Spotlight on Comalco smelter's economics

By COLIN JAMES

The Government is doing a cost-benefit study on the value of aluminium producer Comalco to the economy and, says a well-placed source, initial work has indicated the smelter's net contribution is negative.

Comalco adds about $500 million to the economy by processing bauxite from Queensland into aluminium, almost all for export.

But it consumes a huge quantity of electricity - about as much as Meridian Energy's proposed Project Aqua on the lower Waitaki river is projected to generate.

Comalco hinted last year that it might shut up shop if looming electricity supply negotiations result in it paying too high a price for its energy.

But some ministers have begun to ask whether that would necessarily be a bad thing. By releasing Comalco's electricity (produced by Meridian at Manapouri) into the market, prices could be kept lower than they would otherwise be for all other users, helping other firms to keep themselves more internationally competitive.

Alternatively, Project Aqua might be delayed. It has run into fierce opposition from conservationists, recreational fishers and farmers wanting the water for irrigation, drawing both from the lower Waitaki and from Lake Tekapo, which feeds the Waitaki and Meridian's series of hydroelectric plants.

The Government has legislation before the House to redraw the allocation of the Waitaki catchment water and will then decide resource consents for Project Aqua and its competitors. Comalco is not alone in the spotlight. Methanex uses large quantities of gas, which could otherwise be used to make electricity.

Some in the industry say the real electricity issue is not generating capacity but fuel for the generators - water, wind, gas and coal.

An alternative for Comalco might be to build a dedicated coal-fired plant. But the economics of that would partly depend on how the Government viewed it under its Kyoto policy.