Key ignored advice over smelter deal: Treasury

John Key. Photo / APN

Prime Minister John Key was on the phone to Pacific Aluminium boss Sandeep Biswas offering him millions of taxpayer dollars to keep the Tiwai Point smelter open, just two days after his ministers largely discarded the idea, Treasury documents show.

The documents released yesterday show Mr Key picked up the phone after Mr Biswas wrote to him seeking "Government involvement", despite Treasury's warnings not to get involved.

The papers detail year-long negotiations between Meridian Energy and Pacific Aluminium over the price of electricity which ended last month when the Government made a $30 million payment to the smelting company.

While Pacific Aluminium - which is largely owned by mining giant Rio Tinto - threatened to close the smelter if it didn't get a lower power price, Treasury repeatedly warned the Government that a direct subsidy to the smelter was not in New Zealand's economic interest.

In March, when Meridian indicated it might leave the negotiations, Cabinet ministers Bill English, Steven Joyce and Tony Ryall agreed they were unlikely to consider direct assistance to the smelter.

The same day, Mr Biswas wrote to Mr Key asking him to do "everything in his power" to get Meridian back to the negotiating table, and asking to talk with him.

Two days later Mr Key called Mr Biswas and offered him payments worth about $30 million over six years.

Pacific Aluminium rejected the deal at the time but in July, as negotiations ground on and the partial sale of Meridian loomed, Treasury said that given the "significant transition costs in the event of a shut-down scenario ... a short-term subsidy might be justified if this provided certainty".

A new offer of a one-off payment of $30 million was made by Mr English and accepted by Pacific Aluminium.

Mr English yesterday said: "In the end we made the judgement that relative to supporting the jobs in Southland, certainty for the electricity market, and the upcoming Meridian float ... a one-off payment was worthwhile."

What they said

Treasury's advice to the Government:

July 12, 2012: Any request by Pacific Aluminium for Government assistance should be rejected, because it would result in a significant transfer of value from New Zealanders to Pacific Aluminium and Rio Tinto shareholders.

March 5: Our advice continues to be that Ministers should not intervene in this issue ... if Pacific Aluminium approach Ministers seeking support from the Crown to keep the smelter open ... Ministers should not agree.

July 9: There is no economic rationale for a long-term government subsidy for the Tiwai Point smelter.