that talks - which are snagged on price and other conditions - could result in a deal.

Yesterday morning he had requested from Pacific Aluminium details of where the gap could be bridged.

Binns said he hadn't heard anything back from Pacific Aluminium by late yesterday.

While the Government had previously been hands-off given Meridian's commercial imperatives, it stepped in before Easter given the wider social and economic considerations.

"They've seen it as a commercial issue [previously] and let us get on and resolve it and we're back to that point now which is good and the negotiating table isn't more crowded than it needs to be."

Rio Tinto is a member of the Major Electricity Users Group, whose executive director Ralph Matthes said the company was "doing its own thing as any Meug member should".

The association was wary of subsidy agreements although short-term bridging deals - as the Government was offering - were suitable in some cases.

Prospects of a glut of power leading to a long-term drop in prices are seen as unlikely in spite of Electricity Authority figures which show prices for long-dated electricity futures fell an "unprecedented" 20 per cent in the second half of last year.

Genesis is already mothballing expensive coal burning units from its Huntly station. Contact said it would rebalance its thermal plant where required.

Matthes said the market would find its own point of equilibrium.

The smelter has enjoyed 40 years of cheap power but Rio Tinto has been hit by the global economic slowdown, which has led to a slump in aluminium prices.

But Morningstar research released yesterday said prices should revert to the longer term spot average of US$450 ($535) per tonne, 40 per cent above what one producer averaged last year.

Transpower has reiterated it could transmit any surplus power from Southland, although a grid upgrade would cost up to $130 million.

It could upgrade its lower South Island network to feed the rest of the country within three years by finishing an upgrade to re-route power north to a much improved national grid.