Power crunch forces production cut

Aluminium producer Comalco had cut production and power usage to eke out depleted hydro-electricity lake supplies, Meridian Energy said yesterday.

Comalco, which consumes about 15 per cent of the country's total power supplies at its Tiwai Point smelter, has cut back production by 5 per cent and will reduce it by a further 6 per cent.

A mild and dry winter last year and limited rainfall since then has resulted in hydro-lake levels in the South Island falling to around two-thirds of average and wholesale prices spiralling higher.

"It'll spin out the water in the lakes and help make it go a little bit further," Meridian spokesman Alan Seay said.

Meridian, under its long-term supply contract with Comalco, has the right to require the aluminium producer to reduce production, but the two companies had negotiated the cut back.

"It is better to suffer some pain now than a great deal more pain later," Comalco managing director Tom Campbell said.

Comalco, 79 per cent owned by the world's second biggest miner Rio Tinto with the balance held by Japan's Sumitomo, produces about 350,000 tonnes of aluminium a year at the Tiwai Point smelter.

The company cut production in 2003 when hydro-lakes, which supply about 60 per cent of the country's power, fell to critically low levels.

State-owned Meridian generates about 30 per cent of New Zealand's electricity, much of it from South Island hydro-stations.

Seay said Meridian's contract with Comalco contained provisions to compensate it for costs incurred through power supply constraints, but declined to provide details.

Meridian has said low inflows into hydro-lakes may cause power shortages during the coming winter, unless it rains heavily in the catchment areas soon.

But the Electricity Commission, a Government agency which oversees the sector, has said the risk to supplies is not so serious. The commission can order that back-up thermal power stations be fired up so supplies are not disrupted.

- REUTERS